While India is the only developing country in the list, financing for innovation, research and development continues to be a challenge for the country, the report says
India is among the major economies globally competing to lead in a new industrial era triggered by zero-carbon technologies, revealed a new report by Brussels-based think tank Strategic Perspectives.
The report ‘Competing in the new zero-carbon industrial era’ compared the performance of five major economies, namely, US, China, EU, India, and Japan on zero-carbon technologies. The report compared the performance of these five major economies on manufacturing, deployment and investment in key decarbonisation technologies like renewables, electric vehicles, as well as the economic transition to net-zero for the first time.
The report showed that the net-zero transition policies have significantly strengthened competitiveness, energy security and future economic prosperity. The group of countries includes three largest emitters as well as the host of this year’s G-7 and the G20, i.e. Japan and India respectively.
Why do these economies make the cut?
Starting with China, due to the massive scale up of renewables, the country alone accounted for 55% of the world’s additional RE installed capacity and more than half of electric cars in the world run in China. The country also showed the biggest advances in manufacturing of solar photovoltaics, wind turbines (narcelle) and lithium-cells for batteries, as well as jobs and investments.
Moving on to the EU, the report said that wind and solar accounted for 22% of electricity mix in 2022 surpassing gas at 20%. Although the energy security crisis has created challenges, they must be met by more investments in clean energy. The EU is also leading on heat pump investment and deployment.
For the US, the report noted, the clean energy win is coming from the Inflation Reduction Act (IRA). The country is a leader in innovation and fiercely competitive to China. The US is performing strongest on innovation through investment in research, development and demonstration (RD&D). The IRA is expected to challenge Chinese leadership and could allow the US to surpass the EU on investments, jobs and renewable energy share in electricity; it currently ranks second ahead of China.
Moving on to Japan, the report said that the country is a strong competitor on innovation if RD&D is assessed on a per capita basis. Taking battery electric vehicles, plug-in hybrids and hybrid cars together, Japan had the biggest fleet of these vehicles in 2021. Despite high potential, the report noted, Japan is missing out on leadership opportunities towards investment opportunities in the new industrial era.
The report said that while India’s starting position is not comparable to the fiscal space of the other four economies, it stood out in its ability to position itself well in the new industrial era. The analysis showed a significant potential to grow its importance in the global new industrial transition where it must scale up investments in R&D and not solely rely on tech transfer and Chinese imports.
A closer look at India
As an emerging economy India aims to position itself in the global net-zero supply chain. India is making progress in incorporating solar and wind into its electricity generation, almost doubling its share from 2017 figures (5% to 9%). According to the report, India’s electric vehicle industry is expected to grow at a compound annual growth rate of 49% between 2022 and 2030 creating 50 million jobs by 2030. Electric two-wheelers will play a big part in the global EV market. India already has a fleet of 4 million EV two-wheelers in 2022, which is projected to rise to 6 million by 2024.
The report also observed that India still faces a different set of challenges, however with committed financial support from the developed economies, India can meet its net-zero commitments faster. According to the report, India is among few countries which is on track to meet its NDC target, however it will need to invest $12.7 trillion to reach net-zero emission by 2050. India could become a showcase of successful net-zero development with additional financial investments, the report added.
“Perhaps the most important takeaway from an Indian perspective is that India’s net-zero path should be driven by scaling of investments and R&D. This in turn will open up possibilities of leapfrogging, deepening value-added chains and reaching the technological frontier, attracting both technology partners and financing. Policy certainty, alignment of public finance with the objectives of industrial policy and building decarbonisation initiatives from the bottom up, with involvement of local communities is vital,” she said.
Obstacles in India’s way
While adopting an “industrial policy” approach to growing the decarbonisation sectors seems to be the preferred approach in general, India appeared to favour developing individual sectors rather than a broader, economy-focused plan to expand its industrial base.
Given a starting point with lower financial means, India has much less capital to spend on R&D in absolute and relative terms. As mentioned above, the country requires meaningful R&D investment and technology transfers from international partners. India’s cooperation with the US and some EU countries is pointing in that direction but is so far insufficient to notably position India in the global zero-carbon technology value chain.
The report also observed that per capita land availability is very low in India, and land is a scarce resource. Dedication of land area near substations for exclusive installation of solar cells might have to compete with other necessities that require land.
The report concluded that in spite of the different approaches taken by the five economies, policy frameworks are at the base of the new economic landscape. National transition plans such as the European Green Deal, China’s 14th Five-Year Plan, India’s Energy Conservation Act, Japan’s Green Growth Strategy and, more recently, the IRA in the US are being turned into industrial growth engines.