PPC IDEAS
E-Bulletin, Issue 26
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Energy and the Poor
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IN THIS ISSUE:
The Oil Crisis
Energy and the Poor
Alternative Energy Technologies
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Summary
Alleviation of poverty in poor countries requires many things, one being the use of more energy by the poor. Recent high prices for energy put developed countries under significant stress, but the impact of these high prices is even greater for poor countries. This situation raises two central questions: What can the global community do to cushion the shock of higher energy prices for the poor in the near term? What institutional reforms and technology applications will result in more reasonably priced energy flowing to the poor? This E-Bulletin explores these two issues. It notes the big demand by developed countries for energy and their excessive dependence on access to oil, the increasingly precarious global balance of supply and demand for oil, and the negative impact this has on rich and poor countries alike. It notes that developing countries have numerous options—reform of economic, financial and political systems affecting energy provision and use, and development and application of hybrid technology, the oxygen economy, use of now wasted natural gas, etc.—to reduce their dependence on oil. It considers the relationship between energy and poverty and explores institutional reforms and use of energy technology to help alleviate poverty.
The Oil Crisis
During the 2006 State of the Union Address, President George W. Bush outlined his plan to reduce foreign oil imports by 75% by the year 2025. The President's first initiative is to reduce fuel consumed in transportation, homes and businesses. Consumption is projected to double by 2030 as fuel reduction technologies lose ground to increased usage by American consumers and businesses. A 22% budget increase in new energy research will improve: 1) Battery technologies that allow a plug-in hybrid-electric vehicle to have a 40-mile range operating solely on battery charge; 2) Technologies needed to make cellulosic ethanol cost-competitive with corn-based ethanol by 2012; and 3) Hydrogen fuel cell vehicles for a majority of Americans by 2020. Additionally, the plan raises CAFE standards, lowers diesel sulfur and nitrogen oxides emissions by 90%, and institutes tax incentives that promote hybrid and clean diesel vehicles, biodiesel and ethanol consumption, and alternative fuel stations. Business and home conservation efforts encompass: 1) Clean coal technology research funding; 2) Developing a new Global Nuclear Energy Partnership (GNEP) to address nuclear fuel possibilities; and 3) Research to make solar photovoltaic technologies cost-competitive by 2015.
Bush, George W. The White House, February 20, 2006.
The Association for the Study of Peak Oil (ASPO) is a group of oil executives, geologists, investment bankers and academics warning that global oil is about to peak. Oil peaking signifies that current global suppliers will be unable to increase production while supplies will begin to decrease over time. This would signify a permanent end to cheap oil in a sudden manner rather than a linear increase over time . With no current, adequate substitute for oil, peaking would be catastrophic to current global economies. In addition to peaking, terrorist attacks on pumps, pipelines and refineries represent other possible sudden limitation of oil supplies. Our demand for oil continues to grow while our production capabilities are reaching their limits. Suggested solutions are reducing demand for oil through new technologies and energy alternatives, preparing for oil prices at a permanent increase 3 to 4 times greater than current prices and reserve inspection by customer countries to ensure reserve accuracy. If oil were to peak, neither the super poor nor the super rich would be affected as they either have no access to energy or do not care if oil is $100 a barrel, respectively. The most affected would be everyone in between.
Porter, Adam. BBC News, June 7, 2004.
Co-funded by the Pentagon, this independent, peer-reviewed synthesis for American business and military leaders charts a roadmap for getting the United States profitably off oil and is applicable worldwide. Fully applying today's best efficiency technologies in a doubled-GDP 2025 economy would save half the projected U.S. oil use at half its forecast cost per barrel. The policies and technologies employed in the analysis are: 1) Double current oil efficiency use by investing in technology for ultra-lightweight vehicles, 2) Implement business models and public policies enabling the adoption of these vehicles, 3) Substitute one-fourth of US oil consumption with recent advances in biotechnology and cellulose-to-ethanol conversion, and 4) Implement efficiency techniques to save half of the projected 2025 natural gas use and then substitute for oil while using any surplus in hydrogen technology. Policies to adopt these new technologies include rebates for efficiency vehicles, vehicle substitution programs for low-income family vehicles, military involvement to spur technological advances, government procurement and targeted acquisitions for aggregate buyers and loan guarantees to support US automakers' conversion. “ …We don't have to wait for the arrival of that day [hydrogen technology]. There are many things that can be done now, and this book is full of them.” – George P. Shultz, former United States Secretary of State.
Lovins, Amory et al, Rocky Mountain Institute, 2005.
Energy and the Poor
No country has reduced poverty without increasing energy use. Poorer communities spend a greater percentage of their income on energy. The inefficiency of their current energy supplies restricts them from engaging in higher income-generating ventures. Additionally, purchasing fuels in small amounts for households is more expensive than wholesale supplies for mass energy solutions. In poorer countries, 95% of population growth is expected in urban areas over the next decade. Electrical grid access should be extended to the current urban population without grid access while also preparing for population growth. In most rural areas, remoteness and low population density makes extending electrical grids prohibitively costly and improving off-grid solutions through new biomass technologies should be a priority. However, these macroeconomic policies should avoid discriminating against or favoring particular energy technologies. Price-distorting subsidies and taxes should be eliminated. A need does remain for well-implemented subsidies that genuinely benefit the poor and avoid creating disincentives for energy companies. The necessary solutions are only possible if the energy sector works with other sectors to increase energy access to the poor.
Saghir, Jamal. Energy and Mining Sector Board, The World Bank Group, May, 2005.
The high levels of poverty prevalent in sub- Saharan Africa are reflected in the consumption pattern of modern energy. North Africa is heavily reliant on oil and gas, South Africa depends on coal and the rest of sub-Saharan Africa , the poorest countries, are largely reliant on biomass energy, the most inefficient of technologies. Electricity is largely confined to the energy intensive sub-sector of commercial and industrial enterprises as well as high-income households. The electrification of the rural and urban poor is inadequate. Urban population growth rates are nearly double the overall rate and an increase in urbanization will result in an increase in energy demand. However, many African energy sources are currently underdeveloped. Among the world's lowest figures, only 7% of exploitable hydropower capacity has been harnessed. There is an estimated 9,000 MW geothermal potential but only 45MW (in Kenya ) has been exploited. Solar energy use is still dominated by traditional applications of direct solar energy to dry crops. While African countries are currently constrained by ineffective energy options, they are not entrenched in traditional energy interests. This provides current governments an opportunity to design and install new energy technologies with modest resources and effort.
Karekezi, Stephen. Review of Poverty and Energy in Africa , Energy Policy, 2002.
In the past, subsidies in the form of financing and policy adjustments have historically been necessary during the shaping of energy technology transitions to overcome intensive startup costs, risk premiums and political barriers. For both coal and oil, these subsidies were necessary during the shaping of energy technology transitions. However, today's direct and indirect financial support to promote energy supply and access tends to skew the playing field against renewable sources of energy during times where elevated costs, dependence on foreign supply, and environmental concerns make oil and coal less appealing. Direct subsidies include support to consumers, payments to investors in capital intensive projects, tax exemptions, and price caps while more indirect forms include transmission grid support, regulatory hurdles for small and distributed power, and agreements on formulas for risk calculation that emphasize volume of electricity rather than the security of fuel inputs. The report recommends the following policies: 1) Creating targeted, soundly based incentives that are practical, transparent, predictable and promote market competition and 2) Aiming at all aspects of the system – including technical barriers, market impediments, administrative barriers and social and environmental constraints. A successful outcome will necessitate not only a precise identification of how to reform the system, but as critically, how to overcome the political barriers to realizing these changes.
Pershing, Jonathan and Jim Mackenzie. The World Resource Institute, March, 2004.
Alternative Energy Technologies
China is close to testing a new “pebblebed” nuclear reactor which offers many advantages over more traditional nuclear reactors. Pebble nuclear power plants originated in Germany more than three decades ago and the U.S. nuclear-power industry also pursued it. When public opposition to nuclear energy forced those countries to curtail nuclear research in the 1980s, Beijing took over. China expects to complete a small commercial plant, which will produce 195 megawatts of electricity, within five years in the eastern province of Shandong . Pebble technology is fail-safe in that it would not be possible for the reactor to melt down or explode like Chernobyl or Three Mile Island . The uranium in each sphere can not get hot enough to melt the casing and escape. Also, the main coolant for the system is inert helium, not water, as is used in other types of reactors (water contains oxygen, which is combustible). China intends to increase its nuclear power output fourfold by 2020. Pebblebed reactors are also smaller, easier to build, require only a fraction of control room staff, and the production of weapon-grade from used fuel would be difficult and expensive. Renewable energy sources and coal are not capable of meeting China's increasing energy demands and new nuclear technology is an important part of the solution to their energy needs.
Schafer, Sarah. Newsweek International Edition, February 6, 2006.
Renewable technologies are diverse in terms of both commercial and technological maturity. Some are close to competing with fossil fuels and may be cheaper if environmental externalities are included but others are much further from market viability. Wind power is well developed and, through cost reduction and market development, should converge with fossil-fired fuelled alternatives in the future. Photovoltaic energy appears to offer tremendous potential for long term cost reduction through market growth and innovation over the next 10 – 20 years and a number of applications will become cost competitive with conventional options. Biomass energy faces multiple challenges, reflecting the diversity of fuelling options and applications around the world. Appropriate policies are needed that allow those options and applications that are close to commercial viability to flourish whilst ensuring that options which hold promise for the longer term are nurtured through their early stages. Renewable energy expels lower pollution, is an indigenous resource, and promotes job creation, often in the rural sector. Appropriate policies described in this paper include funding for research and development, public procurement, direct subsidies based on percentage of renewable energy supplied, fiscal relief such as tax incentives and accelerated depreciation, and statutory obligations on electrical suppliers.
Gross, Robert and Dr. Matthew Leach and Dr. Ausilio Bauen. Imperial College Centre for Energy Policy and Technology (ICCEPT), September, 2002.
Changing investment patterns make it more important to think about markets for renewable energy rather than solely new technologies. While most renewable energy markets first succeed because the richer segments of society are able to afford the benefits, many programs have succeeded in developing countries by increasing access and affordability to the poor. Markets for rural household lighting with solar home systems, biogas and small hydro power have expanded through rural entrepreneurship, government programs and donor assistance to serve millions of households. Applications in agriculture, small industry and social services are emerging. Public programs resulted in 220 million improved biomass cook stoves. Three percent of power generation capacity is largely small hydro and biomass power, with rapid growth of wind power in some developing countries. However, such policies must overcome political and institutional hurdles, fit into utility-sector restructuring and resolve who will pay for extra costs in the shorter term until costs decline. Experience suggests the need for technical know-how transfer, new replicable business models, credit for rural households and entrepreneurs and regulatory frameworks and financing for private power developers. Market facilitation organizations, donor assistance aimed at expanding sustainable markets, smarter subsidies and greater attention to social benefits and income generation are also critical for further success in developing energy markets in the third world.
Martinot, Eric et al. Annual Review of Energy and the Environment, 2002.
This article is a case-study of ethanol's evolution and application as a substitute for gasoline in Brazil since 1975. Ethanol caught on quickly and by 1989, 90% of vehicles produced used ethanol as a clean fuel; additionally, all gasoline sold contained a 24% mixture of ethanol. In recent years, demand for ethanol has decreased due to supply problems creating two problems: a higher dependence on gasoline in recent years and a decrease in jobs created in ethanol production. It is in Brazil 's interest to continue to employ their past ethanol practices because of cost-savings benefits and employment creation. Additionally, recent technological advances enable the utilization of biomass residue from ethanol for the electricity market. A recent study may result in the use of ethanol in fuel cell-powered vehicles. Through accurate policy application and market development, ethanol practices may spread to other countries and further fortify the ethanol market.
Moreira, José Roberto. Energy for Sustainable Development, Volume IV - No. 31 , October, 2000. /////////////////////////////////////////////////////////////
For more information about specific PPC IDEAS project activities, contact:
Dr. Ann Phillips, USAID/PPC
Melissa Brown, USAID/PPC
Dr. Dennis Wood, IRIS Center
The E-Bulletin is published by the PPC IDEAS Project at the IRIS Center.
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