The Weekly Wrap — Aug. 3, 2012 (Part II)

Blackout: First India, then China? Astonishment has been one takeaway from India’s massive blackout, which by comparison is in the ballpark of a loss of power to the entirety of the United States and western Europe. Another reaction has been tut-tutting — we all knew that motley India, held together with gum and spit, was ...

DIBYANGSHU SARKAR   AFP/Getty Images
DIBYANGSHU SARKAR AFP/Getty Images
DIBYANGSHU SARKAR AFP/Getty Images

Blackout: First India, then China? Astonishment has been one takeaway from India's massive blackout, which by comparison is in the ballpark of a loss of power to the entirety of the United States and western Europe. Another reaction has been tut-tutting -- we all knew that motley India, held together with gum and spit, was not long for BRIC status. Yet India is hardly the only major economy with a decrepit infrastructure - as the Washington Post's Ashley Alsey points out, the U.S. itself is just a grid breakdown away from its own gargantuan electricity failure. In India's case, the main problem is not just shoddy infrastructure, but a shortage of coal and natural gas: The Indians haven't been able to get their hands on enough fossil fuels to fully power their economic growth.

As it happens, the world's other key BRIC -- China -- pretty much faces the same conundrum. More than 70 percent of China's energy comes from coal, and (as we note elsewhere in the Wrap) a growing percentage from natural gas. The Chinese have managed their domestic industries more successfully than India, making them less dependent on imports -- but only just. Massive amounts of coal and natural gas pour into China every day, and as in India, it still may not be enough. The myth of Chinese efficiency might have some truth, but they have faced blackouts as well, and are not immune to an India-style meltdown. A May 2012 report by the Energy Transition Research Institute found that China's electricity policy falls short of "the compound challenges of growing demand, rising costs and sustainability [and] represents a grave threat to the Chinese economy."

Matthew Hulbert, an analyst with the Clingendael International Energy Program in The Hague, calls the blackouts a "Fukushima moment" for both Beijing and Delhi. Just as Japan's disaster was a wakeup call regarding nuclear power, the blackouts are a message regarding electricity security. Hulbert argues that the two BRICs, if they can set aside their long national rivalry, could find a solution in a collaborative approach. Specifically, they could obtain coal and natural gas supplies together. Here is why: If India becomes as aggressive as China has been in obtaining coal and natural gas supplies, the two in combination could seriously drive up asset acquisition prices. But if they strategize together, they might both acquire the supplies they need without pumping up the market.

Blackout: First India, then China? Astonishment has been one takeaway from India’s massive blackout, which by comparison is in the ballpark of a loss of power to the entirety of the United States and western Europe. Another reaction has been tut-tutting — we all knew that motley India, held together with gum and spit, was not long for BRIC status. Yet India is hardly the only major economy with a decrepit infrastructure – as the Washington Post’s Ashley Alsey points out, the U.S. itself is just a grid breakdown away from its own gargantuan electricity failure. In India’s case, the main problem is not just shoddy infrastructure, but a shortage of coal and natural gas: The Indians haven’t been able to get their hands on enough fossil fuels to fully power their economic growth.

As it happens, the world’s other key BRIC — China — pretty much faces the same conundrum. More than 70 percent of China’s energy comes from coal, and (as we note elsewhere in the Wrap) a growing percentage from natural gas. The Chinese have managed their domestic industries more successfully than India, making them less dependent on imports — but only just. Massive amounts of coal and natural gas pour into China every day, and as in India, it still may not be enough. The myth of Chinese efficiency might have some truth, but they have faced blackouts as well, and are not immune to an India-style meltdown. A May 2012 report by the Energy Transition Research Institute found that China’s electricity policy falls short of "the compound challenges of growing demand, rising costs and sustainability [and] represents a grave threat to the Chinese economy."

Matthew Hulbert, an analyst with the Clingendael International Energy Program in The Hague, calls the blackouts a "Fukushima moment" for both Beijing and Delhi. Just as Japan’s disaster was a wakeup call regarding nuclear power, the blackouts are a message regarding electricity security. Hulbert argues that the two BRICs, if they can set aside their long national rivalry, could find a solution in a collaborative approach. Specifically, they could obtain coal and natural gas supplies together. Here is why: If India becomes as aggressive as China has been in obtaining coal and natural gas supplies, the two in combination could seriously drive up asset acquisition prices. But if they strategize together, they might both acquire the supplies they need without pumping up the market.

Yet, if that is going to work, India needs to get serious, Hulbert argues. As it is, China has been much more proactive in securing key fossil fuel supplies, CNOOC’s July 23 purchase of Canada’s Nexen being only the latest example. India in fact has hardly been in the game. "A China-India relationship will only really work if it’s a case of making virtue out of necessity," says Hulbert. He said:

If India ups its game from its blackouts, China might just start taking them seriously. But if it’s a choice between digging India out of a hole and Beijing getting its energy fix to keep growth going at the levels they need, I’ll bet all day long on the latter.

The Indians have long been mulling a sovereign wealth fund for exactly this purpose. Bringing that idea to fruition would show Beijing that Delhi means business. Already, we’ve seen one tiny step down the path of collaboration — in June, India’s state-run Oil and Natural Gas Corp. and the China National Petroleum Corporation agreed to conduct joint exploration ventures worldwide. That may be a fine start, but much more will be required.

<p> Logan Bayroff is an intern at the New America Foundation. </p>
Tag: India

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