‘Economy at risk from move to clean energy’

Source: The post is based on the article “Economy at risk from move to clean energy” published in The Hindu on 23rd January 2023.

What is the News?

According to a study published in the Global Environmental Change journal, India’s financial sector is highly exposed to the risks of the economy transitioning from being largely dependent on fossil fuels to clean energy.

What are the key highlights of the study?

Loans and Bonds to fossil fuel sector: Analysis of individual loans and bonds found that 60% of lending to the mining sector was for oil and gas extraction while one-fifth of manufacturing sector debt is for petroleum refining and related industries. 

– Electricity production – by far the largest source of carbon emissions – accounted for 5.2% of outstanding credit.

– This shows that India’s financial sector is highly exposed to activities related to fossil fuel.

Financial Institution’s transition to clean energy: There was a shortage of experts in India’s financial institutions who had the expertise to appropriately advise the institutions on the transition from fossil fuel to clean energy.

– For instance, only four of the ten major financial institutions surveyed collect information on environmental, social and governance(ESG) risks and these firms do not systematically incorporate that data into financial planning.

High carbon Industries heavily indebted: High-carbon industries — power generation, chemicals, iron and steel, and aviation account for 10% of outstanding debt to Indian financial institutions. However, these industries are also heavily indebted and therefore have the less financial capacity to respond to shocks and stresses.

India’s dependence on coal: Coal currently accounts for 44% of India’s primary energy sources and 70% of its power generation. 

– According to the Draft National Electricity Plan 2022, coal’s share in the electricity generation mix will decrease to 50% by 2030, compared to the current contribution of 70%.

Less Lending to renewables: The financial decisions of Indian banks and institutional investors are locking the country into a more polluting, more expensive energy supply. 

– For example, only 17.5% of bank lending to the power sector has been to pure-play renewables. 

– Consequently, India has much higher electricity from carbon sources than the world average, despite its vast potential for cheap solar, wind and small hydropower.

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