Bridge India

Global Energy Trends and Implications for India (Part 5/5): Transitioning to a low carbon energy system payoff

The global energy system is in a period of rapid transformation: electricity plays an ever more important role, as do renewables, distributed generation and electric vehicles. Energy efficiency is improving. Emissions are a large and growing concern. New technologies and business models are disrupting and challenging a traditionally risk-averse and slow-moving industry. The International Energy Agency (IEA) has just published its new “Energy Technology Perspectives” outlining the global trends until 2050 (refer). Here are some of the key findings and the implications they might have for India.

  •  Investing into a low-carbon energy system pays back purely in energy terms (leaving aside environmental and climate externalities)
  • On a global level, and discounted at an annual rate of 10%, savings add up to USD 5 trillion until 2050
  • For India the goal – a low-carbon energy system – should be clear. The challenge is how to design the market.

blog 7.5.15Source: IEA

The Global Context

Here is some really good news: transitioning to a low carbon energy system by 2050, which will allow us to limit global warming to 2 degrees and thus save our way of life along the way, is actually a good economic choice. Leaving aside the cost of externalities, such as pollution and emissions from burning fossil fuels, we can save USD 115 trillion in fuel. This more than matches the additional investments of USD 44 trillion, mainly into more efficient transport and into the power infrastructure. The difference is a whopping USD 71 trillion – equivalent to the global GDP.

However, fuel savings accrue over time, while additional investments are needed upfront. Thus, the savings have to be discounted to put them into an investment perspective. At a discount rate of 10% – which is generous in the energy context – there is still a positive net effect of USD 5 trillion, more than 2½ times the GDP of India. Add to that that a low carbon energy system will significantly reduce investment risks (many renewables have no fuel costs and a comparatively simple technology) and it becomes clear that: (a) a low carbon energy system is a good investment choice and that (b) economic growth and carbon emissions can be uncoupled.

Implications for India

The message could not be clearer. Building an efficient, flexible, resilient, energy-secure, clean, renewables-heavy energy scenario should be a no-brainer for India. In general, the returns are sufficiently attractive to attract private sector investors into the market. In addition, this would give India excellent leverage in international climate negotiations, which is critical given the fact that India is one of the countries most vulnerable to the effects of global warming.

The devil, however, is in the detail: how to ensure a market design (regulations, taxes, power prices, etc.) that unlocks this enormous opportunity? How to ensure supply security, stable consumer prices, a degree of competition, and reliability? This is the challenge all forward-looking countries are currently grappling with. While there are no easy answers to achieving a transition, the goal itself, however, should be clear.

Tobias Engelmeier is the Founder and Director of BRIDGE TO INDIA

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