India will require $12.4 trillion spending on transition to net zero long term goals by 2060, says a new study by Standard Chartered.
It estimates if the money India needs is self-funded by India, Indian household spending could fall by $5.8 trillion. However, if the funding is provided by developed markets, the Indian household spending could increase by $7.9 trillion in its journey to net zero.
The study says India's investment required in power for the climate goal is about $8.5 trillion. The investment needed for the country in energy efficiency (including industry, transport and buildings) will be about $6 trillion, other public expenditure like early scrappage and heating subsidies to the tune of $573.3 billion and offset expenditure like carbon tax revenues, household heating tax etc will be to the tune of $2.7 trillion.
Compared to India's $12.4 trillion requirement, China's transition finance gap is about $35.1 trillion. That for other emerging markets will be - Indonesia ($2.7 trillion), Nigeria ($283.3 billion), South Africa ($833.6 billion), Malaysia ($909.9 billion), Kenya ($413.6 billion) and the UAE ($671.1 billion).
The study says emerging markets as a whole need to invest an additional $94.8 trillion to transition in time to meet long-term global warming targets. This is on top of the capital already allocated by governments under their current climate policies. If emerging markets fund their own transition, without help from developed markets, household consumption in these markets could fall by 5% on average each year. Emerging markets, overall, will need an additional $94.8 trillion – a sum higher than annual global GDP – if they are to meet climate goals without hitting citizens' cost of living.
The study says emerging market self-financing would lead to higher taxes and an increase in government borrowing, meaning that some of the world's poorest people will have less to spend on their everyday needs. Households in these markets would be $2 trillion poorer on average each year. In total, between now and 2060, emerging market household consumption could be reduced by $79.2 trillion. However, developed market financing could see emerging market household spending increase by $1.7 trillion on average each year (compared to self-financing) and would also stimulate global growth – GDP could be $108.3 trillion higher cumulatively between now and 2060, if developed markets finance the transition.
"Emerging markets need a great deal of investment to transition to net zero and the stakes have never been higher. Without help from developed markets, improvement in emerging market prosperity could be halted or reversed, which would not only be unjust but would have a hugely negative impact on the world economy," Bill Winters, group chief executive, Standard Chartered, observes in the study.
The study says according to 'Just in Time', which investigates the transition financing gap for emerging markets and how to close it, developed market funding, where capital is provided through grants and loans, will be critical to ensuring emerging markets are able to transition without impacting their growth or household spending. Private investors can contribute $83 trillion of the $94.8 trillion that is required - underscoring the urgent need for financial institutions to fulfil green and transition finance pledges, says the study.