India’s Reserve Bank has released a report on Currency and Finance for the year 2022-23, outlining the country’s climate change challenges and the required policy options to mitigate risks. The report identifies four major dimensions: the scale and pace of climate change, its macroeconomic effects, implications for financial stability, and policy options to mitigate climate risks.
The report notes that India’s goal of becoming a net-zero economy by 2070 requires an accelerated reduction in energy intensity and significant improvements in renewable energy sources. To achieve this, the report estimates that green financing requirements must be at least 2.5% of GDP annually until 2030.
India’s diverse topography makes it highly vulnerable to climate risks, including rising temperatures, erratic monsoons, and extreme weather events. Delayed climate policy actions could be costlier in terms of larger output losses and higher inflation, according to the report. The report highlights that risk-mitigating policies and global concerted efforts could help contain the adverse impact on growth and inflation.
The financial sector faces the dual challenge of recalibrating its operations and business strategies to support the green transition process while also strengthening resilience to rising vulnerability to adverse climate events. The report suggests that public sector banks in India may be more vulnerable than private sector banks and calls for the mobilization of adequate resources and the reallocation of current resources to contribute effectively to the country’s net-zero target.
The report concludes that a comprehensive decarbonization strategy is required, encompassing all carbon-emitting sectors of the economy and all available policy levers. A balanced policy intervention can lower carbon emissions to 0.9 gigatonne by 2030 compared with a no policy action scenario that could increase India’s carbon emissions to 3.9 gigatonnes by 2030.
Overall, the report suggests that a balanced policy intervention with progress ensured across all policy levers will enable India to achieve its green transition targets by 2030, making the net-zero goal by 2070 attainable.