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India may have to spend up to 2.3% of GDP by ’30

India may have to spend up to 2.3% of GDP by ’30
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First Published: Wed, Sep 09 2009. 10 42 PM IST

Updated: Wed, Sep 09 2009. 10 42 PM IST
New Delhi: India may have to spend 1.8-2.3% of its gross domestic product (GDP) between 2010 and 2030 if it wants to manage its emissions growth, says a McKinsey and Co. report released on Wednesday.
The figure is higher than previous estimates of what action to contain climate change could cost.
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India’s GDP in the fiscal year ended March was Rs49.33 trillion, according to Bloomberg data, and 1.8-2.3% of that translates into Rs887-1,134 crore.
The consulting firm’s report, titled Environment and energy sustainability: An approach for India, estimates that by 2030, India’s economy will increase six times its current size and emissions will rise from 1.6 billion tonnes carbon dioxide equivalent in 2005 to 5-6.5 billion tonnes in 2030.
Former World Bank chief economist and author of a landmark 2006 report on the economics of climate change Nicholas Stern had calculated the cost of action to limit greenhouse gas emissions to about 1% of global GDP. He has since revised his cost estimates to between 1% and 2%, as have others, in the wake of climate change projections getting more severe.
“Eighty per cent of the infrastructure India will have in 2030 is not yet built. Our analysis suggests upfront capital expenditure required for the abatement scenario to play out fully could be between €600 billion and €750 billion (Rs42.1-52.7 trillion) between 2010 and 2030,” said McKinsey director Rajat Gupta, who is a co-author of the report.
The report puts India’s per capita emissions at 3.9 tonnes if it doesn’t take action on climate change. This can be reduced to 2.1 tonnes if appropriate measures are taken, the report said.
The environment and forests ministry had said in a release on 2 September that in 2031, India’s per capita emissions will be between 2.77 tonnes and 5 tonnes of carbon dioxide equivalent, citing results of five studies.
The global per capita emission was 4.22 tonnes in 2005, the ministry said in the statement.
The McKinsey report says that India’s intensity of emissions is likely to be among the lowest in the world.
“India is a reasonably efficient economy but there is opportunity to do more,” said Gupta, who declined to comment on the report’s implications on international negotiations on climate change.
A policy analyst said the report has detailed macro and microeconomic analysis on different sectors. “But on the negotiation side, it may have things that can be problematic and that is a critical part,” he said, on condition of anonymity.
The report’s estimates are based on an assumption that India’s GDP will grow at 6-9% every year. It also assumes that energy prices will remain static till 2030. “Yes, that is a big assumption,” Gupta admitted. “We have been trying to build dynamism of energy prices into the model but haven’t been successful yet.”
“This is an input-output model. What you put in is what you get out. It is difficult to reflect energy dynamism,” he added.
On costs, the report estimates that only 10% of the total opportunity in abatement is readily achievable. “Incremental capital of about €600-750 billion would be needed between 2010 and 2030, even after accounting for steep declines in the cost of emerging technologies such as solar power,” the report said. “Over 60% of the additional abatement opportunities impose a net economic cost and would require an annual funding of €18 billion on average between 2010 and 2030.”
India’s stand in global talks on climate change is that the developed world should pay for mitigation action in developing countries, as the rich countries have appropriated most of the carbon space and developing countries still need to invest heavily in development projects.
The report steers clear of policy recommendations but Gupta said that for business, the implications include the way they consume power, especially in the steel and cement sectors. “There are also opportunities, such as for energy service companies, electric two-wheelers and solar heaters,” he said.
In the energy sector, the report’s suggestions are ambitious. It proposes a ramp-up to 60GW of nuclear power in 2030, 56GW of solar energy capacity and 25GW for hydropower. One GW equals a 1,000MW.
“We agree that 60GW is a stretch,” Gupta said.
Graphics by Sandeep Bhatnagar / Mint
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First Published: Wed, Sep 09 2009. 10 42 PM IST