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Opinion

India's prosperity must not become hostage to European climate agenda

So-called border tax adjustments are really just a new generation of tariffs

| India
Black smoke emitted from a coal-fired power plant in Jharkhand: the growth in Indian emissions is likely to offset any gains made in Europe.   © LightRocket/Getty Images

Nick Butler is a visiting professor at King's College London and a former senior executive at energy company BP.

As part of its agenda for reducing the risks of climate change, the European Union is developing plans for what are euphemistically called border tax adjustments, but which are really just a new generation of tariffs.

The plan is that the tariffs would be applied, perhaps as soon as 2023, to specific products from countries that do not match the EU's own environmental standards. The stated aim of the policy is to achieve a common global approach on climate change. The unstated objective is to defend European industries threatened by global competition.

Asian economies would be the victims of such protectionism and India, because of its growing emissions of greenhouse gases, would be the primary target. The most likely outcome is not a common approach to global warming but rather retaliation and a trade conflict that would do nothing to help the environment or to prevent global warming.

India must be at the heart of any discussion of climate change. Per capita emissions are still low. The energy used by an Indian citizen generates less than 40% emissions than the global average and the country has made great strides in developing renewables as a source of electricity. The development of the world's largest floating solar power facility at Omkareshwar in Madhya Pradesh is just the latest example of the growth of a renewables sector that barely existed five years ago.

But the combination of a growing population and rising living standards mean that Indian emissions have risen by over 400% since 1990 and, on the authoritative projections of the International Energy Agency, will rise by another 50% over the next 20 years on the basis of current policies. Solar, wind, hydro and nuclear power have all grown but remain a tiny proportion -- less than 10% in 2019 -- of India's overall energy mix.

Coal remains dominant -- providing 44% of total energy demand -- and oil continues to grow as more and more Indians become car owners. By 2030 India is projected to be using a third more energy than was the case in 2019, with hydrocarbons accounting for over 70% of the total. As a result, the growth in Indian emissions is likely to more than offset any gains made in Europe as a result of the Green Deal policies adopted last year by the European Commission.

The issue is serious and European concerns are understandable. The large-scale investments being planned to support the Green Deal will be hard to explain to European voters if any positive impact on climate is being overwhelmed by growth elsewhere.

The answer, however, is not to penalize countries such as India at a crucial stage of development that is bringing hundreds of millions of people out of poverty. If trade is restricted, economic modernization will move more slowly and the country will continue to rely on the existing industrial base, powered overwhelmingly by carbon-intensive coal. Indian citizens and businesses will be poorer and there will be less money available to make environmentally beneficial choices. India has succeeded in lifting hundreds of millions of people out of poverty over the last decade, but many families still have only very limited disposable incomes.

The key lies in encouraging the kind of growth that enables India to escape from its current dependence on coal, and offers some alternatives to the current highly likely prospect that India will become -- within the next twenty years -- the world's most substantial importer of crude oil.

If the EU is serious about reducing global emissions, it should be promoting economic growth in India not least by encouraging, rather than limiting, trade. Giving Indian companies access to the opportunities which the Green Deal will generate would assist the deployment of those same technologies in India itself.

At the same time, European companies should be encouraged to invest in India as one of the great growth markets of the 21st century. That should include investment in the infrastructure, products and new energy supplies necessary for India to deliver the energy transition.

Vehicles ply amid poor visibility in New Delhi in November 2020.   © Hindustan Times/Getty Images

Decarbonization will need new grids for power and natural gas -- the cleanest of hydrocarbons -- and the electrification of the transport sector including the railways. It will also require the development of energy-efficient consumer goods from off-grid refrigeration for India's villages to low-cost electric vehicles, including cars and cycles that can help reduce India's frightening levels of urban air pollution.

The case for engagement on environmental grounds is powerful. But climate policy cannot be seen in isolation and, in hard times, defensive protectionist policies often attract support from people nervous about job security. Globalization has never been popular in Europe.

With unemployment now at around 8% across the EU, and after the departure of the U.K. -- in the past the strongest advocate of open trade -- there is a real risk that climate policies will be used as an excuse for limiting imports. Some in Europe argue for developing countries to be exempt from any tariffs, but the prevailing view stated clearly by Frans Timmermans, Executive Vice President of the European Commission, is that border taxes are essential for the survival of European industry. India beware.

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