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India’s vital role against climate change

Out of 180 countries, India is ranked 20th in terms of vulnerability to climate risks, according to Climate Watch. Key hazards include storms, epidemics, landslides, floods, extreme temperatures and air pollution. These threats will not only damage personal property and public infrastructure but also weigh on gross domestic product (GDP) growth.

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As the world’s third largest emitter of greenhouse gases (GHG), after Mainland China and the US, India plays a critical role if the world is to achieve the objectives of the 2015 Paris Agreement which includes limiting the increase in global temperature (ideally to 1.5°C above pre-industrial levels).

"Increased emissions in Asian economies, including India, often offset progress made in cutting emissions in Europe and the Americas.”

Global carbon dioxide emissions — which make up the bulk of GHG — had been rising rapidly in the past several years up till when lockdown measures took effect during the COVID-19 pandemic in 2020. Increased emissions in Asian economies, including India, often offset progress made in cutting emissions in Europe and the Americas.

Notably, India’s share of global emissions was steadily rising prior to the pandemic. Although emissions unsurprisingly fell in 2020 and Q2 2021 due to lockdown measures, data from Carbon Monitor showed emissions in Q1 2021 were higher than levels during the same period in 2019. 

This suggests India’s emissions will start to trend up again once the pandemic is contained and economic activity normalises.

Progress and outlook

To be sure, India has made some progress in decarbonisation. It is assessed by Climate Action Tracker to be one of the few countries to have made a Nationally Determined Contribution (NDC) that is considered to be “a fair share” of the global effort to achieve the goal set out in the 2009 Copenhagen Agreement of limiting global warming to below 2°C above pre-industrial levels.

India has also met its target of reducing its emissions intensity of GDP by 20-25 per cent from 2005 levels by 2020. In its third Biennial Report submitted to the United Nations Framework Convention on Climate Change (UNFCCC) in February 2021, India reported its emission intensity to GDP had achieved this target in 2016.

Still, based on the current trajectory, India’s emissions will continue to increase over the longer term.

Making the transition to a cleaner low-carbon economy presents significant challenges to India given its current state of development with millions still mired in poverty and lacking electricity access. Infrastructure development and emissions per capita are also low from a global perspective. As living conditions improve, international experience suggests India’s greenhouse gas emissions will increase in tandem. This has already been the case, as seen in the positive correlation between per capita GDP and per capita GHG emissions.

The combination of economic and population expansion, coupled with rising incomes, urbanisation and industrialisation, points to strong growth in India’s energy demand. The International Energy Agency (IEA) estimates India’s primary energy demand in 2040 will be almost 70 per cent higher than in 2019 under its Stated Policies Scenario (STEPS, based on announced policy ambitions and targets). Its emissions will concomitantly be about 50 per cent higher.

Achieving a meaningful reduction in greenhouse gas emissions requires significant transformations, especially in the energy sector, which accounts for 72 per cent of India’s emissions. But this also entails significant costs.

The IEA estimates that India’s emissions under a Sustainable Development Scenario (SDS, where an additional surge in clean energy investment produces an early peak and rapid subsequent decline in emissions) will fall 28 per cent from 2019 levels. However, the additional capital required for clean energy technologies to 2040 will be $US1.4 trillion — which is roughly half of India’s current GDP — higher than what was earmarked under STEPS.

Challenges and opportunities

Emissions would clearly need to peak from a climate change mitigation viewpoint. A recent study by the Council on Energy, Environment and Water (CEEW) outlines key progress indicators under alternative peaking and net-zero scenarios.

The scenarios with an earlier peak are more climate-friendly but the magnitude of the effort required is naturally greater. The commercial viability of carbon capture and storage (CCS) will also play an influential role in the pace of transition.

As the world’s third-largest emitter of carbon, India will play a crucial role in the transition towards a low carbon environment. With many major economies announcing net-zero targets, eyes are now on India to make a similar commitment.

A recent study by the Overseas Development Institute estimates India may lose up to 3-10 per cent of its GDP annually by 2100 with the poverty rate rising by 3.5 per cent by 2040 due to climate change. Heatwaves, erratic rains and rising sea levels are some of the likely causes. In other words, there are economic costs to India from climate change.

However, India’s path to carbon-neutrality will be more challenging than most given its state of development and huge infrastructure investment needs to achieve a low-carbon economy. While India has made decent progress towards decarbonisation, the transition needs to accelerate to bend the emissions curve. International support through financing and technology will in turn be key factors that influence the pace of India’s transformation.

Krystal Tan and Rini Sen are Economists at ANZ

The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.

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