India plays balancing act with updated NDC as big emitters offer energy investment deals, invite to climate clubs

Amidst the turmoil of the Ukraine war, India is trying to find a way to access finance and tech from developed nations, and oil and gas from Russia and Iran

India gave its nod for the long-awaited update to the country’s Nationally Determined Contribution (NDCs) to be submitted to the UNFCCC. The Cabinet approval was announced through a press release, which included the highlights of the NDC update. While the full text is yet to be made public, the announcement has elicited attention as the first glimpse of India’s long-term net-zero strategy.

The update has also come at a juncture marked by geopolitical volatility. Russia’s “special military operation” in Ukraine and concerns about China’s ambitions in the Asia-Pacific region have reaffirmed old geopolitical alliances and spurred the formation of new ones. Sanctions on Russian energy have sent governments, particularly in Europe, scrambling to find alternate sources. Stuck between the need to decarbonise and the prospects of an impending energy crisis, dissonance has crept into energy policies and strategy of developed economies. Months ahead of COP27, the developed economies continue to push conflicting policies of boosting fossil fuel production and decarbonisation simultaneously to a dangerous template that justifies the former as short-term extraction (of oil and gas) and the latter as long-term investment. Such green deals, hand-cuffed to fossil fuels, were seen at the G7 summit and most recently at the US Senate’s $369 billion domestic fund approved for climate and energy. 

Energy has always been a pivotal factor in geopolitics; more recently, decarbonisation has become an important bargaining chip. For countries like India, the diplomatic jostle includes a choice between access to finance and technology from developed countries for the low-carbon transition and reliable access to oil and gas from sanctioned oil producers like Russia and Iran. Read the subtext, and the update to India’s NDC, too, reflects this context and the balancing act contained within it.

India’s NDC: What we know so far

The press release announcing the cabinet approval for the NDC update is not heavy on details, but does include the three specific commitments to be submitted to the UNFCCC for climate action in the current decade. India will now reduce the emissions intensity of its GDP by 45% by 2030, relative to 2005 levels. The previous NDC set a target of 33% to 35% compared to 2005 levels. India also aims to achieve about 50% cumulative electric power installed capacity from non-fossil fuel-based energy resources by 2030. This was previously set at 40%. India is already close to achieving both original targets.

In addition to the two updates, the Cabinet has also formalised the government’s stance on “sustainable lifestyles and climate justice” through the inclusion of a mass movement under the aegis ‘LIFE’– ‘Lifestyle for Environment’. While the press release highlights the movement as capturing a “citizen-centric approach”, details of what exactly it would involve remain vague.

Interestingly, the press release steers clear of carbon sinks or removal targets. India’s original NDC included the commitment to create an additional carbon sink of 2.5 to 3 billion tonnes of CO2 equivalent through additional forest and tree cover by 2030. The net-zero announcement last year from Indian Prime Minister Narendra Modi also included a stated intent of reducing 1 billion tonnes of carbon by 2030. Neither of these found any mention in the press release, and the afforestation target remains the most difficult to achieve from the original set of three commitments. Also left out was the previously mentioned 500 GW non-fossil fuel energy capacity target. Analysts in the past have pointed out the difficulty of aligning the 500 GW number with the 50% non-fossil fuel power generation capacity target set for 2030. Adaptation, too, was left out entirely in the press release.

The release, however, was careful to explicitly mention that the NDC update would not include any binding targets for sector specific mitigation obligation or action. Also explicitly mentioned is the expectation of “its due share” from international climate finance commitments from developed countries. 

Scarcely by coincidence, the terms of this finance have started cropping up increasingly in international security, energy and trade negotiations.

Just transaction: Developed economies eye emerging markets to ‘save’ them from Chinese debt

Before the Ukraine war, the G7 and the EU imported 33% of the total Russian coal exports in 2021. It also met 25% and 40% of its oil and natural gas demand through imports from Russia. Now, as energy security is threatened by war, the leaders of the bloc have pushed for diversification of energy sources by pushing for more oil and gas exploration overseas and temporarily lifting embargoes on coal. Even as the existing mechanism of Green Climate Fund is starved of funds, the G7 nations led by the US have floated their own climate fund to do business with the Global South directly to counter China’s belt and road initiative. India negotiated this “East and West” divide at the BRICS summit and later at the G7 summit as a special invitee.

The advanced economy group proposed a $600 billion infrastructure plan to counter China’s Belt and Road initiative in Africa, Latin America and Asia. To tap the emerging markets, the group proposed financing clean energy through the Just Energy Transition Partnerships (JET-P) with India, Indonesia, Senegal, and Vietnam, on the lines of partnership it initiated with South Africa at COP26. 

In November last year, the UK, France, Germany, and the United States proposed mobilising $8.5 billion through a blend of grants, concessional and non-concessional, and public and private finance to accelerate the closure of South Africa’s coal fleet and the rapid deployment of renewable energy systems. While the conditions and proportion of finance are still being negotiated, the partnership has been connected to recently passed energy reforms and plans for progressive carbon taxation in South Africa. Against the backdrop of a protracted power crisis, the new energy reforms have been seen as enabling increased use of private power plants. That several of the newly planned projects are dominated by multinational energy companies and include large investments from European private equity holdings has raised some red flags as the JET-P model is presented as a replicable model for decarbonization in the developing world.

The G7 agenda offered green investment plans for Vietnam, Indonesia, South Africa, India and Senegal to get them off coal. But, according to EIA data, G7 nations together consume about 1 billion tonnes of thermal coal annually. This is about 16% of the global thermal coal consumption. Global Energy Monitor tracks global annual emissions from coal power plants. According to GEM, the total annual CO2 emissions from coal power plants in G7 countries and EU member countries is about 1.9 bn tonnes.

Failure at home, saviour overseas?  

The G7 ministerial meeting at the end of May agreed to “predominantly” decarbonise the power sector by 2035 without specifying the details, but intending to limit global temperature rise to 1.5°C. IEA’s net zero pathway for power sector decarbonisation for advanced economies is by 2035. The G7 strategy includes a phase out of all unabated coal power plants by 2030 and achieving abated gas power operational capacity that is just 2% of the global capacity between 2030 and 2050.

The G7 strategy is riddled with incoherence among its members. The US is yet to adopt domestic policy that ensures a 2030 coal phaseout or 2035 power sector decarbonisation. Japan’s domestic coal phaseout policies are also not in line with this year’s G7 agreement with almost a fifth of its total electricity demand consumption in 2030 projected to come from thermal power. To be in line with G7’s plan, Japan will need to completely phase out coal by 2030. The EU, which is home to three of the group’s seven members, is also faced with hurdles in implementing its decarbonisation strategy, particularly as the current energy crisis forces governments to reverse embargoes on coal power in the short term, and potentially lock-in new oil and gas investments through the next couple of decades.

This, however, has not stopped the G7 from expressing its interest in setting the agenda for climate action in other geographies, particularly in emerging markets and developing countries. The G7, in its latest inter-ministerial meeting, also publicised intent to create a ‘Climate Club’ by the end of the year to “incentivise green competition across the world.” In January this year, German Chancellor Scholz at the World Economic Forum in Davos expressed his support for such a coalition, with the G7 holding the seat of power. “We will use our Presidency of the G7 to turn that group into the nucleus of an International Climate Club,” the German Chancellor stated at the influential gathering.  

The idea of a climate club is not entirely new. The most commonly referred version of the concept, such a club would have to function outside the ambit of the UN’s climate regime and hold the ability to enforce incentives and disincentives to member and non-member states, in order to overcome the low liability associated with voluntary emission reduction targets. A striking feature of this club would be the ability to impose sanctions on countries that fail to deliver on climate goals, while offering tariff-free trade for compliant members.

Sound familiar? That’s because the concept is basically the description of a cartel. Some features of such cartelisation are evident in military, trade and energy alliances. Most evidently, the US (and its allies) have been accused of using the status of the US Dollar as the world’s reserve currency to impose trade sanctions and restrictions on countries it views as adversarial, notably Cuba, Venezuela, Iran and Russia. The risk of politically motivated sanctions has resulted in the proposal of alternate reserve currencies in recent months. 

Most optimistically, a climate club would incentivise ambition and accelerate action. More realistically, the creation of an exclusive club is likely to usher in the weaponisation of climate action, the rules of engagement for which would be subject to intense political interests and commercial lobbying.

Alex Scott, Programme Leader, E3G, said “The G7 launching new forms of global collaboration to tackle the climate crisis – the JETPs, the global shield, the climate club – show they see climate change as a threat multiplier they must address even amidst a challenging geopolitical context. But they forgot to demonstrate that new scale of action on their own climate action at home. 

Offers of climate finance, but with conditions

Difficulties in delivering emission reductions at home, combined with the enormous opportunity of decarbonisation in emerging markets has resulted in a change of tact. Developed economies have shifted their climate finance strategy from asking “What are you doing?” to “What can we do for you?” writes Karl Mathiesen for Politico. “The idea is to put up hard cash and other sweeteners to shift them away from fossil fuels,” he adds. This magnanimity, however, is unlikely to be unconditional.

Unlike GCF funds, which are made available on a project-by-project basis, climate finance through alternate avenues are likely to be tied to structural reforms in recipient countries. While the JET-P in South Africa offers a glimpse of this, such conditionality has been a feature of development finance for decades. Among many examples, the case of IMF and World Bank loans to Ukraine elucidate how such an arrangement can be corrupted. The World Bank’s $350 million new loan to Ukraine, comes on condition of more energy reforms. Earlier, when the war began in Donbas in 2014, the IMF and WB forced Ukrainian energy assets to privatise leading to an increase in household gas prices by approximately 650%.

Taras Fedirko, an economic anthropologist at St. Andrew’s University, told The Breach that Ukraine’s oligarchs are not the only beneficiaries of the corruption—the Western financial system, the property market in places like London, New York, Ohio and elsewhere—they all benefit from the transfer of capital from Ukraine.

The risk of corruption isn’t the only concern either. Writing for Hindustan Times, former Indian climate negotiator RR Rashmi warns that the JET-P-like channels of funding offer existing official aid and private investments to emerging economies with no additionality or concession. According to Rashmi, almost 80% of the renewable energy finance in India is currently mobilised as debt finance from its own domestic financial institutions. Will the JETP finance expose investors to volatile international financial markets? Analysts warn that countries on international finance end up accommodating the risks of the global private investors throughout the domestic system.

Analysts have also argued that market-based instruments such as carbon pricing and monetisation should be scrutinised by the UN’s Open-ended intergovernmental working group  (OEIGWG) on transnational corporations and other business enterprises with respect to human rights. OEIGWG’s mandate is  to elaborate an international legally binding instrument to regulate, the activities of transnational corporations and other business enterprises. 

India’s NDC: A balancing act

Given the political context, it is little surprise that India has played it safe with its NDC update. The scale up in ambition is modest. The absence of absolute targets for non-fossil fuel energy capacity, carbon removal or sectoral emissions signals that the second iteration of India’s NDC is also careful to avoid. India’s new NDC can be seen as being as much about cleaning up the old, as it is about setting forth the new.

Rather than in the form of a commitment, these targets would likely be a part of India’s long-term strategy on climate change, which it has thus far kept close to its chest. But the government has indicated it is willing to play ball, by once again explicitly mentioning the expectation of international finance. The expectation from developed economies for India to be more ambitious on climate action, will presumably be met with an expectation to shoulder a part of the costs. In other words, the availability of international finance will to a great extent dictate the scale of ambition in India’s climate change strategy. 

The NDC update is politically savvy, delivering the balancing act demanded by India’s geopolitical interests. The Indian government will hope the developed world takes the bait, but it will have to be cautious of playing with fire, lest the country gets more than it bargained for- and not in a good way.

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