On September 21, 2024, India signed three more agreements under the Indo-Pacific Economic Framework for Prosperity (IPEF) – Indo-Pacific Economic Framework for Prosperity Agreement Relating to a Clean Economy Agreement (Clean Economy Agreement), Indo-Pacific Economic Framework for Prosperity Agreement Relating to a Fair Economy (Fair Economy Agreement) and the Agreement on the Indo-Pacific Economic Framework for Prosperity.[1] This followed barely a year after the signing of the IPEF Supply Chain Agreement (Supply Chain Agreement) in November 2023, which came into force on February 24, 2024.
The IPEF came into existence at the QUAD meeting in Tokyo in May 2022. Following its conceptualisation, the U.S. announced the participation of other key countries in the Indo-Pacific region, creating a 14-member coalition comprising the U.S., India, Japan, Australia, Brunei, Fiji, Indonesia, South Korea, Malaysia, New Zealand, the Philippines, Singapore, Thailand, and Vietnam.[2] The aim of the IPEF, much like the broader objective of the QUAD, was to establish strategic economic partnerships in the Indo-Pacific region to counter Chinese hegemony.[3]
Of particular note amongst the signed IPEF agreements is the Clean Economy Agreement, with its unique scope and objective as a climate agreement that seeks to achieve its goals through the facilitation of trade and investment. Its primary objective is to support the implementation of global climate agreements, such as the UN Framework Convention on Climate Change (UNFCCC) and the Paris Agreement. Article 1 (Scope) of the Clean Economy Agreement highlights the urgent need to reduce global temperatures, with all efforts and commitments within its framework directed toward this goal. However, unlike the aforementioned climate agreements that focus primarily on climate goals and objectives, the Clean Economy Agreement addresses their limitations by providing sector-specific guidelines on how emissions should be reduced across key sectors such as energy, transport, agriculture, and mining.
Like the other IPEF Agreements, the Clean Economy Agreement does not contain market access provisions.[4] The IPEF agreements consist mainly of non-binding commitments and lack provisions for third-party dispute settlement mechanisms through arbitration. Differences are subject to consultation, and if Parties fail to reach a mutually agreeable solution, no other recourse is available.[5]
Instead of compelling Parties to fulfil commitments, the Clean Economy Agreement creates a platform for Parties to work on areas of mutual interest covered by the agreement. This is done by offering investment opportunities, capacity-building and standards-setting.
Investment Opportunities
Renewable energy will be critical for satisfying the growing energy demands in the Indo-Pacific, with effective prioritization potentially covering 90% of these needs.[6]
The need to move towards a clean economy has driven a surge in investment in clean technologies, with $2 trillion projected to be spent in 2024.[7] To capitalize on the growing investment in renewable energy and other climate-friendly sectors and technologies, the Clean Economy Agreement adopts a unique approach: it facilitates private investment through government-sponsored match-making with the Clean Investment Forum – an annual business matchmaking event organized by IPEF countries as part of their commitments in the Agreement.[8] The inaugural event, held in Singapore on June 6, 2024, was attended by several companies focused on climate-friendly technologies and investors eager to tap into the lucrative market.
Of note was the active involvement of senior government representatives in facilitating investor-business matchmaking, contributing significantly to the success of the Clean Investment Forum. In total, the forum resulted in matchmaking $23 billion (Rupees 1,93,334 crores) for sustainable infrastructure projects within the IPEF region.[9] Key global investors such as Global Infrastructure Partners, KKR, Allied Climate Partners, BlackRock, GIC, Rockefeller Foundation and Temasek, eager to tap into the IPEF regions, created a coalition to mobilize investments in emerging IPEF economies. The affluent members that form part of the coalition of investors estimate that $25 billion (INR 2,10,145 crores) can be deployed in the emerging IPEF economies for sustainable infrastructure projects.
In addition to initiatives led by private investors, the Clean Investment Forum announced the establishment of the IPEF Catalytic Capital Fund totalling $33 million (INR 277 crores), with contributions from the U.S., Australia, Japan, and Korea. The fund aims to provide concessional financing, technical assistance, and capacity building for high-quality clean economy infrastructure projects in emerging and upper-middle-income economies. The U.S. International Finance Development Corporation (DFC) approved an equity investment as part of its $900 million (Rupees 7,566 crores) Eversource Climate Investment partner II fund to provide capital and expertise to innovative companies that address climate change in India and South East Asia.
India requires an additional $1.4 trillion in investment for green infrastructure to meet its 2030 climate targets. In Singapore, the country was particularly successful in attracting investments in the Clean Investment Forum and under other investment opportunities created under the IPEF framework. Prominent U.S. private equity fund, I Squared Capital, invested in advanced smart metering and renewable energy in India, as part of its $1.5 billion (Rupees 12,611 crores) pledge towards clean economy investments in IPEF emerging economies.[10] The Global Energy Alliance for People and Planet (GEAPP) agreed to invest in India’s first commercial battery energy storage system (BESS) project which will be commissioned in the first quarter of 2025.[11] GEAPP will provide a concessional loan covering 70% of the total project cost and intends to build further in India to support 1 GW of other BESS projects in India by 2026. An offtake agreement between Sembcorp Green Hydrogen India Private Limited, Kyushu Electric and Sojitz was signed for production and export of 200 KTPA green ammonia from India to Japan.[12] Phase I of the offtake agreement (of a total 800 KTPA in 4 phases) will be produced at Tuticorin Port in India for export to Japan.[13]
Capacity Building and Mega Regional Standard Setting
The Clean Economy Agreement has an innovative approach to cooperation and capacity building by working toward region-wide standards across various critical areas within a single international instrument. These include reducing greenhouse gas emissions, developing clean energy technologies, establishing a regional carbon market, creating clean energy supply chains, securing climate financing, and catalysing investment in clean technology sectors.
A key announcement at the inaugural Clean Economy Investor Forum was the launch of several Cooperative Work Programmes (CWPs) under the Clean Economy Agreement, focusing on areas such as the hydrogen supply chain, carbon markets, clean electricity, emission intensity accounting, e-waste urban mining, and small modular reactors.[14] The CWPs serve as ad-hoc institutional mechanisms through which interested IPEF Members can collaborate on specific projects to further the commitments outlined in the Clean Economy Agreement. Joining a CWP is entirely voluntary, and it actively seeks public-private partnerships within cooperative initiatives,[15] a novel approach to other forms of cooperative activities in traditional trade agreements that primarily include state-to-state cooperation.
Standard-setting is a means to ensure regional alignment in addressing environmental challenges. By establishing clear and enforceable standards, governments, organizations, and industries can promote sustainable practices, reduce carbon emissions, and foster innovation in green technologies. The inclusion of the CWPs not only allows for a better understanding of private sector concerns but also increases the likelihood of compliance with any voluntary standards developed through the CWPs or other commitments in the Clean Economy Agreement. This also enhances the willingness of businesses to adhere to these voluntary standards.
While all announced CWPs offer unique advantages to India within the Indo-Pacific region, two CWPs of particular importance for India’s interests are the CWPs on (i) hydrogen supply chains, and (ii) carbon markets
I. Hydrogen Supply Chain CWP
Focusing on hydrogen supply chains is essential for integrating India into the global hydrogen network, especially given the initial budgetary outlay of $TK million (INR 19,477 crore) for the National Green Hydrogen Mission (NGHM)[16] to enhance India’s production capabilities for green hydrogen, addressing both domestic energy needs and potential export opportunities. NGHM wants to achieve an annual production of 5 million metric tons by 2030, which is expected to generate $TK billion (INR 8 lakh crore) in investment and create 6,00,000 jobs in the green hydrogen industry.
Cooperation among IPEF countries on hydrogen supply chains will strengthen the Indo-Pacific’s capacity to store and transport hydrogen, ultimately helping India reduce costs and increase the availability of green hydrogen in this economically lucrative region.[17]
II. Carbon Markets CWP
Article 16 (Carbon Markets) of the Clean Economy Agreement clearly highlights the importance of carbon markets, outlining the key modalities that Parties should take into account when developing domestic markets. It also stresses on capacity-building among IPEF members to strengthen technical expertise and create a reliable and effective system.
It comes at an opportune time as India prepares to implement its domestic carbon market.[18] The success of this policy tool will require significant maturity and technical expertise from the Bureau of Energy Efficiency (BIE), which will not only lead the implementation of India’s domestic carbon market but also guide India’s participation in the Carbon Market CWP.[19] Cooperation among IPEF members can play a crucial role in helping India build the necessary capacity for a successful carbon market. A carbon market demands significant technical knowledge and careful policy planning, including establishing a comprehensive regulatory framework, developing a clear methodology for setting targets and calculating emissions, capacity for monitoring and verifying compliance and creating a coherent process for determining these targets.[20]
It is vital that carbon credits generated from India’s domestic carbon market are recognized and tradable to the greatest extent possible. High-quality carbon credits that are acknowledged by IPEF economies will have a better chance of acceptance in countries implementing carbon tariff measures, particularly under the proposed European Union and the United Kingdom’s Carbon Border Adjustment Mechanism. The recognition will mitigate the risk of Indian exporters facing restrictions or high costs when accessing markets that impose carbon tariffs.
By facilitating trade and mobilizing investment in sustainability-focused sectors, the Clean Economy Agreement accelerates the transition to a clean economy while establishing a new market for environmentally conscious industries. This unprecedented shift from traditional climate agreements bolsters and ultimately facilitates the overarching goals set by UNFCCC and the Paris Agreement, which lack specific guidelines for transitioning to a clean economy in an economically viable manner driven by market forces.
To capitalize on this growing investment landscape, joint collaboration among IPEF countries is essential for positioning the region as an attractive destination for investment. While the IPEF framework offers sufficient flexibility to alleviate concerns over binding obligations, it is crucial that member countries adopt a proactive stance toward fulfilling their cooperative commitments. Excessive reliance on these flexibilities risks rendering the Clean Economy Agreement, along with the broader IPEF framework, ineffective. Therefore, member countries must take their commitments within the framework seriously and act decisively.
James J. Nedumpara is Professor and Head of Centre for International Trade and Investment Law (CTIL) established by the Government of India at the Indian Institute of Foreign Trade (IIFT).
Pushkar Reddy is a Research Fellow at the Centre for International Trade and Investment Law (CTIL).
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References
[1] Shreya Nandi, India Signs IPEF’s Clean, Fair Economy Agreements as PM Modi Visits US, Business Standards, available at https://www.business-standard.com/economy/news/india-signs-ipef-s-clean-fair-economy-agreement-as-pm-modi-visits-us-124092200272_1.html (accessed on 11 October 2024).
[2] Girish Luthra, Forward from the Tokyo QUAD Summit and IPEF, ORF, available at, https://www.orfonline.org/expert-speak/forward-from-the-tokyo-quad-summit-and-ipef (accessed on 10 October 2024).
[3] Rajiv Bhatia, QUAD, China and the Indo-Pacific Churn, Gatewayhouse, available at, https://www.gatewayhouse.in/quad-china-indo-pacific/ (accessed on 11 October 2024).
[4] Jason Henry, IPEF: Three Pillars Succeed, One Falters, CSIS, available at, https://www.csis.org/analysis/ipef-three-pillars-succeed-one-falters (accessed on 8 October 2024).
[5] See Article 30, Clean Economy Agreement; Article 19, Supply Chain Agreement; and Article 24, Fair Economy Agreement.
[6] Tulika Gupta, Shuva Raha, Kedar Sawant, and Alisee Pornet, Accelerating the Indo-Pacific Energy Transition, CEEW, available at, https://www.ceew.in/sites/default/files/CEEW-Research-On-Accelarating-Indo-Pacific-Energy-Transition.pdf (accessed on 9 October 2024).
[7] Michael Purton, Clean Energy Investment is set to Double that of Fossil Fuel, available at, https://www.weforum.org/agenda/2024/08/clean-energy-investment-just-transition/#:~:text=The%20International%20Energy%20Agency’s%20(IEA,to%20coal%2C%20gas%20and%20oil (accessed on 10 October 2024).
[8] Article 17.4, Clean Economy Agreement.
[10] Fact Sheet: IPEF Clean Economy Investor Forum, USA Department of Commerce, https://www.commerce.gov/news/fact-sheets/2024/06/fact-sheet-ipef-clean-economy-investor-forum (accessed on 21 October 2024).
[11] Id.
[12] India Participates in the Inaugural Indo-Pacific Economic Framework for Prosperity (IPEF) Clean Economy Investor Forum, PIB, https://pib.gov.in/PressReleaseIframePage.aspx?PRID=2023122 (accessed on 21 October 2024).
[13] Id.
[14] Fact Sheet: The IPEF Partners Highlight Continued Progress, Advance Concrete Cooperation, and Welcome the Next Phase of Cooperation, USA Department of Commerce, https://www.commerce.gov/news/fact-sheets/2024/06/fact-sheet-ipef-partners-highlight-continued-progress-advance-concrete (accessed on 11 October 2024).
[15] Article 23 (Cooperative Work Programs) of Clean Economy Agreement, clearly states that the proposed CWPs shall be open to participation by “non-governmental entities and other stakeholders.”
[16] National Green Hydrogen Mission, PIB, available at, https://pib.gov.in/PressReleaseIframePage.aspx?PRID=2039091#:~:text=The%20National%20Green%20Hydrogen%20Mission%20has%20an%20outlay%20of%20₹,6%2C00%2C000%20jobs%20by%202030 (accessed on 11 October 2024).
[17] Work in this CWP is already underway having begun prior to the signing of Clean Economy Agreement, i.e., during the regional hydrogen initiative announced at the Detroit Ministerial of IPEF in May 2022.
[18] Parth Kumar and Manda Agrawal, India to get its own Carbon Market, Down to Earth, available at, https://www.downtoearth.org.in/climate-change/india-to-get-its-own-carbon-market (accessed on 5 October 2024).
[19] Amiti Sen, IPEF: India to Join US-Led Co-operative Work Programme on Carbon Market, Hindu Business Line, https://www.thehindubusinessline.com/economy/ipef-india-to-join-us-led-co-operative-work-programme-on-carbon-market/article67969212.ece (accessed on 21 October 2024).
[20] Ashok Sreenivas and Aditya Chunekar, Carbon Markets in India: Need for a cautious Approach, The India Forum, available at, https://www.theindiaforum.in/climate-change/carbon-markets-india-need-cautious-approach (accessed on 10 October 2024).