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6 August 2009

Making the move to sustainable energy

Developing countries face a two-fold energy challenge in the 21st century: meeting the needs of billions of people who lack access to energy services, while participating in a global transition to clean energy to ensure a better future for all.

Since the Industrial Age, the ability to harness different forms of energy has transformed living conditions for billions of people, allowing them to enjoy a level of comfort and mobility unprecedented in human history and freeing them to perform ever more productive tasks. For most of the past 200 years, steady growth in energy consumption has been closely tied to rising levels of prosperity and economic opportunity in much of the world.

Now, however, humanity finds itself confronting an enormous energy challenge. This challenge has at least two critical dimensions. On the one hand, it has become clear that current patterns of energy use are environmentally unsustainable. Overwhelming reliance on fossil fuels, in particular, threatens to alter the Earth’s climate to an extent that could have grave consequences. At the same time, access to energy continues to divide the ‘haves’ from the ‘have-nots’. Globally, a large fraction of the world’s population – more than two billion people, by some estimates – still lacks access to one or several types of basic energy services, including electricity, clean cooking fuels and adequate means of transportation.

Sustainable Energy for Developing Countries is the third volume in TWAS’s ongoing research report series, designed to examine critical science-related issues of importance both to the North and South. The previous volumes were Building Scientific Capacity and Safe Drinking Water: The need, the problem, solutions and an action plan. All three reports are available for download here.

In the latest TWAS Report, Sustainable Energy for Developing Countries, authors Dilip Ahuja and Marika Tatsutani provide a comprehensive assessment of how developing countries can meet this two-fold energy challenge: how to expand access to energy while simultaneously participating in a global transition to clean, low-carbon energy systems. The following is an adapted excerpt from the Report, in which the authors discuss concrete policies and actions to assist developing countries in the move to sustainable energy.

Four steps to sustainable energy

The energy challenges confronting developing countries today are significant and growing greater. It is clear that these countries will face potentially large adverse consequences without concerted policy interventions.

What follows is list of concrete actions that would help move developing countries to a more sustainable energy trajectory. None of these actions will be easy to implement. All will require the active engagement of all sectors of society, including individual consumers and local communities, non-governmental organizations, private businesses and industry, the science and technology research community, governments, intergovernmental institutions and donor organizations. Developing countries must take the lead in charting a new energy course for themselves, but developed countries must stand ready to provide support, recognizing that they have a vital stake in the outcome. These policy action include:

  • Promote energy efficiency and adopt minimum efficiency standards for buildings, appliances and equipment, and vehicles.
  • Reform and re-direct energy subsidies.
  • Identify the most promising indigenous renewable energy resources and implement policies to promote their sustainable development.
  • Seek developed-country support for the effective transfer of advanced energy technologies, while building the indigenous human and institutional capacity needed to support sustainable energy technologies.
  • Accelerate the dissemination of clean, efficient, affordable cook stoves.

Two points concerning the need for harmonized policies and holistic approaches should be kept in mind. First, sustainable energy policies are more likely to succeed if they also contribute toward other societal and economic development objectives. Second, governments should look across policies to maximize positive synergies and to avoid conflicting incentives. Too often, governments – in responding to different pressure groups at different times – adopt policies that at least partially undermine each other. For example, government efforts to promote energy efficiency can be undercut by simultaneous subsidies that tend to promote increased energy consumption.

Harmonization will not always be possible for political and other reasons, and it may not be possible to pursue a comprehensive set of policies all at once. Nevertheless, governments should recognize that maximum benefits can be achieved through an approach that remains mindful of the interaction of different policies, leverages multiple opportunities wherever possible and responds to the specific needs and constraints of individual countries.

Energy efficiency

Assessments of climate-change mitigation costs consistently find that energy efficiency improvements offer the largest and least costly emissions-reduction potential, while also providing important ancillary benefits such as energy cost savings, reductions in conventional pollutant emissions, reduced dependence on imported fuels and improved economic competitiveness. Energy efficiency can be especially important in rapidly industrializing countries as a way to manage demand growth, improve system reliability, ease supply constraints and allow energy production and distribution infrastructure to 'catch up.'

Historic trends show steady progress toward improved energy efficiency and reduced energy intensity (where intensity is measured by the amount of energy required to deliver a unit of goods or services).

This historic rate of improvement can be expected to continue. Yet, absent policy intervention, such improvement is unlikely to keep pace with continued growth in demand – especially in countries that are still in the early stages of industrialization. Moreover, experience shows that market forces often fail to capture all cost-effective opportunities to improve energy efficiency.

Countries like the United States have significant untapped energy efficiency potential. The US economy is only half as efficient as the Japanese economy (that is, the United States consumes twice as much energy per dollar of gross domestic product). But the opportunities are also large in some rapidly industrializing economies.

China, for example, consumes nine times as much energy per dollar of GDP as compared to Japan. Overall, a recent (2007) assessment of global efficiency opportunities by the McKinsey Global Institute found that the average annual rate of decline in global energy intensity could be boosted in a cost-effective way to 2.5 percent per year – essentially doubling the recent global rate of decline, which has been averaging approximately 1.25 percent per year. This is a significant finding. It confirms that even relatively small changes in year-to-year improvement can produce a wide divergence of outcomes over time.

At first blush, it might seem grossly insensitive to recommend energy conservation to countries that consume so little by global standards. But the historic record indicates that small, incremental and cumulative improvements in efficiency over long periods can deliver enormous benefits by making economies less wasteful, more productive and more competitive.

The potential benefits of such improvements are particularly large in countries with rapidly expanding demand for new infrastructure, buildings, appliances and equipment. It is typically much easier and more cost-effective to build in a high level of efficiency from the outset than to improve efficiency at a later point in time. Moreover, policies that ride the waves of grand transitions are less likely to encounter friction than those that run counter to them. In most situations and in all countries, programmes to promote more efficient use of energy are essential and represent a no-regret option for reducing demand for energy.

Governments have an important role to play in promoting energy efficiency and conservation. Efficiency standards for appliances, equipment and automobiles, for example, have proved extremely cost-effective in many developed countries and are often relatively easy to implement compared to other policies. Efficiency standards or codes for buildings are extremely important given the long life-span of most structures. To be effective, however, countries will need to educate architects and builders and develop the capacity to monitor and enforce compliance. By setting a floor or baseline for energy efficiency, minimum standards can deliver substantial energy savings in the future with a high degree of confidence.

Subsidy reform

Although energy subsidies have been declining in many parts of the world over the past decade, subsidies for fossil fuels still amount to several tens of billions of US dollars in developing countries. Cumulatively, these subsidies total less than overall taxes imposed on such fossil fuels as petrol. But they have several effects that undermine, rather than advance, sustainable energy objectives.

First, by artificially reducing the price of certain fuels, they distort the market and encourage inefficient levels of consumption. Second, fossil fuel subsidies make it more difficult for energy efficiency and cleaner sources of energy to compete.

The justification usually offered for subsidies is that they help the needy. In fact, many developing-country governments rely on subsidies largely because they lack other reliable mechanisms for making transfer payments to the poor. Even as a mechanism for poverty alleviation, however, subsidies are highly flawed. Because it is often difficult or impossible to restrict their use to the neediest households, the bulk of the benefits typically go to wealthier households that can afford higher levels of consumption.

Of course, fossil fuel subsidies are not peculiar to developing countries. They exist in many countries. They are also addictive and those who benefit from them are usually unwilling to give them up. Thus it is easy for analysts to write that subsidies should be eliminated or phased out. But this step is notoriously difficult to take for politicians who have to renew their mandates periodically.

Reforming and re-directing energy subsidies – if necessary, over time – may thus be a more realistic strategy for developing countries than attempting to abolish subsidies all at once. For example, a gradual reduction in subsidies for conventional fossil fuels could be used to provide new subsidies for more sustainable forms of energy or more efficient technologies.

Where there is concern that poor households will not be able to access basic energy services if they have to pay the full market price, it might be feasible to provide subsidies only up to a certain level of consumption. Creative policy approaches are needed to navigate the tensions between expanding energy access and promoting sustainable energy outcomes. The research community and non-governmental organizations (NGOs) should take up this challenge and begin to explore possible solutions, including new mechanisms for transferring aid to poor households so that they can meet their basic needs.

In the longer run, energy prices for fossil fuels should not only not be subsidized, but also increased to reflect environmental and public health ‘externalities’ (i.e., the unintended consequences of production) that are currently unrecognized by the marketplace. In principle, making sure that these positive and negative externalities are included in energy prices is an elegant way to address many issues of sustainability. Absent this step, the market will tend to over-allocate resources where there are negative externalities (such as pollution) and under-allocate resources where there are positive externalities (such as improved energy security).

The greatest obstactles to internalizing externalities are likely to be political. Raising energy prices is almost always deeply unpopular with business leaders and the public. Objections are likely to be voiced on the basis that higher energy prices could harm both consumers and the economy, with especially large effects on competitive industries and low-income households. As with reducing or removing subsidies, any effort to internalize externalities must navigate the apparent tension between raising prices for many conventional forms of energy and expanding access for the poor. (This applies whether government seeks to internalize externalities through a tax or through environmental regulation.)

Because of these parallels, some of the approaches noted in connection with subsidy reform may be helpful, including using a gradual approach and offsetting impacts on poor households through other forms of assistance. If the mechanism used to internalize externalities is an emissions tax, for example, the additional public revenues could be used to provide increased support for social services or other (non-energy) necessities or to subsidize other forms of consumption that primarily benefit the poor.

Indigenous sustainable resources

Many developing countries have abundant renewable energy potential and could benefit from the positive economic spill-overs generated by renewable energy development, especially in currently underserved rural areas where decentralized, small-scale renewable energy technologies are likely to be most cost-competitive with conventional alternatives.

In most cases, however, government policies and public support will be necessary to capture these opportunities. The World Bank has concluded that incentives will usually be required to motivate the private sector to provide services to the remote and underdeveloped areas where the poor reside. In these areas, there is a case for providing intelligently designed incentives and/or subsidies for the development and use of appropriate technologies, preferably in ways that are targeted, simple, competitive and time-limited.

Incentives or subsidies by themselves will not always be adequate to overcome market barriers, especially for risky projects in less accessible areas of developing countries. In those cases, direct financial support from the government or outside groups or institutions may be necessary to implement renewable energy projects.

There is ample precedent for such interventions. International aid organizations and other entities have invested millions of dollars in sustainable energy projects in developing countries. The track record for such investments, however, is decidedly mixed. Many projects have failed as a result of inadequate attention to practical problems, local conditions and the need for ongoing maintenance and operational expertise.

Given the scale of the challenge in relation to the scale of available resources, it is vital that future efforts improve on the record of the past. This can partly be accomplished by taking greater care in the design and implementation of projects and by ensuring that the skills and financial resources needed to sustain new energy installations are in place. For its part, the research community should put greater emphasis on developing renewable energy technologies that are robust and well-adapted to the specific conditions found in developing countries. In addition, researchers and advocates alike must avoid the tendency to understate costs, or belittle potential problems with the technologies they bring forward.

Government support for sustainable energy technologies clearly has a role to play in the demonstration and initial deployment stages. But government involvement is even more crucial in the earlier stages of research and development (R&D).

Not surprisingly, developed countries have historically taken the lead in energy R&D spending because they have had the resources to do so. This is likely to continue to be the case. But it does not mean that there is no role for developing countries. Some of the larger developing countries have sufficient resources to make their own substantial technology investments. Others can participate by targeting investments and/or by working cooperatively with other countries or institutions to ensure that broader R&D efforts address the specific opportunities and constraints that apply in a developing country context. Investment in energy R&D can also be seen as a way to build indigenous human capital in science and engineering. Brazil, for example, has nurtured a viable domestic biofuels industry through all stages of technology development, deployment and commercialization.

Yet, according to the UNDP’s 2004 World Energy Assessment, governmental support for energy R&D is declining in all countries. Given the challenges at hand, this trend will need to be reversed because only governments take a long enough view (on the order of decades) to support the long-term investments in energy R&D that are needed to fully commercialize new technologies.

Technology transfer and capacity building

Substantial efforts to facilitate technology transfer from developed to developing countries are clearly essential to achieving global sustainability objectives. This need is widely acknowledged and was affirmed most recently at the December 2007 UN Conference on Climate Change in Bali, where developing-country negotiators called for language explicitly linking mitigation action by developing countries to "measurable, reportable and verifiable" support for technology, finance and capacity-building.

While the current situation clearly demands that more technology transfer be done, it also demands that technology transfer be done better. In the past, too many well-intended projects have failed to fulfill their promise. To ensure that rural areas of developing countries do not become graveyards for sustainable energy technologies, sustained attention must be paid – by host and donor nations alike – to the human and institutional capacities needed to support these technologies on a long-term basis.

Research shows that technology transfer is more successful and more likely to produce innovation when the host institution has requisite technical and managerial skills. As a result, there is an urgent need to develop skills to produce, market, install, operate and maintain sustainable energy technologies in developing countries. Ensuring that as much capacity-building as possible occurs in local communities and companies based in the host country could provide additional benefits, not only in terms of local job creation and economic development, but also because project developers and operators are likely to be more effective when they have close ties to the population that will be using the technology.

One promising approach to capacity building involves the development of regional institutes that can provide training in basic technology skills to local organizations and individuals drawn from the local population. Such institutes could also help provide independent assessments of alternative technologies and policy choices, and explore strategies for overcoming real-world barriers to the expanded deployment of sustainable energy technologies. The Consultative Group on International Agricultural Research (CGIAR) has successfully used this approach to propagate technological and scientific advances in agriculture to developing countries. This may provide a promising model for the energy field.

In sum, successful technology transfer and a worldwide expansion of the human and institutional capacities needed to implement sustainable technologies are critical elements of an effective global response to the energy challenges we confront.

To meet these challenges, developed countries will need to follow through on current commitments and work closely with developing countries to make the most effective use of scarce resources. Developing countries, for their part, must not be passive bystanders in that process. They have everything to gain from leveraging future investments to build their indigenous human and institutional capacities and taking the lead in adapting and improving sustainable energy technologies to suit their particular needs.

Conclusion

The current energy outlook is challenging to say the least. The continuation of current energy trends would have many undesirable consequences, at best, and risk grave, global threats to human well-being, at worst.

The situation for developing countries is in many ways more difficult than for developed countries. Not only are there obvious resource constraints but access to basic energy services may be lacking for significant segments of their population.

Yet, developing countries also have some advantages: they can learn from past experience, avoid some of the policy missteps of the past half century, and may be able to ‘leapfrog’ directly to cleaner and more efficient technologies. Many elements of a sustainable energy transition can be expected to mesh well with other critical development objectives.

This does not mean that cleaner, more efficient technologies will usually be the first choice or that difficult trade-offs can always be avoided. In the near term, many sustainable energy technologies are likely to remain more expensive than their conventional counterparts. Changing incentives and overcoming barriers is for now more a question of political will and coordination than it is one of adequate resources.

Surveying the current landscape, ample justifications could be found for a profoundly pessimistic view – or an equally optimistic one. Which outlook proves more accurate will depend to a large extent on how quickly developed and developing countries not only recognize, but also begin to act upon, their shared stake in achieving positive outcomes that can be managed only by working together.

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