India and the IEA: Friends with benefits?
Expanding the global energy body membership to include India is crucial for ensuring global energy security
The International Energy Agency (IEA) agreeing to start discussions with India on joining the organisation as a full member is a significant and positive step for both parties. India had formally sent a request for full membership last October and the 31 member countries at the IEA’S 50th Anniversary events earlier in February announced that negotiations will now begin. This would be the first country outside the Organisation for Economic Co-operation and Development (OECD) club to get full membership of the IEA, reflecting the increasingly larger share of NON-OECD countries in global energy consumption since 2007.
Given that much of the growth in energy consumption and greenhouse gas emissions will come from India in the foreseeable future, it is important for the IEA to engage more closely with such an emerging economy. However, despite apparent synergies in their worldviews on several issues in India’s energy sector policies, there are important differences in their approach to economic development and energy transition.
Hence, for a successful partnership, both parties need to agree where they can, and perhaps disagree where necessary. That will make for an interesting negotiation process.
The IEA was set up half a century ago to support and promote the energy security of oil importing countries in response to the 1973 Arab Oil Embargo. At that time, the largest oil importers were in the OECD, and hence IEA membership was limited to OECD countries. That does not reflect the reality of the world today. The largest energy importers, and not just oil, are in NON-OECD developing countries in Asia. The stability of global energy markets crucially depends on how these countries attempt to secure their energy systems. Hence, expanding the IEA membership to include India is a crucial step in that direction.
This is also important given how the IEA has expanded its mandate to now include climate action in its interpretation of energy security. Thus, the Agency no longer considers physical disruptions in the oil and gas markets as the only types of energy sector risks to global economic and political stability. It increasingly recognises the risks that climate change poses to the world.
Within this, the role that India will play in the global energy transition is central to the world meeting its climate goals. India has the world’s largest population, is the fifth-largest economy, is on track to becoming the third-largest within this decade, and is the world’s third-largest energy consumer and greenhouse gas emitter. Over the next two decades, global growth in energy consumption will be dominated by India, as its growing population and rising prosperity require more energy.
Recognising this trend, the country has made significant policy choices over the past decade and a half in increasing access to modern energy sources, particularly electricity, while pushing forward an ambitious energy transition agenda that is shifting its energy system towards renewables, electrification of its transport system, and now hydrogen and biofuels. Its success in ramping up renewable electricity capacity and reducing the emissions intensity of its gross domestic product (GDP) has been very impressive. It, however, pales in comparison to the targets the country has set itself for 2030, which include tripling of renewable and other non-fossil electricity capacity, producing 5 million tonnes annually of green hydrogen, and establishing a carbon sink of 2.5–3 billion tonnes of carbon dioxide (CO2) equivalent.
Whether India meets its heroic targets for 2030 will be central to the global emissions trajectory towards a 1.5 degrees Celsius target. Hence, the synergy between the expanded interpretation by the IEA of its energy security mandate and the green developmental paradigm adopted by India, can be the bedrock of expanded cooperation and support that the IEA can provide to India’s energy transition. If successful, India would have established a new growth model where higher prosperity does not necessarily imply a much higher energy and carbon footprint, and this will have profound implications for the rest of the world that is yet to reach such a phase of economic growth.
But this is not going to be smooth sailing all through. India’s energy consumption, and within that fossil fuel consumption, will continue to rise for the foreseeable future. The IEA itself forecasts India’s oil consumption to rise by over a million barrels a day by the end of this decade, an increase of 20 per cent from now. Notably, both the US Energy Information Administration and Organization of the Petroleum Exporting Countries forecast almost twice as much of an increase in oil consumption for India during this period. Squaring this with the IEA scenarios that peak oil and gas consumption globally will require much faster reductions in demand elsewhere in the world, and in particular within OECD members, presents a challenging scenario. How reasonable such expectations are, and the economic and political implications of such a trend even within the OECD countries have led to much debate over the past few weeks.
India is likely to build between 40 and 80 Gw of new coal electricity generation capacity, which is at odds with IEA’S stated position that no new coal production capacity should be built unless it includes still very expensive carbon removal technologies.
In general, the IEA’S narrative on shifting investments in fossil fuel production globally to renewables may not appear friendly to countries such as India and many others in Africa and Asia that are expected to rely on these hydrocarbons in the foreseeable future. Unless the Agency is able to persuade its members to drastically reduce their reliance on fossil fuels so that there is space for the rest of the world to grow, and simultaneously trigger at least a three-fold increase in capital investment in the clean energy transition, how the 31 member countries reconcile the needs of their own constituents with the rest of the developing world will be tested in the negotiations to bring India into the IEA fold.
Finally, there is the small matter of the IEA’S legacy role of helping its members achieve oil security. Every importing member country needs to hold a 90-day emergency reserve of its daily net imports. India currently has less than a week’s stock in its strategic reserves that goes up to 66 days when commercial stocks held by the refining sector are included. Given almost no progress on this account in India over the last three years, as evidenced by the budgetary allocation for building strategic oil reserves in the country, the IEA will have to find a way of exempting India from this requirement.
It makes perfect sense that the IEA should seek to include India as a full member given the outsized role the country will play in the global energy transition over the next decade or so. And the benefits for India in learning from the expertise the IEA brings, as it seeks to build a modern economy that is secure from energy shocks and climate proof, are substantial. However, both parties must acknowledge differences while cooperating on agreed-upon issues to build a successful partnership. India in the IEA fold could also serve as a model for engaging the rest of the NON-OECD world.