India’s 2070 net-zero ambitions include policies that prioritise the decoupling of economic growth from greenhouse gas emissions. Our updated ‘intended nationally determined contribution’ (NDC) goals have set a framework for a low carbon emission pathway for the country, while simultaneously focussing on sustainable development goals. To usher in low emissions growth pathways, India requires huge amounts of green finance to fund mitigation and adaptation efforts.
According to Standard Chartered Bank’s recent study, emerging markets require an additional $98.4 trillion to transition to net zero. India, by itself, is expected to require $17.7 trillion above the already allocated public capital to fund the long-term efforts to cut emissions. Of this massive amount, a financing gap of $12.4 trillion exists, which India will look to developed markets for.
Intimidating as this financing gap may be, we cannot afford to wait for green finance from across international borders. So, how do we begin to address this massive financing gap? What can we do to prevent it from hindering technological innovation and, at the same time, bolster hope for additional climate finance? We start with philanthropic capital that is flexible enough to be spent on various interventions – from roadmaps and research to on-ground implementation – and is not constrained as public capital. It can also catalyse innovation and unlock more finance from the public and private sectors.
Several philanthropists have cultivated expertise across development sectors in India, such as education, healthcare and disaster management. While they are starting to invest in climate solutions, Indian philanthropists tend to be drawn towards adaptation efforts that align with legacy sectors, such as working with communities to increase water storage, or smallholder farmers towards crop diversification.
In addition to these critical developmental challenges, we also need to direct more funds towards mitigation to meet India’s net zero goals. It is clear that funding for adaptation and mitigation must progress together, and philanthropists can encourage the required innovation for mitigation as well.
As we look at reducing the emissions intensity of our economy, we would need to focus on mitigation efforts that will help us reduce the dependence on fossil fuels for energy and industry, while improving land-based carbon sequestration, among others. The government has focussed on cleaning the power sector and improving material and energy efficiency.
We need to supplement the government’s endeavours to de-carbonise the hard-to-abate sectors. Illustratively, the chemicals sector is among the largest GHG industry emitters after the steel and cement sectors. The chemical industry uses fossil fuels as raw material and fuel feedstock. To offset the high growth outlook impact on GHG, emissions intensity reduction targets based on science-based target setting and technological innovation is the need of the hour.
To offset the high growth outlook impact on GHG, emissions intensity reduction targets based on science-based target setting and technological innovation is the need of the hour
Upcoming technologies, dealing with alternative production, energy efficiency and alternative sources of energy, will not only enable industries to improve environmental performance but also achieve reductions in the cost of operations over the period. For example, carbon-neutral hydrogen can spur industrial de-carbonisation and economic growth for India.
According to Niti Aayog, green hydrogen, a carbon-neutral hydrogen type, can help India abate 3.6 gigatonnes of cumulative CO2 emissions by 2050 and help India emerge as a cost-competitive producer of green hydrogen. However, the scale of emission reduction ambition would require that many more technologies are developed and deployed at a massive scale, that too quickly. Allied technologies for energy generation, like energy storage,
smart grids, and efficient turbines, need to be worked upon. Furthermore, while immature technologies exist for mitigation in hard-to-abate sectors like food, aviation, shipping, cement, ammonia, steel and industrial heat, they need to be fine-tuned, requiring higher investment from funders. Carbon capture and storage (CCS) will play a vital role in offsetting unavoidable emissions. The CCS technology, both point source and direct air, are still in the early stages of development.
Climate investments often have longer timelines for development and encounter challenges in deployment, from regulatory approvals to a limited customer base. By financing early-stage inventions, philanthropy can play a patient, catalytic role in climate innovation, facilitating the testing of different technologies and business models.
While philanthropy cannot provide sufficient finance to deploy such technologies at scale, it can adopt an important function of fostering enabling policy environments and making innovations commercially viable for them to scale.
Going forward, private capital will have a big role to play in meeting our net zero goals. With the private sector accounting for 57 per cent of green finance ($210 billion) in India, as of 2019-20, India will rely heavily on private capital to fund mitigation and adaptation efforts to reduce emissions to meet its net zero goals by 2070.
There is also tremendous potential to create economic value with mitigation efforts, with Deloitte’s study predicting that the Indian economy could gain $11 trillion (in present value terms) by 2070 by investing in rapid de-carbonisation. A rising number of technological innovators and unicorn start-ups entering the climate space could also facilitate economic growth aligned with climate mitigation efforts. While private capital could, over the next few decades, help address the ‘missing middle’ in climate innovation finance, for now, philanthropists could provide access to capital to bridge this gap. To drive philanthropy towards climate investments, the mindset must expand from assured immediate impact to the potential for long-term impact.
Philanthropists could also cover other types of risk that funders, such as venture capitalists and markets, will not bear. For example, awareness around climate change and its solutions is important to generate momentum in society to demand change. Funding community wide awareness may not see direct, measurable impact, but it is vital to encourage a culture of innovation in our universities and workplaces.
A Deloitte study predicts that the Indian economy could gain $11 trillion (in present value terms) by 2070 by investing in rapid de-carbonisation
As we transition towards a greener future, energy sources will change and new business models will emerge to incorporate more circularity in the economy. Every resource in the economy will have a possible circular pathway. The business model around how to make each resource circular may be diverse and counterintuitive. It will take entrepreneurs time and patience to fine-tune their value proposition. Working with organisations that help make a viable business model is critical to funding this transition.
Those models that scale will arguably have the most disproportionate impact on the amount spent. However, this impact is not assured, long term, and difficult to quantify. Philanthropists are particularly suited to fund such kinds of work with no or low potential for immediate commercial benefit but could provide long-term ecological, economic, and social benefits.
In addition to adaptation efforts, philanthropists can thus play a catalytic role in development-minded mitigation efforts, inching us towards our net zero goals. Without significant advances in climate innovation, the net zero goals remain afar. And since so much must change in so little time, business leaders, innovators, governments and all the stakeholders working towards a sustainable future need to come together and support the climate innovation landscape in India.
With efforts from a variety of funders, the technological innovation that integrates climate risks, equitable development, and low costs can potentially have ripple effects across the rest of the developing world.