5. Conclusion
As outlined in the previous chapters, three interlinked sets of energy problems beset most developing countries: heavy reliance on traditional biomass and low penetration rates of modern energy services, rapid degradation of the environment brought about by unsustainable forms of energy production and consumption as well as high import expenditures on fossil fuels causing balance-of-trade problems, a drain of much-needed foreign currency and reduced means for domestic investment. These daunting problems put energy policies in developing countries at crossroads. Which energy path developing countries will embark in the future crucially depends on the energy policy and investment decisions made within the next few years. The challenges are enormous. The IEA World Investment Outlook estimates that the total investment requirement for energy-supply infrastructure worldwide is $16 trillion over the period of 2001 to 2030. This estimate is based on a projected growth in global energy demand of 1.7 percent per year. Almost half of the total energy investment (or $7.9 trillion) is expected to take place in developing countries. With $2.3 trillion, China alone will account for roughly 14 percent of world energy-investment needs. Investment requirements will be almost as big in the rest of Asia, including India and Indonesia. Latin America will account for another $1.3 trillion, followed by Africa with $1.2 trillion and the Middle East with $1 trillion (IEA 2003c: 25-26).
Two projected developments are of particular interest for the energy-poverty debate. First, the IEA projects that more than 40 percent of non-OECD investments in the oil, gas and coal supply chains will be devoted to projects to export those fuels to OECD countries. This implies that global inequities in energy access and consumption are likely to persist over the next three decades. In Africa, for example, half of total oil investments and two-thirds of total investments in the gas sector will be for exports to OECD countries (IEA 2003c: 167, 239).
This could undermine attempts to create regional energy markets serving those developing countries, which do not possess their own fossil fuel resources. Furthermore, based on past experience, it is unlikely that the financial gains from energy export revenues will necessarily translate into rising domestic living standards and a lower incidence of poverty. Resource-rich developing countries are often gripped with high levels of corruption, a waste of public funds and distorted incentive structures that impede a diversification of domestic investment (“Dutch Disease”). Second, and even more important, the IEA predicts that fossil energy sources will clearly dominate the investment picture. Under a current “business-as-usual”
Chapter 5: Conclusion trend, developing countries will spend around 35 percent of their total investments over the next three decades for the exploration, development and distribution of oil, gas and coal sources. The remaining 65 percent will be invested in the electricity sector. However, fossil fuels will also be responsible for most of the increase in developing countries´ electricity generating capacity. Between 2001 and 2003, the generating capacity from gas is expected to rise more than 5-fold from 185 to 963 gigawatt (GW), from coal around 3.5-fold from 354 to 1224 GW and from oil around 1.5-fold from 190 to 315 GW. Hydro power will be the only significant non-fossil energy source in the total electricity mix, generating around 600 GW in 2030 (up from 274 GW in 2000). The generating capacity from other renewable energies (solar, wind etc.) is expected to rise 7-fold over the projection period. But because renewable energies are starting from a very low basis (11 GW in 2000), their total contribution will still be negligible in 2030 (79 GW out of 3,240 GW) (IEA 2003c: 448-449).
Whether these projections will turn out to be accurate or not, can only fairly be judged with the benefit of hindsight. Energy projections over a period of three decades are naturally subject to a large margin of error. In addition, the estimates reflect the IEA’s policy bias towards established fossil fuel technologies. More pro-renewable energy organisations like the “World Council for Renewable Energy” would probably come up with different figures.
Nevertheless, the IEA projections clearly illustrate in which direction energy sectors in developing countries will develop, if conventional energy strategies are further pursued.
While massive investments in fossil fuel energy technologies may help developing countries to improve access to modern energy services and raise labour productivity, such a development would inevitably have detrimental repercussions for the “carrying capacity” of our global ecosystem and would also have negative economic impacts for those developing countries that neither possess the necessary hydrocarbon resources to produce their own fossil fuels nor the economic wealth of industrialized countries to afford an increased reliance on foreign fuel imports.
In this thesis, I have sought to make the case, both through a comprehensive quantitative analysis of energy import dependency and through a socio-economic opportunity cost analysis, that the energy-poverty nexus has an important structural dimension. Global inequities between industrialized and developing countries are not only reflected in unequal levels of per capita energy consumption and access to modern energy services, but also in different macroeconomic costs associated with the import of foreign energy sources.
Chapter 5: Conclusion Notwithstanding problems of data accuracy and reliability, the results of the quantitative analysis presented at the end of Chapter 3 give a good order-of-magnitude indication of these inequities. The physical degree of energy import dependency in high income countries is far higher than in those countries with lower per capita incomes. However, industrialized countries pay on average only 2 percent of their GDP for energy imports, whereas middle and low income countries have average expenditure shares between 3.5 and 5 percent of their GDP. These differences are even more pronounced when energy import expenditures are compared with total merchandise export revenues. If median values are compared, high income countries pay around 9 percent of their total export revenues for fuel imports, upper-middle income countries 16 percent, lower upper-middle income countries 24 percent and low income countries 35 percent. The socio-economic opportunity costs of fuel import dependency are particular high in developing countries. It was shown that around 50 percent of all energy import dependent middle and low income countries examined in the study pay more for energy imports than for public education. In one-third of these countries, energy import expenditures exceeded spending on public and private health care together. In contrast, all high income countries dedicate more financial resources to health and education than to the import of foreign energy sources. Furthermore, a reduction of fuel import expenditures could help to free much-needed financial resources for the global fight against extreme poverty. More for illustrative purposes than as a concrete proposal for action, it was calculated that a 10 percent-reduction of energy import expenditures could theoretically provide enough transfer income to lift 221 million people beyond the $1 a day poverty line. A more ambitious 20 percent-reduction scenario would even raise this number to almost 400 million people.
In most low income countries, energy infrastructures are still at a relatively early stage of development. Biased investment decisions in favour of fossil energy technologies could lock in conventional energy systems for decades and are likely to create new dependencies in the future. Interestingly, the IEA remains silent on the question how developing countries without their own fossil fuel resources should finance increased reliance on energy imports once conventional energy infrastructure systems are installed. Based on the findings presented in this thesis, an increased outflow of capital would have detrimental consequences for long-term economic development, poverty reduction and the provision of improved services in the health and education sector. In this context, renewable energy sources can play an important role in breaking the poverty energy nexus, both on the household level and on the structural
Chapter 5: Conclusion level of energy import dependency. For many developing countries, renewable energies present a historical opportunity to increase access to clean and modern energy services without increasing dependence on foreign energy supplies. Furthermore, the development of renewable energy technologies can prove to be a powerful catalyst for decentralized employment and wealth creation, thereby contributing to the UN Millennium Development Goal of halving global poverty by 2015.
Acronyms and Abbreviations Acronyms and Abbreviations
ARI – Acute Respiratory Infections
APEC – Asia-Pacific Economic Cooperation c.i.f. – cost, insurance and freight
CRW – Combustible Renewables and Waste DALYs – Disability-Adjusted Life Years
DFID – Department for International Development DSC – Decentralized Service Company
EIR – Extractive Industries Review EIA – Energy Information Agency
FAO – Food and Agriculture Organisation f.o.b. – free on board
GEF – Global Environmental Facility GDP – Gross Domestic Product GNP – Gross National Product HDI – Human Development Index
HHD – High Human Development Country IEA – International Energy Agency
IFRC – International Foundation of Red Cross Societies IPCC – International Panel on Climate Change
ITDG – Intermediate Technology Development Group LHD – Low Human Development Country
LIC – Low Income Country HIC – High Income Country
UMC – Upper Middle Income Country LMC – Lower Middle Income Country LPG – Liquefied Petroleum Gas
MHD – Medium Human Development Country
MMEE – Ministère des Mines de l´Energie et de l´Eau du Mali Mtoe – Million tons of oil equivalent
MW – mega watt
OECD – Organisation for Economic Cooperation and Development ppm – parts per million
PPP – Power Purchasing Parities SME – Small and Medium Enterprises toe – ton(s) of oil equivalent
TPES – Total Primary Energy Supply
UNDP – United Nations Development Programme UNEP – United Nations Environmental Programme WDR – World Development Report
WDI – World Development Indicators WHO – World Health Organisation
WSSD – World Summit on Sustainable Development
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