Let’s make climate action a precondition for security partnerships, trade pacts and business as we take on global warming
As I leave from New York after a week full of conversations and action points around climate change, I feel a deep sense of urgency. For the first time, global warming has exceeded 1.5° Celsius—not just for a week or month, but for an entire year! And 22 July2024 went down in history as the hottest day since humans started recording temperatures 175 years ago. We are breaching one threshold after another. This requires us to immediately shed inertia on climate action globally.
We have incipient signs of the momentum that is now needed. Renewables make up 30% of the world’s electricity supply, which is a 10-percentage-point increase from 2010. We are seeing innovations that will shape our tomorrow—in battery storage, carbon capture, green hydrogen, ocean restoration, reforestation, the use of artificial intelligence for climate forecasting, and more. In 2023, investment in clean energy was almost twice that of investment in fossil fuels, a significant feat in the context of relatively high oil and gas prices over the last few years. Fortunately, the writing on the wall is becoming clearer for fossil fuels.
The overall tone at New York was about how best to accelerate climate action to limit the planet’s temperature increase to 1.5° Celsius above the pre-Industrial Age average, and whether that is a target that still remains achievable now.
We have a few tailwinds backing us. An International Monetary Fund report released this week showed that inflation in advanced economies has largely been brought within the target ranges of their central banks. This is likely to prompt a global monetary easing cycle after the recent interest-rate cut in the US. This is good news for the capexintensive clean energy industry.
Rapidly expanding clean energy markets mean that with proper international coordination, we have an opportunity to diversify global clean energy supply chains, positioning India well in this context. An energy transition away from fossil fuels will need several critical minerals as inputs for green technologies, and new discoveries of their deposits in many countries reassure us that their shortages (and price volatility) will not get in the way of that shift if we step up investments in mineral extraction and processing now.
India is widely seen as front and centre of all of this. India’s policy framework for the deployment of renewables and the efficiency of some of our best-performing cement and steel plants are well acknowledged. Indian manufacturers, including ReNew, are creating hope for clean energy supply chain diversification.
India has joined a key pillar of the US-initiated Indo-Pacific Economic Framework (IPEF) for Prosperity that is focused on a clean and fair economy and this reinforces the perception that India is proactively taking a global role in critical issues.
It is time to leverage all of this for bolder climate action. John Podesta, the US Special Presidential Envoy on Climate, rightly stated that “now is the best time in history to invest in clean energy.” It should not just be renewables, though. A striking analysis by RMI and the International Energy Agency (IEA) has shown that with faster progress on energy efficiency, we can bring forward the global net-zero achievement by almost a decade-and-a-half. Globally, an estimated $4.6 trillion per year, equivalent to about one-twentieth of the world’s gross domestic product (GDP), is spent on energy that is wasted in the process of production, transportation and use. In a resource-crunched world, this seems criminal. We know the solutions too—they range from electrification and localization of products to the use of efficient appliances in our buildings and process efficiencies in our industries. The CoP-28 target of doubling the annual pace of energy efficiency gains from 2% to 4% by 2030 needs to be much higher on our priority list.
As businesses, we need to step up too. I am co-chair of the World Economic Forum’s Alliance of CEO Climate Leaders, which comprises 131 companies that collectively account for 10% of global carbon emissions. This group is now collaborating across solutions and geographies to bring down carbon emissions in the corporate sector and also looking to get more involved with governments on climate discussions, so that corporate concerns and actions can also be considered while setting Nationally Determined Contributions (NDCs) and arriving at global targets.
Mandatory emission disclosure requirements have already been introduced in the US, EU and Singapore, where many of our businesses work. There are growing calls for a border adjustment mechanism for the US, possibly modelled on the EU’s Carbon Border Adjustment Mechanism (CBAM). India’s Carbon Credit Trading Scheme (CCTS) is expected to be operational by 2026, which is when CBAM provisions will come into force, requiring EU importers to account for embedded emissions in major categories of imported products. We should synergize our CCTS with such border adjustment systems to avoid trade tensions and prevent an undue rise in the landed cost of exports to such markets.
Today, we have 75 different carbon markets across the world and these need to be harmonized to develop the basis of a prospective global carbon market with a single price across geographies. On trade, policies around the world are still inwardlooking and moving in protectionist directions. I hope future multilateral discussions can avert this and that we develop an India-US-EU trade group that allows for easier movement of clean-energy products across these markets. This can be of substantial benefit to India, as we are a manufacturing location that logic favours.
To conclude, India has recognized that climate action is not a sacrifice; it is critical for economic growth. We need to make climate action a prerequisite for security partnerships, trade agreements and business. Let us be evangelists for fostering a more sustainable global economy.