The Net Zero Challenge

The Net Zero Challenge

News: Recently, RBI report “Towards a greener Cleaner India” provides a framework to discuss trade-offs between Growth, Inflation and efforts to transition to a Net Zero economy.

What it Net Zero?
 According to United Nations, Net zero means cutting greenhouse gas emissions to as close to zero as possible, with any remaining emissions re-absorbed from the atmosphere, by oceans and forests for instance.
 The science shows clearly that in order to avert the worst impacts of climate change and preserve a livable planet, global temperature increase needs to be limited to 1.5°C above pre-industrial levels.
 Currently, the Earth is already about 1.1°C warmer than it was in the late 1800s, and emissions continue to rise. To keep global warming to no more than 1.5°C – as called for in the Paris Agreement – emissions need to be reduced by 45% by 2030 and reach net zero by 2050.

What challenges India is likely to face?
 India’s ambition is to achieve an advanced economy status by 2047 and it seeks to lower its emissions to achieve net zero status by 2070.
 An annual GDP growth rate of 9.6% would raise net GHG emissions by 10.5 times of level in 2021-22. According to the report, Nationally Determined Contributions (NDC’s) will set back economic output by as much as 9% by 2049.
 Transitioning to Net Zero will ensure that productive life of existing fossil-based assets will be shortened, thus exposing the banking sector (through loans) to these assets.
 The report also weighs on inflationary impact of the status quo against the alternative of achieving net zero. As per the report, the latter will raise prices over the next 3 years but will subdue persistent inflationary effects over the long term.
 Due to extreme weather events there are risks to assets (loans by banks) and therefore to banking sector.

What solutions does the report provide?
 The report emphasizes on Fiscal intervention through Carbon Tax or Emission Trading system.
 The report suggests increasing the share of green energy in primary energy consumption and reduce emission intensity.
 Shift in production to less energy intensive sectors – Fisheries, textiles etc.

Conclusion
 RBI is taking the lead in India’s transition towards achieving Net Zero status but it is evident that Fiscal policy and regulatory measures are equally important.
Source – RBI