Central Idea

• Access to affordable and reliable energy is essential for economic development and public services. However, the global energy market has been disrupted due to demand and supply-side factors leading to rising prices and disruptions in energy supply chains. As a result, countries with a high dependence on fossil fuels, including India, faced a significant challenge.

The correlation: Energy availability and economic development

• The correlation between energy availability and economic development is that energy availability and accessibility are essential inputs for many public services, and securing affordable and reliable access to energy remains a central political and economic imperative for almost all governments.
• Energy availability and accessibility are necessary for economic growth and development, and a lack of access to energy can hamper the growth of industries, limit productivity, and impede social development.

Factors that contributed to the Global Energy Crisis

• Demand and Supply-side Factors: There have been disruptions in the oil and gas supply chains due to the ongoing Russia and Ukraine war. Additionally, energy prices came under pressure due to a sudden rise in demand resulting from abnormally high temperatures and associated heatwaves across the globe. These factors inflated the international price of oil and natural gas.
• Dependence on Finite Fossil Fuels: Fossil fuels account for over 80% of global energy requirements and over 64% of electricity generation worldwide. Additionally, most countries are net importers of fossil fuels, and thus prone to adverse supply shocks resulting from various geopolitical and economic events.
• Overdependence on Fossil Fuels: Many countries turned to coal to meet their energy needs, while those already using coal intensified its exploitation, putting immense pressure on the coal market.
• Increased Cost of Electricity: The increased cost of electricity due to a higher usage of fossil fuel-based sources imposed a heavy burden on low-income households since they spend a larger share of their incomes on electricity and gas.
• Widespread Power Outages: Widespread power outages in many countries due to disruptions in electricity supply threw lives out of gear.
• Dependence on Imported Fossil Fuels: Europe, for instance, faced a challenging situation due to its historic high dependence on imported gas from Russia to meet its energy requirements.
• Climate Change: Fossil fuels account for 75% of global greenhouse gas emissions and around 90% of carbon dioxide emissions. Climate events, such as floods and droughts, cause immense human and economic loss.

Impact on countries

• High energy prices: The increased cost of electricity due to a higher usage of fossil fuel-based sources imposes a heavy burden on low-income households since they spend a larger share of their incomes on electricity and gas.
• Power outages: Widespread power outages in many countries due to disruptions in electricity supply throw lives out of gear. For instance, Bangladesh witnessed a countrywide blackout as many gas- and diesel-based power plants, responsible for approximately 85 percent of the country’s electricity generation, were forced to shut down due to fuel shortages.
• Slowdown in economic growth: Increased prices and disrupted supply severely impacted those countries with a high dependence on fossil fuels, particularly its import, and led to a slowdown in global economic growth, forcing some countries and regions into recession.
• Environmental degradation: Overdependence on fossil fuels impacts countries adversely in the form of air and water pollution and soil degradation, while also being a significant cause of climate change.
• Foreign exchange reserves: The dependence on fossil fuels also affects countries’ foreign exchange reserves, as the fluctuations in prices of fossil fuels affect their import bills and balance of payments.
• Revenue loss: Many regions and their economies, especially in developing countries, depend on incomes derived from fossil fuel-based employment, such as mining, power generation, transmission, and distribution and storage. In many regions, governments are also dependent on the revenue generated from fossil fuels to enhance infrastructure that enables local communities to expand and diversify their livelihood options.

Challenges in way of transition to renewable sources of energy

• Mobilizing capital: While the cost of clean energy is declining, many clean energy technologies require high upfront investment costs, which may be beyond the capacities of most developing countries. Additionally, international support for developing countries is lacking, making it difficult for them to transition to renewable energy sources without supportive international actions.
• Ensuring a just transition: There is a need to ensure decent work opportunities and social support for people likely to lose their livelihoods in the process of transitioning to low-carbon and renewable-based economies. Many people are employed in the fossil fuel industry globally, and there is a risk of destabilizing local economies during the transition process.
• Technical challenges: The transition to renewable energy sources may require significant upgrades to infrastructure, including energy storage and transmission systems, which can be costly.
• Policy and regulatory challenges: The transition to renewable energy sources requires significant policy and regulatory changes, including reforms to subsidy systems, pricing mechanisms, and energy markets.
• Reliability and intermittency of renewable sources: Unlike fossil fuels, renewable energy sources are often intermittent, making it difficult to guarantee a stable supply of electricity. This may require investments in energy storage and backup power systems to ensure reliable supply.
• Public acceptance: The transition to renewable energy sources may face resistance from some stakeholders, including those who are reliant on fossil fuels for their livelihoods or those who are concerned about the visual and environmental impacts of renewable energy infrastructure.

Way ahead: Addressing these challenges

• Mobilizing capital: Developed countries need to fulfill their commitment to providing climate finance to developing countries. Innovative financial instruments such as green bonds and blended finance could also be used to attract private investment.
• Ensuring a just transition: Governments need to develop comprehensive plans that protect workers and communities affected by the shift to renewable energy. This could involve retraining programs, investment in new industries, and social safety nets.
• Investing in research and development: Governments, international organizations, and the private sector need to invest in research and development to drive down the costs of renewable energy technologies and improve their efficiency.
• Promoting energy efficiency: Governments and businesses need to prioritize energy efficiency measures such as retrofitting buildings and improving industrial processes to reduce energy demand and costs.
• Accelerating deployment of renewable energy: Governments need to set ambitious targets for renewable energy deployment and create policy frameworks that incentivize investment in clean energy.
• Building energy infrastructure: Governments need to invest in building the infrastructure needed to support the deployment of renewable energy, including grid upgrades, energy storage, and electric vehicle charging stations.
• Promoting international cooperation: The transition to renewable energy requires international cooperation, especially between developed and developing countries. Developed countries can support developing countries through technology transfer, capacity building, and financial support.

Facts for prelims

Conclusion

• The transition towards renewables is an attractive option for countries to hedge against the risks associated with fossil fuel-based energy sources. However, this requires access to affordable finance and international support to enable a just transition through on-the-job retraining programs, infrastructure investments, and so on. Access to affordable and reliable energy is crucial for sustainable economic development.

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