Shift from fossil fuels may lead to revenue gap: Report

India could register a gap of $178 billion in revenue from fossil fuels by 2050 as the world moves towards cleaner energy to limit global warming to 1.5°C, a report by International Institute for Sustainable Development (IISD) said on Thursday.

Under the 2015 Paris Agreement, countries have agreed to limit global warming to below 2°C, preferably to 1.5°C, compared to pre-industrial levels. Six emerging economies — Brazil, Russia, India, Indonesia, China and South Africa — need to start changing their fiscal policies to account for declining fossil fuel use or risk a $278 billion gap in revenues by 2030, the report titled ‘Boom and Bust: The Fiscal Implications of Fossil Fuel Phase-Out in Six Large Emerging Economies’ said.

These countries represent 45% of both the world’s population and its carbon dioxide (CO2) emissions, 25% of global gross domestic product (GDP), and a significant share of the world’s poor. They are particularly vulnerable to the fiscal impacts of the energy transition because of their high reliance on fossil fuel revenues, the study said.

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India currently earns $92.9 billion from fossil fuels which accounts for 18% of government revenue and 3.4% of GDP. The earnings could fall to around 65% by 2050 on an energy pathway consistent with limiting global warming to 1.5°C, the report said.

The widest gaps are expected to occur in India ($178 billion), China ($140 billion) and Russia ($134 billion), states the report.

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Tara Laan, senior associate at IISD and lead author of the report, said: “Surging energy prices and demand are generating huge revenues from fossil fuel production and consumption. These temporary, short-term windfall profits should be taxed to fund the energy transition... At the same time, governments must protect vulnerable consumers from high prices and support fossil fuel-dependent workers and communities...”

Funds can be used to support social welfare, clean energy and just transitions, the report recommended, adding that the governments need to prepare for the inevitable “bust” in fossil fuel revenues.