Budget 2023: ₹35,000 crore outlay for growth in green energy transition

India underlined that its nationally determined contribution to fight climate change will help achieve the long-term goal of reaching net-zero emissions by 2070

Union Budget 2022-23 highlights the government’s focus on energy transition, which is expected to fuel “green growth” in the country in the coming years. Finance minister Nirmala Sitharaman listed “green growth” among four opportunities that can be transformative for India in the run up to 2047, the country’s 100th year of independence. The other three are: economic empowerment of women, integrating traditional artisans with the MSME sector, and tourism.

FM Nirmala Sitharaman listed ‘green growth’ among four opportunities that can be transformative for India in the run up to 2047. (HT File Photo)

“We are implementing many programmes for green fuel, green energy, green farming, green mobility, green buildings, and green equipment, and policies for efficient use of energy across various economic sectors. These green growth efforts help in reducing carbon intensity of the economy and provides for large-scale green job opportunities,” Sitharaman said while introducing the Budget.

The Budget provides ₹35,000 crore for priority capital investments towards net zero transition and energy security by the ministry of petroleum and natural gas, Sitharaman announced. India formally updated its nationally determined contribution (NDC) to fight climate change, confirming to the United Nations Framework Convention on Climate Change last August that it will reduce the emissions intensity of its Gross Domestic Product (GDP) by 45% from 2005 levels by the year 2030, and source about 50% of its energy requirement from non-fossil fuel-based sources the same deadline. India also underlined that its NDC would help achieve the long-term goal of reaching net-zero emissions by 2070.

To be sure, while India appears on track for achieving installed capacity of electricity generation from non-fossil fuel-based sources, actual generation from such sources is more volatile and much lower. Data from the Central Electricity Authority for the 2022 bears this out. Renewable installed capacity averaged 41.5% from January to December last year, growing consistently every month. Generation from renewable sources, on the other hand, averaged 29.2% from January to November (latest available data), with great month-wise variability.

The budget also promised to support through viability gap funding, battery energy storage systems with capacity of 4,000 MWH and formulate a detailed framework for so-called pumped storage projects (those that facilitate storage of hydroelectric power). The main policy to facilitate energy transition however will be the Green Hydrogen Mission which was approved by the Centre on January 4, 2023. The mission, with a target of 5 MMT of green hydrogen production a year by 2030, has an outlay of ₹19,700 crores and “will facilitate transition of the economy to low carbon intensity, reduce dependence on fossil fuel imports, and make the country assume technology and market leadership in this sunrise sector,” Sitharaman said.

The budget has also announced the creation of an interstate transmission system for evacuation and grid integration of 13 GW renewable energy from Ladakh with an investment of ₹20,700 crore of which ₹8,300 crore will be provided by the Centre.

“The budget will lead to significant job creation through the green economy. Support to various sectors like green hydrogen, bio-manure, offgrid solar and storage among others will create economic opportunities for entrepreneurs and job seekers. Interestingly, the budget has specifically allocated a significant amount for evacuation and grid integration infrastructure for harnessing the renewable energy potential for Ladakh. We can expect this to spur the economic development of this region ,” said Vaibhav Chaturvedi, Fellow, Council on Energy, Environment and Water (CEEW).

For the ₹35,000 crore to result in meaningful energy transition, for which $30 billion of energy finance is required every year, three measures are a must, explained Ulka Kelkar, economist and director of the climate programme at World Resources Institute India: ”Risk guarantees to reduce the cost of capital for low-carbon investments in the country; demand aggregation measures as has been done for LED lighting and electric buses; and viability gap financing for hydrogen electrolysers and offshore wind as has been announced for battery storage.”

“I think the budget shows that there is realisation that we must act now. The intent was there but there is more detailing now. We have started putting flesh on the structure. Green Hydrogen is critical but I am also very excited about the bio CNG work and natural farming. The push for natural farming will also make us climate resilient. The convergence of MGNREGS and other funds for mangrove plantation is very interesting. This budget is better than the previous ones,” said Sunita Narain, director general, Centre for Science and Environment.

The budget also said a Green Credit Programme will be notified under the Environment (Protection) Act. “This will incentivise environmentally sustainable and responsive actions by companies, individuals and local bodies, and help mobilise additional resources for such activities,” Sitharaman announced.

The Centre plans to revamp the compensatory afforestation process mainly due to delays in accessing compensatory afforestation funds to raise plantations; the fact that land made available by project developers for afforestation is often far away from the place where the diversion has taken place; cost over-runs for projects; and the low survival rates of plantations. To address these issues, the green credit system proposes that any agency interested in raising plantations or in ecological restoration can access green credits.

Sitharaman also announced PM PRANAM: Programme for Restoration, Awareness, Nourishment and Amelioration of Mother Earth, a scheme that will be launched to incentivise states and union territories to promote alternative fertilizers and balanced use of chemical fertilizers. Around 500 new ‘waste to wealth’ plants will be launched under GOBARdhan (Galvanizing Organic Bio-Agro Resources Dhan) for promoting circular economy. These will include 200 compressed biogas (CBG) plants at total investment of ₹10,000 crore. “In due course, a 5% CBG mandate will be introduced for all organizations marketing natural and bio gas. For collection of bio-mass and distribution of bio-manure, appropriate fiscal support will be provided,” Sitharaman said.

The budget also has provisions for the coastline and wetlands. Sitharaman announced MISHTI , Mangrove Initiative for Shoreline Habitats & Tangible Incomes’ which will focus on mangrove plantation along the coastline and on salt pans through convergence between Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS) and Compensatory Afforestation funds. And the government will promote conservation techniques of local communities through Amrit Dharohar, a scheme that will be implemented over the next three years to encourage optimal use of wetlands, and enhance bio-diversity, carbon stock, eco-tourism opportunities and income generation for local communities. Coastal shipping will be promoted as an energy efficient mode of transport through PPP mode with viability gap funding.

Some analysts said the budget could have done more.

“Balanced fiscal consolidation in a changing climate scenario should have targeted increasing climate adaptation actions spending, especially to make rural economy climate resilient, said Abinash Mohanty, Sector-Head Climate Change and Sustainability, IPE-Global.

Experts also cautioned that since the other major priority for the government is infrastructure development and ease of doing business, the Centre should critically review impact on environment especially from mega development projects.

“The Union Budget reflects the financial allocations for projects and initiatives framed as green or addressing climate change concerns. While this focus is important, it needs to be located within the understanding that these finances, once allocated will necessarily translate into specific projects including renewables, plantations or green manufacturing or linear infrastructure. Each of these sectoral investments require careful examination on the ecological precautions and the social cost assessments which are elusive in both project design and implementation,” cautioned Kanchi Kohli, legal researcher at Centre for Policy Research.

“The budget appears to usher a phase of ‘green transition’, guiding the economy toward a sustainable development pathway. By focusing on implementing various initiatives to increase energy efficiency and lower carbon intensity, it demonstrates a commitment to foster green growth in the nation. The proposed budget places a strong emphasis on the creation of large-scale green job opportunities to prepare young people for mitigating the effects of climate change. The National Green Hydrogen Mission’s outlay of ₹19,000 crore would also support and contribute to green growth and a net zero carbon future. The provision of ₹35,000 crore for energy transformation and net zero emissions would indeed help the nation in achieving its goal of net zero emissions by 2070. India will become a responsible and energy-secure country owing to the Prime Minister’s vision for Lifestyle for Environment (LiFE), which will accelerate the country’s transition to a low-carbon economy and lessen dependency on fossil fuels,” said Satish Kumar, president and executive director, Alliance for an Energy Efficient Economy (AEEE).