Energy transition economics for a single world, a single future, and a single climate

The global surge in energy demand during the last financial year, driven by the post-pandemic resurgence of economies, has resulted in a steep rise in coal usage in many countries, including India, aided by the ongoing conflicts such as the war in Ukraine. Power generation in India rose by 11.5% to a record high of 1591 billion Kilowatt-hours (kWh) during FY23, with coal production increasing by about 30% during the same period. Coal-fired power generation made up for more than 73% of energy production in the country, with an increase of 12.5% over the previous year.

However, in the same period, the share of renewable power generation, excluding big hydro and nuclear power, increased to 11.8% compared with 10.8% the previous year, mainly driven by a 35% increase in solar output. Renewable energy generation, overall, increased by about 20% , reaching 186.4 billion units as of February 2023, according to the CEA data.

These figures highlight the challenges faced by India, the world’s fastest-growing economy, in ensuring energy security for its more than 1.4 billion citizens while still committing to the energy transition. India has set a goal of having a generation capacity of 500 GW from renewables by 2030, mostly from solar and wind power. Achieving this target would require an investment of about $2.44 trillion, which is significant given that the country’s current GDP stands at about $3.4 trillion.

Imperativeness of energy transition

Investing in renewable energy is imperative in view of the serious concerns posed by global climate change. However, readiness is also required to accommodate the large integration of renewable energy sources, which would need further investment in demand-side management of electricity. These challenges along with high technical and commercial losses and consistently increasing demand of energy in developing countries could be effectively managed by focussed deployment of digital solutions such as smart metering and smart grid. While the learning curve for this is steep,, it will be critical for building the smart and flexible electricity systems that are able to integrate renewable energy more effectively and help bring down the cost of clean energy transition over time.

Economic concerns of energy transition

One of the primary economic concerns related to the energy transition is the high investment required, which can create a situation where developing nations are forced to continue using traditional fossil fuel sources because they cannot afford to transition to renewable energy sources very fast.According to International Renewable Energy Agency (IRENA), renewable energy investment in developing countries needs to increase by a factor of five by 2030 in order to achieve the goals of the Paris Agreement. This would require a total investment of $4.3 trillion in renewable energy projects in developing nations over the next decade.

Another economic concern is related to the impact of the energy transition on traditional energy industries. Developing nations rely heavily on traditional fossil fuel industries for economic growth and job creation. Transitioning to renewable energy sources may result in economic losses in these industries, which can have a significant impact on the overall economy.

A third economic consideration is related to the distribution of benefits from the energy transition. Developed nations may have greater access to funding and technology for the energy transition which can create an uneven distribution of benefits. Developing nations may also have limited capacity to address the environmental impacts of the energy transition such as land use changes and biodiversity loss. According to a report by the World Wildlife Fund (WWF), developed nations accounted for 92% of the global cumulative CO2 emissions from energy use between 1850 and 2013. This highlights the need for developed nations to take responsibility for the environmental impacts of their past actions, and to provide support to developing nations to address these impacts.

Adherence to climate justice

For ensuring a more inclusive and equitable global energy transition that benefits all nations and contributes to the fight against climate change, an equilibrium of flow of technologies and collaboration on global initiatives is required. This would mean transfer of clean energy technologies to developing nations by providing support for research and development, promoting the use of open-source technology, and providing access to patents and licensing agreements.

The world must recognize that those who have contributed the least to greenhouse gas emissions are often the most affected by the consequences of climate change, and the people who have historically been responsible for climate change must come forward to shoulder more responsibility in salvaging the current situation. Ultimately, the baseline would be that if the whole world together fails to contain the menace of growing emissions, it will impact the planet as a whole and nature’s fury would not differentiate based on riches of the nations.