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Module 01Green Growth and Energy: an IntroductionLesson 1The Rationale for an Energy Sector Transformation

World BankInstitute

Energy Sector Strategies to Support Green Growth

Presentation Script

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Module 1: Lesson 1 –The Rationale for an Energy Sector Transformation Presentation Script

About this Presentation

This introductory presentation provides a brief overview of green growth in general, and why a strategic transformation of the energy sector is a key component of green growth. In addition, this presentation identifies some of the key challenges of green growth strategies specific to the energy sector. In this presentation, you will learn about;

• What the term “Green Growth” means in practice, • How Green Growth can transform the energy sector, • Challenges and key elements of green growth for energy, and • The role of governments and policy makers. • We will also provide some links to references and resources for more

information.

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A Framework for Green Growth

Over the last twenty years, rapid economic growth has resulted in an 80% increase in GDP per capita in developing countries. Living standards have improved for many with more than 500 million people rising out of poverty and notable progress in literacy, life expectancy, child mortality, access to clean water and in reduced air pollution. However, there is serious doubt about the current growth model’s ability to deliver on the sustainable development goals that were set two decades ago... Many question our planet’s ability to feed 9 billion wealthier people and absorb the waste they produce. There are growing concerns about climate change and the degradation of ecosystems and biodiversity. This is motivating a rethinking of how to better integrate economic growth and the environmental concerns – a search for a new framework that focuses on significant improvement of our resource use efficiency, a transformation of our energy systems, and a greater degree of social inclusion. In this

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context, a number of multilateral institutions, policy makers and researchers are launching initiatives on “green growth”, “green economy”, or “green development”.

What is Green Growth

So, what precisely is “green growth”? Green growth refers to a focus on addressing the twin challenges of expanding economic opportunities and mitigating environmental pressures in an integrated manner. The United Nations Environmental Management Group defines Green Growth as “economic progress that fosters environmentally sustainable, low-‐carbon and socially inclusive development Within this definition, ‘growth’ refers to economic progress rather than simply output growth or increases in GDP. Focusing on economic progress broadens the focus on the quality of growth.

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Environmentally sustainable refers to respecting the Earth’s carrying capacity and efficient use of natural resources In the context of the energy sector, green growth has an explicit focus on climate change mitigation and Low-‐carbon energy Finally, green growth should also strive to be socially inclusive.

What is Green Growth

Other organizations definitions of green growth include a focus on specific actions and impacts. All of the definitions share a vision for driving innovation and economic growth with new and environmentally friendly technologies. Click on the organization to see their definition of green growth.

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The Green Growth Challenge: Moving Away from the Status Quo

The rationale of moving away from the traditional growth model to follow a green growth approach is based on the need to address some of the major environmental problems facing the world: air pollution, water stress, biodiversity loss, and climate change. Each of these environmental problems are predicted to worsen under business as usual economic growth. Click on each environmental issue to learn more.

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The Green Growth Challenge: Moving Away from the Statues Quo

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Green Growth Challenge: Decoupling Environmental Impacts

One component of a green growth strategy is to work to decouple environmental impacts from economic growth. This graph shows some decoupling trends in the OECD between GDP and several environmental indices from 1990 to 2010. For example, while GDP has increased by roughly 50%, energy supply has increased less than 20%. For the energy sector, there are two distinct forms of decoupling. The first objective is to decouple energy from growth and reduce the energy intensity of our economy to allow subsequent economic growth without a corresponding increase in energy use. The second objective is to decouple emissions from energy in order to reduce the emissions-‐intensity of our energy sector. This will allow the quantity of global energy services to increase dramatically—expanding energy access and allowing for industrial growth—while still reducing overall greenhouse gas emissions

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The Economic Rationale for Green Growth

Continuing “business as usual” economic growth has substantial environmental implications. The impacts of economic activity on environmental systems put future economic growth and development at risk. These environmental impacts often carry economic costs. Consequently, the perceived trade-‐off between economic growth and environmental protection is increasingly being called in to question. Economists have a number of economic arguments to promote green growth strategies. Select your choice to learn more.

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The Economic Rationale for Green Growth

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What Green Growth Means in Different Countries

Green growth development strategies can provide net benefits for upper income, middle income, and less developed countries. While economic priorities diverge from one country to another, the rationale for green growth often remains. Middle income countries are expanding economically, often at high rates of industrialization. At this stage, a green growth strategy can bring essential elements for development and vast opportunity to invest in large green infrastructure as the energy system expands, avoiding the problem of locking in emissions in the future. For instance, Mexico will use a US$1.5 billion loan of the World Bank to stimulate the economy and to help reduce emissions in the urban transport and energy sectors through actions such as energy efficiency measures.

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What Green Growth Means in Different Countries

One of the typical priorities for less developed countries is energy access. It is estimated that 20% of people in the world, approximately 1.3 billion people, lack access to electricity. In least developed countries, this figure is almost 80%. A lack of energy services affects health, limits opportunities for education and development, and ability to rise out of poverty. The impacts of climate change and volatile energy prices are expected to exacerbate the existing problem. For example, consider the typical problem of a low income country that cannot supply electricity to its entire population and whose current electricity grid suffers from low-‐quality and frequent power outages. Individuals without access to reliable electricity often spend a significant portion of their income on expensive on fuel-‐based lighting such as kerosene and candles.

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Practical solutions to this problem are being developed and implemented around the world. An example of one solution is the Lighting Africa program, developing commercial off-‐grid lighting markets in Sub-‐Saharan Africa as part of a wider effort to improve access to energy. This program will reduce the reliance on expense fuel-‐based lighting and increase energy access by mobilizing the private sector to provide off-‐grid lighting to 2.5 million Africans by 2012 and to 250 million Africans by 2030.

Green Growth and the Importance of the Energy Sector

Why is a transformation of the energy sector so important for a green growth strategy? There are three main reasons that stand out: the importance of energy to our economy, the increasing demand for energy, and the large environmental footprint of the energy sector. Energy is essential to our modern economy. It is a key input in the production process for a variety of goods in our economy.

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Due to population and economic growth, global energy demand is increasing rapidly. This is especially true in the developing world. By 2035, an estimated 5,900 gigawatts (GW) of new gross capacity are needed with over 90% of this capacity in the developing world. As a comparison 2009, global installed power generation capacity was about 5,000 GW. Cumulative global investment in the power sector is estimated at USD 16.9 trillion 2011 to 2035, an average of USD 675 billion per year.

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The energy sector has a large environmental footprint. The importance of improving the environmental performance of the energy sector cannot be understated. The energy sector is highly dependent on fossil fuels and currently accounts for 84% of global CO2 emissions. Consequently, any serious attempt to address climate change must begin with a full transformation of how energy is supplied and consumed. In sum, we need to transform the energy sector along green growth principles because it is a key input in the productive process, the sector is growing rapidly, and the sector has a large environmental footprint.

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Transforming the Energy Sector: Key Technology Areas

In order to meet the two-‐degree warming goal, a large scale transformation of our energy systems is needed, and innovation is central to this transformation. These are examples of technologies currently available for reducing global CO2 emissions within the energy sector.

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End-‐Use Energy Efficiency cover technologies that are based on the simple concept of using less energy to provide the same level of output or perform the same task. The reason end-‐use energy efficiency technologies are increasingly being seen as practical solutions are that they avoid the environmental and economic costs of energy supply and distribution, and reducing the consumption at the end use provides leverage for reducing emissions from generation. Some common examples of these technologies are weatherstripping buildings, adopting green building principles, and the use of energy control systems.

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Renewable energy covers a variety of technologies that derive their energy from renewable sources. These include solar, wind, biomass, hydro, and geothermal.

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End-‐Use Fuel Switching involves choosing the most appropriate energy carrier to supply a given end use while minimizing primary energy consumption. For example, in most contexts, natural gas is more than twice as efficient at providing space heating, domestic hot water and heat for cooking compared to electricity. Consequently, switching to more efficient fuels for specific end-‐uses can increase the overall efficiency of the energy system and reduce the environmental impacts.

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Power Generation Efficiency improvements can increase the output of power while reducing, or keeping the same, the quantity of inputs. Fuel Switching in power generation means using less carbon-‐intensive fuel sources such as feedstock and biofuel or using natural gas instead of coal.

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In addition to the technologies areas described above, there are several advanced technologies currently under demonstration that may prove pivotal in reducing the environmental impacts of the energy sector. The most well-‐known of these is Carbon Capture and Storage, or CCS. CCS captures carbon dioxide from large point sources and stores it in deep geological formations, in deep ocean masses or in the form of mineral carbonates. While several examples of CCS have been demonstrated, there continues to be issues surrounding costs, other environmental effects, and long term viability. With these technologies explained, we can now discuss the extent of the transformation that is needed in the energy sector.

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Transforming the Energy Sector: Scale of Transformation

What is the scale of transformation required in the energy sector? We answer this question both in terms of greenhouse gas emissions and investments. In terms of emissions, the energy sector’s emissions need to be reduced by one half by 2050, according to recent analysis by the International Energy Agency. Where will these emission reductions come from? The report titled, Energy Technology Perspectives 2010, outlines the different roles that each of the technologies is estimated to play in reducing emissions. The graphic presents a baseline emission scenario and a emissions scenario consistent with the 2 degree Celsius climate goal, the BLUE Map emissions scenario. The BLUE Map scenario estimates that by 2050, the energy-‐related CO2 emissions are reduced in half compared to 2005 levels. Moving from the baseline emission level in 2050 of 57 Giga tonnes to the goal of 14 Gigatonnes will require a wide deployment of several key technologies. End-‐use fuel and electricity efficiency is predicted to make up the highest share of emission reductions at

What is the scale of transformation required in the energy sector?

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38%, followed by Carbon Capture and Storage at 19%, Renewables at 17% and End-‐Use fuel switching at 15%. In terms of costs, the OECD estimates that the transformation of the energy sector will require an additional cumulative investment of USD 46 trillion between now and 2050. This represents a 17% increase on top of baseline investments in the energy sector. It is estimated that this additional investment will generate cumulative fuel savings of USD 112 trillion higher than in baseline.

Key Elements of Green Growth for Energy

A recent paper by scholars at the Brookings Institution suggested four key elements of a green growth agenda for the energy sector: Innovation, Integration, Implementation and Energy Transformation. Click on each element to learn more.

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Key Elements of Green Growth for Energy

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Identifying the Key Challenges of Green Growth for Energy

We have learned about the important economic and environmental rationale and key elements of transitioning to green growth in the energy sector. It is also important to review some of the key challenges. First, greening the energy sector will require large upfront capital investments that may not be available in many developing countries. Financing is a challenge. Second, green energy often needs to be integrated into the grid. This sometime poses additional costs for transmission. Third, the often unpriced costs of traditional energy such as carbon emissions makes it harder for greener technologies and energy efficiency to compete. Fourth, new technologies may require a shift in how people behave or perceive the ‘energy’ problem

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Throughout the rest of these modules, we will focus on solutions to these challenges and others as we explore available policy instruments.

The Role of Government

What is the role of governments in promoting green growth in the energy sector? It is useful to start with the basic justification for government intervention: market failures. Market failures arise in situations where private markets do not result in the socially optimal outcomes. Market failures exist in the energy sector due to environmental externalities such as carbon emissions, insufficient investments in clean energy research and development, uncompetitive markets, and a lack of information on available green approaches and alternatives. For example, absence a price on carbon emissions, the private market outcome will produce more carbon emissions than is socially efficient. Conversely, R&D in clean energy may be

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less than socially optimal because the private benefits from research are less than the social benefits from research. This is due to the positive spillover benefits from R&D. Consequently, the private sector will under invest in R&D in the clean energy sector. Due to these market failures, transforming the energy sector will require strong government support.


What type of government support is necessary? The government can send policy signals, create initial markets, educate and persuade stakeholders, internalize externalities, and regulate and incentivize individuals and businesses. It is important to note that these roles are best viewed as complements and can be combined to improve the overall effectiveness of public policies.

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What is the role of the government in the policy process? Primarily, the government will be involved with four main stages of the policy process: Setting the Policy Objective, Designing the Policy Instrument, Implementing the Policy, and Data Collection and Policy Evaluation. After the rationale for public policies had been established, the first step is setting the policy objective. Essentially, determining what the policy should try to achieve. The government can develop the policy, or act as a facilitator for the various stakeholders in defining the objectives of the policy. A policy may have multiple objectives, but it is important to keep the objectives simple and clear to provide all the stakeholders with a robust understanding of its purpose. For example, in assessing the complicated problem of climate change, the worlds’ governments have set a policy objective of keeping the global temperature increase below 2 degrees Celsius

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in comparison with pre-‐industrial levels. A target that is more directly achievable for governments may be encouraging a renewable electricity share of 20%.


Once the objective has been set, the next step is policy design and instrument choice. Policy instruments are chosen to achieve the objectives of the policy. Policy instruments may be assessed on multiple criteria including their environmental effectiveness, cost, flexibility, feasibility, complementarity to other existing policies and/or efforts, equity concerns, and co-‐benefits. Overall, there is a growing consensus that an important role of public policies should be to provide signals to consumers and investors; signals that are, to borrow Nicholas Stern’s phrase, “clear, credible, and long term”.

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But a key issue is what policy instruments are available to governments to facilitate green growth in the energy sector. The goal of this course is to answer that question.


Once the policy has been designed and the policy instrument chosen, implementing the policy is the next step. (cue second animation) This can present a range of challenges, including economic, technical, political and social issues. Depending on the policy instrument, the role of the government during implementation may range from facilitating information sharing amongst stakeholders to providing active financing of different energy projects.

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After implementation, the final step is to collect the necessary data and information for monitoring and evaluate the effectiveness of the policy. This step will ensure that the policy is being working as intended and allows for policy refinements and improvements.

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Example: The Role of Government for Fossil Fuel Subsidies Reform

In some cases, existing government policies can undermine the objectives of green growth. A prime example are existing subsidies on fossil fuels such as gasoline, diesel and natural gas. The objectives of fossil fuel subsidies are diverse, and range from using cheap energy to promote industrial growth, to equalizing energy prices across regions and to helping consumers deal with rising energy prices. While some of the objectives of fossil fuel subsides are laudable, such as helping the poor, there is a growing recognition amongst policy makers of the negative consequences of these subsidies.First, fossil fuel subsidies have a large economic cost. Global fossil fuel consumption subsidies totalled $409 billion in 2010 and another $100 billion are spent on fossil fuel production subsidies. Second, these subsidies are often justified as a means of redistribution, but they are an extremely inefficient means of assisting the poor. For example, only 8% of the $409 billion spent on consumption subsidies went to the poorest 20% of the population. Third, the unintended environmental impacts of fossil fuel

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subsidies are also substantial. It is estimated that removing these subsidies would reduce CO2 emissions by 7% and reduce global energy demand by about 6% by 2020.

Fossil Fuel Subsidy Reform

Let’s take a look at the results of the fossil fuel subsidy reforms. After reading the background information, roll your cursor over each question to learn more.

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References and Further Reading

Now that you have completed this lesson, we invite you to review the following references.

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Documents

green growth module

term green growth

quality of growth

key elements of green

key component of green

green development

brief overview of green

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