NEW DELHI: As the global clean energy transition gathers pace, six emerging economies need to start adjusting their fiscal policies now to account for declining fossil fuel use or risk a USD 278 billion gap in revenues by 2030, equivalent to the combined total government revenues of Indonesia and South Africa in 2019, according to a new report by the International Institute for Sustainable Development (IISD).
The report spotlights heavy dependence on fossil fuel revenues in Brazil, Russia, India, Indonesia, China, and South Africa (BRIICS). It argues that this economic reliance puts BRIICS countries at risk of experiencing a substantial revenue gap over the next few decades, as the world transitions from fossil fuel-based energy systems to cleaner energies to limit global warming to 1.5°C.
With the mid-century economic outlook for fossil fuels looking increasingly bleak, the governments of BRIICS need to act now to decarbonize and diversify their revenues or risk a revenue gap that could reverse progress on poverty eradication and economic development.
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The study finds that by 2050, overall fossil fuel revenues in BRIICS countries could be as much as USD 570 billion lower than a business-as-usual scenario where governments fail to phase down fossil fuels enough to avoid the worst climate impacts.
The widest gaps are expected to occur in India (USD 178 billion), China (USD 140 billion), and Russia (USD 134 billion). The report finds that public revenues from fossil fuel production and consumption currently account for a staggering 34 per cent of general government revenue in Russia, 18 per cent in India, and 16 per cent in Indonesia. The share stands at 8 per cent in Brazil, 6 per cent in South Africa, and 5 per cent in China.
This includes only direct, first-order, government financial revenues -- fossil fuel dependence would be much larger if considering private incomes and flow-on effects in these economies.
But these revenues are not only unreliable and erratic -- according to the authors, they are also undermined by the negative economic impacts of fossil fuel use, such as health costs due to air pollution and damage from climate change. In fact, IISD’s previous research has shown that in many of these countries-- including India and South Africa -- these externalities far exceed public fossil fuel revenues.