One of the greatest challenges is dealing with the economic consequences of climate change. A series of natural disasters over the past 20 years has already been linked to the impact of global climate change, and more are expected in the years ahead with increased global warming.

The impact will be both episodic as well as chronic, and the costs of proactively managing the most adverse effects will be huge: consider the cost of the 2015 Chennai floods, conservatively assessed by insurance firm Swiss Re at over $2 billion, and multiply this manifold as climate change impacts more locations, and you start getting a sense of the magnitude of the problem we face. The Paris Climate Accord, as a demonstration of its intent to play a responsible role in addressing this global environmental issue, seeks to cap the rise in temperatures to under 2°C by the turn of the century, and even aspires to keep this under 1.5°C so that there is some margin of safety in tackling the worst impacts of even this level of global warming.

Major initiative One of the most interesting initiatives to tackle climate change is being led by the Energy Transition Commission. This is a uniquely diverse group of individuals and organisations from across the energy landscape, including investors, incumbent energy companies, industry disruptors, equipment suppliers, non-profit organisations, advisors and academics from across the developed and developing world, which is exploring how we can accelerate change towards low-carbon energy systems that enable robust economic development and limit the rise in global temperature to well below 2°C. What follows describes key measures that the commission believes can be taken, and a framework that policymakers can use, in the fight against climate change.

The starting point of the commission’s work is to agree that while retaining a target of well below 2°C temperature rise, we must transition to a global energy system that can ensure that every individual has access to sufficient affordable modern energy to support a good standard of living, around 80-100 GJ per person per annum (Indians consume around 25 GJ per person annually currently), while cutting carbon emissions from the energy system from 36GT per annum of carbon dioxide today to 20 GT by 2040.

Towards transition The transition will require progress along four dimensions:

(1) Decarbonisation of power combined with extended electrification could deliver half of the carbon emissions reduction required by 2040. The commission’s analysis suggests that by 2035, a near-total-renewable-based power system can be fully competitive with a fossil fuels-based power system, thanks to the dramatically falling cost of renewables and low-cost flexibility solutions. Extended electrification in the transport and building sectors, for instance, through measures such as electrification of light duty vehicles, water/space heating and cooking could eliminate at least 10-20 per cent of all fossil fuel use by 2040.

(2) Decarbonisation of activities which cannot be easily electrified will be vital after 2040 to reduce remaining emissions from transport or industrial activities. Multiple decarbonisation routes exist, including through fuel substitution (by biofuels, other forms of bioenergy, or hydrogen), carbon capture and storage or use, and product substitution. Technologies in these areas are not yet mature; significant R&D expenditure is needed to identify best solutions.

(3) Acceleration in the pace of energy productivity improvement could deliver a third of required carbon emissions reduction by 2040. This will call for improvements in the efficiency of energy-based services, through electrification and efficiency improvements in buildings, transport and industry. It will also require increased GDP productivity of energy-based services, through the shift towards more service-based and digital economies, more efficient urban design, and the development of a circular and sharing economy. India’s thrust on smart cities as it urbanises lends itself well to the application of all these concepts.

(4) Optimisation of fossil fuel use within the overall carbon budget by achieving a broad consensus on the right mix and appropriate budgets for the use of different fossil fuels, which is likely to lead to a decline in coal use, flattening of gas use, and peaking of oil use within the next decade. These will most likely need to be accompanied by significant investments in carbon capture and storage.

Enablers are crucial The role of policymakers will be crucial in enabling each of these strategies. A critical ask of developing countries like India has been for financial support on the required investments to be made in appropriate research and development, replacement of polluting infrastructure, and help in dealing with not only the costs of climate change mitigation but also adaptation. Policymakers will consequently need to ensure that development banks play a facilitating role, and the promise held out by developed countries of significant global concessional financial flows is delivered upon. Governments will also need to recast their spending priorities and incentive schemes in ways that support higher investments in renewables, low-carbon technologies and energy-efficient equipment and buildings — a great example of this is the support the Government has extended for the replacement of incandescent light bulbs with the far more efficient LED bulbs.

Energy transitions also require an integrated policy framework, including, but not limited to, appropriate carbon and energy pricing, and progressive phasing out of fossil fuel subsidies such that the real costs of fuel extraction and use are recognised. India already levies a cess on coal to the extent of ₹400 a tonne, which is a proxy carbon price since the proceeds are being deployed for research on climate change mitigation and adaptation projects. Governments will need to utilise other public policy levers as well, including power market and tariff redesign, to encourage renewables, adoption of technical standards and other regulations to drive energy efficiency improvements, and a comprehensive approach to urban and transport planning.

The good news is that all the measures outlined by the Energy Transition Commission are practical and mostly within reach. What is now required is thoughtful governance, and proactive steps by enlightened corporates that recognise the threats posed by climate change.

Rajan chairs the Tata Global Sustainability Council and Goyal is a member of the Tata Sustainability Group

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