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Energy for Development

Energy and Development in a Changing World: A Framework for the 21st Century

Commentary by Philippe Benoit • March 04, 2019

Introduction

Among the most complex and influential energy transformations of the 21st century are those underway in developing countries.[1] During the previous century, the energy relationship between these countries and the global energy system was largely framed by the exports developing nations sent to the developed world. That is no longer the case. The past 15 years have seen the weight of developing countries in the global energy landscape grow dramatically as their energy consumption has nearly doubled. There are over six billion people in the developing world using increasing amounts of energy on locally consumed goods and services as part of a successful development process that is raising their standards of living. While in the recent past some of the domestic consumption of energy in developing countries was to manufacture goods for export to richer ones, the situation today has changed. These countries now use the majority of the world’s energy to support their local consumption of goods and services, and they are looking to even significantly larger levels of energy use going forward to power further economic and social development.

Developing countries face a major undertaking: how to best secure and use these significantly larger amounts of energy in a manner that both promote continued economic growth and is sustainable. In this regard, it is primarily the increasing demand for and use of energy for local consumerism that is driving the need for more supply. The choices the developing countries make in meeting the two challenges of increasing demand and supply will have a profound impact on the global economy, markets, geopolitics, and the dynamics of climate change. At the same time, even as developing countries have recently enjoyed significant economic gains, too many households remain very poor, without access to electricity or clean cooking. In a world of increasing riches, providing energy access to the billions without it has become a development imperative, one that has been formalized by the United Nations (UN) through the adoption in 2015 of universal access as a Sustainable Development Goal.[2]

The changes underway have created a need to update and expand the discussion about how developing countries can use energy more effectively in support of poverty alleviation, economic growth, social improvements, and sustainability. Energy for development, however, is a vast, diverse, complex, and evolving area that is frequently difficult to comprehend. This work proposes a framework to analyze the dynamics and challenges of this energy use for development. This framework reflects the global energy context of the 21st century, one that is marked by the numerous development gains and the related ever-increasing economic weight and energy demand of developing countries as they successfully fight poverty and move toward prosperity.

The framework is constructed around five dimensions, or “pillars”: energy exports, energy use for local consumption, acquiring the energy, global impacts, and energy access (see figure 1).  The following is a summary of these pillars.

  • Energy Exports: Historically, much of the discussion about energy and developing countries focused on the challenge countries faced to transform the revenues generated from their oil and gas exports into sound economic growth. This remains an important challenge for many energy-exporting developing countries.
  • Growing Local Consumption: Developing countries are now using much of the world’s energy domestically for their own consumption of goods and services as part of an impressive economic and social development process that is moving entire populations out of poverty toward prosperity. Helping developing countries use energy better to fuel their own increasing consumption of goods and services has now become a major factor in the development landscape. This presents challenges and opportunities that relate to both the larger amount of energy to be consumed and the fuel mix within that larger consumption; the outcomes will be determined not only by the nature and dynamics of that demand but also by supply considerations and constraints as set out under the next pillar.
  • Securing More Energy: As their demand for energy increases, developing countries will face various challenges as they move to provide the larger amounts of joules needed to meet this demand, including securing new and bigger sources of energy (through both domestic production and imports). Some of the key factors affecting countries in this effort will be the varying availability, costs, and preferences regarding different fuels. Helping them to procure this additional energy in an efficient and sustainable manner is one of the pillars of the energy-for-development effort, one that will grow in importance as the absolute amount of demanded energy grows.

 

Figure 1. Five pillars for the changing energy and development landscape

Figure 1. Five pillars for the changing energy and development landscape (“something old and something new”)

 

 

  • Global Impacts: The increasing domestic energy consumption of developing countries also has repercussions at a global level. Developing countries currently use more than half of the world’s energy (albeit with significantly lower per capita consumption than in developed countries). Their demand has virtually doubled over the last 15 years and is projected to grow by another 30 percent over the next 15 years, representing an ever-increasing share of global energy demand. This use in the aggregate is increasingly driving the energy landscape worldwide, including trade flows, investments, and climate change dynamics. Understanding these global impacts is important to promoting the sound and sustainable use of energy for development.
  • Access for Homes and Businesses: There are 1 billion people who currently lack access to electricity and 2.7 billion without access to clean cooking. In 2015, the member nations of the UN committed themselves to eliminate these gaps by 2030 as part of the UN’s Sustainable Development Goals (SDG).[3]  Electricity will also need to be provided beyond homes to the local businesses that can generate the income opportunities required to lift households out of extreme poverty.  This fifth and final pillar is by no means the least important; in many ways, it may be the most significant one from a development perspective as it is critical to efforts to reduce poverty.

This energy-for-development framework aims to help policymakers and other stakeholders design stronger policies and programs to promote sound economic and social development and reduce the attendant costs at both local and global levels. Although these five pillars do not encompass all the possible areas relevant to energy for development and some issues may touch upon multiple pillars, the framework does present a simplified approach that can support more effective analysis of this rich and complex area.

Energy: A Central Role in Development across a Varied Landscape

What is “energy for development”? As developing country governments and populations work to raise standards of living, energy has been central to their efforts, whether in the form of fossil fuels or renewables or nuclear or energy efficiency. Moreover, as the population of the developing world increases from over six billion today to nearly eight billion by 2040,[4] this is a topic that will touch more and more people.

There are numerous ways to define “development” or “developing” versus “developed” countries. However, what is common to them and inherent in successful development processes is the increasing quantity and quality of the goods and services that are made available to and consumed by local populations. Across a variety of spectrums (whether political systems, economic structures, income, geography or other), it is the increasing consumption of goods and services that has been at the core of moving people not only out of poverty but also, in various instances, closer to prosperity – and energy has been the key input to producing those goods and services. Providing more and higher-quality education, health, transport, and commercial services, or more and better housing and infrastructure, raises standards of living—provided that it is done in an environmentally sound manner. It helps to generate improved development outcomes, such as higher life expectancy. Unsurprisingly, per capita household consumption expenditures (as reflected in Final Consumption Expenditure) in developed countries is on average more than ten times higher than that of developing countries.[5]

There are also other factors to look at in assessing progress in development, such as infant mortality and school enrollment (which are affected by cultural and social drivers, among other things). However, even these outcomes are often still tied to the availability and consumption of goods and services, such as sufficient food (which can increase the opportunities for children to attend school by reducing the demand on them to farm) and the quality of maternal and pediatric health care services. Once again, energy underpins them all

Developing countries differ in many ways, including in their geography, population, economic structure, level of development and indigenous energy resources. For example, China is one of the largest, fastest growing and wealthiest countries in the world, but it has a GDP per capita that is still less than $9,000[6] and large segments of its population continue to face health, housing and other development challenges, particularly outside its well-known urban centers, such as Beijing and Shanghai. In contrast, Tonga is a small island state with a small economy and a GDP per capita of about $4,000.[7] But neither has yet achieved the income per capita, infrastructure and standard of living of the OECD, which still sets the visible benchmark for what development can provide.

Energy can help deliver that promise of development in numerous ways.  For example, it is energy that helps build and operate the infrastructure that delivers improved health and education services.  It is energy that powers the businesses (small and large) that manufacture and deliver food and consumer products, and that generate the higher incomes that allow households to acquire those goods. Unsurprisingly, increased energy consumption per capita has accompanied increased GDP per capita in the developing world (figure 2). However, producing and using that energy also present important challenges, such as local pollution and greenhouse gas emissions, as well as financial, land and other resource requirements.  Maximizing its benefits while containing its costs constitutes energy’s development challenge.

Figure 2. GDP per capita and energy per capita consumption for developing countries (2000-2014)

Figure 2. GDP per capita and energy per capita consumption for developing countries (2000-2014)

 

Source: Benoit/Chen calculations derived from World Bank DataBank.

 

Energy Exports for Development

As recently as 2000, the majority of the world’s energy was produced in non-OECD countries,[8] but it was the developed countries (with less than 20 percent of the world’s population)[9] that consumed half of this global supply.[10] Much of the energy-for-development discussion up to that time had been about how to transform indigenous resources, notably oil, into sustained development. The archetypal pathway was to export these resources to developed OECD countries in exchange for money that could then be used to finance additional domestic investments—such as in roads, power plants, education, and health — that in turn would alleviate poverty and promote prosperity. This energy export model mirrored the approach used by developing countries for other natural resources, such as copper. The developing world was a supplier of oil and raw materials for the manufacturing industries and consumers of developed countries.[11] Exporter developing countries were presented with the opportunity,  and faced the related challenges, of using this demand from developed countries to transform domestic energy resources into export revenues that they could then deploy to fund development investments.

Various countries have been able to successfully transform these energy export revenues into sustained development, in certain cases in part because they benefitted from massive export revenues relative to the size of their population. In the oil-rich Middle East, Saudi Arabia has increased its GDP per capita from $920 in 1970 to $9,130 in 2000 to $19,980 in 2016.[12] In parallel, life expectancy has risen from 52 years in 1970 to 74 in 2016, while the infant mortality rate has dropped from over 100 (per 1,000 live births) to under 7 during the same period. Today’s figures are stronger than the average for middle-income developing countries[13] but lower than those of the European Union and the United States.[14] Various other energy exporters around the world have also seen significant development improvements.[15]

Frequently, however, transforming export revenues into sound development has proven difficult, as reflected in the rich discourse about whether these exportable energy resources support or hamper development.[16] Some of the difficulties presented in using energy exports and the related revenues to support sound economic growth are reflected in the term “Dutch disease,” which refers to the inflationary and structural disruptions the Netherlands (a developed country) faced when it became a major gas exporter beginning in the 1970s.[17] Moreover, because energy exports frequently generate direct revenues for a very limited number of economic actors (often concentrated in a single national oil company), significant opportunities for mismanagement and corruption can exist (as events in many countries have demonstrated). From economic disruptions to governance and corruption concerns, many countries have struggled to transform energy exports into sound economic and social development.

In Africa, for example, traditional exporters such as Nigeria continue to be hampered by severe governance, corruption, and macroeconomic mismanagement issues that are directly tied to their massive petroleum export revenues. There are new African exporters on the horizon, such as Ghana and Mozambique, that are looking to the lessons of the past to help them transform what should be the blessing of their energy reserves into sound development and to avoid the attendant pitfalls. But the experience of other countries, including from other regions (such as Venezuela), shows that the process remains difficult and the prospects uncertain.

Strengthening government governance and economic management capacity, while improving transparency and accountability, are critical to generating broad-based development benefits from energy exports. Creating strong markets and reducing distortions to support non-oil economic activity are additional keys to transforming energy exports into sound development.

Increasing Developing World Energy Demand

Many developing countries have enjoyed major economic gains over the past 15 years that are changing the energy landscape. In part powered by this growth, these countries are using ever-increasing amounts of energy to fuel their growing local consumption of goods and services as part of an impressive economic and social development process that is moving entire populations out of poverty toward prosperity. In response to this emerging dynamic, the energy-for-development discourse needs to shift from its historical focus on energy exports to the opportunities and challenges present in the growing domestic energy use of developing countries.

The developing world has seen significant economic growth and reduction in poverty since 2000.  GDP grew from $5.4 trillion in 2000 to $27.7 trillion in 2017.[18] GDP per capita also increased over the same period from $1,110 in 2000 to $4,510.[19] With these increases, the financial capacity of the developing world to consume also expanded significantly. Other factors also point to important development gains over this period.  Various social indicators improved significantly since 2000, such as life expectancy, which rose from 65 years to 70, and secondary school enrollment rates, which increased by 33 percent.[20] The percentage of the urban population living in slums dropped from nearly 40 percent in 2000 to just under 30 percent in 2014, notwithstanding a substantial increase in the overall urban population.[21] The number of people living in extreme poverty dropped from about 25 percent of the world’s population in 2002 to less than 11 percent in 2013.

These changes have been paralleled by a dramatic increase in the size of the middle class, potentially in the order of one billion or so over the past ten years,[22] with a substantial increase in purchasing power that has accompanied economic growth.[23] Economy-wide, household expenditures, as reflected in the level of Final Consumption Expenditure (FCE), have increased nearly fourfold since 2000, representing an additional $14 trillion.[24] China has been the largest single contributor to these trends, but these increases extend well beyond any one country; for example, over 60 percent of the increase in FCE took place in the developing world outside of China.[25] As these figures reflect, more and more populations in developing countries are moving out of poverty toward prosperity, accompanied by an increase in consumption.

At the same time, the economies of the largest developing countries are increasingly being directed toward domestic consumption rather than exports. In China, exports of goods and services dropped from a high of 36 percent of GDP in 2006 to just under 20 percent in 2016, while the economy expanded from $2.8 trillion to $11.2 trillion (in current USD terms).[26] In India, exports grew over the same period by $240 billion while its GDP grew by $1.3 trillion.[27] These figures reflect a dynamic in which developing country economies are shifting increasing amounts of output toward domestic consumerism. Even while exports from developing countries have increased in absolute terms over the past decade, they are being outstripped by a larger increase in GDP and increasing domestic consumerism (as reflected, for example, in the previously mentioned higher levels of Final Consumption Expenditure), and their energy consumption is following in tow.

As described earlier in Section B, economic growth in developing countries has been accompanied by increases in energy consumption (figure 2).[28] As the GDP of developing countries grew four-fold from 2000, their energy demand nearly doubled (see figure 3), from about 3,750 million tonnes (metric) of oil equivalent (Mtoe) in 2000 to about 7,000 Mtoe in 2015.[29]  In contrast, developed country demand stagnated over the same period (figure 3). There are currently over six billion energy consumers in the developing world[30] who are now consuming the majority of the world’s energy,[31] and whose demand is projected to grow another 30 percent over the next 15 years.[32] Powered in large part by rapidly expanding economies, developing countries are seeing a growing and increasingly affluent consumer class[33] using increasing amounts of energy as it acquires more goods and services (including housing, transport,[34] health, and education) that are raising standards of living.

Figure 3: Developing and developed country energy demand: 2000, 2015 and 2030 (projected)

Figure 3. Developing and developed country energy demand: 2000, 2015, and 2030 (projected) [35]

Source: Benoit/Chen calculations derived from IEA statistics, WEO 2016, WEO 2017, Mexico WEO Special Report 2016, and World Bank DataBank.

 

In addition, more energy-intensive forms of consumption are expanding, such as car ownership.[36] China has become the largest passenger-vehicle market in the world,[37] and India is poised to become the third largest after the United States.[38] Light-vehicle sales in the developing country regions of Asia and South America are projected to grow from 42 million in 2017 to 58 million in 2024, which would represent more than half of global sales that year.[39] Local businesses and industries are consuming increasing amounts of energy to provide goods and services to these consumers.[40] Moreover, governments and the public sector generally consume large amounts of energy in delivering various social, commercial and administrative services (such as education and health care, utility-based electricity, fiscal administration and security).[41]

It is this combination of households, businesses, and governments that is driving the growing demand for energy to support increasing domestic consumption of goods and services — and it is this domestic consumption that is at the core of an impressive economic and social development process which is moving entire populations out of poverty toward prosperity. Using all that energy in a sound, efficient, and sustainable manner presents both opportunities and challenges. Helping developing countries to figure out how to do so is a key emerging pillar of the energy for development effort.

A rich variety of policies, programs and markets are needed to promote sound energy use, including: fuel economy standards for passenger vehicles; the development of efficient urban transport systems; the promotion of sustainable cities, including smart urban design as part of avoid/shift/improve energy strategies; efficient appliances and space cooling; renewables for electricity, heating (including of water) and transport; the deployment of natural gas infrastructure for heating, cooking, and transport; smart grids; energy storage; digitalization; improved irrigation and agro-industry; productive and efficient energy use by commercial businesses and heavy industry, including through improved energy efficiency that lowers input costs, increases outputs, and raises profitability; and generally, the efficient construction, manufacturing, and operation of locally consumed housing, buildings, and other goods and services. Governments will need support in designing, implementing and evaluating them.

The energy mix of this demand will have multiple and varied impacts on countries. From pollution concerns regarding diesel use as opposed to electric vehicles, to the combustion of domestic coal versus imported natural gas for heating, different fuels present different attributes. Moreover, the source of the use will affect the type of fuel demanded.  For example, while air conditioning services (which are projected to increase substantially across emerging economies) are powered by electricity, which in turn can involve renewables or fossil fuel generation, heat for industrial processes has traditionally involved the combustion of fossil fuels.  Passenger vehicles (another area of projected substantial growth) have predominantly run on oil products, although electric vehicles are becoming more popular. In addition, demand is intertwined with supply; for example, supply-side aspects such as the cost and availability of particular fuels can affect the nature of the demand (e.g., available low-cost hydropower has facilitated specific industrial and financial activities).[42] Ultimately, the energy mix will result from the interplay of various demand and supply forces; government policies, geology, market structures and technology are some of the important factors that will determine this mix.

Securing More Energy

Developing countries are facing multiple challenges in their efforts to secure a sufficient supply of energy to satisfy their growing demand. Meeting this demand requires that developing countries acquire an unprecedented level of additional energy resources. In doing so, they will have to make various strategic choices, including (a) which fuels to provide, (b) the amount of domestic production and imports, and (c) the type of energy production and delivery infrastructure. These choices will be heavily influenced by various exogenous and endogenous factors, such as the availability of resources, costs, policy preferences (e.g., regarding environmental impacts) and, as noted above, various demand-side elements.

In order to meet the growing demand of the past 15 years, developing countries have significantly increased their domestic production capacity. China’s domestic coal production more than doubled from 2000 through 2016 as demand from electricity, industry, and other uses surged.[43] In parallel, China invested extensively in power plants, expanding its coal generation capacity by about 700,000 megawatts (MW) over the past 15 years.[44] Notwithstanding these gains, more will be required going forward. For example, while coal power generation capacity can be expected to plateau soon,[45] China is projected over the next 15 years to expand its renewables power generation capacity by nearly 900,000 MW (mostly in solar and wind) and to grow its gas capacity by more than 100,000 MW.[46] These increases in power generation have been matched by expanded transmission and distribution systems to deliver additional electricity to consumers. A similar process is taking place around the developing world. In the aggregate, developing countries are projected to require over the next 20 years power sector investments in generation, transmission and distribution that total more than $8 trillion.[47]

Developing countries have also been increasing imports in order to augment the amount of energy they provide to their economies. For example, China’s crude oil imports have grown from 1.4 million barrels per day (b/d) in 2000[48] to 8.4 million b/d in 2017, as it recently surpassed the United States to become the largest oil importer in the world.[49] In addition to acquiring more volume, these imports also require major financial commitments. In 2017, China imported $162 billion worth of crude oil, while India imported $60.2 billion; they were respectively the first and fourth largest global importers that year.[50] Looking forward, developing Asia’s crude imports are projected to grow from about 14 million b/d to 25 million b/d in 2040.[51]

Developing countries will face a variety of choices in securing more and more energy resources and their decisions will affect a variety of economic and social factors, including employment, balance of payments, currency exchange rates, and local environmental conditions.  Mobilizing the funding to build the new infrastructure needed to produce and deliver this energy will have important budgetary and other economic impacts. Choosing between renewables and coal for electricity generation will have local health, system operation, and other development impacts. Centralized power generation and the attendant transmission network can require more land than decentralized generation, while the acreage needed for utility-scale renewables power plants is often larger than for fossil fuel ones. The choice between more power plants and more energy efficiency will have commercial implications for differing businesses.  There will be major employment, environmental, health and other impacts that flow from all these choices.

How much additional oil, electricity and other forms of energy developing countries will actually require to support their continued development is difficult to project with precision, but the need for dramatically more is clear. The choices these countries make in procuring this energy will ripple through their economies and beyond.

Global Impacts

Growing developing country energy demand will have global ramifications, especially around efforts to address climate change; limiting global temperature increase to 2oC (or well below 2oC) will require dramatically reducing emissions at a global level. Historically, as developing countries increased their energy consumption, their CO2 emissions also increased (see figure 4).

Figure 4. Aggregate C02 emissions for developing countries: 2000-2014

Figure 4. Aggregate CO2 emissions for developing countries: 2000–2014

Source: Benoit/Chen calculations derived from World Bank DataBank.

 

With energy demand expected to increase going forward, developing nations need to take steps to limit emissions. Helping these countries to promote their economic and social development and to create prosperity for their populations while reducing emissions is central to ensuring that the energy-for-development effort is sound and sustainable. Moreover, climate change can adversely affect the supply and security of the energy needed to support future economic growth in developing countries. Adaptation measures, such as strengthening the resilience of their domestic energy supply systems, is an important and related challenge for developing countries.

In addition, the expansion of the energy systems in developing nations will require massive investments to be made in these countries, with important impacts on international financial flows. As noted earlier, the investments required in developing countries for power alone have been estimated at over US$8 trillion over 20 years, representing over half of total global investments in that subsector.[52] Similarly, energy trade patterns are shifting to serve the expanding energy needs of developing countries. While LNG shipping and gas pipeline patterns traditionally headed toward industrialized countries, increasingly, this trade will flow to developing countries, such as China and India.[53] Additional affected areas include international security issues as developing countries look to protect the sources of their future energy supply and, on the flip side, failed energy and development policies and resulting failed states can generate international security threats.

Energy, Access, and Poverty Alleviation: Powering Homes and Businesses

Over the last 25 years, about 2.5 billion people in the developing world have obtained access to electricity,[54] and the number of people without it has dropped to about 1 billion.[55] Over the same period, the number of people living in extreme poverty has decreased from 1.85 billion to 770 million.[56] Expanding electricity access has been a major contributor to this global poverty alleviation success. However, the large number of people that still lack access to electricity, as well as the 2.7 billion without access to clean cooking, continues to present major poverty challenges for many developing countries, particularly poorer ones in sub-Saharan Africa and Asia (see table 1)

Table 1. The electricity and clean cooking access challenges

 

% without Electricity

Population (millions)

% without

clean cooking

Population (millions)

 

2000

2016

2016

2000

2015

2015

 

World

27%

14%

1,060

46%

38%

2,792

 

Sub-Saharan Africa

77%

57%

588

91%

84%

846

 

Developing Asia

33%

11%

439

65%

49%

1,874

 

Source: Energy Access Outlook 2017, International Energy Agency.

Recognizing the important development benefits that energy can provide, the UN adopted universal energy access as the seventh SDG.[57] Access has a distinctive poverty alleviation character, as it targets very poor households without basic access to electricity or clean cooking. The damaging impacts of poverty on life expectancy, infant mortality, education, and overall standards of living are well established. In a world of increasing riches, the lives of the extreme poor stand in stark contrast. Extreme poverty remains a major national and global development concern. As stated by the World Bank, the “dream is a world free of poverty.”[58] Access, with its direct targeting of poverty and the very poor, is arguably the priority within the energy-for-development effort.

The developing world has generated important successes in increasing access to electricity as billions have been connected. This has been accomplished through the deployment of a variety of different power generation and connection technologies, including grid and off-grid solutions and both fossil fuels and renewables. An increasing amount of new access is being provided through smaller renewable systems, a particularly useful tool to reach many of the rural families that currently lack it. Technological and other innovations (including integrating geospatial analyses) provide new opportunities for further success.  An ongoing and sustained financial commitment remains critical to achieving the goal of universal access, especially as an increasing percentage of those without access are in poorer countries (notably in sub-Saharan Africa) where international funding will be vital to meet the large cost of electricity access expansion.

A critical complement to providing electricity to homes is to deliver power to the schools, clinics and other social infrastructure that service poorer households and, notably, the businesses that can increase incomes. Schools that are properly lit and have electricity to run computers and clinics that have the power to run medical equipment are just some of the facilities that help fight poverty. Better lighting (not only outside but also in schools and transportation systems) helps reduce crime, including violence against women. Providing electricity to local micro and small-scale enterprises can create local employment and business opportunities that generate the higher incomes needed to raise families out of extreme poverty. Electricity to run irrigation pumps, refrigeration for animal vaccines and “cold-chain” storage facilities supports stronger food and livestock production and markets, which improve food security and raise incomes. Poverty alleviation efforts are most effective when electricity expansion targets both homes and the variety of surrounding economic and social infrastructure.

As compared to electricity access efforts, the advancements in clean cooking have been more modest. The number of people without access to clean cooking has been difficult to reduce despite international efforts targeting this area. Governments and other stakeholders have struggled to develop technological and deployment solutions that are both effective at the local level (e.g., adapted to the variety of local cultural and other norms) and capable of being deployed at scale to benefit large numbers of households. While the area is complex, this problem is solvable. Further analysis, additional financing, and innovative programs are needed. Heightened political commitment to addressing this clean cooking access issue (both internationally and within individual developing countries) will be key to making progress in this area.

Final Thoughts

While the five pillars constitute an organizing framework, in practice, various issues are cross-cutting, simultaneously falling under several of the pillars. For example, as noted earlier, a developing country’s energy mix will result from the interplay of the nature of its growing energy consumption and its options to secure more energy.  Expanding renewables affects several pillars as it can support increased access for rural families, can help lower energy costs for households and their businesses as they struggle to move into the middle class, and can also help reduce greenhouse gas emissions. Energy efficiency supports multiple pillars: by allowing poor households to increase the energy services they can extract from electricity access; by enabling businesses to generate more goods and services for local consumption from each unit of energy that they use; and as the major contributor to low-carbon scenarios.[59] There are various other elements of the energy-for-development effort that are also cross-cutting, such as urban energy and better data.[60] Moreover, these pillars are not intended to be all-encompassing. For example, the imposition of energy-related sanctions on specified developing countries[61] does not fit easily within these five pillars, but it is still a part of the energy-for-development area that merits analysis and discussion.

Ultimately, the work on energy for development is about designing policies and programs that can magnify the benefits from energy in promoting sound economic and social development and that can reduce any attendant costs at both local and global levels. As a result, energy for development is important not only for the poorest in developing countries, but also for the richest in developed countries, and for all those in between — and, as such, it is increasingly at the center of global energy policy.

 

The author would like to thank Jeffrey Chen for his invaluable contributions to the data and figures in this document.


[1] While there is no universally accepted definition of “developing country,” income per capita thresholds are often used as the primary criterion to guide the evaluation. For purposes of this commentary, “developing countries” are those categorized by the World Bank as “low and middle income,” namely those whose 2016 Gross National Income (GNI) per capita was below $12,235 (see World Bank DataBank, https://data.worldbank.org), but excluding Russia, whose GNI per capita is currently below the threshold but was previously substantially higher. “Developed countries” as used herein refers to the members of the Organisation for Economic Co-operation and Development (OECD), other than Mexico and Turkey, whose GNI per capita qualifies them as developing countries. Other smaller advanced economies are not included in this definition of “developed” as used in this paper for data simplicity. In certain cases, where noted, the data presented is divided between members of the OECD and other countries (“non-OECD”).

[2] The goal of universal access to electricity and clean cooking by is set out in SDG number 7.  See https://sustainabledevelopment.un.org/.

[3] See preceding endnote.

[4] United Nations, Department of Economic and Social Affairs, Population Division (2017). World Population Prospects: The 2017 Revision, custom data acquired via website (https://population.un.org/wpp/DataQuery/, accessed October 2018).

[5] In 2016, aggregate Final Consumption Expenditure (FCE) for developed countries was about $36.5 trillion, and the total population was about 1.16 billion; FCE per capita was about $31,500/person. The figures for developing countries were $17 trillion for a total population of almost 6.1 billion, yielding a rate of about $2,800/person. World Bank DataBank.

[6] For 2017. World Bank DataBank.

[7] For 2017. World Bank DataBank.

[8] In 2000, the majority of global energy was produced in non-OECD countries, with shares of 71 percent, 56 percent, and 58 percent for oil, natural gas, and coal, respectively. IEA, World Energy Outlook [WEO], 2017.

[9] United Nations, custom data acquired via website (https://population.un.org/wpp/DataQuery/, accessed October 2018).

[10] Total energy demand for developed countries (i.e., OECD minus Mexico and Turkey) in 2000 was about 5,100 tonnes (metric) of oil equivalent (Mtoe) as compared to global demand of 10,035 Mtoe.  IEA statistics, WEO 2017.

[11] Recently, more and more energy exports have headed to other developing countries, notably China and other Asian economies. For example, the IEA projects that the combined crude oil import needs of developing Asia are projected to increase from around 14 mb/d in 2016 to around 25 mb/d in 2040. WEO 2017, including figure 4.18.

[12] World Bank DataBank. All GDP and other economic data cited in this report is expressed in current USD, unless otherwise indicated.

[13] The life expectancy for “middle income” countries (defined by the World Bank as countries with a GNI per capita in 2016 between $1,006 and $12,235) was 71 years in 2016, and the infant mortality rate was 29 (per 1,000 live births). World Bank DataBank.

[14] The life expectancy for the European Union was 80 in 2016 and 78 for the United States. Infant mortality rates in 2016 were 3 and 5 (per 1,000 live births), respectively. World Bank DataBank.

[15] For example, Mexico and Indonesia.

[16] See, for example, Oil Windfalls: Blessing or Curse, Alan Gelb, 1988.

[17] This was tied to the discovery in 1959 and subsequent development of the Groningen gas fields, which altered the Netherlands economy in many fundamental ways, bringing advantages but also challenges. The Netherlands government recently announced the phasing out of these fields by 2030. See, for example, “The Termination of Groningen Gas Production—Background and Next Steps,” T. Boersma et al., CGEP Commentary, July 26, 2018.

[18] World Bank DataBank. Reminder that all economic data is expressed in current USD, unless otherwise indicated.

[19] World Bank DataBank.

[20] From 54.3 percent (gross) in 2000 to 72.6 percent in 2016. World Bank DataBank.

[21] World Bank DataBank.

[22] It is difficult to draw an accurate estimate. This estimate is based on a comparison of the analysis by Homi Kharas in “The Emerging Middle Class in Developing Countries” (OECD, 2010) and in “The Unprecedented Expansion of the Global Middle Class: An Update” (The Brookings Institution, Global Economy and Development Working Paper 100, 2017).

[23] Developing country middle-class expenditures totaled about $15 trillion (2011 PPP) in 2015, with expenditures projected to increase to over $40 trillion (2011 PPP) by 2030. See Kharas (2017), including definitions therein.

[24] Final Consumption Expenditures for developing countries were about $4 trillion in 2000 and $18.4 trillion in 2017. World Bank DataBank.

[25] China contributed $5.6 trillion of the $14.4 trillion increase. World Bank DataBank.

[26] World Bank DataBank.

[27] India’s exports of goods and services were $200 billion in 2006 and $439 billion in 2016, and its GDP grew from $920 billion in 2006 to $2.27 trillion in 2016. World Bank DataBank.

[28] In contrast, economic growth has not led to increasing energy consumption in richer developed countries.  See, for example, the slight decrease in figure 3 in energy demand in developed countries from 2000 to 2015, while their economies grew over this period (notwithstanding, for example, the recession of 2007).

[29] Estimates derived from World Bank and IEA data.

[30] United Nations, custom data acquired via website (https://population.un.org/wpp/DataQuery/, accessed October 2018).

[31] Total world demand equaled 13,633 Mtoe in 2015. WEO 2017.

[32] An estimate of over 9,000 can be derived from IEA sources (see figure 3).

[33] Economic growth in developing countries is fueling an expanding and increasingly affluent class of consumers that includes three key segments: the middle class, richer households and poorer working populations.  This emerging consumer class (or what can be called “the emergent consumer class”) currently totals nearly four billion people and is projected to grow to over six billion by 2030, and will be the major driver of global energy demand in the future.  See fuller discussion in “How the Developing World’s Emergent Consumer Class Will Drive Our Global Energy Future,” P. Benoit (to be published).

[34] For example, total final consumption (TFC) for transport increased from 542 Mtoe in 2000 to 1,082 Mtoe in 2015. WEO 2017.

[35] As noted in an earlier endnote, the estimate for projected demand in 2030 for developed and developing countries is derived from IEA figures, including modeling in the WEO 2016.

[36] In 2016, passenger vehicles represented about 25 percent of global oil demand. M. Kah, “Electric Vehicles and Their Impact on Oil Demand: Why Forecasts Differ,” Center on Global Energy Policy (CGEP) Commentary, July 2018.

[37] China had 24 million new car registrations in 2017 as compared to 17 million in the United States (Statista portal, “Largest Automobile Markets—New Car Registrations,” at https://www.statista.com/statistics/269872/largest-automobile-markets-wo…).

[38] “The Future of Mobility in India’s Passenger-Vehicle Market,” S. Gupta, N. Huddar, B. Iyer, and T. Moller, McKinsey & Company, July 2018 (https://www.mckinsey.com/industries/automotive-and-assembly/our-insights…).

[39] Consultancy, UK reporting on Global Automotive Outlook 2017, at https://www.consultancy.uk/news/13900/global-car-market-to-break-through…. Asia includes, for these purposes, South Asia and “Greater China,” as defined by the authors.

[40] For example, non-OECD total final consumption (TFC) for buildings increased from 1,308 Mtoe in 2000 to 1,761 Mtoe in 2015 and from 946 Mtoe to 1,961 Mtoe for industry (IEA, WEO 2017). These figures notably include consumption for goods and services that are exported; however, as noted earlier in Section D, exports are representing a diminishing share of GDP in several larger developing countries.

[41] See, for example, “State-Owned Enterprises: Keys to the Low-Carbon Transition,” P. Benoit (to be published).

[42] Various aluminum smelters, as well as more recent bitcoin mining activities, have been located in proximity of hydropower sources.

[43] WEO 2017, at table 14.2. Domestic production of coal increased from 1,019 Mtoe in 2000 to 2,516 Mtoe in 2016.

[44] Coal capacity was 200,000 MW in 1999 (WEO 2002) and totaled 900,000 MW in 2015 (WEO 2017). The amount of new capacity added is even larger, as some of the older plants were retired.

[45] Coal power generation capacity is projected to level off at just below 1,100,000 MW. WEO 2017.

[46] WEO 2017.

[47] IEA World Energy Investment Outlook 2014, drawn from figures in table 1.3.

[48] Indexmundi, https://www.indexmundi.com/energy/?country=cn&product=oil&graph=imports (accessed November 2018), drawing from Energy Information Administration data.

[49] Energy Information Administration, “Today in Energy,” February 5, 2018, https://www.eia.gov/todayinenergy/detail.php?id=34812 (accessed November 2018).

[50] “Crude Oil Imports by Country,” D. Workman, October 21, 2018, http://www.worldstopexports.com/crude-oil-imports-by-country/ (accessed November 2018).

[51] WEO 2017, figure 4.18.

[52] IEA, World Energy Investment Outlook 2014, drawn from figures in table 1.3.

[53] See, for example, BP Energy Outlook 2018. See also discussion of oil imports in Section E.

[54] World Bank DataBank.

[55] Drawn from the Global Tracking Framework (2018), the World Bank DataBank, and IEA data.

[56] World Bank DataBank.

[57] Adopted in 2015 as part of the “Transforming Our World: The 2030 Agenda for Sustainable Development” by all the UN member states at the UN Sustainable Development Summit held in New York City in September 2015. There are 17 SDGs. See also https://sustainabledevelopment.un.org/.

[58] The words “Our dream is a world free of poverty” are engraved in the World Bank Headquarters in Washington, DC. The Bank’s mission statement has been adjusted to achieving the dual goals of ending extreme poverty and building shared prosperity.

[59] See, for example, the IEA’s 2DS modeling in its Energy Technology Perspectives 2016, in which energy efficiency plays the largest role in decarbonizing the energy sector consistent with the 2oC goal, an even larger role than renewables.

[60] A spatial approach that looks at energy in cities touches on several pillars: (a) while most of those without access live in rural areas, there are still millions of people with inadequate access to electricity and clean cooking who live in urban and peri-urban areas; (b) efforts to use energy to move people beyond poverty to prosperity must focus on cities where the majority of developing country populations will live; and (c) the bulk of energy is similarly consumed by these urban populations, and so efforts to lower carbon emissions must address their consumption needs (whether for transport, heating, or other purposes). In this regard, the IEA estimates that two-thirds of the projected growth in final energy demand to 2050 will be generated by cities in developing countries (IEA, Energy Technology Perspectives 2016). Data cuts across several pillars and is an area that is receiving increasing attention. Better data (a) about rural households and their communities can help to optimize the deployment of new energy infrastructure under access programs; (b) can help governments and businesses to better understand the needs of households and the potential to expand markets; (c) is often part of petroleum export revenue transparency efforts; and (d) can help to identify in greater detail the sources of emissions and to develop programs to provide low-carbon alternatives.

[61] This tool has been used recently with respect to various developing countries, notably by the United States.

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Commentary by Philippe Benoit • March 04, 2019