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India’s next investment cycle will shape its carbon future

India’s next investment cycle offers an opportunity to pursue economic growth alongside decarbonisation. With most future buildings yet to be constructed, India must enforce energy-efficient standards, expand renewable-energy transmission and storage, promote green steel and cement through public procurement, and improve green finance.

28 Oct 2026 4 min read 6 views
India’s next investment cycle will shape its carbon future

Quick Revision

Why in news: Recently, the United Nations Environment Programme (UNEP) raised the alarm about crossing the 1.5°C global warming threshold in the coming few years, thus making it more urgent to take action toward decarbonization. While India faces the challenge of balancing economic growth and climate change, its underdeveloped infrastructure makes room for starting with low-carbon growth from scratch. As per NITI Aayog, 86% of the building stock in India for 2070 remains to be built. Total floor space is estimated to grow from 18 billion square meters in 2020 to 42 billion in 2070.

Background

  • Climate change: The UNEP has warned that the world could cross the 1.5°C warming threshold in the coming years.

  • Infrastructure expansion: India’s building stock, steel production, cement output and electricity demand are expected to increase significantly.

  • Development opportunity: A large share of India’s future infrastructure is yet to be built, providing an opportunity to adopt energy-efficient and low-carbon technologies from the beginning.

  • Global context: Advanced economies already have much of their infrastructure in place, making decarbonisation more dependent on retrofitting existing assets.

  • Policy framework: India has introduced energy-efficiency building codes, a green-steel taxonomy and the Carbon Credit Trading Scheme (CCTS).

Features 

Buildings and energy efficiency

  • NITI Aayog estimates that 86% of India’s building stock in 2070 is yet to be built.

  • Building codes such as the Energy Conservation and Sustainable Building Code (ECSBC) 2024 and Eco-Niwas Samhita (ENS) 2024 can improve energy efficiency.

  • States need to strengthen implementation through building permits, occupancy certificates and grid connections.

Power sector transition

  • India has rapidly expanded renewable energy generation, but transmission infrastructure has not kept pace.

  • Transmission bottlenecks have reportedly held back around 60 GW of renewable capacity, according to the article’s IEA reference.

  • Transmission networks and energy storage must be developed alongside renewable generation.

Decarbonising steel and cement

  • Green hydrogen-based steel production is not yet commercially viable at scale in India.

  • Large-scale carbon capture in cement remains a longer-term option.

  • Government procurement can create demand for low-emission steel and cement without forcing industries to adopt a particular technology.

Green finance

  • The cost of capital for grid-scale renewables in India is estimated to be about 80% higher than in advanced economies.

  • Payment-security mechanisms, partial credit guarantees and concessional loans can reduce financing barriers.

  • Public finance should be used carefully where technologies remain unproven.

The Issue in the Power Sector

  • Expanding Transmission and Storage

  • India has expanded renewable-energy generation rapidly, but transmission infrastructure has not kept pace.

  • The IEA estimates that transmission bottlenecks have constrained approximately 60 GW of renewable capacity.

  • Meanwhile, the Ministry of Power plans around 590 GW of generation additions between 2023 and 2032.

  • Without adequate transmission and storage, renewable electricity may not reach consumption centres reliably.

  • Electrification of transport, cooling and industry will further increase demand.

  • Therefore, transmission networks and energy storage must be developed alongside, or sometimes ahead of, new generation capacity.

  • Decarbonising Steel and Cement

  • Decarbonising steel and cement is more difficult because technologies such as hydrogen-based green steel and large-scale carbon capture remain economically or technologically challenging.

  • Premature technology mandates could increase costs and lock industries into inefficient processes.

Using Public Procurement to Encourage Green Industry

  • Instead, public procurement can create demand for low-emission materials.

  • Government agencies, Indian Railways and the National Highways Authority of India purchase substantial quantities of steel and cement, giving them considerable influence over industrial practices.

  • India’s green-steel taxonomy and proposed aggregated procurement through competitive bidding offer a practical approach.

  • Tenders can establish emissions-intensity thresholds without prescribing production methods.

  • Competition would encourage innovation, reveal the additional cost of greener materials and allow standards to become progressively stricter.

  • Aligning these thresholds with the Carbon Credit Trading Scheme (CCTS) would ensure consistent policy incentives and encourage industrial decarbonisation.

Challenges

  • Rising energy demand: Rapid urbanisation, industrialisation and infrastructure development will increase electricity and material consumption.

  • Implementation gap: Building-efficiency standards exist, but their adoption and enforcement remain uneven across States.

  • Transmission constraints: Inadequate grid infrastructure can prevent renewable electricity from reaching consumers.

  • Technological limitations: Green steel and carbon capture still face cost and commercial viability challenges.

  • High financing costs: Expensive capital can make clean-energy projects financially unattractive.

  • Risk of stranded assets: Investments in carbon-intensive infrastructure may require costly retrofits or early retirement.

  • Policy uncertainty: Mandating immature technologies may increase costs and lock industries into inefficient technological pathways.

Way Forward

  • Integrate efficiency into new infrastructure: Enforce building codes through permits, inspections and occupancy approvals.

  • Prioritise transmission and storage: Plan grid expansion alongside, or ahead of, renewable generation and electrification.

  • Use green public procurement: Introduce emissions-intensity thresholds for steel and cement purchased by government agencies, Indian Railways and highway authorities.

  • Adopt technology-neutral policies: Set emission-reduction outcomes instead of prescribing specific production methods.

  • Improve access to finance: Use guarantees, payment-security mechanisms and concessional financing for commercially viable clean infrastructure.

  • Align policy instruments: Link green-material procurement with emissions targets under the Carbon Credit Trading Scheme.

  • Preserve technological flexibility: Support innovation while avoiding premature investment in technologies that are not yet commercially mature.

  • Strengthen Centre–State coordination: Ensure consistent implementation of energy-efficiency and decarbonisation standards.


Conclusion

The need for development in India and its climate pledges should be pursued simultaneously. The next round of investments provides an opportunity not to become locked into carbon-heavy infrastructure. The basic premise would be to use low-carbon technologies that have already been proven while retaining some flexibility in case the technology has not yet matured.

UPSC Prelims Facts

Term: India's Next Investment Cycle Will Shape Its Carbon Future

Meaning: With the UNEP warning that the world could cross the 1.5°C warming threshold within a few years, India's largely yet-to-be-built infrastructure—NITI Aayog estimates 86% of India's 2070 building stock remains to be built, with floor space growing from 18 billion sq m in 2020 to 42 billion in 2070—offers a chance to pursue low-carbon growth from the outset, using energy-efficient building codes, grid and storage expansion, green public procurement for steel and cement, and cheaper green finance.

Related: UNEP, 1.5°C threshold, NITI Aayog, Energy Conservation and Sustainable Building Code (ECSBC) 2024, Eco-Niwas Samhita (ENS) 2024, green-steel taxonomy, Carbon Credit Trading Scheme (CCTS), IEA (60 GW transmission bottleneck; ~590 GW generation additions 2023–2032), green hydrogen-based steel, carbon capture, Indian Railways, NHAI, partial credit guarantees, stranded assets.

Core Themes: Development opportunity of building low-carbon infrastructure from scratch vs. retrofitting in advanced economies; buildings and energy efficiency implementation through permits, occupancy certificates and grid connections; power-sector transition with transmission and storage lagging renewable generation; hard-to-abate steel and cement decarbonisation; high cost of capital (~80% higher than advanced economies) and green finance tools; challenges of rising energy demand, implementation gaps, technological limitations, stranded assets and policy uncertainty; way forward through integrating efficiency into new infrastructure, prioritising transmission and storage, green public procurement with emissions-intensity thresholds, technology-neutral policies, better finance access, aligning with CCTS, preserving technological flexibility and Centre–State coordination.

Prelims angle

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Mains angle

Link to relevant GS themes and frame analytical points.

Syllabus: Environment , Economy

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