11 May 2021
  • energy transition
  • European Union
  • India
  • Belt Road Initiative

Announcement of an EU-India Connectivity Partnership

On the 8th May 2021, the European Union and India held a closed-door virtual summit, amidst a devastating second wave of COVID-19 that is currently crippling India. The result of this summit was a commitment to continue negotiations over a stalled free trade agreement, as well as the announcement of the 'EU-India Connectivity Partnership'. This is an ambitious agenda aimed at strengthening bilateral infrastructure, digital and energy connectivity between the regions, in addition to financing infrastructure investments in third countries.

Energy connectivity

Across the globe, every country is focusing on how their energy wants and needs, and consequently their geopolitical positioning will change, following the inevitable energy transition. As part of their domestic energy and foreign policy, the European Union is keen on using energy diplomacy to support a decarbonization globally. Set out in the external dimensions of their 'Green Deal', the need to achieve this means a more proactive engagement globally. The EU is already a core leader in this global fight. However, Brussels is also keen to foster closer energy collaboration with key regions, including India, to mitigate challenges from the energy transition, such as the securing of a stable supply chain of rare-earth elements (vital for usage in many green technologies). Thus, a connectivity partnership is a first step to gain greater access to these supplies and resources.

India itself is undergoing a rapid transition. Despite coal and other non-renewables being the powerhouse of the Indian economy, New Delhi is becoming ambitious in its transition strategy. In particular, solar, hydropower and wind energy are vital components of this strategy and despite progress being made, India still relies on coal for roughly 70-80% of its electricity generation. Additionally, India is experiencing a shortfall in financing and technical expertise to maximise the efficacy of these renewable sources. In order for the country to achieve 450GW of renewable energy generation by 2030, foreign support will almost undoubtedly be needed in some form.

The 'Connectivity Partnership' is a proposal that aims to be mutually beneficial, building on the policies of the EU-India Clean Energy and Climate Partnership. Europe, for its part, will foster closer economic and political relations with the Indian energy sector and private enterprises, increasing their access to vital resource supply chains at lower costs, whilst also deepening economic ties with the world's largest free market, in terms of consumers. The parallel free trade agreement that will be negotiated will support Europe's desire to entrench itself as a key player in South Asian politics and economics. India benefits mainly from access to financing, including the European Investment Bank (the EU's main climate change policy financier). Additionally, European expertise in areas such as railway modernisation, taxonomy standards and wind energy generation will be important for the Indian domestic transition; wind energy is an important area of cooperation given India's desire to generate 5GW of electricity annually alone from wind energy. Thus, the partnership is aimed at enhancing the strategic security of stable renewable energy supplies to each region's interior.

Third countries

Whilst the partnership at its core aims to improve internal energy supply and security, the partnership has a strong external dimension. A key part of the agreement is the leveraging of resources to support connectivity and infrastructure projects in 'third countries'. The ambition is to leverage joint financing from both the public and private sectors of both regions to offer investment opportunities for countries who are struggling to equip their economies to the inevitable global energy transition. The usage of private entities is to limit funding holes in Indian and European public financing, with private firms not only able to leverage a wider amount of finance, but also promoting economic growth in the region and at home more organically.

The financing will be heavily based on a rules-based order, wherein investments must be made towards projects which meet environmental standards set out by the United Nation's Sustainable Development Goals (SDGs). Thus, only investments towards transition fuels and renewable technologies will be accepted and whilst the details are yet to be fully released, these third countries must demonstrate capability to scale up these investments within the SDG framework. Additionally, the EU and India both recognise how countries which have accepted infrastructure financing often are in no financial position to pay back the loans. Thus, whilst details again are scarce, the partnership aims to reduce the debt-burden of third countries, so that the necessary energy and infrastructure adjustments do not financially cripple economies and lead to wider unrest.

Countering China

The partnership positions the collaboration as a necessary part of facilitating a smoother energy transition whilst also deepening bilateral ties. However, despite no explicit mention, the partnership is a direct response to China. Described as an "anti-BRI" (Belt & Road Initiative), the underlying desire of policymakers from both Brussels and New Delhi is to offer a distinct alternative option to many countries who are already under Chinese orbit in the region. Particularly countries like Sri Lanka, whose experiences with Chinese 'debt-trap diplomacy' have left it debt-ridden and forced to handover strategic assets such as the Hambantota Port. The rules-based format and consciousness to avoid indebtedness offer an alternative to prospective countries who would otherwise have been pulled by the gravity of Beijing.

This takes on greater meaning given both the EU's and India's relations with China. The EU is currently engaging in a delicate balancing act between engaging China whilst also wanting to reduce dependence and Xi Jinping's influence in the European neighbourhood. For example, EU countries depend on China for 98% of their rare-earth supply and the expansion of the BRI through Eastern Europe is a motivator to reduce the strategic vulnerability of the bloc to Beijing. India views China as the largest regional competitor and flashpoints over border disputes in Kashmir and Sikkim have ratcheted up the bilateral tension. Additionally, New Delhi policymakers view the BRI, especially the establishment of China's maritime grip over the Indian Ocean, as an unacceptable risk to Indian interests and thus the partnership offers the chance to pry away states in Chinese orbit and reduce their dominance regionally.

What happens remains to be seen. Despite the potential amounts of financing that could be leveraged, the BRI is far more globally entrenched in terms of scale and embeddedness and the connectivity partnership that the EU previously signed with Japan (very similar terms regarding third countries) has so far failed to pry states away from Chinese control; whether this is an indicator is not a foregone conclusion, but it is also not a promising example. Moreover, EU dependency on China for a host of issues outside energy and infrastructure means that Brussels cannot afford to forcefully position themselves as a counter-pole to China, without incurring the wrath of Beijing.

For the full 'EU-India Connectivity Partnership', click HERE.

By Akash Ramnath

Photo credits: Karyatid/Unsplash.com