How energy efficiency, decarbonisation can propel India's ‘Green Leap Forward’

By prioritising energy efficiency, supporting green finance mechanisms, and accelerating decarbonisation through sectoral shifts, the government can position India as a global leader in sustainability and green growth

As India prepares for the Union Budget 2025, there is a growing sense of anticipation surrounding the government’s approach to addressing climate change through energy efficiency and decarbonisation. India’s ambitious climate commitments—to reduce emissions intensity by 45 per cent by 2030 and achieve net-zero emissions by 2070—have placed the country at the forefront of global sustainability efforts.

As the Union Budget approaches, stakeholders from across industries, the public sector, and civil society are eagerly awaiting policy announcements that will support and accelerate India’s green transition. The upcoming budget presents a significant opportunity to align fiscal measures with the country’s broader climate goals and to ensure that energy efficiency and decarbonisation remain central to the national development agenda.

Energy Efficiency

Energy efficiency is increasingly recognised as one of the most effective and cost-efficient ways to reduce greenhouse gas emissions and curb the impacts of climate change. As the demand for energy continues to rise across sectors like industry, agriculture, and transportation, energy efficiency improvements can help manage this growth while minimising the environmental impact. The Union Budget 2025 is expected to prioritise energy efficiency across various sectors, including industries, micro, small, and medium enterprises (MSMEs), agriculture, municipalities, and buildings.

Key sectors such as industry and MSMEs are pivotal in India’s decarbonisation strategy, with the potential to substantially reduce emissions through energy-efficient technologies. These sectors are also among the most challenging to decarbonise due to their heavy reliance on fossil fuels and high energy demands. The introduction of fiscal incentives such as tax rebates and concessional funding for the implementation of emerging technologies like carbon capture, utilisation, and storage (CCUS) will be crucial in driving down emissions in these hard-to-abate industries.

In particular, the Union Budget 2025 may introduce specific measures aimed at scaling up energy efficiency projects across India. For instance, leveraging energy efficiency financing platforms can help facilitate access to capital for projects aimed at improving energy performance. The government could consider providing interest subvention schemes or concessional financing for MSMEs to implement energy-saving measures. These measures would not only help MSMEs reduce their energy consumption but also reduce their operating costs in the long term, positioning them to be more competitive in a rapidly changing market.

Climate Finance

A transformational shift in climate finance is critical to supporting India’s green transition. While there is a growing recognition of the need for climate action, scaling up investments in clean energy and sustainable infrastructure will require a significant increase in financial flows. The Union Budget 2025 is expected to create an integrated, multi-source funding ecosystem that combines public, private, and international sources to finance green projects. This will be essential to meet India’s ambitious climate goals, particularly in sectors such as renewable energy, energy efficiency, and green hydrogen.

One key area where the government can make a difference is in the establishment of a clear green taxonomy. A robust taxonomy will help guide investments by providing clarity on which projects can be considered “green” and eligible for climate finance. This will not only attract private sector investments but also enable better alignment between government policy and financial institutions. Additionally, promoting energy-efficient technologies and providing targeted incentives, such as lower taxes for green projects, can foster greater private-sector engagement and participation in India’s green growth story.

Another important avenue for climate finance is international cooperation. With India’s focus on renewable energy and decarbonisation, external funding from multilateral development banks and bilateral agreements could play an essential role. The Union Budget 2025 may introduce measures to align India with international climate finance mechanisms, ensuring the country has access to the necessary funds and technology to accelerate its decarbonisation efforts.

Decarbonisation

India’s energy transition is critical not just for achieving climate goals but also for enhancing the country’s energy security. The Union Budget 2025 provides an excellent opportunity to accelerate the decarbonisation of India’s energy sector by increasing support for emerging sectors such as offshore wind, green hydrogen, and solar power. India’s ambitious target of achieving 500 GW of renewable energy capacity by 2030 will require significant investment and a continued push for innovation in energy production.

The government’s support for green hydrogen has already positioned India as a growing player in the global clean energy space. With the Union Budget 2025, there is an opportunity to further strengthen this position by introducing fiscal support measures. Tax holidays, concessional corporate tax rates (ranging from 5 to 10 per cent), and accelerated depreciation benefits would help make India’s green hydrogen projects more competitive in the global market. Furthermore, expanding these benefits to include other green technologies like offshore wind and battery storage systems could help diversify India’s renewable energy portfolio and reduce reliance on fossil fuels.

In addition to direct fiscal measures, the government could also focus on strengthening the local manufacturing ecosystem. The Production Linked Incentive (PLI) scheme has already demonstrated its effectiveness in encouraging domestic manufacturing, and extending this support to clean energy technologies could reduce costs, stimulate innovation, and generate jobs in the green sector. By prioritising domestic manufacturing of key clean energy technologies, India can reduce its dependence on imports, enhance supply chain resilience, and contribute to the global green energy transition.

Conclusion

The Union Budget 2025 will play a critical role in shaping the trajectory of India’s energy efficiency and decarbonisation efforts. With the world watching India’s ambitious climate goals, this budget has the potential to catalyse transformative change. By prioritising energy efficiency, supporting green finance mechanisms, and accelerating decarbonisation through sectoral shifts, the government can position India as a global leader in sustainability and green growth.

In conclusion, the Union Budget 2025 must seize this moment to reaffirm India’s commitment to climate action and sustainable development. Energy efficiency and decarbonisation are not only integral to achieving India’s climate targets but are also central to ensuring long-term economic resilience.

By creating an enabling environment for clean technologies, innovation, and private-sector participation, the budget can pave the way for a cleaner, greener, and more prosperous future for India—one that can achieve both its climate goals and its broader developmental aspirations.

This article first appeared in Firstpost on 31 January 2025.