Tag Archives: climate policy

India needs a bailout – Can we make it green?

April 3, 2020 | and


This post originally appeared in Economic Times. 

Three weeks of lockdown due to the Coronavirus pandemic and India’s economy will take a beating that could be worse than the lukewarm condition it was already at over the last few years. Estimates show that the lockdown could bring the country’s growth down to 2.5% from 4.5% projected earlier. While health spending must come first, all kinds of industries will need bailouts from the government – airlines, hospitality and energy among them.

This comes at a time when many industries were already challenged. In the months leading up to this crisis, air pollution over Indian cities had hit record levels. Financial markets were struggling with a liquidity crisis. The power sector was also in trouble.

Yet, in the midst of this economic darkness, Delhi’s air has never been cleaner and skies haven’t been more blue. Even urban balconies are seeing sunbirds. Traffic has come to a halt, sidewalks are clean and the new green of springtime is everywhere. Greenhouse gas emissions have no doubt fallen.

But this is not the sort of environmental clean-up people are looking for. Climate action and reducing pollution must come from economic growth, not the loss of it. Reviving the sectors hardest hit by the economic downturn will need direction – rather than straight out cash injections. Perhaps this is our one opportunity to give it that direction – to orient these industries and their markets – towards a green, efficient and inclusive future?

As we tackle this crisis and focus on reflating economies, short term stimulus packages should be directed at the poor – the government of India is already on track with its 1.7 trillion rupee relief package and the Prime Minister’s fund is still in developmental stages. But to recover from recession and also get back on track to high growth, a much bigger recovery package is needed. A long-term stimulus should have incentives for the kind of economy we want – green, clean, inclusive, and efficient. In this way, taxpayer funded economic stimulus policies can function both to re-energize the economy, creating new opportunities and employment, and at the same time look to the next set of challenges.

This is not a new idea but was proven implementable during the US bailout of GM and Chrysler in 2008. The bailout required these firms to produce more energy-efficient fleets. While the auto industry at first balked at these new standards, it was what was needed to make changes in a struggling sector. U.S. auto manufacturing ultimately came out more competitive for it, especially in the field of electric cars. India can apply the same idea to industries at the cusp of a green transition.

There are similar opportunities in many sectors for catalysing such a change, including transportation.

The automotive industry is expecting a big bailout from the government. The auto industry crisis of decreased sales can be used as an offset to increase demand and boost electric vehicles penetration across India. As a starting point, we could create conditional bailout packages requiring delivery companies to shift to electric vehicles, followed closely by simply mandating that public sector agencies and taxi/bus fleets use only electric vehicles. The associated support infrastructure is already emerging – supported massively through government subsidies.

The power sector is another industry deeply affected by the current crisis. Since renewable energy is already cheaper than fossil fuels, any direct assistance here is not needed. Instead, the need is for India to make investments in addressing the structural issues that are holding back the further penetration of renewable energy. One measure could be that relief monies include deep incentives for battery storage, accelerated optimization of battery usage between the vehicles industry and grids, enabling and incentivizing demand response solutions, and earmarking funds to accelerate a further liberalization of energy markets. A structured bailout package could buy down the closure of aging coal plants – but only on condition that they are replaced with renewable-plus-battery combinations.

These ideas are not just good for the environment, but they are good business for India long-term. But how to finance them when there is so much competition for India’s limited funds?

There is also good news here: Even in the middle of the Corona crisis and a very volatile market, State Bank of India raised $100 million in green bonds, its third iteration of such bonds. This transaction reinforces the fact that investors still bet on sovereign backed issuances. Perhaps now is a good time to commit to raising green bonds wherever possible – to fuel sectors that need liquidity, but by indirectly requiring them to move towards greener assets. We could use stimulus funds for both, creating demand and also reducing the cost of issuing green bonds.

And finally, any bailout package must be inclusive. 62% of India’s employment is casual, 85% of that is concentrated in two sectors and on an average earn less Rs 300/day. It is nobody’s guess that daily wage labourers will be worst hit by the Corona crisis. Even regular employment will experience major job and income losses with the prolonged reduction in new hiring. The question is how to bring employment back. If the bottom 80% are disproportionately hit, and they do not benefit, through job reinstatements, any kind of greening package will begin to look removed from reality. Incentives for green and efficient must therefore focus on green job creation and inclusion, serving as a reminder that national funds are being directed towards the economy we want.

Historically we have observed that an economic recession pushes climate change discussions to the margins. However, that was the past – when renewable power was not cheaper than coal, when our air was not grey, and when climate change was not a global crisis.

We are standing at the crossroads of history where our actions will have long-term consequences. It is thus an opportune moment in economic history to reset our growth pathways and truly direct financial capital to funding the kinds of things that will give us the blue skies, clean air, and green power and jobs that we deserve.


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Bailouts for a Better World

April 1, 2020 | , and


A deep economic crisis is expected in the wake of the COVID-19 pandemic health crisis. We applaud the quick action of governments in supporting health workers and institutions, the business sector, and different communities. However, if taxpayer-funded bailouts are not implemented properly we can worsen another crisis: global climate change.

We cannot afford to miss a rare opportunity to enact stimulus policies that can restore economic activity and reduce the risks of climate change. Without enacting climate-friendly incentives or considering the jobs of the future, we risk accumulating financial and environmental debts that will burden our children, who will wonder why we did nothing to change these prospects when we had the chance.

It is not a radical idea.

The bailout of GM and Chrysler during the 2008 financial crisis attached rules requiring the production of more energy-efficient fleets. Turns out, it was the impetus needed to make significant changes in a sector that was already struggling to keep up with foreign competitors. US auto manufacturing emerged more innovative and more competitive, including in the field of electric cars.

Similar opportunities are lurking in many sectors now, including air transportation.

Aviation alone is responsible for 2% of global carbon emissions. There are some industry-led measures in place to reduce these emissions, including the support of biofuels and carbon credits, but they are far from enough to address the industry’s impact on global climate change.

The airline sector is being hit hard, and the shock is likely to persist.  In addition to the short-term impact of travel bans and thousands of cancelled trips, conferences and events, there will be long-term changes as people adjust to virtual meetings, work from home, and other newly-found travel-reduction behavior afforded by digital technologies.

Helping the airlines and other important industries is absolutely necessary to prevent a much worse loss of jobs if nothing is done. However, financial assistance must include climate-impact measures, which will also support the industry’s long-term health and competitiveness.

Measures that would link airline bailouts to limits on carbon emissions is currently out of the US stimulus package. However, other nations can decide to bring the two objectives together when they roll out their own stimulus plans.

One measure could be a carbon tax on jet fuel earmarked to compensate the government in case of losses from loans provided by the bailout, and to retrain airline staff for jobs in new, climate-friendly sectors with strong growth potential. With just a modest impact on air tickets, this could ensure that public money will be available for forward-looking policies that help families now and in coming years.

Oil and gas is another industry to watch. Its global capitalization has been declining and is now deeply affected by the crisis.  The recent crash in oil prices has anticipated what used to be just a possible scenario for 2030. Billions of dollars in fossil fuel assets are poised to be stranded. It would be foolish to just channel fiscal resources and stimulate investments in assets that will be further impacted by economic transformations we know are coming.

The overall picture of the stimulus package matters, but so does its form. For example, financial support could be linked to regulation in the form of conditional loans or equity, affecting public policy goals by taking ownership interests. Ultimately, the goal should be a better integration of public policy goals into decision-making.  This can be achieved by using stimulus funds to transition to clean energy sources, which are competitive, create good jobs and further the goal of energy security. Bold regulatory change is also crucial.

The US should take this moment to create a national market for electricity, under federal regulation in line with the natural gas sector, reducing a serious handicap of renewable energies vis-a-vis fossil fuels.  It would save taxpayer money and could create an economic boom.  The targets in the green deal recently proposed by the EU are a perfect vehicle to sustain the continental economy. The possibilities in Asia are boundless.

The global economy will not be the same after this shock.

The world just achieved something that people thought was impossible: deep cuts in greenhouse gas emissions. China, the world’s largest carbon emitter, reduced emissions by an estimated 25% last month.  Trying to revert to previous patterns when global demand comes back would be an unimaginable lost opportunity.

Joaquim Vieira Ferreira Levy, former CFO and President of the World Bank and the Brazilian Development Bank—BNDES, respectively

Tom Heller, Director, Sustainable Finance Initiative, Stanford University, and Chairman of the Board, Climate Policy Initiative

Barbara Buchner, Global Managing Director, Climate Policy Initiative

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Are we getting climate finance all wrong?

July 22, 2018 |


This post originally appeared on Climate Home.

By Jessica Brown and Ilmi Granoff

It’s widely accepted that by the year 2050, the world needs to be approaching net-zero carbon if the goals of the Paris climate deal are to survive.

This long term rallying point, laid down by experts, has been followed by political commitments from countriescities, and businessesBut much of the thinking on financing this ambition remains stuck in the short term.

Meeting these goals will require enormous progress on energy efficiency, decarbonisation of electricity and fuels, electrification of most transport fleets, building, and industry energy needs.

It will also need massive investments in electricity generating capacity, grid infrastructure, and storage, as well as in both zero-emissions and carbon negative solutions including nuclear energy, carbon capture and storage, soil carbon sequestration, and afforestation and reforestation.

But, despite rapidly increasing clarity on the array of climate solutions needed, the investment implications of achieving midcentury decarbonisation are less understood beyond the need to “scale-up”.

Given the fundamental role finance plays in all facets of the global economy, it’s time to ask: How does a focus on 2050 change how we spend money today?

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California’s cap and trade program leads the way on US climate action

November 28, 2017 | and


In recent weeks, California has continued to cement its leadership role in American climate policy – most recently at the COP23 climate conference in Bonn, Germany. In partnership with other states, cities, indigenous communities, businesses and investors, faith organizations, and numerous other institutions, California has led the U.S. “We Are Still In” coalition representing more than 130 million Americans and more than $6.2 trillion of the U.S. economy.

California Governor Jerry Brown recently announced plans to boost technical and political cooperation on carbon markets with the leaders of the EU and China. This announcement follows enormous legislative progress, compromise, and policy innovation in recent years in California to provide long-term certainty and stability to California’s cap and trade program and broader climate policy regime. This legislative progress includes:

  • SB 350, which strengthens energy efficiency standards for buildings and increases California’s renewable portfolio standard to 50% by 2030
  • SB 32, which legislatively reiterates and extends previous emissions goals to 40% below 1990 levels by 2030
  • AB 398, which legislatively extends the cap and trade program to 2030

AB 398 – the extension of cap and trade through 2030 – is an enormous boon to one of the world’s most effective, large-scale, economy-wide carbon pricing regimes, and an important fortification of California’s climate policy infrastructure.

Prior to the extension, cap and trade revenues were used for high-speed rail and numerous other climate finance projects throughout the state, with 25% of revenues specifically earmarked to support projects in disadvantaged communities. However, California Air Resources Board (CARB) allowance auctions in early 2017 reflected legal and policy uncertainty about the future of cap and trade, and failed to sell out.

The passage of AB 398, with a legislative supermajority, puts to rest past concerns about legal challenges from the fossil fuel industry on the basis of California’s Proposition 13 or Proposition 26 rules regarding new taxes or fees. This decisive victory for carbon-pricing prompted record-breaking sellouts of allowances in the recent August and November auctions, totaling close to $2 billion in revenue generated, sold at clearing prices well above the price floor in both auctions. Analysis from Energy Innovation suggests that the cap and trade extension will generate at least an additional $1.3 billion in revenue for the Greenhous Gas Reduction Fund between now and 2020, and an additional $26 billion in new revenue from 2021-2030.

To achieve this level of support, AB 398 involved key compromises on compliance measures and on how revenues are spent, to assuage concerns from both environmental justice advocates and from traditional industry opponents of cap and trade policy. The key agreements of AB 398 are:

  • It increases the allocation for local climate finance for investments in disadvantaged communities to 35%.
  • It decreases the fraction of compliance that can come from offsets.
  • A companion measure AB 617 increases regulation of local air quality to prevent pollution hotspots in vulnerable communities.
  • And statewide ballot measure ACA1 goes before voters in 2018 proposing a constitutional amendment that would set a higher (two-thirds) legislative threshold for how future cap and trade revenues are spent.

California’s cap and trade extension is not a panacea, and no legislation in an economy and a political landscape as large and complex as California can be perfect. Future challenges to reaching 2030 goals (like allowance oversupply) remain. And California’s climate policy regime will have to remain dynamic and innovative in order to continue to lead, and to make good on stated goals.

But the extension of California’s cap and trade program remains an important legislative step forward, giving markets the stability they need to function while achieving success in pursuit of aggressive emissions reductions.

Climate Policy Initiative’s California Carbon Dashboard continues to provide the latest news, prices, and information to understand California’s cap and trade program and suite of climate policies. You can learn more at www.calcarbondash.org.

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California’s New 2030 Climate Target Aims to Reduce Emissions by 40%

May 1, 2015 |


This week, California Governor Jerry Brown issued an ambitious new emissions reduction target of 40% below 1990 levels by 2030. It’s being lauded as one of the most aggressive climate targets in North America.

The new target is as an important step between California’s goal of reducing emissions to 80% below 1990 levels by 2050, set in an earlier executive order, and the interim target of 1990 levels by 2020, set under California law AB32 in 2006.

In 2013, AB32 launched one of its key policies to reduce greenhouse gas emissions and meet these targets – the Cap and Trade program. Unlike many such programs around the world, California’s Cap and Trade program acts as a backstop to a series of complementary policies that cover major emitting sectors in the state with the goal of returning California emissions to 1990 levels by 2020.

CPI’s California Carbon Dashboard continues to offer the latest on AB32 and California’s Cap and Trade program, including current and historic carbon prices in California, emissions caps and history by sector, and relevant updates from the California Air Resources Board. It also provides a comprehensive overview of AB32 and complementary policies, as well as the role of the Cap and Trade program in meeting the emissions reduction target.

CPI analysis shows that the carbon price is making a difference. A 2014 study explored how industrial firms, which are responsible for 20% of statewide greenhouse gas emissions and are required to buy allowances to cover some of their emissions, are making decisions under the Cap and Trade Program. We focused on the cement industry, which is the largest consumer of coal in California, and found that the carbon price is making a difference in how cement firms approach business decisions about actions that would reduce emissions, such as investing in energy efficiency or switching to cleaner fuel.

It’s clear that California is well on its way to achieving the 2020 target, but meeting the 2050 target would require reducing emissions five times faster than the current pace. Governor Brown’s new 2030 target will put pressure on the state to pick up the pace. The next step is for California’s legislature to put in place a legal framework for post-2020 emissions reductions. CPI will update the California Carbon Dashboard once a post-2020 framework is in place.

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Dear Davos: There Are Ways to Boost Investment in Better, Cleaner Growth

January 22, 2015 |


At the World Economic Forum (WEF) in Davos today, World Bank President Jim Yong Kim called for proper consideration of the risks associated with investing in the high-carbon economy and for more investment in better, cleaner forms of growth.

This video interview with CPI Senior Director Barbara Buchner provides useful background for those at the WEF calling to make 2015 a year of action on climate change. In it she shares CPI’s analysis on how the world is progressing toward the investment needed to limit emissions and climate change and what current financial flows reveal about how we might unlock further investment.

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Indian concentrated solar power policy delivers a world-leading CSP plant but still needs adjustment

June 5, 2014 |


Solar power is one of the most promising options for India to meet its growing electricity demand. While the construction of further fossil fuel power plants is slowing due to lower domestic coal production than expected and the high cost of fuel imports, installations of solar plants are on the rise.

As discussed in a CPI blog, the Government of India’s National Solar Mission, started in 2010, has achieved targets for promoting solar photovoltaic (PV), having seen 660 MW deployed by January 2014. However, plans to deploy concentrated solar power (CSP) – a less mature and currently more expensive alternative with key technological advantages that allow it to deliver power reliably and when it is needed – did not meet with the same success. Over the same period, the government tendered 500 MW of CSP but successful bidders have only installed 10% of this deployment target to date.

In the coming days, however, the National Solar Mission takes an important step forward in its CSP efforts, when the 100MW Rajasthan Sun Technique CSP plant – the largest CSP plant built so far in India and the largest worldwide using linear Fresnel technology – is connected to the grid. In a recent CPI case study, financed by the Climate Investment Funds Admin Unit, Climate Policy Initiative examined this plant to understand why this project was implemented, while others under the National Solar Mission are still delayed. Some of our key findings include:

  • The Government of India’s measures, including awarding a subsidized power purchase agreement (PPA) and payment security scheme through a competitive reverse auction, were essential to getting the Rajasthan plant built but they were not enough to deploy CSP at the desired scale. Indeed, the only winning bidders able to build CSP plants at the low tariffs that resulted from the competitive bidding process were those that had financially strong private stakeholders and were able to source public debt. The 100MW Rajasthan Sun Technique CSP plant, for instance, benefitted from USD 280mn of long-term foreign public debt, a project developer both willing to take risks to establish itself in the Indian CSP market and willing and able to accept low returns, and a technology provider that contributed comprehensive warrantees.
  • India’s CSP policy kept costs to the public low but it will need adjustment to increase the certainty and speed of deployment and meet the country’s ambition to establish a national solar industry. Strong competition among project developers resulted in several submitting bids at prices that put them among the cheapest CSP tariffs worldwide (see also our previous paper on the global CSP landscape). However, project delays, possible cancellations, and difficulties in sourcing technologies and financing experienced by several of these developers – due in part to the challenge of building at such low tariffs – meant India was unable to meet its CSP targets and capitalize more fully on learning-by-doing, establishment of local supply chains, and investments in basic infrastructure, as developed during the implementation of projects like Rajasthan Sun Technique.

If a reverse auctioning scheme is used in India for future scale up of CSP, the design could be substantially improved and the Indian government could increase the likelihood of timely project implementation by:

  • Including stricter qualification requirements for bidders in terms of CSP experience and financial strength
  • Setting out more realistic timelines for bidding
  • Making reliable on-site solar irradiation data available
  • Allowing sufficient time for construction but also then enforcing penalties more strongly for delayed projects

With the 100MW Rajasthan Sun Technique plant commissioning, Indian CSP policy takes an important step forward but there is still a way to go before large scale up of the technology allows the country to balance the cheaper but fluctuating solar PV and wind power with more reliable CSP plants.

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Adjustments to Indian renewable energy policies could save up to 78% in subsidies

April 21, 2014 |


Recently, the Government of India announced plans to award licenses for an additional one gigawatt of solar in the next year – about half the capacity of the Hoover Dam and enough to meet the energy needs of two million people. This move is part of India’s already ambitious targets for renewable energy that aim to address rising energy demand, decrease the country’s dependence on fossil fuel imports, and mitigate climate change.

To ensure the country meets these targets, India provides a package of renewable energy support policies that includes state-level feed-in tariffs and federal subsidies, which are in the form of a generation based incentive – a per unit subsidy; viability gap funding – a capital grant; and accelerated depreciation.

However, given the ambitious goals, but limited budget in India, the cost-effectiveness of these policies is an important factor for policymakers.

Our recent study “Solving India’s Renewable Energy Financing Challenge: Which Federal Policies can be Most Effective?” took on the question of cost-effectiveness by comparing a range of policy alternatives to the status quo.

Our findings were striking. We found that a policy that both reduces the cost of debt and extends its tenor is the most cost-effective. In fact, for wind energy, reducing debt cost to 5.9% and extending tenor by 10 years can cut the cost of total federal and state support by up to 78%. For solar energy, which is more capital-intensive, reducing debt cost to 1.2% and extending tenor by 10 years can cut the cost of support by 28%.

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California’s Climate Credit is Worth Watching

April 17, 2014 |


This month, many Californians will see something new on their electricity bills: The first bi-annual Climate Credit, a payout to customers of investor-owned utilities like PG&E and SCE through California’s Cap and Trade program. The Climate Credit is worth around $30-$40 and will recur every April and October for most customers. However, for customers of some small utilities it will reach nearly $200, while certain small businesses, schools, and hospitals will receive their credit every month.

National and international climate communities are already keeping a close eye on California’s AB32 Global Warming Solutions Act, which includes the Cap and Trade Program as part of a package of policies aimed at cost-effectively reducing California’s emissions. The impact of the Climate Credit — the first of its kind — is worth watching to determine if similar mechanisms could be used successfully elsewhere. In particular, the Credit’s impact on both energy efficiency and public support for the Cap and Trade program will be especially interesting to follow.

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Looking behind IPCC’s WG3 climate finance figures

April 15, 2014 |


Last Sunday, the Intergovernmental Panel on Climate Change (IPCC) released the final version of the Summary for Policymakers for its working group dedicated to the assessment of the options for mitigating climate change. This is the first time an IPCC assessment report features a chapter dedicated to investment and finance. We are thrilled to see that the results draw heavily on CPI Climate Finance pioneering work in the field.

To demystify the term ‘climate finance’ and better understand the magnitude and type of climate financing available, CPI has provided an overview of the climate finance landscape for the past three years. Three particular objectives have guided our work:

(1)  identifying the main dimensions of climate finance,
(2)  highlighting issues and gaps in the tracking of flows, and
(3)  pointing to remedies when needed.

The third edition of this study, the Global Landscape of Climate Finance 2013 is the most comprehensive look at climate investment to-date.

$356-363 bn. went to climate finance projects in 2012…

The Summary for Policymakers indicates that “published assessments of all current annual financial flows whose expected effect is to reduce net GHG emissions and/or to enhance resilience to climate change and climate variability show USD 343 to 385 billion per year globally.” These numbers are taken from the 2012 edition of the Global Landscape of Climate Finance and are relative to the year 2011. We updated these numbers in the 2013 edition and found that climate investment plateaued at an average $359 billion in 2012, far short of even the most conservative estimates of the investment need.

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