A price tag to growth | Daniel Yergin

With high prices and geopolitical risks, energy security seems to be on every country’s agenda. It was the number one agenda item when the G-8 industrial countries met in St. Petersburg last summer, and it drove the agenda at the East Asian Summit last month in the Philippines.

But the meaning of “energy security” varies greatly among countries. For India, it comes down to assuring that energy problems don’t constrain the nation’s new, higher levels of economic growth. It is not just a theoretical question. For, the effects of electricity shortages can be measured in higher costs, reduced production, and lost GDP. And, after all, the present era of economic reform and higher growth in India was triggered by the oil price spike of 1990, which came very close to draining the country of all its foreign reserves.

Fast growth means continuing vulnerability, as it needs growing supplies of energy, even with greater efficiency and more use of alternatives. We investigated the scale of the challenge in CERA’s new “Asian Phoenix Scenario.” In this scenario, Asia, led by China and India, regains the majority share of the world economy it held at the beginning of the 19th century. But this presents many challenges. One of the distinctive challenges for India on which the scenario focused is the demographic: a quarter of the world’s growth in working population through 2030 will take place in rural India. This means an immense task of educating and integrating this population into both India’s growth economy and the world economy.

This economic growth comes with a big price tag in the form of energy. More than half of the rise in world oil use over the next quarter-century will occur in Asia. China’s share in this will be larger than India’s for several reasons, including the likelihood that more of India’s economic growth will be driven by exports of services than manufacturing, compared with China. Still, the growth numbers are very large. India’s oil demand, in this scenario, is projected to triple by 2030. Electric power consumption is expected to more than quadruple.

To develop this amount of new electric capacity requires the efforts of both private and public players. Domestic firms are poised to aggressively add new generation capacity, while public companies continue a steady record of construction. The pace of reforms at the state level remains a key indicator of progress, and can enable capacity expansion as the sector’s finances improve and power subsidies are adequately addressed. But the need for a stable and reliable regulatory structure and investment environment will be fundamental to meeting the needs of future growth.