Energy Economics:The UPS & The DOWNS

Economic growth is desirable for developing countries, and energy is essential for economic growth. However, the relationship between economic growth and increased energy demand is not always a straightforward linear one. For example, under present conditions, 6% increase in India’s Gross Domestic Product (GDP) would impose an increased demand of 9 % on its energy sector. In this context, the ratio of energy demand to GDP is a useful indicator. A high ratio reflects energy dependence and a strong influence of energy on GDP growth. The developed countries, by focusing on energy efficiency and lower energy-intensive routes, maintain their energy to GDP ratios at values of less than 1. The ratios for developing countries are much higher.
Energy Economics is not just about petrol or diesel or gas but it is much more that. We often quote oil, more specifically petrol or diesel because of the impact they have on our day to day lives. If the cost of petrol or diesel increases , it produces a domino effect in which the price of all the commodities, including essential commodities increase and thus fueling the inflation.
According to a reoprt in Economics times, Petrol in India is costlier than 98 countries while diesel is more expensive in India than 136 other countries. Petrol costs less than a dollar in the OPEC region and USA, in Russia, Japan, China, it is priced between $1-2 based on PPP calculation, where differences in purchasing powers across countries are evened out, according to a report in The Economic Times.

The surge in prices if not controlled have a potential having a turning Mathus’s prediction true, the search for cheaper alternative sources in on but they come at a cost, hydro electric power is cheapest form of alternative power available but, building huge hydro power projects means environmental concerns, solar power on contrary costs dearly and none shall opt for it, unless it comes down to a respectable level. Though there are other alternatives like wind power, biomass and tidal power etc. but they can’t be set up anywhere unlike solar power. Energy economy is very fragile and suddenly bringing out a cheap altenative might even lead to bug impact on economy, so a need fro balanced approach is the need of the hour.

Price of energy does not reflect true cost to society. The basic assumption underlying efficiency of market place does not hold in our economy, since energy prices are undervalued and energy wastages are not taken seriously. Pricing practices in India like many other developing countries are influenced by political, social and economic compulsions at the state and central level. More often than not, this has been the foundation for energy sector policies in India. The Indian energy sector offers many examples of cross subsidies e.g., diesel, LPG and kerosene being subsidised by petrol, petroleum products for industrial usage and industrial, and commercial consumers of electricity subsidising the agricultural and domestic consumers.(Source: Bureau of Energy Effeciency)

Source: BP Statistical Survey, 2011 , latest updated

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