Budget 2022: Why Nirmala Sitharaman must prioritise climate action, green economy

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India has, at COP26, declared to the world its strong commitments to attain net-zero status by 2070. The target is opined to be ambitious by most; the third largest carbon dioxide emitter globally has a steep path to traverse in order to materialise its strong ambitions. India’s pledge is entwined with aspirations of a robust 2030 GDP, projected to be between $8.5 trillion and $10 trillion, and the foundation for both these targets lie in the robustness and thematic address of this year’s Budget, which must prioritise climate action and green economy.

Recent studies reveal that the annual capital spending on physical assets in the country would rise from $300 billion in 2020 to about $600 billion between 2021 and 2050, 40 percent of which is expected to be in the power sector. Needless to say, India is required to invest a large share of GDP towards decarbonisation comprising low emission technologies and creation of a favourable policy environment.

A key decarbonisation option that the world has been pinning hopes on is a proliferation of hydrogen, preferably green. Today, hydrogen is considered a zero-carbon solution for several applications including long-haul trucking, shipping, and steel industry. Green Hydrogen is regarded as one of the cleanest fuels for both transport and power generation.

The cost reduction in hydrogen production, storage, transmission, distribution, and application is a prime pillar of global shift for regulators, investors, and consumers. Refining is expected to switch to green hydrogen over the next decade. For fertilizer production, green ammonia will become cost-effective by 2030. India’s steel sector, which produces the second-highest quantum of steel globally, expects hydrogen-based products to be the key to abating pollution.

India's potential in building capacity to become the cheapest green hydrogen producer in the world by 2050 is unknown to very few today, and to realise this, it is imperative to reduce the cost of green hydrogen production focussed on domestic electrolyser manufacture and cheaper renewable energy supply. Cost-efficient storage and delivery are necessary to generate a workable green hydrogen ecosystem.

Short-term, medium-term strategies likely

The National Hydrogen Energy Mission was announced in the Union Budget of India for the last fiscal 2021-22, which has heightened expectations from the climate and energy fraternity from this year’s upcoming Budget. Specific short-term and medium-term strategies such as green hydrogen blending targets with piped natural gas (PNG), domestic technology and component manufacturing, and green hydrogen usage obligation in hard to abate sectors, could be expected from the imminent release of the green hydrogen mission document or through a Budget allocation for electrolyser manufacture in India.

Support needed for energy storage, incentives for EV charging infra

India is expected to offer viability gap funding to companies in support of energy storage and offshore wind-power plants, along with the launch of renewed incentives for setting up of EV charging infrastructure/battery swapping infrastructure for electric vehicles (along with select regulations for the vehicle to grid (V2G)). These, if launched, will immensely contribute to retaining the stability of India’s power grid which otherwise becomes unreliable owing to the intermittent nature of electricity from solar and wind.

Prioritise investments in climate adaptation space

The government’s Production Linked Incentive (PLI) Scheme towards the development of the battery storage ecosystem involves setting up 55 Gigawatt-hour manufacturing capacity for advanced chemistry cell batteries. This was a massive step to make the levelized cost of battery manufacturing in India competitive. All eyes will be set on this Budget to advance the cause of all such decarbonisation technologies towards a net-zero country.

While there is a need for targeted spending in order to transition from a low to no carbon future, India must also prioritise investments in the climate adaptation space given the nation’s relatively high physical risk exposure to climate change. Climate resilience still remains an area with less financial and technical support than required, which is critical to be addressed at this hour as any new green infrastructure created can crumble if not made climate-proof.

A quick look at trends of previous years’ budgetary allocation to Ministry of Environment, Forests, and Climate Change reveals a drop from Rs 31 billion in 2021-21 to Rs 28.7 billion in 2021-22. Similarly, the allocation for ensuring clean air in cities was also slashed by half to Rs 22.2 billion. This is not in accordance with the annual statistics on air quality, which continues to show major year-on-year degradation. These definitely need to be enhanced.

Fighting climate change needs a systemic approach, with an equitable focus on decarbonisation and adaptation efforts. Implementation of such goals in India would need climate finance - it has been envisaged that $250 billion will be available globally by 2025 and India could attract at least $50 to 100 billion of this mammoth quantum. However, the country’s budget is of paramount importance to support in bridging the climate finance gap and sending out a positive message to the world about its financial commitments to materialise the net-zero pledge. Limiting the global temperature rise to 1.5 degrees Celsius is no easy feat and India, as a large emitter and a nation at high climate risk, must play its part wisely.

The author is Associate Partner, Consulting, EY India. Tania Banerjee, senior professional in Consulting at EY India also contributed to the article. Views expressed are personal.

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