This is part of a series of blogs exploring the investment markets in some of the largest greenhouse gas emitting countries outside the UK and EU. We delve into how these investment markets are supporting the net zero transition. Here, Neha Agarwala examines India’s progress.
India is the third highest greenhouse gas emitter in the world after China and the USA. Climate change is having a significant impact on millions across the country. In summer 2024, India experienced its second hottest quarter since 1970 and one third of its population experienced at least seven days of potentially risky heat.
As a signatory to the Paris Agreement, India has committed to reach net zero by 2070. The country has already taken steps to significantly increase non-fossil-fuel-based energy generation and reduce the carbon intensity of its GDP. But net zero remains an ambitious target.
This blog examines:
India’s first Nationally Determined Contribution (NDC) in 2015 committed India to:
India has reported that it has already achieved these two targets. First, as at 31 October 2023 the cumulative electric power installed capacity from non-fossil fuel-based energy resources was 43.81% of the total cumulative electric power installed capacity. Second, the emissions intensity of India’s GDP was reduced by 33% between 2005 and 2019.
In August 2022, India updated its NDC such that the:
India also promised to cut its emissions to net zero by 2070 at COP26 in 2021.
The International Finance Corporation (IFC) has estimated that India needs substantial amounts of climate finance by 2050 to achieve its ambitious sustainability goals. An estimated US $10.1 trillion will be required to get to net zero by 2070.
The IFC’s report, published October 2023, also suggests that it will be critical to use public sources of capital to help attract private and international investment (blended finance) in new projects that the private sector would otherwise deem too risky.
NITI Aayog is expected to release a report on climate finance in early 2025. This is expected to become a policy handbook for all central ministries for drafting climate-resilient and adaptive policies to achieve India’s net zero target by 2070.
Indian corporates and financial institutions have been issuing green bonds since 2015. According to data from World Bank with Bloomberg, $21 billion worth of green bonds were issued in India up to February 2023 of which the private sector was responsible for 84%. Greenko, one of the largest private sector issuers of green bonds in India, raised US $750 million through international green bond issuance for the first time in India for funding an energy storage project in 2022.
In January 2023, India issued a first tranche of sovereign green bonds worth US $980 million followed by a second issue in February 2023 of similar amount. These bonds were offered at five-year and 10-year tenor and were oversubscribed around two to four times, clearly highlighting high demand. These bonds were used to mobilise resources for green infrastructure. The proceeds are being deployed in public sector projects that contribute towards reducing the carbon intensity of the economy, such as renewable energy, energy efficiency and clean transportation.
In April 2024, the India government permitted eligible foreign investors in the International Financial Services Centre (IFSC) also to invest in the sovereign green bonds. In August 2024, it launched a scheme for trading and settlement of sovereign green bonds in the IFSC in India to facilitate the same. The foreign portfolio investors registered with the Securities and Exchange Board of India (SEBI) have been permitted to invest in sovereign green bonds since their issuance. The move to include IFSC participation in sovereign green bonds will further enhance international participation in climate finance in India.
India’s minister of finance and corporate affairs emphasised the development of a taxonomy for climate finance for enhancing the availability of capital for climate adaptation and mitigation in the July 2024 budget announcement. The standardisation of climate finance with a green taxonomy framework will help India align its investments with its national and global commitments to green transition and climate resilience.
As the world’s third highest greenhouse gas emitter, India has a critical role in the fight against climate change. The country has already made significant progress against its emissions targets. But – given the scale of the challenge – India will require substantial amounts of investment to achieve its net zero target.
Establishing a green taxonomy framework will support the achievement of the country’s transition towards a green economy by standardising climate finance. Scaling up private and international investment in India’s nascent green bonds market will also be an essential part in providing capital to help the country achieve net zero by 2070.
While India is headed in the right direction with climate finance, it remains to be seen how successful its measures will be.
What are your thoughts on the points raised in this article? What do you think about the opportunities for climate finance in India?
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