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India’s journey toward rapid economic growth presents a complex balancing act—managing booming expansion while maintaining fiscal discipline and climate goals. The country’s massive developmental needs will drive significant energy demand, with the International Energy Agency (IEA) predicting that India will account for 25 per cent of global energy demand growth over the next 20 years.
To combat climate change, India has committed to achieving net-zero carbon emissions by 2070. At COP26, India set ambitious targets for 2030, including installing 500 gigawatts of renewable energy capacity, reducing the emissions intensity by 45 per cent, and lowering its carbon footprint by one billion tonnes of CO2. Given its pace of economic expansion, India continues to rely heavily on fossil fuels, which account for 88 per cent of its energy consumption, making it the world’s third-largest emitter of greenhouse gases. Notably, India’s per capita emissions and historical contributions to global warming are considerably lower than those of the largest emitters, such as the United States, China, and the European Union.
India’s green transition should not be dictated by the Global North. Policies like the EU’s Carbon Border Adjustment Mechanism (CBAM) and Deforestation Rules unfairly pressure the Global South to decarbonise on the same terms as wealthier nations, contradicting the UNFCCC principle of Common but Differentiated Responsibilities (CBDR), which recognises differing responsibilities based on levels of development. An important question arises: who is responsible for addressing the consequences of past emissions, particularly for countries that have contributed the least?
India’s path to net-zero emissions by 2070 will require investments of $10-$17 trillion, with higher outlays needed in the initial years. Access to low-cost, long-term capital is essential, and international support must reduce technology risks and costs. The EU could assist Global South decarbonisation by channelling funds collected via the CBAM levy. Each nation should set its own sustainable development targets, reflecting its unique context. India has already surpassed its COP21 goals, achieving them nine years ahead of schedule, adhering to the CBDR principle.
The Government of India (GoI) is actively pursuing sustainability goals through various domestic reforms, all of which are aligned with the larger roadmap for a ‘Viksit Bharat’ by 2047. Through a bottom-up approach, key ministries, industry stakeholders, and think tanks like NITI Aayog are collaborating to co-create sector-specific targets in line with India’s Nationally Determined Contributions (NDCs). Tailored transition strategies are being developed for hard-to-abate sectors, ensuring a more nuanced approach to decarbonisation.
India also plans to establish its mandatory carbon market through a Carbon Credit Trading Scheme (CCTS), transitioning energy-intensive sectors from the current Perform, Achieve, and Trade (PAT) scheme to a carbon credit system akin to the EU Emissions Trading Scheme (ETS). Additionally, the Renewable Purchase Obligation (RPO) mandates that by 2025, power generators and industrial sectors must source 29.9% of their energy from renewable sources, increasing to 43.3% by 2030.
A market-based mechanism to incentivise voluntary environmental actions is also being developed, allowing for the trade of green credits for activities such as water conservation and afforestation. To promote sustainable consumption, the Ecomark Certification programme encourages environmentally conscious products with minimal environmental impact that adhere to quality standards. In the energy sector, the National Green Hydrogen Mission, with a budget of Rs 19,744 crore, aims to reduce fossil fuel dependency by producing five million metric tonnes of green hydrogen annually.
The PM Gati Shakti National Master Plan aims to boost industrial productivity and green logistics through multimodal connectivity across transport and infrastructure networks. In waste management, the Extended Producer Responsibility initiative promotes recycling and refurbishment in non-ferrous metals, fostering a circular economy. The Securities and Exchange Board of India (SEBI) has mandated that the top 1000 listed companies disclose their environmental, social, and governance (ESG) practices under the Business Responsibility and Sustainability Reporting framework from the financial year 2022–23. Budget FY25 prioritises energy security, with plans to collaborate with the private sector on small modular nuclear reactors and nuclear energy research and development to accelerate India’s energy transition.
India’s green transition requires a holistic approach, ensuring that all policy initiatives align with national targets. Immediate measures at the policy level are essential.
First, establishing a national green transition governance structure would enhance coordination among ministries. A central body should oversee and evaluate the progress of initiatives across various sectors. Aligning industrial policy with green transition goals is crucial, as demonstrated by the European Green Deal.
Second, a National Green Transition Fund is necessary to support these efforts. The domestic industry faces implicit carbon prices through coal cess, electricity duty, and fuel taxes, which can be used for industrial decarbonisation. Revenue from the CCTS scheme should also support this fund, and streamlining the tax structure can help avoid double taxation amid diverse green regulations.
Third, to decarbonise hard-to-abate sectors, India must expedite the development of alternative energy sources, such as nuclear and hydropower. Urgent amendments to the Atomic Energy Act are needed to attract private investment, targeting a tripling of nuclear capacity to 22,480 MW by FY32. Additionally, the national mission for carbon capture, utilisation, and storage is underway to incentivise carbon mitigation.
Fourth, free trade agreements, particularly with the European Free Trade Association, can facilitate technology acquisition, with India offering tariff reductions based on a $100 billion investment from EFTA countries over the next 15 years. Lastly, effective implementation of green policies demands strong coordination between central and state governments.
(V K Saraswat is member, NITI Aayog. Priya is a Mumbai-based corporate
economist, and Ghosh is a US-based economist)