Balancing economic development and climate goals

  • Blog Post Date 31 August, 2021
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Ejaz Ghani

Pune International Center


Although India is on track to meet its target under the Paris Climate Agreement, the fast pace of urbanisation could worsen the problem of climate change. In this post, Ejaz Ghani outlines the policy instruments available to promote green growth in the cities and enhance energy efficiency, and contends that there can be huge payoffs from linking urbanisation with climate change.

India’s urban population is expected to nearly double by 2030. This will be one of the fastest urbanisation processes of the 21st century in the world. To accommodate this rapid pace of urbanisation, India needs to build nearly 800 million square meters of urban space every year until 2030. This urbanisation will sustain a high rate of economic growth in the future, as cities account for 70% of economic growth

However, there are concerns that such rapid urbanisation will worsen climate change, given that climate change is largely an urban phenomenon. Cities account for 75% of carbon emissions – they trap heat from the sun, which raises temperatures in urban areas to a much greater level as compared to the rural areas. Cities can also create a huge carbon footprint on account of poor infrastructure, land management, and low-density suburban sprawl. Homes far from work and stores means more cars on the roads emitting carbon dioxide. In addition, most of the ever-increasing number of buildings still use fossil fuels for their energy needs. 

Many cities are already being affected by the increased frequency and severity of storm surges, coastal flooding, and power outages. Extreme weather conditions have a direct adverse impact on the health, quality of life, and productivity, and workability of people. It can also damage their individual and community assets (businesses, homes, hospitals). 

India is particularly vulnerable to climate change given that many cities are in the low-lying coastal regions and exposed to higher risks of typhoons and floods, with higher humidity and precipitation in some cities, and droughts in other. The poor, who lack access to basic amenities, tend to suffer more from storms, extreme heat, and water shortage.

How will India tackle its development goals and underlying fast-paced urbanisation and infrastructure investments, along with climate change goals? Policymakers have several policy tools to integrate the two agendas.

Green urban growth

First, an immediate priority is to identify the hazards posed to urban life from different sources of pollution. This should be carried out at the city level, given the high degree of diversity across Indian cities.. One such aspect is the extent of specialisation in production, for instance, Lakshwadeep is highly specialised in water services, Darjeeling in paper products, and Bhopal in wood products, while other cities like Palgaht and Madurai produce a variety of goods (Ghani et al. 2014a). Hence, a bottom-up approach will better capture the magnitude and sources of pollution, and improve the planning process. There should be a detailed analysis of costs, benefits, and feasibility of the various climate actions at the city level. This will identify actions that cities can take to build on their strengths, their spatial location, and jurisdictional control, that offer a high return and contribute to risk reduction 

Second, cities have an essential role to play by setting clear de-carbonisation goals, promoting energy efficiency, and shifting more urban energy consumption in transportation and buildings towards electricity. Cities cannot do it alone, so these efforts should be adequately supported by utilities and regulators. 

A timeline should be provided to work towards climate change goals in India’s ‘100 Smart cities’ agenda. Infrastructure and urban areas are still being built out in many parts of India, which gives policymakers a chance to ensure that what goes up is more resilient and can withstand climate risks, and progress can be easily monitored 

Climate change goals should also be socially inclusive, so as to integrate slums and low-income communities, who can benefit from improved public transport, and who may be at higher risk from climate-related damage. 

Third, several actions can be taken now to promote a green urban growth agenda. Cities can scale-up investments in low-cost and nature-based actions, like planting more trees next to streets. This has the potential to achieve a forest cover area equivalent to 2.5-3 billion tonnes of carbon dioxide emission. The current growth in forest cover in India is too slow to meet climate change goals, and this can be accelerated with the help of greater funding, better coordination between the Centre and states, and improved monitoring. Policymakers could also mandate that solar panels be used in all new houses (for example, this is already being done in Chandigarh), and in multi-family residences. Where solar power is not available, community solar projects could be promoted. Rooftop solar panels can be expensive, but the additional upfront cost to homeowners, when building or buying a home, is small.

Energy efficiency

Above all, India will need to improve energy intensity per unit of GDP (gross domestic product) by almost 60%, to sustain high economic growth in the future, and meet its climate change goals. The pace of improvement in energy efficiency needed will be nearly twice its historical levels. 

India has improved energy efficiency over the last two decades. Electricity usage per output unit has decreased for India as a whole (Ghani et al. 2016). However, the de-urbanisation of manufacturing activity did not significantly reduce electricity consumption per unit of output, and may have even increased it. Manufacturing enterprises in India are migrating from urban to rural areas to remain cost competitive, and enterprises insure themselves against poor electricity supply with power backup and self-generated electricity via high-cost generators. Electricity shortages are estimated to be around 10% of demand and this has become an ‘input tax’ on enterprises as well as on the goals of the climate change agenda. The most energy-intensive industries (for example, iron and steel, fertiliser, petroleum refining, cement, and pulp and paper), which account for the bulk of the energy usage in India, have recorded improvements in energy efficiency (Ghani et al. 2014b). But more needs to be done, and there is scope for improving energy savings in many other industries: 46-88% in textiles, 43-94% in paper and pulp, and 51-92% in iron and steel industry.

Policy instruments

There are several emerging policy instruments to promote a green urban growth agenda including carbon pricing1, green public-private partnerships, green mortgages2, green bonds3, and increased access to global development institutions4. Carbon pricing on production and consumption – both at the domestic and global levels – has attracted global attention in recent times. This has been successfully adopted in Europe, but it is still at an early stage in China and other developing countries. 

However, carbon pricing alone will not do the trick towards achieving the goals of sustainable development. The financing cost of linking investments in urban infrastructure with the climate change goals is huge for most developed and developing countries. As climate change is a global problem, and carbon emissions per capita are much lower in developing countries relative to the developed countries, the burden sharing between developing and developed countries should also be more even. 

Developing countries need a ‘global, green multilateral platform’ to help them achieve both development and climate goals, and accelerate the pace of progress. This project could be easily financed from the pledge that developed countries have already pledged to help developing countries to tackle the climate change agenda.

Time is of the essence 

The agenda of economic recovery from the Covid-19 pandemic provides India a unique opportunity to also deal with its climate agenda, particularly at the city level. Huge gains, in terms of reducing harmful gases, can be made by changing how we plan, build, and manage and power our cities and towns. Well-designed, compact, walkable cities with good public transport, greatly reduce our per capita carbon footprint and are key to achieving many of the Sustainable Development Goals of which climate action is a key part. 

India is still at an early stage of development and urbanisation, and the payoffs from linking urbanisation with the climate change goals will be huge. Cities need to apply the same urgency to climate change agenda, as they have in dealing with the Covid-19 crisis. The overarching goal of keeping the global warming across the world within 1.5 degrees Celsius of pre-industrial levels, will unlikely be achieved without linking urbanisation with the climate change agenda. Cities are currently being tested to the extreme with Covid-19. Soon, the same will be the case with increased frequency and severity of extreme heat, coastal flooding, and storm surges, which directly impact the urban life.

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  1. The World Bank defines carbon pricing as “an instrument that captures the external costs of greenhouse gas (GHG) emissions—the costs of emissions that the public pays for, such as damage to crops, health care costs from heat waves and droughts, and loss of property from flooding and sea level rise—and ties them to their sources through a price, usually in the form of a price on the carbon dioxide (CO2) emitted.”
  2. According to the World Green Building Council, “Under a green mortgage, a bank or mortgage lender offers a house buyer preferential terms if they can demonstrate that the property for which they are borrowing meets certain environmental standards.”
  3. The United Nations Development Programme defines green bonds as “innovative financial instruments where the proceeds are invested exclusively (either by specifying the use of the proceeds, direct project exposure, or securitization) in green projects that generate climate or other environmental benefits.”
  4. This may be in the form of increased allocation of funds for green urban growth projects from multilateral and regional development institutions, and linking special drawing rights to green growth to help development countries promote a green growth agenda.

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