India’s economic development needs will limit the government’s ability to provide sufficient financial support to fund its carbon transition and leave room for the private sector to drive emissions reductions, ratings agency Moody’s said.
Many large corporations have launched a wide range of emissions targets to 2050. The net zero target of 2070 and India’s interim targets (Baa3 stable) to 2030 present significant challenges for policy implementation for the government.
Nishad Majmudar, assistant vice president and analyst at Moody’s, said high growth potential, large economic development needs and a large agricultural sector will likely weaken the government’s political resolve and financial capacity to drive the carbon transition of the economy. Thus, the emission reductions planned by India will be conditioned by low-cost and long-term private capital.
Many large private companies in the country have announced net zero targets which are well ahead of the Indian authorities’ targets, while government-linked companies are relatively behind. Additional policy signals to encourage transition would lead to increased private investment.
The pace of India’s carbon transition will depend on how well the government can balance the needs for energy affordability and reliability against its emission reduction commitments, said Abhishek Tyagi, vice -President and Chief Credit Officer at Moody’s.
Reduced storage costs and scalability of renewable energy projects with storage would support a faster transition.
Referring to climate change targets and the financial sector, Moody’s said Indian banks’ large lending to carbon-intensive sectors exposes them to transition risks, and they will face pressure to decarbonize. their loan portfolios.
At the same time, green finance presents a significant lending opportunity, given the dominant role of banks in credit intermediation in the country.
India’s pursuit of its goals is conditional on the country receiving up to $1 trillion in climate finance from external donors, including multilateral development banks and advanced economies – an unlikely prospect. likely. This gives a greater role to the private sector and private capital to drive emissions reductions.
Many of India’s largest non-financial companies, for example, have also launched carbon neutral or net zero emissions targets of varying stringency over the next three decades.