Economic Survey calls for climate adaptation, cautions against high import reliance for energy transition – EQ

In Short : The Economic Survey emphasizes the need for climate adaptation measures while warning against excessive reliance on energy imports for India’s transition to clean energy. It highlights the importance of domestic manufacturing, strategic resource planning, and policy support to ensure a resilient and self-sufficient energy future.

In Detail : New Delhi – The Economic Survey has suggested a pivot towards climate adaptation or adjusting to the impact of climate change, while calling for building a local supply chain and reducing reliance on imports for energy transition.

As India, the seventh most vulnerable country to climate change, has set ambitious energy-transition and net zero goals, the Economic Survey for FY25 flagged the risk of high import dependence to achieve these targets.

“Energy transition plans must be mindful of geopolitical vulnerabilities and avoid deepening India’s dependence on external sources for critical imports. Strategic thinking is warranted,” wrote V. Anantha Nageswaran, the chief economic adviser to the Government of India, in the preface to the survey.

Calling for climate adaptation, the survey highlighted the high cost of mitigation efforts as renewable energy projects require components and minerals which are largely not available in the domestic market, causing import dependence.

Climate adaptation refers to taking actions to adjust to the current and future effects of climate change, while mitigation focuses on reducing greenhouse gas emissions to limit the severity of climate change. The emphasis on adaptation comes when the U.S. pulled itself out of the Paris Agreement after president Donald Trump took office.

Nageswaran pointed out that energy transition required critical minerals for components such as solar modules and batteries. While India is not a major producer of these minerals, the supply chain is dominated by China.

To be sure, the government has already announced plans to boost critical mineral mining in India. Earlier this year, the Union cabinet approved the ₹34,300 crore for National Critical Minerals Mission.

The survey stressed on the need for a strategy to integrate climate considerations across sectors, with sufficient financing options and targeted policy measures to tackle climate change.

“Scaling up climate investments through budget allocations, green finance, and public-private partnerships will be crucial for India to achieve its climate goals and as the survey suggests, prioritizing investments in building resilient infrastructure will be key for sustained economic growth,” said Viral Thakker, partner and leader for sustainability & climate at Deloitte South Asia.

The survey, however, noted that effectively harnessing and scaling renewable energy resources remained challenging due to a lack of viable storage technologies and limited access to essential minerals.

As India moves ahead towards its 500-gigawatt non-fossil capacity target by the end of this decade, the survey said innovations and investments are required to resolve issues obstructing renewable energy capacity addition, which would include focus on battery storage, grid infrastructure and critical minerals in the short-to-medium term.

Taking a dig at the developed countries over their climate strategies, Nageswaran said: “The two obsessions of the West–the water and power-guzzling AI and energy transition–do not sit well with each other. One has to give.”

Stressing the need for cheaper thermal power even in the energy transition journey, the Economic Survey tabled in the parliament on Friday said the more the West, particularly Europe, goes for wind and solar in its energy mix, the greater is coal consumption in China.

China dominates the production or processing of key materials, but that requires power. And cheaper energy largely comes from coal-fuelled thermal plants, according to Nageswaran. As a result, there is a complex interplay of both fossil and non-fossil power.

“This complex interplay makes one thing clear for India. It has to focus a lot more than it has so far on adaptation than on emission mitigation,” he said, indicating that the thermal power plants need to continue operating while other modes of managing power demand need to be taken up.

“There is no valid economic rationale for shutting down coal plants in India, leaving huge investments underutilized and stranded and without a dependable alternative in place. The US and European countries may transition from coal to natural gas because they have access to that resource, and their older conventional coal-based thermal plants are nearing the end of their life cycle,” Nageswaran wrote in the preface. This reflects India’s renewed push for coal based power plants in the past two years.

The survey noted that unlike many developed countries, India’s only reliable energy source is coal, as it possesses around 10% of the world’s coal reserves but only 0.7% of the world’s natural gas reserves.

“Lessons learnt from the experiences of developed economies caution against shutting down thermal energy without adequate technological alternatives that allow a stable energy supply,” it said.

The Economic Survey said India must decisively leverage its best resources, advanced technologies, and expertise to accelerate its journey toward becoming a developed nation by 2047, while ensuring a low-carbon pathway.

According to the survey, tabled by Union finance minister Nirmala Sitharaman in the parliament, to bolster economic growth, India needs to integrate its climate adaptation plans across agriculture, urban areas, coastal regions, water management, energy transition, and green investment.

India’s total expenditure related to climate adaptation increased to 5.6% of its gross domestic product (GDP) in 2021-22 from 3.7% in FY16, according to the country’s Initial Adaptation Communication that was submitted to the United Nations Framework Convention on Climate Change (UNFCCC) in December 2023.

Addressing the media, Nageswaran flagged import dependence for transition in the power sector and mobility, stressing the need develop local manufacturing capacities.

“(Domestic manufacturing) capacities have increased, whether it is in panels modules cells, etc., but at the same time, dependence also is there at a significant level,” he said. Whether it is in electric vehicle mobility the battery cell components, or in the components that go into solar panels, etc the domestic capacity increase is happening, but given the state of demand and the projections for demand growth, dependence also will continue to be there.”