Energy and Development

Energy is the raw material needed to fuel any country’s economy growth. Advanced economies have the capacity to develop new sources of energy production or to secure imports of foreign energy to meet their needs. But many poorer countries lack this essential capacity. It is estimated that one third of the world’s population, about two billion people, are without access to “modern energy services: lights to read by, refrigeration to store medicines and food, transportation to get products to market, let alone telecommunications and information technology – all prerequisites for economic growth and poverty alleviation.” Compounding this lack of access is the population explosion that is expected to occur in the developing world. Some predict that the population of the world’s 50 poorest nations could triple in the next few decades.¹

To make matters worse, the world’s poorest inhabitants are particularly ill-equipped to adapt to high energy prices and the increasingly volatile fluctuations of global energy markets. High oil prices tend to hurt developing countries disproportionately. This is because energy-intensive manufacturing constitutes a major part of the economies of many developing countries and because these countries are highly dependent on imported oil.²

In addition, purchases of foreign oil often must be paid for in U.S. dollars, a currency that is in short supply in most developing countries. These dollars could be put to better use buying a variety of foreign products that would contribute to economic growth such as modern machinery for factories.³

Some believe that the challenge of supplying energy for development is a hopeless one because the poor will never be able to pay commercial rates for the energy they consume. This contention has been disputed by the World Bank. Bank analysts estimate that, of the two billion impoverished people currently without modern energy services, one billion could afford to pay commercial rates while the other one billion could likely make partial contributions, with the difference being met by government subsidies. Even conservative estimates suggest that 500 million people could be helped if the right policy choices were made.⁴

A typical energy consumer spends one-tenth of his or her income on energy every month. For someone living in absolute poverty, defined as $30-60/month in income, this would be $3-6/month.⁵ Targeted aid and foreign investment could meet this need.

Some argue that the poor are already paying steep prices for “inefficient, dirty energy… from kerosene, candle wax and batteries.” In fact:

They often pay more per kilowatt than do middle-class, urban households or wealthy farmers who benefit from heavily subsidized grid electricity. For example, families in Peru’s remote highlands on average spend about $4 a month on candles.⁶

Thus, the situation for the world’s poor is not entirely helpless. But many factors combine to make their plight particularly difficult. A comprehensive treatment of energy and development is beyond the scope of this issue brief, but three dimensions of the problem will be considered below: geography, economics, and politics.

It should be noted that several topics relevant to energy and development have already been covered in this issue brief. For more, please see: “Nuclear Energy and Development,” “Wind Power” (especially “Landscape for Development”), “Solar Power” (especially “Scalable Energy for Development), “Climate Change” (especially “Catastrophic Effects”), “Emissions Standards and Air Quality,” “The Kyoto Protocol” (especially “Joint Implementation and the Clean Development Mechanism” and “Role of Developing Countries), and Box I on “Chinese Coal.”

Picture: Kerosene Lamps, Source: http://www.alpharubicon.com/
primitive/oillampsstryder.html

1 Wirth et al.
2 “Not So Shocking”
3 Wirth et al.
4 “Power to the Poor”
5 “What is Poverty.”
6 “Power to the Poor”

Further Reading:

Hernando de Soto, The Mystery of Capitalism: Why Capitalism Triumphs in the West and Fails Everywhere Else, Basic Books: 2003.

William Easterly, The Elusive Quest for Growth: Economists’ Adventures and Misadventures in the Tropics, MIT Press: 2002.

Jeffrey Sachs, The End of Poverty: Economic Possibilities for Our Time, Penguin: 2006.