This blog was first published in Alternate Policy Solutions on February 6, 2023.
Charting a Future for a Just Low Carbon Development in India
The United Nations Conference of the Parties (COP27) recently held at Sharm el-Sheikh concluded with a few notable advances for developing countries. Along with the establishment of a historic Loss & Damage fund, parties to the Paris Agreement introduced a Just Transition Work Programme to ensure the development of low carbon pathways that include socio-economic dimensions aligned with nationally defined development priorities. In its submission of the Long-Term Low Carbon Development Strategy to the United Nations Framework Convention on Climate Change (UNFCCC) during the COP, India underlined the need for financing a just transition in sectors such as energy and transport in order to reach net zero emissions by 2070. (GoI, 2022). How do these developments align with India’s current plans for low-carbon development, and what are the aspects that need to be examined for ensuring that the low-carbon transition is a just, inclusive, and equitable one? In this article, we attempt to unpack some of these elements in the context of India’s unique challenges.
As per its recently updated Nationally Determined Contribution (NDC), by 2030, India aims to reduce emissions intensity of its gross domestic product (GDP) by 45% from 2005 levels and ensure that at least 50% of its installed power capacity is comprised of non-fossil fuel sources (PIB, 2022). India’s big challenge would be to achieve its developmental goals while decoupling economic development from emissions. As an emerging economy, India’s energy consumption across all sectors (buildings, transport, land, and industry) is expected to rise under business-as-usual (BAU) practices. Thus, there is a need for significant transformation in India’s energy and economic systems. For instance, at least 338 GW of installed capacity from non-fossil fuel sources (i.e., solar, wind, hydro (large and small), biomass, and nuclear) is required to meet the electricity demand in 2030 (Energy Policy Solutions, 2022). However, as of July 2022, the total non-fossil fuel installed capacity in India was 160 GW (Ministry of Power, 2022). Thus, new clean energy projects must be rapidly scaled. Most of the country's clean energy projects are likely to be fueled by solar and wind power plants. This is because of a decline in the prices of solar and wind technologies and because the construction of large hydropower projects is associated with significant time delays and large social and ecological impacts.
Within India, the current discourse on clean energy transition is limited to the examination of economic costs, benefits of various technologies, and aggregate impacts. Studies suggest that India can meet its climate and development goals at an aggregate level (Agarwal et al., 2021); however, it could still create regional disparities in GDP and employment across states. This could adversely impact transitioning sectors and worsen existing economic and social inequities, especially for the most vulnerable. These issues, along with limited evidence on the needs of those affected, may limit India’s ability to achieve its goal of a just and equitable low carbon economy. Outlined here are the potential challenges that India could face in pursuing an equitable low carbon development pathway.
Framing Transitional Challenges
Decarbonization of the power sector: Impacts on fossil fuel-dependent communities Decarbonization of the power sector is key to achieving India’s climate goals. By 2050, clean energy sources must power at least three-fourths of the electricity demand, which is three times higher than the current level (Swamy & Agarwal, 2022). Despite huge strides in renewable energy systems, fossil fuel continues to dominate India’s power sector. Almost 3.6 million people in 159 districts are entrenched in the fossil fuel economy through direct or indirect jobs related to the coal mining and power sector (Pai, 2021). A transition towards cleaner fuel must ensure adequate transition support and creation of suitable economic opportunities and livelihoods for those affected.
An overall shift towards cleaner energy sources would lead to a net positive effect on GDP and job creation; analysis shows that by 2050, a low-carbon development pathway for India can generate up to 20 million net additional jobs, while increasing the country’s GDP by 2% over projected BAU levels (Energy Policy Solutions, 2022). However, these new jobs may not be available in the same geographical region. Jobs related to fossil fuels, especially in the mining and power sector, are largely located in Jharkhand, Orissa, West Bengal, and Chhattisgarh. On the other hand, states with high renewable potential are spread across western and southern India, including Tamil Nadu, Maharashtra, Gujarat, and Rajasthan (Pai, 2021). While there is ample potential in states like Jharkhand (Jaganmohan, 2021), adequate planning and support is needed to help transition coal-based districts and communities face the subsequent economic and social impacts.
Trickle-down economics: Distribution of aggregate benefits amongst poorer sections and women As highlighted in the previous section, a shift towards decarbonization would lead to net gains in jobs and GDP at an aggregate level. However, it is unclear how these gains would be distributed among the different sections of society, especially those among the vulnerable. This also applies to the differential impacts of costs that are incurred in the process of transition despite the overall net gains. For instance, to ensure that India is on a decarbonization pathway in the long run, low carbon policies should be implemented in both electricity supply and demand sectors (i.e., transport, buildings, industry, and agriculture) of the economy. This will also imply shifts in the transport, building, and construction sector as well as in industrial processes (Swamy et al., 2021). These shifts, while benefiting the economy, will still entail an increase in the cost of electricity in the short-term and may disproportionately affect the poorest.
To ensure a just and equitable transition, analyses must explore the distributional implications of climate policies across income groups, gender, or regions. This is especially important as lower income households and women are expected to bear significant brunt of climate change impacts (United Nations Environment Programme [UNEP], 2011). Climate policies have the potential to enhance the wellbeing of all and should at least avoid worsening of existing vulnerabilities. Thus, in the Indian context, modeling studies and economic analyses that inform policymakers should also study how current and future policies might affect these groups and suggest necessary policies or instruments, such as social safety nets or compensation for low-income households.
Sectoral transitions: Implications for small businesses and informal workers Decarbonization of the Indian economy will entail significant and structural shifts not only in the power sector but also in industry, transport, and infrastructure sectors. One such example is the auto sector, which is undergoing significant changes as India scales up electric vehicles (EVs). To meet the net zero goal of 2070, it is estimated that the share of EVs in the new passenger vehicle sales should increase to 50–100% across all vehicle segments in 2050; this range is significantly higher than the present negligible shares (Energy Policy Solutions, 2022). With a shift from conventional internal combustion engine (ICE) vehicles towards EVs, small businesses along the value chain may risk losing revenues, and workers may lose jobs and livelihoods. Similarly, export-oriented sectors may face risks from climate regulations in other countries. For example, the steel sector may face revenue losses as Europe implements a carbon border adjustment mechanism to tax products that are emission intensive.
Micro, small, and medium enterprises (MSMEs) are the backbone of the Indian industry, contributing towards 29% of India’s GDP. While 99.5% of these fall under the micro or small enterprise category, they employ over 110 million people who are largely informally employed. The informality of the sector coupled with limited capacities and small size further limits their access to the formal banking system (Lewis, 2021) and exacerbates their vulnerability to economic shocks and industry shifts. Thus, MSMEs may not have the resources to undertake the necessary technological shifts and upgrade to the skillset needed in a low carbon industry.
To ensure that MSMEs and workers, especially in transitioning sectors, benefit from the opportunities of low carbon transition, it is crucial to understand what this transition will mean for small businesses and workers, identify the sectors that may be impacted, and ensure the availability of requisite technology, finance, skilling, and policy support.
Impacts of climate interventions: Localized impacts on livelihoods and access to resources A shift in the power sector from fossil fuels to renewables is key to meeting India’s decarbonization goals. However, this will inevitably involve massive deployment of land intensive large-scale solar power plants. With this, land will increasingly be scarce and will compete with urbanization, agriculture, forestry, and livestock rearing. Deployment of such massive renewable power plants could lead to large scale impacts at a community level. It could affect the livelihood of landowners and landless laborers who are dependent on these lands. It may also reduce the access of pastoralists to water and grazing land. While landowners may be compensated for the transfer of land, landless labourers and pastoralists may receive no benefits. A study in the villages near the Pavgada solar park, one of India’s largest solar projects, has highlighted significant reduction in access to jobs and fewer days of employment, thereby disproportionately impacting poorer landless households (World Resources Institute, 2021). While there is limited research on the social impact of transition to renewable energy, especially in the context of large solar installations in India, there is a need to include the vulnerable in the decision-making process and in negotiating terms of compensation.
Towards a Just and Equitable Low Carbon Transition
We live in an unequal society where social and economic vulnerabilities continue to exist. While ambitious and early climate action is essential, India’s low carbon pathway should not exacerbate existing vulnerabilities but uplift disadvantaged sections of society towards a fairer and more prosperous world. To this end, it is important to identify the potential transitional challenges across income groups, genders, sectors, regions, and communities. Furthermore, there is a need to understand how these potential impacts may affect social and economic outcomes.
Proactive measures for small businesses to manage and mitigate potential transition could include facilitating access to technology transfer, research and development, and testing facilities that could aid small businesses in making the necessary shifts in technology, process, and product. This could be coupled with financial support in the form of public schemes, private financing options, financial incentives, and easier terms to access requisite capital.
Additionally, low-skilled informal workers could be reskilled and upskilled so that they can secure their livelihoods and access jobs of the future.
Despite these efforts, certain social groups may still require further support. For example, in mining districts, social safety nets or direct cash transfers could compensate for job loss.
International finance has the potential to be an important instrument in supporting such social schemes and helping the affected sectors transition away from fossil fuels (European Commission, 2021). The need for financing a just transition is becoming increasingly important, as demonstrated by recent inter-country partnerships like the Just Energy Transition Partnership (JETP) (Indonesia JETP, 2022). It is crucial to ensure that such funds are channelized towards mitigating the adverse distributional impacts of the transition. Furthermore, with carbon pricing policies like carbon tax or carbon market increasingly gaining ground, strategic redistribution of revenues from the tax and auction proceeds may be beneficial at an aggregate level through investments in education and healthcare. This could mitigate some of the inequitable impacts of low carbon transition and produce a multiplier effect on the economy (World Bank, 2019).
While aspiring to move towards a just and equitable low carbon economy, it is also important to define and measure ‘just’ outcomes. To support countries in tracking their long-term progress on fair and equitable outcomes and targeting funds towards the adversely impacted, efforts should aim to identify metrics and indicators that can monitor transition impacts, measure effects of low carbon policies and focus on redressal actions and initiatives. Such metrics could be developed locally, taking into consideration the context, socioeconomic structures, potential transition implications, and availability of data.
Deepthi Swamy was Lead, Climate at WRI India. All views shared by the authors are personal.