Insights into Editorial: Why has India chosen to become a member of the International Energy Agency

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Insights into Editorial: Why has India chosen to become a member of the International Energy Agency


 

iea

 

Summary:

In March 2017, India activated the association status with the International Energy Agency (IEA). With India’s inclusion, the IEA accounts for about 70% of the world’s energy consumption.

 

India’s energy demands:

India’s oil consumption has grown at an average annual rate of 5% over the last decade and climbed over 4 million barrels per day for the first time in the year ending in March 2016.

  • India is currently the world’s fourth-largest oil consumer after the United States, China and Japan, and set to overtake Japan for the third slot within the next 12-18 months.
  • Diesel remains the largest end market, accounting for more than 40% of all petroleum consumed in the country, according to the Ministry of Petroleum and Natural Gas.
  • Liquid petroleum gas for cooking and petroleum coke for power generation are other major markets, each accounting for about 10% of final demand.

 

Background:

In an effort to reflect the rising role of non-OECD economies with major impact on the global energy market, the IEA introduced the “association” status in 2015. Since its inception, China, Indonesia, Thailand, Singapore, Morocco, and now India have become associated with the IEA.

The association status allows these countries to participate in meetings of IEA standing groups, committees, and working parties, without prior invitation. Association countries can work with the IEA on matters of energy security, energy data and statistics, energy policy analysis, and benefit from priority access to IEA training and capacity-building activities.

 

How this will help India?

India’s membership in the IEA is a major milestone for India, the IEA, and global energy governance. India has had dialogues with the IEA on emergency preparedness in the past, but India’s joining as an association country can facilitate its collaboration with the IEA in developing preparedness for oil supply disruptions and emergencies, including building and maintaining emergency reserves. The IEA association can help strengthen India’s capacity building in the areas of energy efficiency, energy technology, renewable energy, electricity security, and grid integration—many of which have been identified by Prime Minister Narendra Modi’s government as key priorities.

 

How is this significant for IEA?

For the IEA, India’s participation signifies the evolution of the IEA as a global energy institution that better represents key players in the global energy markets today. According to the U.S. Energy Information Administration, non-OECD demand for energy will rise by 71 percent from 2012 to 2040, whereas total energy use in OECD economies will rise by 18 percent during the same period. Participation by major energy consumer countries—earlier by China and now by India—helps the IEA increase transparency in the global energy system through improved access to their production and consumption data.

Also, closer dialogues with energy policymakers and capacity building in India strengthens the IEA’s effectiveness in setting the right agenda today to help address key challenges tomorrow. This will be especially relevant as these economies drive global energy trends and affect the global course for combating climate change in the future. Given that the IEA is now also the secretariat for the Clean Energy Ministerial (CEM) in which India has participated, joining the IEA will allow all member nations, including India, to work together on clean technology policies.

 

Way ahead:

Participation in the IEA is by no means a silver bullet for the challenges that India faces. India has a long way to go in providing energy access for its vast population. Today, 245 million Indians lack access to electricity. Also, emergency preparedness is a growing challenge for India, which has only 13 days of net oil import coverage in its Strategic Petroleum Reserve (SPR) as of 2016.

  • As India looks to provide universal electricity access and pursues urbanization, its energy demand will double over the next 25 years, contributing to one-fourth of global energy demand growth during that period. Consequently, India is expected to become increasingly reliant on foreign sources of energy, as its import dependence, which is about 80% for crude oil and 40% for natural gas today, will grow.
  • Not being a member of the IEA or OECD, India is not subject to any of the preconditions to which the member countries are subjected, including the 90-day oil reserve requirement. However, India and the international community will stand to benefit from India’s collaboration with the IEA on emergency preparedness, as supply disruptions could significantly harm the global economy as well as Indian economy. Specifically, association with the IEA may hasten the development of SPR in India.

 

Conclusion:

India’s participation in the IEA may herald the dawn of new era in global energy governance. The associate membership arrangement allows for a greater voice for emerging economies like India and China, whose policy vision and economic direction affect the global energy future. Whether their presence grows commensurate to their energy consumption growth, and whether these countries can influence the interworking of institutions like the IEA and the norms guiding global energy governance, are open questions. Their influence, which warrants close observation, will be critical at a time when inclusive governance is necessary to address the most pressing challenges of society—expanding energy access and security to all while mitigating local pollution issues and grappling with the challenges of climate change.