By: Dhruva Jaishankar and Piyush Verma
India’s clean energy industrial ambitions are confronting a combination of political, economic, and technological challenges. The war in Iran and the closure of the Strait of Hormuz have exacerbated fossil fuel energy shortfalls, with India’s economy particularly vulnerable to disruptions to imports of crude oil, liquefied natural gas, and jet fuel. Yet clean energy financing at scale is no longer certain. In the developed world, led by the United States, aid and concessional financing budgets are being scaled back, requiring market-driven investments. Meanwhile, the threat of tariffs from the United States and China’s use of its concentration of supply chains for economic coercion require India to identify and consolidate more diverse partners. Nonetheless, clean energy has never been more technologically or commercially viable. India — along with Southeast Asia and Africa — holds the greatest promise for the deployment of clean energy technologies over the next decade, which will contribute to its energy security, domestic employment, and technological capabilities.
The European Union has emerged as a clean energy leader, with ambitious plans to deploy a green industrial strategy domestically. It shares the concerns with many other large economies about an overdependence on the United States as a market and an overdependence on China as a supplier. But the EU has traditionally had few instruments to advance partnerships abroad. One, development assistance is increasingly questioned at home, offers unattractive incentives for private investors, and is difficult to scale. A second instrument, preferential trade agreements, offers more potential to advance clean energy industrial objectives. The conclusion of EU-India free trade agreement negotiations along with an EU-Mercosur agreement with South American countries positions the European Union to play an important role in the Global South. In addition to FTAs, the EU is exploring new mechanisms for faster deployment and implementation. These include Digital Trade Agreements concluded with South Korea and Singapore, and Sustainable Investment Facilitation Agreements (SIFA), such as that concluded with Angola.
But there are obstacles aplenty to the EU’s own clean trade objectives. The EU’s Carbon Border Adjustment Mechanism (CBAM), an effective carbon tariff, comes into force this year, with implications for foreign importers of cement, iron and steel, aluminum, fertilizers, and other industrial sectors listed under Annex I. Questions remain about how enforceable CBAM can be, whether loopholes can be plugged, and whether it is compliant with World Trade Organization (WTO) understandings. At the same time, creative solutions have been found, such as in elements of the EU-India free trade agreement that enable re-investment into India and mutual recognition of emission verifiers. Beyond CBAM, there are other challenges to the EU’s ability to work with partners overseas on common energy and environmental objectives. These include competing industrial policies, lack of technological transfers and absorption, inadequate financial resources, and insufficient capacity, particularly in smaller developing economies.
A Clean Trade and Investment Partnership (CTIP), the first of which the EU agreed with South Africa last year, represents another potential mechanism for the EU and India to advance their shared clean industry objectives. A CTIP is a non-legally binding mechanism meant to add value at source in developing economies and focused on delivery. It can help channel EU financing, including through Global Gateway investment sources such as the European Investment Bank (EIB). It is in effect an extension of the EU’s own green industrial policies. Theoretically tailor-made to partners in the developing world, a CTIP helps the EU in diversifying procurement. CTIPs will ultimately be judged on delivery and execution. Whether they can help direct capital to clean energy projects in the Global South, where financing is more expensive, remains to be seen. And over the longer term, whether that can help ensure a diversity of sources for Europe’s clean energy supply chains represents an even bigger test.
For India, having recently concluded an FTA negotiation with the European Union, a CTIP can help direct quick investment to several areas crucial for India’s own industrialization efforts. The EU and India already have robust clean energy cooperation including as one pillar of the Trade and Technology Council (TTC), in two editions of the Green Hydrogen Business Forum, through bilateral nuclear fusion cooperation, and via a clean energy and climate partnership dating back to 2016. But under a CTIP, investments can be directed to green iron and steel, green hydrogen, biofuel and synthetic fuels (such as for aviation), critical mineral refining and processing (including for lithium and nickel), battery and storage value chains, offshore wind, and grid equipment. A CTIP could deliver relatively quick wins by supporting joint manufacturing, standards cooperation, and market access to meet Europe’s diversification needs, while deepening India’s role as a global clean energy manufacturing hub. India could also serve as a platform for exports of clean tech to wider South Asia and Africa, aligning CTIPs with EU development goals.
Many of these investments will only materialize at scale if backed by structured procurement or offtake agreements bringing together EU‑based public and private buyers, underpinned by EU‑ and India‑backed guarantees and blended‑finance instruments that lower project and country risk. Other areas for which India already has some industrial capabilities, such as solar photovoltaics, might offer more immediate returns. Private Indian entities interested in developing these and other clean industrial sectors could see a CTIP negotiated between New Delhi and Brussels as a potentially valuable policy instrument, one that can direct investment and technology and ensure a ready market in sectors that are in high demand but where financing at scale remains scarce. But to be successful, it will require the initiation and involvement of private investors and offtake commitments in the EU, a risk-mitigating public financial entity, as well as alignment with Indian strategic priorities and private sector industrial capabilities.
For its part, the European Commission can help by explaining the opportunities associated with CTIPs and other related investment and trade instruments to collectively diversify clean energy supply chains. They can also preemptively identify sectors and the types of projects they are willing to fund, as well as partner countries with whom they might be amenable to work with in the Global South. Without such advance signaling and concrete instruments from Brussels, CTIPs risk being perceived in partner countries as rhetorical initiatives rather than reliable vehicles for clean technology investment.
Dhruva Jaishankar is Executive Director, and Piyush Verma is Senior Fellow for the Energy & Climate Program at ORF America.