25 JUL,2022 | MEDC
Excluding Russia, Ukraine is the biggest country in Europe. In today's interconnected world what happens there has a global impact. The World Bank has estimated that Ukraine's GDP will shrink by 45% this year. When one looks back at any conflict to its root causes, there is always blame to be shared … but also opportunity to be utilized. Vested interests are often the ones that benefit the most from swift political action, further cementing the status quo, which may not necessarily be in the nation’s best interests. A dispassionate view needs to be taken.
The unprecedented sanctions on Russia are a double-edged sword. Both Europe and America are paying an economic price for it, the former more than the latter. As economies slip into recession and inflation reaches record levels, politicians in democracies will need to be answerable to their voters. With the approaching winter, if Russia cuts (or reduces) gas supplies to Europe, problems are going to be compounded. Probably the biggest impact of the Ukrainian crisis will be on the global energy sector.
One key difference between the present energy price surge and previous such episodes is the availability of economical and accessible alternatives to the current, mainly fossil-fueled, infrastructure. To a lesser or greater extent, green energies have now infiltrated throughout the world. The International Energy Agency was right to declare in 2020 that for projects with low-cost financing that tap high-quality resources, solar is now the cheapest source of electricity in history. That still holds true, and it is nature-endowed countries like India which need to use that fact to their advantage.
The Ukrainian crisis and the world's response to it, also exposes another fundamental issue: the limited ability of energy policy in tackling such unexpected events. Indian decision-makers must learn from it and develop nimble and collaborative mechanisms managing risk and decision-making in times of such uncertainties, which could now rise in frequency. A true net-zero transition implies both the rapid deployment of new low-carbon technologies and more significant institutional changes. The unfolding events in Ukraine have already revealed many missed policy opportunities, especially those pertaining to the energy sector. We cannot afford to miss any more.
The Ukraine crisis is contributing to the volatility of energy prices. The events of the recent past have shown how critical oil continues to remain to the smooth functioning of the global economy. Even though there are no specific hard sanctions on Russian oil, it is not easy and cheap to move it geographically. So this amounts to a massive disruption of the global energy system. The lesson in it for India is to transit rapidly to renewables, and also to step back and reexamine some core propositions of our energy policies. Eventually the global energy system will need to recalibrate and accommodate all stakeholders. Keeping global warming and climate change in mind, there has to be a debate – at both national and international levels – around what is the most sustainable energy path getting us to our desired destination. Until we are able to answer that question satisfactorily, economic policymaking will continue to produce sub-optimal results.
*Picture Credit : Google
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