Can Developing Country Energy Needs be met Without Causing Climate Change?

By Jodie Keane

As the global financial crisis continues, it obscures, to some extent other crises that began in 2008. The food and fuel price crises which were high on the agenda in 2008 have been put on the back-burner as other more urgent matters have taken precedent. But this could change later this year. The ‘triple F' crises of finance, food and fuel are likely to be pushed back up the agenda in the build up to negotiations for the successor to the Kyoto protocol; which is to be agreed in December 2009 in Copenhagen.

Some of the questions that need to be answered to include: How can developing countries be incentivised to adopt cleaner energy? What steps do developed countries need to take to facilitate this? These questions will be the focus of an ODI and Department for International Development, UK public event in the Climate change and international development series on 22 April 2009.

The challenge

Global food production depends on fossil fuel, not only for transportation and storage, but also for the production of other inputs such as fertiliser. But food production may be diverted to the production of biofuels. The biofuels debate reached its peak in 2008, as controversy raged over the causes of the global food price spike: was it the production of biofuels (heavily subsidised in the EU and US) that reduced food supply and global stocks; speculation as investors sought ‘safe' bets in commodities pushing up their prices - including oil; or, the result of adverse weather events, which meant reduced supply (events which may become more frequent as our climate changes)?

While the answers are unclear, the links between the current crises are increasingly being recognised. This blog argues that the ‘triple F' crises - food, fuel, and finance - need to be addressed together. Whether or not they are may determine how the needs of developing countries for economic growth and poverty reduction can be reconciled with climate change. There are five key areas that require attention…

…fossil fuel shortages

Recent speakers at ODI such as Jeremy Rifkin have suggested that globalisation peaked in 2008: when oil prices hit $150 a barrel this acted as a brake on further expansion of productive capacity based on fossil fuel. Sir Anthony Giddens suggests that even without ‘peak oil' (where demand for oil outstrips its supply) we cannot sustain global economic growth based on fossil fuels as there is a lack in investment in getting resources out of the earth; this is a structural as well as a political problem. Around 93% of total fossil fuel oil production in the world is owned by governments that do not invest in technology to further extract and increase the efficiency of production. The challenge of mitigating Dutch Disease as a result of natural resource windfall revenues continues in many parts of the world.

…lack of access to finance

Developing countries that lack fossil fuel energy supply often lack grid electricity and proper infrastructure. Ensuring adequate energy supply is crucial for any growth and poverty reduction strategy. But typically, the level of investment in the electricity sector in developing countries is around 50% of what is needed. Capital doesn't always flow to where it is most needed.

…impact of the GFC on capital flows

Private capital flows are predicted to fall dramatically into 2009. This may affect investment in infrastructure in developing countries and, as a result, stall further investment in renewable energy supply - which has been growing, albeit from a very low base. In the rush to save the global economy and set the world on a more environmentally sustainable growth path, the challenges of attracting, and retaining, private finance for low income and less developed countries within the context of climate change need to be addressed. Lack of access to finance may be further exacerbated as a result of the global financial crisis.

…but renewable energy abundance

While few developing countries are endowed with capital, they are often favourably endowed with renewable energy sources. Clean energy supply and the use of renewables such as solar, tidal, hydro, geothermal and biomass are more localised and dispersed compared to their fossil fuel counterparts. Because access to clean energy technologies is not equitable, their future use may well be clustered in regions where lack of renewable energy supply is mitigated by the availability of capital and technology. However, if barriers to access and other policy constraints are to be overcome, some of the least developed countries of the world could, in the future, become the drivers of clean energy supply.

Recent studies suggest a large potential for clean energy projects in Sub-Saharan Africa; if fully implemented, they could provide more than twice the region's current installed power-generation capacity. It has been suggested that Latin America has a comparative advantage in maximising clean energy opportunities. Brazil and China are already seeking leadership in green energy: China is one of the world's largest phyotovoltaic producers; Brazil is one of the world's most greenhouse gas (GHG) efficient bioethanol producers and is seeking export opportunities in fuel-flex vehicles.

Not only will capitalising on renewable energy opportunities enable developing countries to meet their own growth and poverty reduction objectives - which demands energy - but also sustain global growth as fossil fuels become increasingly limited. Most developed countries are net energy importers, while most developing countries are net energy exporters: the most dominant energy export being fossil fuels. As fossil fuel resources become increasingly unable to satisfy global energy demand, they also become an expensive but dwindling source of export revenue; alternatives will need to be sought such as renewables.

…policy barriers

One of the greatest policy barriers that exist in developing renewable energy sources includes the lack of a common global position. This is essential as a precursor to global leadership. And is required to send the right signals and incentivise changes in business practice, including investment in clean and green energy technology.

So, can developing country demands for energy be met without causing dangerous climate change? First, we need to question why these needs have not yet been met. Second, we need to envisage what may differ in the transition to low-carbon and renewable energy supplies. The global financial services industry needs leveraging to meet the challenge of resuscitating global economic growth and mitigating climate change; while avoiding further structural imbalances that might exacerbate or fuel subsequent crises related to climate change.

Re-published with permission by the Overseas Development Institute.