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Daily CUrrent AFfairs 23.10.2021 (India weighs ‘net zero’ target ahead of CoP, ‘Energy transition poses inflation risks’)

Daily CUrrent AFfairs 23.10.2021 (India weighs ‘net zero’ target ahead of CoP, ‘Energy transition poses inflation risks’)

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1.India weighs ‘net zero’ target ahead of CoP

It will insist that developed nations keep their pledges

India has not entirely ruled out the possibility of agreeing to a “net zero” climate target, though it will not budge on demanding that developed nations make good their commitments, such as providing an annual $100 billion to developing countries for mitigating the impacts of climate change, facilitating technology transfer and putting in place a tangible market-based mechanism to activate the moribund carbon credit markets, senior officials said.

Ahead of the 26th meeting of the United Nations Conference of Parties (CoP) that begins in Glasgow on November 1, the focus on making the meet a success is to have all nations commit to “net zero”, or a year by when a country’s fossil fuel emissions will peak and at some point be neutralised by taking out excess carbon from the atmosphere.

Impact on development

All countries doing this by 2050, scientists say, will mean a chance of restricting the average temperature rise to 1.5 degrees Celsius, provided emissions fall to around 45% of the 2010 levels by 2030.

This, however, means deep and significant cuts to fossil fuel use that can affect the development trajectory of India and other developing countries.

A study by the think tank Council for Energy Environment and Water projects said that for India to achieve the net zero target even by 2070, usage of coal, especially for power generation, will need to peak by 2040 and drop by 99% between 2040 and 2060.

The consumption of crude oil across sectors will need to peak by 2050 and fall substantially by 90% between 2050 and 2070.

2.‘Energy transition poses inflation risks’

‘Green’ move risks energy price shocks; China financial sector adds tail risk to global growth: Varma

The ongoing worldwide transition to green energy poses a significant risk of triggering energy price shocks similar to the 1970s, which would accelerate inflation, said Jayanth Varma, the sole member of the RBI’s Monetary Policy Committee (MPC) to vote against continuing with the central bank’s ‘accommodative’ policy stance.

“This means that the upside risks to long term inflation and to inflation expectations are now more aggravated,” Mr. Varma said at the last MPC meeting, the minutes of which were released on Friday.

“My second recent concern is about the tail risk to global growth posed by emerging financial sector fragility in China reminiscent of Japan of the late 1980s,” he said. “Both of these risks… are well beyond the control of the MPC, but they warrant a heightened degree of flexibility and agility,” Mr. Varma stressed.

‘Slow motion’

“A pattern of policy making in slow motion that is guided by an excessive desire to avoid surprises is no longer appropriate,” he asserted, adding that he was in favour of raising the reverse repo rate from the current 3.35% towards 4% so as to ‘demonstrate the MPC’s commitment to the inflation target, help anchor expectations and enhance macroeconomic stability’.

Reiterating his reservations from August, Mr. Varma said his central argument was that the COVID-19 pandemic had mutated into a human tragedy rather than an economic crisis, and monetary policy would be far less effective than fiscal measures in providing targeted relief to the worst hit segments of the economy. Also, inflationary pressures were showing signs of greater persistence than anticipated earlier, he added.

Other members who voted to hold interest rates and retain the ‘accommodative’ stance too flagged concerns about the outlook for inflation as the MPC observed that core inflation, inflation excluding food and fuel, remained elevated and sticky at 5.8% in July-August 2021.

“Core inflation is affected by the prices of transport fuels and transport services that are directly affected by the crude oil price shocks,” noted Shashanka Bhide, adding that ‘reduction in indirect taxes would play an important role in easing shocks on transport costs and overall inflation’. A view echoed by Ashima Goyal, who too urged tax cuts on fuels.

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