Economics of Climate Change

Why in News?

• Last week, the World Meteorological Organisation (WMO) announced that global temperatures are likely to surge to record levels in the next five years, fuelled by heat-trapping greenhouse gases (GHGs) and an El-Niño event.
• The WMO warned that the economic cost of extreme weather, climate and water-related events has been rising.

 

What is Climate Change?

• Climate change refers to long-term shifts in temperatures and weather patterns.
• Such shifts can be natural, due to changes in the sun’s activity or large volcanic eruptions.
• But since the 1800s, human activities have been the main driver of climate change, primarily due to the burning of fossil fuels like coal, oil and gas.
• As per current standing,close to 12,000 climate change induced disasters/extreme weather events have been reported between 1970 and 2021, resulting in over 2 million deaths and $4.3 trillion in economic losses.
• For perspective, the total losses are roughly 25% more than India’s annual GDP.

 

Some Visible Evidences of the Climate Change

• Temperature Anomalies
  • Annual average temperature in India has been increasing gradually.
  • RBI’s latest report on currency and finance states that the rise has been significantly sharper during the last 20 years than during any other 20-year time interval since 1901.
• Irregular Monsoon
  • The south west monsoon is more erratic.
  • While the average annual rainfall at the all-India level during 2000-2020 saw a rise over that during 1960-1999, annual average rainfall in India has gradually declined.
• Increased Dry and Wet Spells: RBI’s research suggests that while dry spells have become more frequent during the last several years, intense wet spells have also increased.
• Frequent Floods and Storms
  • Research about natural disasters since 1975 has shown that India is relatively more exposed to floods and storms (cyclones and hailstorms) than droughts and heatwaves.
  • “Such incidences pose significant risks to agricultural production and food price volatility,” states the RBI.

 

How Vulnerable is India?

• The Global Climate Risk Index 2021 had ranked India 7th in the list of most affected countries in terms of exposure and vulnerability to climate risk events.
• India’s diverse climate is not only exposed to different temperature and precipitation patterns, but is also vulnerable to extreme weather events, posing wide-ranging spatial and temporal implications for the economy.

 

Economic Vulnerability

• The structure of the Indian economy has evolved since independence.
• Bulk of economic activity now happens in the services sector as against the agriculture and allied sectors.This has implications for carbon emissions.
• According to the RBI, ‘Services’ are globally considered to be emission-light with relatively lower energy intensity of output.
• A sectoral break-up shows that the highest emission-intensive sectors — metal industries, electricity, andtransports (air, land, andwater)— together account for around just 9% of India’s total GVA (gross value added) in 2018-19.
• This implies that the sectoral composition of the Indian economy helps reduce its carbon emissions.

 

The Macroeconomic Impact

• Can affect supply and Demand: Climate change can adversely impact both the supply side as well as the demand side. It can stroke inflation, reduce economic output, trigger uncertainty and change consumer behaviour.
• Employment Loss: In 2020, the World Bank said that India could account for 34 million of the projected 80 million global job losses from heat stress-associated productivity declineby2030.
• Coastal floods due to Sea Level Rise
  • In 2022, the Intergovernmental Panel On Climate Change (IPCC) stated that India is one of the most vulnerable countries globally in terms of the population that would be affected by the sea level rise.
  • By the middle of the present century, around 35 million people in India could face annual coastal flooding, with 45-50 million at risk by the end of the century.

 

Government's Policies to Fight Climate Change

• On 30th June 2008, the National Action Plan on Climate Change (NAPCC) was released.It is a national strategy of 8 sub-missions to help adapt and magnify ecological sustainability in India’s development path.
• These are:
  • National Solar Mission (NSM),
  • National Mission for Enhanced Energy Efficiency (NMEEE),
  • National Mission on Sustainable Habitat (NMSH),
  • National Water Mission (NWM),
  • National Mission for Sustaining the Himalayan Ecosystem (NMSHE),
  • National Mission on Strategic Knowledge for Climate Change (NMSKCC),
  • National Mission for a Green India (GIM),and
  • National Mission for Sustainable Agriculture (NMSA).
• On 3 August 2022, the Union Cabinet under the Chairmanship of the Prime Minister passed the updated Nationally Determined Contribution (NDC) for consideration by the UNFCCCunder the Paris Agreement, to reach India’s goal of net zero emissions by 2070.

 

 

Policy Actions' Impact on GDP Growth Rate and Inflation

• The Network of Central Banks and Supervisors for Greening the Financial System (NGFS) have created an analytical framework called the National Institute Global Econometric Model (NIGEM)“to produce policy insights”.
• In this model, the researchers looked at how GDP growth rate and inflation would be affected under different policy stances when compared to the baseline (which is the best-case scenario involving no impact of climate change).

 

Impact on GDP growth rate

• Policy actions have a negative impact on India’s GDP no matter what.
• By 2050, India’s GDP is likely to lower by anywhere between 8.5% to almost 10% under current policy scenario, if India follows the NDCs) path of achieving net zero by2070.
• However, if the globalCO2 emissions reach net zero by 2050,then the hit to India GDP will be the lowest.

 

Impact on Inflation

• The effect of stricter policy action will be opposite.
• No change policies will keep inflation low at present but higher later.
• Policies to achieve net zero by 2050 will result in higher inflation in the near-term.

 

Conclusion

• In 2020, India was the third biggest emitter of green house gases.
• As per climate analysts, India will not hit the peak of emissions by 2030, but instead, achieve the same between 2040-2045.
• This trend may create hindrance for India’s energy transition plans for the second half of this century and therefore a pragmatic and far-sighted approach is necessary.

 

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Q1) How can people reduce the risks of climate change?

People can reduce the risks of climate change by making choices that reduce greenhouse gas emissions and by preparing for the changes expected in the future. Decisions that people make today will shape the world for decades and even centuries to come. Communities can also prepare for the changes in the decades ahead by identifying and reducing their vulnerabilities and considering climate risks in planning and development. Such actions can ensure that the most vulnerable populations—such as young children, older adults, and people living in poverty—are protected from the health and safety threats of climate change.

 

Q2) Why should one be wary of a change of one or two degrees in the global temperature? 

A degree or two change in average global temperature might not sound like much to worry about, but relatively small changes in the earth’s average temperature can mean big changes in local and regional climate, creating risks to public health and safety, agriculture, water resources, infrastructure, and ecosystems. As per a report, an increase in heat waves and days with temperatures above 90°F; more extreme weather events such as storms, droughts, and floods; and a projected sea level rise of 1 to 4 feet by the end of this century, which could put certain areas of the country underwater.

 

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Source: The Indian Express