Background Paper No. 27
BY mEDHA PRASANNA
I. INTRODUCTION
Given the global impact of climate change, energy policies chosen by today’s leaders will decide international stability, growth, and prosperity. To achieve climate goals, an unprecedented level of global cooperation between the largest emitters is necessary, making foreign policy and climate policy tightly linked.
The United States and India are major economies and among the largest consumers and producers of energy globally including both fossil fuels and renewable technologies. They are also the world’s second and third largest emitters of greenhouse gases, although their economic development challenges and per capita emissions vary significantly.
Consequently, the pair play a significant role in the trajectory of future global energy and climate outcomes. In 2024, the United States and India hold general elections, a rare occurrence that happens once every 20 years. The outcomes of these elections are consequential for bilateral ties between the two countries, which have elevated energy and climate as a critical pillar of cooperation, evidenced in joint statements from both countries’ governments. Elected governments and their political priorities will affect how the United States and India approach climate and energy within their respective foreign policies.
This analysis explores the potential impacts of election outcomes in 2024 on U.S.-India bilateral ties in climate and energy. It first provides a brief overview of U.S.-India energy and climate ties in the last decade and the impact changes in political leadership have had on bilateral energy and climate cooperation. Inferring from these impacts, the paper analyzes how the 2024 election outcomes have the capacity to increase or decrease cooperation in four priority areas that have underpinned the U.S.-India bilateral climate and energy relationship: technical assistance, climate finance, clean energy supply chains, and fossil fuel exports. The new third-term Modi government’s lack of parliamentary majority complicates decision-making due to coalition politics. The new coalition government formed in June 2024 includes non-BJP (Bhartiya Janata Party) allies and cabinet ministers.
This analysis concludes that cooperation in technical assistance between the two countries will likely continue. On the other hand, appreciable climate finance from the United States to India is only likely to occur if the Democratic party in the United States wins reelection. Lastly, election outcomes are unlikely to affect efforts to reorient clean energy supply chains and fossil fuel exports between the two countries.
II. Background on U.S.-India Energy and Climate Ties
Energy and climate today remain a top priority for bilateral ties and have been trending upwards through successive U.S. administrations and Indian governments since the 1990s. Development, technical assistance, and commercial affairs are the main factors driving bilateral cooperation in energy and climate. Changes between Republican and Democratic administrations in the United States in the last decade have caused whiplash in policy priorities. The Obama administration emphasized clean energy and established the Partnership for Clean Energy (PACE) with India in 2009, a flagship initiative of technical assistance and engagement. This was well received by the then incumbent government in India, the center-left United Progressive Alliance (UPA) coalition led by the Indian National Congress (INC), as well as the center-right successor National Democratic Alliance (NDA) led by Bhartiya Janata Party (BJP). The Trump administration paid little attention to climate cooperation with India, and instead implemented policies that focused on energy access, security, and fossil fuel exports. Both the UPA and NDA governments in India have readily adjusted to these changing political priorities in the relationship largely driven by the United States. The current government continues to readjust with the current Biden administration which has since refocused bilateral climate and energy ties to establish the Agenda 2030 Partnership in 2021. This umbrella initiative includes two tracks for cooperation: a technical assistance track, the Strategic Clean Energy Partnership (SCEP) and a finance track, the Climate Action and Finance Mobilization Dialogue.
III. Focal Areas of Cooperation
Research Method and Scope
Using joint statements from both governments, press releases, program timelines, and data on capital flows and trade collectively from the last two decades, this paper assesses the likelihood of cooperation in four key areas: technical assistance, climate finance, reorientation of clean energy supply chains, and fossil fuel trade.
Technical Assistance
Technical assistance activities between the United States and India will likely continue despite changes in leadership in both Washington and New Delhi. While the United States saw multiple changes in political leadership during the last 15 years, India saw one: a change in government from UPA to NDA in 2014. Technical assistance and cooperation seem to have weathered all these changes.
Initiatives have undergone renaming and rebranding to reflect political priorities, but underlying activities and outcomes at the working level have largely remained the same (Figure 1 and Table 1). Beginning with the Obama administration, both countries launched the Partnership to Advance Clean Energy (PACE) under the U.S. India Energy Dialogue in 2009. The Trump administration renamed and reorganized the existing U.S. India Energy Dialogue under the U.S.-India Strategic Energy Partnership (SEP). Most recently, the Biden administration renamed the SEP and moved it under Strategic Clean Energy Partnership (SCEP) (Figure 1). These administrations retained the main structure of the initiatives, with some changes to focal areas and number of pilot projects.
Figure 1: Timeline: U.S.-India Climate and Energy Cooperation Since 2005
Source: U.S. Department of Energy 2023 report on SCEP, U.S. government work.
Table 1: Pillars and Significant Outcomes under PACE, SEP, and SCEP
Source: Author creation. All figures in U.S. dollars.
Technical assistance through the Strategic Clean Energy Partnership (SCEP) consists of partnerships with central and state governments to provide inputs on scaling up clean energy technologies. The outputs with the goal of decarbonization include policy measures, sharing and demonstrations of assessment tools, setting up financing mechanisms, and capacity building. For instance, through SCEP, Indian agencies are engaged with U.S. national laboratories to conduct research and analysis on modelling capacity of low carbon technologies.
Despite relative continuity and substantive retention of these programs, an effort to rebrand under successive administrations has affected regular scheduling of partnership ministerials to a degree, which guide much of the programing (Figure 1). Ministerials serve as goal posts to measure outcomes. In the absence of these meetings future goal setting takes a backseat. With irregular ministerial meetings, outcomes are also likely to be irregular, even if program components remain consistent with previous iterations.
Typically, changes in bilateral technical assistance cooperation have taken place without any changes of leadership in New Delhi, which strongly suggest that so far cooperation has been driven by the U.S. government. After the Trump administration renamed and reorientated the Obama administration’s U.S-India Energy Dialogue, the first U.S.-India SEP meeting took place on April 17, 2018, nearly two years after the last meeting had been held. Thereafter, under the Biden administration, when SCEP was launched, the first ministerial was held in September 2021.
However, after the recent 2024 Indian election, the recent shuffle of cabinet posts like the Ministry of New and Renewable Energy, Ministry of Heavy Industry, and Ministry of Steel in New Delhi might mean some changes to these initiatives and the delay of ministerial meetings from the Indian government. This along with any significant change to the party in power in Washington will result in further delays.
Climate Finance
Appreciable climate financing has been largely missing from the bilateral relationship, through changes in leadership (Table 1). However, there is cause for optimism with current incumbents going much further to deliver climate finance than ever before. That said, these flows are currently nowhere near the $2.5 trillion required to meet the 2030 energy transition goals in India, and the country has consistently called upon developed countries like the United States to deliver part of this finance and play a part in India’s energy transition. In a consecutive term, the current incumbent parties in both countries are far better positioned politically to deliver and catalyze the finance required (Table 2). Recent announcements, joint statements, and 2030 commitments made by the incumbent governments, support this optimism for further climate finance cooperation. This is the certainty offered by political incumbency for both gathering political support to allocate public money for climate finance in the United States through current initiatives, as well as the favorable business environment in India to channel any international finance to climate related projects.
Table 2: Bilateral Initiatives
Source: Author creation. All figures in U.S. dollars.
Like the legacy of technical assistance initiatives discussed previously in this report, U.S.-India public climate financing initiatives have also gone through a few iterations under different U.S. administrations. The Obama administration had the most success and mobilized about $2 billion in private and public and private investments. However, dollar for dollar accounting of the role of government in mobilizing these investments has not been clear. This makes it difficult to ascertain what specific government programs and initiatives have and have not worked to channel finance to India.
Under SEP, the Trump administration did not announce any significant clean energy financing initiatives throughout his term, and also handicapped and zeroed out contributions to the Green Climate Fund, a multilateral fund for climate investments in developing countries. However, these commitments under the Biden administration have returned with figures totaling over $1 billion in government-to-government climate financing. Despite an ambitious international climate finance request in the budget to the tune of $11 billion, the Biden administration, however, has not had success in corralling the U.S. Congress to allocate close to the entire amount.
A bright spot in the Biden administration’s climate finance efforts has been movement of capital under the U.S. Development Finance Corporation (DFC). As of 2023, the Biden administration has allocated about 40 percent DFC financing towards global clean energy projects (up from 7 percent in 2021). These include solar projects in India, which is currently the largest hub for DFC investments totaling $1 billion in 2024. For example, DFC gave a $500 million loan to First Solar to build and operate a solar panel manufacturing facility in Tamil Nadu, India. Other bilateral efforts include the establishment of a joint $1 billion U.S-India clean energy investment fund following Prime Minister Modi’s state visit in June 2023. The status and scale of private investment shored in by this fund is yet to be determined. These government-to-government capital flows account for about 0.1-0.3 percent of total global annual climate capital flows, which was about $1.3 trillion in 2021-22.
A Republican administration in 2025 is less likely to continue these efforts to allocate U.S. government funds towards international climate financing in the same way and at the same scale as a Democratic administration led by Kamala Harris. Without public funding to shore in private capital for emerging technologies and renewable energy projects, this investment landscape in India will be affected adversely. However, within the Republican party there does seem to be a growing number of representatives coming out with their own legislative recommendations. To illustrate, the conservative climate caucus currently consists of about one-third of the total Republican representatives in the U.S. House of Representatives.
The recently elected, third-term Modi government in India, despite lacking an outright majority this term, will likely favor climate finance, mainly due to policy certainty and favorable business environment for climate-related projects, such as renewable energy. The second-term Modi government, which enjoyed an outright majority, took steps to try to de-risk investment, including relaxed foreign direct investment restrictions and an end of retrospective tax cases put in place by the UPA government, as well as increasing transparency of the state level investment environment.
Steps taken by the Modi-led BJP government in its second term to create a more favorable business environment are not without criticism, specifically fast tracking of green project approvals process by the Environment ministry, which are said to lack due process and consideration for the ecological balance in some regions. Furthermore, since 2019 some states (e.g. Rajasthan, Haryana, Andhra Pradesh, and Gujarat) have introduced restrictions of power banking facilities and withdrawn waivers for open access renewable projects. These factors continue to make the business environment in India challenging. Nonetheless, overall, India has been on an upward trajectory and has ranked higher in the global ease of doing business metrics since 2015 (Figure 2).
Figure 2: Ease of Doing Business in India Rank (Out of 190)
Source: Author creation. Data from the World Bank 'Doing Business' Reports 2010-2020. Lower is better.
The above overview indicates that changing leadership is unlikely to result in a significant increase of flow of capital towards joint clean energy projects in the near term. However, a Republican administration in 2025 is more likely to cut existing DFC and other agency funding facilitating renewable energy projects in India.
Friend-shoring: Clean Energy Supply Chains and Geo-Economic Competition
Economic, geopolitical, and military competition in the Indo-Pacific region driven in-part by China has aligned the United States and India and as a result improved the overall bilateral relationship. This convergence has extended to climate change and clean energy, a sector with outsized Chinese dominance and concentration. For example, China dominates 80-90 percent of global solar manufacturing. Consequently, the push for an energy transition away from fossil fuels is increasingly becoming closely intertwined with geo-economic competition for both countries.
India has become a key partner for the United States to diversify clean energy supply chains away from China. In both countries, leadership across multiple political parties have consistently and successfully pushed for policies that support this agenda, working on this issue bilaterally as well as through the Quad. Specifically, both countries are looking to grow their share of solar photovoltaic manufacturing to mitigate the risks of a heavily concentrated supply chain. Hydrogen, carbon capture, and battery storage are also atop the list of priorities. Consequently, changing leadership will likely not affect this push to diversify energy supply chains away from China, making continued U.S.-India partnership in this space a likely outcome.
To illustrate, U.S. foreign policy and economic competition towards China is increasingly bipartisan. The passage of large, primarily domestic, industrial policy bills like the Inflation Reduction Act (IRA) and the CHIPS and Science Act expand this competition to the areas of climate, science, and technology by extending financial incentives for the private sector to undertake U.S.-based investments in these areas. However, the IRA (Senate 51-50; House 220-207) passed by a slimmer majority in the House and Senate as compared to the CHIPS and Science Act (Senate 64-33; House 240-187). The latter authorizes and appropriates funding towards global supply chain resilience, as well as authorizing funding for research into climate technologies of the future. The CHIPS and Science Act represents months of bipartisan conferencing and is an important piece of climate legislation that represents growing bipartisan interest. However, the lack of appropriations for the Science portion of the act is notable as of August 2024.
The IRA’s generous subsidies for clean energy technology have had a two-pronged effect on the bilateral relationship. On one hand Indian companies such as ACME, Adani Group, Vikram Solar, and ReNew Energy Global are planning investments in the United States to take advantage of the law’s financial incentives, which are expected to reduce costs of clean energy technologies. This follows announcements of major resolutions to trade spats (including one on solar manufacturing) in early 2023, to further support favorable market opportunities for both countries. However, on the other hand, the IRA’s intent to domesticate clean energy technology and manufacturing in the United States, for the time being, is perceived to have diverted international flows of capital away from poorer developing countries who do not have the same resources to subsidize green projects at this scale.
Fossil Fuel Exports
India, like most countries, depends heavily on fossil fuels to meet the needs of a developing economy and will continue to do so until clean energy technology is available domestically at competitive prices. The United States’ exports of oil and gas to India has on average steadily grown from $4.1 billion in 2018 to nearly $13 billion in 2023.
This steady market-driven growth under successive administrations means that fossil fuel trade is unlikely to be affected by changes in leadership in Washington and New Delhi. Key policies that have supported a ten-fold increase in oil and gas trade to India in 2019 were put in place by the Obama administration. In 2015, the Obama administration signed a bill into effect that included a provision to allow U.S. producers to freely export crude oil for the first time since 1975. Under the Trump administration, the Department of Energy went on to fast track and automatically approve small volume exports of liquefied natural gas (LNG). Any turbulence experienced by export volumes are primarily explained by the changing geopolitical landscape, along with changing interest rates in the United States which are determined by the Federal Reserve, based on prevailing domestic economic conditions (Figure 3).
Figure 3: U.S. Exports of Crude Oil to India
Source: U.S. exports of crude oil to India. Data from U.S. Energy Information Administration (as of July 2024).
Figure 4: Liquefied U.S. Natural Gas Exports to India
Source: U.S. exports of Liquefied Natural Gas to India. Data from U.S. Energy Information Administration (as of July 2024).
IV. The Future of Cooperation
The 2024 elections results, both in the United States and India are likely to affect the contours of bilateral climate and energy cooperation. The third-term Modi government faces challenges to decision-making due to a divided coalition’s interests. The Indian election outcomes include shuffled cabinet positions important to this frontier of U.S.-India cooperation. Technical assistance activities have weathered changes in U.S. political priorities, but efforts to rebrand or reorient due to leadership changes affect high-level political exchanges, resulting in delayed execution at the working level.
Climate cooperation through climate financing faces unique partisan political barriers that require political will and government intervention to achieve climate goals. Climate finance efforts between the two countries have been growing under the Biden administration but have been unable to match the scale of India’s energy transition needs due in-part to U.S. political sensitivities regarding allocating public U.S. funds for climate. This is unlikely to change, but incumbent parties winning reelection in both countries could create a conducive environment to address these sensitivities. Climate financing requires significant political will and provisions by governments to result in appreciable amounts. Significant climate financing has been scarce, but the combination of a reelected BJP government and incumbent party win in the United States offers more certainty for a path forward.
Climate cooperation through efforts to diversify or friend-shore clean energy supply chains hits at serious geopolitical and security concerns for both countries and is likely to grow and deepen. Similarly, market conditions and growing demand for energy in India will continue to affect fossil fuel imports from the United States and changes in leadership are unlikely impact this market-driven trade.
The United States and India are currently well aligned to increase energy and climate cooperation. However, political commitment for technical assistance, climate finance, and diversification of supply chains simultaneously is required to reach net zero goals. Creating structures and pathways to build renewable energy capacity at scale requires consistency over time. Changing leadership will likely affect technological assistance and climate finance outcomes adversely.
Acknowledgements
The authors would like to thank Shayak Sengupta, Jeffrey Bean, and Pooja Ramamurthi for their review, comments, and suggestions on an earlier draft of this paper. The paper is part of ORF America’s Climate and Energy Program work. This background paper reflects the personal research, analysis, and views of the author, and does not represent the position of the institution, its affiliates, or partners.
Cover image credit iStockphoto / Orbon Alija.
Note: The footnotes can be found in the PDF file.