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28 January 2025 : The Hindu Editorial Analysis

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1. The Union Budget as a turning point for climate action

(Source – The Hindu, International Edition – Page No. – 8)

Topic: GS3 – Indian Economy, GS3 – Environment
Context
  • The FY26 Union Budget must address India’s climate goals by prioritizing renewable energy, decarbonization, circular economy, green finance, and climate resilience measures.

Focus on Climate Action Amidst Urgent Challenges

  • With only five years left to meet India’s interim Net-Zero targets, the Budget must prioritize policies addressing climate change.
  • Extreme weather events and global climate commitments necessitate immediate and decisive steps to protect vulnerable populations.

Past Achievements in Climate Initiatives

  • The government has introduced impactful programs like 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.
  • India’s renewable energy capacity stands at 203.18 GW, far short of the 2030 target of 500 GW, requiring significant acceleration.

Key Priorities for the FY26 Budget

Strengthening the Green Energy Transition

  • Review of PM Surya Ghar Muft Bijlee Yojana
    • Despite 1.45 crore registrations, only 6.34 lakh installations (4.37%) have been completed, indicating major 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 meets only 40% of solar panel demand, with local panels costing 65% more than imports.
    • The Budget must 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.
    • Public-private partnerships should be encouraged to unlock this potential.

Addressing the EU Carbon Border Adjustment Mechanism (CBAM)

  • The EU’s CBAM, effective January 2026, will levy carbon taxes of 20%-50% on $8.22 billion worth of Indian exports annually.
  • MSMEs, contributing 30% to GDP and 45% to exports, face major risks.
  • A dedicated ‘Climate Action Fund,’ similar to Japan’s Green Transformation Fund, can support decarbonization in vulnerable export sectors and build MSME capacity for CBAM compliance.
 Carbon Border Adjustment Mechanism (CBAM)
  • The EU’s Carbon Border Adjustment Mechanism (CBAM) will be implemented on January 1, 2026.
  • It is designed to prevent carbon leakage by imposing carbon taxes on imported goods with high carbon footprints.
  • CBAM applies to sectors like iron, steel, cement, aluminum, fertilizers, electricity, and hydrogen.Carbon levies are expected to range from 20% to 50% of product value.
  • It poses a significant challenge for India’s MSME sector, which contributes 30% to GDP and 45% to exports.
  • The mechanism aims to align global trade with climate goals, incentivizing exporters to adopt greener production methods.

Promoting a Circular Economy

  • A circular economy could reduce greenhouse gas emissions by 44% and yield ₹40 lakh crore annually by 2050.
  • The Budget should incentivize recycling and refurbishment through:
    • A 150% weighted deduction on investments in recycling infrastructure.
    • Accelerated depreciation benefits for circular economy assets.
  • Establishing a sovereign green bond framework to finance circular economy projects is essential.

Enhancing Climate Resilience Through Insurance

  • India’s insurance penetration dropped from 4% in FY23 to 3.7% in FY24.
  • Tax deductions for insurance companies offering climate-linked policies and lower GST rates for such premiums can improve resilience.

Advancing Green Finance

  • Standardized green finance definitions can attract a share of the ₹162.5 trillion required for India’s climate goals by 2030.
  • Allocations should focus on creating a climate finance taxonomy, verification systems, and financial institution capacity building.
  • Differential tax treatment for green investments can further catalyze progress.

Conclusion

  • Climate policies are critical to maintaining trade and investment competitiveness.
  • Integrating climate action into fiscal planning is key to meeting global sustainability standards and leveraging market opportunities.
PYQ: Clean energy is the order of the day. Describe briefly India’s changing policy towards climate change in various international fora in the context of geopolitics.(250 Words /15 marks) (UPSC CSE (M) GS-2 2022)
Practice Question:  How can the Union Budget FY26 strengthen India’s response to climate change through renewable energy, MSME support, and circular economy measures? (150 Words /10 marks)

For more such UPSC-related The Hindu editorial analysis: –27 January 2025 : The Hindu Editorial Analysis

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