India's Green Trade Revolution; Navigating Challenges And Seizing Opportunities For Sustainable Growth

In the context of international trade, the United Nations Environment Program has set forth certain objectives and agendas for an environmentally synchronous trade policy. Of them, the most relevant for India's trade policy are measures to harness trade policies to incentivize and drive green economic transformation, reduction of negative environmental impacts of international trade and trade policies, and supporting environmentally sustainable, resilient, and fair international supply chains.^[3] A starting step in this regard would be to arrive at a comprehensive meaning of green trade; a well-established benchmark against which India's trade statistics can be measured. For the purpose of this study, green trade is taken to mean the volume and size of goods and services forming part of India's imports and exports which directly or indirectly benefit or better the environment, also called green goods and services (hereinafter referred to as “GGS”). GGS are known for their environmentally friendly nature, and are designed to utilize lesser production materials and/or generate lesser carbon footprint as compared to their traditional substitutes.

Global Initiatives

It has been acknowledged worldwide that failing to take steps in the promotion of green trade would result in devastating consequences for the environment, such as a 160%^[4] jump in carbon emissions resulting from merchandise trade. As of 2019, green trade has increased 11 times as compared to 1990.^[5] The United Nations Environment Programme (hereinafter referred to as “UNEP”) has suggested a four-pronged strategy^[6] for the development of a green trade, which focuses on (i) implementation of strong environmental regulations and safeguards; (ii) Carbon Border Adjustment Mechanisms (hereinafter referred to as “CBAMs”); (iii) stronger intergovernmental cooperation; and (iv) stakeholder incentives.

In this aspect, the Green New Deal, first introduced in 2008, was a significant step towards achieving green growth by establishing a synergy between economic growth and environment. Following suit, the World Economic Forum has established a community for the promotion of green trade to provide value to shareholders by strengthening green trade policies within various governments and rolling out domestic initiatives to increase green trade opportunities. One of such initiatives is the Climate Trade Zero initiative, which focuses on sustainability of Global Value Supply Chains (hereinafter referred to as “GVSCs”). GVSCs are worldwide networks used by producers to manufacture goods. GVSCs play an indispensable role when it comes to distributing goods transnationally at different stages of production and lowering costs associated with manufacturing. Concerns have arisen regarding the sustainability of GVSCs. One of the primary contributors towards prevention of green trade is the high level of transportation costs in bilateral trade. A report^[7] found that maritime shipping of goods accounts for 3% of greenhouse gas (hereinafter referred to as “GHG”) emissions, which could multiply by more than 5 times by 2050. Many shipping companies have introduced carbon-free fleets as the demand for green trade rises. To ensure that carbon-free substitutes are preferred over their traditional counterparts, international players have devised auto-correcting measures which disincentivise emission-intensive trade.

Under the Paris Agreement, carbon pricing has been recognised as one of the ways to bolster green trade. Carbon pricing^[8] is a means to curb carbon emissions by levying a fee per tonne of carbon dioxide (hereinafter referred to as “CO₂”) generated in case of increased emissions or an incentive for controlled CO₂ emissions. Several Group of 20 (hereinafter referred to as “G20”) countries have implemented CBAMs to prevent carbon leakage through shareholders and investors moving to jurisdictions which are not stringent in respect of carbon pricing.^[9] CBAMs primarily are a fee levied on import of goods and services from carbon-intensive industries. The European Union (hereinafter referred to as “EU”) and the United States have already established CBAMs in their respective jurisdictions. However, many international players caution against a uniform approach when it comes to green trade as the same might pose significant pitfalls to developing nations in the form of higher tariffs and custom duties.^[10]

A tendency remains that the levy of green tax upon developing and Least Developed Countries (hereinafter referred to as “LDCs”) lead to counter-intuitive effects upon trade. While the world is grappling at the prospects of a green trade revolution, much needs to be done in terms of achieving unity and uniformity without compromising on the welfare of developing nations. The concerted efforts of LDCs ought to be studied microscopically to imitate their success in promoting green trade while achieving sustainable economic development. While international demands are often forsaken, regional policies are often better at promoting indigenous GGS which are sourced and traded locally and regionally.

Initiative Back Home: A Look into Indian Statistics

The scope of green trade in India's economy is abysmally low, however, not completely insignificant. The pressing reasons for the same are potential revenue losses, decreased employment, and lack of carbon-free alternatives in high-demand sectors such manufacturing of steel and refining of petroleum-based goods.^[11] However, under the new regime, several new advancements have taken place. The introduction of the Carbon Credit Trading Scheme (hereinafter referred to as “CCTS”), the Green Credits Programme (hereinafter referred to as “GCP”) and the ECO Mark Scheme are to name a few.

The ECO Mark Scheme provides identification of products which comply with certain specified criteria for perceived environmental impact.^[12] On the other hand, the CCTS and the GCP focus on water conservation, afforestation, sustainable agro-practices, waste management, reduction in air pollution levels, sustainable architecture, and restoration of sensitive ecosystems. The schemes provide for undertaking environment-friendly actions by various stakeholders like individuals, communities, private sector industries, and companies by providing incentive-linked credits.^[13] These initiatives have been implemented in light of India's commitment and vision of achieving net zero GHG emissions by 2070, and were of key importance in Prime Minister Narendra Modi's address during the recent COP-28 Summit. On the domestic turf, the highlight was on green growth.

To achieve the objectives aimed for in the 2024 Interim Budget, many different policies have been brought forth. One of them was the launch of High-Level Principles for a Sustainable and Resilient Blue Ocean-based Economy, to recommit to the G20 principles by prioritizing ocean health and promoting marine spatial planning. Additionally, with the population and GDP on the rise, many studies predict India's growth as a major GVSC.^[14] However, the said goal cannot be achieved without nationwide efforts towards Corporate Social Responsibility (hereinafter referred to as “CSR”). Local and regional manufacturers need to catch up with large conglomerates and Multinational Corporations (hereinafter referred to as “MNCs”) in their CSR initiatives by cultivating a culture of sustainability in trade. Micro, Small and Medium Enterprises (hereinafter referred to as “MSMEs”) need to get on board with the practices followed by other nations to achieve a nation-wide uniformity in supply chain economics.^[15] Industry specific supply chain linkages are important to ensure inland integration for India's growth as a GVSC.

Renewable energy and waste management are two such industries which are set to offer maximum growth as a result of rising Foreign Direct Investments (hereinafter referred to as “FDI”). Many MNCs and Start-Ups are increasing their investments in these sectors through CSR initiatives as well as through manufacturing of goods and services exclusively to achieve carbon-neutrality and green growth. Additionally, there is a need for a relook at India's high trade tariffs on imports, as the same disimprove India's chances to rise as a GVSC^[16], and serve as a barrier towards green market integration on an international scale.

Green Trade in India

India has opened up its markets towards the manufacture of battery storage, EVs, and green hydrogen. Renewable power generation technologies remain the primary highlight of India's green trade. Many predict that by 2047, India would be a green energy exporter if capital flows consistently come in.^[17] The initial steps regarding green hydrogen exports already taken as negotiations with EU nations, Japan, South Korea, and Singapore are underway.^[18] Moreover, the launch of the National Green Hydrogen Mission^[19] makes India a lucrative hub for manufacturing of clean source energy.

However, tensions have emerged with respect to India's exports being subjected to CBAMs in the EU. Non-green products which are yet to see innovation and development in terms of manufacturing using eco-friendly means would be hit the hardest by such non-tariff measures and custom duties. India, along with other developing countries, has remarked that such measures are unilaterally imposed and are not beneficial for developing countries.

In terms of other green goods, India's exports of acrylic polymers, polypropylene sheets, iron, steel, machines and mechanical appliances to Africa increased by 4.7%. India is also an exporter on LI batteries. However, due to the high tariff on import of raw and intermediate manufacturing materials, the exports for LI batteries often suffer. To combat this, apart from reduction in tariffs, emphasis needs to be on incentivising battery production, in comparison to world exporters of LI batteries, such as China, the U.S., Singapore, Indonesia and Germany. This step would also integrate India as a GVSC in battery production, which is essential for EVs.

Over time, there has been a preference shift towards EVs, especially in the case of public transport. Lowered taxes and cess charges incentivize production of EVs. This is bolstered by India's discovery of LI deposits, a harbinger of increased and efficient EV manufacturing.^[20] However, currently only few companies such as Tata Motors and Mahindra & Mahindra are engaged in EV manufacturing, which is a roadblock for India's EV export pipeline. Moreover, the protectionist measures in place to promote this nascent industry sector demote imports from well-established manufacturers of EVs.^[21] The result of this complex paradigm is that the market share of EVs among all transport vehicles remains quite small.

The concept of green trade emerges as a crucial facet of international trade and commerce, characterised by its emphasis on environmental sustainability and social responsibility. It becomes evident that fostering green trade is not merely a choice, but a necessity in order to mitigate the adverse effects of climate change, and to promote sustainable development. The global landscape showcases a growing commitment towards green trade and the imperative to incentivize greener practices. India's journey towards embracing green trade is marked by significant strides, albeit with challenges. Hurdles such as high tariffs on imports and protectionist measures pose obstacles to India's integration into the global green trade landscape. India holds immense potential to emerge as a key player in green trade. The increasing investments in renewable energy infrastructure signal a promising trajectory.

However, addressing barriers such as high tariffs, incentivizing domestic production, and fostering collaboration between industry stakeholders are critical steps towards realizing this potential. The burgeoning demand for green technologies and the global shift towards sustainability present vast opportunities for India to carve out a niche in the green trade market. Even so, achieving this vision requires a concerted effort from policymakers, industry players, and civil society to navigate challenges and capitalize on emerging opportunities. The journey towards green trade is a multifaceted expedition that necessitates collaboration, innovation, and a commitment to sustainable development. India's role in this journey is poised to be transformative, shaping not only its own economic landscape but also contributing to global efforts towards a greener, more resilient future.

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