Combining economic growth with net emissions reduction: the case of India
Grand From Rishi Patel And the Gökçe Bulut, both portfolio managers, LGM, BMO GAM. sponsored comment BMO Global Asset Management.
Indian Prime Minister Narendra Modi, who promised that the country would reach net zero emissions by 2070, was one of the highlights of the COP26 conference held last November. Unlike other more developed countries that have set the horizon of 2050 to achieve this goal, India is still a developing country.. This will require you to do a real balancing act to meet the growing demand for energy and lift a large percentage of your population out of poverty while reducing carbon dioxide emissions.
India and Climate Risk
Increasing income, growing population, and business-friendly policies have made India an excellent investment opportunity in emerging markets. The country has a large number of high-quality companies with strong business models, competitive advantages and solvent managers. But, Like many other developing countries, Indian citizens and businesses are particularly vulnerable to the effects of climate change.. Less predictable monsoons, higher average temperatures, and more frequent extreme weather events may slow economic activity, affect consumption, and displace millions of people. Moreover, as an emerging economy, India has less capacity to cushion these shocks.
Economic growth vs. Emission reduction
The challenge for India is to combine economic growth with emissions reduction. Before the pandemic, the World Bank estimated that about 22% of India’s population lived in poverty. However, the Regardless of the disruption of COVID, India has managed to dramatically improve the quality of life for its 1.4 billion people. For example, in 2018, Prime Minister Modi announced that electricity has reached every village in India. Although not all homes are connected to the grid, the progress of electricity is impressive and will improve the lives of millions of people.
India relies heavily on coal to meet this growing energy demand, so Reducing emissions from fossil fuels won’t be easy. The livelihoods of many families depend on coal, so reducing consumption of this raw material will not help win votes. Moreover, the development of the electricity grid and its adaptation to renewable energy sources requires significant investments.
However, we see positive signs: the country has taken important steps to transition to a low-carbon economy in various sectors and has become a leading country in terms of renewable capacity. Technological advances are making renewables cheaper compared to fossil fuels and India has some of the lowest prices in the world for solar PV projects. In fact, although it is still far from the government’s target (100 GW by the end of 2022), solar installed capacity has grown nearly 500% since 2016, to 40.1 GW.
Climate policy in India
India is the world’s third largest energy consumer, so the steps it is taking to reduce its emissions are essential to achieving global reduction targets. Besides his goal of achieving net zero emissions by 2070, Modi has also committed to the following by 2030:
- Increase renewable energy capacity in India to 500 gigawatts.
- Covering 50% of energy demand with renewable sources.
- Reducing the carbon intensity of the Indian economy by 45%.
- Total projected carbon emissions reduction by 1 billion tons.
India’s 2021 budgets have also focused more on sustainability and privatization Two-thirds of the $120,000 million to fund the transition to renewable energies. However, one of COP26’s biggest disappointments was that India, backed by China, called for the commitment to use coal as an energy source to be reduced from phase-out to phase-out.
We believe that India should prioritize providing more detail on its zero net objectives so that its plans can be properly evaluated and companies understand the role they are expected to play in this process, as well as the associated risks and business opportunities. India key to achieving global emissions reduction targets Modi’s commitment at COP26 was an important turning point in how the Asian country views its role in the global fight against climate change.
Modi also stressed that developed countries should make climate finance available to developing countries. Taking into account that India has contributed only 3.2% of total global carbon dioxide emissions since 1750 (Compared to the 4.6% contributed by the UK, which is twenty times smaller in terms of population), he may be right.
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