Lighting the Way: Toward a Sustainable Energy Future

Search this Publication

  • 4.5 The role of policy and technology in a developing country context

    More than 2 billion people in developing countries lack access to either (or both) clean cooking and heating fuels and electricity. It is estimated that roughly 1.5 million people die each year due to respiratory illness and carbon-monoxide poisoning caused by indoor air pollution associated with the use of solid fuels such as twigs, dung, and brown coal for cooking. Access to modern energy services would also have a profound impact on other critical aspects of human development and quality of life for the world’s poorest citizens, including access to clean drinking water, irrigation, pollution-free indoor lighting, education, and communications.

    Few priorities are therefore more important—both to the governments of developing countries and in terms of fulfilling international commitments to broadly held development goals—than expanding access to modern energy services and ensuring that developing nations have the energy infrastructure needed to sustain economic growth and raise living standards for their poorest citizens. Here policy and technology clearly have critical roles to play, especially in helping developing nations transition directly to cleaner and more efficient energy options. Just as it has been possible for many countries to go directly to cellular phones without having to lay telephone cables, it is becoming possible for many rural areas to be electrified using mini-grids or completely distributed systems without having to wait for expensive grid extensions. Technology innovation can also produce promising synergies for developing country applications.

    For example, efforts to develop liquid transport fuels from lignocellulosic biomass have driven research on enzymes and new, self-sustaining, microbial approaches that could eventually improve the performance of low-cost biogas digesters useful in rural areas of tropical developing countries. Moreover, development of such enzymes can be pursued not only in industrialized countries but in leading developing country laboratories as well.

    Successfully transferring technology innovations from the prosperous to the poor presents its own, often formidable, challenges. The rural areas of many developing countries are littered with the remnants of energy demonstration projects that have failed—creating veritable technology graveyards. This is not the place to apportion blame or to list causes for these failures. Suffice it to say that researchers working on the development of sustainable energy technologies must avoid the tendency to understate costs, or belittle potential practical problems with the technologies they promote. Instead it will be critical to build on successes and learn from experience with past development projects. This, in turn, requires independent assessment or tracking of project performance with subsequent dissemination of results. Developing countries themselves must not be viewed as bystanders in this process. Though assistance from industrialized countries—especially in the form of financial resources but also to facilitate the sharing of intellectual property and technical expertise—is critical, developing countries must assume responsibility for effective technology transfer and poverty alleviation if the needs of the poor are to be met.

    Human and institutional capacity building is also a critical issue in many developing country contexts. Research has shown that technology transfer is more successful and innovation is more likely to occur when host institutions have the requisite technical and managerial skills to manage new energy systems. Without those skills, new technologies often fail to deliver expected services. Capacity building is needed within the companies that produce, market, install, and maintain sustainable energy technologies and within the communities that will manage and operate those technologies. The latter need can be met by establishing regional institutes to provide training in basic technology management skills. Such institutes could also help to provide independent assessments of alternative technologies and policy choices, and explore strategies for overcoming barriers inhibiting the large-scale implementation of sustainable energy technologies.

    Yet another issue is financing. In the recent past, governments usually relied on cross-subsidies (charging higher prices to one set of customers to reduce costs for another set of customers) to extend electricity or telecommunications services to remote areas. More recently cross-subsidies have fallen out of favor, in part because there is a limit to how much one class of consumers can be charged to bring service to another class of customers (especially when some high-use energy customers have the option to switch to other power sources or to off-grid generators). Many governments, however, continue to directly subsidize electricity sales to farmers, often because it is easier than providing direct income support. Often, electricity charges are flat, un-metered, and decoupled from actual consumption. This can produce a number of undesirable outcomes: when pumping costs are low, for example, farmers tend to over-use or inefficiently use water. Because of limits to cross-subsidization between customer classes and the growing financial burden of direct subsidies, new approaches will be needed to further grid expansions to rural areas in a number of developing countries.

    More broadly, subsidies can be an effective mechanism for overcoming deployment hurdles for new technologies or to advance other societal goals. When subsidies are used to support already entrenched or unsustainable technologies, however, they produce a number of undesirable effects. Some of the generic problems with conventional-energy subsidies—which remain in widespread use around the world—are discussed in more detail in Box 4.2.

    Given the resource constraints faced by many developing countries, there is an urgent need for greater international support for sustainable

    Box 4.2 Energy subsidies

    Although subsidies on fossil fuels have been declining over the last decade or so, they are pervasive and remain widely used around the world. On a global basis, fossil-fuel subsidies still amount to several hundreds of billions of U.S. dollars in industrialized and (to a lesser extent) developing countries (Table 4.3).

    While cumulative funds expended on energy subsidies are often less than the revenues collected through taxes on other fossil fuels, such as petrol (gasoline), subsidies for established sources of energy lead to at least the following two problems:

     • The common feature of all subsidies is that they distort market signals and influence consumer and producer behavior.
    • Subsidies for conventional fuel often have the effect of further tilting the playing field against energy efficiency and cleaner sources.

    Subsidies are addictive, and those who benefit from them do not easily acquiesce in their cessation without some other inducement. Commitments to eliminate or reduce subsidies may be adopted but they are notoriously difficult to implement for politicians who have to renew their mandates periodically. Moreover, as noted earlier in this chapter, failure to include environmental, energy security, and other externalities in market prices itself constitutes a form of subsidy that is common to conventional fuels in many countries. (Another example of this form of subsidy is the Price-Anderson Act in the United States, which indemnifies the nuclear industry against liability claims arising from accidents at civilian nuclear power plants).

    Direct fuel subsidies rarely go to the most needy, as in the case of many current subsidies for diesel and kerosene. Governments should seek to eliminate or phase out subsidies that no longer serve the public interest. Conventional sources of energy, in particular, should at least be sold at the cost of production and ideally at a cost that also reflects associated environmental and other externalities. Where unsubsidized prices would impose excessive burdens on the poor, these burdens should be cushioned with direct income supports. Again, such recommendations are easy to make, but harder to implement. Since they lack reliable implementation mechanisms to transfer resources to the truly needy, many governments prefer to mask transfer payments by using subsidies over which they have some control. There is an urgent need for experimentation in such transfer mechanisms. This is a challenge both for the research community and for the NGO community.

    In most countries, subsidies on some fuels, taxes on other fuels, and some public support for renewables co-exist in varying degrees. It is well known that ‘incentives ’ are required to motivate the private sector to invest in providing services to the often remote and underdeveloped areas where the poor reside. Wherever absolute poverty prevails, there is a long history of applying intelligently designed subsidies, which are targeted, simple, competitive, and time-limited. This can often be accomplished, at least in part, by shifting current subsidies for fossil fuel use to sustainable energy systems.










    (a) Subsidies for electricity in OECD countries are included in fossil fuel subsidies, by energy source.

    Subsidies from non-payments and bail out operations are not included in data by energy source.

    Source: UNDP, UNDESA, and WEC, 2004.

    Box 4.3 The Grameen experience with photovoltaics

    The Grameen Bank of Bangladesh (Grameen Shakti), a micro-lending agency set up a non-profit subsidiary in 1996 to administer loans for photovoltaic solar home systems to serve those without access to electricity. Initially, Grameen Shakti found many obstacles— long distances, poor transport infrastructure, periodically flooded and impassable roads, low literacy rates, lack of technical skills, transactions based on barterssâ€that contributed to high transaction costs and difficulty in building consumer confidence in their product.

    In 1998, a Global Environment Facility grant through International Finance Corporation’s Small and Medium Enterprises Program enabled Grameen Shakti to offer improved credit terms to its customers and install thousands of systems. They also found that after a critical mass of installations in an area (around 100 systems), building consumer confidence and demand became less time consuming.

    Grameen Shakti now expects to be able to draw additional financing for scaleup activities from commercial banks. For more information on Grameen Bank, go to