The future must be green

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The future must be green

Thursday, 14 January 2021 | Dhruba Purkayastha

Our clean energy sector has been at the forefront of the country’s fight against climate change, but is currently faced with liquidity constraints

India’s energy sector is one of the fastest-growing in the world and has been attracting substantial investments. However, meeting the country’s climate goals requires an increase in proportionate and transformative investments at the sectoral level. Given the current rate of penetration and the overall health of the economy which is bogged down by the COVID-19 pandemic, it is essential to find new and alternative ways of financing the transition and incentivising private industries’ participation to scale-up investments in clean energy. This is because a huge corpus of funds is required for creating a sustainable impact in the field of green energy. Our clean energy sector has been at the forefront of the country’s fight against climate change but is currently faced with liquidity constraints and supply chain disruptions due to the ongoing contagion. Addressing the growing needs of the nation while simultaneously taking steps to protect the environment, requires both international and domestic capital flow towards high-impact sectors. The latest report by the Climate Policy Initiative (CPI), gives us unique information about green finance trends in India by mapping finance from source to end users, thus helping us to know whether we are on the right track to meet the nation’s economic and environmental goals. Such an exercise can also help us in identifying new avenues to ramp up our climate expenditure, mobilise new resources, build trust with investors besides bringing transparency and accountability in the governance of domestic public finance. The study reflects that green sectors are outpacing our overall Gross Domestic Product (GDP) growth. For instance, green investments in India grew by 24 per cent between 2016 and 2018, whereas the GDP grew by only 7.4 per cent over the same period.

One of the major recipients of green finance in the country is the power generation industry (70 per cent), followed by energy efficiency (20 per cent) and sustainable transportation (10 per cent). Grants-in-aid and budgetary allocations are the most commonly used instruments by the Government to finance the area while loans by commercial banks are a major source of finance to private industries involved in green energy. Out of the total, 85 per cent of the clean energy finance is raised domestically, with Government finance sources being the backbone for strong private sector investment. Foreign Direct Investment (FDI) in India, in the renewable energy sector, crossed the $1 billion mark in 2018. While foreign underwriting plays a role, it is dwarfed by the contributions of the Indian Government, its agencies and domestic private markets. In the face of methodological constraints regarding defining and tracking green funding across its value chain in the country, it is a big challenge to procure granular data and apportion public, private, domestic and international investments. Further, lack of consensus on what constitutes “green” is especially acute in sectors like energy efficiency and power transmission.

Moreover, we are far short of the capital required to reach the nation’s ambitious renewable energy and climate targets. India’s Nationally Determine Contribution (NDC) estimates that the country would need $2.5 trillion between 2015 to 2030, an annual requirement of roughly $170 billion per year to finance its climate action programmes. The nation’s clean energy finance flows currently stand at around $19 billion per annum. No doubt, there is a long way to go in order to create a sustainable and transformative impact.

So, what can be done? First, aspirations of a $5 trillion economy by 2024 as well as an “atmanirbhar Bharat (self-reliant India)” must be underpinned by green solutions. The renewable energy sector entails several benefits like providing safe and non-hazardous jobs, accelerated economic growth and so on. Hence we must turn towards the renewable energy sector for sustainable growth.

Second, Indian policymakers can look at various studies to assess whether they are using the best instruments to unlock private capital in priority social areas. Creating an integrated domestic measurement, reporting and verification (MRV) system to track green finance can be the first step towards identifying the entry points for dedicated action. A combination of climate budget tagging and MRV will form a strong foundation for the nation’s climate investment strategy in the coming decades. Last, expenditure on climate mitigation activities undertaken by dedicated Public Sector Units (PSUs) more than doubled from 2017 to 2018. PSUs are important channels for the disbursement of funds for Central and State Governments, bond markets and international development agencies. They also operate as a critical source of green finance themselves through various public schemes and initiatives. Agencies such as the Indian Renewable Energy Development Agency and the Solar Energy Corporation of India have helped to launch India as a renewable energy leader. Even in these dark times, we must believe that the country has a bright future. To make it true, that future must be green.

(The writer is Interim India Director and Director, USICEF. The views expressed are personal.)

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