The energy market has undergone a major structural change since 2015. The most dramatic manifestations of this change are Saudi Arabia’s decision to forego the role of ‘swing producer’, the consequential drop in the price of oil, and the recent pronouncement that Saudi Arabia would reduce its dependence on petroleum. Underlying these developments are the shale revolution in the US, the slowdown of Chinese demand, and an international agreement in Paris to contain emissions.
One direction of the energy sector would be towards a future in which fossil fuels will continue to dominate. The low price of petroleum will dilute investor interest in renewable and clean energy. The other direction would be towards a future in which oil and gas remain within the interstices of the economic system but in increasingly smaller amounts.
Conventional wisdom holds that India will move down the former path. It has an abundance of coal, its industrial infrastructure is built on a fossil-fuel energy system, and it can leverage its monopsonistic position to secure very favourable terms from Middle Eastern suppliers of oil and gas. However, conventional wisdom needs to be challenged because India is on an unsustainable economic trajectory.
An oft-cited claim is that the US private sector has been behind most recent energy-related innovations. That is not the case. The support provided by the US government has been crucial. The shale revolution might have still been in the making were it not for the seed funding provided by the US department of energy to scientists and laboratories to work on the twin concepts of hydraulic fracturing and horizontal drilling, the technologies that unlocked the hydrocarbon molecules in the shale rocks. Similarly, it was the Pentagon that first triggered interest in robotic cars. They provided the initial sponsorships and prize money for innovators. And it was only following the success of these sponsorships that private companies like Google picked up the research baton regarding driverless cars. Currently, the Pentagon is one of the main drivers behind research to improve fuel efficiency, develop cleaner fuel blends, upgrade battery technology, and build smart distribution networks. It has allocated $9 billion for research and development on these subjects over the next five years. The Pentagon is not motivated by scientific altruism. They are the among the largest consumers of liquid fuels in the United States and therefore have good reason to encourage a competitive and scalable alternative to liquid fuels for transportation.
India needs to take a leaf out of the US experience. It has a clean energy fund, supported by a cess on the coal industry. The purpose of the fund is to finance clean energy research. In fact, the money is more often than not diverted towards other purposes. The Indian government needs to better understand the catalytic role played by the US government in incentivising clean energy innovation, energy efficiency, and demand conservation. It should also see whether there is scope for deploying India’s funds more purposefully through collaborative partnerships with US scientists, laboratories, and public entities like the Pentagon.
Vikram S Mehta is chairman, Brookings India.
The views expressed are personal