What Is Economic Development

India on reducing Carbon emissions – An Economic Development perspective

The article is available at http://probebusiness.blogspot.com/2009/12/india-on-reducing-carbon-emissions.html

In the run up for Copenhagen Climate Conference to be scheduled from 7-Dec-09, India has become the center stage for the key negotiations between developed and developing nations for its stance on reducing Carbon emissions. India has expressed concerns over sacrificing its ‘development and objectives of eradicating poverty’ at the expense of ‘costs for reducing greenhouse emissions’. The main obstacle India sees is its spending costs on reducing Carbon emissions that would have a significant negative impact on it’s objectives of development and poverty eradication.

In this article I have tried to analyze the concerns of India by evaluating the costs of reducing Carbon emissions and the costs of not reducing Carbon emissions, and base my conclusions on the differential costs between the two. To reiterate I am considering the following costs:
1. Costs incurred for Not reducing Carbon emissions – CN
2. Costs incurred for Reducing Carbon emissions till 350 ppm – CR
Comparing the above two costs If CN > CR Then reducing Carbon emissions would have a negative impact on India’s Objectives of development and eradicating poverty
Else If CN < CR Then reducing Carbon emissions will have a positive impact on India’s objectives and India should aim at reducing Carbon emissions.

1.Costs incurred for not reducing Carbon emissions – CN

According to a study released by the group Economics of Climate Adaptation – ECA [Swiss Re, Mckinsey & Company, ClimateWorks, the European Commission, Rockefeller Foundation and Standard Chartered Bank make up the ECA working group] under climate change scenarios, the climate related disasters can result in 9-13 percent of loss of India’s GDP by 2010 and 19% loss of India’s GDP by 2030. Accordingly the Costs for not reducing Carbon emissions till 2030 i.e, CN is 19%. However there is a potential for this loss to be increased as the long term effects of climate related disasters are serious on the economy.

To examine how much loss a natural disaster may cause, let’s take a case study of the floods that recently hit North Karnataka in October 2009, and examine the losses incurred as a result of the disaster. This would give us an idea of the approximate losses that would incur if a natural disaster of similar severity happens due to the climate changes resulting from not reducing Carbon emissions, which could have been avoided otherwise.
Following are some of the significant losses caused by the floods: >> 194 people died
>> 10 million homeless. This means that the Govt had created 10 million poverty people at an instant by letting the disaster happen.
>> Losses totaled to 18,000 crore, according to the State government estimates
>> State govt sought 9,000 crore flood relief from the Central govt.
>> State demanded for the release of 1.5 lakh metric tonne food grains under BPL rates for the affected people
>> 25 lakh hectares of crop area affected. This amount of land would not be productive for a few months which is a Loss. The investments in terms of labor, resources, subsidy provided by the govt on fertilizers from citizen’s taxes are totally wasted, A  very big loss again.
>> Supply chain disruption. Industries, Businesses, Prices, Markets in other areas which  were reliant on the flood hit area are affected. The standstill region wouldn’t be able to supply any goods or services which it was supposed to, to other businesses.
>> Inflation figures during this period.
Vegetable prices up 50%, potatoes up 81%, sugar up 44% and rice up 19%. Food prices were more broadly up by 16% compared to the previous year. Although floods weren’t the only reason, they were significant in contributing for rising Inflation.This is a serious impact. Higher inflation would reduce the buying power of people and would create more poverty
>> The state’s machinery and resources are dedicated for flood relief works which would  have otherwise been dedicated for other Productive works
>> Chances of spreading of epidemics are very high. More spending on health.
>> Affects both the physical and mental health of the people in the flood affected region. The implications of this are very serious.
>> Job losses
>> The list runs

All the above effects which would be caused because of ignoring the climate change disasters have eventually resulted in hampering development and creating more poverty which would have been avoided otherwise.

2. Costs incurred with spending on Reducing Carbon emissions – CR

There will be some significant costs associated with spending (or rather investing) on reducing Carbon emissions. The following are the areas where the government has to chiefly spend if it makes a commitment for Carbon emission reduction.

1. Spending on newer energy resources
India should start spending (investing) in newer energy resources which are more energy efficient so as to reduce it’s over dependence on burning of fossil fuels like coal which is less energy efficient and results in more Carbon emission.

2. Spending on building more energy efficient products
This would apply to a wide range of products from almost every sector.India needs to build Energy efficient engines, Energy efficient commercial and residential buildings, Energy efficient transportation of all forms, Machines and Technologies that enable energy efficiency.

3. There would be costs incurred due to reduced economic development taking into consideration the reduced economic development taking into consideration the factors such as unemployment, Industries spending on equipments, technologies for reducing Carbon emissions, policies, administrative and legislative costs and more

So what would be the likely total cost for accomplishing all the above stated spending at reducing Carbon emission?
Unfortunately as of now [5-Dec-09] I have not been able to find any data released by Indian govt about the costs estimates for reducing its Carbon emissions. I urge the Govt of India to release its estimates for costs associated with reducing Carbon emission at a particular target.Had this been released our work would have been easier. But that shouldn’t stop us from continuing further as the cost estimates on reducing Carbon emissions are available from many other sources. Various academic and research groups like Economics for Equity and Environment network (E3), groups from European universities have tried to estimate the costs for attaining emission reduction till 350ppm. One group starts from the (realistic) assumption of high unemployment, and finds that long-run employment and economic growth would be increased by a program of public investment in green technology and emissions reduction that leads to 350 ppm. The other three groups adopt the common assumption that short-run unemployment can be ignored in long-run models. They generally find that the needed emissions reductions will cost an average of 1 to 3 percent of world economic output, for some years to come. Studies from other groups such as Greenpeace, Union of Concerned Scientists (UCS) have arrived at more optimistic estimates where the savings from fuels would be more compared to the spending. They assume high oil prices at 140$ per barrel (Greenpeace). Now considering Mckinsey’s estimates (Non conservative and pessimistic compared to the estimates of Greenpeace and UCS), it would cost 2.3% of India’s GDP to halve the Carbon emission growth by 2030. Hence the Costs for Reducing the Carbon Emission – CR would be 2.3% of India’s GDP.

Comparison of the Costs between reducing and not reducing Carbon emissions

As already reasoned before, the value of CN is 19% of GDP and the value of CR is 2.3% GDP. The Difference Costs of CN and CR = 19 – 2.3 = 16.7 % of GDP
India would actually save 16.7 % of GDP subjected to the reasons presented above if it aims at reducing Carbon emissions. These savings can eventually be used for economic development and reducing poverty. The earlier reasons from Indian govt that reducing Carbon emissions would reduce economic development and increase poverty would hence needs to be strongly suspected.

According to the 2006 military data released by Central Intelligence Agency [CIA, US], India’s military expenditures cost 2.5 % GDP annually. These military expenditures are effectively the safety needs of the country to protect the citizens from deaths and losses.If the climate changes are allowed by not reducing the Carbon emissions, the resulting climate change disasters would eventually lead to more deaths and homeless people. This is indeed a basic safety and physiological need for the country. The costs for mitigating this is spending on reduction of Carbon emission [ CR ] which is 2.3 % of GDP. Comparing the Annual 2.5 % GDP costs on military expenditures with 2.3 % GDP costs till 2030 for the safety needs of similar importance, the spending on Carbon emissions looks very meager. Again India need not bear all the costs [ 2.3% of GDP ] for reducing Carbon emissions alone. India can actually make a case for contributions from other developed nations. India has now started pressing the developed nations for contributing 0.5 % of GDP to fund its costs.

Based on the reasons presented in the article, I conclude that India should target for reducing Carbon emissions so as to pursue with its objectives of economic development and eradication of poverty.India should focus on building newer energy sources and energy efficient products towards its pursuit for greener world. I hope to see a positive move from India towards this end in the Copenhagen Climate Conference.

Global warming Skepticism
With the leaking of emails and the documents from the Climate Research Unit (CRU) at the university of East Anglia, UK the skeptics of Global warming who are arguing that climate change is not man-made have found new reason to support their claim. What if the skeptics were right? Should India be not bothered at all about reducing carbon emissions? Watch out in the next post.

Appendix
For the Case study of Floods in Karnataka
[http://news.bbc.co.uk/1/hi/world/south_asia/8289975.stm ]
[http://www.hindu.com/2009/10/24/stories/2009102450360100.htm ]
[http://sify.com/news/Karnataka-demands-Rs-9-000-crore-flood-relief-package-from-Centre-news-jkuv4ecfabd.html ]
[http://www.thehindubusinessline.com/2009/10/08/stories/2009100851841700.htm ]
All the links presented in the argument were accessed by latest on 5-Dec-09

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