The future agenda for climate change
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The Climate Change Agreement signed in New York last week by 171 countries, including India, has been widely hailed as a landmark event. As the euphoria subsides, it is time to make an assessment of what has been achieved and what remains to be done.
Importance of the agreement
Combating climate change is extremely important for India. Global warming threatens changes in the monsoon and in snow melt in the Himalayas, adversely affecting the reliability of our water supply. Together with higher temperatures this threatens crop productivity. Extreme events, such as the drought currently being experienced in Maharashtra, could become more frequent. Tropical diseases such as malaria could increase. Coastal areas would be affected by a rise in sea level.
The agreement is an important first step because it has broken the deadlock that prevented progress for many years. Since global warming is caused by the growing stock of CO2 and other greenhouse gases (GHGs) in the atmosphere, and since this is primarily due to the burning of fossil fuels by industrialized countries, developing countries used to argue that it is the industrialized countries that must take action to reduce CO2 and GHG emissions. No obligations should be imposed on developing countries. This was a reasonable position in 1992, when the United Nations Framework Convention on Climate Change (UNFCCC) negotiations began, but it became increasingly untenable after China became the world’s largest emitter, but could still claim exemption from mitigation obligations because it was still classified as a developing country.
China’s voluntary adoption of mitigation targets, which it announced in November 2014 as part of a bilateral agreement with the US, was a game changer. A year later in Paris all developing countries agreed to specify some mitigation targets in the form of Intended Nationally Determined Contributions (INDCs) which are incorporated in the agreement signed in New York.
India has promised a reduction in the emissions intensity of GDP by 33% to 35% from the 2005 base level by 2030. We have also targeted an increase in the share of non-fossil fuel-based electricity generation capacity from 12% of total electricity generating capacity in 2012 to 40% by 2030.
Is the agreement sufficient?
The agreement is important, but it is certainly not sufficient because what has been promised is not enough. Even if all the INDCs are fully implemented, the increase in global temperature will be around 3 degrees C above pre-industrial levels, which is much above the global target of limiting warming to 2 degrees C. Experts are agreed that exceeding the 2 degree limit will have very serious negative effects.
To limit global warming within the 2 degrees C, global emissions have to be reduced from the average of 7 tonnes per capita today to about 2 tonnes per capita by 2050. This will require the industrialized countries to accelerate the pace of reduction in their emissions in the period after 2030. The political climate in these countries at present does not seem conducive to their taking stronger action, but pressure from civil society groups could change the situation in future.
Developing countries will also have to do more. This group now accounts for close to two thirds of total global emissions and since their GDP is expected to grow faster than that of the industrialized countries, their emissions footprint will become unsustainable if stronger mitigation action is not taken. It is estimated that if the developed world does succeed in reducing its per capita emissions to 2 tonnes per capita by mid century, but the developing countries do not take any additional action, global temperatures would increase to 6 degrees C above pre-industrial levels by 2100. This would be catastrophic.
How to set fair targets?
Looking ahead, international cooperation on climate change could continue for a while with purely voluntary mitigation decisions, but sooner rather than later there will be pressure to set fair targets. This issue has never been discussed seriously, but there is a need to evolve a common understanding.
One approach is to quantify the amount of CO2 and other GHGs (on a CO2 equivalent basis) that can be pumped into the atmosphere from now onwards, consistent with limiting global warming to 2 degrees C. This “carbon budget” must then be allocated across different countries in a manner which is seen to be fair, taking into account the ability of individual countries to bear the costs involved. Richer countries should obviously do more, including by contributing to meeting the financial cost of mitigation in poorer countries. A fair outcome determined on this basis will provide a guideline for the emissions trajectory which each country must strive to achieve.
The UNFCCC is the appropriate forum where these issues should be discussed, but it is difficult to reach agreement among 192 countries working on the basis of consensus. It may be more practical to discuss these issues in a smaller forum such as the G20 to begin with. This group accounts for 80% of the world’s emissions, and if agreement can be reached here, it can then be taken to the wider UNFCCC forum. Perhaps we should propose that the G20 set up an international blue ribbon commission to come up with alternatives for discussion.
Is a low carbon scenario feasible for India?
The scope for a low carbon trajectory for India has been explored in a joint study by Montek Ahluwalia, Nicholas Stern and Himanshu Gupta, using the latest India Energy Security Scenarios calculator published by NITI Aayog. We have simulated the effect of (a) reducing energy demand in different sectors by shifting to more energy-efficient technologies and systems than in the business as usual (BAU) simulation and (b) increasing the contribution of renewable energy in the energy mix compared with the BAU.
The average growth rate of GDP is assumed to be 7.4% per annum up to 2047 in both the BAU and the low-carbon scenarios.
The results are compelling. The BAU scenario leads to an increase in import dependence in coal from 18% in 2012 to 57% in the terminal year 2047 and in oil from 77% to 90%. This is unacceptable from the perspective of energy security. The emissions trajectory is equally worrisome. The emissions intensity of GDP (emissions per unit of GDP) declines more or less as promised in our INDCs, but total emissions increase substantially because the GDP expands. As a result, per capita emissions increase from 1.7 tonnes of CO2 equivalent in 2012, to 5.9 tonnes in 2047! This is two-and-a-half times the global target of 2 tonnes per capita, consistent with limiting global warming to 2 degrees C.
The low-carbon scenario provides a much more sustainable prospect. Import dependence in coal falls from 57% in the terminal year in the BAU to 19%. In oil it falls from 90% to 60%. Emissions are also much lower, with emissions per capita contained at 3.3 tonnes in 2047. This is above the target global average target of 2 tonnes per capita, but it is possible we can do better if technology develops more rapidly than we expect, which is very likely.
An interesting feature of our low-carbon results is that 85% of the reduction in emissions compared with the BAU is due to the measures taken to improve energy efficiency. Renewables have captured the public imagination, and they are indeed important, but it is increased energy efficiency that will be more important over the relevant horizon. This is in part due to the fact that our current energy efficiency levels are relatively low and there is room to catch up.
The low-carbon alternative is not costless. Capital costs are higher by about 3% points of GDP in the first 10 years after which the difference declines. Higher capital costs could lead to lower investments in other sectors and lower GDP growth unless they are offset by faster improvements in productivity because of structural reforms. This highlights the fact that productivity gains through reforms should be fully exploited.
An important advantage of the low-carbon scenario is that it would lead to much lower levels of air pollution. The NITI Aayog calculator does not quantify the impact on pollution levels, but we know that air pollution has become a major problem in India. The latest World Health Organization list of the most polluted cities in the world shows that 14 of the 25 most polluted cities are in India, with Delhi at the top. No Chinese city figures among the 25. Air pollution leads to a significant number of additional deaths and although it is not easy to quantify how much of this is due to fossil pollution, it is reasonable to conclude that moving to a low-carbon trajectory would yield substantial advantages in this area.
Comparison with China
India’s performance is bound to be compared with that of China, and China’s announcement that its emissions would peak in 2030 is particularly relevant. India has made no commitment on peaking thus far, but the issue cannot be avoided. In the Ahluwalia, Stern and Gupta joint study referred to, we find that under the low-carbon scenario India’s emissions could peak by 2040. Since India in 2040 would have only half the per capita GDP that China will have by 2030, it means that although India would peak 10 years later than China, it could peak earlier in the developmental dimension, as measured by the level of per capita GDP.
We should recognize that peaking of our emissions is unavoidable if we are serious about combating climate change. For the world as a whole, limiting global warming to 2 degrees C means global emissions must go down to net zero (net of what is absorbed by the oceans and forests) in the second half of the century. One can imagine that industrialized countries reach net zero earlier, while developing countries do it later, but whatever the pattern deemed to be fair, it will certainly require that India’s emissions peak well before 2050. If peaking by 2040 is indeed feasible, it has implications for the scale of investment we should plan in thermal capacity expansion. Power generation assets have a long life and investments made today will still be in operation in 2040. We need to plan carefully to avoid build-up of excess coal-burning capacity in this sector, leading to stranded assets in future.
“Low Carbon” as a slogan has wide appeal and slogans have a role in capturing public attention. The real challenge, however, lies in identifying the specific polices that will achieve the results projected and mobilizing political support for them. What this involves is discussed in the sequel to this article, which will appear in Mint on Friday.