The United Nations Framework Classification for resources (UNFC) – also known as the Paris Agreement, which was adopted in December 2015, aims to mitigate climate change by holding global warming to two degrees Celsius above the pre-industrial levels, with a target of limiting it to 1.5 degrees Celsius. Currently, major economies like the United States, South Korea, Japan and China have adopted a Net Zero Target and they are moving towards an economy of deep decarbonisation. Although India is a low-middle economy and a low per-capita emitter, it is the world's third largest emitter of greenhouse gases giving it an important stake in the global climate change debate.

Net Zero policy through public and private initiative
On February 1, finance minister Nirmala Sitharaman presented the Union Budget that has ‘green economy’ as one of its main focus points. By 2070, India aims to achieve a net zero carbon emissions. The International Renewable Energy Agency’s Renewable Capacity Statistics 2023 stated that India ranked fourth globally in renewable energy installed capacity, fifth in solar power capacity and fourth in wind power capacity. The Budget of 2024 also mentioned that Gujarat and Tamil Nadu had an initial assessment of close to 70 GigaWatts.

The finance ministry emphasised the initiatives towards a green economy by solarising one crore households, and a government mandate that would blend the compressed biogas with compressed natural gas for transport and domestic purposes. For this transition to take place there is a need for institutional changes and reform in the structure at various levels through government as well as private partners.

At present, National Thermal Power Corporation (NTPC) and Coal India Limited (CIL) are the only two players from the government public sector undertakings that have the upper hand in the energy sector in India. With the Net Zero policy being implemented, the supremacy that these public sector undertakings hold would diminish due to the reduction of coal mining and decrease in usage for CIL and the adoption of rooftop solar energy by households for NTPC. This process would lead to a chain effect affecting many sectors throughout India.

The adoption of the Net Zero policy will not only encourage private players to participate in the energy sector but also foster efficiency gains and make the sector more competitive and diverse. With private players participating, there would be little to no room for inefficiency and would reduce the bargaining power of labour unions. Government enterprises will exist but the political power that lies in labour unions will plummet, eventually becoming zero.

Problems and challenges
A problem that needs to be tackled is the pricing of electricity. The various state governments usually influence the pricing by generous residential houses subsidised prices and imposing higher rates on commercial users. This structure has led to a dependence on fossil fuels by the industrial sector. With the implementation of the Net Zero Policy, there ought to be a structural reform in pricing so that deep decarbonisation is encouraged. Recent research suggests that the elimination of cross-subsidies and the implementation of market-based pricing for electricity could help to curb these problems and advocate decarbonisation. These subsidies could still be given on a ‘need base’ wherever low-income households are quartered.

The Net Zero policy not only entails structural reforms, it also has a cascading effect on the structural change of the working population as many states are fossil-dependent and rely on coal for their revenue. The eastern belt in particular would see a fall in revenue and employment as thousands are employed in the mining industry. To mitigate these effects, the states would need a thorough and detailed strategy of economic development. Also, since most of the labour is unskilled, proper training programme would have to be put in effect to employ them in other industries such as wind or solar energy. To enhance their skills, schools must incorporate information technology, artificial intelligence and other emerging technologies relevant to the energy sector so that the skilled workforce is able to manage the power system and achieve India’s Net Zero policy by 2070.

The way forward
As of now, India does not have an explicit carbon tax. By implementing a policy on carbon pricing through tax or a cap-and-trade system, India could achieve its aim of Net Zero Policy at a faster pace. A recent study from the World Bank suggested through taxation, businesses, and industries would have an economic incentive to reduce their emissions, invest in cleaner technologies and contribute to a green economy through renewable energy resources in the long run. Another industry that has not gained enough traction is the electric vehicle industry – due to its high initial cost and limited charging infrastructure. However, it is predicted that in the coming years, the EV industry in India will boom as these costs reduce through the years and will also contribute to India’s Net Zero policy. Since various industry forecast and the recent Economic Survey also predicted that around 10 million electric vehicles will be sold annually with an annual growth of around 50% between 2022 and 2030.  

With higher incomes and development, citizens are expected to be more environmentally conscious and aware. An illustration of this can be applied to all the countries with the high incomes. India too is on its way as can be seen through its efforts to reduce air pollution in the capital city of India, and other major cities that are affected by it. With advancement in technology and use of artificial intelligence changing and progressing at a faster rate than ever, these tools can be applied in the transformation of India’s energy sector making it more efficient.

For Net Zero, to be successful citizens would need to participate in the process too and make decisions that help the society at large. By advocating retail electricity pricing reform and promoting sustainable consumption patterns, this idea could be achieved. Through a joint effort by the government, industries and citizens, the Net Zero policy would be achieved in 2070 and India would make its way to a green economy.

Sehar Kasal is an alumnus and Dr. Barun Kumar Thakur is Associate Professor at Department of Economics, FLAME University, Pune. The views expressed are personal.