“The current climate projections have dire consequences for our people, it means coastal erosion, significant loss of land and homes, increased salinisation in water sources and loss of livelihoods for our people,” Warwick Harris, Deputy Director of the RMI Climate Change Directorate, said in a release by the Secretariat of the Pacific Regional Environment Programme (SPREP), a regional organisation to protect and manage the environment and natural resources of the Pacific. “Every little increase in sea levels is a matter of life quality for the Marshall Islands.”
Such threats to this island nation is an example of the disastrous consequences seen in the wake of extreme weather events. It also brings the spotlight on a key aspect within the shipping industry – decarbonisation of the sector in a bid to meet the climate change goals. According to a report by the International Renewable Energy Agency (IRENA), international shipping enables 80-90% of global trade and comprises about 70% of global shipping energy emissions. “If the international shipping sector were a country, it would be the sixth or seventh-largest CO2 emitter, comparable to Germany,” it stated.
iStockIn India too, trade and logistics is not insulated from such disturbances and expected to face a significant hit given the magnitude of climate changes happening the world over. So in what way can India — besides pursuing zero-carbon goals — be more geared up to mitigate the impact of such external shocks?
Trade and GDP
The Economic Survey 2022-23 noted how India is considered to be one of the most vulnerable countries given its long coastline, monsoon-dependent agriculture and large agrarian economy. Noting how the share of developing countries in the stock of greenhouse gases (GHGs) has been minimal compared with developed countries, it highlighted how India has contributed only about 4% in the cumulative global emissions (for the period 1850-2019) and maintaining its per capita emission at far less than the world average. “Ironically, the burden of adaptation is highest for those who have contributed the least to global warming,” it stated.
Anirban Mukherjee, Managing Director & Partner, Boston Consulting Group, affirms such facts saying that India is a lot more prone to the physical risks of climate change. “We have had events in the past few years where our entire power utility companies were affected because of water shortage. Many companies are looking at relocation of the headquarters and data centres because of these disruptions. That is the physical part. Besides this, there is the transition part of the risk which is assets and collaterals. For instance, more than 55% of the total asset base of our financial institutions is dependent on sectors which are heavily impacted by climate change,” he says.
iStockHis views fall in line with research that shows how rising heat across India can hamper economic productivity. By 2030, India may account for 34 million of the projected 80 million global job losses from heat stress-associated productivity decline, a World Bank report stated. It also quoted an analysis by global management consulting firm McKinsey & Company showing that lost labour from rising heat and humidity could put up to 4.5% of India’s GDP – approximately $150-250 billion – at risk by the end of this decade. What do such startling facts imply for India’s trade and businesses? Independent trade expert Manasvi Srivastava says India needs to be agile in its approach in the present time. He gives the example of Carbon Border Adjustment Mechanism (CBAM) introduced by the EU. A component of the EU green deal, CBAM aims to make the EU economy carbon neutral by 2050. The mechanism intends to help reduce carbon leakage by encouraging producers in non-EU countries to make their production processes green. “If India institutionalised a system of calculating carbon costs and producers neutralise those costs by purchasing green credits then the Indian goods which enter into a market like Europe will not incur carbon taxes under regimes of other countries or economic unions. However, if they do not put such a mechanism in place then such taxes will be imposed on goods entering into jurisdictions like the EU. Such taxes will obviously make our products uncompetitive,” he says. Sectors and costs
Srivastava says that a gamut of sectors can be impacted from such changes but steel and automobiles occupy top recall to begin with. Given that steel is a very carbon intensive sector, it is likely to attract more tax. “It goes into construction, manufacturing of heavy machinery and also automobiles. But when steel is exported then there would be a carbon cost that would accrue from the importing countries with CBAM. I do not see enough traction in India on green technologies to make steel,” he states.
The trade expert highlights sectors such as automobiles and agriculture as other industries which will also bear the brunt of weather disruptions and consequent changes taking place. “While EV is a trend that is going to intensify very soon, there could be a problem in the case of large transport vehicles. Some countries may actually want to discourage such trade. Third is trade in agricultural goods — for instance, rice growing countries are likely to face costs because of their methane emissions,” he adds.
Other industry experts also contend that sectors such as agriculture and tourism are not free from the aftershocks. Reduction in foreign tourist arrivals, lower business tourism opportunities due to uncertain weather conditions and an impact on coastal tourism are all indicators of how this sector is grappling with the challenges that have come up.
Besides this, climate change is expected to disproportionately increase trade costs across all regions.
According to a WTO report in 2022, while all modes of transport are likely to be negatively affected by extreme weather events, maritime transport — which accounts for 80% of world trade by volume — is particularly vulnerable and exposed to climate change. “Greater heat stress and increased coastal flooding and overtopping due to sea level rise, can have a strong impact on waterways and port capacity, and negatively impact trade by exacerbating bottlenecks, capacity constraints, congestion and delays, thereby increasing trade costs,” the report stated, adding that a rise of 1°C has been found to reduce the annual growth of developing countries’ exports by between 2.0 and 5.7 percentage points.
Getty ImagesLogistic companies such as Maersk are responding by taking several measures to reduce the carbon footprint. For instance, it is facilitating the movement of cargo for customers over rail instead of the road during the landside transportation leg. It also launched an Emissions Dashboard to offer improved visibility over ocean freight emissions data, generating enhanced emissions reporting and helping in optimising their logistics set-up. “Our commitment is to reach net zero emissions by a full decade, to 2040. This applies to our own operations, but – even more importantly – covers all three emission scopes and supports our customers’ own climate commitments. We have defined key milestones in our operations needed by 2030 to make sure the journey is on track,” a Maersk spokesperson says.
Taking a step forward
Given the level of environmental disruptions that are being seen, keeping climate change adaptation strategies in motion will be imperative to build resilience as a long-term measure.
Joseph Martin Chazhoor Francis, Markets Leader-ESG, PwC India, calls upon the role of technology in tackling the issue head on. Talking about how trade can enable technology transfer, Francis says technologies to mitigate climate change such as climate friendly agriculture, renewable energy production or hydrogen production can be hugely beneficial. “These are available with certain countries so now easing out the technology transfer can be a positive at this time. Collaborative agreements between countries on such important technologies can be helpful in mitigating the impact.”
What is also important, he adds, is that companies need to be more aware of their current carbon footprint. “They should assess whether it will go up in the future and take concerted steps accordingly. Besides this, checking on the physical risks that may arise due to weather events will keep them in good stead. Analytical tools and databases are available online that can make them aware of what disruptions may come by for their infrastructure in varied locations,” he states.
What needs more assessment when it comes to such adaptation strategies is the role of financial aid. The WTO report stated that to adapt to climate change, low-income and vulnerable countries need to enhance the resilience of their infrastructure and upgrade their productive capacities in agriculture and other sectors. “Annual adaptation costs in developing countries are estimated at $70 billion and expected to reach $140-300 billion in 2030 and $280-500 billion in 2050,” it added.
In this context, investing in a focused climate finance strategy will be the right step forward for India to acclimatise itself to the changes that will come by. While the country has scaled up its efforts towards mobilising private capital, including through sovereign green bonds, as per the latest Economic Survey, more initiatives are needed to counter the rapid changes taking place. As BCG’s Mukherjee puts it, “For us to remain competitive in the next 10, 15 or 25 years, more emphasis will come on our climate performance. Financing is required for our sectors to remain competitive in that future world, which will emphasise more on being ‘climate competitive’ in a sense,” he adds.
