How green is India's stimulus for economic recovery?

As of the beginning of March 2021, no other economy has committed as much money to the energy sector as India has in response to the ongoing global COVID-19 crisis or to meet its long-standing ambitions on other policy objectives, such as energy security, air pollution and climate change. But where is the public money commitment going: towards sustainable energy choices? Or towards fuels or sectors with high carbon emissions?

Analysis of 70 energy-related policies from the Energy Policy Tracker (EPT), as well as India’s annual budget announcements in February 2021 presents a “mixed bag” picture. More than US$120bn has been committed to the energy sector since January 2020, of which renewable-energy-related measures received almost twice as much funding as fossil fuels. However, both are dwarfed by policies related to other sectors. These policies largely support transmission and distribution companies in the power sector and may disproportionately benefit fossil fuels, depending upon whether the government promotes more fossil fuels than clean technologies under such programs. While the COVID-19 crisis has dominated energy sector discourse over the past year, we estimate that around ~22% of the committed value is primarily intended to deal with COVID-19, while the rest of the support reflects ongoing government policy objectives on energy security, climate change and air pollution. In the EPT database, a value is taken for a support measure where government data is publicly available. As a result, a large number of policies (~61%) have not been quantified. Our conservative estimate of US$19bn for these unquantified policies would raise India’s overall commitments to at least US$140bn. However, there are some significant policies that remain unquantified, for both fossil fuels and renewable energy, making it hard to determine how this would affect the split of support between renewable energy and fossil fuels.

The policy measures announced since the beginning of the COVID-19 crisis are largely in the form of government subsidies, amounting to a 93% share of the value committed. Although the actual amount of subsidy support could be much higher because a large number of policies that classify as subsidies have not been quantified. A further 6% of the committed value of the policy measures is through investment into state-owned enterprises while 1% is through public finance. The government has also announced policy measures that promote a particular or combination of energy types without any financial outgo in the form of subsidies or public finance. However, in years to come these policies could involve financial allocation of resources from the government. While the number of such support measures is large, the value committed through them has not been estimated due to unavailability of data.

Against the background of this “mixed bag” of measures, this report recommends six areas for action in order to outline a vision for a green stimulus in India for 2021. These action points are intended to strengthen economic action, increase job opportunities and foster sustainability across the board.

1. Strengthen green industrial policy: As part of restarting the economy, the government should invest in India’s capacity to manufacture for the green energy revolution.

2. Invest in large-scale RE grid integration: Instead of just investing in trying to fix the problems of its existing electricity distribution system, India needs to start investing in the system of tomorrow.

3. Improve energy access: Increase adoption of distributed renewable energy sources and energy efficiency measures. These are low hanging fruit that would help alleviate discom woes while making power more reliable and helping in job creation.

4. Compliance with environmental norms: Avoid further rollbacks in standards and lock-in of fossil fuel assets. Achieving energy security through domestic production that does not exacerbate air pollution or the climate crisis should be the priority.

5. Improved targeting of subsidies and fossil fuel taxation: Targeting of subsidies to the intended beneficiaries and the savings to be redirected for promotion of clean technologies. Increase fossil fuel taxation and attach more conditionalities to new fossil projects in order to level the playing field.

6. Unlocking finance: Government should work on resolving policy and legacy issues to attract the financial institutions to bring in more capital to the deflationary, domestic renewables sector.