India has gone into the Paris climate talks after having declared its Intended Nationally Determined Contributions (INDC).[1] The key aspects of India’s INDCs are a higher share of non-fossil fuel energy (40%) and a reduced energy intensity of GDP—that is, less use of energy for the same economic output.
This is a positive and powerful change, and marks a departure from India’s argument in the past, which has focused on climate justice. India has so far said it should not have to pay to address a problem (climate change) largely created by the unchecked carbon emissions of developed countries and China.
But the two top global polluters—the U.S. and China—agreed in November 2014 to cut down their carbon emissions as a part of their climate commitments.[2] The emissions of European Union countries have also been falling for the past few years.[3] With the top global economies thinking on similar lines, firm action on climate change is now more likely than any time in the past.
What has changed? The likely answer is that in recent years, technology has advanced to a point where clean and green have become financially viable. Solar power is now a feasible alternative to coal, and electric vehicles to petroleum-dependent vehicles. Coal and electricity, so far the major fuels in use globally, emit the bulk of carbon dioxide. But solar power is now already cheaper than nuclear energy and hydropower, and is closing in on coal.[4] And electric vehicles (EV) offer better energy efficiency and lower maintenance costs compared to oil-fuelled cars.[5]
The U.S., which leads the world in renewable technology, is already starting to witness a shift. In the second quarter of 2015, a total of 1,393 megawatts (MW) of solar power capacity was installed in the U.S.—of which residential users accounted for 33.9%.[6] The large numbers of residential installations indicate that solar power works well in a decentralised manner, and that it has reached a point where retail consumers see it as a cheaper alternative to grid electricity. During 2015, solar power is expected to have been 40% of the new generation capacity installed in the US.
Electric car sales in the U.S. currently average around 10,000 per month—just 0.6% of the market so far.[7] But that’s not bad, considering they are competing with a technology that has over a century’s head-start. These numbers should go up as EV technology improves and the associated infrastructure comes up.
In India, as the economy grows, so will the demand, on a large scale, for electricity and for automobiles. In such a scenario, solar energy and EV offer a way to grow without polluting. A cleaner path to development, unlike the West and China’s, can be a big win for the environment.
However, India currently lacks a significant manufacturing base in solar technology and electric vehicles. Both these technologies are relatively expensive—solar power is still costlier than coal, while EVs have a higher upfront cost than petrol-run vehicles. This hinders adoption.
A lack of consumer finance is also an issue. For solar and EV to be more widely adopted at the retail level, banks have to finance these products just as they provide home loans and car loans. The Reserve Bank of India, in April 2015, included household solar installations in priority sector lending, and banks must now design consumer-focused products for this.[8]
But because Indian banks have a high percentage of bad loans and cannot undertake large-scale consumer financing,[9] they have started to raise ‘green bonds’. The proceeds of these bonds will be used to fund pro-environment projects.[10] However, these amounts, which add up to less than $2 billion, are trivial compared to India’s need for green finance—pegged at $2.5 trillion by the Ministry of Environment.[11]
These two problems—of expensive technology and poor financing—need to be sorted out at Paris. Developed countries had committed to providing $100 billion in climate finance to the developing world by 2020. During 2014, climate finance reached $62 billion,[12] though this number may be hugely overstated, as pointed out by the Indian Ministry of Finance.[13] For instance, of $9.4 billion worth of projects reported as climate finance by the World Bank in 2014, projects worth only $3.4 billion had significant climate benefit.
Given that India alone will need $2.5 trillion of green finance, this amount is insufficient for the developing world—and it must be revised by the developed world. Secondly, clean technology such as solar power and EVs need to be made available to the developing world at a low cost.
One way of mainstreaming these technologies in India is through specialist consumer finance companies such as Dewan Housing Finance, Repco Home Finance, Muthoot Finance, and Manappuram Finance. These companies have created viable niche businesses in such segments as home loans, and the same model can be made to work for solar and EV technology.
Additionally, India must set up specialist clean energy finance companies that will fund only small scale (household) solar panels and electric vehicles, or combinations of both. Small-sized loans such as these will be better handled by small, nimble firms, and will be an alternative to the big banks’ approach of funding mega projects. These green finance companies will require equity and debt, which can come from foreign institutional investors and via green bonds. Easy consumer financing will increase demand, which in turn will allow manufacturers to invest in capacity and products.
Access to appropriate technology and finance are therefore tied to India’s climate change mitigation strategies—and this access is especially critical for a country that accounts for 17.5% of the global population. The West must acknowledge this and act on it. A give and take such as this is the only way to ensure the success of the Paris climate talks.
Amit Bhandari is Fellow, Energy & Environment Studies, Gateway House.
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References
[1] Press Information Bureau, Ministry of Enviornment and Forest, Government of India, India’s Intended Nationally Determined Contributions – Towards Climate Justice, 2 October 2015, <http://pib.nic.in/newsite/erelease.aspx?relid=128405> (Accessed 29 November, 2015)
[2] Office of the Press Secretary, The White House, Government of the United States of America, U.S.-China Joint Presidential Statement on Climate Change, 25 September 2015, <https://www.whitehouse.gov/the-press-office/2015/09/25/us-china-joint-presidential-statement-climate-change> (Accessed 29 November, 2015)
[3] Statistical Review, British Petroleum, BP Statistical Review of World Energy 2015, <http://www.bp.com/en/global/corporate/energy-economics/statistical-review-of-world-energy.html> (Accessed 29 November, 2015)
[4] Bhandari, Amit, ‘Quiet Burial for the Nuclear Deal?’, Gateway House, 5 November 2015, <https://www.gatewayhouse.in/quiet-burial-for-the-nuclear-deal/> (Accessed 29 November, 2015)
[5] Fuel Economy, Government of the United States of America, Fueleconomy.gov Top Ten, 2015, <https://www.fueleconomy.gov/feg/topten.jsp> (Accessed 29 November, 2015)
[6] Research and Resources, Solar Energy Industries Association, Solar Industry Data, <http://www.seia.org/research-resources/solar-industry-data> (Accessed 29 November, 2015)
[7] Inside EVs, Monthly Plug in Sales Score Card, 1 November 2015, <http://insideevs.com/monthly-plug-in-sales-scorecard/> (Accessed 29 November, 2015)
[8] Times News Network, Times of India, RBI Changes Priority Sector Lending Norms, 24 April 2015, <http://timesofindia.indiatimes.com/business/india-business/RBI-changes-priority-sector-lending-norms/articleshow/47034036.cms> (Accessed 29 November, 2015)
[9] Bhandari, Amit, ‘Huge, Growing Crisis in Public Sector Banks’, India Spend, 17 February 2015, <http://www.indiaspend.com/cover-story/huge-growing-crisis-in-public-sector-banks-39870.> (Accessed 29 November 2015)
[10] Desai, Umesh, ‘Companies Boost Green Bond Offerings on Government’s Clean-energy Push’, Reuters, 28 November 2015, <http://in.reuters.com/article/2015/11/27/india-bonds-environment-idINKBN0TG10A20151127> (Accessed 29 November 2015)
[11] Press Information Bureau, Ministry of Enviornment and Forest, Government of India, India’s Intended Nationally Determined Contributions – Towards Climate Justice, 2 October 2015, <http://pib.nic.in/newsite/erelease.aspx?relid=128405> (Accessed 29 November, 2015)
[12] OECD, ‘Climate Finance in 2013-14 and the USD 100 Billion Goal’, 7 October 2015, <http://www.oecd.org/env/cc/Climate-Finance-in-2013-14-and-the-USD-billion-goal.pdf> (Accessed 29 November 2015)
[13] Ministry of Finance, Government of India, Climate Change Finance, Analysis of a Recent OECD Report: Some Credible Facts Needed, November 27 2015, <http://pibphoto.nic.in/documents/rlink/2015/nov/p2015112901.pdf> (Accessed 30 November 2015)