Managing the transition to a green economy

There is no denying that climate change represents a global crisis that requires immediate action. International climate negotiations have highlighted the important role of low- and middle-income countries in the race to decarbonize the global economy, as well as the responsibilities of high-income countries in supporting climate mitigation, adaptation and resilience efforts.

Here, the COP27 summit will be remembered as a significant achievement, especially because of the agreement on a „loss and damage” fund for developing countries affected by climate change. This landmark agreement is a significant step forward in recognizing the enormous inequalities caused by the climate crisis.

Implications of high carbon emissions

Already, global carbon emissions range from 35 to 40 gigatons per year. These high levels of carbon emissions have depleted Earth’s remaining carbon budget, which is only 400-450 gigatons needed to keep temperature rise below 1.5-2°C. If the current rate of emissions continues, this budget will be exhausted. Within years, it highlights why decarbonisation must begin immediately at an unprecedented pace.

China, the United States, and India are the world’s top three emitters of greenhouse gases (GHG) at 12, 6.1, and 3.3 gigatons of emissions, respectively. Although India ranks high, considering its population’s per capita GHG emissions, it is only 1.9 tonnes. America is 15 tons.

Over the past century, high-income countries have developed in leaps and bounds, driven by excessive use of fossil fuels. This has led to the current situation, putting the world in an existential crisis.

Although per capita emissions are low in developing countries, rising living standards to alleviate poverty will increase energy use and generate more emissions. According to global consulting firm McKinsey, if India continues on its current growth path, emissions will increase by 11 gigatons per year by 2050. Developing countries are now under pressure to decarbonize and limit fossil fuel use.

But developing countries rightly argue that the energy transition will come at a cost, which will hamper their economic growth. Also, there are various technical challenges and financial issues involved in mass adoption of green technologies.

Different ways to collaborate

To solve this conundrum, there are many ways for both developing and developed countries to cooperate with and fight climate change. These include:

Finance: At various COP meetings, developed countries pledged $100 billion annually to developing countries for climate adaptation and mitigation. It remains unfulfilled. According to the International Energy Agency, energy investment in emerging and developing countries has fallen by a fifth over the past five years. This must be replaced quickly with massive increases in clean energy spending.

Clean energy investments required for the transition in developing countries will rise to $1 trillion annually in 2050, compared to current estimates of about $250 million in net zero. As structural and domestic problems impede access to low-cost financing in developing countries, the role and volume of international finance is under macroeconomic pressure from rising inflation, growing debt burdens and currency depreciation. In the era of climate change, long-term institutional financing and new instruments (first loss guarantee, credit enhancement, hybrid financing, etc.) are essential.

The need for low-cost financing increases, especially for new frontiers of clean energy use, such as green hydrogen and its derivatives. Adoption of these technologies is critical as upfront costs are expected to be high. Although developed countries have deep pockets, adoption will be difficult for developing and underdeveloped countries without financial support.

Supporting the right transition: Developed countries are advising developing countries to shun coal use and phase out these mines to boost green energy transition. But funding is needed to rebuild coal mines and power plants while retraining workers. This includes reuse Land and associated infrastructure for clean energy projects While creating new jobs in the clean energy space.

Green Hydrogen and Financial Support: Green hydrogen and its derivatives are strong alternatives to fossil fuels that are used in all high-emission sectors, including power generation, mobility and industries. Adopting hydrogen as a powerful energy source can eliminate the use of fossil fuels. If developed countries support the creation of production facilities for green hydrogen and its derivatives, it will represent a winning proposition for both developed and developing regions. For example, if the European Union or Japan chooses to buy from India, it will help create a productive environment in this country while also helping their energy transition.

Technology: Much R&D is going on across geographies in various new technologies such as electrocatalysts, electric vehicles, hydrogen-powered vehicles, power generation from renewable sources, battery energy storage, green hydrogen and green ammonia, carbon capture, utilization and storage, and greater contribution of biofuels to the economy. . , mixing ammonia in power generation equipment etc. Therefore, collaboration among countries is necessary to facilitate technology transfer. Various measures should be taken for global cooperation, including bridging demand and supply, reducing taxes and reducing infrastructure costs, while providing investment protection and business opportunities to developing countries like India. Technological innovation reduces costs and increases efficiency across the value chain. Open sourcing of technology will also enable countries to quickly access new technologies globally.

Skill Development: Countries can cooperate in providing training for workforce development, diversification, capacity building and restructuring in new and emerging clean energy technologies.

Why Just Transition is Must

In terms of regulatory frameworks, carbon pricing is an important tool for decarbonization as it incentivizes those who emit carbon into the environment. Under Article 6 of COP26, countries agreed on a common framework for reducing emissions and claiming carbon credits around the world. Although this worked well initially, over the years prices have been reduced and disagreements have arisen over the general procedures for registering projects. In the absence of institutional arrangements, carbon pricing requires a strong regulatory framework.

Undoubtedly, transition to cleaner fuels is the need of the hour. However, the transition towards net zero emissions targets requires careful consideration of the socioeconomic impact of moving away from fossil fuels. In India alone, the livelihoods of 20 million people depend on coal mining in six relatively poor states. Consequently, countries should adopt a balanced approach to energy transition, taking into account the interests of all segments of society.

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