Spending

Indian household spending could be affected by decarbonisation: McKinsey & Company report


Accelerated decarbonisation could transform over 30 million jobs – 24 million new jobs could be created while 6 million existing jobs could be lost by 2050. Image: Shutterstock

AAs countries around the world accelerate their efforts to become carbon neutral, the challenges for India remain significant despite its many proactive measures and commitments. Accelerated decarbonization could have a moderate impact on Indian household spending and jobs, according to the McKinsey & Company report titled: “Decarbonising India: Charting a Path for Sustainable Growth”.

McKinsey estimates show that by 2040, rising housing costs due to decarbonization could negatively impact the incomes of low-income groups. However, this would be largely offset by lower energy and transport costs, as it is likely that climate change will also have a limited impact on food costs and lower energy and transport costs. The estimates assume an orderly transition, but there is a disorderly transition, the inflationary impact on low-income or no-income people could be negative, he adds.

“It also assumes that households can mobilize financing for expenditures where the capex is higher initially, even if the opex is lower later. Without this support, their initial capital expenditures could increase,” according to the report. Accelerated decarbonization could transform over 30 million jobs – 24 million new jobs could be created while 6 million existing jobs could be lost by 2050. However, this number is relatively small in the context of trends macroeconomics affecting the Indian workforce Specific communities, for example, coal mines and associated businesses could be adversely affected as these would require retraining and alternative industrial development in particular areas.

Decarbonization means the reduction of carbon dioxide emissions resulting from human activity, with the eventual goal of eliminating them. At COP26, India presented its plan to help slow and stop global warming, with a net zero goal by 2070.

McKinsey’s analysis shows that the transition for India, while difficult, is doable and could even be accelerated. However, he does not project India to reach net zero in either of our scenarios – “the last 10% will be particularly difficult to decarbonise”.

India’s decarbonization will require about $12.1 trillion (or 5.9% of GDP) in green investments through 2050 for the accelerated scenario, according to McKinsey. He adds that 50% of the investments needed for decarbonization are economically viable, particularly in renewable energy, automotive and agriculture; others would need political support.

Net expenses (capex minus opex associated with this investment) are pre-loaded – illustratively, net of operational savings, $1.8 trillion would be required in the 2030s decade and $0.6 trillion in the years 2040 between the two scenarios.

“Our ‘Decarbonizing India’ report shows that the benefits of a well-planned and orderly accelerated transition would outweigh the disadvantages, given India’s growth prospects. But that would require the nation to act in this decade, using its growth momentum to build India for decades to come. While the actions needed are difficult, most of them are economically viable, and therefore the journey is doable,” says Rajat Gupta, Senior Partner and Head of Asia Sustainability Practices, McKinsey & Company, and co-author of the report.

Although India’s emissions are only 1.8 tonnes eq. CO2 per capita (against 14.7 for the United States and 7.6 for China), it remains the world’s third largest emitter with 2.9 Gt eq. CO2 and should play a vital role in the global war on climate change. .

India currently emits a net 2.9 GTCO2e every year, most of which is driven by five sectors: power, steel, transport, cement and agriculture. Fossil energy sources (coal, oil, gas) account for 34% of total carbon emissions. Cement, steel, iron, mining, lime and refineries account for 28%. Agriculture accounts for 18% of total emissions, mainly methane from livestock and rice cultivation.

“The risk of a disorderly transition is high, given the impact of global economic fluctuations. Achieving the technological breakthroughs needed to reduce emissions in hard-to-reduce sectors and getting them to market faster would require consistent public and private investment. It would also require greater willingness from business leaders and policy makers to adopt new technologies and business practices,” says Naveen Unni, Partner and India Head of Sustainability Practices at McKinsey & Company.

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