The Hindu Editorial Analysis- 28th January 2025 | Current Affairs & Hindu Analysis: Daily, Weekly & Monthly - UPSC PDF Download

The Union Budget as a turning point for climate action

Why in News?

 The FY26 Union Budget plays a crucial role in shaping India’s response to climate challenges while supporting economic growth. By prioritizing renewable energy, decarbonization, circular economy, green finance, and climate resilience, the Budget can drive sustainable development and protect vulnerable populations. 

 Focus on Climate Action Amidst Urgent Challenges 

•  With only five years remaining to achieve India’s interim Net-Zero targets, the FY26 Budget must prioritize policies that address climate change. 
•  The increasing frequency of extreme weather events and global climate commitments necessitate immediate and decisive actions to safeguard vulnerable populations. 

 Past Achievements in Climate Initiatives 

•  The government has launched impactful programs such as the PM Surya Ghar Muft Bijlee Yojana, support for EV charging infrastructure, and funding for offshore wind energy projects. 
•  The National Green Hydrogen Mission received increased funding, reflecting the government’s commitment to green initiatives. 
•  However, India’s renewable energy capacity, currently at 203.18 GW, falls significantly short of the 2030 target of 500 GW, highlighting the need for accelerated efforts. 

 Key Priorities for the FY26 Budget 

Review of PM Surya Ghar Muft Bijlee Yojana:

•  Despite 1.45 crore registrations, only 6.34 lakh installations (4.37%) have been completed, indicating significant implementation gaps. 
•  Increased fiscal support should prioritize the Renewable Energy Service Company (RESCO) model to make solar energy affordable for low-income households. 

Expanding Solar Manufacturing:

•  Domestic production currently meets only 40% of solar panel demand, with local panels costing 65% more than imports. 
•  The Budget should expand production-linked incentives (PLI) for the solar module supply chain to address this gap. 

Renewable Energy Potential in Railways:

•  Indian Railways’ land and corridors could support up to 5 GW of solar and wind energy. 
•  Encouraging public-private partnerships can help unlock this potential. 

 Addressing the EU Carbon Border Adjustment Mechanism (CBAM) 

Introduction to CBAM:

•  The EU’s Carbon Border Adjustment Mechanism (CBAM) will be implemented on January 1, 2026. 
•  CBAM aims to prevent carbon leakage by imposing carbon taxes on imported goods with high carbon footprints. 
•  Sectors affected include iron, steel, cement, aluminum, fertilizers, electricity, and hydrogen. 
•  Carbon levies are expected to range from 20% to 50% of product value. 

Impact on Indian MSMEs:

•  CBAM poses a significant challenge for India’s Micro, Small, and Medium Enterprises (MSMEs), which contribute 30% to GDP and 45% to exports. 
•  MSMEs in vulnerable export sectors may struggle to comply with CBAM requirements. 

Proposal for a Climate Action Fund:

•  A dedicated ‘Climate Action Fund’ is proposed to support decarbonization in vulnerable export sectors. 
•  The fund can also help build MSME capacity for CBAM compliance, similar to Japan’s Green Transformation Fund. 

 Promoting a Circular Economy 

Benefits of a Circular Economy:

•  A circular economy could reduce greenhouse gas emissions by 44% and yield ₹40 lakh crore annually by 2050. 

Budget Incentives:

•  The Budget should incentivize recycling and refurbishment through: 
•  A 150% weighted deduction on investments in recycling infrastructure. 
• Accelerated depreciation benefits for circular economy assets. 

Sovereign Green Bond Framework:

•  Establishing a sovereign green bond framework to finance circular economy projects is essential. 

 Enhancing Climate Resilience Through Insurance 

Current State of Insurance Penetration:

•  India’s insurance penetration has declined from 4% in FY23 to 3.7% in FY24. 

Proposed Measures:

•  Tax deductions for insurance companies offering climate-linked policies. 
•  Lower GST rates for premiums of climate-linked insurance policies. 

 Advancing Green Finance 

Need for Green Finance:

•  Approximately ₹162.5 trillion is required for India’s climate goals by 2030. 

Focus Areas for Allocations:

•  Creating a climate finance taxonomy. 
•  Developing verification systems for green finance. 
•  Building capacity of financial institutions in green finance. 

Differential Tax Treatment:

•  Implementing differential tax treatment for green investments to catalyze progress. 

 Conclusion 

 Integrating climate action into the FY26 Union Budget is crucial for maintaining trade and investment competitiveness. By prioritizing renewable energy, circular economy, and green finance, the Budget can align with global sustainability standards and leverage emerging market opportunities.