Climate Action After Trexit: No Impact on India Yet

"Drill, baby, drill.” This slogan used by the Republicans in 2008 is now almost eponymous with US President Donald Trump’s policies around climate change and energy transition.

Under the Trump 2.0 administration, the US has been reversing several policies on climate change, even as it focusses on drilling oil, using more fossil fuels and expanding mining. It has also withdrawn from the Paris Agreement that seeks to limit global temperature increase to less than 2°Celsius and strive to keep it at 1.5°Celsius.

“In recent years, burdensome and ideologically motivated regulations have impeded the development of these resources, limited the generation of reliable and affordable electricity, reduced job creation, and inflicted high energy costs upon our citizens,” Trump’s first Executive Order on Unleashing American Energy, signed on the day he took the oath of office on January 20, noted.

The countries of the Global South have time and again called out developed countries for inadequate financial support to mitigate the impact of climate change. At the COP29 meet in Baku in November 2024, countries had agreed to provide $300 billion to developing countries to reduce the impact of climate change, but many have said this is not enough.

For much of the developing world, including India, this reversal is a concern, given the huge funding that flows in through the US and various multilateral agencies for climate finance.

In fact, one of the key concerns of the US’ second withdrawal from the Paris Agreement is the pulling out of pledged funds. In 2021, the previous Joe Biden administration had committed to a fourfold increase in the country’s international public climate finance to developing countries to more than $11 billion per year by 2024.

“The rollback of clean energy financing initiatives by the US sends a disconcerting signal to global climate efforts, particularly for large developing countries like India that rely on predictable financial and technological support to meet their net-zero and clean energy targets,” says Aparna Roy, Fellow and Lead, Climate Change and Energy at the Centre for New Economic Diplomacy at the Observer Research Foundation.

Roy says that under the Biden administration, India was able to access a suite of collaborative platforms and financial instruments. Further, the US Trade and Development Agency supported feasibility studies for clean energy projects in India, while technical support and concessional financing mechanisms were routed through the USAID’s South Asia Regional Energy Partnership. “With the US backing away from international climate commitments, this ecosystem of support risks disruption,” says Roy.

Rakesh Jha, Partner, Energy Sector Solutions, Sustainability and ESG at the advisory BDO India, says there will be some challenges due to the recent US policy moves and climate finance withdrawal, which will mean that India will require additional financing of 10-15%. “But, overall, India has been doing well on its decarbonisation plan. The results have been quite inspiring,” he says.

Decarbonisation Road Map

India has among the most ambitious decarbonisation road maps. It aims to have 500 GW non-fossil fuel capacity by 2030 along with a broader target of net-zero emissions by 2070. It has made significant strides towards several of these goals and, in fact, updated the targets for its national climate action plan or the Nationally Determined Contributions for reducing greenhouse gas emissions and adapting to climate change under the UNFCC in August 2022. It now plans to reduce the emission intensity of its GDP by 45% till 2030 from 2005 level (as against the previous target of 33-35%) and achieve about 50% (versus the earlier goal of 40%) cumulative electric power installed capacity from non-fossil fuel-based resources by 2030.

But the road ahead is challenging. As per various estimates, to meet these targets, the country would need investments of $10-12 trillion across several sectors ranging from energy and infrastructure to industry and mobility. India will also need to balance the needs that the goal of becoming developed by 2047 will require. As per a recent finance ministry document, the minimum per capita final energy India will require to become a developed country with an HDI of 0.9 would be 45.7–75 gigajoules per year, as against 16.7 gigajoules in FY23.

Over the years, the government has launched several programmes with a focus on these sectors. India has also been at the forefront of global climate action and has helped set up and participated in initiatives like the International Solar Alliance and the Global Biofuels Alliance.

So far, India has largely relied on budgetary outlays and private investments along with some aid from multilateral institutions. Jha of BDO says India has received about $1.16 billion from the US towards various green finance initiatives. “While this support contributes to meeting the country’s broader financing needs, its scale remains relatively modest and is unlikely to materially impact or hinder the overall trajectory of India’s decarbonisation efforts,” he says.

A New Outlook

Just like in trade, where India is working on new alliances and deals amidst the uncertainty on US tariffs, in climate finance, too, it may have to look for new partners such as the European Union. It will also have to build on its own funding capabilities such as sovereign green bonds and take forward the proposed climate finance taxonomy.

Roy of ORF says India must adopt a multi-pronged financing strategy that does not hinge on a single bilateral partner. First, there is significant scope to deepen the domestic green finance ecosystem, and India must continue to position itself as a preferred destination for blended finance, combining public concessional funds with private capital. “Programmes such as the World Bank’s Scaling Solar and ADB’s investments in Indian renewables have shown that with adequate risk mitigation, large-scale green investments are viable,” Roy says, adding that viability gap funding schemes can also unlock long-term capital.

The finance ministry also recently came out with the draft framework of the climate finance taxonomy that would enhance the availability of capital for climate adaptation and mitigation. Jha of BDO is quite optimistic. “It will have a positive impact on the sector as it aims for direct investments in hard-to-abate sectors such as iron and steel, cement and fertiliser in transitioning to low-emission pathways,” he says.

Despite the US’ current stance, sustainability will remain a key goal for most countries in the backdrop of evident climate change with record temperature spikes, hurricanes, tornadoes and untimely and erratic rains. Further, with the carbon border adjustment tax likely to be imposed by the EU and the UK over the next few years, Indian companies are already working to cut down their emissions and meet the new norms.

India is finding its own path to going green.

@surabhi_prasad