Finance Minister Nirmala Sitharaman presented the Union Budget 2022-23, in which she announced a range of reforms and programmes in multiple sectors, including priority areas such as health, farming, manufacturing, and education. In a welcome move, climate action has been highlighted as one of the priority areas in the budget, along with inclusive development, energy transition, financing of investments, among others.
Climate change induced heat waves, hurricanes, droughts, and rising sea levels are already having a negative impact on the environment. Communities across the world have been affected, resulting in the loss of lives and a lower standard of living. According to Food and Agriculture Organization (FAO), the frequency and intensity of climate-related catastrophes has increased globally, resulting in $1.5 trillion in economic losses from 2003 to 2013. This indicates the importance of increasing public and private investment in climate adaptation measures, especially in developing countries like India that are highly vulnerable to climate change and its associated impacts.
Acknowledging that climate crisis is among the strongest negative externalities affecting India, the Finance Minister announced several measures to help the country transition to a low-carbon economy. The measures include an increased allocation of ₹19,500 crore for Production Linked Incentive (PLI) scheme for the domestic manufacturing of solar modules that will aid in the attainment of 280 GW of installed solar capacity by 2030. This is also envisaged to generate significant employment opportunities in the country.
The proposal to co-fire 5-7% biomass pellets in thermal power plants, will result in carbon dioxide reduction, besides providing a source of income to farmers and aiding in the reduction of stubble burning.
In a further impetus to the Electric Vehicles (EV) ecosystem, a battery swapping policy has been announced and the need for development of interoperability standards have been highlighted. The focus of the budget on urban planning, clean technology, and public transport, is a step in the right direction and will be instrumental in giving the much-needed boost to the EV industry in the country.
On the energy efficiency front, development of an Energy Service Company (ESCO) business model in large commercial buildings, capacity creation and awareness for energy audits, performance contracts, and a standard framework for measurement and verification process will be facilitated. This is expected to contribute to energy efficiency and saving measures, especially in commercial buildings.
As an indicator of the country’s seriousness towards climate action, sovereign green bonds have been announced under the government’s overall market borrowings in 2022-23. The bonds will be used to raise funds for environmentally friendly or climate-friendly infrastructure. The proceeds from the bonds will be used to fund public-sector projects that will reduce the economy’s carbon intensity.
The budget has also prioritised clean air in the environment sector, with goals across ministries and sectors, including the National Clean Air Program under the Ministry of Environment, Forest and Climate Change, as well as the ministries of Power, New and Renewable Energy, and Urban Affairs. To tackle air pollution, ₹2,217 crore have been earmarked for 42 urban centres with a million-plus population.
Although the budget addressed certain key aspects of climate change, given India’s previous stance on climate finance, more was expected at this point. To start with, building a framework for mainstreaming climate change in India’s budgeting and planning process as done by many other countries, would have been a perfect start to integration of development and economic statistics with Green metrics.
Along with this, there is an urgent need to shift the focus of stakeholders including private and impact investors towards adaptation projects. One way of doing so could have been through the development of a National Adaptation Investment Plan. Though this activity has not been initiated in the country as yet, it will be a good idea to do so at this stage. This plan will serve as a national portfolio of investment-ready adaptation investments for private sector and international climate funds. This will not only give a complete overview of priority sectors and funds available to the private sector, but will also allow the Government to systematically raise climate finance from the market. Carrying out such an activity will also contribute to private sector’s understanding of local adaptation needs.
As one of the pillars of climate finance, adaptation finance has a key role to play in helping developing countries scale up their climate change adaptation efforts. Although still at a nascent stage, the long-term benefits of adaptation finance far outweigh the issues and barriers associated with it. It is therefore imperative for governments to invest resources for identification of opportunities that would enhance stakeholders’ understanding of adaptation finance as well as increase investment in climate adaptation efforts
In Summary, through the voluntary vehicle scrapping policy, funds for tackling air pollution, battery swapping policy, allocation for waste management to reduce plastic waste, the Government has shown that climate change is an area of immediate priority for the nation. Even though the announcement on sovereign green bonds is a welcome step, it is imperative to define a structured framework for the realisation of its potential.
Sameer Jain is a Managing Director and Board member at Primus Partners.
Pooja is Vice President at Primus Partners and focuses on Impact, both Social and Climate.