The net zero challenge

Source– The post is based on the article “The net zero challenge” published in livemintThe Indian Express on 5th June 2023.

Syllabus: GS3- Environment. GS3-Economy

News- The RBI has released “Currency and Finance Report for 2022-23 — “Towards a greener cleaner India” report.

What are the findings of the report?

An annual GDP growth rate of 9.6% would raise net GHG emissions by 10.5 times of levels in 2021-22.

The nationally determined contribution will set back economic output by as much as 9% by 2049.

Only a more ambitious action of achieving net zero by 2050 would limit the losses from extreme weather events and decarbonisation to 3% by 2049.

The report talks about the inflationary impact of the status quo against the alternative of achieving net zero by 2050.

What are the financial risks involved in transition towards net zero?

The productive life of existing fossil fuel-based assets will be shortened. It will expose the banking sector through loans to these assets. Such risks are more pronounced for public-sector banks.

However, the financial risks are not just limited to conventional energy, non-conventional energy registered an increase in share of industry bad loans.

There are risks to assets, and therefore to the banking system, from the growing incidence of extreme weather events.

What are the policy alternatives mentioned in the report to address these risks?

The report lays significant emphasis on the role of fiscal policy. It makes a case for fiscal intervention in the form of a carbon tax or an emission trading system.

It finds that a carbon tax of $25 per tonne and $50 per tonne of Co2 under different scenarios can be effective, alongside other policy interventions.

It mentions the role of shifts in production to less energy intensive sectors like fisheries, textiles, land transport and services. But there is no roadmap for these sectors that have long confronted legacy issues.