A three-step strategy to promote green growth amid changing climate

India needs a new growth model; a green growth model that improves energy efficiency and reduces the carbon intensity of growth.

India is still home to the highest concentration of poor people on earth, and a fast pace of economic growth is needed to lift people out of poverty. But India also needs a more climate-friendly growth to fuel its aspirations and avert the adverse impact of a changing climate.

As India is still at an early stage of development, the payoffs from green growth will be huge.

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How can India promote green growth? A three-pronged strategy is needed: improve energy efficiency, introduce green technology innovation, and promote green urbanisation.

Electricity used to produce output is a key indicator of energy efficiency, and using less electricity to achieve a given level of output translates into green growth. India’s performance on energy efficiency has been mixed, with improvements in some regions and industries but a worsening trend in others.

The potential to adopt new technology is huge, as India is well endowed with resources for renewable energy. Indian cities generate nearly 70% of carbon emissions, and, given that India is urbanising at a rapid clip – one of the fastest in the world - promoting green cities deserves a bigger seat at the table to promote green growth.

Energy efficiency

India has experienced an overall improving trend in energy efficiency, as energy intensity of GDP has declined from 1.09-kilogram unit of oil equivalent (koe) in 1981 to 0.66 in 2021. The energy-intensive industries (iron and steel, fertiliser, petroleum refining, cement, aluminium, and pulp and paper) have greatly improved energy efficiency.

Leading states like Gujarat and Haryana have displayed stronger improving trends in energy efficiency. But energy efficiency trends have worsened in the lagging states, where the usage of electricity per unit output is twice that of the national level.

A more alarming trend is that energy efficiency has worsened in rural areas. India’s manufacturing sector is increasingly located in rural areas, along major transport corridors, like the Golden Quadrangle highway network.

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A more climate-friendly industrialisation can be promoted by scaling up infrastructure investments in rural areas. India’s infrastructure investments will need to be increased by more than 5% of GDP to improve energy efficiency in rural areas.

Green growth can be financed using different sources of infrastructure financing, including global and domestic, and public and private sources.

Private investors have shown an interest, given the traits of infrastructure projects, long-term steady revenue stream, less volatility due to the long-term nature of contracts, and investment returns that can exceed inflation.

The rate of return on infrastructure projects in India are much higher compared to Europe and the USA, given India’s young demographics and rise of the middle class. The use of smart public and private partnerships in projects will reduce the pressure on government budgets and enable risk-sharing in promoting a more climate-friendly growth.

Green technology

India is well-endowed with resources for renewable energy. Solar energy is now a well-established and reliable way to provide affordable modern electricity services.

To expand the usage of new technology in energy installations, like wind and solar farms, more land will need to be allocated to renewables. However, this path will be challenging, given that India is a land-scarce country, and green technology markets will face huge market frictions due to land market distortions.

India can also explore carbon pricing as an instrument for promoting climate-friendly growth. But for this to work, carbon pricing will need to be introduced at the global level, which will face opposition, given that carbon emissions per capita are much lower in India compared to China, Europe and the USA.

Global carbon pricing can distort burden-sharing between developing and developed countries; it can be regressive and hurt poorer people more than richer. Carbon pricing may also fail to capture huge carbon emission generated by urbanisation, deforestation, poor waste management, and land use.

As markets are not always perfect in promoting green growth, India will need to develop a rich policy toolbox to manage interactions between different drivers of economic growth and carbon emissions from a fast pace of urbanisation.

Green urbanisation

To accommodate its fast pace of urbanisation, India needs to build nearly 800 million square metres of urban space every year until 2030. Cities account for 75% of carbon emissions as they trap heat from the sun, which raises temperatures in urban areas to a much greater level compared to rural areas.

Many cities are already being affected by the increased frequency and severity of storm surges and coastal flooding. Climate change and extreme weather conditions have a direct and adverse impact on the health, quality of life, and workability of people.

How can India promote green urbanisation? First, all cities must identify the hazards posed to life from different sources of pollution; the feasibility of various climate actions that cities can take within their jurisdictional control that can offer a high return and promote climate-friendly growth.

This will have a huge pay off as urban infrastructure is still being built in many parts of India, which gives cities a chance to ensure that what goes up is more resilient and can withstand climate risks.

Second, cities need to prepare energy consumption plans in transportation and buildings that can be shifted towards renewable energy. Third, cities need to prepare plans for scaling up forest cover, as the current growth is too slow to meet climate change goals.

(The writer is a Senior Fellow at the Pune International Centre. He has worked for The World Bank and taught economics at Oxford University)