One of the most imminent challenges that lie ahead for countries heading into the post-covid world is the erratic climate changes occurring across many parts of the globe. The soaring temperatures and the overflowing water bodies leading to inundations may severely affect the fundamental nature in which nations interact with each other for trading goods.
India, attempting to grab a larger piece of the trade pie after the fallout of the US-China relationship over an ongoing trade war, could take center stage with the Indian PM’s focus on meeting climate goals.
Indian trade heavily depends on what other countries are planning to win the climate war. In this regard, there are three key outcomes that India must prepare itself for.
Global Carbon Tax
The International Monetary Fund (IMF) believes a global carbon tax would prove to be the most effective way to combat climate change. These taxes are charges levied depending on the carbon content of fossil fuels. As prices of fossil fuels, electricity, and consumer products rise, experts opine switching to lower-carbon fuels in power generation, conserving energy, and shifting to greener vehicles might benefit India.
The IMF states a tax of, say, US$35 a tonne on CO2 emissions in 2030 would increase prices for coal, electricity, and gasoline by about 100, 25, and 10%, respectively. So, environmentalists hope that nations across the globe would aim to cut down these prices by adopting cheaper renewable options.
In terms of its green initiatives, fortunately, India is already on its path to opt for a more holistic approach and figure out ways to lessen the burden of global carbon taxes. For instance, the popularisation of LED lights under the Unnat Jyoti by Affordable LEDs for All (UJALA) scheme is helping cut 38 million tonnes of carbon dioxide emissions a year. Moreover, the Pradhan Mantri Ujjwala Yojana (PMUY) scheme and eliminating single-use plastic are a few other crucial steps that reinstate the country’s commitment to combating the climate crisis. Besides this, experts believe adopting carbon-pricing strategies may also help India to great lengths.
Universal Sustainability Goals
Complying with the sustainability standards for all goods, domestic or imported, is likely to be another significant change that global trade may witness in the coming years. For instance, the European Union (EU) is pushing for the world’s first carbon border tax on imports from countries such as India that do not have stringent regulations for controlling its industrial greenhouse gas (GHG) emissions. The EU’s commitment to shift away from fossil fuel in the next few years will also propel foreign trade partners to act urgently on addressing their carbon footprints.
Boston Consulting Group (BCG), an American global management consulting firm, believes India may not have to shell out a heavy price in areas such as steel. This is because the country’s steel industries are more carbon-efficient due to their higher share of minimills, and hence the sector would pay significantly lesser taxes. India may stand to benefit, particularly in commodity products that can be produced with the blast and electric arc furnaces.
The IMF states that devising universal sustainability goals for a greener trade may be allowed under the WTO Technical Barriers to Trade (TBT) Agreement as a type of processing and production method. But even if not, the existence of the Paris Agreement–a universal agreement with clear objectives and requirements for all parties to act on climate change–would be a useful reference in any dispute settlement proceedings.
Climate Crisis-Driven Opportunities
India is already benefiting from the loss in sugar production faced by Brazil--the world's biggest producer and exporter of sugar due to drought and frost that has damaged the sugarcane crops.
Reuters reports that for the first time, Indian traders have signed sugar export contracts five months ahead of shipments as buyers predict a further fall in Brazil's production, prompting them to secure supplies from India. This is unusual as Indian traders usually crack deals one or two months prior and only after the government announces the export subsidy for the overseas sales.
This is only one of the many opportunities that are bound to arise because of climate change. India has an opportunity to rise to the occasion if it can produce as well as export in an aggressively sustainable environment.
PM Modi has been pivoting India as a climate-responsible country, considering its per capita carbon footprint is 60% lower than the global average. With an ambitious renewable energy target of 450 gigawatts by 2030, a lot of opportunities await India as the PM aims to mobilize investments, demonstrate clean technologies, and enable green collaborations. Amid global concerns on challenges that the climate crisis is unfolding, preparation and execution would be essential for India in enhancing its trade relations with the world.
(The article was first published on economictimes.indiatimes.com)