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The 27th Conference of the Parties to the United Nations
Framework Convention on Climate Change (COP27) concluded last month
against an uncertain geopolitical landscape. While the
establishment of a “loss and damage” fund at COP 27 was a
significant development, potential beneficiaries and contributors
to the fund remain undecided and it remains to be seen whether
emerging economies such as India will benefit. Other areas
discussed over the course of the conference such as technology
transfer continued to retain an aspirational nature.
The Indian government has submitted its long-term low-emission
development strategy, highlighting major plans to transition to a
low-emissions pathway. As multilateral negotiations remain
lukewarm, leveraging the capacities of the country’s strong
private sector may be a keyway forward for India’s climate
strategy. Here are some measures that the private sector may
consider.
Compliance: To begin with companies must take
steps to meet their own net-zero targets, by reducing emissions in
their own operations and supply chains. Some of the companies in
India have already implemented voluntary internal carbon pricing to
reduce emissions and encourage innovation in the field of a
low-carbon economy. Recent governmental policy signals indicate
that India’s future growth will be export-led. Modern economies
that are conceptualised as being the ideal markets for manifesting
this growth are working on their own mechanisms for carbon
offsetting (such as the EU’s carbon border adjustment
mechanism). This necessitates an increase in investment in
environmental, social and governance (ESG) compliance for Indian
companies as well, as the outcomes of ESG will enable an efficient
transition to incorporate greener and cleaner processes in their
supply chains. Hence, all businesses, big and small, especially
SMEs which have gained increased prominence recently in the global
market, must be cognizant of the mechanisms that are going to be at
play in their markets of choice and pivot their priorities in order
to be compliant, in as efficient in a manner as possible.
Incentive: Carbon credits incentivize the
reduction of emissions by allowing companies to benefit monetarily
from selling allowances. While India does not presently have an
emissions trading system, the Energy Conservation (Amendment) Bill
approved on December 12, 2022 enables the government to set up a
domestic carbon trading scheme. The government’s recent
initiative to issue green bonds further incentivizes private
players to invest in green infrastructure. Early adoption and
onboarding will help businesses minimize any effect on revenue, as
well as build capacity for incisive decision-making when it comes
to international expansion, where carbon markets are much more
developed, efficient and have a larger pool of players.
Investment: A report released in August 2022
estimates that India needs $2.5 trillion by 2030 to meet its
nationally determined contributions and $10.1 trillion to achieve
net-zero emissions by 2070. The report also finds that domestic
sources continue to account for most of the climate finance in
India, with the public sector being the most significant
contributor. Hence, there is significant scope for greater
contributions and private sector participation in climate finance.
For instance, India continues to remain largely dependent on
coal.
According to the World Resources Institute, India’s
non-fossil fuel capacity currently stands at around 170 GW and
needs to rise by 300-400 GW by 2030 to meet the revised nationally
determined contributions. This will require significant effort and
investment towards expanding capacities for clean energy in the
years to come. While the Indian government is making efforts to
realize such capacity, private sector participation in the form of
financing, public-private partnerships and investment can help
strengthen the government’s efforts.
Innovation: While legal and policy steps may be
helpful to control emissions, innovation for new and clean
technologies is essential for sustainability and growth to go hand
in hand. The private sector can play a significant role in research
and development. Technology innovations such as electric vehicles,
green hydrogen, etc., have the potential to initiate a paradigm
shift in lifestyles and climate policy and hasten the transition or
create a pathway to a low-carbon business model. Technology need
not be just a tool to generate revenue and profit, but if leveraged
properly, can also help with fulfilling ESG targets. Greater
participation of the private sector to incubate, foster and invest
in such initiatives by way of green bonds or even financing
promising projects through their CSR machinery can help spearhead
such growth.
While multilateral discussions will continue, India must also be
wary of their limitations. India’s vision of low-carbon
development is based on the need to ensure India’s high energy
needs for development. As developed countries remain reticent on
key topics such as climate finance and technology transfer,
cooperation from India’s burgeoning private sector may play a
key role as we advance.
Sanjay Notani is a partner and Naghm Ghei is a
principal associate at Economic Laws Practice. With inputs from
Mitul Kaushal, a consultant with the law firm. Views are personal
and do not represent the stand of this
publication.
– This article has been published in
MoneyControl
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