The Development Committee as usual has before it several timely and critical issues for consideration and discussion. The item that tops the agenda of this 73rd Development Committee - Clean Energy for Development: Towards an Investment Framework - reflects the growing concerns of the global community to secure clean and affordable sources of energy for sustainable development. The OPEC Fund for International Development welcomes this opportunity to jointly explore the course of future action for helping address the energy needs of particularly the poorest members of the developing world, an issue accorded high priority by its member countries, and I would like to congratulate the Committee with its choice of topic.
Although energy in itself is not a basic human need, the energy sector is essential for sustainable development. Energy correlates closely with many poverty indicators through its strong links with employment creation, income, education, health, gender, and the environment, and is vital as such for attainment of almost all Millennium Development Goals (MDGs).
Important gains have been made over the past 25 years in enhancing energy services for the poor, with more than 1 billion in the South obtaining access to electricity and modern fuels. Yet, about 2 billion people around the world still live without clean, secure and affordable sources of energy. Some 2.4 billion people in the developing countries have to rely on traditional biomass fuels for cooking and heating, finding their health threatened by biomass combustion , and 1.6 billion people do not have access to electricity. Without adequate access to clean energy to meet their basic needs and for productive uses, these people will unlikely escape the poverty trap.
Problems of energy poverty are compounded by environmental threats emanating from inefficient and environmentally harmful patterns of production, consumption and transportation. The poor - particularly women and children - are disproportionately affected by inadequate access to clean and affordable energy services, and environmental degradation. Even as the MDGs do not specifically highlight the vital role of energy in development, the aim of ensuring environmental sustainability (goal number seven) contains two energy-related performance indicators: gross domestic product per unit of energy use (as proxy for energy efficiency), and carbon dioxide emissions per capita.
Demographic pressures threaten to exacerbate the situation. The world population is projected to expand from some 6.5 billion today to 8 billion by 2030 and 9 billion by 2050. Global energy demand has been forecast to increase by 60%, from 10.8 billion tons of oil equivalent (toe) to 16.3 billion toe by 2030. The demand for liquified natural gas (LNG) will grow even faster, with the share of gas in world energy demand reaching 24% or 4789 billion cubic meters by 2030, mostly at the expense of coal and nuclear energy. At current trends, 1.4 billion people will still lack access to electricity by 2030, and more than 2.6 billion will still rely on traditional biomass fuels. Nearly 80% of world energy demand growth will be in the developing countries – home for more than three-quarters of humanity - particularly in Asia, and in urban rather than rural areas.
A central challenge confronting the international community is to establish an adequate investment framework that could help meet the forecast robust growth in world energy demand without raising the environmental and human costs. Cumulative investments in energy infrastructure are estimated at some US$17 trillion for the next 25 years, almost half of this (US$8.1 trillion) in developing and transition economies. About US$ 1.5 trillion of the total will be needed for cumulative infrastructure investment aimed at maintaining and expanding oil and gas production capacities in the Middle East and North Africa (MENA), or US$56 billion annually. This amount can realistically be mobilized through a combination of domestic resources and foreign direct investment (FDI), assuming joint international efforts are made to keep oil prices at adequate levels, and to secure a peaceful and stable enabling environment in FDI host countries.
Therefore, there is no reason for concern about a looming “energy security crisis”. Acting collectively through the Organization of Petroleum Exporting Countries (OPEC), our member countries have ensured the security of energy supplies for the past forty years. They remain committed to making timely yet appropriate investments in energy production capacities, technologies, and research to continue safeguard stable and clean energy supplies in the future. Several of our member countries have embarked upon major plans to boost investment in oil upstream production capacity and energy infrastructure to ensure that adequate spare capacity is available to the benefit of the world at large.
Meanwhile, noticeable progress towards cleaner fossil fuel technologies and carbon dioxide capture and storage has allowed oil to become cleaner, safer, more efficient, and more environmentally friendly, in line with the greenhouse gases emission reduction targets envisaged in the February 2005 Kyoto Protocol, and the July 2005 G8 Gleneagles Communiqué and Plan of Action for on Climate Change, Clean Energy, and Sustainable Development. In addition, action has been taken towards mitigating greenhouse gas emissions with the establishment of public-private partnerships for global gas flaring reduction.
In the same vein, it should be noted that Articles 2.3 and 3.14 of the Kyoto Protocol call upon contracting parties to strive to implement policies and measures in such a way as to minimize adverse social, environmental, and economic impacts on other parties, particularly developing countries as specified in Articles 4, paragraphs 8 and 9 of the United Nations Framework Convention on Climate Change (UN FCCC). The latter stipulate that in implementing the commitments alluded to in UNFCCC Article 4, parties shall give full consideration to necessary actions related to funding, insurance, and technology transfer to meet the specific needs and concerns arising from the adverse effects of climate change and/or the impact of the implementation of response measures on developing country parties whose economies are highly dependent on income generated from the production, processing and export and/or consumption of fossil fuels and associated energy-intensive products.
With new players such as China and India coming to the stage, and considering current demographic trends, the importance of energy efficiency cannot be overemphasized. Although significant efficiency gains have already been achieved and important steps were made into the right direction, such as the European Union’s “intelligent energy program”, much remains to be done to arrive at more rational consumption patterns in both industrialized and developing countries through a combination of government, industry and individual actions.
In parallel, concerted efforts are needed to enhance access to energy services to the poor, particularly in rural areas, while safeguarding the environment. In this light, the OPEC Fund welcomes ongoing efforts to diversify the energy mix by boosting investment in the development of renewable energy sources. Our member countries are giving due consideration to realizing the potential of renewable energy sources such as bio-fuels. However, whereas the role of renewables in the energy mix is expected to gradually increase over time, their overall contribution towards reducing energy poverty and helping meet the expected energy demand of the next 25-30 years is likely to remain small for several reasons:
- First, methods for generating energy using renewable natural resources are not necessarily more cost-effective and accessible as such to the poor. Renewable energy sources have their own limitations, including low energy density and intermittency, and high storage costs. For example, de-centralized renewables-based power systems could enhance access to electricity in rural areas, should the large initial capital costs be offset. In many cases, subsidies for the ‘public good’ component of such energy services will be unavoidable, whether targeted or across the board. This could act as a drain on scarce public resources, compelling governments to balance support for subsidies with other short-term needs and priorities, and market-based solutions;
- Second, the environmental implications of renewables such as bio-fuels are still unknown, and may be incompatible with the goals of sustainable development. The environmental impact of various sources of energy w ill be further reviewed at the May 2006 UN-sponsored 14th session of the Commission on Sustainable Development (CSD-14). UNCSD-14 aims at accelerating implementation of Agenda 21 and the Johannesburg Plan of Implementation on energy, climate change, air pollution/atmosphere and industrial development emanating from the 2002 World Summit on Sustainable Development, in which the OPEC Fund actively participated.
Therefore, fossil fuels (oil, gas and coal), will remain the most stable, safe, reliable and cost-effective source of energy for development for the next two-and-a-half decades, meeting 85% of the projected increase in primary energy demand. With some 70% of total proven world oil reserves and 40% of world gas reserves, there is little doubt that the MENA region – an area of low-cost production - will continue to be the world’s “energy safety valve” as the main supplier of secure and cost-effective sources of energy.The ongoing producer-consumer dialogue under the auspices of the Riyadh-based International Energy Forum aims at facilitating the debate on energy-related matters as to enhance future market stability and transparency.
The strong links between energy poverty and attainment of the MDGs suggest a need for closer synergy between the energy sector and other sectors and for allotment of a greater portion of official development assistance (ODA) to energy. While ODA rose to 0.33% of Development Assistance Committee member’s combined gross national income in 2005, it remains entirely insufficient to finance the investments required to meet the expected rise in world energy demand. Furthermore, ODA flows to energy fell back substantially since the early 1990s, with the share of energy in total ODA committed by sector dropping to a mere 3.3% in 2004. Clearly, there is a need to reverse this trend, and to complement ODA with investment from public and private sources as well as innovative financing mechanisms if we are to win the uphill battle against persistent energy poverty through integrated approaches.
An early example of such innovative mechanisms of financing for development is the OPEC Fund, which celebrated its 30th Anniversary this year. Over the past thirty years, the Fund committed some US$8 billion to environmentally-friendly and ecologically-safe projects in 119 countries worldwide, taking a double dividend approach by linking clean energy to the MDGs and poverty in all its dimensions. Almost one fifth or 18.6% of our cumulative public sector lending has been channelled to reducing energy poverty in particularly the poorest countries, and the poorest segments of their societies by integrating the principles of sustainable development as expressed in Agenda 21 into tailor-made projects and programs at national and community levels. Special attention has been paid to enhancing access to modern energy services for the poor through investment in infrastructure and reform and development of the power sector, including rural electrification, hydro-power, and promotion of energy conservation measures. Efforts are also ongoing to develop the role of local entrepreneurs in providing energy services under new business models as part of the Fund’s separate Private Sector Facility.
In addition, the OPEC Fund extended 45 grants totaling US$18.3 million to strengthen the capacity of national and local authorities to plan and implement environmentally sound and integrated energy poverty reduction policies and strategies. Activities included support to help meet the basic electricity needs of rural communities in an efficient, cost-effective and reliable manner through the definition of decentralized rural electrification systems. The Fund’s grant support also helped fight energy poverty by incorporating renewable energy and energy efficiency policies and strategies into national poverty reduction programs, including solar water-heating systems, wind-pumping for meeting rural water requirements, hydro-power, and biomass gasification technologies. By linking partners through pilot projects that help the poor build sustainable livelihoods, and by supplying remote villages with electricity and renewable forms of energy, we have contributed to saving the forests and minimizing the use of wood as a fuel. This assistance has been provided in conjunction with grant support aimed at enhancing energy conservation and efficiency, and at building environmental capacity in related areas.
There is no silver bullet solution to the inter-related problems of energy, poverty, and environmental degradation. Nonetheless, the extensive experience of the OPEC Fund and other agencies has provided useful lessons on how to raise the level of energy services available to the poor in order to allow them to meet their basic needs, and, ultimately, achieve acceptable levels of sustainable development through an appropriate mix of fossil fuels and renewable sources of energy. Armed with three decades of experience in energy for sustainable development, the Fund stands ready to continue to help fight energy poverty in partnership and co-financing with other development financing institutions, sister institutions, and all other relevant stakeholders at the global, national, and community levels.