It may prove costlier to combat than adapt to climate change

News: Now that the Glasgow Climate Pact has finally been agreed upon, it is time to figure out one of the critical components of climate change action – Climate Finance.

How finance can be worked out for the climate targets under Glasgow pact?

– A large part of climate finance will have to come domestically from both public and private sources. Some could come from international private flows (both equity and debt) and a third component could come from bilateral and multilateral public flows.

For instance:  The Glasgow Financial Alliance for Net Zero, which was active in CoP-26, includes over 450 firms controlling about $130 trillion in private assets. A small proportion of these assets, re-directed to green energy projects, would provide significant support for mitigation efforts. For this, the risk perceptions about investment in developing countries would have to be taken care of.

– Special Drawing Rights: It may also be possible to use the substantial special drawing rights given recently by the International Monetary Fund (IMF) to developed countries.

– Differentiated carbon tax is proposed by the IMF to be levied at $75 per tonne of CO₂ for the US and EU, $50 for China, and $25 for India. Different levies would protect India’s competitiveness while raising much-needed resources for climate adaptation. Petrol and diesel are already heavily taxed, and the proposed carbon tax would be subsumed within these taxes. India can also increase the environmental tax on coal (from $3.5 per tonne of CO₂ to $15) to generate resources that could be used for climate adaptation.

– A coordinated effort by India, Indonesia and Brazil should push for commitments on climate finance at G-20, where critical decisions on financing are actually taken (Indonesia will chair the G-20 in 2022, India in 2023 and Brazil in 2024)

– Domestic action by India: India needs to fix the financial weakness of its electricity distribution companies so that private investors can invest in electricity generation. Domestic policy action is also needed for the removal of fuel subsidies.

What are some potential side-effects of the climate change policies?

In the latest World Economic Outlook (WEO) by International Monetary Fund (IMF) mentions the following:

– High demand for metals like copper, nickel, lithium and cobalt. These metals would reach historical peak prices for an unprecedented sustained period under a ‘net zero by 2050’ emissions scenario. The total value of metals production is estimated to rise to $13 trillion by 2040, equalling the value of crude oil output that year. This will result in significant gains for producers, and resource constraints for consuming nations.

Significant investment in mines will be needed to extract those metals.

Further, the available supplies of rare metals will get cornered, leaving many nations faced with a choice between high carbon emissions and financial ruin.

– Impact of the green economy on the labor market. Jobs have become greener in the last decade. But people with higher education are likely to get them, as green jobs tend to require higher skills and pay more. Hence, decarbonization would also result in concentrated education, skills, income and wealth in fewer hands.

Source: This post is based on the following articles:

‘CoP26: A ‘net nothing’ summit that the UN termed a global compromise‘ published in DTE  on 15th Nov 2021.

‘The Glasgow Pact: Does it make climate finance available to us?‘ & ‘It may prove costlier to combat than adapt to climate change‘ published in Livemint on 16th Nov 2021. 

‘Four ticklish questions on India’s climate pathway‘ published in Times of India on 15th Nov 2021.