"How do we create a competitive economy?" asked Chief Economic Adviser (CEA) V Anantha Nageswaran at the beginning of his address at the 'Building a robust financial sector for a competitive economy' panel on the second day of the Confederation of Indian Industry (CII) Annual Plenary Session on Thursday.
The CEA said energy is an important driver for economy and that energy security is coming under a lot of pressure because of geopolitical developments and climate change. "If there is a single-most important worry in my mind for sustaining the growth rate that we are being able to achieve in the last two to three years, it is energy security," Nageswaran said.
He laid out three things that financiers and the financial sector must consider keeping in mind climate change and its impact on keeping the economy competitive.
1) Provide financing for adaptation and resilience, and not just emission mitigation.
Currently, there is a lot of importance from the developed world on the mitigation of carbon emissions, which Nageswaran believes is important. However, it is equally important for developing countries to ensure that there is adequate and affordable energy for powering growth, he said.
Citing the example of how carbon dioxide remains in the atmosphere, he said the half life of the gas is 120 years. "For example, if someone emits 500kg carbon dioxide in the atmosphere in 2023, then 250kg of that will remain in the atmosphere in 2143 and so on. So at least 1kg of carbon dioxide will be in the atmosphere for 1,680 years, which means the carbon that is already there is going to exert its effect on global warming regardless of the mitigation efforts we undertake."
Hence, he said we also need to adapt to the effects of carbon dioxide in the atmosphere.
2) We cannot completely swear off fossil fuels
Nageswaran said completely swearing off fossil fuels is not the way to deal with the climate crisis.
He said India is well ahead of its target to balance the proportion of non-fossil fuel-fossil fuel in its energy mix, in terms of installed capacity, by 2030. However, it is also necessary to understand the important roles of fossil fuels.
"If the financial industry completely avoids funding fossil fuel-based power generation projects, then we will be placing the economic growth in jeopardy. And if we do that then the generation of fiscal and private sector resources will also be in jeopardy and therefore, our ability to provide the right kind of financing for dealing with climate change will also be in question," he said.
The CEA thinks it is wrong to assume that focusing on economic prosperity is inconsistent with the focus on climate change management. "Prosperity is a prerequisite for addressing climate change in the medium term, and financiers in the banking sector have to keep in mind that especially the economy has to remain competitive," he said.
3) In the name of doing good, are we doing something bad?
When a project is misleading or giving false claims on having a positive impact on the environment, it is called greenwashing.
"But what if some of the projects that we think are genuinely green projects, actually end up causing damage to the environment with unintended consequences?" said Nageswaran.
He cited an example of a story done by Bloomberg a few months ago, in which it said aluminium was being extracted from the Amazon reserves to power electric vehicles of a US-based manufacturers. However, it was in turn causing damage to the lakes, rivers and water bodies in the region. Hence, the combined impact of the aluminium extraction for the purpose of powering electric vehicles, which are supposedly climate-friendly, was not exactly helping the environment.
"Hence, projects that on the face of it appear green friendly, may not necessarily be environmentally friendly when we take all the side effects and unintended consequences into consideration," he said.
The CEA said the financiers must keep in mind what the costs of the projects they are funding are on the overall environemtn in the name of climate. "In orher words, are we, in the name of doing good, doing something bad, and therefore in the process affecting the economic and social wellbeing," he said.
