Delhi – New analysis by Climate Policy Initiative (CPI) clearly demonstrates that, with the right policies, India’s transition to a low-carbon energy system could free up significant financial capacity over the next 20 years to invest in better development and economic growth.
India is trying to meet ambitious renewable energy goals as well as development needs with finite financial resources. CPI’s two reports, “Moving to a Low Carbon Economy: The Financial Impact of the Low-Carbon Transition,” and “Moving to a Low Carbon Economy: The Impact of Policy Pathways on Fossil Fuel Asset Values,” indicate how the global economy can maximize its financial capacity to meet economic and development goals while moving to a low-carbon economy.
In the reports, CPI uses the International Energy Agency’s business-as-usual and two degree change assumptions to simulate current and low-carbon energy pathways. CPI found that, for India:
- Transitioning from oil to low-carbon transport alone could increase investment capacity in India by $600 billion, depending on policy choices. Because India, the U.S., the EU, and China are all net consumers of oil, they stand to benefit if they all reduce their oil consumption in favor of low-carbon alternatives, regardless of whether oil-producing countries choose to act. Policies matter, however. A combination of policies that encourage innovation and reduce demand, such as taxes or ending fossil fuel subsidies, can result in benefits.
- Transitioning to a low-carbon electricity system could also bring financial savings if India can reduce the cost of finance. Renewable energy enjoys significantly reduced operational costs compared to coal-powered electricity, which pays high (and volatile) costs for coal and gas extraction and transportation. These savings, when coupled with a reduction in India’s high financing costs can provide India with additional financial capacity to meet its economic and development goals.
- The government and lenders should also be aware of future risks of fossil fuel asset value loss. Of India’s potential new coal-fired power plants that are currently planned or under construction, 77% are at risk of causing asset value loss in an IEA two degree scenario.
“Our analysis reveals that with the right policy choices, over the next twenty years India and the rest of the world can achieve the emissions reductions necessary for a safer, more stable climate and still free up billions for investment in development and other parts of the economy,” said David Nelson, Senior Director, Climate Policy Initiative.
The priorities for action are clear:
- Innovation and demand-focused policies are the best combination to maximize financial system benefits. For example, in a transition away from oil, a combination of innovation and policies such as taxes or a reduction of fossil fuel consumer subsidies provides the most promising approach to achieve a net increase in India’s financial capacity to invest in its economy.
- Continue to accelerate the growth of renewable energy and energy efficiency. India can save significant operational costs in electricity generation in the transition to renewables, and it can minimize the risk of future asset value loss inherent in building new coal plants. India already has ambitious solar and wind plans, and accelerating those will help India achieve both its energy and development goals.
- Reduce the cost of financing renewable energy plants to significantly lower the cost of transition to a low-carbon economy. In particular, long-term, low-cost debt can reduce the cost of low-carbon power in India by 25%.
CPI’s reports were commissioned by the New Climate Economy project as part of the research conducted for the Global Commission on the Economy and Climate.
For more information, to download the full reports, and to view the interactive web version of the reports, visit ClimatePolicyInitiative.org/publication/moving-to-a-low-carbon-economy.
Climate Policy Initiative (CPI) works to improve the most important energy and land use policies around the world, with a particular focus on finance. We support decision makers through in-depth analysis on what works and what does not. CPI works in places that provide the most potential for policy impact including Brazil, China, Europe, India, Indonesia, and the United States. In India, CPI partners with the Indian School of Business.