India’s Budget Priorities for Achieving Climate Goals

Source: The post India’s Budget Priorities for Achieving Climate Goals has been created, based on the article “The Union Budget as a turning point for climate action” published in “The Hindu” on 28th January 2025

UPSC Syllabus Topic: GS Paper3- Economy-Budget and Environment

Context: The article discusses India’s need to prioritize climate action in the FY26 Budget. It highlights renewable energy goals, the impact of the EU’s Carbon Border Adjustment Mechanism, promoting a circular economy, boosting green finance, and improving climate resilience through insurance.

What are the challenges India faces in achieving climate goals?

1. Renewable Energy Target: India aims for a renewable energy capacity of 500 GW by 2030 but has currently installed only 203.18 GW.
2. Scheme Implementation: The PM Surya Ghar Muft Bijli Yojana has seen low completion rates, with only 6.34 lakh installations out of 1.45 crore registrations (4.37%).
3. Domestic Manufacturing: The local production of solar panels meets only 40% of the demand, with domestically manufactured panels costing 65% more than imported ones.
4. Extreme Weather: Increasingly frequent extreme weather events add urgency to these challenges.

How can the Budget accelerate India’s green energy transition?

1. Enhance PM Surya Ghar Muft Bijli Yojana:

• Out of 1.45 crore registrations, only 6.34 lakh installations (4.37%) are complete.
• Allocate funds to the Renewable Energy Service Company (RESCO) model to reduce upfront costs for low-income households using credit guarantees and innovative financing.

2. Boost domestic solar manufacturing:

• Domestic production meets only 40% of solar demand, with domestic panels costing 65% more than imports.
• Expand production-linked incentives (PLI) across the solar module supply chain to address this gap and reduce costs.

3. Utilize Railways’ land for renewables:

• Railways’ land and track corridors have the potential to generate up to 5 GW of solar and wind energy.
• Introduce public-private partnerships to unlock this opportunity.

How can India protect exports from the EU’s Carbon Border Adjustment Mechanism (CBAM)?

1. CBAM starts in 2026 and could impose 20%-50% carbon levies on $8.22 billion worth of Indian exports to the EU.
2. MSMEs, contributing 30% to GDP and 45% to exports, are most vulnerable.
3. A ‘Climate Action Fund’ is needed to support decarbonization in these sectors, similar to Japan’s Green Transformation Fund.

How can India transition to a circular economy?

1. A circular economy could yield ₹40 lakh crore ($624 billion) annually by 2050 while cutting emissions by 44%.
2. Weighted tax deductions (150%) and accelerated depreciation benefits can promote recycling and refurbishment technologies.
3. A sovereign green bond framework should fund circular economy infrastructure.

How can green finance drive India’s climate goals?

1. Green finance is essential to meet India’s climate goals: India requires ₹162.5 trillion ($2.5 trillion) by 2030 to achieve its Nationally Determined Contributions.
2. Investor confidence through standardized definitions: Standardizing green finance definitions can build investor trust, crucial for attracting the necessary investments.
3. Infrastructure for green finance: Allocating Budget funds for market readiness programs, verification systems, and financial institution capacity building is necessary to implement effective climate finance taxonomy.
4. Encouraging investments: Introducing differential tax treatments for taxonomy-aligned investments can further encourage green investments and help meet climate targets.

Question for practice:

Discuss the challenges India faces in achieving climate goals and how the Budget can address them.