Q3 2024 was filled with climate exigencies – from wildfires in Mediterranean to heatwaves and floods in India – the world sighed in sweat at how frequent these events were becoming. The impending US elections have kept the world on tenterhooks, as the fate of the largest emitter per capita decides the global climate outcome. Regulatory movements continue with the US debating the PROVE IT Bill and the SBTi introducing new framework for buildings. The Indian government’s proactive stance has offered new schemes for MSMEs and subsidies for EV buyers and manufacturers. AI has become a buzzword with climate activists too, as tech companies delay climate targets over rising data centers.
Keep reading to catch-up on each of these happenings and more!
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GLOBAL UPDATES
The EU's climate change monitoring service Copernicus Climate Change Service (C3S) reported that every month from June 2023 to June 2024 (that is 13 months in a row) has ranked as the hottest compared to the corresponding months average in previous years. July 21 was recorded as the hottest day on Earth in recent history. This was clearly evident from the heatwaves and wildfires that blazed the Mediterranean region and the United States.
In response to these anomalies, the UN Secretary General on July 25 issued an urgent ‘Call to Action on Extreme Heat’. Under the program, ten specialized UN entities released a report that underscored the multi-sectoral impact of extreme heat. As per the report, more than 70 per cent of the global workforce – 2.4 billion people – are now at high risk of extreme heat.
The contrasting climate outlook of the Democrats and Republicans is apparent. While Kamala Harris reframed environmental concerns as fights for fundamental freedom - ‘the freedom to breathe clean air, drink clean water, and live free from the pollution that fuels the climate crisis”, Donald Trump reframed his stance of ‘climate change is a hoax’ by highlighting that he will not allow money to be spent on ‘meaningless Green New Scam ideas’.
The landmark US SEC Climate Disclosures Bill that was passed in early March this year too is on a temporary stay followed by numerous petitions, notably by 25 Republican state attorney generals and the Chamber of Commerce. States like Florida and Texas have even restricted ESG-based investment strategies for state funds. Even though the Harris-led contingent has avoided outlining any specific climate policy, possibly to appeal larger sections of voters, it is endorsed by a range of environmental groups such the Sierra Club. Given that the US is the world’s largest emitter (per capita), the results of this election and the subsequent policy action shall greatly influence the global climate outcome.
US Senator John Curtis introduced the Providing Reliable, Objective, Verifiable Emissions Intensity and Transparency (PROVE IT) Bill in the House of Representatives in July this quarter. The Bill was initially introduced within the Environment and Public Works Committee in June last year but was brought to the House only this year, when necessary consensus was achieved.
The Bill has been introduced in response to the EU’s Carbon Border Adjustment Mechanism which levies carbon tax on imports from high polluting industries. The senator stressed that the US follows clean manufacturing practices and should evaluate carbon intensity of its products to create a level playing field in international competition. While the Act in itself only prescribes conducting a study and not imposing a domestic or international greenhouse gas tax, the information so collected is likely to be used as a validation for future carbon levies.
New York Climate week is an annual climate event that witnesses participation of leaders, politicians, representatives and decision makers from around the globe. Azerbaijan is due to host a two-week COP 29 UN climate summit in November that would typically be the biggest moment on the calendar. But it is expected to draw far fewer business executives and bankers than last year’s COP28 event in the financial hub Dubai. This led to notably larger crowds at the NYC event last month. With escalating climate impacts, particularly on developing nations, the week showcased a broad alignment between businesses, governments and civil society around the need for more aggressive action.
The event released a Global To-do list of 7 actions for each country to follow. The actions though doable, were not most suited to the realities of developing nations. Some of the other hot topics of negotiations included development of voluntary carbon markets, embracing new regulations, private sector involvement in energy transition and addressing the US$ 4 trillion funding gap identified by IEA.
INDIA UPDATES
As per the Economic Times, the government is in the process of introducing an INR 15,000 crores decarbonisation scheme for MSMEs which is expected to be launched in the early 2025. As part of the scheme, a dedicated body is expected to be set-up to oversee transition of MSMEs to green energy and formulate MSME-specific green policies. The government is also expected to set-up material recovery facilities and launch an e-marketplace to connect manufactures with waste collectors. This shall facilitate better waste management and price discovery in a market which is highly fragmented.
The government ended the quarter with the launch of the PM E-DRIVE Scheme having an outlay of INR 10,900 crores. The scheme replaces the FAME II scheme and the temporary INR 778 crore Electric Mobility Promotion Scheme (EMPS), which was valid till September 30.
The current scheme is much more comprehensive and provides a combination of demand and supply based subsidies. Buyers will now be able to opt for e-vouchers for one electric vehicle per Aadhar card on purchase of electric two-wheelers (2W), three-wheelers (3W), ambulances and trucks.
The 2W subsidy will continue at the same level in this financial year, that is INR 5000 per kWh with a cap of INR 10,000 but will be tapered down to INR 2,500 per kWh with a cap of INR 5,000 per vehicle from April 2025.
Sweeping heatwaves in the June quarter, followed by floods and heavy rains in the September quarter, have greatly affected the collection efficiency of lenders. Grihum Housing Finance saw heatwave-led drop of more than 2% in collection efficiency in the June quarter. IDFC Bank too saw its efficiency fall by 0.2% during the period of election and heatwaves.
Further, IDFC First Bank has increased its provisions by 109% in view of the Tamil Nadu floods that have impacted its joint liability group portfolio. In a recent speech, Deputy Governor M Rajeshwar Rao has warned the industry of the possible threats of climate change to asset quality and monetary stability. Lenders now anticipate challenges in collection and sales with the forecasted harsh winters in the northern parts of India this year.
SECTOR UPDATES
Technology: Is AI bad for climate?
Tech companies such as Google and Microsoft are facing mounting pressure to meet their climate commitments against increasing energy consumption from data centres that run the AI systems today. According to recent research reports, AI uses far more power than traditional internet, like search queries or cloud storage.
According to a report by Goldman Sachs, a ChatGPT query needs nearly 10 times as much electricity as a Google search query. Another researcher quoted that, “One query to ChatGPT uses approximately as much electricity as could light one light bulb for about 20 minutes,”. It is estimated that data centres will be using 8% of total power in the US by 2030, up from 3% in 2022. It seems that we are left with an unbalanced trade-off of the bigger crises invited in the name of AI-driven simplification.
The first-of-its-kind framework applies to all companies that own, develop, manage or finance real estate and meet the applicability and threshold criteria outlined for different buildings and sectors. The framework provides different criteria that buildings used by corporates, especially financial institutions, must meet to reach the goal under the Paris Agreement. Meeting these criteria would require corporates to:
1. Reduce embodied emissions at the time of construction
2. Limit fossil fuel usage pre and post construction
3. Reduce in-use operational emissions, and
4. Retrofit buildings to make them energy efficient
For the uninitiated, parametric insurance is based on a predetermined set of parameters which, when met, triggers a payout immediately, unlike regular insurance schemes which are based on indemnity, or an evaluation of losses post a disaster event.
For instance, members of a self-help group SEWA got compensated with their daily wage on a heat-stressed day when temperatures crossed pre-determined levels. Nagaland is the first state in India to insure its entire geography against heavy precipitation through parametric insurance. With the rising number of climate disasters, more and more organisations, including state-owned associations are opting for parametric insurance. In fact, Swiss Re expects premiums in India to grow by 7.1 percent over the next five years, on the back of increased expected climate losses.
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