Dealing with the impending climate crisis

If the postponement of the national skiing and snowboarding championship at Uttarakhand’s Auli, scheduled for March 16-19, for the third consecutive year because of low snowfall or the Everest’s snow retreating by 490 ft in one-and-a-half months between December 11, 2024, and January 28, 2025 (Nasa Earth Observatory) don’t shock you, the following ones might.

There may not be mangoes from Maharashtra’s Ratnagiri district, home to the popular Alphonso mangoes, to savour this year because a weak winter and subsequent heatwaves have robbed flowering and fruit formation. And, while there may not be a food shortage, but a 70% rainfall deficit and warm weather have cast a shadow on wheat production in north India.

Now consider how serious the climate catastrophe is.

Looming climate catastrophe

The India Meteorological Department (IMD) has declared 2024 the “warmest year since nationwide records began in 1901”. It has already declared February 2025 to be the hottest since 1901 and its outlook for March-May 2025 says, “above-normal maximum temperatures are most likely over most parts of the country”.

Global warming is rising fast too. On January 10, 2025, UN agency, the World Meteorological Organization (WMO) declared 2024 as the “warmest year on record” with “global mean temperature of more than 1.5° C above the 1850-1900 average”—breaching the Paris (COP21, 2015) commitment to limit warming to 1.5° C. The WMO has also warned that 2025 could be another hot year “falling in line just behind 2024 and 2023”. Incidentally, Nasa had declared 2023 as the warmest year since 1850 when the temperature went up by 1.2° C above the 1951-1980 average.

Other than the IMD, it is the Reserve Bank of India (RBI) which keeps a strict vigil on climate changes. Since 2022, it has repeatedly warned against systemic risks to financial institutions from extreme weather events (EWEs). The latest is from RBI Governor Sanjay Malhotra, who flagged (on March 13, 2025) “constraints to adequate flow of climate related finance” and “lack of bankable projects”. He also mooted a “common pool” of green projects, promised to release a “Reserve Bank – Climate Risk Information System (RB-CRIS)” by the end of 2025 to “bridge data gaps” and finalise the “Disclosure Climate-related Financial Risk (DCFR)” guidelines.

In December 2024, RBI Deputy Governor M. Rajeshwar Rao had said climate change risks had already “started to impact the financial system” and was likely to pose “systemic risks”.

Need for data and pool of green projects

The RBI Governor flagged “limited data” to measure the financial impact of climate change, lack of benchmark transition pathways and a carbon emission database limiting the ability to make comprehensive assessment of climate change risks. Once such data and “bankable (green) projects” are ready, India would be in a better position to assess the magnitude of systemic risks and gaps in green financing—and ensure sustainability and resilience in financial institutions.

Climate risks impact RBI’s monetary policy too. It had explained, in its April 2024 MPC report, how its adverse impact on agricultural productivity, output and global supply chain directly impacts

inflation and the natural rate of interest, and weaken the transmission of MPC actions due to poor financing conditions of households and firms.

Deputy Governor Rao had, in July 2024, flagged the risk to credit boom: “Climate-related events also adversely impact the credit quality and loan-repayment capabilities of the borrowers. They can wipe out the assets created from institutional finance thereby impacting health of financial institutions.” The credit boom (double-digit growth in FY23 and FY24 after single-digit ones during FY19-FY22) is not only driven by personal loans for consumption, which have overtaken that to services since FY20 and industry in FY21, household economic health has also deteriorated in the past few fiscals.

A 2024 study of non-profit IPE Global and Esri-India said that after looking at micro-level climate events over 50 years (1973-2023): (i) “85% of Indian districts are exposed to extreme climate events” and (ii) “45% of Indian districts are witnessing a swapping trend from floods to drought or drought to floods and both or vice-versa”. A World Bank report of 2022 said that up to 75% of the Indian workforce (380 million) depend on heat-exposed labour, contributing to nearly 50% of GDP, who are “extremely vulnerable to job losses”. In 2023, the RBI estimated that up to 4.5% of India’s GDP “could be at risk by 2030 owing to lost labour hours from extreme heat and humidity conditions”.

Challenges for climate finance

Three recent developments dampen climate finance prospects for India.

One is the US pullout from the United Nations Framework Convention on Climate Change (UNFCC), upending COP29’s two breakthroughs: (a) “triple finance to developing countries” from $100 billion annually to $300 billion by 2035 and (b) “scale up finance to developing countries”, from public and private sources, to $1.3 trillion per year by 2035. The same day, the US President gave a call, “We will drill, baby, drill”—a further pushback to green transition. India’s promise to buy more US oil and gas may prove more than a drain on forex reserves (as against cheap Russian imports).

For one, India and many other countries have missed their February deadline for their NDC (nationally determined contributions) commitments to the UNFCC. Meanwhile, BlackRock, the world’s largest asset manager and poster-boy on climate mitigation, has pulled out of the UNFCC climate initiatives. Though BlackRock believes in the India growth story, that may not help green financing.

On the domestic front, further growth in green energy (solar in particular) is stalled with no takers for 40 GW renewable projects awarded by the SEC and others for more than a year, says a recent review. It pointed to states unwilling to sign power sale agreements (PSA). A 2024 report had said that 10 leading RE firms were seeking to sell their 20 GW assets (operational or under-construction) due to lack of PPAs, PSAs and transmission issues.

Opportunities for mitigation

The key opportunities for India are the following:

1. The China factor: China has emerged as the undisputed king of green technologies, helping the world in green transition as it produces superior quality inputs at cheaper cost—across solar, wind and EVs. India can accelerate its green transition at lower cost with China’s help. Besides, China has more surplus money and savings to invest outside than any other country in the world. A trade war with the US may turn out to be a boon for India if both the political and trade stand-offs since 2020 could be ended.

2. Huge capex opportunities: For India Inc. “swimming in excess profits” (Economic Survey of 2023-24) now is a big opportunity to build power transmission and distribution networks, especially for the rapidly growing renewable energy (RE) sector. The CEA’s 2024 “Draft Distribution Perspective Plan 2030” said India was “power surplus” with significant installed/generation capacity but a massive funding gap of ₹2.3 lakh crore by 2027 was preventing discoms to do what is needed. Similarly, EVs are growing rapidly but charging stations are falling behind with inadequate public spending. India needs up to $20-30 billion to double the pace of installing charging stations—according to the India Energy Storage Alliance (IESA).

3. Building mitigation-centric laws and institution: The Supreme Court hit the nail on the head in pointing out what India lacks in climate mitigation. In its order of March 21, 2024 (Great Indian Bustard case), it said: “Despite governmental policy and rules and regulations recognising the adverse effects of climate change and seeking to combat it, there is no single or umbrella legislation in India which relates to climate change and the attendant concerns.” The time to amend is now. It can begin by filling 50.56% posts lying vacant in 28 state pollution control boards and eight pollution control committees—as the CPCB told the NGT last year.

4. Bringing in carbon tax: One of the major hurdles in India’s trade negotiations with the EU is the latter’s insistence on carbon tax (CBAM). India has been mulling a reciprocal carbon tax since 2023. Now is good time to press ahead, which would provide a fresh impetus to its own net-zero emission goal.