Absolute decoupling yet to happen between carbon emission, GDP growth globally, says RBI deputy governor

RBI Deputy Governor Patra said global actions needed to address climate change, as it threatened to overwhelm the earth. He highlighted steps taken by RBI to handle climate change, such as mandating Corporate Social Responsibility, Sustainable Development and Non-financial Reporting, issuing Sovereign Green Bonds, introducing a Framework for Acceptance of Green Deposits, and pooling climate-related info in its flagship publication. He concluded that sustainable development was key and global action was needed for humanity to live in harmony with our planet.

While the growing recognition of the adverse effects of climate change had led to some recent actions that were weakening the correlation between carbon emissions and GDP growth globally, an absolute decoupling was yet to happen, Michael Debabrata Patra, deputy governor, Reserve Bank of India (RBI) said at the New York Fed Central Banking Seminar organised by the Federal Reserve Bank, New York, on October 9, 2023 at New York, USA.

“Climate change can affect price stability through supply shocks such as food and energy shortages and through a decline in productive capacity. Demand shocks can arise due to the loss of wealth of firms and households on account of frequent natural disasters,” Dr. Patra said. 

“Physical and transition risks can affect the balance sheets of financial institutions and banks, limiting the flow of credit to the real economy. These destructive forces interact with each other to form vicious feedback loops,” he added. 

Hence, almost all countries have committed to timelines for the transition to net zero emissions, with the majority committing to achieve this target by 2050, the Deputy Governor said. 

While 23% of the countries have made the target a legal obligation, 18% have proposed to make it into a legal obligation and the remaining 59% have made their pledges in official policy documents. 

All these countries together account for around 73% of global CO2 emissions (59 countries have proposed actions or are in discussions), he told the gathering.

Pointing out that several central banks have expressed reservations about engaging with climate related issues to avoid mission creep, while others have expressed inability in view of lacking the instruments to deal with it, Dr. Patra said the ominous reality was that the climate was striking back.