Climate Change | IPCC report will put pressure on developing world, mainly India

Source: Reuters

The world’s top body on climate change has issued a dire warning about impending global warming and its potentially catastrophic consequences, which is a wake-up call for every country to align itself with the green agenda or face serious economic and diplomatic trouble.

The Intergovernmental Panel on Climate Change (IPCC), a United Nations body for assessing the science related to climate change, said in a landmark report that the world is heading for disastrous floods, droughts and extreme weather because of greenhouse gases and that governments need to act immediately to counter global warming.

The report, which UN officials called ‘Code Red for humanity’, sets the stage for drastic action across the planet, led by the United States and Europe. This has far-reaching consequences for India.

To understand the report’s consequences for the Indian economy and the corporate sector, it is important to understand its context in terms of its build up and the follow up.

First, the report has been issued barely three months before the keenly anticipated major UN conference on climate change, called COP26, which will be held in Glasgow from October 31. The conference will set the global agenda for combating Climate Change.

Second, in May, the International Energy Agency (IEA) dramatically declared that the world does not need any new investment in any new coal, oil or gas project other than those already committed if it is serious about combating Climate Change.

Third, Europe and the United States are making strong moves to cut emissions.

The European Union recently proposed drastic measures to reduce net emissions by at least 55 percent by 2030 with a package called ‘Fit for 55’. The proposed steps aim to fundamentally transform the EU’s climate, energy, land use, transport and taxation policies. It plans to make companies pay for carbon emission, discourage import of products from countries that may produce them cheaper by not abiding by tough emission norms, and a major shift to clean energy generation and phasing out of cars with combustion engines.

The US government’s moves to make a green transition include President Joe Biden’s executive order on August 5 that sets the target that half of all vehicles sold in the US by 2030 would be electric.

In this context, there are important messages for countries such as India.

First, the global consensus on the need to quickly address Climate Change is gathering momentum. Second, no amount of lobbying by industry groups will change that. Third, developing countries will make some noise against quick steps to cut emissions, but powerful countries in the developed world will regard it as only that — noise.

In this context, the UN body’s report needs to be taken even more seriously. India will face the heat of rising temperatures on two fronts: First, as the UN report says, India will face a bigger risk of floods, droughts and extreme climate events; and the developed world will arm-twist the poorer countries to fall in line, not only because of concerns about pollution and extreme weather events, but also because they will make big money by selling the equipment needed to combat Climate Change.

Fortunately for India, the government has made impressive moves to promote solar and wind energy and major business houses including the Tatas, Reliance Industries and the Adani group as well as leading car manufacturers are rapidly taking steps to be a part of the green industrial revolution. Not that they have a choice.

However, India will face enormous challenges. Taxes on fossil fuels finance major welfare schemes and infrastructure projects of the government. Clean energy, in contrast, still gets special treatment in terms of implicit subsidies like concessions in transmission charges, subsidies on electric vehicles and waiver of levies like registration charges for such cars. In other words, India’s fiscal health will deteriorate as electric cars replace the conventional ones and welfare schemes will contract unless the government increases taxes.

The shift to clean energy means heavy investment by companies in various sectors such as steel and cement, which will add costs and erode competitiveness.

Indian exports will also suffer because until the products are visibly produced using clean energy, the EU, a major destination for Indian goods, will impose carbon charges on shipments to protect the interest of its own companies that have invested in reducing emission.

Fossil fuel producers such as Coal India will also face complex problems. Many of its mines are the only source of employment for nearby villages, and it is a major fuel for many factories in India.

While clean energy is expanding admirably in India, the supply remains intermittent as it depends on sunshine and wind. Battery technology is still not good enough to bridge the gap, which leaves hydrogen as a suitable clean fuel but there are still many technical challenges before it can be adopted on a large scale.

But it’s not all bad news. Global warming is a huge economic risk. India has already seen a series of extreme weather events such as flash floods. Agriculture, which directly or indirectly employs about two-thirds of Indians, will suffer a lot as rainfall patterns change and crops face a greater risk of floods and droughts.

Public health will also gain if emissions are reduced. Air pollution has emerged as a major health hazard and responsible for a growing number of health issues including fatal illnesses.

India will certainly feel the pain from global pressures to fall in line and rapidly cut emissions, but its benefits will far outweigh the costs.

Views are personal and do not represent the stand of this publication.