New Delhi: Climate change is no longer just affecting lives. It’s hurting the economy more than ever before, whether through extreme heat or rain bringing down farm output and driving up prices, or making countries adopt cross-border tariffs to factor in the costs of carbon reduction. This is only going to get worse in 2025 and the following years.
India lost 8% of its GDP in 2022 due to climate change, according to a study by the University of Delaware’s Gerard J. Mangone Climate Change Science and Policy Hub. Asian Development Bank estimates India could lose 24.7% of its GDP by 2070 due to climate change.
In fact, ADB’s ‘Asia-Pacific Climate Report 2024’ warns that Indian agriculture is expected to be severely impacted, with wheat and maize yields dropping by as much as 45% and 20%, respectively. Labour productivity could also decline by about 30% by 2070.
The intensity and frequency of weather conditions like droughts, floods, heatwaves and cyclones are anticipated to be destructive in the future, worsening lives, livelihoods and the economy, warn climate experts, calling for investments to mitigate the effects of global warming.
“Like every year, 2024 was worse than 2023; and 2025 is going to be worse,” said Chandra Bhushan, chief executive of the International Forum for Environment, Sustainability & Technology (iFOREST).
“Climate change is no longer just about rising temperatures or its impact on lives. While people are indeed affected, the core issue now is its economic impact,” said Bhushan. “Climate change is now directly impacting our economic growth and development. As the crisis worsens, it will create more poverty and reduce our growth rate.”
Forecasts are not promising. The average global temperature in 2025 is expected to range between 1.29°C and 1.53°C above the pre-industrial levels, with a mean increase of 1.41°C, according to forecasts by meteorological departments worldwide. To be sure, the globally accepted benchmark is that the world need’s to prevent the temperature from rising 1.5°C above the pre-industrial average to avoid irreversible climate changes.
Extreme events spike
The ongoing year has been bad already. Between January and November, the global surface temperature was the warmest in 175 years, reaching 1.28°C above the pre-industrial average of 14.0°C, compared to an increase of 1.10°C in 2023. El Niño contributed to this rise, causing heatwaves.
Similarly, with delayed withdrawal and several low-pressure areas turning into cyclones, the southwest monsoon ended with 8% above-normal precipitation against last year’s 6% deficit. Extremely heavy rain caused floods and landslides in several parts of the country, including Assam, Mizoram, Meghalaya and Kerala’s Wayanad, causing widespread damage to life and property.
In fact, according to the Indian Meteorological Department (IMD), the country faced such extreme weather events on 93% of days during the first nine months of 2024.
Bhushan emphasized the importance of investing in energy transitions and clean technology. “We must reduce emissions because a country like India needs a stable climate to ensure growth. History demonstrates that economic growth is closely linked with the stability of the climatic system,” he said.
India ratified the Paris Agreement on Climate Change in 2016, committing to limit the global average temperature rise to below 2°C by the end of the century. The country, which targets to be Net Zero by 2070, pledges to reduce greenhouse gas emission intensity to 45% by 2030 from 2005 levels, as per its latest nationally determined contributions (NDCs).
To meet these gials, India aims to meet 50% of its energy needs from renewable sources and increase its non-fossil energy capacity to 500 GW by 2030. The country has also launched solar and energy efficiency missions, besides initiatives to protect the Himalayan ecosystem and promote sustainable agriculture. The government also promoting electric vehicles to reduce reliance on fossil fuels.
Farms at risk
The farm sector, which contributes about 18% to the Indian GDP, is among the top sectors facing the brunt of extreme weather conditions caused by climate change.
For example, prices of essential commodities, especially vegetables like onion, tomato and potato, and subsequently home-cooked meals, shot up after initial softness with the arrival of the southwest monsoon this year. According to the latest Crisil Roti Rice Rate report, the cost of home-cooked vegetarian thali rose 7%, and that of non-vegetarian thali by 2% on-year in November. That prompted the government to offer vegetables like tomatoes and onions at subsidized rates.
Even former Reserve Bank of India (RBI) governor Shaktikanta Das, in his last Monetary Policy Committee (MPC) statement, cautioned: “The increasing incidence of adverse weather events, heightened geo-political uncertainties and financial market volatility posed upside risks to inflation.”
A sticky consumer inflation, which keeps spiking above RBI’s tolerance band, has prevented the central bank from cutting rates even as the economic growth slowed.
“Food inflation has been a major challenge this year, especially vegetable prices, so much so that tomatoes have often humbled RBI to reduce the repo rate,” said Ashok Gulati, distinguished professor at the Indian Council for Research on International Economic Relations (ICRIER). “So, they are in a way held hostage because of food inflation.”
The gross value added or GVA for agriculture and allied activities, a measure of growth that strips out the impact of subsidies and taxes, rose 1.4% in FY24 in constant terms, the slowest pace since FY19 due to the below-normal monsoon rainfall last year.
Agriculture economists, however, expect GVA growth for the sector to double in FY25.
Cross-border tariffs
Climate change may disrupt global trade and economic development around as developed economies in the European Union are coming up with measures like the Carbon Border Adjustment Mechanism (CBAM), a policy tool to reduce carbon emissions from energy-intensive sectors. The levy forces importing companies to purchase CBAM certificates to pay the difference between the carbon price in the country of production and the EU.
In 2023, India’s trade with the European Union (EU) was 12.2% of India’s total trade in goods, making the EU India’s largest trading partner. So, the levy will hurt local exporters.
The CBAM, which rolls out in 2026, after a period of transition from 2023 to 2025, could cost developing countries like India, China, Korea and Zimbabwe $10.2 billion, a 2021 UNCTAD study shows. India alone could face a $1.7 billion bit.
Climate finance hurdle
Emerging nations would require capital to upgrade factories to meet these requirements.
“From India’s economic competitiveness point of view, climate finance at scale is critical,” said Manish Shrivastava, a senior fellow and associate director at The Energy and Resources Institute (TERI). “If Indian companies are not able to make the transition to low-carbon production systems, their products will be subjected to CBAM which will affect the competitiveness of Indian exports.”
Shrivastava said the cost of additional climate finance must be significantly lower than the price impact of CBAM on Indian products.
According to Manuj Bhardwaj, international climate policy expert and CEO of Climatability, a sustainability and decarbonization advisory firm, any carbon pricing mechanism in the developed nations must account for their “unique economic circumstances and developmental priorities, avoiding a one-size-fits-all approach”.
Moreover, the EU’s CBAM is anticipated to only slightly reduce emissions when implemented in alignment with a domestic carbon price.
A 2021 study conducted by UNCTAD estimated that a price set at $88 per tonne of carbon will result in reducing CO2 emissions in the EU by 704 million tonnes (mt). A CBAM implemented on top of this will reduce emissions outside the EU by 59 mt but will increase emissions in the EU by 13 mt, a net reduction in emissions of just 45 mt. Therefore, a CBAM results only in the equivalent of 6% of the emissions reduction from the carbon pricing mechanisms itself.
Shrivastava said, “It is disappointing that the COP29 at Baku promised only $300 bn [a year] in climate finance whereas the need is more than $7 trillion until 2030.”
The Conference of the Parties (COP29) at Baku in Azerbaijan adopted a road map ‘aim to mobilize’ $1.3 trillion annually by 2035, with developed countries agreeing to “lead efforts” to pool in $300 billion annually as a base figure. However, the developing nations had insisted on mobilizing $1.3 trillion annually through grants, concessional finance and non-debt-inducing support.
However, iFOREST’s Bhushan pointed out that India has yet to receive any meaningful climate finance and likely will not in the near future. “India is navigating this challenge by making its markets more competitive,” he said. “Significant investments are flowing into renewable energy from abroad because foreign investors see opportunities to profit here.”
To attract climate finance, Bhushan proposed making India an attractive destination for clean technology investments. He also called for reforms in the global financial system to lower the high interest rates imposed on India and emphasized the need for multilateral development banks to provide concessional loans for climate-related initiatives.
India, on its part, is developing a national carbon credit electronic platform to meet its ambitious climate goals. It aims to complement and support various entities by pricing their additional actions towards greenhouse gas emission reduction.
Going beyond emissions
Alongside measures to cut emissions, environment experts say local environmental issues like acute air, water and river pollution, waste management, forestry, biodiversity and land degradation must also be linked with climate change and there has been barely any improvement in the past decade.
“This year reminded us that air pollution is a crisis that we must address. Across the country, pollution levels are very poor. The water pollution crisis remains acute and most of the rivers in the country are polluted,” said Bhushan. “Despite all the efforts made, SBM (Swachh Bharat Mission), solid waste management, forestry and biodiversity and land degradation remain a challenge.”
He suggests a review of laws and regulatory agencies, strengthening local authorities and coming up with plans for the short, medium and long term.
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