Inflexion Points: Need a ‘greenprint’ for the economy

June 18, 2021 5:30 AM

Without this, India will become more vulnerable to climate shocks and miss out on tech, funding & market access

Despite their poor record of climate action, the developed world is continuing to shape the narrative. (Representative image)Despite their poor record of climate action, the developed world is continuing to shape the narrative. (Representative image)

By Arunabha Ghosh

India needs jobs, growth and sustainability. However, it pursues the three objectives through different policies, ministries and initiatives. As a result, it can be one of the world’s largest clean energy markets and still have some of the most polluted cities. It can have some of the most energy-efficient plants in some sectors while others languish with high energy costs and declining competitiveness. It can host global institutions like the International Solar Alliance, but still feel cornered in international climate negotiations. It is time to abandon the silo-ed approach and recognise that India’s environmental resilience and business competitiveness are both going to be tested severely in the years to come. If it does not align its climate policies with its economic transformation plans, India will not only become more vulnerable to climate shocks but also miss out on new technologies, investment and market access in a rapidly shifting global economy. The signs are all there.

First, there are signs from governments. More than 100 countries have pledged net-zero greenhouse gas emissions in the next 30-40 years. G-7 members have said they would stop international financing of coal by next year for projects not fitted with carbon capture and storage technology. These are, of course, hypocritical because net-zero targets are unambitious. During 2008-20 developed countries emitted 18.1 billion tonnes of CO2 in excess of their pledges. That is seven years’ worth India’s emissions. The less they did in the past means the greater the burden others have to bear in future. It is also hypocritical because G-7 could not agree to a date to end their own coal use. They also have little leverage over the biggest current polluter, China, which plans to increase coal use to 4.2 billion tonnes by 2025 (more than the rest of the world combined). But double standards don’t come in the way of dominant narratives. Despite their poor record of climate action, the developed world is continuing to shape the narrative.

Secondly, there are signs from markets. On a momentous May 26, a district court in The Hague ruled that Shell must cut its net carbon emissions 45% by 2030 against 2019 levels. A small investor, Engine No. 1, led the charge (with backing from larger investors like BlackRock) to install three nominees on Exxon’s 12-member board, forcing it to take seriously the risks of climate change to long-term business profitability. And Chevron’s shareholders passed a resolution forcing it to cut its scope 3 emissions—the gases released by use of its oil and gas products. These are not merely guerrilla attacks by small players. There is a swathe of large institutional investors and asset managers who are asking for more stringent environmental, social and governance norms or are being targeted themselves for not demanding enough climate action. The day of reckoning for Indian companies dependent on fossil fuels is not far.

Thirdly, there are signs from the border. After months of consultations, on July 14, the European Commission is expected to propose carbon border tariffs. The aim is to put EU firms on a par with competitors from countries where, the EC would deem, climate policies are weaker. The transition period would begin in 2023 with full application from 2026, targeting aluminium, cement, fertilisers, iron & steel, and power. The draft policy proposes that importers would buy digital certificates, each representing one tonne of embedded CO2 emissions. The price of the certificates would be based on the average weekly price of auctioned permits in the EU carbon market. The costs could be lower if exporting countries have a CO2 price. The UK is mulling carbon border taxes as well and there are growing calls within the US for president Joe Biden to consider the same. But who will judge the policies of other countries?

India’s response should be a mix of the tactical and the strategic. Tactically, India must strongly highlight the failure of the larger polluters to meet their targets (for emission reduction and for climate finance). It should also target the EU’s carbon tariffs proposal, building a coalition of other major economies opposed to the unilateral move—and preparing a legal challenge at the WTO. Equality means everyone follows the same rules. Equity means the playing field is intentionally tilted to account for historical responsibilities. If India waits to react on either front, it will be too late.

The strategic response is a domestic one. Scoring points in negotiations is not a substitute for giving serious thought to the long-term challenges to India’s industrial competitiveness. The tactical moves would not change the direction in which the winds are blowing. India must ask itself a strategic question: Will we wait to decarbonise until the economy gets buffeted by climate shocks (many times worse than the pandemic) or by institutional investors insisting on greener credentials or by carbon tariffs in our major export markets? Or will we move proactively to be an industrial leader in the green economy?

The economic reforms launched in July 1991 were not conceived that month. Throughout the late 1980s there were calls for reform. Previous governments had prepared blueprints for reform. The political moment came when India confronted a foreign exchange crisis. In June 2021, as we recall the events of thirty years ago, should we not ask where we will be thirty years hence? It is time to start drafting a “greenprint” to convert India’s economy into a sustainability powerhouse.

The author is CEO, Council on Energy, Environment and Water

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