Reader on Energy for Poverty Reduction Input to expert meeting on the theme fossil and renewable fuels and poverty reduction 1
Table of Contents 1. Introduction 3 2. Comparing impacts of fossil fuels and new renewable energy 4 2.1 The framework 4 2.2 Fossil fuels 4 2.3 New renewable energy sources 6 2.4 Conclusions 10 3. Policies relevant for energy and poverty 11 3.1 International context 11 3.2 World Bank policies 12 3.3 Dutch development aid policies 13 3.4 Cost estimates for energy for the poor 14 References 15 Annex 1: World primary energy consumption from different sources, and New renewables by source, in 2001 16 Annex 2: Linkages between modern energy and Millennium Development Goals 17 Annex 3: Relations between oil dependence and development indicators 18 Annex 4a: Major renewable energy technologies and applications, 2005. Overview of renewables that have been disseminated in rural areas of Sub-Saharan Africa for productive use 20 Annex 4b: Overview of renewables that have been disseminated in rural areas of Sub-Saharan Africa for productive use 20 Annex 5: An overview of the status of new renewable technologies in 2001 21 Annex 6: Rough estimate of employment generation by different types of energy generation 22 Annex 7: Impacts of renewables energy supply on sustainable development (biogas and micro-hydropower) 23 Annex 8: World Summit on Sustainable Development 2002 agreements on energy in the context of sustainable development. 24 Annex 9: Talking points on the World Bank s Clean Energy and Development: Towards an Investment Framework paper, approved by the World Bank board, discussed by IMF and World Bank Development Committees April 23, 2006 28 Annex 10: Newspaper article by Donald Pols, Milieudefensie: Nederlands 30 ontwikkelingsgeld steunt niet de strijd tegen armoede Annex 11 Milieudefensie letter to parliament on WB energy policy 34 Annex 12: Answer from the Minister for Development cooperation to questions 38 about World Bank investments in sustainable energy 2
1. Introduction Aims of this reader This reader aims to provide background information to support evidence-based discussions in an expert meeting that focuses at the following question: Should the Dutch contribution to energy for the poor focus on renewable or fossil fuel sources? Related sub-questions are: Which energy resources have most positive contribution to poverty reduction? How does the support by World Bank and by Dutch aid relate to this subject? This expert meeting is part of a larger debate that focuses at the key question: Which types of energy and which approach will best contribute to poverty reduction and economic growth in developing countries? This reader is prepared by Milieudefensie in collaboration with AIDEnvironment and serves as a discussion paper for the expert meeting. It contains a wealth of background information, facts and insights, from a wide range of respected sources including some from Milieudefensie. The annexes provide more detailed background information. We hope that this reader will be useful and help in completing the picture to provide an answer to the questions outlined above. Definitions and challenges Although energy fuels economic growth and is therefore a key concern for all countries, access to and use of energy vary widely among them, as well as between the rich and poor within each country. One third of the world s population (2 billion people) rely almost completely on traditional energy sources [1], while roughly 1.6 billion people worldwide do not have access to electricity in their homes [2]. Currently, 80% of people without electricity live in rural areas of developing countries. However, by 2017 the number of urban poor is expected to equal the number of rural poor. [2] The average per capita consumption of primary energy in the US was 330 GJ in 1995, more than eight times as much as used by an average Sub-Saharan African [1]. For the world s poor, the main source of energy that is generally available and affordable is traditional biomass. 1 Traditional biomass is usually not reflected in energy statistics as it is not commercial, but constitutes almost 10% of worldwide energy use in 2001 [3] (Annex 1). There are many linkages between modern energy 2 supply and the Millennium Development Goals (MDG s) [2] (Annex 2). Apart from the lack of access to modern energy sources by one third of the world population, for another estimated one third of the world population the current energy supply is insufficiently reliable or affordable to support sustainable development and as result suffer hardship and insecurity [1]. A third aspect explaining why the current energy system is unsustainable is the fact that most current energy generation and use is accompanied by undesirable environmental impacts at local, regional and global levels that threaten human well-being now and in the future [1]. The aim is to increase the proportion of sustainable energy. 3 Renewable energy sources have a greater potential to meet sustainability objectives than fossil fuels and nuclear energy. Current use of renewable energy sources (in 2001) amounts to 13.7%, including 2.3% large hydropower, 9.3% traditional biomass and 2.2% new renewables 4 (Annex 1). Nuclear power amounts to 6.9% and is almost exclusively found in industrialised countries. However, there is a great disparity between OECD countries where 6.2% originates from renewables 1 Traditional biomass is defined as biomass including fuelwood, crop residues and animal wastes. [2] 2 Modern energy is defined as commercial energy services provided by liquid and gaseous fuels as well as electricity [2] 3 Sustainable energy is defined as energy produced and used in ways that support human development over the long term, in all its social, economic and environmental dimensions [1] 4 Includes among others wind, solar PV, modern biomass and geothermal, See also section 2.3. 3
and 11.0% from nuclear energy, while in developing countries these data are 27.6% (mainly traditional biomass) and 0.7% respectively [4]. 2. Comparing impacts of fossil fuels and new renewable energy 2.1 The framework A framework is proposed to compare in a systematic way the relations between fossil fuels and new renewable energy with poverty reduction. The framework is based on three underlying considerations: 1. For each type of energy, the need to look at the energy supply chain, including: energy generation or extraction, treatment, transportation, conversion (e.g. from gas to electricity), distribution and use / application for different purposes. In our analysis we focus upon three elements of the energy supply chain that are considered most important: extraction or generation, conversion and use. 2. The need to look at the impacts of energy supply in two different ways. One is to look at the possible negative impacts (i.e. do no harm ). The other is to look at the potentials to contribute to sustainable development (i.e. do more good ). 3. The need to consider the relations with poverty at two levels: local level and macro-level (national scale). While at the local level we are dealing with direct consequences for poverty reduction (immediate effects on people), at a national scale macro-economic, political or other changes will influence poverty reduction in an indirect way (e.g. through economic instability, social unrest, price changes, unreliable access, etc.). Fossil fuels New renewables Extraction & conversion Use Generation & conversion Use Negative impacts ( do no harm ) Positive potentials ( do more good ) macro local macro local How each technology group scores in this framework will be addressed at the workshop on the basis of the various inputs and information sources. 2.2 Fossil fuels Impacts of fossil energy extraction on national level development Several studies have been undertaken on the impacts of fossil fuels extraction on poverty. An OXFAM study looked at the relations between oil-dependence and human development at macro level [5]. Based on national level indicators and statistics, the overall view is that oil dependence has a negative impact on human development indicators if corrected for GDP per capita (meaning that human development is less than one would have expected on the basis of revenues). There are also negative impacts on debt rate, on democracy and on security (Table 1). These changes will all affect poverty in particular [6]. A recent UN study demonstrated that the world s oil, gas and mining industries account for nearly two-thirds of all violations of human rights, environmental laws and international labour standards, including complicity in crimes, large-scale corruption and abuses to indigenous populations [18]. 4
It was also found that oil dependence does greater damage to democracy in poor states than in rich ones. 5 Thus, a given rise in oil exports will do more harm in poor states (e.g. Angola) than the same rise in rich ones (e.g. Norway). In poor states, oil can inhibit democracy even when oil exports are relatively small [5, 7]. There are different conclusions with respect to the impact of oil production on economic performance. One study found the impact on economic development to be inconclusive for the period between 1960 and 1998 [8], with greater fluctuations but similar average economic growth in oil-dependent countries as compared to other developing countries (see Annex 3 for more details). Another study concludes that countries without petroleum resources grew four times more rapidly than petroleum-rich countries between 1970 and 1993 [9]. The World Bank observed that between 1970 and 2000 the number of petroleum-rich states with disappointing outcomes in terms of economic growth and poverty alleviation outweighed the number with successful outcomes [10]. Table 1: Summary of available evidence on impacts of oil dependence [sources: 5, 6] Issue Economic development Human development (HDI index, indicators) Income poverty 7 Debt rate Level of democracy Risk of civil war Link with oil dependence Negative 6 or similar, greater fluctuations Negative if corrected for GDP per capita Weakly positive if corrected for GDP per capita Negative Negative Negative There are plausible causes for above patterns in oil dependent developing countries: low government spending on social services, high spending on the military and internal security, high economic volatility, readiness of international lenders to finance indebted oil-producing countries, low level of occupational specialisation. Proposed solution strategies have a macroeconomic character, such as diversification of the economy, improved debt management, improved financial policies and fiscal policy [6, 8] Impacts of fossil energy extraction on poverty reduction A summary of studies on local impacts of oil extraction shows that negative impacts include pollution of land and water; air pollution through flaring of gases; displacement of local people; impacts on health and livelihoods through pollution and social unrest [11]. However, the OXFAM study cited above found that at national level income poverty indicators in oildependent countries score slightly better (if corrected for GDP per capita) than in non-oil dependent countries (Table 1). Impacts of fossil energy use on national development At the macro-level, studies show that the share of overall energy use provided by modern fuels and electricity is strongly correlated with per-capita income and other human development indicators [2]. However, this correlation seems to hide at least two inequalities: disparities between countries and disparities between areas within one country. Firstly, the volatile and unpredictable price of fossil fuels (see figure below) has been a major problem for developing countries highly dependent upon fossil fuel imports, and this problem will only become worse as oil prices are now steadily increasing. 8 The weight of fossil fuel 5 There is a correlation between low-income and high levels of corruption. See above reference. 6 Meaning less economic growth in countries with high oil-dependence as compared to countries with no oil-dependence. 7 Defined as income per capita to allow purchase of a minimum of basic needs (the poverty line). 8 Assuming that the cost of oil rises moderately until 2015, sub-saharan Africa will end up spending US$ 46 billion, or 5.8% of its GDP per year on oil [24]. 5
imports on the balance of payments is unbearable for many poorer countries. In some African countries petroleum imports can account for as much as 50% of the country s export earnings [12]. By causing large budget and trade deficits, fossil fuels have undermined the ability of developing country governments to meet the needs for basic services such as education, health care, and clean water [2]. Dependence on imported fuels also makes developing countries vulnerable to disruption in supply. Large hydropower dams have also shown to be an insecure source of energy in African countries, where power deficits were cause by drought [12]. Development in oil prices Source: http://en.wikipedia.org/wiki/oil_price_increases_of_2004-2006 Secondly, the high costs of modern fuels and electricity are particularly high in dispersed and remote rural areas, as a result of transportation and/or distribution costs, whereas these are locations where the rural poor are concentrated. As a result, the poor have no access to such energy sources, or cannot afford to pay [2]. 9 Impacts of fossil energy on global environment The fossil fuel chain as a whole is the most important human factor contributing to various environmental damages worldwide. Most important is the fact that fossil fuels burning contribute by 75% to carbon dioxide flows to the atmosphere, and thus to global climate change [1]. There is strong evidence that most of the warming observed over the last 50 years is attributable to human activities and that significant climate change would result if 21st century energy needs were met without a major reduction in carbon emissions [3]. The International Energy Agency predicted that a further increase in temperature is expected between 0.5 and 2.0 o C and this will have devastating implications for poor countries [23]. Other considerable contributions by fossil fuels to environmental damages are as listed [1]: Fossil fuels burning contributes by 41% to global lead emissions in the atmosphere; Fossil fuels harvesting, processing and transport contribute by 44% to oil spills in oceans; Fossil fuels burning contribute by 85% to sulphur emissions in the atmosphere. 2.3 New renewables energy sources Defining new renewables 9 In Kenya, for example, the average cost of a new connection for rural homes is seven times the national per-capita income. In the Philippines, for example, the lowest-income fifth of the population pays $1.79 per kgoe of energy, while the top fifth pays $0.66 per kgoe. [2] 6
New renewable energy is defined as modern biomass, small hydropower, geothermal energy, wind energy, solar energy and marine energy. Modern biomass is defined as biomass produced in a sustainable way and used for electricity generation, heat production, and transportation (liquid fuels). It includes wood/forest residues from reforestation and/or sustainable management, rural (animal and agricultural) and urban residues (including solid waste and liquid effluents); it does not include traditional uses of fuelwood in inefficient and pollutant conversion systems [3]. Thus, new renewables also includes biogas and use of fuelwood with improved woodstoves. There is a range of renewable energy technologies (RETs) available, using renewable energy sources that include sunshine, wind, flowing water and biological processes (Annex 4a), while Annex 4b gives an overview of renewables that have been disseminated in rural areas of Sub-Saharan Africa for productive use [12]. An overview of the status of new renewable technologies in 2001 is presented in Annex 5. The increasing production of RETs is being driven by technological advances, economies of scale in production, declining costs and growing political support. Modern biomass is by far the greatest proportion of new renewables (68% in 2001), followed by geothermal energy (24%) and other new renewables following way behind (see Annex 1). Solar and wind-power capacity has increased with an annual rate of 20-30%. Although this capacity is mainly found in industrial countries, many developing countries are now moving into this industry [2]. 10 Costs of renewable energy The overview in Annex 5 also provides data on the current costs of renewable energy. It can be observed that these vary greatly, with biomass energy as cheapest (as low as 1 $cent per KWh) and solar photovoltaic electricity most expensive (up to 160 $cent per KWh). A recent overview of renewable energy costs indicate that solar voltaic systems typically cost 25-50 $cents per kwh, geothermal costs around 6 $cents per kwh, while the most recent wind energy technology costs vary between 4-6 $cents per kwh [19]. At today's natural gas prices of $3 to $4 per 1000 ft3, natural gas-fired electricity is going to be less expensive per kwh output than that from any renewable technology [19]. 11 Other sources state that the current generating costs from new coal and gas technologies are about 3.6-7 $cents per KWh [25] Many RETs, because they are small in scale and modular. This has two advantages. Firstly, in rural situations, decentralized off-grid renewables may be more competitive due to high costs of establishing an electricity grid [1]. Even solar PV energy can be competitive in such situations. Secondly, RETs are subject to potential price declines. An overview of experiences (see figure below) shows that costs decline by 10-20% for each cumulative doubling of production of solar PV, wind generators and gas turbines, due to learning effects, marginal technological improvements and economies of scale [1]. Similar declines are expected for several other small-scale renewable energy technologies. A large-scale deployment of decentralized renewables could thus considerably reduce the costs of RETs, thereby accelerating a global transition to renewable energies. An ambitious program for energy for the rural poor could be the stepping stone for such a transition, as renewable energy in these situations is rarely prohibitively expensive. 10 Reference is made to China, India, the Philippines, Nepal and Thailand.[2] 11 There are numerous websites and studies with costs estimates of fossil and renewable fuel types, all of which give different data, but overall they support the conclusions indicated in this study. 7
Learning curves for some energy technologies Source: World Energy Assessment [1]. Comparing costs of fossil with renewable energy sources is difficult for several reasons. The major perception is one of RETs being costly. This is mainly due to two factors: Conventional energy systems are characterized by low capital costs, but have significant operating costs, whereas for renewable energy systems the inverse is true. Over time, the low operating costs of renewable energy systems offset their high capital costs through avoided fuel expenses, but this kind of life-cycle accounting is not regularly used [2]. The external costs associated with energy systems particularly the environmental costs associated with conventional energy systems are often not fully accounted. In Europe alone, for example, an estimated 74,000 people die every year from air pollution from large point sources (mainly coal plants), and many more from traffic air pollution. If health costs in EU were included in generation costs, the price per kwh for electricity by coal-generated plants would increase by 30-600% (2-20 ct per kwh) 12. However, such estimates are very sensitive to local circumstances and may be different in a developing country setting. RETs, on the other hand provide a number of additional benefits such as increased employment, reduced import dependence, and reduced burden on foreign exchange. However, the marketplace does not account for this value creation. Meanwhile, government subsidies for conventional energies now exceed $200 billion annually, making it very difficult for renewable energy to achieve economies of scale [2]. Thus, as a basis for costing energy one would need to take a life cycle analysis of both fossil and renewable energy sources, and also take into account the costs of the externalities involved. While these external costs are rarely estimated in developing countries contexts, the figure below gives an indication of external costs for energy production in Europe. External costs for EU electricity production 12 Acid News No.1 Feb. 2006 (see http://www.acidrain.org/pages/publications/acidnews_main.asp) 8
Source: World Energy Assessment [1]. Global potentials for renewable energy sources Taking into account available (unused) land area and technical status of renewable technologies, the technical potential for renewable energy sources largely exceeds the current global energy consumption (see table below). While fossil energy reserves vary greatly per country, variation is less for renewable energy sources and potentials in developing countries are very large. Potentials and current use of renewables Resource Current use (EJ/year) Technical potential (EJ/year) Hydropower 9 50 Biomass energy 50 >276 Solar energy 0.1 >1,575 Wind energy 0.12 640 Geothermal energy 0.6 5,000 TOTAL 56 >7,600 Current world energy consumption is near 500 EJ. Source: World Energy Assessment [1]. These data indicate that if costs are not prohibitive and given enough time, the world could supply all necessary energy from renewable sources. Impacts of new renewables energy generation Renewable energy sources in principle have very low environmental impacts because they capture their energy from existing flows of energy, from ongoing natural processes. RETs have low- to non-existent emissions. However, large hydropower dams are well known for their vast environmental impacts, as the ecosystem, hydrological system and livelihood system of a large watershed area is entirely converted. Therefore, large dams are not considered a renewable energy source. 13 In low-income countries, traditional biomass accounts for 49% of energy supply, with some countries approaching 90% [2]. Traditional biomass such as fuelwood and animal wastes have negative impacts on the environment due to risks of deforestation [4]. As urban populations 13 The World Bank sets the limit of renewable hydropower at 10 MW [10]. 9
depend upon traditional biomass these impacts tend to be aggravated and extend far into the hinterland. Modern biomass (definition see above) is considered a good option for energy supply and poverty reduction while by perennial crops it may even have a positive environmental impacts [1]. International biofuels markets are now being stimulated by policies to reduce carbon dioxide emissions [3]. While biofuels may provide important local energy contributions, large-scale production for export involves risks to ecosystems and aggravating poverty and causing hunger if biofuel crops replace food crops [14]. Renewable energy technologies (RETs) also create new economic opportunities and can be locally produced. A rough estimate of employment generated by different types of energy production, including different elements of the energy supply chain, shows that some renewables may generate up to a hundred times more jobs per terawatt hour than fossil fuels (Annex 6). Decentralised off-grid RETs have particular potentials to not only create local employment but also to serve the rural poor who often live in dispersed and decentralised patterns [2, 12]. Impacts of new renewables use on poverty It appears that grid-connected renewable energy generation is contributing a growing share of power generation. These grid-connected energy sources primarily meet the needs of the urban middle class in industrialised countries, but serve as well rural and sometimes urban areas unlikely to be served by the national grid [15]. In addition, by reducing overall dependence on fossil fuels renewables may improve economic conditions of developing countries [2]. Traditional biomass such as fuelwood and animal wastes contributes to health-threatening indoor air pollution [2]. New renewables including modern biomass would not have such impacts. New renewables are generally considered to have positive impacts on poverty reduction and environmental sustainability. Two cases were assessed, biogas and micro hydropower, based on available literature from Nepal mainly (see Annex 7 for overview of findings). The overall conclusion is that both biogas and micro hydropower are successful in alleviating poverty by supplying accessible, low-cost and reliable local energy sources while being environmentally sound [6]. Impacts on both health and agricultural production are also positive. 2.4 Conclusions Four main conclusions as regards the impacts of fossil fuels (and uranium) on poverty are: Extraction does not positively affect human and economic development of developing countries, and may negatively affect poverty particularly through macro-level economic and political changes in developing countries; this apparently conflicting relationship, of negative human development and democratic impacts caused by oil wealth, is known as the resource curse ; Use of modern energy and electricity is positively correlated with human development indicators at a national scale, but does not reach remote and dispersed rural areas where most poor people live, nor the poor in urban areas who cannot afford these energy types; Both extraction (exports) and use (imports) of fossil fuels are more likely to have negative macro-level effects on developing countries, by undermining democracy and security and causing high debt (in case of exports) or making countries highly volatile to price changes and volume deficits (in case of imports). In both cases the poor are most affected; 10
Climate change and other environmental damage resulting from fossil fuel consumption, will also particularly affect the poor, according to the IPCC. 14 Thus, the question is to what extent these disadvantages may be overcome by using new renewables. The following advantages of new renewables may be mentioned in particular: Less environmental pollution and particularly carbon emissions; Greater potential for (local) employment; Reduced fossil fuels import dependence and foreign exchange burden by developing countries, causing less economic instability; Well suited for flexible and decentralised off-grid systems, to serve the rural poor who often live in dispersed and decentralised patterns. The current costs of renewables are often higher than those of fossil fuels. However, to make a good cost estimate between fossil and renewable fuels one would need to adopt a life cycle analysis approach and also take into account the costs of externalities such as social impacts, environmental damage and climate change. In addition, while prices levels of fossil fuels are currently increasing, those for renewables are constantly declining due to learning effects and economies of scale. 3. Policies relevant for energy and poverty 3.1 International context At the World Summit on Sustainable Development in September 2002, it was agreed that the contribution of renewables to world energy use should be substantially increased with a sense of urgency. Increased use of renewables, it was agreed, should be achieved by joint actions and improved efforts to work together at all levels, by public-private partnerships, and by intensifying regional and international co-operation in support of national efforts. A broad coalition of countries, including Brazil, Canada, New Zealand, Iceland, Norway, and the European Union and its member states, have indicated a willingness to go one step further by committing themselves to targets and timetables. For a more complete text on the agreements related to energy for development see Annex 8. One of the themes of the 14 th conference of the Commission on Sustainable Development was that of Energy for Sustainable Development. In his opening statement, Secretary-General Kofi Annan called on the Commission to act with greater imagination in exploring ways to bring the poor into the modern energy and industrial economy, while moving energy use and economic activity onto a cleaner path and safeguarding the planet and its climate for future generations. He called for a revolution in energy efficiency and new efforts to scale up investment in renewable energy. The final list of challenges includes [20]: 15 (h) Providing energy for all - access to reliable and affordable energy services for sustainable development, giving particular attention to the rural and urban poor, especially women, who currently have no access to modern energy services for cooking, heating and electricity, in order to meet basic human needs and facilitate achievement of the MDGs; (i) Promoting energy efficiency, including end use efficiency public awareness campaigns and better technology options, and increasing the share of renewable energy; 14 The impacts of climate change will fall disproportionately upon developing countries and the poor persons within all countries, and thereby exacerbate inequities in health status and access to adequate food, clean water and other resources. 15 Chairman conclusions: http://www.un.org/esa/sustdev/csd/csd14/documents/chairsummarypartii.pdf 11
(j) Strengthening the development and use and transfer of cleaner energy technologies, including renewable energy and advanced energy technologies, including cleaner fossil fuel technologies, supported by stable, predictable regulatory frameworks. 3.2 World Bank policies Between 1992 and 2002, the World Bank has approved over $24 billion in financing for 229 fossil fuel projects, i.e. $ 2400 million per year. This financing has leveraged enough fossil fuel production to generate almost double the amount of carbon dioxide as was produced by humanity in the year 2000. That is, these projects will produce 46.7 billion tons of carbon dioxide; global emissions from the consumption or flaring of fossil fuels totalled 23.6 billion tons of carbon dioxide in the year 2000. In contrast, the World Bank s support for renewable energy and energy efficiency is small, though growing. Since 1992, the World Bank has supported 39 projects targeting renewable energy or energy efficiency, with approved financing of $1.35 billion. Fossil fuel financing at the Bank thus outpaces renewables by a ratio of 18:1. Over $4 billion in other fossil fuel projects are in the pipeline, compared to $500 million of pending renewables or energy efficiency projects [20]. The World Bank undertook in 2000 the Extractive Industries Review (EIR) as an assessment of its activities in the extractive industries sector (oil, gas and mining activities). Apart from various critical findings on the role of the World Bank, attention was drawn to the importance of renewable energy for sustainable development and a stronger role of the World Bank. In its response, the World Bank promised, amongst others, to [10]: Only support extractive industry projects that have broad support from affected communities; Ensure that economically and financially viable energy and energy efficiency investments become an essential element in the energy choices of member countries Increase the renewable energy and energy efficiency portfolio commitments by 20% annually over the next five years. Progress on these commitments is being reported annually by the World Bank [16]. One conclusion from the December 2005 report is that it has more than met its target for investing more than 20% growth annually in new renewable energy 16 and energy efficiency. In 2005, the World Bank was asked by the G8 to develop a framework for climate stability. The resulting energy investment framework is intended to "accelerate investment so that developing countries can meet energy demands for growth and poverty alleviation in an environmentally sustainable way". The framework includes three elements: Energy for development, which does not pose a technology challenge but a global financing gap, and includes small and large-scale hydro as well as nuclear energy; The move to a low carbon economy, which will require a long-term, stable, post-kyoto regulatory framework, large grants and making markets work; Adaptation to climate change. To finance the three elements new instruments are created including a clean energy fund, a project development fund and a venture capital fund. The proposed investment strategy is criticised by laying too much emphasis on fossil fuels over alternatives such as renewable energy and energy efficiency. The strategy embraces coal technologies, nuclear power and large hydropower as solutions to global warming. The World Bank argues that new technologies could make coals more environmentally friendly and 16 Defined by the World Bank as solar, wind, geothermal, biomass and hydropower with capacities of 10 MW or less per facility. 12
developing countries like China should be enabled to make use of their coal reserves. The starting point of the strategy is a 60% increase in greenhouse gases over current levels by 2030, which is the International Energy Agency s business as usual scenario. The World Bank s oil, gas and coal projects financed since 1992 will release over 43 billion tons of CO2 over their lifetimes. It is also claimed that the World Bank remains heavily invested in fossil fuels close to $30 billion worth since 1992, and that it has ignored the 2004 recommendation of its own EIR to get out of all oil and coal investments by 2008 on the grounds that the poorest are harmed by these investments. 17 3.3 Dutch development aid policies The current Dutch development aid policy finds its origin in a policy document from 2003. 18 It has as its main objective sustainable poverty reduction, with the Millennium Development Goals (MDG s) as main targets. New orientations are the development of partnerships, the role of civil society and private sector, a regional approach with a focus on Africa, more attention for sustainable development, integration of foreign policy and policy coherence. 19 Energy supply for the poor is a new theme because an increased access to modern energy services will help developing countries realise their MDGs 20 The Dutch policy target is that of providing within the next 10 years (by 2015) access to modern energy services to 10 million poor people in developing countries who currently do not have such access. The conference Energy for Development in 2004 called for activities to ensure access to modern energy services to the poor, to integrate energy in development aid policy, improve governance and market mechanisms in the energy sector and to generate financial resources. 21 Civil society criticises the current energy policy by pointing out that it focuses on fossil fuels and therefore bears environmental risks and will not reach the poor. They point out that in order to reach the poor what is needed are demand-driven, small-scale and sustainable projects with ownership among the users. 22 Related to the energy discussion is the debate on biofuels, both the production and imports of which are being strongly stimulated by EU and Dutch policies [21, 22]. Structure of Dutch Official Development Aid (2005), by category Bilateral aid 18 % Multilateral aid 31 % NGO s (Oxfam, Cordaid, etc.) 23% Businesses 5 % Eki (export credit debt) 13 % Others 10 % Source: Ministry of Foreign affairs, Kamerbrief aan Eerste en Tweede Kamer over de notitie 'Aan elkaar verplicht' bijlage IV. 23 In 2004 Dutch official development assistance (ODA) has been 0.73% of GNP, with a total of 3,384 million Euro, of which 31% was contributed through international financial institutions including the World Bank well over the amount provided directly from Netherlands to 17 Institute for Policy Studies, Sustainable Energy & Economy Network, www.seen.org, see for details Annex 9 18 Aan elkaar verplicht, Ontwikkelingssamenwerking op weg naar 2015. 19 Vragen en antwoorden n.a.v. Aan elkaar Verplicht, 29234, Nr. 3, p. 2. 20 Vragen en antwoorden n.a.v. Aan elkaar Verplicht, 29234, Nr. 3, p. 28. 21 Brief Van Ardenne en Van Geel aan Tweede Kamer, d.d. 28.02.2005. 22 Persbericht HIVOS en Stichting Natuur en Milieu, Den Haag, 13 december 2004. 23 Available at www.minbuza.nl 13
receiving countries. 24 In response to NGO questions (see Annex 11) about the Dutch contribution to multilateral banks (mainly the World Bank) and their investments in renewable energy, the Dutch minister of development aid responded that the World Bank undertakes major investments in clean energy and renewable energy and undertakes environmental and social assessments of fossil fuel projects (referring to the recent progress report of the World Bank, see reference [16]). However, she underlined that, while economic development of developing countries is essential to alleviate poverty, economic development is not possible with renewable energy only. Renewables were, she stated, in many countries in an early state of development and are not yet able to compete with conventional energy sources. Thus, fossil fuels will remain a share of the total energy supply. The minister also listed Dutch contributions to stimulate energy and sustainable development, by support to multilateral banks 25 and small-scale decentralised energy supply projects. In March 2006 the minister delivered a speech to the World Bank entitled energy through synergy. Modern energy according to her must be interpreted as improved in comparison to existing energy supply, more broad than renewable energy and also including fossil fuels. 26 She emphasised that the Dutch policy on modern energy for the poor is reaching its target, and referred to clean stoves, solar energy and biogas. She emphasised that a big push towards renewables is unrealistic in the short term, and suggested that providing non-renewable modern energy to 2 billion people would not be a problem because this would only increase global carbon emissions by only 1% [17]. About Dutch investments in fossil fuel projects in developing countries, she stated that investments in oil companies in developing countries generate important revenues. Not all people will equally benefit from such revenues, but this is a problem that is not particularly associated with investments in oil companies. 27 3.4 Cost estimates of energy for the poor It is useful to consider the range of costs that could be involved in an ambitious energy program, as compared to existing conventional expenditures. 1. The World Energy Assessment claims that providing basic electricity plus fuels for cooking to 40 million people would cost around $10 billion, or some 5% of annual energy investments [1]. 2. The World Bank investments in fossil fuels are about US$ 2,400 million per year. One poor family is expected to use 2,5 KWh per day of electricity (some lamps, a small fridge and radio/tv). Solar photovoltaic energy costs are currently around 25 $cents per KWh. Thus, about 10 million families can be served annually by the World Bank budget on fossil fuels (or 50 million people). The Dutch contribution to multilateral banks (ca. 1 billion Euro) could serve about 5 million families. According to an estimate by Christian Aid [24], solar electricity could be provided to 50 homes for $25,000, or roughly $100 per person. Supplying 10 million people would then cost around $1 billion, (ca. 0.2 % of Dutch GDP) 24 Ministry of Foreign affairs, Kamerbrief aan Eerste en Tweede Kamer over de notitie 'Aan elkaar verplicht' bijlage IV. Available at www.minbuza.nl 25 The African Development Bank (FINESSE program), the Asian Development Bank (PREGA program), the EBRD (the Carbon Credit Fund), and others 26 Vragen en antwoorden n.a.v. Energieconferentie Wereld Bank, 2050609250, Nr. 2 27 Vragen en antwoorden n.a.v. Energieconferentie Wereld Bank, 2050609250, Nr. 2 14
References [1] UNDP, 2000. World Energy Assessment. [2] REN 21 Network, 2005. Energy for development. The potential role of renewable energy to meeting the Millennium Development Goals. [3] UNDP, 2005. World Energy Assessment. Overview 2004 update. [4] José Goldemberg, 2004. The case for renewable energies. Thematic background paper. [5] Michael Ross, 2001. Extractive Sectors and the Poor, Oxfam America Report, Washington, October 2001. [6] Milieudefensie, 2005. Fossil fuels and renewable energy: impacts on human development. Milieudefensie, Amsterdam [7] Michael Ross, 2001. Does oil hinder democracy? World Politics Volume 53, pp 325-361. [8] Ricardo Hausmann and Roberto Rigobo. 2002. An Alternative Explanation for Resource Curse : Theory and Policy Implications. National Bureau of Economic Research, Working Paper 9424, Cambridge. [9] Auty, R. (1997) Natural Resources, the State and Development Strategy. In Journal of International Development. Vol 9 (4): 651-663. [10] World Bank, 2004. Striking a better balance the World Bank group and extractive industries: the final report of the extractive industries review. Wsahington. [11] Milieudefensie, 2005. How Dutch public money is used to finance the oil industry. Milieudefensie, Amsterdam. [12] AFREPREND/FWD, 2006. Renewables for poverty reduction in Africa. Summary for policy makers. [13] AFREPREND/FWD, 2002. Renewables in Africa. Poverty alleviation instrument? [14] Milieudefensie, 2006. Biofuels report. [15] Martinot E (2002). Renewable energy markets in developing countries. Annual Review of Energy and Environment 27: 309-348. Cited in [2] [16] World Bank, 2005. Implementation of the management response to the extractive industries review. [17] Energy by synergy. Speech by Agnes van Ardenne van der Hoeven, World Bank Energy week. [18] Deen T. (in press). Promotion and Protection of Human Rights. Interim report of the Special Representative of the Secretary-General on the issue of human rights and transnational corporations and other business enterprises. Global Policy Forum. http://www.globalpolicy.org/reform/business/2006/02srsgreport.htm. [19] Public renewables partnership. http://www.repartners.org/renewables/recosts.htm [20] A Sustainable Energy and Economy Network / Institute for Policy Studies Brief (2002). The World Bank and fossil fuels. [21] European Commission (2006), An EU strategy for biofuels. Brussel: COM(2006) 34 [22] Ministerie van VROM (2006), Beleidsbrief biobrandstoffen. [23] International Energy Agency, 2005. IEA World Energy Outlook 2004. [24] Christian Aid, 2006. The climate of poverty: facts, fears and hope. [25] IPCC, 2001. Climate Change 2001. Mitigation, 3.8.6. Technological and Economic potential. 15
Annex 1: World primary energy consumption from different sources, and new renewables by source, in 2001 [both from 6] 16
Annex 2: Linkages between modern energy and Millennium Development Goals [2] 17
Annex 3: Relations between oil dependence and development indicators [6] The available evidence shows that, economically, oil producing developing countries have shown better economic performance in the 1960s and 197s, but sharply declining economic growth in the 1980s when oil prices dropped, so that overall economic growth between 1960 and 1998 has been similar for oil- and non-oil producing developing countries (Table 1). However, oil-producing countries show greater fluctuations in economic performance. In terms of human development, oil dependent states in 1995 performed worse than one would expect on the basis of their GDP per capita (Table 2). Table 1: Relation between oil-dependence and economic growth Country group Number of countries Average annual growth in GDP per capita purchasing power total 1960-1998 1960-1980 1980-1998 All developing countries 115 + 1.66% + 3.0% + 0.2% Oil exporters only 15 + 1.68% + 5.2% - 2.1% Non-oil exporters 100 + 1.65% + 2.7% + 0.5% Table 2: Relation between oil- or mineral dependence and 1995 human development indicators Corrected refers to correction for variable GDP per capita. Indicator Oil dependence Mineral dependence HDI not corrected 0 --- HDI corrected -- --- Poverty corrected + -- Under five mortality corrected -- --- Life expectancy corrected - --- Malnourished children corrected -- - Children in primary school corrected -- -- Adult literacy corrected -- -- Legend: + is weakly positive, 0 = not significant, - = weakly negative, -- = negative, -- = strongly negative. It was also found that doubling a country s annual production of crude oil will increase the size of its total debt as a share of GDP by more than 40% and its debt service burden by 31%. There is a negative relation between oil dependence and democracy, and oil industries cause greater damage to democracy in poor states than in rich ones. Highly mineral or oil-dependent states face a risk of civil war of 23% for any given five-year period, as compared to a civil war risk of just 0.5% for an identical country with no natural resource exports. In other words, highly oil dependent states have a relatively high probability of being indebted, undemocratic and insecure countries. These parameters have particular impacts on the poor. In addition, negative environmental impacts of oil (and minerals) industries will first of all affect the poor. The weak positive relation between oil dependence and poverty refers to higher incomes but does not take into account the other dimensions of poverty, such as access to natural capital, access to water and education, livelihood security and empowerment, nor human rights issues. These aspects are all affected in a negative way by oil dependence. It is important to note that at least three countries have escaped the above pattern: countries like Botswana, Chile and Malaysia have high mineral and/or oil-dependence but show propoor development strategies and results. It would be interesting to explore what makes these countries perform much better. 18
Annex 4a: Major renewable energy technologies and applications, 2005. Note that not all of these are so-called new renewables (see text). [2] 19
Annex 4b: Overview of renewables that have been disseminated in rural areas of Sub- Saharan Africa for productive use [12]. 20
Annex 5: An overview of the status of new renewables technologies in 2001 [3] 21
Annex 6: Rough estimate of employment generation by different types of energy generation [4] 22
Annex 7: Impacts of renewables energy supply on sustainable development (biogas and micro-hydropower) [6, based on several sources] Potentials of biogas and micro hydropower to reduce poverty Brief description Applicability, potential and conditions Environmental aspects Financial feasibility Socio-economic impacts Management aspects Poverty impacts and aspects Biogas Biogas is the gas produced by bacteria acting upon biodegradable materials. A 6 m 3 biogas plant requires 36 kg cow dung and an equal amount of water to burn a stove for 3.5 hours. In Nepal biogas is used for cooking (80%) and lighting (20%). Biogas plants are used in rural areas by families with cattle, water available and high temperatures. By 2009 in Nepal 2 million people will benefit from biogas. The potential in SE Asia is estimated at 10 million biogas plants in 6 countries benefiting 50 million rural people. Families with biogas burn 7-18 kg less fuelwood every day. This has a positive impact on forests and trees. Soil organic matter is improved by reuse of organic materials. CO 2 emissions are reduced by 859 ton every day for 100,000 biogas plants; this equals US$ 12,885 at the international carbon trade market. An average biogas plant costs US$ 355. In Nepal installation is subsidised up to 40%, and favourable micro-credit schemes are available. Annual repair and maintenance costs are about US$ 7. Agricultural production increases up to 40% by use of the biogas slurry as fertiliser. Use of biogas reduces the incidence of diseases due to smoke problems. Time saved by using biogas as compared to fuelwood amounts to 1-2 hours per day for women, and can be used for education or income generating activities. Biogas construction creates local employment to 20,000 people. Maintenance, training and management are being dealt with by local institutions. Families without cattle cannot use biogas. The main problem is the lack of water year round. Women benefit in particular through time saved and improved health. Micro hydropower Micro hydropower installations have a capacity of 5-200 kw. It makes use of energy from locally available streams. Micro hydropower can provide mechanical power (e.g. for a food processing mill) or to generate electricity which may be used for smallscale industries or household use. Micro hydropower potential is greatest in (remote) mountainous areas with sufficient rainfall. Micro hydropower is most widespread in Asia. In China application is large-scale with 85,000 installations in rural areas in 2000. There is also good potential in other continents. Micro hydropower is a clean renewable energy supply as it does not require the construction of a dam; it makes use of gravity from natural streams. Hydropower can have major negative environmental and socio-economic impacts if applied at large scale and associated with dam construction. The cost of a micro hydropower scheme is on average US$ 1,000 per kw. Micro hydropower is less costly than rural electrification or fossil fuels. Profitability is highest if used for smallscale industries. Micro-credit schemes are usually associated. Use of micro hydropower has positive impacts on income and employment, health and access to services by the time saved. Water channelled for micro hydropower can also be used for irrigation. No information Micro hydropower is a decentralised solution for energy supply in remote areas. The main constraints are high installation costs and poor economic feasibility if no commercial end-use. 23