The importance of fossil fuels in the near term cannot be underscored, and the developing countries need to balance their net zero targets with growth and fiscal metrics, said India’s chief economic advisor, V Anantha Nageswaran, Thursday.
“Developing countries need affordable and reliable energy for economic growth, which in turn is necessary for energy transition,” the CEA said at a seminar hosted by the Centre for Social and Economic Progress (CSEP).
The CEA pointed out that the calculations for net zero needed to take into account the relocation and labour displacement costs.
“Nobody is saying it (transition) is not imperative, but it is important to be realistic about what we want to do and in what time frame and the trade-offs,” he stated.
India has set a target of net zero by 2070.
The CEA noted that investments in the oil and gas sector had peaked prematurely, which are expected to create demand-supply gaps and keep prices elevated for some time.
“This will continue to pose economic burden, depriving countries of growth and domestic resource generation. Therefore, excessive reliance on external capital, which also will have implication of current account balance,” he said.
The CEA in the paper co-authored with Gulzar Natarajan, secretary, Finance Department, Government of Andhra Pradesh, has pointed out the Impossible Trinity of Net Zero, which entails that countries can only pursue two of the three goals, viz, “Net Zero” transition, fiscal sustainability and economic competitiveness, at any given time.
According to the paper, a commitment to carbon neutrality will entail a higher cost of energy and will undermine competitiveness and the country needs to sacrifice fiscal sustainability if carbon neutrality and economic competitiveness have to be preserved.
“The transition involves trade-offs rather than a singular pursuit of energy transition alone as a pre-eminent goal of public policy,” CEA said.
The CEA also pointed to the need for recognition of public capital’s role in energy transition, stating that private capital has not had a long history of creating public goods.
“Behavioural and attitude changes are required in the private capital space for this to become a viable reality for countries receiving capital and ensuring incentives for the private sector to come through.”
Natarajan laid down four broad areas of reform, saying that there was a need for the government to take the lead.
He highlighted the importance of inter-state dispute settlement mechanisms and said that there was a need to de-risk infrastructure financing, leverage SDRs to mobilise private finance, and lower the cost of capital by using blended finance or blended finance investments.
