IMF predicts slowdown in renewable energy push

by Marlon Madden

Developing economies such as Barbados, could witness a slowdown in the phasing out of fossil fuel use as a result of the ongoing energy crisis stemming from the war in Ukraine.

This was outlined in the latest International Monetary Fund (IMF) Financial Stability Report, which also indicated that rising consumer prices could put pressure on governments to provide fiscal support to households and businesses. Over the past couple years, Barbados has been trailing slightly behind its target to achieve
100 per cent reliance on renewable forms of energy by 2030.

According to the implementation plan of the national energy policy, the estimated cost of achieving 100 per cent renewable energy use by 2030 is about $4 billion, which would require significant private sector investment.

However, with the IMF predicting lower lending to the private sector and a slowdown in investment due to the impacts of the COVID-19 pandemic and the Russia-Ukraine war, investments in the renewable energy sector could be significantly slowed.

“The current energy crisis may alter the speed of phasing out fossil fuel subsidies in emerging market and developing economies, while rising inflation pressure may also lead authorities to resort to subsidies or other forms of fiscal support to households or firms,” it noted.

The IMF document also noted that metal export form Russia, which is affected by the ongoing war, had “strong implications” for global supply chains including the renewable energy industry.

According to the Financial Stability Report released on Tuesday during the IMF Spring Meetings 2022, “the buildup of renewable energy infrastructure will require time and is likely to face headwinds amid rising prices and supply disruptions of critical commodities such as cobalt, palladium, and nickel.

“As an indication of possible headwinds, the increased focus on energy security appears to have adversely affected the performance of clean energy indices relative to fossil fuels,” it said.

“This weaker performance has occurred despite strong investor demand for low-carbon assets and a substantial decline in renewable energy costs in recent years. Meanwhile, renewable energy supply remains limited amid a shortfall in renewable energy investment,” it added.

In relation to the impact of increasing consumer prices, the IMF said Government has a role to play in mitigating such shocks through fiscal policy. The IMF Directors said particularly for countries with tighter budget constraints, fiscal support should focus on priority areas and target the most vulnerable. They emphasised that, in countries where economic growth is strong and where inflation is elevated, fiscal policy should phase out pandemic-related exceptional support, moving toward “normalisation”.

“Many emerging markets and low-income countries face difficult choices given limited fiscal space and higher demands on governments due to energy disruptions and the pressing need to ensure food security.

In this context, a sound and credible medium-term fiscal framework, including spending prioritisation and measures to raise revenues, can help manage urgent 0needs while ensuring debt sustainability,” said the IMF report.

marlonmadden@barbadostoday.bb