Critical Considerations: India’s Energy Security and Petroleum Price

by June 1, 2018 0 comments

India's Energy Security and Petroleum PriceIndia has not been found operative in achieving energy security. It is, therefore, essential to follow a strategic vision to create a secure energy future. The key feature that can define a strategy is the efficiency of its supply/use.

The issue of energy security came into prominence in the mid-1970s after the oil price shock of 1973-74, when global prices of oil quadrupled in a very short period of time. The immediate impact of this development was traumatic, with several countries rationing supply of petroleum products and the US becoming a land of long lines of cars at gas stations, which had to limit sales to three billion or five billion dollars for any single filling.

Some countries took urgent steps and put in place policy measures by which they were able to reduce their demand for imported oil and oil products. One such nation was Japan, which dealt with the oil crisis of 1973-74 and 1979-80 (in the wake of the revolution in Iran) in an exemplary manner. Japan is heavily dependent on foreign sources of energy and, therefore, for that nation to take fluctuations in oil prices seriously is always an imperative.

As a result of a strong policy response, the Japanese economy did extremely well in the 1980s and part of the 1990s as much because of energy-specific measures as a combination of stringent monetary-fiscal policies, restrictions on wage increases, investments in energy saving facilities (which generated jobs ), improved quality control measures and a deliberate shift from energy intensive industries to factory outputs which involved high technology, low energy intensity and knowledge driven production.

Many of these non-energy related policy measures were, however, driven by the trigger of energy price increases. Often, when a system is analysed for one set of concerns, such an exercise reveals the need for improvements and interventions in other areas as well.  Hence, while devising a response to the sudden increase in energy prices, the Japanese Government and industry saw the need to put in place matching improvements in other policies as well, all of which, led to improvements in the economy as a whole.

Other countries also implemented a set of measures with generally beneficial results. France expanded its production of nuclear energy as a response to the oil price shock and converted much of its transportation, which is universally dependent on petroleum products, to nuclear powered train travel. The TGV train system in France carries a large number of passengers at a high speed and very high energy efficiency. A large quantity of freight is also moved by train across that nation.

In the US, the Corporate Average Fuel Economy (CAFE) standards, introduced to encourage production and use of more fuel-efficient automobiles, was an immediate response to the oil price shock of 1973-74.

It is unfortunate that the CAFE standards have progressively been diluted, and have allowed an escape route for automobile manufacturers to produce Sport Utility Vehicles (SUVs), which are not included for computation of these standards. Also, the standards set initially have not been revised adequately and frequently enough to allow upgradation of technology and greater fuel efficiency than what we have seen over the years.  Meanwhile, we in India, lag behind many countries in fuel efficiency and a growing affair with the ownership and use of SUVs.

In an Indian national daily, there is an ongoing debate around the increase in global oil prices and their repercussions on domestic pricing of petroleum products. As long as petroleum product prices remain low or decrease, as has been the case in the recent past, the public sees no reason to complain.

But now that global oil prices have increased and there are concerns about future increases, this has become a hot issue for political debate. Given the country’s overwhelming dependence on oil imports, price increases produce widespread impacts and affect every sector of the Indian economy. It may be recalled that even the first oil price shock of 1973-74 created an economic (and consequently, political) fallout that proved to be profoundly disruptive.

Then Prime Minister Indira Gandhi was at the zenith of her power in the early 1970s, but higher oil prices, which were passed on to the consumers, led to unprecedented levels of inflation and distress across the country, resulting in a political turmoil, which is now a part of history.

Our vulnerability to oil price increases remained largely unaddressed over the years. The share of road transport, both for goods and passenger traffic, continues to increase at an alarming rate, thus adding substantially to the demand for petroleum products. Public transport for passengers is still inadequate in towns and cities and highway expansion to take care of inter-city traffic cannot keep pace with burgeoning demands.

If we consider the overall economic and social dimensions of road transport, its negative externalities become patently clear. Expansion of road transport without balanced a consideration of other options constitutes neglect of the nation’s energy security. It also creates a power structure which resists rational formulation of transport policy.

In the US, for example, the combined lobby of the automobile, highway and oil industries consistently blocked the growth and development of the railway system, leaving the US with one of the most primitive rail systems in the developed world, and cities like Los Angeles and Houston with a lack of public transport infrastructure.

India has not been effective in achieving energy security. The transport sector is the main consumer of oil products and with an untrammelled increase in automobile transport, our vulnerability to increases in oil prices will probably reach unacceptable levels.

Besides, we would suffer the nightmare of traffic congestion all across the country, the deterioration of air quality with serious effects on the morbidity and mortality of people affected, and mounting costs of converting precious agricultural land into multiple lane highways to meet traffic demand with which we would never be able to catch up.

We have been influenced heavily by the lure of automobiles so inherent in the US, and have hardly considered the examples of more sustainable transport systems in some countries of Europe and Japan. As a result, our automobile population grows rapidly — fuelled by questionable pride — from a level of 0.3 million in 1951 towards 300 million in the foreseeable future.

But we continue to ignore metrics which are required critically to assess the growth of public transport and its accessibility for every section of society and progress in enhancing the country’s energy security.

A strategic vision is essential for creating a secure energy future, and while the transport sector is at the core of such an initiative, the efficiency of energy supply and use — where our record is lamentable — must be a key element in defining India’s energy strategy.

(The writer is former chairman, Intergovernmental Panel on Climate Change, 2002-15)

Writer: RK Pachauri

Courtesy: The Pioneer

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