The United Nations Environment Programme’s (UNEP) recent warning that the world could cross the 1.5°C warming threshold within the next few years is likely to renew calls for faster decarbonisation. India, too, will face this pressure, but its choices are still open. Much of the housing, industrial infrastructure, power networks and urban development needed for its next phase of growth is yet to be built.
NITI Aayog estimates that 86% of the building stock that India will have in 2070 is yet to be built. Total floor space will more than double, from about 18 billion square metres in 2020 to 42 billion by 2070. India’s crude-steel capacity, at about 200 million tonnes in 2024-25, is targeted to reach 300 million tonnes by 2030-31. Cement output is projected to rise from about 427 million tonnes in 2024 to 660 million tonnes by 2030.
The advantage of choice
The usual reading of these numbers is that India’s infrastructure deficit makes decarbonisation harder. Demand for steel, cement and electricity will continue to rise even as India tries to reduce emissions. True, but only partly. The other side of the development deficit is that much of India’s future capital stock remains a choice rather than an inheritance. Its future emissions will depend on what it chooses to build now and the technologies and standards that are embedded in that investment.
Mature economies face the opposite problem. The International Energy Agency (IEA) estimates that around 80% of the building stock that advanced economies will use in 2050 already exists. In the European Union, 85% of buildings predate 2000, around three-quarters perform poorly in terms of energy efficiency, and only about 1% are renovated each year. India has legacy problems too, but has more room to avoid creating them. It can build in efficiency from the outset and reduce the risks of stranded assets, premature retirements, or expensive retrofits later. In buildings, India need not wait for technology to catch up. The know-how is there, and so is the regulatory framework. The gap is in implementation.
The Bureau of Energy Efficiency (BEE)’s State Energy Efficiency Index reports that the Energy Conservation Building Code (ECBC) 2017 has been notified by 27 States, but legally incorporated in only 21. BEE has since issued the Energy Conservation and Sustainable Building Code (ECSBC) 2024 for commercial and office buildings and the Eco-Niwas Samhita (ENS) 2024 for residential buildings. States should embed these standards in building permits, occupancy certificates, and grid connections, where non-compliance can carry a cost.
The issue in the power sector
Power presents a different problem. India has added renewable generation quickly, but the network to move it has not kept pace. The IEA estimates that transmission bottlenecks have held back around 60 GW of renewable capacity. The Ministry of Power’s plan envisages roughly 590 GW of generation additions between 2023 and 2032. So, an unresolved transmission gap will become more serious as generation expands. As transport, cooling and parts of industry electrify, the gains from cleaner generation will depend on whether that power can be reliably moved to where it is needed. Transmission and storage, therefore, must be planned alongside, and in some cases ahead of, new generation and demand.
In steel and cement, the low-carbon transition is harder. The Ministry of Steel acknowledges that hydrogen-based green steel is not yet viable in India, while NITI Aayog places large-scale carbon capture in cement further down the transition path. Mandating technologies could raise costs and, worse, lock firms into processes that later prove uneconomic.
Public procurement could be a better instrument. The Union and State governments, Indian Railways, the National Highways Authority of India, and other public agencies buy large quantities of steel and cement and can help create an early market for lower-emission materials.
India already has a green-steel taxonomy, and the Ministry of Steel has proposed aggregated procurement through competitive bidding. Tenders could set emissions-intensity thresholds without prescribing the production route. Competitive bidding would then reveal the green premium while rewarding producers who find the most efficient ways to meet the thresholds. As the premium narrows with economies of scale and technological advances, the thresholds could be tightened. They could also be aligned with the emissions-intensity targets under the Carbon Credit Trading Scheme (CCTS), ensuring consistent policy signals.
Costs and risks
Finance can also skew these choices. The IEA estimates that India’s cost of capital for grid-scale renewables is about 80% higher than in advanced economies. Since clean infrastructure is front-loaded in cost, that gap can make an otherwise viable project uneconomic. Targeted instruments such as payment-security mechanisms, partial credit guarantees, or concessional debt can ease financing or off-taker risk. But where the technology is still unproven, cheaper public finance will simply shift more risk onto the public balance sheet.
India cannot avoid the investment required to build the economy it still needs. What matters is what kind of capital the investment leaves behind. Where technology is mature, there is little reason to build inefficiency into assets that will last for decades. Where it is still evolving, preserving flexibility has value. Getting those choices right now can spare the country costlier corrections later.
Amarendu Nandy is an Associate Professor in the economics and public policy area at the Indian Institute of Management (IIM) Ranchi, Jharkhand. Aayush Anand is a GARP Certified Sustainability and Climate Risk Professional and works with Bharat Sanchar Nigam Limited (BSNL). The views expressed are personal