• Sri Lanka is a highly vulnerable country when it comes to climate change
• Use the climate crisis to understand climate risks and build resilience
• Decarbonise the energy sector and use that to drive broader development
• First thing that needs to happen is a better assessment of hyper-local risks
• First pillar in Indo-Lanka cooperation can be better assessment of climate risks

Council on Energy, Environment and Water (CEEW) Founder-CEO Dr. Arunabha Ghosh shared a key message for Sri Lanka’s business leaders and corporates in an interview with The Sunday Monday shortly before addressing the Ceylon Chamber of Commerce ‘Sri Lanka Climate Summit 2024’ on Tuesday (7) as its Chief Guest, asserting that “this is a climate for business resilience”.

“That’s my one-sentence message,” he emphasised. “Use the climate crisis to a) understand the climate risks, b) build resilience against those risks, c) decarbonise your energy sector, and d) use that to drive your broader development. Create the climate for business resilience.”

Pointing out that Sri Lanka was highly vulnerable when it came to climate change, Dr. Ghosh said it was critical to have a better assessment of hyper-local risks, ensure climate resilience of upcoming infrastructure, and look at how the broader economy and the financial structure understood the risks.

“The first thing that we need to understand is that Sri Lanka is a highly vulnerable country when it comes to climate change. When you think about climate change, it’s not just individual events but the composite of heat, precipitation, extreme weather, and humidity, which then begins to impact health, infrastructure, productivity, and the economy at large,” he explained.

In the course of the interview, he shared lessons Sri Lanka could learn from India, the challenges and opportunities of climate change, the importance of Indo-Lanka cooperation, and attracting investor interest.

Following are excerpts:

What is your assessment of Sri Lanka’s position in terms of climate change?

The first thing that we need to understand is that Sri Lanka is a highly vulnerable country when it comes to climate change. Depending on different indices which various organisations have brought out, it could be in the top 10 or top 15. That doesn’t matter so much as understanding that, as a small island state, the nature of climate risks for Sri Lanka are varied.

Number one is heat stress. When you see the average of global temperatures rising by about one-and-a-half degrees, in the tropics especially the heat stress can be more aggravated.

Number two, in addition to heat, comes humidity – what is called the wet-bulb temperature. When there is a two-degree rise, the felt heat could be four to five degrees higher. That then impacts human health, agricultural productivity, and productivity of labour working outdoors.

Number three is precipitation patterns. How do we then look at not just the changes in year to year rainfall, but overall how the trends might be shifting, not only in terms of the total quantity of rain, but if the rain is coming at the right time, when the farmers are sowing their crops, and whether there is sufficient water for irrigation and so on?

Number four is extreme weather in the form of cyclones and flooding events. Between 1990 and 2018, Sri Lanka has suffered about $ 7 billion in damages – about $ 240 dollars are lost on an annual basis thanks to flooding. 

When you think about climate change, it’s not just individual events but the composite of these coming together – heat, precipitation, extreme weather, and humidity – which then begins to impact health, infrastructure, productivity, and the economy at large.

How prepared is Sri Lanka to tackle the challenges?

One of the things that we are seeing is that Sri Lanka has come out with strong net zero ambitions and wants to be net zero by 2050. There’s also conversation about whether Sri Lanka can get to net zero emissions even earlier, maybe by 2045. 

In terms of preparedness, the first thing that needs to happen is a better assessment of these hyper-local risks. Rather than just look at the past trends – because the past is increasingly not going to be a predictor of the future – we have to also understand climate risk at a hyper-local level, at city level, at a district level, and so on. That is where some investments will need to be made, along with better scientific modelling, better predictive capability, etc.

The second thing that needs to happen is to make sure that a lot of the infrastructure that is going to get built up in an emerging economy is climate resilient for the future. It’s not just about being able to handle the crisis on a year-on-year basis, but whether the coastal infrastructure can handle rises in sea level, storm surges, cyclones, etc. over time.

The third thing that needs to happen for preparedness is to not only look at the combination of the physical infrastructure but also how the broader economy and the financial structure understand the risks.

In India, we are now increasingly demanding disclosures by companies about their assessment of their physical climate risk. Once those assessments start happening, then companies can also start understanding how they might get exposed to these shifts.

From the conversations you’ve had in Sri Lanka so far, where does corporate Sri Lanka stand in terms of understanding these risks?

The fact that the Ceylon Chamber of Commerce organised the ‘Sri Lanka Climate Summit 2024’ itself suggests that there is an internalisation within the business community that this is not just a one-off environmental problem, that this is something that might be more systemic in nature and therefore there is need to get better granular understanding.

I am yet to meet many of these corporates and I will be meeting them later today (7), but I think that the Ceylon Chamber of Commerce organising the ‘Climate Summit’ sends a good signal.

While the threats of climate change are constantly in the spotlight, what are the opportunities that arise out of this change?

The first opportunity is in considering the energy transition. Sri Lanka, like many other parts of the developing world, including India, is heavily dependent on fossil fuels. The energy transition is also an opportunity for an economic transformation.

So what are the opportunities? Look at the net zero plans. Sri Lanka could over time attract investments of up to $ 50 billion in the energy sector. 

If you also look at how the energy sector is to shift, currently the bulk of clean energy in Sri Lanka is hydropower. Solar and wind power is much lower. Here is an economy that can then benefit from greater investment in solar and wind.

Those projects, as they become larger in scale, reduce the cost of finance that larger projects are able to attract, which means you can get more money at lesser cost. Related to that is the opportunity to then marry solar sites and wind sites. The sun shines at some point in the morning and during the day; the wind blows harder in the evenings. Better investment in the grid allows for better optimisation of clean energy.

Building on that opportunity is the opportunity to export energy. If Sri Lanka has about 15,000 MW of potential for offshore wind, etc., all of that energy need not be and cannot be consumed within the economy. However, inter-grid interconnections become an opportunity to sell that cleaner power to a larger market.

On the back of it come opportunities in related areas. If you look at the garment sector, which is a major export earner for Sri Lanka, as the cost of clean energy reduces, clean electricity-based garment manufacturing can become a badge that exporters can use in overseas markets. There is a green premium that can be earned on sustainably-produced goods and manufacture.

It’s not just about the opportunity in switching from fossil to renewables, but the type of renewables, the location of renewables, and also how that begins to impact the broader economy – that’s how we have to start looking at the opportunities.

What are the lessons Sri Lanka can learn from India in this regard?

The first thing to learn from India is market design. When India began its solar mission in 2010, it started using reverse auctions and those transparently-designed auctions have allowed for private competition to drive down costs from what was at that time about INR 20 for a single unit of solar to just INR 2-2.5 today – some of the lowest tariffs in the world.

Utilities have to pay less for buying the power, consumers have to pay less for consuming the power, and you get a cleaner mix. In the process India has become the fourth-largest renewables market in the world. But it has come on the back of appropriate market design.

The second learning is that there is an opportunity to think about different types of clean energy infrastructure. There are large sites that will be built up and those sites – which in India were called solar parks – will allow for a lot of private companies, including overseas investors, to come in, in a plug-and-play model. Where you have large sites for solar or wind, creating those land banks allows for projects of much larger scale, which then reduces the cost.

A third thing to learn is that even distributed energy has huge potential. India, for instance, has just announced a programme called ‘Suriyakanthi,’ where 10 million homes will get rooftop solar. When you have this distributed nature, everyone becomes both a consumer and a producer of electricity. You can then design business models for the rich and the poor and for communities that allow for many more participants in an expanding energy market.

The fourth thing that can be learned is how that then applies to related sectors – for instance, in transportation. In India we run a real-time e-mobility dashboard. Ten years ago we sold 2,399 Electric Vehicles (EVs). For the financial year that just ended in March, we had sold 1.67 million EVs. More than 600,000 of those were for public transport. How do you focus on public transport for rapidly-growing cities that are also shifting more towards cleaner transportation?

These are specific lessons – market design, location and co-location, distributed energy, focus on sustainable transportation – that can then be designed in a bespoke manner for the Sri Lankan market.

How important is Indo-Lanka cooperation in tackling climate change related challenges?

It’s absolutely critical. It’s relevant right from the very first question you asked me. We are a part of South Asia, which is highly vulnerable to climate change. The first pillar in Indo-Lanka cooperation can be on better assessment of climate risks. 

Number one, the hyper-local risk assessments that are now happening in India are capability that Sri Lanka can build upon. 

Number two, in cooperation on building clean energy – not just in building the infrastructure in the manner I described, but in attracting the investments. Related to that is the upskilling of the workforce. In India, we expect to create a workforce of a million people by 2030 for our clean energy rollout. There’s a lot of training and training modules happening. The same can happen in Sri Lanka.

The third thing that can happen is green industrialisation. Just like in Sri Lanka, in India as well it’s the Micro, Small, and Medium Enterprises (MSMEs) that form the bulk of the industrial backbone. They account for upwards of 40% of India’s exports. I observe the same pattern in Sri Lanka. Green industrialisation for small businesses, whether it’s clean electricity or energy efficiency, etc., becomes an area where you can immediately start cooperating. 

There are models that we’ve developed in India that have brought down the cost for energy efficiency interventions. There again Sri Lankan companies can benefit. These are just some of the areas where Indo-Lanka cooperation can happen.

How can Sri Lanka position itself to attract investor interest for green/sustainable energy projects and access climate financing mechanisms?

The first thing that we noticed even in India is that investors want long-term policies. Once you set a target and it’s a big target, this target should only go up, not be brought down. That gives investors a signal that there is a clear determination to move in a certain direction.

Related to that, as I mentioned earlier, is the design of transparent auctions that use market competition to drive down prices. These are two very important ways in which investor interest can be created.

A third area is because you have a much smaller energy market, given our geographical proximity, how Sri Lanka and India can have a combination of electricity markets so that infrastructure here piggybacks on the larger market opportunities that India is offering. If there is interconnection, then it’s not just a project that gets developed in India but also a project in Sri Lanka that supplies to India as part of that larger market portfolio. Investors love larger market portfolios and it also diversifies portfolios geographically, which reduces their risks.

A fourth way to deal with this is to look at very specific types of risks. Emerging markets often have challenges with currency fluctuations, etc. and hedging against currency fluctuations results in increasing costs for the energy projects. Again, there are new innovations being developed in India and globally on reducing those hedging costs. Collaborating in these areas can help to reduce the cost of finance and attract more capital. 

Finally, the way to attract investor interest is to show that this is not just an energy sector play but an economy-wide play. When you say the energy sector is just part of that transformation, which will be followed by small businesses, agri businesses, and ecotourism, you can begin to see that an economy that is buffeted by a changing climate and is increasingly vulnerable is also using it as an opportunity for a completely different pathway of development.

The more these signals are sent out, the more interest that will come from large institutional capital for these new investments.

What is your key message to Sri Lanka’s business leaders and corporates?

This is a climate for business resilience. That’s my one-sentence message. Use the climate crisis to a) understand the climate risks, b) build resilience against those risks, c) decarbonise your energy sector, and d) use that to drive your broader development. Create the climate for business resilience.