ECONOMIC IMPACTS OF CLIMATE CHANGE – ENVIRONMENT

News: For India Inc, climate change is new ‘single biggest business risk’

 

What's in the news?

       Climate change can adversely impact both the supply side (read the productive potential) as well as the demand side. It can stroke inflation, reduce economic output, trigger uncertainty and change consumer behaviour.

 

Key takeaways:

Over the years, there have been several predictions and assessments made about the impact of climate change on India’s economy. Some are listed below:

       According to Niti Aayog in 2019, around 600millions of India’s population are facing severe water stress, with 8 million children below 14 years in urban India at risk due to poor water supply.

       The World Bank in 2020 said that India could account for 34 million of the projected 80 million global job losses from heat stress associated with productivity decline by 2030.

       The IPCC Working Group in 2022 stated that India is one of the most vulnerable countries globally in terms of the population that would be affected by the sea level rise. By the middle of the present century, around 35 million people in India could face annual coastal flooding, with 45-50 million at risk by the end of the century.

 

Risks of Climate Change:

Typically the risks from climate change are categorised in two main ways.

       The physical risks and these include chronic issues (such as a gradual and sustained change in temperature and precipitation) as well as acute events such as extreme weather occurrences).

       Transition risks refer to economy-wide changes arising from the transition towards a low-carbon economy.

       This is best encapsulated by a paradox called “success is failure”.

       This phrase was used by Mark Carney, Governor of the Bank of England, in 2016.

       Carney meant that if the shift towards becoming a low-carbon economy is too rapid, it could materially damage a country’s financial stability.

 

Economic cost of climate change:

1. Difficult to estimate:

       As it depends on a number of factors, including the severity of climate change, the rate of climate change and the ability of societies to adapt to climate change.

2. Highest in developing countries:

       Study by IPCC found that the economic cost of climate change would be highest in developing countries.

       This is because developing countries are less able to adapt to the effects of climate change.

       The economic cost of climate change would be highest in countries that are heavily dependent on agriculture and tourism.

3. Supply and demand of economy:

       Climate change can affect both the supply side (productive potential) and the demand side of the economy.

4. Diverse topography:

       India is vulnerable to climate change due to its diverse topography, which exposes different regions to varying temperature and precipitation patterns.

5. Extreme weather events:

       Extreme weather events such as floods, droughts and heat waves, are becoming more frequent and intense due to climate change.

       These events are causing damage to property and infrastructure and are also disrupting economic activity.

6. Health problems:

       Health issues such as heat-related illnesses, respiratory problems and waterborne diseases.

       These health problems are costing India billions of dollars in healthcare costs.

7. Agriculture:

       Climate change has a negative impact on agriculture. Rising temperatures and changes in rainfall patterns are making it more difficult to grow crops.

       This is leading to food shortages and higher food prices.

8. Tourism:

       Climate change has a massive impact on the tourism industry.

       Rising sea levels are threatening coastal resorts and extreme weather events are making it more difficult for people to travel, costing India billions of dollars in lost tourism revenue.

 

Challenges ahead:

1. Green financing requirement:

       Estimations imply that India's green funding demand might be at least 2.5% of GDP each year to cover the infrastructure deficit induced by climate disasters.

       To properly contribute to the country's net-zero aim, the financial system may need to mobilize appropriate resources as well as reallocate present resources.

2. Vulnerability of Bank:

       The findings of a climatic stress test show that public sector banks in India may be more vulnerable than private sector banks.

 

WAY FORWARD:

       Promote sustainable farming practices that reduce greenhouse gas emissions.

       Implement effective waste management strategies such as recycling, composting, and reducing landfill waste.

       Enact and enforce policies that support climate-friendly practices.

       Invest in research and development of clean technologies and innovations that can help reduce emissions and mitigate climate change.

       Collaborate with other countries to address global climate challenges.

       Support businesses that are working to reduce their environmental impact.