ENV/DEV/892
8 May 2006
Investment of $17 Trillion Needed to Meet Growing Global Energy Demand, Commission on Sustainable Development Told
"Clean Energy" Investment, Use of Subsidies, Efficiency as Resource among Issues Raised in Three Thematic Discussions
NEW YORK, 5 May (UN Headquarters) -- The Commission on Sustainable Development today concluded the first of its two-week session by debating challenges and opportunities related to investing in energy and industrial development, and was told that satisfying the growing global energy demand would require an infusion of some $17 trillion, with nearly one third of that amount required to meet the needs of the developing world.
The Chief Economist of the International Energy Agency in Paris, Fatih Birol, said that $17 trillion seemed huge, but compared with the global capital markets, it was affordable, as that was only 1 per cent of global gross domestic product. Energy investment was a crucial part of the global economy. The question was whether global capital would be channelled to energy projects, especially in the electricity sector. To meet current and future demands, some $10 trillion would be needed for electricity alone. Despite technological and economic growth, without intervention, by 2030, some 1.4 billion people would not have access to electricity, mainly in sub-Saharan Africa, and that was morally unacceptable.
Working in the area of climate change for the Global Environment Facility, Christine Woerlen said that the Facility had achieved good investment in attaining financing for projects with perceived high risks through a loan and revolving fund approach. However, it was still not satisfied with the leverage those funds had obtained. One barrier for clean energy investment was the high initial costs, but grants, subsidies and sustainable financing schemes could help overcome that barrier. Still, it was difficult for the private banking sector -- which did not have engineers on staff -- to understand the financial gains to be made from the use, say, of wind turbines or better insulation in buildings.
Among the key challenges to reducing "energy poverty" was strengthening the protection that encouraged the necessary investment, the Managing Director of the Brussels-based International Council for Capital Formation, Margo Thorning, said. Another was to reduce the bias against nuclear power, a source of clean, cost-effective energy. It was also necessary to examine the potential impact of carbon caps on energy investment. The targets for carbon caps were uncertain, so the investor did not know when the target might change. Also, the future price of carbon remained uncertain. The public sector should reduce barriers and encourage investment through tax incentives. Governments should keep taxes on capital income and capital gains low, and encourage free trade and stable governance.
During a parallel discussion this morning on regional and international cooperation in support of sustainable energy for development, Mats Karlsson, World Bank Country Director for Burkina Faso, Ghana, Guinea, Liberia and Sierra Leone, said it was far from clear what the overall international energy strategy was. The inefficiencies in energy approaches were huge, with large subsidies being given that could be used for far better purposes. For that reason, he was chairing an initiative called "UN-Energy", which was not a distinct body, but a mechanism to bring all major energy players together under a unified strategy.
The Director for Energy and Water of the World Bank, Jamal Saghir, said the Bank had focussed on energy for development and mitigation of climate change. Much more investment in energy was needed, however, to meet the Millennium Development Goals, but policy improvement was just as important, including the better targeting of subsidies. Efficiency in energy production and in areas such as transportation required a consistent regulatory framework. New, cleaner technologies required additional targeted investment. Also crucial was overcoming corruption, to which the energy sector was particularly prone, he said.
Among the several panellists in the afternoon addressing their interventions to the interlinkages between the session's key themes was the Chief of the Office of Air and Radiation of the United States Environmental Protection Agency, Thomas Kerr. He said that energy efficiency was truly the cleanest resource as the international community advanced its sustainable development strategies in its respective countries, companies, and localities, because every saved kilowatt-hour of energy translated to reduced demand for fossil-fuel-fired combustion.
He drew attention to a real success story -- the Energy Star programme. Launched 15 years ago in the United States, the programme involved product labelling, working with building and factory owners to benchmark and improve energy efficiency, and working with homeowners to improve residential energy efficiency in new and existing homes. Although voluntary, the programme had achieved tremendous results. More than 60 per cent of Americans recognized the Energy Star label, making that the national symbol for energy efficiency. Americans had bought more than 1.5 billion such labelled products, thereby reducing C02 emissions by several hundred pounds, and Americans had saved $10 billion on energy costs, enough to power 20 million homes.
The Commission will meet again at 10 a.m. on Monday, 8 May, to continue its work.
Thematic Discussion on Energy Investments
The Commission this morning considered the challenges and opportunities related to investing in energy and industrial development, with the participation of panellists with expertise in the energy and finance markets. Chaired by Yvo de Boer (Netherlands), the meeting heard from Fatih Birol, Chief Economist of the International Energy Agency in Paris; Margo Thorning, Managing Director of the Brussels-based International Council for Capital Formation; and Christine Woerlen, Climate Change Focal Area, Global Environment Facility.
Energy investment, including in oil, gas, coal and electricity, was a crucial part of the global economy, stated Mr. Birol. To meet the growth in the global energy demand, some $17 trillion would be needed. While there was currently much discussion on the issue of oil prices, poor countries were being hit the hardest by "perverse" oil prices. To meet current and future demands, some $10 trillion would be needed for electricity alone. That amount of money seemed huge, but compared with the global capital markets it was affordable, as $17 trillion was only 1 per cent of global gross domestic product (GDP). The question was whether global capital could be channelled to energy projects, especially in the electricity sector.
The electricity market was growing strongly and new power plants were needed to meet global demands, he said. Some 1.6 billion people -- one fourth of the global population -- had no access to electricity. Despite technological and economic growth, without intervention, by 2030, some 1.4 billion people would not have access to electricity, mainly in sub-Saharan Africa. That was morally unacceptable. About $6 trillion was needed for energy development in the developing countries.
Given the magnitude of the challenge, he added, Governments of both developed and developing countries needed to play a special role. Governments in developing countries needed to set the right market framework. They also needed to provide stability to encourage both domestic and international investment. The rich countries had obvious economic, political and energy interests in helping developing countries break the circle of poverty. Indeed, the cost of assisting developing countries would be far less than dealing with the instability and insecurity brought about by poverty.
On the issue of CO2 emissions, he noted that such emissions would increase significantly if current policies continued. The countries of sub-Saharan African and South Asia would only contribute to a minor part of that increase. The situation of China and India, however, required specific attention, as the amount of CO2 emissions from coal-fired power plants in those countries were expected to equal the emissions of the countries of the Organisation for Economic Cooperation and Development (OECD) in the next 25 years. In short, to address the climate change issue, it was necessary to look at coal-fired plants in developing countries, especially in China and India, he said.
Ms. Thorning said that, among the key challenges to reducing energy poverty was strengthening protection that encouraged the needed investment. Another challenge was reducing some of the bias against nuclear power, a source of clean, cost-effective energy. It was also necessary to examine the potential impact of carbon caps on energy investment. The targets for carbon caps were uncertain, so the investor did not know when the target might change, thereby leading to uncertainty. Also, it was not possible to know the price of carbon in future years, which also added to uncertainty. The role for the public sector was reducing barriers to investment and encouraging investment through tax incentives. Governments should keep taxes on capital income and capital gains low, and encourage free trade and stable Governments.
With regard to encouraging financing for projects with high perceived risks, Ms. Woerlen said that the Global Environment Facility had tried a loan and revolving fund approach, which had achieved good investment. However, it was still not satisfied with the leverage those funds had obtained, as they could not contribute to significant changes in investment behaviour in the energy sector. One barrier for clean energy investment was high initial costs. Grants, subsidies and sustainable financing schemes could help overcome that barrier.
A barrier for lending institutions, she noted, related to the fact that it was difficult for the private banking sector -- which did not consist of engineers -- to understand the financial gains to be made from the use of wind turbines or better insulation in buildings. The use of partial risk guarantees had helped banks understand how to rely on revenue streams produced by investments in energy efficiency. Most of the perceived risks could be overcome by working with the banks. At the same time, there were real risks, which could be more effectively abated through Government policies.
A key question raised in the discussion was why some emerging markets had been able to attract significant amounts of investment for energy and industry projects, while many developing countries had not. As one speaker noted, several developing countries had "jumped through hoops" for the international financial institutions and had undergone the required reform, but still found themselves short in attracting the required investments. Responding to that, Ms. Thorning suggested that countries look at their domestic legal structure to see if it would attract investors. Other factors that would attract investment were a stable investment climate and a lack of subsidies for domestic energy production. Countries that had the "tenets of economic freedom" could attract the needed investment, she added.
Responding to questions, Mr. Birol noted that there was competition between developed and developing countries to attract investment, and within developed countries, there was competition between energy and other sectors. The energy sector had to do everything it could to be profitable. He also noted that the role of Government in the energy sector in developing countries must be stronger. The amount of subsidies in the energy sector in developing countries was equal to the amount of investments they needed on an annual basis. It was necessary to channel subsidies to investments.
Regarding investments in nuclear energy, a representative of the non-governmental community stated that nuclear power was not a solution for climate change or the answer in the search for clean, safe and affordable energy. Nuclear energy had hidden costs and undermined economic development, and investment in nuclear energy would erect obstacles to sustainable energy. Nuclear energy could not compete in a liberalized energy market, as it thrived on subsidies. Among the costs not often taken into account were decommissioning costs and costs associated with the elimination of nuclear waste. Nuclear power was the wrong answer and would divert resources from renewable energy technology, she said.
It must be acknowledged, stated Mr. Birol, that there was a renewed interest in nuclear energy for two reasons. One was energy security. The second was that some considered nuclear energy in the context of climate change, as it did not emit CO2. Nuclear energy had three main problems. The first two were public acceptance and waste. Third, most existing nuclear power plants had been built when Governments regulated markets. If a power plant were to be built now, it had to compete in a liberalized market and it was not easy for nuclear power plants, since they had large upfront capital costs.
Thematic Discussion on Regional and International Cooperation
The morning's panel discussion focused on subregional, regional and international cooperation in support of national efforts to strengthen capacity and governance, in order to boost sustainable energy for development.
Chairing the discussion was Azanaw T. Abreha (Ethiopia), and the first group of panellists comprised Mats Karlsson, World Bank Country Director for Burkina Faso, Ghana, Guinea, Liberia and Sierra Leone; Ravi Sawhney, Principal Officer in the United Nations Economic and Social Commission for Asia and the Pacific (UNESCAP); and Jamal Saghir, Director of the Energy and Water Infrastructure Vice-Presidency of the World Bank.
The second set of panellists included Lindiwe Lusenga, General Manager of Multilateral and Africa Cooperation in the Department of Science and Technology of South Africa; and A. Rani Parker, President and Founder of Business Community Synergies.
Mr. Karlsson introduced the topic of energy in light of international cooperation. Underlining the importance of energy in development issues, he said the overall international energy strategy was far from clear. The inefficiencies in energy approaches were huge, with large subsidies being given that could be used for far better purposes. For that reason, he was chairing an initiative called "UN-Energy", which was not a distinct body, but a mechanism to bring all major energy players together under a unified strategy.
Mr. Sawhney said that $6.5 trillion would be needed to provide the rapidly growing energy needs in the Asia-Pacific region in coming years and regional cooperation was critical. Central Asia had great potential in both fossil fuels and hydropower, and he had focused on creating a sustainable strategy for the region that would be implemented at the national level.
The World Bank has focused on energy for development and mitigation of climate change, Mr. Saghir said. Much more investment in energy was needed to meet the Millennium Development Goals, but policy improvement was just as important, including the better targeting of subsidies. Efficiency in energy production and in areas such as transportation required a consistent regulatory framework. New, cleaner technologies required additional targeted investment. In addition, since the energy sector was particularly prone to corruption, it was crucial to overcome that challenge.
In the discussion that followed these presentations, participants focused on how to overcome barriers to increased effectiveness of international cooperation in the energy sector. The representative of Jordan said there was often too much emphasis on bilateral cooperation in the sector and not enough on multilateral, regional cooperation. He described several projects in the Middle East that included the participation of donor nations, as well as neighbouring countries.
Costa Rica's representative stressed the need for coherent macroeconomic policies at the national and international levels that better took into account the value of natural resources. There needed to be monitoring mechanisms for aid effectiveness, the representative of South Africa added, saying that, in regard to corruption, regional peer review was most effective.
The representative of Austria, on behalf of the European Union, said that the responsibility to achieve the shift to sustainable technologies lay with developed countries, through coherent capacity-building and better targeting of official development assistance (ODA). The mutual effects of trade and the environment must also be taken into account in all international agreements.
In that light, however, the representative of the United States said that specific public and private partnerships must be worked out intensively at the local, municipal level so that international assistance produced concrete results. Larger policy should be based on the models created in that way. The youth delegation's representative described a project in which experts from developed countries worked with researchers in developing countries to create greenhouse gas mitigation strategies.
Starting off the second round of panellists' presentations, Ms. Lusenga said that international technological assistance should focus more on training local personnel in energy science and research and development, particularly women and youth. In that vein, the issue of "brain drain" must also be addressed. For better regional cooperation, she maintained it was important for donors to channel their money through the regional strategies, to ensure coherence of work plans.
Ms. Parker said development assistance must be planned within a gender perspective. Women and girls were required to take most responsibility for provision of household energy needs, and such needs, as well as broader development energy needs, must be taken into consideration in any energy strategy for the poor. To serve local technology needs and better empower women in the energy sector, decentralized local solutions should be supported by international assistance.
Following those presentations, participants introduced a wide range of strategies for improving international cooperation, harmonizing diverse donor goals and encouraging South-South cooperation in energy issues. Norway's representative proposed opening up European cooperation mechanisms to developing countries.
To leverage her country's assistance, Australia's representative spoke of new models of public-private partnerships and the importance of stamping out corruption and improving governance. The representative of Pakistan said that, in many cases, there were coherent frameworks in place for cooperation, but implementation within those frameworks lagged, as well as follow-through on commitments. Cuba's representative said that private sector participation must be balanced with public sector activity to preserve strategic coherence.
The representative of global trade unions stressed there must be consistency between negotiations at various international conferences. For example, the same objectives must be pursued in World Trade Organization meetings and meetings on sustainable development, he said.
Thematic Discussion on Interlinkages and Cross-Cutting Issues
Azanaw T. Abreha ( Ethiopia) chaired the afternoon's discussion, which was dedicated to: addressing the social, economic and environmental dimensions of the thematic issues and their interlinkages, as well as regional differences, through national sustainable development strategies, to ensure coherence and consistence; and enhancing research and development in developing countries, deploying and disseminating technologies that help achieve multiple impacts and objectives.
The panellists were: Deputy Mayor Tsutomu Uehara, in charge of the environmental administration of Kyoto, Japan, and responsible for efforts to address global warming through the World Mayors Council on Climate Change; Jayant Sathaye, Senior Staff Scientist and Head of the International Energy Studies Group, Lawrence Berkeley National Laboratory; David B. Goldstein, Co-Director, Natural Resources Defense Council's energy programme; Thomas Kerr, Chief, Office of Air and Radiation, United States Environmental Protection Agency (EPA); and Huang Ming, Chairman of the Board of Himin Solar Energy Group Co., Ltd., and Deputy of the tenth National People's Congress of China (2003).
Mr. Uehara said that Kyoto city was located near the centre of the Honshu island, which had a population of approximately 1.5 million and covered an area of 828 square kilometres. For more than 1,000 years, the capital had been an important centre for politics, economics, culture and the arts. The city had long been concerned with the great global burden on the environment and to the city, itself, and it had been tackling that through a series of measures. In concert with the global movement that began to emerge, Kyoto city began to take action that reached across the globe in response to climate change. As Kyoto city strove to fulfil its responsibility, it became the city where the Kyoto Protocol was born. Some of the projects undertaken in Kyoto had included becoming the first city in Japan with the immediate goal to reduce CO2 and other greenhouse gas emissions by 2010, exceeding the 6 per cent reduction obligation set by Japan as a whole by the Protocol. That ordinance came under continuous review, as efforts for the use of low-energy products, such as bicycles, continued to be promoted.
He said that businesses that sold air-conditioning equipment, for example, were required to attach a label showing energy consumption and providing an explanation thereof. The ordinance was gradually achieving an effect. Small businesses were also making gains towards reducing annually their emissions of carbon dioxide. Another effort had been the establishment of a system to encourage the installation of solar electrical generation systems for residential systems. Still another programme promoted greenery on building rooftops as a way of generating hydrogen gas used by fuel cells.
Mr. Sathaye said his was one of smallest laboratories in the United States, with 3,500 employees working on energy efficiency. That should give participants an idea of how much work was going on in his country on that topic. It was well known that energy use was clearly linked to industrial development and that pursuing development could not be done without energy. At the same time, that could cause both indoor and outdoor air pollution, as well as an increase in CO2 emissions, thereby effecting climate change. Climate change, in turn, affected water supply, so examinations were being made to try to see how reservoirs might be altered and how water resource systems might be built differently.
He said that three or four major things were needed to promote energy efficiency for sustainable development: pursuing a very comprehensive approach towards energy efficiency, and not leaving that up to either the federal or state levels alone because politics could be very fickle; ensuring that programmes replicated between regions took into account specific national styles and were adapted to local circumstances; bearing in mind the kind of measures to be targeted and where success had been found.
Reflecting on the week's discussions, a United States' representative said he had been struck by the integrated nature of almost all of the panels -- on renewables, advanced technologies, climate change and air pollution, and energy technologies. During a panel on efficiency, speakers discussed the impacts on industrial development and economic growth. In both the thematic discussions and the Partnerships Fair, delegations had come forward with information -- and, in some cases, hard data -- to mark their progress, including the amount of money saved through energy efficiency investment, the tons of carbon not emitted, reductions in lead levels in children as a result of the phase-out of leaded gasoline, the number of people with increased access to electricity in their homes, schools and clinics. All of those were legitimate measures of success, but what was critically important was not necessarily the specific metric any one chose to report, but whether or not the world community was delivering concrete results.
He noted that several delegations had expressed concerns about the number of reports, the titles of sessions, and the organization of work. He understood that the concerns had been driven by a sincere desire to ensure that all the issues on the agenda of the energy cycle were addressed in the course of the deliberations. Despite the title of each session, delegations had clearly highlighted the interlinkages among the elements of the thematic cluster. He wondered if, after the benefit of a week's worth of hindsight, the Commission might begin to see some of the wisdom in the Bureau and Secretariat's approach to that complex cycle and how it might be used for the future work.
Canada's speaker said that having an integrated approach was one thing, but having the tools with which to move forward was quite another. The many case studies presented this week had helped expose some of the tools, however. Effective dialogue and stakeholder engagement was one key tool. Communities were on the front line of development, and there were many challenges in practising an integrated approach, which warranted the attention of the international community. Canada would host the integrated world forum in Vancouver in June on reducing energy consumption in cities and minimizing their contribution to air pollution and global warming, while ensuring that cities remained vibrant contributors to economic growth and poverty reduction.
Senegal had definitely embarked on the path towards sustainable development with, among other things, the signature and ratification of the relevant international instrument and the complementary establishment of the national ministries, departments and focal points with which to implement "Agenda 21" and the Johannesburg action plan, that country's representative said. It had also ratified the Climate Change Convention, as well as the Kyoto Protocol, to which it had submitted its first national report containing a list of its greenhouse gas emissions. Senegal had, thus, demonstrated its commitment to the international community. Also, by completing inventories of its greenhouse gas emissions, the Government was attempting to improve efficiency in heating buildings and improve the air quality in Dakar through the establishment of an air quality lab, along with stations to measure air pollution. Rigorous control of vehicular pollution had also been set up, through the establishment of three new vehicle inspection centres in Dakar. The present situation with regard to greenhouse gas emissions, however, was not encouraging, as other developing countries had not lived up to their commitments.
Mr. Kerr said that, because every saved kilowatt-hour of energy translated to reduced demand for fossil-fuel-fired combustion, energy efficiency was truly the cleanest resource, as the international community advanced its sustainable development strategies in its respective countries, companies, and localities. Reduced fossil fuel demand resulted in a host of benefits, including reduced water consumption, reduced threat of climate change, reduced resource mining, and reduced impact on land transmission wires, pipelines and other energy infrastructure.
Because of that, he said, it was now time to advance a more aggressive global push for energy efficiency. Traditional fossil fuel resources were seeing price increases, electric grids were overloaded and unreliable, and energy security issues added additional concerns. On the positive side, studies showed that, in the United States for example, energy efficiency could reduce projected electricity growth by 50 per cent over the next 15 to 20 yeas, in a cost-effective manner. And, with energy efficiency available at an extremely cost-effective 3 cents/kWh, the business case was even clearer that energy companies and Governments must invest in that extremely attractive resource.
Barriers remained, however, which prevented consumers, energy companies, and policymakers from achieving energy efficiency's true potential, he said. Those could be overcome through such programmes as the Energy Star programme, which involved product labelling, working with building and factory owners to benchmark and improve energy efficiency, and working with homeowners to improve residential energy efficiency in new and existing homes. Launched 15 years ago, the programme had achieved tremendous results, especially for a voluntary effort. More than 60 per cent of Americans recognized the Energy Star label, making that the national symbol for energy efficiency. Americans had bought more than 1.5 billion such labelled products, thereby reducing C02 emissions by several hundred pounds, and Americans had saved $10 billion on energy costs, enough to power 20 million homes.
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