The 27th Conference of the Parties to the United Nations Framework Convention on Climate Change (COP27) concluded last month against an uncertain geopolitical landscape. While the establishment of a "loss and damage" fund at COP 27 was a significant development, potential beneficiaries and contributors to the fund remain undecided and it remains to be seen whether emerging economies such as India will benefit. Other areas discussed over the course of the conference such as technology transfer continued to retain an aspirational nature.
The Indian government has submitted its long-term low-emission development strategy, highlighting major plans to transition to a low-emissions pathway. As multilateral negotiations remain lukewarm, leveraging the capacities of the country's strong private sector may be a keyway forward for India's climate strategy. Here are some measures that the private sector may consider.
Compliance: To begin with companies must take steps to meet their own net-zero targets, by reducing emissions in their own operations and supply chains. Some of the companies in India have already implemented voluntary internal carbon pricing to reduce emissions and encourage innovation in the field of a low-carbon economy. Recent governmental policy signals indicate that India's future growth will be export-led. Modern economies that are conceptualised as being the ideal markets for manifesting this growth are working on their own mechanisms for carbon offsetting (such as the EU's carbon border adjustment mechanism). This necessitates an increase in investment in environmental, social and governance (ESG) compliance for Indian companies as well, as the outcomes of ESG will enable an efficient transition to incorporate greener and cleaner processes in their supply chains. Hence, all businesses, big and small, especially SMEs which have gained increased prominence recently in the global market, must be cognizant of the mechanisms that are going to be at play in their markets of choice and pivot their priorities in order to be compliant, in as efficient in a manner as possible.
Incentive: Carbon credits incentivize the reduction of emissions by allowing companies to benefit monetarily from selling allowances. While India does not presently have an emissions trading system, the Energy Conservation (Amendment) Bill approved on December 12, 2022 enables the government to set up a domestic carbon trading scheme. The government's recent initiative to issue green bonds further incentivizes private players to invest in green infrastructure. Early adoption and onboarding will help businesses minimize any effect on revenue, as well as build capacity for incisive decision-making when it comes to international expansion, where carbon markets are much more developed, efficient and have a larger pool of players.
Investment: A report released in August 2022 estimates that India needs $2.5 trillion by 2030 to meet its nationally determined contributions and $10.1 trillion to achieve net-zero emissions by 2070. The report also finds that domestic sources continue to account for most of the climate finance in India, with the public sector being the most significant contributor. Hence, there is significant scope for greater contributions and private sector participation in climate finance. For instance, India continues to remain largely dependent on coal.
According to the World Resources Institute, India's non-fossil fuel capacity currently stands at around 170 GW and needs to rise by 300-400 GW by 2030 to meet the revised nationally determined contributions. This will require significant effort and investment towards expanding capacities for clean energy in the years to come. While the Indian government is making efforts to realize such capacity, private sector participation in the form of financing, public-private partnerships and investment can help strengthen the government's efforts.
Innovation: While legal and policy steps may be helpful to control emissions, innovation for new and clean technologies is essential for sustainability and growth to go hand in hand. The private sector can play a significant role in research and development. Technology innovations such as electric vehicles, green hydrogen, etc., have the potential to initiate a paradigm shift in lifestyles and climate policy and hasten the transition or create a pathway to a low-carbon business model. Technology need not be just a tool to generate revenue and profit, but if leveraged properly, can also help with fulfilling ESG targets. Greater participation of the private sector to incubate, foster and invest in such initiatives by way of green bonds or even financing promising projects through their CSR machinery can help spearhead such growth.
While multilateral discussions will continue, India must also be wary of their limitations. India's vision of low-carbon development is based on the need to ensure India's high energy needs for development. As developed countries remain reticent on key topics such as climate finance and technology transfer, cooperation from India's burgeoning private sector may play a key role as we advance.
Sanjay Notani is a partner and Naghm Ghei is a principal associate at Economic Laws Practice. With inputs from Mitul Kaushal, a consultant with the law firm. Views are personal and do not represent the stand of this publication.
- This article has been published in MoneyControl
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