India is progressing in enhancing its renewable energy capacity and moving towards its decarbonization goals, with a commitment to achieve net zero emissions by 2070 and interim targets set for 2030, according to a report by Moody’s. Although some advancements have been made in reducing greenhouse gas (GHG) emissions, the rapid growth of India’s economy and population is driving energy demand, presenting substantial challenges for its carbon transition efforts.

John Wang, Vice President – Senior Analyst at Moody’s Ratings, stated, “India aims for net zero by 2070, and has made some progress toward its 2030 decarbonization milestones. However, the country’s expanding economy will continue to increase GHG emissions.” India’s share of global GHG emissions rose from 6.7% in 2019 to 7.5% in 2022, as the country maintained one of the fastest growth rates worldwide.

With projections of 7.2% economic growth in 2024 and 6.6% in 2025, energy needs are expected to rise significantly. Increased household incomes are likely to boost the consumption of energy-intensive products like automobiles. Total power consumption is forecasted to reach 2,524 Terawatt hours (TWh) by the fiscal year 2030-31, up from 1,734 TWh in 2023-24 and just 832 TWh in 2010-11.

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While India remains the world’s third-largest GHG emitter, its per capita emissions are lower than those of other major economies, suggesting potential for further reductions. Wang noted, “India is likely to meet its 2030 target of having over 50% of its cumulative electric power installed capacity from non-fossil fuel resources, which will necessitate investments of USD 190 billion to USD 215 billion over the next seven years. The significant pipeline of announced projects will keep financial leverage high for rated renewable power companies in the next 2-3 years, which is a credit negative.”

However, the growing energy demand complicates the transition to low-carbon sources, making it challenging for India to meet its decarbonization targets. While the country is on track to achieve its 2030 goal for non-fossil fuel resources, reaching this will require substantial investments.

Despite growth in renewables, coal remains the predominant energy source, accounting for 74.7% of power generation in the fiscal year 2023-24. India’s reliance on coal is expected to persist in the short term due to its reliability and the increasing demand for power, with an additional 40-50 GW of coal-based capacity likely to be added in the next six to seven years.

India’s industrial landscape is still heavily influenced by carbon-intensive sectors like oil and gas, steel, and automotive manufacturing. Many companies are focused on expanding production to satisfy rising domestic demand, which may limit overall emission reductions despite ongoing decarbonization efforts. High adoption costs, technological challenges, and insufficient regulatory policies further hinder the transition.

The financial requirements for India’s decarbonization are considerable. The power sector alone will need an estimated investment of 3.4% of GDP annually from 2024-25 to 2030-31 to align with global net-zero goals. The private sector is expected to cover a significant portion of these costs, given the government’s constrained spending due to fiscal consolidation efforts.

If not managed carefully, the shift to a low-carbon economy could heighten social risks. The agriculture sector, which employs 43% of the workforce, is particularly vulnerable to climate-related shocks. The transition could result in skill mismatches, job losses, and increased income inequality. The government’s 2024-25 budget includes Rs 2 trillion (USD 24 billion) for new employment schemes aimed at preparing the workforce for this transition, but significant challenges still lie ahead.

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