Climate change: let’s get real, act through incentives

Climate change: let’s get real, act through incentives

The issue of climate change is emotive and must necessarily be seen in the right context if we are to make meaningful progress towards a solution to this complex problem. It requires us to answer several questions, many of which will have no clear answers.

Firstly, any discussion on climate change needs to examine if there are other social benefits of industrial growth, which might be as important as ensuring that climate change is minimized.

Secondly, are the main perpetrators of environmentally unfriendly actions powerful companies and the well-heeled, or are they actually disadvantaged groups, which might not be well placed to adopt green practices? We run the risk of creating a sense of security that something is being done by placing the onus primarily on industry and private citizens when the government should really take the lead in this regard.

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Finally, what can a government in a developing country really do given the political and economic realities on the ground? We believe that addressing these issues can focus us towards what is realistic and achievable.

Climate change supporters rely on a moral high ground which seemingly pits climate change against industrial growth, as though the two are polar opposites. This position ignores the very real soft benefits that industrialization can provide to poor nations.

Green concern: Small farmers and people in the tribal areas have been as culpable in damaging the environment as the polluting factories. Rajkumar / Mint

As Thomas Friedman notes in his book—Hot, Flat, and Crowded—access to energy, often seen a cause for climate change, also has substantially beneficial features, by enabling access to education and healthcare. Most notably over the long run, the wealth created by industrialization and consumption also results in reduced population growth, a trend which can only help the battle against climate change. It is moot whether, when one balances these multifarious benefits of economic growth, the case for imposing climate change related limits remains quite so unambiguous as the green brigade might suggest.

It is sometimes suggested that the main culprits in the climate change arena are large, well-connected industries or well-heeled urban consumers. The reality can be more subtle than that. Some of the most serious environmental offenders in this regard include economically or socially disadvantaged groups. Small farmers and people in India’s tribal areas have been as culpable in damaging the environment as have been urban gas guzzlers and polluting factories.

Therefore, some of the most adversely affected by the drive for green are also the weakest in the social or economic chain. Furthermore, in India (as elsewhere), access to natural resources is deeply entrenched in local politics. Certain parts of the country dominated by tribal folks have seen substantial felling of trees, often way beyond what were justified for livelihood.

A suggestion to somehow limit economic growth of large industries does not address climate change caused by such groups. At the same time, it is politically and morally complex to seek to place curbs, however well meaning, on the economic activities of these disadvantaged groups.

It is also sometimes argued that industry and private citizens ought to be at the forefront on the effort to go green. While industry has some responsibility in this regard and some business groups have demonstrated an exceptional commitment to a wide range of environment-friendly activities, it is perhaps not realistic to expect such a high bar to be the benchmark for all companies.

David Vogel of the University of California, Berkeley, in his book The Market for Virtue makes a strong case for proactive government intervention in the climate change area. He concludes that there is no better way than regulation to reconcile private wants and public good. Even in the richest country in the world, the private wants of the consumer seem to trump public-spirited ideals.

Vogel makes the telling point (now widely quoted) that while consumers of the Starkist tuna company in surveys held forth on their environmental friendliness (don’t we all?), at the cash register they were unwilling to pay even one cent more for an environmentally safe product.

Similarly, a famous study by the organic food association and cited by Robert Reich, the Berkeley academic who was US secretary of labour under president Bill Clinton, shows that consumers will buy environment-friendly products only if they cost no more, are of the same quality, come from a known brand and do not require and change in shopping habits. Most marketers will find this a difficult challenge.

Given this backdrop, it is worth recognizing that many smart climate change efforts will pit short-term economic goals versus long-term benefits and hence will face an uphill struggle. Economically, climate change is really an issue of public good and needs in the main to be dealt by the government. Let not, therefore, the forest of this reality be missed, among the trees of demand for individual action.

Yet, even as one places the onus on government for dealing with this issue, it really cannot be through tough political action which is unlikely to work in democracies. After all, we need no more proof that like individuals governments, too, are unwilling to sacrifice short-term benefits for long-term growth.

Most recently, during the financial crisis, we saw that there is every effort in the US to incur huge budget deficits to stimulate consumption, despite the various undesirable costs to future generations, of taking such steps. In the US, the Waxman Markey Climate Change Bill has struggled through Congress, being diluted into ineffectiveness by a host of influential lobbies.

Friedman, who in his many writings, has been an ardent advocate of clean energy, concludes that the most one can expect of this Bill is that it can put pressure on India and China to also take equal steps. Unpopular clean energy initiatives will not get very far.

Recalling that the main onus for climate change lies with government and that too to work in a politically acceptable manner in India, the focus needs to be to move away from penalties for use of carbon as seems to be the desire of some Western governments to means to support clean energy through incentives.

It is well accepted that wind and solar energy can supplant coal as a major source of energy in India. Shyam Saran, Prime Minister Manmohan Singh’s envoy on climate change, has expressed optimism that a fivefold growth in this area is possible. Some companies are building clean energy solutions and it might be possible to support these industries without dismantling the subsidiary system that is felt politically expedient.

Ultimately, economic growth and literacy are very strong forces in favour of climate change. The faster India can achieve these goals, with the minimal damage along the way, it will achieve the best outcome for India. In the meantime, there remains a major climatic challenge and rhetorical calls to arms that requires of short-term sacrifice will only serve to divert attention from a focus on what can be achieved.

The message to citizens is to get real about what is achievable on this most vital issue and for governments to act through incentives rather than penalties and costs. Climate change will come from a combination of economic growth and an incentive-based approach to achieving what is possible today rather endless debates in favour of an ideal green behaviour.

Govind Sankaranarayanan is CFO, Tata Capital Ltd. He writes every other Friday on issues related to governance. The views expressed here are personal. Write to him at