Govt working on estimating cost of Net Zero transition: CEA Nageswaran

According to Nageswaran, the total cost and impact of transitioning to Net Zero needs to be fully understood.

The Union government is working with a multilateral development bank to estimate how much money it will cost India to make its Net Zero transition, Chief Economic Adviser V Anantha Nageswaran has said.

"There is an exercise afoot. And we have got some first or two such draft reports by one of the multilateral development banks," Nageswaran said on November 9 in a panel discussion.

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"We had posed a lot of questions because those exercises somewhat oversimplify the problem; they haven't taken into account many costs that would be incurred. So, at the Indian level, what is the requirement for our Net Zero transition, that is an ongoing exercise," he added.

Net Zero refers to a situation where the amount of greenhouse gases emitted is equal to the amount of these gases removed. India has pledged to achieve Net Zero emissions target by 2070.

"It is a joint exercise. It is not just that we are asking them (the multilateral development bank). We are only taking their inputs. But ultimately it is our number, not their number."

Nageswaran was speaking at a discussion on a recent paper co-authored by him on the issues, challenges, and solutions to harnessing private capital for global public goods.

Estimates have been made about how much it will cost the world to transition to Net Zero by 2050, with a January 2022 study by McKinsey saying that it will set back the global economy by $9.2 trillion in annual average spending on physical assets.

The urgency to ensure the world makes this shift has gathered pace in recent years, with India's G20 Presidency seeing the constitution of an independent expert group to reform Multilateral Development Banks. Led by Larry Summers and NK Singh, the group was tasked with recommending ways to change these global institutions so that they become ready to face more modern challenges such as climate change and global warming. As part of their recommendations, the Summers-Singh group suggested that additional spending of around $3 trillion per year is needed by 2030 - $1.8 trillion on additional investments in climate action and $1.2 trillion in additional spending to attain other sustainable development goals - with private capital playing a key role.

However, Nageswaran in his paper - co-authored with Gulzar Natarajan, Secretary of the Andhra Pradesh government's Finance Department - wondered whether private capital could indeed step in given that there is a "primary incentive mismatch between private capital, which seeks risk-adjusted returns, and the nature of climate investment - involving long gestation periods, heavy regulations and low returns."

The opinions presented in the paper are the author's personal views.

Nageswaran also said the enormity of the task in shifting to Net Zero had to be appreciated and that it is important to understand and be realistic about what had to be done, in what timeframe, and the tradeoffs involved.

"I would say that the current discourse on climate change is like this – if global warming doesn't kill us, we will ensure that Net Zero transition will do so. That seems to be the way the current policy framework or pursuit is," he said.

"You look at coal plants (globally)…majority of them are still under 20 years of age. So phasing them out is going to involve writing off billions of dollars of investments, not to mention the labour displacement and adjustment cost," the chief economic adviser said in the panel discussion.

"The same thing applies to India as well, in fact where the (coal) plants of recent vintage are even more than in the case of global average, where 10-19 years plants were slightly more in terms of installed capacity."