India and other BRIICS nations could face huge revenue gap if they don't decarbonize now: Report

As the world has pledged to transition towards cleaner energy to combat climate change, a latest report said the governments of Brazil, Russia, India, Indonesia, China and South Africa (BRIICS) need to act now to decarbonize and start adjusting their fiscal policies to account for declining fossil fuel use or they could face a USD 278 billion revenue gap by 2030.

The report titled 'Boom and Bust: The Fiscal Implications of Fossil Fuel Phase-Out in Six Large Emerging Economies' released by the International Institute for Sustainable Development (IISD) on Thursday, warned that if these countries did not decarbonize and diversify their revenues, they will risk a revenue gap that could reverse progress on poverty eradication and economic development.

“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, said the report.

The report spotlights heavy dependence on fossil fuel revenues in the BRIICS nations and argues that this economic reliance puts these 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.

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 said.

According to the IISD, public revenues from fossil fuel production and consumption currently account for a staggering 34 % of general government revenue in Russia, 18 % in India, and 16 % in Indonesia.

The share stands at 8% in Brazil, 6% in South Africa, and 5% 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,” the report said.

“To prevent devastating climate change, the world has to phase out the production and consumption of fossil fuels, which will inevitably erode related revenues. Emerging economies have an enormous opportunity to build more resilient and economically sustainable energy systems as they decarbonize—but they must plan ahead to avoid shortfalls in public revenues that could reverse progress on poverty eradication and economic development,” said Tara Laan, Senior Associate at IISD and lead author of the report.