Ahead of COP 26 meet: A Negotiation Strategy

World leaders attending the G20 Summit at the end of October and the CoP 26 shortly thereafter, will grapple with the problem of combating climate change. Reports suggest that the Ministry of Environment, Forest and Climate Change favours continuing with the traditional position of not committing to reduce emissions.

In a paper titled “Getting to Net Zero: An Approach for India at CoP-26”, prepared for the Centre for Social and Economic Progress, Montek Singh Ahluwalia and Utkarsh Patel, suggest a different approach.

The urgency of action to combat climate change has been amply brought out by the IPCC’s assessment that unless greenhouse gas emissions are sharply reduced, we are set for a +3°C warming by the end of the century. This would be disastrous for the world and also for India. There is much talk of getting countries to commit to reaching net zero emissions by 2050 and many developing countries are now willing to commit to such an objective. While net-zero is an attractive slogan, that has effectively captured the imagination in industrialised countries, we have argued in this paper that it is not necessarily the best way of structuring a global agreement on climate change mitigation.

The science behind 2050 as the net zero date is derived from the IPCC’s assessment that if the global temperature rise by the end of the century is to be limited to +1.5°C, then the remaining carbon space for additional emissions in the world is limited and global CO2 emissions must start to decline sharply reaching net zero by around 2050. This conclusion, though valid for the world as a whole, does not imply that all countries must necessarily get to net zero at the same time.

Ideally, the remaining carbon budget should be apportioned across countries in a manner that is deemed to be fair, reflecting the concept of “climate justice” that is built into the UNFCCC by way of “respective capabilities”. If such fair carbon budgets could be defined for each country, the correct mitigation strategy would be to ensure that every country adopts an emissions trajectory that keeps its cumulative emissions within its respective carbon budget. In that case, the date when a country reaches net zero would not matter.

As a practical matter, it is unlikely that the CoP-26 can agree on what is a fair share of the remaining carbon space for each country. The climate change negotiations are therefore likely to continue on the basis of voluntary commitments as happened in the Paris Agreement. Individual countries will offer enhanced INDCs and India could also easily do the same. However, they may also offer commitments to reach net zero by a certain date and the question arises how India should respond.

In our view, a net zero date by itself is not very meaningful without a specified trajectory for getting there. A convex trajectory that gets to net zero in 2050 would generate much more emissions than a concave trajectory with the same net zero date. In any case, even though it is accepted that 2050 is an average date for the world as a whole, there is a good case for advanced countries to get to net zero well before 2050, allowing developing countries to get there later. This would be a concrete step towards climate justice.

The right approach, therefore, is for each country to focus not on the net zero date but to indicate its emissions reduction trajectory consistent with its development imperatives. The IPCC could then be asked to compute the implications for the world as a whole of the combined trajectories. If the trajectories offered voluntarily imply an excessive level of global emissions, the issue can be considered at the next CoP meeting, with appropriate consideration of which countries should do more to reduce their emissions.

Should India Offer an Emissions Reduction Trajectory?

The above approach would represent a departure from the position we have traditionally taken that we cannot consider any reduction in emissions because our development objectives include a substantial growth in GDP, which in turn needs to be supported by higher energy use entailing increased emissions. However, this argument no longer holds because technology now makes it possible to meet the energy needs of growth relying on renewables to meet all additional demand and also to gradually phase out current fossil fuel-based energy sources.

We have argued that rapid growth can be reconciled with emissions reduction by adopting a strategy of electrifying as many sectors as possible and also shifting progressively to renewable sources of electricity, mainly solar and wind. The switch will not burden the economy with higher costs of electricity because the costs of renewable energy are falling, and the trend is expected to continue. However, the switch will involve many structural changes in the economy which have to be carefully planned and will also pose a substantial financing challenge.

Many of the steps needed to achieve the transition envisaged are already underway. Full electrification of railway traction is likely to be achieved in the next few years. EVs are already being encouraged in private and public passenger transport and light commercial freight. The industry is also moving towards electricity for its energy needs, but there are certain areas such as steel, cement and fertiliser production where it is not easy to get rid of fossil fuels at present. Green hydrogen, however, has great promise in some of these areas. It is not yet cost-competitive, but costs are likely to fall. Chairman Reliance Industries has announced that they hope to bring the costs of green hydrogen down from s $5-6 per kg, at present to $1 by 2030.

Much will depend upon how effectively the existing efforts can be scaled up. Any long-term projections has to deal with uncertainty and this is usually done by making the best forecast possible. We have reviewed several studies undertaken by many different institutes and they suggest that India’s CO2 emissions can peak in the next decade and get to net zero sometime between 2065 and 2070. We could even do better if some of the technologies currently under development become commercially viable earlier than expected.

NITI Aayog could be tasked with reviewing these studies, consulting with all stakeholders, including the states, and coming up with an acceptable emissions reduction trajectory.

Establishing Shorter-term Decarbonisation Targets

Longer-term trajectories need to be supplemented by more granular targets over the next ten years so that progress made by countries can be monitored. We have already adopted an expanded renewable energy capacity target of 450 GW by 2030, and this could be scaled up in subsequent decades. This automatically implies phasing down of coal use in power generation. We could offer a peaking of coal-based capacity before 2030, followed by a reduction in the total operational capacity to some fraction of the peak by 2040.

International Financial Support

The energy transition needed for reducing emissions on the scale required will call for massive investments. The IPCC had estimated that about $600 billion per year will be needed as additional investment in the energy sector in developing countries. India alone would require $150 billion per year or 2% of GDP between now and 2050.

These estimates are much larger than the amounts of financial assistance earlier agreed. The advanced countries had promised climate finance to reach $100 billion per year by 2020. Even this amount has not materialised and the failure on this count has been rightly criticised by developing countries including India and also many NGOs. However, the more important point at the present juncture is for CoP-26 to recognise that the amount needed is much larger and efforts should be directed to achieving a new global compact which reflects the larger amounts necessary.

The full amount of additional investment of $600 billion per year cannot be expected to come from international assistance alone. Some will have to come from domestic sources, both public and private. A portion will come from international private flows which will respond to market conditions and investor perceptions. A third portion can come from additional bilateral and multilateral flows which can take the form of direct finance for energy projects or mechanisms of risk mitigation that would stimulate private flows.

It is in mobilising the third component that the international community has a major role. Bhattacharya and Stern (2021) argue for doubling bilateral concessional finance by 2025 from its 2018 level and tripling multilateral climate finance over the same period, yielding $200 billion per year in international public climate finance by 2025. While some of this will flow through bilateral channels, CoP 26 should aim at raising a large part of this additional funding from the multilateral development banks (MDBs).

This will require expansion of the capital of these institutions or other innovative guarantee mechanisms that would allow expansion in lending of this order. A part of the $650 billion new SDR that have been created by the IMF could be used for this purpose. The G20 Summit is the right forum to get an endorsement of this effort, which can then be pursued in the executive boards of these institutions.

The approach described above will represent a departure from the past because it requires India to define a trajectory with emissions falling over time. With technology having moved as it has, it makes sense to offer such a trajectory as part of a conditional global compact in which advanced countries adopt net zero dates earlier than 2050 and the global community commits to additional bilateral and multilateral funding.