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Budget 2022: India ups the ante on climate action, energy transition, but there’s room for more

FM announced use of biomass pellets to cut CO2 emissions, green bonds and a battery swapping policy, but gave budgetary support, tax incentives for clean technology a big miss

In an encouraging first, the terms climate action and energy transition found recurrent mentions in India’s budget for 2022. Finance minister Nirmala Sitharaman’s opening statement mentioned climate action, and there were many announcements related to climate and energy thereafter. But according to experts, there is much more left to be desired underneath all the political jargon. 

“The budget seemed to acknowledge clean energy transition as a fundamental principle- there was mention of clean tech solutions, battery swapping policies, improving EV efficiency, finalising the 19500 cr PLI scheme for solar as a way to move ahead on low Carbon strategy. All of this needs to be placed properly in policy and regulation,” said Aarti Khosla, director, Climate Trends.  

What’s in store for India’s climate action plan?

Sitharaman announced her government will start a climate action fund to achieve its ambitious green targets. The government’s contribution will be a maximum 20%, while the remaining will be made by private participants. Biomass pellets will be used to reduce carbon dioxide, saving 38 MMT annually, Sitharaman said. This would also provide extra income to farmers,  jobs to locals and reduce stubble burning.

“Biomass pellets, energy efficient buildings, coal gasification and agroforestry are just the start of the transition to a carbon-neutral economy. The upcoming green hydrogen mission and circular economy action plans can initiate a deep shift towards industrial decarbonization,” said Ulka Kelkar, director, Climate Programme, WRI India. The FM also announced four pilot projects for coal gasification and technology to convert coal to chemicals required for industries. 

Green bonds will be issued to mobilise green infrastructure. The funds generated will be used for projects that will help reduce carbon intensity of the economy, Sitharaman said. 

“The budget proposal to issue sovereign green bonds has several benefits, principal among which is signalling the country’s seriousness in pursuing climate action. India will now join a select group of countries, primarily European, which have issued such bonds. We can also expect this move to catalyse the development of the domestic corporate green bond market,” said Gagan Sidhu, Director, CEEW Centre for Energy Finance (CEEW-CEF).

In order to tackle the issue at the grassroots level, states will be encouraged to revise the syllabi of agricultural universities to meet needs of natural, zero-budget & organic farming, modern-day agriculture. The FM said reduced fertiliser usage will reduce dependence on oil.

Boost to India’s energy transition

With an aim to reduce transport emissions, the FM announced the launch of 400 new generation Vande Bharat trains with better energy efficiency and passenger riding experience will be manufactured in the next three years. To promote a shift to the use of public transport in urban areas, Sitharaman announced special mobility zones with zero fossil fuel policy to be introduced. Considering space constraints in urban areas, a ‘Battery Swapping Policy’ will be brought in, the FM said. As per this policy, an owner of an electric vehicle can exchange a depleted battery with one that has been fully charged at a station without having to wait to charge the existing one. 

To facilitate domestic manufacturing for India’s ambitious goal of 280 GW of installed solar capacity by 2030, Sitharaman announced an additional allocation of Rs19,500 crore for production-linked incentives (PLI) to manufacture high-efficiency modules with priority to fully integrate manufacturing units to solar PV modules.

“The increase of Rs19,500 crore under the PLI scheme for high efficiency modules and the inclusion of a zero fossil fuel policy, EV policy, battery swapping and coal gasification policy is a step in the right direction,” said Vibhuti Garg, Energy Economist, Lead India, IEEFA. But she also said, “While jargon terms such as energy transition, climate finance, inclusive growth etc. were mentioned multiple times in the budget speech today, the announcements look to have fallen short of promoting clean energy in an accelerated manner.” 

“At a macro level, increase in Capex will boost economic growth, however, not much additional budgetary support or tax incentives have been provided to clean energy both grid and off-grid including solar rooftop, storage technologies and green hydrogen. This is despite the big expectation that support will be provided to these new technologies to improve its commercial viability,” she added.