CLIMATE-FINANCE GAP

India’s clean-energy transition is often portrayed as prohibitively expensive, with some estimates running into hundreds of billions of dollars per year. But a new study finds that actual financing needs are far more modest and concentrated in just four sectors, with steel and cement accounting for the lion’s share

- Rakesh Mohan & Janak Raj

India finds itself at a critical juncture: it must accelerate economic growth while meeting its climate commitments. Estimates of the country’s climate-financing needs have ranged from $160 billion to $288 billion annually through 2030, but these top-down figures rely on broad assumptions and often fail to reflect sector-specific realities.

In a recent study, we take a different approach, using a bottom-up methodology to provide a more accurate estimate of India’s climate-finance requirements. We focus on four of the country’s highest-emitting sectors: power, steel, cement, and road transport. Importantly, our study measures only the additional capital expenditure required to fund climate mitigation, over and above the investments already expected under a business-as-usual scenario. We estimate that these four sectors will require a total of $467 billion in climate finance by 2030, averaging $54 billion annually, or roughly 1.3 per cent of India’s GDP. This figure is significantly lower than the hundreds of billions of dollars per year suggested by earlier studies.

Although much of the climate debate, both globally and in India, has focused on the costs of the energy transition, our study shows that India’s climate-finance needs are relatively modest. Between 2023 and 2030, the additional capital expenditure required in the power sector is estimated at $57 billion: $47 billion for shifting from fossil fuels to renewables and $10 billion for pumped hydro and battery storage.