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Energy transition and climate action important pillars of Budget 2022

Energy transition and climate action important pillars of Budget 2022

Energy transition and climate action important pillars of Budget 2022
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By Sonal Bhutra  Feb 2, 2022 1:23:21 PM IST (Published)

Budget 2022: From green hydrogen policy to increased renewable energy targets at COP26 to talks about energy transition, a big change is underway.

The government has not shied away from announcing its green plans to the world in past one year. From green hydrogen policy to increased renewable energy targets at COP26 to talks about energy transition, a big change is underway.

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Budget 2022 also focused on ensuring that investments in this space see an impetus and execution is in place. It outlined a series of announcements to expedite growth in the green energy space.
First, the government announced an additional allocation of 19,500 crore to solar PV module manufacturing under the PLI scheme to ensure that India reaches the 280MW of solar capacity by 2030. The sizeable expenditure is followed by a series of announcements like basic customs duty of 25 percent on import of solar cells and 40 percent on import of solar modules as the government has committed to low carbon development strategy.
Second, the government also mentioned how bio-mass pellets will be used in thermal power generation to ensure lower emissions. The budget says that 5-7 percent of bio-mass pellets will be co-fired in thermal plants resulting in CO2 savings of 38mnte annually. The execution of this plan will be watched out for as bio-fuels have remained a big focus of the government.
Third, sovereign green bonds were the other highlight of Budget 2022, which ensures the Indian government will join a select group of countries that have issued such bonds. So far, India has lagged in issuance of green bonds globally and this would atleast ensure that domestic green bond market is developed.
Gagan Sidhu, Director at CEEW says “The budget proposal to issue sovereign green bonds has several benefits, principal among which is signalling the country's seriousness in pursuing climate action. India will now join a select group of countries, primarily European, which have issued such bonds. We can also expect this move to catalyse development of the domestic corporate green bond market. Green bond issuances by Indian companies in the overseas debt capital markets have considerably lagged so far.
According to him, if sovereign green bonds price at lower yields versus their non-green counterparts, it will also provide an added signal for the private sector to direct their own capital towards green investments.
“This important move also ties in with the capital expenditure push – a key feature of this budget – and cuts across two of the four pillars that the Finance Minister highlighted in the budget speech: Energy Transition and Climate Action, and Financing of Investments," he added.
Fourth, the other big announcement was push on e-mobility. Considering the space constraint in urban market, the battery swapping policy and inter-operability standards would be formulated to promote use of clean mobility in urban markets. The private sector would be encouraged to develop business models for ‘Battery’ or‘Energy-as-a-Service’.
Fifth, an additional basic excise duty of Rs 2/lit has been imposed on petrol and diesel, intended to be sold to retail consumers without blending. This would be levied with effect from Oct 1, 2022. This is to ensure that ethanol blending is higher to lower the emissions.
Nandita Tripathi, Partner and Tax Sector Head- ENR, KPMG has called it a ‘green budget’ with a strong push for EVs, clean energy and transition towards circular economy. PLI schemes for domestic capacity building and green sovereign bonds, coupled with significant capital expenditure commitment put the country on the right path for sustainable growth and development
India has been one of the few nations to achieve the NCDs (nationally determined contributions) to fight climate change. It is getting more ambitious with these targets but the execution and the financing capabilities need to be watched out for.
For full coverage of Union Budget 2022, click here
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