Congressmen from the South District of Kolkata join a protest against rising fuel prices in Kolkata, India on June 2.

Energy prices are wreaking havoc in Asia. The rest of the world should be worried

These are just some of the most eye-catching scenes unfolding in the Asia-Pacific region, where various countries are facing their worst energy crisis in years – and grappling with growing discontent and instability caused by the increase in the cost of living. .

In Sri Lanka and Pakistan, the sense of crisis is palpable. Public anger has already prompted the resignation of a wave of ministers in Colombo and contributed to the downfall of Imran Khan as prime minister in Islamabad.

Elsewhere in the region, signs of unrest may be less obvious but could still have far-reaching consequences. Even in relatively wealthy countries, such as Australia, economic worries are beginning to emerge as consumers feel the pinch of higher energy bills.

Wholesale electricity prices in the first quarter of 2022 increased by 141% compared to last year; households are urged to reduce their consumption and on June 15 – for the first time – the Australian government suspended the national electricity market indefinitely with the aim of lowering prices, easing pressure on the energy supply chain and avoiding blackouts.

But it is the experience of India, where electricity demand has recently hit record highs, that best illustrates why this is a global rather than a regional crisis.

After suffering widespread outages amid record high temperatures, the world’s third-largest carbon emitter announced on May 28 that state-run Coal India will import coal for the first time since 2015.

Congressmen from the South District of Kolkata join a protest against rising fuel prices in Kolkata, India on June 2.

What is the cause of the problem?

While each of these countries faces a unique set of circumstances, all have been affected by the twin effects of the coronavirus pandemic and Russia’s war in Ukraine – two unpredictable events that upended previously reasonable assumptions about the supply lines and regional security and in the process has thrown the world of economic planning into chaos.

At its root, experts say, the problem lies in a growing mismatch between supply and demand.

Over the past two years, the pandemic has kept energy demand unusually low, with global electricity consumption down more than 3% in the first quarter of 2020, shutdowns and other restrictions keeping workers at home, cars off the road and ships stuck in ports.

But now, as nations begin to put the pandemic behind them, demand for fuel is skyrocketing – and sudden competition is pushing coal, oil and gas prices to record highs.

The invasion of Ukraine by Russia, the world’s third-largest oil producer and second-largest exporter of crude oil, accelerated this trend. With the United States and many of its allies sanctioning Russian oil and gas, many countries have scrambled to find alternative sources, further increasing competition for limited supplies.

“Energy demand has rebounded quite quickly because of the coronavirus and faster than supply,” said Samantha Gross, director of the Brookings Institute’s Energy Security and Climate Initiative.

“So we saw high prices even before Russia invaded Ukraine (but there was) a real energy supply shock. Various measures taken in response to that are really a challenge for the global energy supply.”

Why Asia?

While the price of energy imports has risen dramatically across the world, with international coal prices five times higher than a year ago and natural gas prices up to 10 times higher than Last year, experts say there are reasons why some Asian economies — particularly import-dependent, developing countries — were hardest hit.

“If you’re a country, especially an emerging economy like Sri Lanka that has to buy these commodities, has to buy oil, has to buy natural gas, that’s a real struggle,” Chief Economist Mark Zandi said. at Moody’s Analytics. .

“You pay a lot more for the things you need, but the price of the things you sell haven’t gone up. So you’re spending a lot more money trying to buy the same things to keep your economy going. .”

Poorer countries that are still developing or newly industrialized are simply less able to compete with wealthier rivals – and the more they need to import, the worse their problem will be, said Antoine Halff, deputy principal researcher at the Center on Global at Columbia University. Energy policy.

“So Pakistan definitely has a place there. I think Sri Lanka is going there too,” he said. “They are suffering from prices, but they are also suffering from supplies. They have to pay more for their energy supplies and in some countries like Pakistan they are actually struggling to get energy supplies.”

Canaries in the coal mine

This dynamic is behind the increasingly chaotic scenes unfolding in these countries.

Just a week ago, Sri Lanka’s power and energy minister said it was only a matter of days before the country ran out of fuel. The dire warning came as queues at petrol stations in Colombo stretched up to 3 kilometers (nearly 2 miles) and clashes between police and the public erupted in many towns.
It’s almost as if everyday life itself comes to a standstill. On Monday, public sector offices, public schools and government-approved private schools were closed for at least two weeks. Public sector workers have been told to take Fridays off for the next three months – with the suggestion they use the time to grow their own food.

Pakistan has also had to reduce its working week – from six days to five days – although this could only make the situation worse. Its recently introduced six-day week was supposed to improve productivity and stimulate the economy.

Instead, daily power outages lasting hours have plagued the country of 220 million people for at least a month and shopping malls and restaurants in Pakistan’s largest city, Karachi, have been told to close. early to save fuel.

The country’s energy supply is nearly 5,000 megawatts below demand – a shortfall that could fuel Between 2 million and 5 million households according to some estimates.
As Information Minister Marriyum Aurangzeb said on June 7: “We are facing a serious crisis”.
A vendor sells fabrics under an emergency light connected to a motorbike during a load shedding power outage in Karachi, Pakistan on June 8.

And any notion that these problems only concern the poorest and least developed countries is dispelled by the experience of Australia – a country which has one of the highest levels in the world of global median wealth per adult. .

Since May, the ‘lucky country’ has been operating without 25% of its coal-based power capacity, partly because of planned maintenance shutdowns but also because supply disruptions and soaring prices have caused shutdowns unforeseen.

Like their counterparts in Pakistan and Bangladesh, Australians are now being urged to save, with Energy Minister Chris Bowen recently asking households in New South Wales, which includes Sydney, not to use electricity for two hours each evening.

A bigger problem ahead

How these countries react may create an even bigger problem than rising prices.

Under public pressure, governments and politicians may be tempted to switch to cheaper and dirtier forms of energy like coal, regardless of the effect on climate change.

And there are signs that it may have already started.

In Australia, the federal government’s Energy Security Board has proposed that all power generators, including coal-fired ones, be paid to keep extra capacity in the national grid to avoid blackouts. And the New South Wales government has used emergency powers to redirect coal from the state’s mines to local generators rather than overseas.

Both measures have been criticized by those who accuse the government of betraying its commitment to renewable energy.

In India, a country of 1.3 billion people that relies on coal for about 70% of its power generation, New Delhi’s decision to increase coal imports is likely to have even more profound effects on the economy. environment.

Scientists say a drastic reduction in coal mining is needed to limit the worst effects of global warming, but that will be difficult to achieve without the buy-in from one of the world’s biggest carbon emitters.

“Any country, whether it’s India, whether it’s Germany, whether it’s the United States, if they double their consumption of fossil fuels, it will eat up the carbon budget. That’s a problem. world,” said Sandeep Pai, research manager for the Energy Program at the Center for Strategic and International Studies.

While Pai said India’s move may only be a ‘temporary response to the crisis’, if in one or two years countries continue to rely on coal it will significantly affect the war on global warming. .

“If these actions happen, it will eat into India’s already shrinking carbon budget and the 1.5 or 2 degree target will become increasingly difficult,” Pai said, referring to the Accord’s target. of Paris on the climate to maintain the increase in the world average. temperature between 1.5 and 2 degrees Celsius.

If the temperature increase exceeds this range, even temporarily, scientists suggest that some of the resulting changes to the planet may be irreversible.

As Pai put it: “India’s scale, size and demand means that if it really doubles down on coal then we’re going to have a really serious problem from a climate perspective.”

Iqbal Athas contributed reporting.

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