He pointed out that a December 2022 IMF blog by American economic historian Daniel Yergin said, “The energy crises of the early ’70s, the ’80s, and the early 2000s all had their challenges, but none were so intertwined with other emergencies like a war in Europe, climate change and a global pandemic.”
Nageswaran said three factors here. One is the acknowledgment of the complexity of the situation and that it may surpass the immediate human intellectual capabilities to solve it swiftly. Second is that there is no miraculous solution. “In other words, there is no ideal scenario that can fully address the complex challenges we face. Instead, we should focus on navigating and adapting to second and third-best alternatives while consciously avoiding subpar solutions.”
The third factor, Nageswaran said, is recognising that countries must take ownership of the climate problem instead of being coerced into addressing it. “Attempts to excessively pressure developing nations will prove counterproductive. Rather than fostering positive outcomes, such approaches tend to hinder progress.
Therefore, promoting a cooperative and collaborative atmosphere is crucial for countries to willingly embrace their responsibilities and actively engage in meaningful climate action, unencumbered by external pressure or excessive criticism,” he said while delivering a video message at The Energy Transition Dialogues organised by the Global Energy Alliance for People and Planet (GEAPP) in New Delhi. The event was held from November 1-3.
The first principle businesses and investors must keep in mind is that there is no first-best world, he said. “Sequencing is important. Countries must ensure energy security through reliable and affordable energy before they contemplate energy transition. The short-term matters for people.” The second principle is that investors want their investments in developing countries de-risked. “That is fine. But their return expectations also must be lower accordingly,” said the CEA.Investors must see this as a win-win opportunity rather than a win-lose one between them and host countries. The economic and social backlash will be counterproductive if greed dominates the creation of public goods.
The third principle he said is acknowledging the market mechanism’s limitation in achieving emissions mitigation. Market discipline exists in theory. If financial markets could always exert discipline on market participants and exert price discipline on investors, there would not be price bubbles and busts. “The market mechanism is pro-cyclical. Hence, it foments instability rather than being a force for stability. The market mechanism is not an efficient price-discovery mechanism. It mutes and distorts the price signal. That is the empirical evidence,” he said.
The CEA highlighted that it would be tempting to promote and push through capital market liberalisation in countries to attract private capital for energy transition since investment needs are huge. “But history has plenty of caution for us. Capital market developments and evolution in countries usually keep pace with their economic evolution. Seldom do they precede economic evolution. When forced, the economies become over-financialised and macroeconomic consequences follow,” he said.
The fourth principle is that the importance of public investment must be acknowledged and recognised. This is also consistent with the fifth principle: sense of ownership.
“Globally, there is a reason why transformational projects – such as post-WW-II reconstruction, exploration of space, the development of the internet (during its prototype stages), and the highways construction project in the USA in the sixties – were handled and executed by the public sector, based on government funding or funding by public authorities – domestic, international or multilateral,” he said.
Public investment in carbon sequestration, carbon sinks, battery storage technologies and green hydrogen will obviate problems with intellectual property rights and help assert the global public nature of solutions, he said.
The fifth principle is that economic growth and development are not opposed to climate security but are key to its success. It is also tied to the principle of letting countries own their climate agenda, said the CEA. Economic growth is crucial because it ensures the availability of resources needed to address climate challenges effectively.
“When countries lack resources, they become reliant on external sources, which can lead to external dependence and vulnerabilities. In such cases, funding can be weaponised. Therefore, it is important to support countries in prioritising economic growth rather than penalising them for doing so. By fostering sustainable economic development, countries can strengthen their resilience, enhance their capacity to address climate issues and reduce their dependence on external resources. Without economic growth, countries will find it difficult and will be reluctant to own the climate agenda,” he added.
