A cup of coffee in Caracas costs almost 200 times a liter of gasoline. Households in Turkey paid 74 times more than their Egyptian counterparts for bottled cooking gas in early 2013. The price differences across countries for gasoline and diesel are even larger, as much as 250-fold for diesel.
The following post is a part of a series that discusses 'managing risk for development,' the theme of the World Bank’s upcoming World Development Report 2014.
Crude oil is arguably one of the single most important driving forces of the global economy, and changes in the price of oil have significant effects on economic growth and welfare around the world. Indeed, the level of oil dependency of industrialized economies became particularly clear in the 1970s and 1980s, when a series of political incidents in the Middle East disrupted the security of supply and had severe effects on the global price of oil. Since then, oil price shocks due to such exogenous events have continuously increased in size and frequency (cf. Figure 1). While oil demand tends to be slow moving, mainly driven by economic growth and to some extent climate policies, the prospects of future oil supply are highly uncertain – not least considering persistent political instability in exporting countries and the uncertainty regarding the discovery of new reserves. As a result of such uncertainties, oil prices could undergo further (increasingly) drastic fluctuations in the future.
As an economist dealing with energy efficiency on a daily basis, I have studied and written about its benefits for several countries. But it was not until recently that I got around to looking into it at home.
It all started with my work with the World Bank’s energy efficiency agenda, particularly after the G8 Forum asked the Bank in 2006 to prepare a “Clean Energy Investment Framework”. Soon thereafter, we supported a series of low carbon country case studies in India, South Africa, Brazil, Mexico, and China. A number of clear messages were delivered to us, including: “our priority is economic growth and poverty reduction”.
So how were we to get the best of both worlds – a reduction in the trajectory of greenhouse gas emissions (like carbon dioxide) and continued economic growth?
If you live on an island in the ocean, energy and climate issues come together in a palpable way. Most small island developing states depend heavily on imported fossil fuels, especially diesel, for their power. For remote islands, in the Pacific for example, the fuel must be shipped over long distances. It’s expensive, the supply is limited and intermittent, and paying for it stretches government budgets. Because of this, low-income families and communities often rely instead on kerosene, and wood or other biomass for lighting and cooking.
Bangkok is a vibrant, cosmopolitan city, home to more than eight million people. However, a new report released by the World Bank today paints a grim picture for the Thai capital. It notes that, without adaptation, a predicted 15cm sea-level rise by the 2030s coupled with extreme rainfall events could inundate 40% of the Thai capital and almost 70% of Bangkok by the 2080s. While I certainly hope it doesn't happen, words cannot describe the impact this would have on the lives and livelihoods of people residing in this city. And Thailand isn’t the only country that could be affected by rising temperatures.
The report - Turn Down the Heat: Climate Extremes, Regional Impacts, and the Case for Resilience - was commissioned by the World Bank’s Global Expert Team on Climate Change Adaptation and prepared by a team of scientists at the Potsdam Institute for Climate Impact Research and Climate Analytics. It looks at the latest peer-reviewed science and with the aid of advanced computer simulations looks at the likely impacts of present day (0.8°C), 2°C, and 4°C warming across three regions – Sub-Saharan Africa, South Asia, and South East Asia. It focuses on the lives and livelihoods of people in the developing world by analyzing the risks to agriculture and food security in sub-Saharan Africa; the rise in sea-level, bleaching of coral reefs and their impact on coastal communities in South East Asia; and the impact of fluctuating rainfall patterns on food production in South Asia. The poor and the vulnerable are the ones that will be most affected by the impacts of climate change.
The problem with the World Bank’s 20th anniversary in Kyrgyzstan last November was that everybody else’s party had happened already.
There has been a blur of speeches, gala concerts, jazz bands, canapés, toasts and traditional performances as one embassy after another feted twenty years of partnership with the Kyrgyz Republic. The same guests, speeches, and – truth be told - probably the same canapés.
We had to do something different. So, as we celebrated the last 20 years of our work in Kyrgyzstan (which have been quite good), we toasted the next 20 years as well.
You can see it in the smiles on the faces of villagers in Ban Nam Jing, two hours outside of Vientiane the capital of Lao PDR. People's lives are improving. In this village of 158 households incomes have increased thanks in part to the 'Power to the People' (P2P) project supported by the World Bank. The program targets the poor, especially female heads of household, with subsidies to pay for electrical connections.
The villagers I met say initially only wealthier families could pay to be connected. Poorer families were left behind unable to afford the cost with their incomes from producing rice, cassava and rubber. Now with lights at night they are also producing handicrafts and textiles to boost their incomes. There are other benefits, with refrigeration people say they can keep food longer, before it used to rot and they would have to eat it quickly. In addition, their children can now study at night and they have TV for entertainment and to learn more about the rest of the world.
There is a continuing controversy over what constitutes energy poverty and whether it is synonymous with income poverty or lack of access to electricity. Several approaches are used to define and measure energy poverty, taking into account both demand and supply of alternative energy sources, including biomass, LPG, and electricity. But as yet, no consensus has emerged for measuring and monitoring energy poverty and explaining why and how it differs from income poverty.
Like income poverty, energy poverty may be defined by the minimum energy consumption needed to sustain lives. But unlike income poverty—based on the concept of a poverty line defined by the minimum consumption of food and non-food items necessary to sustain a livelihood—energy poverty lacks a well-established energy poverty line to determine the minimum amount of energy needed for living. Current indicators used by such organizations as the World Bank and the International Energy Agency (IEA) measure energy poverty indicators as outputs (e.g., lack of electricity connections) rather than outcomes (e.g., electricity consumption and associated welfare gains).
New fracking practices have increased the availability and decreased the cost of natural gas. This is having an enormous impact on energy systems around the world. There are numerous potential applications for natural gas including, but not limited to, use for transportation fuel, residential use, and electricity generation. Since the economic potential of exploiting this resource is so large it is likely that Canada, along with the US, will continue to ‘frack it all’ and reap the economic benefits on the global market. Other countries like China are joining in as well.
The largest increase in use of natural gas is for electricity generation. Natural gas fired power plants are appealing for many reasons. They can supply reliable base-load as well as peaking power. Also, they can be planned and built in less time than say, nuclear power stations, and for lower capital cost. Since fuel is available and cheap, natural gas power plants will continue to be built, and existing plants will continue to operate.