India’s 2015 Union Budget: Implications on Climate Change

The first full Indian Union Budget by Prime Minister Narendra Modi for financial year 2015-2016 was presented in Parliament at the end of February 2015. The budget contains a number of new governmental policy initiatives in the areas of renewable energy and energy efficiency, and seems to legitimize the administration’s seriousness of an energy pathway dominated by clean energy solutions while at the same time securing the nation’s energy future and ensuring access to electricity for all.

Indian action on clean energy, however, can be seen more from an energy security perspective rather than being concerned with climate. A low-carbon future is viewed as a co-benefit rather than a goal for climate action. Such an outlook will not lead to any changes in India’s overall negotiating strategy in the countdown to the UNFCCC international climate conference in Paris at the end of 2015. This was even evident from the recent joint India and US climate announcement during US President Barak Obama’s visit to Delhi, which mainly touched upon clean energy partnerships – unlike the agreement between the US and China.

Indian energy security combined with a push for enhanced industrialization (through a “Made in India” campaign) appear to be the Union Budget’s major drivers of change. Finance Minister Arun Jaitley’s budget speech was delivered peppered with the phrase “ease of doing business in India”, reflecting a number of measures such as simplified tax procedures, reduced corporate tax rates, and so forth.

The budget did not make any reference to climate change, nor, in our view, will there be major changes in some of the Indian negotiation positions at climate change talks – particularly on issues relating to climate finance and equity principles. Be that as it may, some of the areas that the budget touched upon could definitely have positive implications for addressing climate change.

The following points illustrate the Union Budget’s implications for climate action:

  • 1)The Modi government has proposed to double the clean energy levy on coal to Rs200 per ton. The previous administration had set this at Rs 50 per ton, which Modi already increased to Rs 100 in his first interim budget for 2014-2015.
  • In terms of implication, this move could cause a potential increase in the cost of electricity generated from coal. With the falling prices of solar photovoltaic (PV) energy and the costs of wind energy generation already competing with coal, this tax could spur investment in renewable energy rather than future fossil fuels.
  • A recent Deutsche Bank report shows that the cost of energy generation from solar is already on parity with the cost of electricity generation using imported coal. While many refute this fact, the general consensus among Indian energy experts is that the cost of solar generation will be on par with coal by 2017.
  • This is in addition to the fact that the coal energy levy combines additional resources that can be deployed to finance and accelerate new renewable energy capacity consistent with the enhanced targets that have been announced.
  • 2)In his budget speech the Finance Minister formally set revised targets for renewable energy generation, with an additional installed capacity of 175,000 megawatts (MW) until 2022 composed of 100,000 MW solar, 60,000 MW wind, 10,000 MW biomass, and 5,000 MW small hydro.
  • While the revised targets for solar and wind were previously announced in October 2014, using these targets as part of the budget speech and presenting them to parliament perhaps gives them an ‘enhanced commitment’ status. This, coupled with the more than 200 companies making firm investment pledges for setting up renewable energy generation capacity close to 266 gigawatts (GW) over the next five years, sends a strong signal of positive renewable energy investment in India.
  • If all these renewables projects see the light of the day, the Deutsche Bank report indicates that it could dramatically reduce Indian dependence on fossil fuel for power generation. The increase in solar alone could be close to 25% of Indian electricity by 2022.
  • 3) The budget provides allocation to implement 24x7 electricity for all villages by 2020 and all households by 2022. In terms of implication for climate, the budget clearly allocates resources for electrifying 20,000 villages through a combination of off-grid solar solutions, further reducing the country’s dependence on fossil fuel to meet electricity needs.
  • 4) For the first time, perhaps, the government announced schemes for faster adoption and manufacturing of electric vehicles, with a budgetary allocation of Rs 750 million for the financial year 2015-2016.
  • At the moment, there is only one Indian car manufacturer selling electric cars, Mahindra Limited. None of the other major auto manufacturers – Chevrolet, Ford, Nissan, or Renault – have so far introduced electric cars in India. One of the main roadblocks for this is the lack of battery charging infrastructure.
  • In a July 2014 interview given to a national newspaper, Nissan indicated its intent to introduce their electric car, the LEAF, into India. In light of this announcement, it is likely that other car manufacturers are also planning to follow suit, accelerating the processes of electric car manufacturing in India and advancing infrastructure for charging car batteries.
  • India has a huge public transportation market as well, and such infrastructure investment could also drive battery-operated buses nationally. A number of state transport corporations have begun pilot projects to introduce electric buses in India, with commercial vehicle manufacturer Ashok Leyland already having unveiled an electric bus in January this year.
  • 5) Finance Minister Jaitley also announced a budgetary allocation of Rs 53 billion (USD $0.88 billion) for a micro-irrigation scheme. What this entails exactly has not yet been stated clearly, but we are given to understand that this could be related to the September 2014 notification that the Ministry of New and Renewable Energy would be installing 100,000 solar PV irrigation pump sets, which was supported by Rs 4 billion.

While the above points could potentially reduce India’s GHG emissions fairly substantially, the fact is that policy-makers continue to believe “Coal is King”. Sadly, the Union Budget also announced the setting up of five Ultra Mega Power Plant projects, slated for 4,000 MW of capacity each. These plants could have a strong limiting effect on emission reductions. However, the hope is that there will be few bidders for these projects given the rising prices of coal and the falling prices of solar PV.

If India were to achieve its renewable energy generation targets and fully implement country-wide energy efficiency improvement programs, the green energy share in the national energy mix could be substantial – up to and including the magic figure of 25% of the country’s energy generation. Such an achievement could also help hasten addressing the technical challenges of massive renewable energy scale-ups, such as the strengthening and smartening of the grid system or creating policy frameworks for faster penetration of off-grid renewable energy systems.

India has an opportunity to translate some of its ambitious programs and initiatives into its Intended Nationally Determined Contributions (INDCs), which it is likely to submit to the UNFCCC in June 2015. From a climate perspective, and particularly at international climate negotiations, its domestic successes in large-scale renewable energy solutions could perhaps help India shed some of its apprehension in taking a more proactive climate stance.

Click here to access a summary of the Union Budget and speech highlights from the Minister of Finance.

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