What’s the news?

• According to a study by the International Institute of Sustainable Development (IISD), the global transition away from fossil fuels to renewable energy sources could trigger financial challenges for India and major developing countries such as Russia, Brazil and China because of their high dependence on revenues from fossil fuel.

Fiscal Challenges

• Though India is a net importer of petroleum products, it earns substantial revenues via cesses and taxes from the consumption of petrol, diesel and oil.
• The study finds that by 2050, overall fossil fuel revenues in Brazil, Russia, Indonesia, India and China could be as much as $570 billion lower than a business-as-usual scenario where governments fail to phase down fossil fuels enough to avoid the worst climate impacts.
• The widest gaps are expected to occur in India ($178 billion), China ($140 billion), and Russia ($134 billion).
• Public revenues from fossil fuel production and consumption currently account for 34% of general government revenue in Russia, 18% in India, and 16% in Indonesia. The share stands at 8% in Brazil, 6% in South Africa, and 5% in China. This includes only direct, first-order, government financial revenues — fossil fuel dependence would be much larger if private incomes and flow-on effects in these economies were added.
• The IISD study notes that Fossil fuel revenue streams were “unreliable and erratic” and undermined by the negative economic impacts of fossil fuel use such as health costs due to air pollution and damage from climate change.

Way Forward

• To prevent devastating climate change, the world has to phase out the production and consumption of fossil fuels, which will inevitably erode related revenues.
• Emerging economies have an enormous opportunity to build more resilient and economically sustainable energy systems as they decarbonise but they must plan ahead to avoid shortfalls in public revenues that could reverse progress on poverty eradication and economic development.
• India is dependent on fossil fuel for nearly 70% of its energy. It has on the other hand committed to net-zero emissions by 2070. An analysis by the Council for Energy, Environment and Water noted that India needed at least $3.5 trillion to achieve the target and needed nearly $1.4 trillion, in the form of concessional finance, from developed economies to mobilize foreign capital to bridge that gap.

Reference:

1. https://www.thehindu.com/news/national/transition-from-fossil-fuels-to-renewable-energy-can-pose-fiscal-challenges-for-india-study/article65623618.ece