Build Basics Better: A Proposed U.S.-India Climate Agenda

India is one of the few G20 nations on track to meet its target under the Paris Agreement. Globally, the country continues to be at the forefront of energy consumption and transition. India is therefore an important partner of the United States in coordinating global efforts to stabilize greenhouse gas emissions. But the question for this partnership is not whether India's progress in combating climate change is sufficient to meet the long-term Paris goal of limiting global warming to 1.5 degrees Celsius. Rather, the question is whether India’s progress is sustainable in the context of its development deficits.
 
India has set bold targets to move toward a low-carbon path by 2030. This includes achieving 450 gigawatts of renewable energy (RE) capacity, creating an additional 3-billion-ton “carbon sink,” and deploying 100 million electric vehicles. Yet a closer look at the efforts underlying these ambitious goals reveals disjointed policies, patchy progress, and limited capacity.

Ambitious Targets Require a Clear Roadmap

Despite the policy push, India’s progress toward a low-carbon electricity supply remains challenging. Coal continues to dominate the country's electricity generation. Low demand, the emergence of competitive renewable energy, and the high cost of supply have led to stranded generation assets. However, these obstacles have not stopped policymakers from expanding the country’s thermal fleet. The high cost of surplus capacity exacerbates the financial burden on the distribution utilities and leaves little or no resources to augment the electricity grid, which continues to reel under high technical and distribution losses. In addition, metering is erratic and the quality of supply is unreliable, particularly for low-income households. India's grid capacity and market framework therefore remain limited to accommodate a rapid increase in variable RE. 
 
The country's forest area is also growing slowly at 0.56 percent per year since 2017. Insufficient funding, lack of policy coordination between the federal and state governments, and inadequate monitoring are likely to derail India’s afforestation pledge.
 
As of March 2020, the total number of registered electric vehicles in India stood at merely half a million. India's ambitions for low-carbon transportation face many obstacles, including high technology cost, limited charging infrastructure, and low consumer awareness. The main challenge, however, is access to low-cost finance. 
India’s ability to lead a low-carbon development path clearly requires an overhaul of its capacity and resources. Its early development challenges offer ample opportunities for U.S. investors and innovators. U.S. knowledge and experience of new technologies and policy innovation will enable India to internalize the challenges of climate change and manage its impacts.

Common Challenges but Local Context

The United States and India are each facing similar climate challenge from a different stage in their economic growth with varying development contexts. For example, accelerated retirement of coal-fired power plants can fast-track both countries' green recovery. For the United States, the key challenge to thermal retirement is recreating employment. In India, the lack of economic and traditional alternatives to coal impede the phasing out coal plants. Another shared issue for the two countries is the integration of national and sub-national agendas on climate change. Given their complex federal structures, the two nations encounter various headwinds in advancing their climate policies. Moreover, the electrification of transportation, grid integration, and climate resilience in agriculture are just a few more examples of areas where the United States and India share a complex number of overlapping challenges and opportunities. 

Back to the Basics

To leverage the common ground with India on climate change, the United States must demonstrate its understanding of India’s development needs. The United States should consider the following to truly build a stronger foundation for an effective clean energy transition: 
  1. Prioritize the passage of Prioritizing Clean Energy and Climate Cooperation with India Act. The Act lays the framework for institutionalizing U.S.-India cooperation on clean energy, climate resilience, and risk reduction.
  2. Create a U.S.-India smart grid innovation hub. The two countries should establish an innovation-driving platform for incubators and start-ups to develop solutions on digitalization, grid integration, energy storage, and forecasting.
  3. Support demonstration projects. The United States and India should set up public funds for projects in clean technology that can serve as models and mobilize future private investments in both the countries.
  4. Prompt multilaterals to mobilize low-cost finance. Micro, small, and medium-sized enterprises in India should be able to access low-cost financing through partial risk guarantees, innovative foreign exchange hedging instruments, and securitization products.
  5. Strengthen subnational partnerships. The future of U.S.-India relations should be driven primarily by subnational actors, including industry, academia, investors, and research institutes, to galvanize concrete actions.
A strategic alliance with the United States can help India overcome its fundamental barriers, thereby improving its ability to implement progressively ambitious climate action. In this alliance lies the future to lead global action on climate change.
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Neelima Jain
Deputy Director and Senior Fellow, Chair in U.S.-India Policy Studies