Towards COP27: An Agenda for India-Europe Climate Policy Cooperation

Author

Joseph Dellatte

Resident Fellow - Climate, Energy and Environment

COP27: Turning Crisis Into Opportunity

India and the European Union are facing the global energy crisis and the geopolitical turmoil resulting from Russia's invasion of Ukraine. Although this crisis has pushed them to widely diverge in their policies toward imports of Russian resources, room for greater cooperation certainly exists: both regions are net importers of fossil fuels and face many common challenges. Ahead of COP27, what will India and Europe do to adapt their transition plans to the new geopolitical situation? What is the pathway for much-needed enhanced cooperation between Europe and India? Joseph Dellatte our Research Fellow at Institut Montaigne, gives us an overview.

The EU, in addition to the national plans, has implemented the European Green Deal and the Fit-for-55 decarbonization plan, which together aim for a 55% reduction in emissions by 2030 (1990 base). This plan covers the decarbonization of the entire European economy and includes energy taxation, decarbonization of industry, and most importantly the establishment of a carbon border adjustment mechanism (CBAM). The EU and India consider this bilateral partnership in the field of climate change as one of the most important to develop.

At COP26, India committed to achieving carbon neutrality by 2070. This represents a major challenge for the country. In terms of renewable energy installation, to meet India's 2030 target, the country must install at least 10.5 MW of renewable energy capacity per working hour over the next nine years, which is equivalent to installing an average French nuclear reactor every 3.5 days...

Whether India succeeds in maintaining its development growth while decarbonizing its economy will influence other developing countries' transition paths.

India's energy mix can already count on almost 40% of clean energy generation. Still, it is heavily dependent on coal (50%) and coal dependency will continue for many years. This reality has led to a serious "developed countries vs India and China" debate over the wording "phase out" or "phase down" of coal use in the Glasgow Climate Pack. It has political significance, especially when geopolitics is more present than ever in the climate arena: the call for differentiation is always at the forefront of any enhanced relationship between Europe and India on climate change.

Nevertheless, net zero is also beneficial for the Indian economy, which could boost India's GDP compared to a fossil fuel economy scenario. In the case of India, the key dimension to consider is the country's rapid development, which must coincide with the necessary energy transition. In this respect, the Indian situation is highly illustrative for many other developing countries. Whether India succeeds in maintaining its development growth while decarbonizing its economy will influence other developing countries' transition paths. It is, therefore, imperative that developed countries like the EU and its Member States help India prove that there is a viable way to combat climate change and pursue the development agenda simultaneously.

Convergence and divergences between Europe and India in the climate arena

There are clear points of divergence between Europe and India regarding climate and the energy transition. The longstanding debate between responsibility VS differentiation, not unique to India-Europe relations, is still unresolved. Anchored in the principle of "Common But Differentiated Responsibilities" of the Paris Agreement, it debates the role that historical emissions should take in current climate efforts. It will inevitably cause future troubles, clearly visible in the call some Indian stakeholders made: developed nations should not only go for carbon neutrality by 2050, but even go beyond and aim for net negative carbon emissions. This goal has not been well received in many western capitals. Related to this call for effort differentiation, the raising question of climate justice and climate equity, and of course, the discussion of financing loss and damage, will be critical issues for COP27 with high potential for trouble.

Despite the fact that the new EU Carbon Border Adjustment Mechanism may not affect India, the country still co-signed harsh critics against the EU-CBAM alongside China under the BRICS and BASIC Umbrella. These kinds of anti-EUCBAM rhetoric do not bode well for enhanced climate cooperation between the two regions.

Finally, the dependence on Russian fossil fuel imports has become a central issue in Europe with a target to completely remove Russian imports as soon as reasonably possible (in March 2022, the Commission proposed the outline of a plan for this to occur before 2030). By contrast, the same situation has transformed into an opportunity for India to purchase discounted Russian oil. Facing criticism, India emphasizes an "understandable" hard-to-abate dependence, but also a remaining special relationship with the Russian regime. However, behind this divergence is actually a critical convergence, both Europe and India are heavily dependent on fossil fuel imports.

The dependence on Russian fossil fuel imports has become a central issue in Europe with a target to completely remove Russian imports as soon as reasonably possible.

This dependence yields debates for enhanced cooperation on clean energy development, but also further, on technology sharing for energy efficiency. One of the main commonalities between India and Europe is a growing awareness of climate change. Of course, India, with its intensifying hot and humid climate is at the forefront of climate change vulnerability. And as we have seen over the summer of 2022, Europe is also facing critical difficulties due to increased summer droughts and high temperatures. India’s main direct challenge in climate policy lies in enhancing its disaster response capability, adaptation and resilience Policy packages.

Against this backdrop, India and the EU have a relatively weak relationship in the UNFCCC multilateral arena. However, the EU and India consider each other as key partners for climate policy. India, the European Commission, and the EU Member States are steadily increasing their focus on cooperation, for example through:

the 2016 Clean Energy and Climate Partnership
the International Solar Alliance (jointly proposed by India and France)
the Leadership for Industry Transition
the Platform on Sustainable Finance
the Coalition for Disaster Resilience Infrastructure

These numerous frameworks of cooperation reflect the great potential for more collaboration on domestic policies between Europe and India. One can identify future cooperation points for the EU and India, ahead of and after COP27.

Climate finance

At COP26, Prime minister Modi also called for a USD $1 trillion additional climate finance before 2030 for helping India’s energy transition but also to adapt to climate change. This call is a milestone in the global climate policy and emphasizes the cruel reality we currently face: climate financing is insufficient, especially for developing countries. Climate finance will be a key element of negotiation at COP27, particularly for adaptation. Activating climate finance, both publically and privately is key for India and central in the future EU-India relationships. But on what grounds?

The significant increase in climate finance that India needs for its climate transition requires substantial regulatory action and cooperation, including benchmarks for transition finance. The joint India-EU Roadmap to 2025 contains elements that support such cooperation on climate finance. But how can further cooperation be supported?

Public finance cannot be the only answer to the need for climate finance. India and other countries need to attract private finance. For this to succeed, there must be globally recognized norms and cooperation on how to mobilize investment to the right project.

The EU, despite much debate, is a leader in developing a green taxonomy. It would therefore be beneficial for India and the EU to cooperate on benchmarks for transition financing.

The EU, despite much debate, is a leader in developing a green taxonomy. It would therefore be beneficial for India and the EU to cooperate on benchmarks for transition financing. India is developing its own green taxonomy - an area of both convergence and divergence. India has argued that the EU's green taxonomy should not be considered universal and imposed on others, and instead called for co-development to avoid such an undesirable scenario. Discussions on the convergence of benchmarks should take place to avoid the two taxonomies being too far apart and creating uncertainty for investors, e.g., a "green" labeled investment in India could be labeled as greenwashing in the EU. Such a scenario must be avoided.

The EU is trying to ensure that green bonds are consistently truly green. It points to the lack of transparency in existing benchmarks or the absence of reliable benchmarks in countries like India. This creates an area of cooperation for national measurement, reporting and verification (MRV) - to monitor not only emissions but also financial flows to ensure they go to the right carbon-neutral project and avoid greenwashing. Cooperation between the EU and India here would be extremely beneficial.

Decarbonization of industrial sectors

Both jurisdictions want to preserve or grow their industries while decarbonizing. As COP27 approaches, there is a growing call to adopt sectoral approaches to decarbonization. In that respect, green hydrogen and clean energy are the two strategic sectors selected by the EU and India for extensive cooperation.

In this area, further cooperation between the two jurisdictions involves experience sharing. The EU's know-how in developing its own renewable energy fleet and hydrogen strategy would be very valuable for India. In addition, it is also about adopting technologies that already exist to decarbonize a specific industrial sector. There is a critical point here on property rights: how could India and the EU agree on regulations that would favor the diffusion of technologies? The answer probably lies in co-innovation and co-development. In this context, hydrogen plays a central role and the co-development of sectoral standards with Europe is sought by Indians, who cite the example of the successful India-Japan clean energy partnership.

Market mechanism

Market mechanisms are a sensitive issue. However, after the adoption of a rulebook for Article 6 of the Paris Agreement in Glasgow, the avenues for cooperation between India and the EU are now clear. The EU has extensive experience developing emissions trading schemes and has helped other countries, such as China and South Korea, develop their own. India is developing market mechanisms related to energy efficiency without carbon constraints. Actual carbon markets are also increasingly seen as positive in India, both for their effectiveness in reducing emissions and their role in securing climate finance.

This clearly opens a window of opportunity for cooperation, as the EU is the most advanced global partner in this area. Again, an up-and-coming area of cooperation is the MRV of emission reductions. Improving transparency is essential for collaboration with the EU and is now the responsibility of each country, including India. This will also be a crucial discussion at COP27 in preparation for the first Global Stocktake of the Paris Agreement to take place at COP28 in 2023.

Improving transparency is essential for collaboration with the EU and is now the responsibility of each country, including India.

In addition, further cooperation should include experience sharing in revenue-use of a carbon market, which could be very beneficial to India's climate finance needs. This is an obvious point of collaboration with the EU. Finally, opening up a line of discussion on the market mechanism could foster a better understanding of CBAM, a subject of great tension between the EU and India.

Alleviate growing dependence on China for the net zero transition

The current geopolitical turmoil raises a crucial question in India and Europe: where are the technologies needed for the future transition coming from? In practice, China has already captured most of the critical mineral supply chains required for the transition (for photovoltaics and batteries). For Europe, India and other countries, this creates a problematic situation of over-dependence on China, with the risk of a potential bottleneck if no alternative solution is implemented. India, in particular, risks being trapped in a situation of perpetual buyers of innovations essential to its green transition.

The United States, by passing the Inflation Reduction Act (IRA), is taking crucial steps to address this Chinese dependence. Steps include enhancing the production of clean energy and carbon-neutral products in the US, and ensuring an alternative supply chain for materials essential to decarbonization. What could the EU and India learn from the US approach and how should they proceed in reducing their respective dependency on China? Can the EU and India become partners in developing these alternative supply chains? Under what conditions and in what formats?

In this regard, the International Solar Alliance, based in India and launched with France, plays a vital role. Solar photovoltaic (PV) is at the heart of the current and future relationship between the two regions. The EU has the capacity to provide funding and know-how for the development of solar PV. In contrast, India has a vast potential to generate electricity from this type of energy, which presents considerable economic development prospects for India.

The next big issue on problematic dependencies will be green hydrogen, a key technology for the transition of hard-to-decarbonize industrial sectors and potentially for the future of transportation. Europe has the necessary technologies but is not yet able to develop resilient supply chains and scale up development. India, on the other hand, has enormous green hydrogen production capacity. So, would an international hydrogen alliance between Europe, India, and other partners make sense? India and the EU are currently negotiating a free trade agreement. This opens a clear window of opportunity to facilitate hydrogen cooperation between the two regions that seem to complement each other.

India's answer to the G7 Climate club initiative

Finally, the India-Europe climate relationship could flourish if India joined the initiative being discussed at the G7 to create an ambitious climate club. Would India join a climate club that is open to differentiation, allows for deeper cooperation on the decarbonization of critical industrial sectors, but includes a compliance mechanism such as a carbon border adjustment mechanism? Additionally, India will take over the G20 presidency next year. This opens up an opportunity for the country to play a key role in strengthening the G7 initiative by encouraging other G20 countries to join a climate club. This could greatly benefit global ambition and address issues that cannot be resolved in the multilateral arena.

Copyright: Money SHARMA / AFP