India is showing developing economies how to move from climate ambition to action

Despite progress on the energy transition, emissions look set to continue rising in the short term. They are currently at a 1.5% annual increase, far from the 7% annual reduction required to meet the 1.5°C threshold. For developing economies like India, this poses a serious challenge. However, India and other developing economies have the potential to drive impactful change on the global climate agenda.

India is the seventh most vulnerable country in the world to climate change. A third of India’s GDP comes from sectors greatly reliant on nature. The climate crisis could cost India up to 10% of its national income and push 50 million people back into poverty.

India is reacting to the crisis and setting an example for other developing economies to follow. The country has set itself ambitious abatement goals for 2030, including emission intensity reduction of 45% from 2005 levels, generating 50% of power capacity from non-fossil fuels, and increasing its carbon sink by a fifth through additional tree cover, reflecting its strong commitment to combating climate change while balancing developmental priorities. As of March 2024, the non-fossil fuel share for India’s installed capacity has reached ~45%. While this is impressive, the non-fossil fuel-based electricity generation is still at ~23% and thus offers significant scope for growth.

Nationally Determined Contributions (NDCs) are an effective policy tool for countries to demonstrate credible commitment, quantify greenhouse gas (GHG) emission reduction goals and institute national plans to meet the Paris Agreement goals. However, the Global Stocktake shows that current NDCs provide merely ~5% emissions reductions by 2030, far short of the 43% needed. There is therefore an urgent need to set more ambitious NDCs.

Several countries including the UK and Brazil announced updated NDCs at COP29 in Baku, which is encouraging.

Countries need to set more ambitious long-term targets and granular annual targets for all areas of energy transition — for renewable energy, energy efficiency and electrification (including for the transport sector).

The right metrics are also key. For instance, renewable electricity targets should focus on generation share and not only installed capacity, since 1GW of fossil fuel generation capacity and 1GW of solar or wind generation capacity are not comparable in terms of electricity generated throughout the year. Similarly, the focus on electrification should be for the transport sector, but also for other industrial processes. Instituting annual performance reviews will further help ensure that progress is on track.

Developing countries need access to substantial amounts of low-cost finance to accelerate the transition. Climate financing in India grew from ~$20 billion in 2021 to ~$22.5 billion in both 2022 and 2023. However, given that the cost of carbon abatement in developing countries is much lower, every dollar invested will be more effective in reducing emissions. Blended finance instruments, which combine private capital with low-cost debt, philanthropic funds and grants, are crucial to trigger action, especially for adaptation.

Private equity investments can help areas like waste processing, water treatment and food security scale up. Sectors like renewable energy and electric vehicles are relatively more mature and primarily require low-cost debt.

Timely disbursements from the $300 billion annual climate finance pledge for developing countries by 2035 adopted at COP29 will also be important. Additionally, implementing Article 6 — which offers seller countries the opportunity to attract international finance from both governments and private buyers through carbon markets ­— could enable countries to cooperate on emission reductions and attract private investment.

Other critical enablers for climate transition in India and other developing countries are decarbonizing supply chains and advancing circularity solutions — each is vital for building sustainable economies.

Supply chain: Realizing the Indian government’s Viksit Bharat ambitions by 2047 requires scaling up India’s manufacturing capabilities. Decarbonizing supply chains, which can contribute up to 90% of total emissions in many industries today is therefore critical. Businesses must engage suppliers through green standards, incentivize low-emission practices and adopt cleaner production processes. By sourcing sustainable materials and collaborating with suppliers to implement green technologies, companies can drive impactful change across industries.

Circularity: Circular economy strategies can address resource constraints and unlock economic opportunities. India has put in place Extended Producer Responsibility (EPR) regulations for plastics, e-waste, batteries, tires, end-of-life vehicles, batteries and other materials. Efficient recycling processes will lead to high material recovery, reduce dependence on virgin resources and minimize environmental harm. EPR regulations are also leading to creation of new economic ecosystems, each of which offer multiple avenues for investments.

Indian agriculture, dominated by smallholders is highly dependent on favourable temperature, precipitation, groundwater, soil health, and low incidence of pests and diseases. Climate change will aggravate variability across these factors causing challenges with food security for a nation of 1.4 billion people. Agricultural output alone is predicted to drop by 16%, equivalent to a 2.8% GDP loss by 2030. Investing in building climate resilience in addition to mitigation is therefore crucial.

To secure the country’s food security and counter climate change, the Indian government has launched several programmes focused on the country’s agriculture sector. The National Mission for Sustainable Agriculture focuses action on rainfed area development, farm water management and soil health management. The Rejuvenating Watersheds for Agricultural Resilience through Innovative Development Program focuses on improved watershed management to increase farmers’ resilience and has released over 100 high-yielding, climate resilient and biofortified varieties of crops. Collaboration, innovation and successful scale implementation of such programmes will be crucial for India’s food security. Furthermore, ensuring the climate transition is just and equitable is essential.

While the road to a sustainable, low-carbon future is long and complex, the momentum we are witnessing today in India is encouraging. India has emerged high on the Climate Change Performance Index and is charting the path for developing economies to balance growth with climate action.

However, the urgency of the climate crisis demands that we continue to accelerate our efforts. Public-private partnership will be key to sustaining the momentum, and with the right policies, investments and collective action, we can meet the challenges of climate change and seize the opportunity to build a more resilient and equitable global economy. The direction is clear — now we must quicken the pace.