As the west scrambles for fuel, developing countries left behind — Issue #10
The Big Picture
Last week, the global energy crisis continued to make headlines.
With the shortfall expected to worsen further – the IEA told Europe last week to prepare for a total shutdown of gas supplies from Russia in winter –countries are responding. Austria is reviving a moth-balled thermal powerplant. The Netherlands did away with its cap on electricity production from thermal power plants. Japan’s Nippon Steel will invest anew in coal mines. Apart from softening its stance on coal in the short term, Germany has begun rationing natural gas and signed its first long-term natural gas purchase contract with the USA.
Developing countries are faring less well. Countries like Laos, Nigeria, Sri Lanka, Senegal and Pakistan have neither the fiscal space to increase fuel subsidies nor the political capital to transmit those prices to civilians without risking unrest. Many of them have resorted to simply buying less fuel – and introduced rationing.
India is caught in a similar cleft as well. As previous instalments of this newsletter have said, with the Indian government unwilling to hike domestic petrol and diesel prices even as global prices surge, the country’s state-owned and private oilcos are losing money on every litre they sell. In response, they tried shuttering some of their gas stations but the government imposed the Universal Service Obligation, forcing them to keep outlets open. The countermove from oil retailers came last week. Reliance Jio-BP and Nayara Energy have, as their fuel retailers told Economic Times, “increased fuel prices between Rs 2 and Rs 7 (per litre) to discourage sales.” At one level, this is cheeky. On another, what we see here is losses being pushed down the value chain. The government transfers losses to oilcos. Oilcos move (operating) losses down to their retail channel. How long can this last?
The country is also seeing a petrol and diesel shortage. Last week, Chhattisgarh chief minister Bhupesh Baghel wrote to Union Petroleum Minister Hardeep Puri complaining of a “shortage in petrol and diesel to the state” over the last “couple of months”. Buffer stock in the state’s petroleum depots, said the Chhattisgarh Petroleum Dealers Welfare Association, is down from 4-5 days to just 1 day. As many as 750 petrol pumps run by HPCL alone have stopped functioning due to irregular supply. Similar shortages have been reported from Rajasthan, Madhya Pradesh and Karnataka as well.
Little of this, however, is making it to the mainstream discourse.
This is a big mistake. The situation unravelling currently in Europe will have widespread effects.
Take Europe. For the continent, CleanEnergyWire wrote, the repercussions of a gas cut could be much more dramatic than those of the 2008 financial crisis or the COVID-19 pandemic. Some of the political blowbacks are already being felt – like the loss of Macron’s parliamentary majority. High energy prices were one factor, said the Wall Street Journal. Voters in Latin America, first hit by Covid and then by worsening inflation, are rethinking their politics as well. In their case, they are moving leftward. As this newsletter gets written, Bolsanaro too is on the backfoot.
This, as earlier editions of the newsletter, have said, draws Adam Tooze’s Crashed to mind. Financial crises foment political crises. One wonders what happens next.
That is not all. Developed countries were already decarbonising much faster than developing countries. Now, as the world simultaneously sees rising food and energy prices and debt crises, developing countries will struggle even more to muster the funds they need for decarbonising.
New of the Week
This polycrisis, to borrow a phrase from @70sbachchan, puts other developments in perspective.
And so, a short recap of other events last week. Foxconn is moving fast. At the beginning of last month came the news that Foxconn was getting into EV manufacturing. This week came news that the Taiwanese cellphone manufacturer is thinking of making EVs in India – a part of its strategy to expand its Asian manufacturing chain beyond China.
Other EV news: Toyota and Suzuki are less convinced about EVs’ prospects in markets like India. In the past, Toyota has argued hybrids make more sense in markets where infrastructure is not ready for battery-based EVs – and power is generated by burning coal or fossil fuels. And so, the two companies have tied up to produce an SUV hybrid for India. “Two power trains would be available,” reported Reuters. “One with a mild hybrid configuration from Suzuki and the other as a strong hybrid from Toyota. In a mild hybrid, the battery only assists the piston engine, without the all-electric mode available in a strong hybrid.”
In Coal, a predictable saga is reaching its climax. Even before the heatwave built up, Rajasthan and Maharashtra – whose coal blocks in Chhattisgarh are operated by the Adani Group -- were alleging a coal shortage and demanding fresh coal blocks. Then came the heatwave and higher demand for power (and coal) from more states. In response, the Centre directed Coal India to import coal. And now, Adani is one of the firms bidding for the PSU’s coal import tender. The circle of life, indeed.
This brings us back to the polycrisis. India is not just seeing a climate shock. As global oil and gas costs spike while the economy stays weak, the country is falling back on domestic energy resources even at the cost of worsening climate impacts. That is not all. As the country buys more and more oil and coal from Russia, it helps prolong the war, with all its accompanying costs like spiking food costs.
Oligarch Birthday of the Week
Gautam Adani turned 60. It has been a quick-silver rise for him.
Till 2014, he had most of his operations in Gujarat. He has dramatically expanded across India between then and now, backed sizably by borrowings and progressively by stock-market valuations and equity sales to groups like TotalEnergies. He is currently the fifth-richest person in the world.
Also came the news that his biography will be out in October.
Climate Long Reads
China denies building naval bases but fear of its military reach grows (Financial Times).
Will you own a Chinese-made Electric Vehicle? Ours is a time when countries are battling to dominate industries of the future. Here is the USA, focusing on semiconductors. India too has kicked off its PLI schemes. Given that background, this post talks about a report, titled Red Ink, released by the Center for Strategic and International Studies, which seeks to quantify China's expenditure to build these industries.
Back home in India, the absence of adaptation and mitigation continues to stare us in the face. How incessant rain and the Barak river in spate overwhelmed Assam’s Silchar town (Scroll). This news, however, was overwhelmed by the Shiv Sena’s revolting MLAs.
The broken $100-billion promise of climate finance — and how to fix it (Nature).
Book of the Week
The Carbon War: Global Warming and the End of the Oil Era, by Jeremy Leggett.
This is an old book, first published in 1999.
Its first two lines: “The Royal School of Mines at the Imperial College of Science, Technology and medicine is an elite training house for oil and mining companies. There, within its Victorian corridors in Kensington, for more than a decade, I taught the ways and culture of the hunt for oil.”
By the mid-80s, however, Leggett began encountering more and more literature about rising GHGs in the atmosphere. By 1988, finding the peril impossible to ignore, he moved to Greenpeace, working as a scientist giving technical advice to its campaigners. From that perch, as Scientific Director of Greenpeace’s Climate Campaign, Leggett participated in a series of actions and parleys that resulted in the ratification of the Kyoto Protocol. In The Carbon War, you have a recounting of the planet’s journey from the International Panel on Climate Change, which was set up in 1988, to the Kyoto Protocol in 1997.