BL interview. Unaffordable energy not only detrimental to importing countries, impacts exporting countries too: Fatih Birol

The global oil market has been very turbulent over the past year, with prices hitting their highest levels since 2008 in March and whipsawing a great deal since then. There have been a series of forces at play – from the war in Ukraine and OPEC+ production cuts that have impacted oil supply, to China’s weaker economy, and a strong US dollar that have affected consumption. To ease strains and address the risk of supply shortfalls, IEA member countries have acted since March to carry out our two biggest-ever coordinated releases of emergency oil stocks, bringing large amounts of additional oil to global markets.

More recently, slowing economic growth worldwide has begun to weigh more heavily on oil consumption. In the IEA’s latest Oil Market Report, we estimate that global oil demand growth will slow to 1.6 million barrels a day in 2023, down from 2.1 barrels a day this year. Taking into account all these factors, and even after accounting for likely production losses from Russia, our crude oil balances remain relatively comfortable for the next few months. Hopefully, this will ease the strains on oil importing countries, such as India.

But there are a number of wild cards that will need to be watched carefully. These include the effects of upcoming EU measures on oil imports from Russia; responses from the OPEC+ grouping; a possible rebound in Chinese demand; and strains on oil product markets, especially for diesel.

The transition to clean energy presents a historic opportunity, especially at a time when many regions have had to deal with the world’s first truly global energy crisis. Countries like India that have invested heavily in renewable sources of energy have not only found them affordable, but also they are relying less on unstable fuel imports and their volatile prices. At the IEA, we see strong evidence that the energy crisis is accelerating the energy transition because the economic and environmental advantages of cleaner technologies are being reinforced by considerations of energy security.

On this front, India has proven to be a leader among emerging economies by doubling down on its ambition to scale up renewables, green hydrogen, electric mobility, public transport, and more. Because of the actions of countries worldwide, in our recent World Energy Outlook 2022, we found that today’s policy settings are strong enough to deliver a peak in worldwide demand for fossil fuels by the end of this decade, which would be a pivotal moment in energy history.

What are the challenges for countries like India?

No country can transform its energy economy overnight – certainly not a large and growing economy like India. However, it is important to note that energy transitions are already well underway in India. We see evidence of transitions in various sectors in India, with world-leading policies being pursued to achieve energy efficiency, electrification of sectors like transport industry, and a circular economy.

At the same time, even as India seeks to attract billions of dollars in financing for its clean energy transition, it will have to ensure sufficient energy supplies for its people and economy in the interim. This is a challenge, but I am confident that the Indian Gvernment will do well on this front, given the country’s significant renewable energy resources, impressive human capital, and package of appropriate policy measures.

I strongly believe that every human in the world deserves access to affordable and secure supplies of energy. Keeping in mind their citizens, countries that are net importers of energy play a very important role in sending signals to energy exporters on their priorities and concerns. India’s energy diplomacy has been very effective, based on the country’s growing weight and influence in global energy affairs.

Unaffordable energy is not only detrimental to importing countries – it also ultimately impacts exporting countries too as consumers transition to alternative energy sources. I hope that oil exporting countries pay heed to these issues and that their decisions do not create additional risks for the global economy and for vulnerable consumers. India will have an important role to play in addressing key global energy challenges through its Presidency of the G20 group of countries in 2023.

India has announced an ambitious agenda to meet its climate commitments, including having half of its power generation capacity be renewable by 2030. India has also embarked on a journey to transform its most carbon-intensive sectors by setting the foundations for a carbon market, promoting green hydrogen, and ensuring that clean technologies are manufactured within India through the Production Linked Incentive (PLI) scheme.

To meet its climate ambitions, India will have to successfully implement these and other policies. It is also imperative for global finance – especially from advanced economies – to flow into India to ensure clean energy deployment keeps pace with its ambition. India’s leadership on climate action through the Lifestyle for the Environment (LIFE) initiative can also play an important role in driving change. Given the size of the Indian market and its potential for growth, there are enormous possibilities for India in the new global clean energy economy. In tandem, India’s influence in global energy affairs will continue to grow as India pioneers a model of low-carbon economic development that other emerging and developing economies can follow.

India is of critical importance to the global clean energy transition, given its size and economic dynamism. It is set to account for one-quarter of global energy demand growth between now and 2050 while also potentially being the first country to ‘industrialise without carbonising’. As part of the first troika of emerging economies to host the G20 Presidency, India can put the energy transition needs of emerging and developing economies at the centre of the multilateral agenda.

Firstly, it can focus attention on investment needs and financial flows by highlighting the major clean energy investment gap in the developing world, which needs to be bridged by stronger cooperation and support from advanced economies. Secondly, the Indian G20 Presidency can raise the importance of international cooperation on clean energy technologies, using its joint presidency of the G20 and the Clean Energy Ministerial. India can also encourage cooperation to strengthen clean energy supply chains, including access to critical minerals and the diversification of clean energy manufacturing to new centres, such as India. Lastly, India can promote the importance of behaviour changes to advancing global progress towards net zero emissions. India’s LIFE initiative and action in energy conservation are good examples of the type of behaviour changes that can be adopted internationally to reduce global inequalities in energy consumption.