India 2022-23 Budget: Climate Change

Aditi Sinha, March 8, 2022

India had, at COP26, declared to the world its strong commitments to attain net zero status by 2070. The target is opined to be ambitious by most, as the third largest carbon dioxide emitter globally has a steep path to traverse in order to materialise this strong projected ambition. India’s pledge is entwined with its aspirations of a robust 2030 GDP, projected to be between $8.5 trillion and $10 trillion. The foundation for this target was laid in the robust and thematic address of this year’s Union Budget, presented by the Finance Minister, Ms. Nirmala Sitharaman, as a part of the 25-year lead-up to India’s 100-year independence.

Unlike the previous Union Budgets presented in the last three years that have been only acknowledging the risks posed by climate change to India’s macroeconomic stability, the current Budget took up the issues of sustainability and climate change seriously.

The Union Budget 2022-23 underpinned climate action among the four priority areas of the government along with the PMs Gati Shakti program of inclusive development and energy transition. By including clean energy and electric mobility in the list of sunrise sectors, the Budget has tried to send an important signal to investors, financial institutions and the workforce alike. The announcements pave the way for the reduction of carbon intensity in the economy and our strong commitment towards net zero.

The terms “Environment”, “Energy Transition” and “Climate Action”  were mentioned by the honourable Finance minister in the context of the business and education sector, giving a clear signal that the government was committed to fulfilling its commitments both to the Paris agreement and COP26.

Need for Low-Carbon and Climate-Resilient Development

The government has shown its intent to outpace fossil fuel-based power generation by increasing the outlays and introducing provisions to strengthen the demand and supply side of the clean energy transition.

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.

The allocation for Central schemes of the Ministry of New and Renewable Energy  was increased by 16.8% compared to the Budget Estimates of last year, and the intra- and extra-budgetary resources support of the ministry’s primary arm Indian Renewable Energy Development Agency was increased threefold.

The Budget also gave a concerted push to facilitate domestic manufacturing of 280 GW of installed solar capacity by 2030 by allocating an additional Rs 19,500 crores to the production linked incentive with a priority to fully integrate manufacturing units to Solar Photovoltaic modules. However, the uptake of the scheme by the investor community remains a question.

The revised estimates of spending on the Faster Adoption and Manufacturing of Electric Vehicle, 2015, scheme was increased by Rs 800 crore to Rs 2,908 crore. The battery swapping policy with interoperability standards announced in the Budget will further promote the thriving ecosystem for the electric and hybrid vehicles market.

On the energy efficiency front, the 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.

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, Rs. 2,217 crore have been earmarked for 42 urban centres with a million-plus population.

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 makes little reference to green hydrogen, but the newly announced green hydrogen policy puts in place a good foundation for developing a competitive green hydrogen sector.

The Union Budget 2022 might be touching a few right cords by incorporating the climate action and clean energy transition narrative, the key, however are the details. The allocation of Rs 19,500 crore for Production Linked Incentive (PLI) for manufacture of high-efficiency solar modules might seem like a welcome proposition. However, the recently announced increase in the goods and services tax (GST) for critical components of solar projects from 5% to 12%, seems to dampen the prospects of a solar-based future.

However, the budget’s professed climate gains may be squandered away due to the ecologically damaging proposals like river linking and highway expansion. The failure to allocate sufficient funding for biodiversity conservation and pollution abatement is a missed opportunity in the wake of COVID-19 recovery.

Aditi Sinha is Associate Director – Communications, Shakti Sustainable Energy Foundation.

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