Share
Climate risk and India
India’s rising incomes, growing and young populations and business-friendly policies offer a fantastic opportunity for emerging market investors. There are plenty of high-quality companies with strong business models, competitive advantages and capable managers. But, like many developing countries, India’s people and businesses are particularly vulnerable to the impacts of climate change. Less predictable monsoons, increasing average temperatures and more frequent extreme weather events could halt economic activity, impact consumption expenditure and displace millions of its citizens. Additionally, as an emerging economy, India has lower capacity to mitigate the effects.
India: CO2 Emissions in a Global Context
Annual CO2 emissions (billion tonnes)
Per capita emissions (billion tonnes)
With its huge population, India’s per capita carbon emissions are well below Europe’s. India’s energy use and emissions are less than half the world average.
GHG emissions by source (million tonnes)
Electricity and heating account for the greatest share of India’s carbon output, while transport emissions are below the world average.
Total primary energy demand in India, 2000-2020
India is heavily reliant on coal and other fossil fuels for its energy needs. Traditional use of biomass such as wood or charcoal has been falling but an estimated 50% of people still do not have access to clean cooking facilities.
Economic growth verses emissions reductions
The challenge for India will be juggling economic growth with reducing emissions. Pre-pandemic, the World Bank estimated India’s poverty headcount ratio at 22% of the population. However, disruption from the Covid-19 pandemic aside, India has made great strides in improving the lives of its 1.4 billion inhabitants. For example, in 2018, Prime Minister Modi announced that every village in India now has access to electricity. While not all households are linked up to the supply, the scale of the electrification is impressive and will improve the lives of millions.
India is heavily reliant on coal to meet its growing energy demand. Reducing emissions from fossil fuels will not be easy. Many livelihoods depend on coal so reduction might not be a vote winner and a large investment is needed to improve and adapt the electricity grid for renewable energy sources.
There are positives though: the country has taken significant steps towards initiating a low-carbon economy across various sectors and is emerging as a leader in renewable energy capacity. As technology improves, renewable energy sources are becoming more economical in comparison to traditional fossil fuels and India has some of the lowest costs for solar PV projects in the world. Although shy of the government’s target of 100GW by end 2022 installed solar capacity has increased almost 500% since 2016 to 40.1GW.
Installed solar capacity (GW)
India’s climate policy
As the third-highest energy consumer in the world, India’s steps to lower emissions are essential to meet global reduction targets. Alongside the net zero by 2070 target Modi pledged to do the following by 2030:
- increase its renewable-energy capacity to 500GW
- meet 50% of energy demand from renewable energy sources
- reduce the economy’s carbon emissions intensity by 45%
- reduce its total projected carbon emissions by 1 billion tonnes
The value of investments and any income derived from them can go down as well as up and investors may not get back the original amount invested.
Investing in emerging markets is generally considered to involve more risk than developed markets.
Views and opinions have been arrived at by BMO Global Asset Management and should not be considered to be a recommendation or solicitation to buy or sell any companies that may be mentioned.
The information, opinions, estimates or forecasts contained in this document were obtained from sources reasonably believed to be reliable and are subject to change at any time.
