Climate change is one of the defining challenges of this century. Without a global effort to rapidly reduce greenhouse gas emissions, average global temperatures are very likely to exceed 2°C even with current policies in place. While many developing countries made net-zero pledges at COP26 in Glasgow, they face enormous developmental challenges in their attempts to grow in a climate-constrained world. For India, the national context is shaped by high youth unemployment, millions more entering the workforce each year, and a country hungry for substantial investments in hard infrastructure to industrialise and urbanise. Unlike the energy-intensive growth trajectories of the industrialised world, and rapidly industrialising economies like China, India’s economic growth in the last three decades, led by growth in the services sector, has come at a significantly lower emissions footprint. But in the coming decades, India will have to move to an investment-led and manufacturing-intensive growth model to help lift hundreds of millions more out of poverty, create job opportunities for another 300 million expected to enter the workforce by mid-century, and create entirely new cities and infrastructure to accommodate and connect an increasingly urban population. All of this requires a lot of energy. Can India do all of this with a low emissions footprint? What could India do to pursue an industrialization pathway that is climate-compatible?
A green industrialisation strategy
In Glasgow, Prime Minister Narendra Modi’s announced that India will strive to reach net-zero emissions by 2070. While this is commendable, it is essential to follow through with short-, medium- and long-term guiding strategies to ensure that India can maximize developmental gains in this transition. A coherent national transition strategy is important in a global context where industrialised countries are discussing the imposition of carbon border taxes while failing to provide developing countries the necessary carbon space to grow or the finance and technological assistance necessary to decarbonise.
What India needs is an overarching green industrialisation strategy that combines laws, policy instruments, and new or reformed implementing institutions to steer its decentralised economic activities to become climate-friendly and resilient. A market-steering approach rather than a hands-off approach would encourage patient private sector investments in technologies needed to industrialise under climate constraints. While India has provided high level of policy support to deploy renewable energy, its industrial policy efforts to increase the domestic manufacturing of renewable energy technology components have been affected by policy incoherence, poor management of economic rents, and contradictory policy objectives. India managed to create just a third of jobs per megawatt that China has managed to in its efforts to promote solar PV and wind technologies. Academic research provides extensive evidence that policies to develop local innovation capabilities alongside linking with global production networks create the most job opportunities. China’s techno-industrial policy strategy to strategically align RD&D, manufacturing, and deployment of solar and wind technologies paid off not only in its global competitiveness to produce clean energy technologies but also in creating more domestic job opportunities than India’s approach to prioritising only deployment. China has created more jobs in manufacturing solar and wind components for exports than domestic deployment. India could have retained some of those jobs if it were strategic in promoting these technologies.
Recent decarbonisation modeling studies point to a significant role for battery, green hydrogen, carbon capture and storage technologies to decarbonise India’s hard-to-abate transport and industry sectors. While India may have lost the bus in terms of catching up on solar PV innovations, technologies needed to decarbonise the transport and industry sectors provide a significant opportunity. However, India’s R&D investments in these emerging green technologies are non-existent. The production-linked incentives (PLIs) under ‘Aatmanirbhar Bharat’ are a step in the right direction for localising clean energy manufacturing activities. Nevertheless, they still do not address Aatmanirbhar’s economic goal to move from incremental changes to quantum jumps in economic activities. Aligning existing RD&D investments with the technologies needed for green industrialisation is crucial for realising quantum jumps. Besides, India also needs to nurture private entrepreneurship and experimentation in clean energy technologies rather than be indifferent to it as we are today or stifle it as we did in the License Raj era. While the unhealed wounds of failed import substitution industrial policies of the past continue to haunt India’s policymakers, an industrial policy approach is necessary for gaining development co-benefits from the structural transition that climate change demands.
Besides China, Korea’s green growth strategy provide examples of how India could gain economic and employment rents from green industrialisation without implementing restrictive policies. Even the U.S., known for its steadfast belief in free-market principles, has used techno-industrial policies to address compelling issues such as national security and continues to do so for maintaining global leadership in advanced technologies. The Endless Frontier Act, passed in the Senate in June 2021 to make significant RD&D investments in emerging future technologies, is an example of a techno-industrial policy strategy to compete with a rapidly advancing competitor China.
The way forward
There should be no doubt that India’s energy transition should be squarely development-focused and aim to extract economic and employment rents from decarbonisation. The government should neither succumb to international pressure to decarbonise soon nor should it postpone its investment in decarbonisation technologies and lose its long-term competitiveness in a global low-carbon economy. Instead, India should set its pace based on its ability to capitalise on the opportunities to create wealth through green industrialisation. India should follow a path where it can negotiate carbon space to grow, buying time for the hard-to-abate sectors; push against counterproductive WTO trade litigations on decarbonisation technologies; all while making R&D investments in those technologies to ensure that it can gain economic value in the transition. This will not only make India a responsible power but also make its economy competitive in a climate-constrained world.
Easwaran J. Narassimhan is a Research Fellow at Harvard University’s Belfer Center for Science and International Affairs and The Fletcher School at Tufts University