Climate change is not just an environmental issue; it’s a major challenge for the global economy. As temperatures rise and weather patterns become more unpredictable, industries like agriculture, tourism, and insurance are facing significant disruptions. Natural disasters like floods, hurricanes, and wildfires are becoming more frequent and severe, causing billions in damages and affecting livelihoods worldwide. The shift to cleaner energy sources, while necessary, also requires massive investments and changes in infrastructure. Overall, the impact of climate change on the world economy is profound, forcing countries and businesses to adapt quickly to avoid long-term financial crises.
Tags: GS-3, Economy- Economics of Climate Change – Bilateral Groupings & Agreements– Groupings & Agreements Involving India and/or Affecting India’s Interests– Effect of Policies & Politics of Countries on India’s Interests
Context:
- Climate change is reshaping the global geoeconomic landscape, with significant economic impacts.
- The US National Bureau of Economic Research estimates that the world’s GDP would be 37% higher today without global warming since 1960.
- A study in Nature forecasts a nearly 20% drop in average incomes over the next 26 years due to climate impacts.
- while climate policy has focused on mitigation, adaptation remains underfunded. Investing in climate resilience is essential for both environmental protection and economic stability.
Climate Change and Its Impact on the Global Geoeconomic Landscape
- Shifting Agricultural Patterns: Climate change is altering agricultural suitability, reducing yields in traditionally fertile areas like the Middle East and North Africa, leading to food insecurity and economic instability.
- Resource Scarcity: Water scarcity due to climate change is increasing tensions over shared resources, such as in the Nile River basin, impacting agriculture and hydropower.
- Migration and Displacement: Climate change-induced sea level rise could displace millions, creating economic challenges and resource conflicts, as seen in Bangladesh.
- Erupted Arctic Economic Opportunities: Melting Arctic ice is opening new shipping routes and resource access, sparking competition among nations like Russia, China, and India.
- Climate-induced Conflicts: Climate change is intensifying existing conflicts, such as the Syrian civil unrest fueled by prolonged drought.
- Climate-related Supply Chain Disruptions: Extreme weather can disrupt global supply chains, as demonstrated by the 2011 Thailand floods affecting electronics and automotive parts.
- Climate Gentrification: Wealthier individuals may relocate to safer areas, leading to economic displacement and marginalisation of vulnerable communities.
Major Impacts of Climate Change on the Indian Economy
- Reduced Agricultural Productivity and Yield: Climate change threatens crop yields, impacting the rural economy and driving urban inflation, with potential rice yield reductions by 20% by 2050.
- Setback to Industrial and Service Sectors: Increased costs and reduced profits in industrial sectors due to climate regulations, and economic impacts from insurance claims and service disruptions.
- Infrastructure Damage: Extreme weather, like floods and heatwaves, causes significant infrastructure damage, with India spending USD 3 billion on flood-related economic damage in the past decade.
- Labour Market Impacts: Health hazards from climate change could reduce productivity and cause migration, with up to 4.5% of GDP at risk by 2030 and significant job losses projected.
- Risks for Banks and Financial Institutions: Climate risks, including physical and transition risks, can affect banks and financial institutions through direct, indirect, and spillover effects.
- Impacts on High-Emission Industries: High-emission industries contribute significantly to greenhouse gases; 40% of emissions could be reduced by switching to renewables, with remaining challenges in hard-to-abate sectors.
Key Initiatives India has Undertaken to Tackle Climate Change:
- National Action Plan on Climate Change (NAPCC): Launched in 2008, the NAPCC outlines India’s strategy to address climate change through eight core missions focusing on areas such as energy efficiency, renewable energy, sustainable agriculture, and water management.
- National Solar Mission (NSM): Initiated in 2010, the NSM aims to promote the use of solar energy, with ambitious targets of achieving 100 GW of solar power by 2022 and increasing this to 280 GW by 2030. This mission is a critical part of India’s efforts to enhance the share of renewables in its energy mix.
- National Mission for Enhanced Energy Efficiency (NMEEE): Launched in 2010, NMEEE focuses on improving energy efficiency across various sectors. Key programs under this mission, help reduce energy consumption and lower greenhouse gas emissions, contributing to India’s climate mitigation goals.
- National Mission on Sustainable Habitat: It aims to make urban areas more climate-resilient and sustainable, addressing the environmental challenges of rapid urbanisation.
- National Water Mission: The mission aims to ensure water security through sustainable water management practices, including conservation, efficiency, and equitable distribution.
- National Mission for a Green India (GIM): Launched in 2011, GIM aims to contribute to carbon sequestration and biodiversity conservation, essential for mitigating climate change.
- National Mission on Sustainable Agriculture: It aims to make agriculture more resilient to the impacts of climate change, ensuring food security and livelihood sustainability.
- Panchamrit Commitments: Announced at COP26 in 2021, these commitments include achieving 500 GW of non-fossil fuel energy capacity by 2030, reducing projected carbon emissions by 1 billion tonnes by 2030, and achieving net-zero emissions by 2070. These goals reflect India’s enhanced climate ambition on the global stage.
- Green Hydrogen Mission: Launched in 2023, this mission promotes the production and use of green hydrogen as a clean energy source. It focuses on renewable energy integration, industrial decarbonization, and positioning India as a global leader in green hydrogen, supporting the transition to a low-carbon economy.
Measures to Mitigate the Impacts of Climate Change on the Indian Economy:
- Exploring Industrial Symbiosis: Promote circular economy models to minimise waste and reuse materials, incentivizing companies to adopt sustainable practices.
- Foster Public-Private Partnerships for Green Innovation: Encourage partnerships to develop green technologies, with government support for startups and innovation in climate solutions.
- Promote Climate-Conscious Urban Planning: Integrate climate adaptation and mitigation into urban planning through initiatives like the Smart Cities Mission.
- Develop Climate-Resilient Special Economic Zones (SEZs): Create SEZs with sustainable practices to attract green businesses, using Masdar City as a model.
- Develop a National Green Taxonomy: Establish a green taxonomy to define sustainable economic activities and guide investments and policies, drawing from the EU model.
- Green Bond Financing for Infrastructure: Issue sovereign green bonds to fund climate-resilient infrastructure projects, such as flood-resistant embankments and renewable energy initiatives.
UPSC Civil Services Examination, Previous Year Question (PYQ)
Prelims
Q.1 In the context of India’s preparation for Climate-Smart Agriculture, consider the following statements: (2021)
- The ‘Climate-Smart Village’ approach in India is a part of a project led by the Climate Change, Agriculture and Food Security (CCAFS), an international research programme.
- The project of CCAFS is carried out under Consultative Group on International Agricultural Research (CGIAR) headquartered in France.
- The International Crops Research Institute for the Semi-Arid Tropics (ICRISAT) in India is one of the CGIAR’s research centres.
Which of the statements given above are correct?
- 1 and 2 only
- 2 and 3 only
- 1 and 3 only
- 1, 2 and 3
Ans: (d)
Q.2 Which of the following best describes/describes the aim of ‘Green India Mission’ of the Government of India? (2016)
- Incorporating environmental benefits and costs into the Union and State Budgets thereby implementing the ‘green accounting’.
- Launching the second green revolution to enhance agricultural output so as to ensure food security to one and all in the future.
- Restoring and enhancing forest cover and responding to climate change by a combination of adaptation and mitigation measures.
Select the correct answer using the code given below.
- 1 only
- 2 and 3 only
- 3 only
- 1, 2 and 3
Ans: (c)
Q.3 With reference to ‘Global Climate Change Alliance’, which of the following statements is/are correct? (2017)
- It is an initiative of the European Union.
- It provides technical and financial support to targeted developing countries to integrate climate change into their development policies and budgets.
- It is coordinated by World Resources Institute (WRI) and World Business Council for Sustainable Development (WBCSD).
Select the correct answer using the code given below:
- 1 and 2 only
- 3 only
- 2 and 3 only
- 1, 2 and 3
Ans: (a)
Mains
Q.1 Describe the major outcomes of the 26th session of the Conference of the Parties (COP) to the United Nations Framework Convention on Climate Change (UNFCCC). What are the commitments made by India in this conference? (2021)
Q.2 ‘Climate Change’ is a global problem. How will India be affected by climate change? How Himalayan and coastal states of India are affected by climate change? (2017)
Source: IE
FAQs
Q: How does climate change affect the world economy?
- Answer: Climate change affects the world economy by disrupting industries like agriculture, fishing, and tourism. Extreme weather events, such as floods, droughts, and hurricanes, can damage infrastructure, reduce crop yields, and increase costs for businesses and governments.
Q: Which industries are most impacted by climate change?
- Answer: Industries like agriculture, energy, insurance, and tourism are heavily impacted by climate change. For example, extreme weather can destroy crops, leading to food shortages and higher prices. Energy production can be affected by changing weather patterns, and insurance companies face higher claims from climate-related disasters.
Q: How does climate change influence global trade?
- Answer: Climate change can disrupt global trade by damaging ports and transport routes, delaying shipments, and increasing the cost of goods. Countries that rely on climate-sensitive exports, like agriculture or fishing, may see their trade revenues decline as production becomes more unpredictable.
Q: Can climate change lead to job losses?
- Answer: Yes, climate change can lead to job losses, particularly in industries that are directly affected, like farming, fishing, and tourism. As these industries struggle with the impacts of climate change, workers may lose jobs or face lower wages due to decreased productivity.
Q: What can be done to reduce the economic impact of climate change?‘
- Answer: To reduce the economic impact of climate change, countries and businesses can invest in renewable energy, improve energy efficiency, and adopt sustainable farming practices. Additionally, governments can create policies that encourage innovation and support industries in adapting to new climate realities.
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