Building renewables plants across the Global South is a preferable alternative to generate fewer emissions — but the international community has to date been unwilling to provide the substantial funding needed to construct this type of additional generation capacity at the level developing countries require. Credit: Isaiah Esipisu/IPS

By Philippe Benoit
WASHINGTON DC, Mar 27 2023 (IPS)

This year’s United Nations Climate Change Conference, COP 28, will be hosted by the United Arab Emirates, which, together with its Gulf neighbors, enjoys abundant solar, natural gas and financial resources. At the same time, many poorer countries are struggling to generate the additional affordable electricity they need to power their development — especially as wealthier nations halted their overseas financing for high-emitting coal power plants.

Unfortunately, the UAE and other Gulf states can’t easily export their solar resources to developing countries. However, they can export their natural gas to support affordable low-emissions power production in poorer countries if combined with donor-financed carbon capture, utilization and storage (CCUS)-equipped gas-fired power plants.

The lead-up to COP 28 provides an opportunity to explore this mechanism to support low-emissions economic growth in poorer countries — a “gas for poverty and climate” power proposal.

The decision to build more coal power plants reflects the difficult dilemma faced by many poorer countries: They are the most vulnerable to the impacts of climate change and yet they do not feel they can afford to forestall investing in affordable power generation and the shorter-term economic benefits it provides, even if this means building high-emitting coal power plants

As I noted in an earlier opinion piece, the decisions by the G-7, China and others to halt overseas financing for coal power plants serve important climate goals but do not eliminate developing countries’ need for more electricity at affordable prices. According to a February Reuters report, the Pakistan government has decided, in the face of high and volatile natural gas prices, to pivot from building gas-fired plants to more affordable coal-fired ones notwithstanding the higher emissions.

This shift is all the more unsettling given the devastation Pakistan suffered last year from massive flooding with an intensity potentially exacerbated by climate change.

The decision to build more coal power plants reflects the difficult dilemma faced by many poorer countries: They are the most vulnerable to the impacts of climate change and yet they do not feel they can afford to forestall investing in affordable power generation and the shorter-term economic benefits it provides, even if this means building high-emitting coal power plants.

The upcoming COP 28 context might provide a way out, one that leverages the hosting of the event in the gas-rich Gulf region, with the stated interest of wealthier countries and multilateral development banks to support poorer countries in the energy transition.

The proposal has two basic elements: an undertaking by a Gulf producer to provide natural gas at a preferential low price to new “low-emitting” gas-fired power plants built with concessional climate finance in partnering developing countries.

The preferential pricing builds off of three interrelated Gulf state dynamics: the abundance in the region of gas resources, Gulf programs to contribute to the economic development of poorer countries and efforts to lower emissions from petroleum, such as the application of carbon capture technologies. The sales price would be fixed at a concessional level — e.g., notionally at (or even potentially below) the cost of production, liquefaction and transport, rather than generating typical market returns.

The subsidy embedded in this structure would be recognized as a financial contribution by the gas-supplying country to both international development and global climate efforts. This structure could potentially also be used by wealthy gas countries from other regions, such as possibly Norway, interested in simultaneously supporting development and tackling climate change.

The second element is the use of this natural gas in gas-fired power plants equipped with “carbon capture, utilization and storage” technologies to produce “low-emissions” electricity.

Many countries have looked to expand the use of gas-fired plants in part because they emit less than half the carbon dioxide (CO2) per kilowatt hour (kWh) of a coal plant. But their emissions are still consequential, potentially in the order of 350 grams of CO2/kWh according to one estimate —  a significant level when considering the “net zero emissions” targets put out by various countries or embedded in the climate modeling of the International Energy Agency.

CCUS is one tool to substantially further reduce these emissions by 90 percent or more. The potential result is CO2 emissions per kWh that are so low they might even be termed “near-zero emissions.”

Although CCUS technologies have been developed and tested for many years on power plants, they have yet to be deployed at a large scale. One reason is that they are expensive per ton of reduced CO2 emissions. Consequently, their cost would undermine a developing country’s electricity affordability objective.

To overcome this hurdle, the CCUS-equipped gas-fired plant would need to be financed in large part through highly concessional climate funding, to be provided notably by the international donor community. There may also be an opportunity to tap into carbon markets to fund both capital and operating expenditures given the lower (i.e., avoided) emissions from the CCUS-equipped plant as compared to the alternative of a new coal-fired power plant or a gas-fired one without CCUS.

There are, of course, additional complexities to explore. For example, the plant would need to be able to access reasonably priced options for CO2 use or storage. In addition, the greenhouse gases (including methane) emitted in producing and delivering the natural gas to the plant would need to be limited to ensure the produced electricity remains “low emissions” when considering the full value chain.

Further analysis would also be needed on the pricing and other terms to make this structure attractive for the natural gas supplier, the donor community funding the CCUS-equipped plant and the developing country’s electricity consumers.

Building renewables plants across the Global South is a preferable alternative to generate fewer emissions — but the international community has to date been unwilling to provide the substantial funding needed to construct this type of additional generation capacity at the level developing countries require. And, as noted earlier, the technologies don’t yet exist for the Gulf states to export their abundant solar power resources, notwithstanding current discussions about green hydrogen.

The hosting of COP 28 in the Gulf provides an opportunity to think creatively about how to mobilize the gas resources of that region (and elsewhere) to better support both the development needs of poorer countries and the global climate effort. This COP 28 “gas for poverty and climate” power proposal might provide some elements.

(First published in The Hill on March 8, 2023)

Philippe Benoit has over 25 years of experience working in international energy and sustainability, including prior management positions at the World Bank and the International Energy Agency.  He is currently adjunct senior research scholar at Columbia University’s Center on Global Energy Policy and  research director at Global Infrastructure Analytics and Sustainability 2050.

BP’s recent journey points to the need for instruments that influence profits specifically, and notably reconsideration of the controversial price control tool: a climate-driven price cap on oil. Credit: Bigstock

By Philippe Benoit
WASHINGTON DC, Mar 13 2023 (IPS)

BP, the oil company that previously brought us “Beyond Petroleum” and more recently robust corporate climate goals, has announced a return in emphasis to its traditional business of producing oil. Drawn by the inescapable appeal of oil’s latest high profits, has BP rebranded itself as “Back to Petroleum?”

This type of shift highlights the importance of stronger market incentives for reducing emissions so that companies interested in decarbonizing see their financial interest align with that course. BP’s recent journey points to the need for instruments that influence profits specifically, and notably reconsideration of the controversial price control tool: a climate-driven price cap on oil.

BP has consistently been a forward-leaning company among its peers on climate.  As early as 2002, then CEO Lord Browne rebranded BP as it sought “to reinvent the energy business: to go beyond petroleum.” However, various financial pressures, including the Deepwater Horizon spill, subsequently moved the company away from its non-petroleum businesses.

So long as there are big profits to be made from oil, these companies will continue to be drawn to their petroleum activities, notwithstanding any stated desire to shift to renewables

But in August 2020, BP was back with a strengthened pivot to climate as the company announced a series of ambitious low-carbon targets.”  This included a 40% production decline and a 10-fold increase in low-carbon investment over the next decade.  BP also announced  a groundbreaking target for Scope 3 emissions (namely, emissions from the consumption of its products by industry and other consumers).

Unfortunately, BP has now scaled back its climate ambition.  Notably, rather than a 40% drop in production by 2030, BP now expects only a 25% decrease.  Significantly, this shift has been made at a time of $28 billion in record corporate profits for BP, records also seen by other oil majors, such as ExxonMobil and Shell.

These record profits — driven in part by high gas prices resulting from Russia’s invasion of Ukraine — also point to a major vulnerability for any market-driven climate effort.  With the lure of these type of returns from the traditional petroleum business, it is difficult to see or sustain financial motivation to shift away.

Indeed, as BP made clear in announcing its ambitious 2022 climate targets: “bp is committed to delivering attractive returns to shareholders” — and petroleum, with its upside, is uniquely placed to deliver the potential of a high return. So long as there are big profits to be made from oil, these companies will continue to be drawn to their petroleum activities, notwithstanding any stated desire to shift to renewables.

However, this also points to what needs to be a focus of an effective climate policy for oil: reducing its profitability.  Over the years, think tanks, academics and others have put forward carbon pricing as the most efficient emissions reduction instrument, but this discourse has failed to deliver significant results in practice, especially when it comes to oil companies.

As emissions continue to rise and the carbon budget shrinks, the time has come to explore other solutions. One tool that merits consideration — more precisely, reconsideration — is a cap on oil prices.

This “climate oil price cap” would be designed to increase the relative profitability and so financial appeal of renewables by limiting the upside on oil activities specifically (something a customary windfall profits tax set at the corporate level wouldn’t accomplish). It would thereby support and encourage BP and other oil companies to transform themselves from a traditional petroleum company into an “integrated energy company” (BP’s own term), one that can generate significant profits from renewables and other low-carbon products relative to its petroleum activities.

Oil price controls are, of course, not new and have a checkered history (e.g., President Nixon’s effort in the US 50 years ago). But the climate emergency presents a new threat that merits re-examining this instrument. Importantly, a price cap could also help energy-importing developing countries, as well as vulnerable households there and elsewhere, avoid the harmful impact of the high oil prices experienced in 2022 (another potential advantage over a windfall profits tax ).

And there is now a precedent for this type of concerted purchaser action, namely the price cap on Russian oil agreed by the EU and US. It is also a tool that has drawn renewed attention in other contexts, including rethinking the framework governing gas prices to insulate US consumers from the gasoline price surges driven by Russia’s invasion of Ukraine.

Any effort needs to consider the lessons from the failed efforts of the past.  For example, the cap should be set at a sufficient level to attract the desired supply – including to energy-importing developing countries — even as it precludes the type of record profits the oil industry saw last year. It should also build on the experience with the current Russian price cap.

While, admittedly today there isn’t sufficient support for aggressive climate policies, the prospect for strong action will likely increase over time as heat waves, flooding and other extreme weather events wreak havoc exacerbated by climate change.  This in turn can be expected to increase the willingness of politicians and policymakers to be more ambitious down the road in taking climate action.

In anticipation of this changing landscape, creative options beyond traditional carbon pricing mechanisms should be explored and put before these decision-makers by think tanks, academics and others.

In this regard, the combination of BP’s recent record profits and shift in corporate policy points to the appropriateness of considering a price cap on oil as a possible tool to fight climate change by improving the relative profitability of low-carbon investments.

Philippe Benoit has over 20 years of experience working on international energy, development and sustainability issues.  He is currently research director at Global Infrastructure Analytics and Sustainability 2050.

To achieve a strong partnership with Africa, the U.S. administration will need to demonstrate that it is interested in Africa because the continent itself matters, not merely to address other U.S. international objectives. Djibouti Port. Credit: James Jeffrey/IPS

By Philippe Benoit and Bayo Oyewole
WASHINGTON DC, Jan 10 2023 (IPS)

 President Biden and leaders of 49 invited African countries and the African Union met in Washington last month for the U.S.-Africa Leaders Summit — a meeting that all parties hope will launch a strengthened partnership to deliver benefits for the peoples of both the U.S. and Africa.  

A strong Africa working in partnership with the U.S. is an important and all too often overlooked element of a robust U.S. geopolitical strategy. But to achieve this strong partnership, the U.S. administration will need to demonstrate that it is interested in Africa because the continent itself matters, not merely to address other U.S. international objectives.

What might Africa look like 20 years from now? A real possibility is a 2.4 billion-person continent with significantly diminished poverty and a large and growing middle class that can provide a vibrant economic partner for the U.S.

Unfortunately, there is skepticism within Africa, founded in historical precedent, as to U.S. intentions. For many years, as European powers withdrew from Africa following the decolonization of the continent, the U.S. and Soviet Union stepped in seeking to install “friendly” regimes.

Africa was an area of interest more because of its importance to the U.S./Soviet Union Cold War than on its own merits. The result was often misguided policies focused on political alignment rather than promoting improvements on the continent. As the Cold War waned, arguably so did some of the U.S. interest in Africa.

2008 saw the election of an American president of African descent, Barack Obama, generating excitement across the continent. In 2014, President Obama convened the inaugural U.S.-Africa Leaders Summit, the largest gathering at that time of U.S. and African leaders.

Unfortunately, there followed a general sense of disappointment as the summit failed to translate into strong action. Interestingly, the U.S. president at times most often praised for his support to Africa is President George W. Bush, who launched PEPFAR, the large-scale effort to fight AIDS focused on Africa that is also considered by some historians to be his greatest achievement.   

Last month’s summit took place on a complex international and geopolitical backdrop for the U.S., marked by the growing competition with an emerging China and, more recently, Russia’s invasion of Ukraine. For some American commentators, the summit provided an opportunity to draw Africa closer to the U.S. in countering these challenges following a period of inactivity.

But Africa’s leaders have signaled that they don’t want to be viewed as mere tools for other geopolitical dynamics — including tensions with China and Russia — they want their concerns addressed on their merits. And the Biden administration was careful to not present last month’s summit as China/Russia-oriented. As explained by a CNN commentator: “In previewing this … [U.S./Africa] summit, American officials have been careful to avoid framing Africa as a pawn in a larger geopolitical strategy.”

This represents a wise strategy, especially as Africa has grown substantially both economically and politically over the last several decades and is poised for further growth. The GDP of Sub-Saharan Africa has grown five-fold from $400 billion 20 years ago to nearly $2 trillion today, and Africa’s total GDP now reaches nearly $3 trillion when North Africa is included. Similarly, a Brookings report estimates that the middle class of Sub-Saharan Africa will grow from 114 million in 2015 to 212 million in 2030. It is also the region where the largest growth in population is expected going forward: by 2050, an estimated quarter of the world’s people will be African.

African leaders themselves are not oblivious to the growing strategic importance of their own countries. Rich in agriculture, mineral and energy resources, and with a growing diaspora that funneled over $83 billion in remittances back to Africa in 2020 (far more than the $65 billion the continent received in official development assistance that same year), Africa has become an attractive destination for the astute investor. 

Newly empowered by the growth potential of their countries, many African leaders are demanding a stronger voice and greater respect internationally — and they’re getting it from China whose presence in Africa is ubiquitous. Similarly, Japan is re-asserting its engagement with Africa.

Last month’s U.S.-Africa Leaders Summit is a welcome effort in this context and there is much room for strengthening ties. For example, Africa accounts for only 1 percent of U.S. foreign trade, most of which is in petroleum imports from two countries. But African governments, for their part, will need to demonstrate their openness to advancing inclusive growth and political rights domestically.

Just as Asia has dominated the growth story of the last 50 years, will Africa be the emerging engine of growth for the next 50? This is something that analysts are contemplating. The recent analysis of the continent by the International Energy Agency posits a possible high growth “Africa Case” scenario in which the continent is able to exploit effectively its potential. 

Arguably, the U.S. and other advanced economies were caught off-guard by the rapid economic growth that took place in Asia. They were slow to anticipate it, recognize it and integrate its implications into their strategies. This is not to predict when it comes to Africa that it will inevitably replicate what Asia has done; however, the reality is: “maybe, who knows?” That’s a potential outcome that the U.S. should prepare for, and even nurture. 

What might Africa look like 20 years from now? A real possibility is a 2.4 billion-person continent with significantly diminished poverty and a large and growing middle class that can provide a vibrant economic partner for the U.S. To achieve this, a strong partnership between the U.S. and Africa is key and in the interest of both their peoples.

Philippe Benoit has over 25 years of experience working on international development, including previous positions at the World Bank where he focused on Africa.  He is currently research director for Global Infrastructure Analytics and Sustainability 2050. 

Bayo Oyewole, CEO of BayZx Global Strategic Solutions, currently provides independent advisory services to the African Development Bank. He previously held senior positions at the World Bank and the International Finance Corporation, including in the office of the Executive Director representing several African countries on the World Bank Board.

There are over 8,500 coal power plants in the world, with over 2,100 GWs of capacity.  These plants generate about 10 gigatons of CO2 emissions  per year, nearly 30% of the global total. Credit: Bigstock

By Philippe Benoit and Chandra Shekhar Sinha
WASHINGTON DC, Nov 2 2022 (IPS)

Report after report highlights that we can only achieve the greenhouse gas (GHG) emission reductions required by the climate goals of the Paris Agreement if much of the existing coal power generation capacity is retired early.  To this end, one concept that deserves greater consideration is conducting an auction for early retirement of coal power plants worldwide: a global coal retirement auction. This article sets out the broad outlines of how this global auction might operate.

The International Energy Agency (IEA) has estimated that there are over 8,500 coal power plants in the world, with over 2,100 GWs of capacity.  Although these plants are concentrated in a limited number of countries (notably China, followed by India and the U.S.), there are coal plants running in over 100 countries with over 2,000 owners.

These plants generate about 10 gigatons of CO₂ emissions  per year, nearly 30% of the global total.  This  level of emissions from coal is incompatible with either the “well below 2^oC” or the more ambitious ”1.5^oC” temperature targets set out in the Paris Agreement.

Accordingly, climate/development organizations, like the Asian Development Bank (ADB), the World Bank, the IEA and RMI, are exploring programs to effect the early retirement of these coal plants.

The International Energy Agency has estimated that there are over 8,500 coal power plants in the world, with over 2,100 GWs of capacity.  Although these plants are concentrated in a limited number of countries (notably China, followed by India and the U.S.), there are coal plants running in over 100 countries with over 2,000 owners

But closing these plants presents two important challenges.  First, retiring these plants removes electricity production that many countries rely upon for their economic development … production that would need to be replaced with preferably low-carbon sources.  Second, owners are generally unwilling to shutter revenue-generating plants and want financial compensation for the returns they would forego from the premature retirement of their asset.  This article addresses this second constraint.

There are various regulatory mechanisms that can be used to push early retirement, such as mandating closure of plants or imposing a carbon tax or other cost that makes operating the plant uneconomic.

A completely different tack is to entice closures by paying the owners to do so.  This is the premise of, for example, the ADB’s innovative Energy Transition Mechanism.

But what’s a fair price? Perhaps, however, that’s not the right question. Rather, at what price are the owners willing to shutter their plants? Given that there are more than 8,500 coal power plants operating with different technical and revenue characteristics, and over 2,000 plant owners in diverse financial situations following distinctive corporate strategies (including numerous state-owned enterprises), the answer will vary.

A technique that has been used in this type of context of multiple actors is an “auction”. While in the traditional context, a seller looks to get the highest price from multiple possible buyers through an auction, in this case, we have a buyer that is interested in paying the lowest price to different plant owners (i.e., the sellers) for the retirement of their coal plants.

This is referred to as a “reverse auction”.  This tool has been used to acquire new power production, including renewables, at low prices, and specifically in the climate context to attract cost-effective investments that reduce methane emissions.

The reverse auction mechanism could be used to solicit proposals from coal power plant owners as to the price at which they would be willing to close their plant.  Conceptually, this could be done on the basis of MWs of installed power generation capacity. Under the auction, an interested coal plant owner would offer to sell — more specifically, to shutter — their MWs of plant capacity by a fixed time at a proposed price.

Importantly, the climate benefit sought by the auction is not from the decommissioning of MWs of capacity itself, but rather from the GHG emissions that would be avoided by retiring that capacity. Accordingly, for any coal retirement tender, it will be necessary to estimate the level of emissions that would be avoided.

This determination will be based on several factors, including the particular plant’s efficiency, remaining operational life and other technical characteristics, the type of coal used, and the amount of electricity production projected to be foregone through early retirement given the power system’s expected demand for electricity from that plant.

Tenders should include sufficient information to evaluate these items and, by extension, the level of avoided emissions and related climate benefit to be produced from the proposed retirement. This, in turn, will drive how much the auction buyer should be willing to pay for the tender.

Moreover, because it would be largely counter-productive from a climate perspective to pay to retire existing coal plants to see that money used directly (or indirectly) to build new fossil fuel generation, the tender by the plant owner would need to be accompanied by an undertaking not to reinvest in new fossil fuel generation.

As has been repeatedly explained, CO₂ emissions have a global impact that is essentially unaffected by the geographic location of the emitting plant. Given this global nature of emissions, the auction would likewise be conducted at a worldwide level as a global auction.  From India to Indonesia, from South Africa to South Korea, from Poland to Australia, any plant anywhere would be eligible to participate in the global auction.

Given this scope, an international organization like the United Nations or a multilateral development bank would be well positioned to provide the platform for this auction.  One could imagine a system where the auction bidding process sets out eligibility criteria for projects, the methodology for estimating GHG emission reductions, and other key bid-submission parameters.

Significantly, while the bidding process would be managed on an integrated basis, the funding and selection of winners need not be. Rather, a system that allows for the matching of interested coal retirement buyers with individual plant owners could be used.

For example, buyers and their funding could be mobilized on a plant-by-plant basis based on information submitted by the plant owner through the auction process.  Indeed, many potential funders have areas of focus that could lead them to be attracted to retiring coal assets only in certain countries (e.g., funders interested in a targeted set of developing countries).  The proposed auction structure could accommodate these preferences. Moreover, the global auction could also operate in association with country-specific approaches.

One potential source of funding for coal retirements tendered under the auction is the potentially large amounts of capital to be mobilized through expanded carbon credit mechanisms under development. Tapping into these mechanisms might require establishing defined project eligibility criteria, frameworks for calculating GHG emissions reductions, and associated monitoring and verification systems to enable payments for emission reductions at the time of decommissioning based on a price for emission reduction (“carbon”) credits.

It is also important to recall the first constraint noted earlier, namely that countries, and particularly developing countries, will need more electricity to power further economic and social development.  Accordingly, any global auction to retire coal plants needs to be coupled with a program to fund new renewables electricity generation.

Climate change is a global challenge affected by GHG emissions from anywhere.  We need to reduce emissions from coal power generation and that requires some program to encourage and entice owners to shutter their plants.  A global auction, conducted by the United Nations or a similar international organization, would help to identify opportunities where willing plant owners and interested funders can make a deal.

Philippe Benoit has over 20 years working on international energy, finance and development issues, including management positions at the World Bank and the International Energy Agency. He is currently research director at Global Infrastructure Analytics and Sustainability 2050.

Chandra Shekhar Sinha is an Adviser in the Climate Change Group at the World Bank and works on climate and carbon finance. He previously worked at JPMorgan, TERI-India, UNDP, and the Kennedy School of Government at Harvard University.

Achieving the temperature goals of the Paris Agreement requires not only slowing new construction, but also retiring existing coal power plants early, worldwide. Credit: Wikimedia Commons

By Philippe Benoit
PARIS, Oct 26 2022 (IPS)

With COP 27 approaching, pressure is mounting on wealthy countries to increase their support to poorer ones in the face of climate change. The recent floods in Pakistan have amplified this issue.  China, as the world’s second largest economy, will similarly face increasing pressure to help other developing countries on climate. 

At last year’s COP, the Asian Development Bank (ADB) unveiled an innovative program to fund the early retirement of coal power plants by mobilizing capital to buy-out the investors in these plants. This approach has an interesting, and potentially even easier, application to the coal plants financed by China in Pakistan and elsewhere overseas under its Belt and Road Initiative (“BRI”).  The key to unlocking this, somewhat surprisingly, lies in the dominance of China’s state-owned companies in BRI transactions.

At last year’s COP, the Asian Development Bank (ADB) unveiled an innovative program to fund the early retirement of coal power plants by mobilizing capital to buy-out the investors in these plants. This approach has an interesting, and potentially even easier, application to the coal plants financed by China in Pakistan and elsewhere overseas under its Belt and Road Initiative

In 2015, Beijing and Islamabad launched a program under the BRI to build a series of new power plants in Pakistan.  Over the next five years, five coal plants were commissioned and there are currently an additional four plants under construction. These plants are largely being developed by Chinese energy firms with loans from Chinese banks and financiers … companies that are all mostly owned by the Chinese Government.

Beijing has repeatedly been criticized for the BRI’s funding of new coal power plants considered to exacerbate the climate vulnerabilities of the countries where these projects are being built, like Pakistan.  Even as President Xi pledged last year to stop building new coal-fired power plants abroad, there has been an increasing understanding that achieving the temperature goals of the Paris Agreement — and reducing the type of climate devastation experienced by Pakistan – requires not only slowing new construction, but also retiring existing coal power plants early, worldwide.

In response to this challenge, the ADB announced the Energy Transition Mechanism which includes an initiative to buy out existing coal investors to shutter their plants early and thereby avoid the attendant future emissions. Typically, this would involve mobilizing international financing from multilateral development banks, climate funds, etc. to compensate the private sector investors in these plants.

Interestingly, the dominance in the BRI’s overseas projects of China’s state-owned companies creates the opportunity for the Chinese Government to apply the ADB mechanism in a streamlined manner — under what could be called the “BRI Clean Energy Transition Mechanism”. How might this work?  Some initial ideas follow.

As noted above, Chinese state-owned financial institutions are the major lenders to the BRI coal power projects in Pakistan. Similarly, Chinese government-owned energy firms are the dominant coal plant owners.  It is the financial interests of these various Chinese state-owned lenders and other enterprises (SOEs) that would be affected adversely by any early retirement.

Consequently, under the proposed mechanism, China would be compensating its own SOEs for the revenues they would lose in the future from the early plant retirements in Pakistan. In essence, China would pay itself.  This is a unique feature of this BRI coal retirement program that flows from China’s reliance on its own SOEs … and it presents several operational and financial advantages.

1. The financial arrangements for early retirement should be easier to negotiate and execute since the parties are all affiliated — i.e., the Chinese government, its state-owned banks and other SOEs. This should also reduce transaction costs.
2. In the ADB’s early retirement context, private sector investors would typically insist on some compensation being paid today for the loss of projected future revenues. In contrast, because the BRI context would involve compensation from the Chinese Government to its own SOEs, the Government could reasonably delay payments till the point at which the SOEs would actually be foregoing revenues. So, for example, if we assume early retirement in 2030 — an interval that would give Pakistan the time to replace the retired coal electricity generation with renewables in an orderly manner (see discussion below) – then the payments by the Chinese Government to its SOE lenders and energy firms could similarly be deferred till that time.
3. The Government would also, as a practical matter, enjoy significant discretion regarding the level of compensation to be paid to its SOE lenders and energy firms in 2030 and beyond. Notably, the Government could impose a discount on these future payments — especially if it has implemented by that time financial disincentives targeting coal generation (e.g., a carbon price) to support its own carbon peaking and neutrality goals.
4. The proposed BRI mechanism would resemble in various ways a debt-for-nature swap, notably from the perspective of China as a creditor/donor country.  In this BRI “debt-for-coal” swap, China would forego the payments due its SOEs in the future from the operation of these Pakistan coal plants in exchange for the reduced emissions generated by their early retirement. Significantly, this mechanism would produce emissions avoidance benefits without China providing any new overseas funding.

What are some possible motivations for Beijing to launch this type of initiative?

First, it provides a mechanism for China to respond to the increasing pressure it is facing as the world’s second largest economy to help poorer developing countries meet their climate and sustainability challenges. China’s status as the world’s largest emitter of greenhouse gases amplifies this pressure.

Second, the ability to launch an international climate program that does not require China to disburse funds for the next several years — and, when it does so, to pay its own SOEs — may appeal to the Government, particularly given the current domestic economic stress.  This is consistent with other debt-for-nature swap programs advanced by other donor countries where the financial cost to the donor is from foregone revenues, not new funding.

Moreover, the loss in revenues for China and its SOEs from the early BRI coal plant retirements would only take place in 2030 when China’s economy should be markedly larger and more capable of absorbing the expense.

Finally, there is an argument that to the extent the ADB and BRI approaches retire the same type of coal capacity with the same climate benefits, China’s inducements to its SOEs to retire BRI coal assets early should be counted as international climate financial support (e.g., a type of “synthetic carbon credit”) just as actual monetary transfers to private sector investors would be recognized with respect to an ADB coal retirement transaction.

Importantly, Pakistan and other BRI developing countries will need even more electricity to power their economic development. Consequently, the BRI Clean Energy Transition Mechanism needs to include additional funding for new renewables power generation capacity (as is the case under the ADB’s approach).

Helping BRI-recipient countries to transition from coal to renewables would also support international efforts to reduce emissions — efforts whose importance for Pakistan and various other developing countries has been made abundantly evident by the devastating weather they have been experiencing.

The extreme climate events of 2022 have increased awareness regarding the vulnerability of poorer countries to climate change and the consequent importance of reducing future emissions.  This article sets out a proposal for how China could retire BRI coal plants early in Pakistan and elsewhere that capitalizes on its use of state-owned companies, while supporting more renewables in these countries to reduce the climate change threat and promote sustainable economic growth.

Philippe Benoit has over 20 years working on international energy, climate and development issues, including management positions at the World Bank and the International Energy Agency. He is currently research director at Global Infrastructure Analytics and Sustainability 2050.

A flooded village in Matiari, in the Sindh province of Pakistan. Credit: UNICEF/Asad Zaidi

By Philippe Benoit
PARIS, Sep 14 2022 (IPS)

One third of Pakistan is now under water. The scope of the destruction is difficult to fathom, not just the enormity of the devastation its people are facing today, but also the damage to its infrastructure, its buildings, and its economy that will weigh heavily on the country for months and even years to come.

While experts may debate the extent to which greenhouse gas emissions impacting Pakistan’s weather patterns may be to blame, the scale of this devastation shows the shortcomings of invoking notions of “adaptation” as a meaningful strategy to respond to climate change’s destructive force.

Pakistan is facing the type of large-scale destruction that is seen in wars — and not just any war, but total warfare that consumes entire regions and countries. This is what many countries suffered in World War II and others in more recent conflicts. In Pakistan, the cause isn’t an army, but a changing climate fueled at least in part by the greenhouse gas (GHG) emissions clogging our atmosphere.

While technocrats and politicians of the past landed on this terminology of “adaptation”, what today’s events in Pakistan show is that you cannot truly adapt to climate change and its potential for widespread devastation -- especially developing countries that do not have the financial resources to counter extreme weather events

A core strategic element of the international effort to address climate change is “adaptation,” namely action “to respond to the impacts of climate change that are already happening, as well as prepare for future impacts.” This operates in tandem with “mitigation” which focuses on reducing GHG emissions.

Because our historical and future GHG emissions will produce some degree of climate change, we indeed do need to fund measures to respond to the inescapable changes in weather patterns and climate more broadly – even as, through mitigation action, we seek to lower our GHG emissions to limit how much our climate will change.

Yet, the recent events in Pakistan illustrate the shortcomings of an adaptation strategy in the face of widespread devastation. Any notion of “adapting” to these events is tragically misplaced. We cannot, just as countries cannot adapt to the destruction of war. They can resist, fight, look to recover, but the tragedy they suffer cannot be undone.

And while the number of lives lost because of climate change arguably may presently be smaller than that wrought by war, the capacity of both to destroy property, livelihoods and economies is similar.

The goals and elements proposed by the experts within the “adaptation” effort are the right ones. We must look to limit the losses generated by changes in our climate, to accelerate the recovery from extreme climate events, and even seek potential opportunities.

We must invest in climate resilient infrastructure, drought-resistant crops and other strengthened agricultural practices, better weather forecasting capacity, tools to reconnect power supply more quickly, and in a multitude of other measures. And these efforts need to be adapted to the changes in our climate. Moreover, as climate specialists and others advocate, many more resources need to go into this area.

But while technocrats and politicians of the past landed on this terminology of “adaptation”, what today’s events in Pakistan show is that you cannot truly adapt to climate change and its potential for widespread devastation — especially developing countries that do not have the financial resources to counter extreme weather events.

Even at a smaller scale across both developing and wealthier advanced economies, the rising number and severity of localized wildfires, heatwaves and floods are causing irreparable damage. People suffer loss. Although they might recover and rebuild their homes or businesses, there has still been harm and too often tragedy. People die because of climate change. Too much is lost forever.

There has been growing discussion in the international climate arena around payments for “loss and damage” caused by climate change.  This type of funding, including for additional adaptation measures, can help — but it will not remedy the problem, especially given the potentially massive magnitude of the destruction.

Pakistan cannot be expected to adapt to having one third of its country under water. Families should not be expected to adapt to the tragedy climate change can inflict.

Let’s find another term that better conveys what is truly within our reach in responding to climate change so that we can have a clearer appreciation of the climate threats we face. The global community can indeed work to reduce the loss people will suffer and do a better job at helping them to recover and rebuild. But truly “adapting” to the devastation that climate change can cause is a dangerously misleading notion.

Yes, there must be additional funding for adaptation and to help poorer countries respond to climate disasters. But what the events in Pakistan show is that so much more needs to be done to reduce GHG emissions and thereby limit the degree of climate change and accompanying destructive forces people will need to face.

Philippe Benoit has over 20 years working on international energy, climate and development issues, including management positions at the World Bank and the International Energy Agency. He is currently research director at Global Infrastructure Analytics and Sustainability 2050.

By Philippe Benoit
WASHINGTON, Dec 21 2021 (IPS)

U.S. President Biden just hosted The Summit for Democracy to demonstrate the advantages of democracy in the global competition with authoritarian regimes. The U.S. can succeed in this competition by demonstrating to the people of developing countries (i.e., the vast majority of the world’s population) how coupling democracy and development is the best course to improve their lives.

The U.S.’s ability to deploy this potent combination is an important advantage it enjoys over authoritarian competitors. For that reason, the Biden administration should add development to its democracy initiative.

As Biden has stressed: “We are in the midst of a fundamental debate about the future and direction of our world .. between those who argue … autocracy is the best way forward … and those who understand that democracy is essential.”

Similarly, he explained to a Joint Session of the U.S. Congress: “We’re in competition with China and other countries to win the 21st century.” And in this competition, he said, democracy must prevail: “We have to prove that our model isn’t a relic of our history; it’s the single best way to revitalize the promise of our future.”

The strategy should not be anchored in merely displaying that the world’s wealthiest countries are democracies. Rather, the strategy needs to establish that these wealthy democracies and the system they embody are the best equipped to improve the standards of living of the people of the developing world

The December summit was designed to do precisely that. Over 100 countries were invited to participate, with representatives from governments, civil society and the private sector. The number of countries and breadth of representation shows the Biden administration’s ambition.

The summit was organized around three themes: defending against authoritarianism, addressing and fighting corruption and promoting respect for human rights. These are important topics when considering what a vibrant democracy can and should provide to its citizens. But there is a critical fourth theme missing from the summit: the power of democracies to improve the lives of the multitudes in developing countries suffering from inadequate standards of living.

Billions in these countries struggle to meet basic needs in food, shelter, health, education, sanitation and more. Too many families face daily threats of malnutrition, inadequate sanitation, insecurity, and generalized poverty. Too often, unreliable energy and transport systems, as well as corruption and repression, prevent families from raising their incomes to improve their lives. The terror that COVID-19 constitutes for impoverished countries illustrates the challenge.

The U.S. government needs to show the world’s people that democracies provide the best promise to improve their lives and to protect their families. The strategy should not be anchored in merely displaying that the world’s wealthiest countries are democracies. Rather, the strategy needs to establish that these wealthy democracies and the system they embody are the best equipped to improve the standards of living of the people of the developing world.

To win a global competition, it is important to speak to the global audience, and most of that audience resides in developing countries (over 5 billion people outside of China). Moreover, it is in these countries that populations will grow the most — 2 billion more people by 2050, with more than half of that growth occurring in Africa.

China has understood the importance of this audience, as epitomized by its massive trillion-dollar Belt and Road Initiative to finance infrastructure and other projects in developing countries. For various commentators in Washington, this initiative is less about assistance and more about Beijing’s strategy to advance its geopolitical interests to the detriment of the U.S.

Yet, irrespective of the motivation, developing countries have been taking note of both China’s growing overseas assistance, as well of its development successes in reducing poverty and raising incomes domestically.

But improving the quality of people’s lives is not only about more infrastructure or improved material conditions. It is also about social and political dimensions and, importantly, about freedoms (as reflected, for example, in the UN declaration on development).

This includes freedom from fear and oppression, the right to expression, to participate in politics and the right of minorities to the same opportunities as the majority. Importantly, these are elements that a vibrant democracy should deliver, and an authoritarian system is poorly equipped to provide.

Unfortunately, several of today’s democracies, including in many developing countries, are falling short in delivering on democracy’s promise. For example, minority ethnic groups in various countries are being discriminated against, or even oppressed, by the majority (a torment that is more prevalent in and arguably endemic to authoritarian regimes).

So, as Biden has stressed, democracies must do better: “We have to defend [democracy], fight for it, strengthen it, renew it.”  For these reasons, the three announced themes of the summit are indeed important.

And yet they are insufficient in and of themselves to win the global competition. Providing the conditions to raise people out of poverty and to promote inclusive prosperity free from fear is a critical and complementary fourth theme that would speak to people’s aspirations across the developing world.

While there was some discussion of economic development in connection with the summit, it was too limited.  So, in addition to new commitments on countering authoritarianism, etc., the democracy initiative of the Biden administration needs to catalyze substantial and meaningful action to better fight poverty and deprivation in poorer countries.

Among other things, this should include increased funding and more technical support from wealthy democracies to developing countries, but also commitments from the governments of the poorer nations to foster the conditions domestically for fair and inclusive growth.

The U.S. has historically understood the strategic importance of coupling development and democracy, sponsoring organizations such as the World Bank, UN Development Programme and the Food and Agriculture Organization.

The global wars of the last century demonstrated the benefits of a world in which the U.S. democracy surpassed authoritarian regimes — and also that the U.S. and other countries were safer in a world filled with vibrant democracies. This dynamic helps to explain why the U.S. has remained the biggest provider of overseas development assistance, notwithstanding fluctuating domestic political support. But there is growing international competition.

Democracy is a powerful system to be deployed globally to raise standards of living while promoting individual liberties and freedom from oppression. Authoritarian systems cannot stand up to that promise. Democracy’s leaders, including from many of the globe’s richest countries, need to demonstrate what they and democracy can provide to the world’s have-nots.

That is key to any strategy to win the competition of the 21st century. To this end, President Biden should, following on his earlier Leaders Summit on Climate and this Summit for Democracy, convene a “Summit for Development” that addresses the poverty and other challenges, as well as the aspirations, of the world’s disadvantaged.  

First published in The Hill on December 8, 2021

Philippe Benoit has over 25 years of experience working in international affairs and development, including in management positions at the World Bank. He is currently managing director, Energy and Sustainability, with Global Infrastructure Advisory Services 2050.

Solar panels generate the energy with which farmers pump water to irrigate their gardens in Pintadas, in the northeastern state of Bahia, Brazil. Credit: Mario Osava / IPS

By Philippe Benoit
Dec 2 2021 (IPS)

Last month, at the COP 26 climate conference in Glasgow, a consortium of philanthropies, led by The Rockefeller Foundation, announced a massive program to fund renewable electricity projects for impoverished people in developing countries.

The establishment of the Global Energy Alliance for People and Planet (GEAPP) is welcome news. But when it comes to generating the strongest benefit for the impoverished, funding for clean electricity should be complemented by a substantial investment in the people themselves — one that is designed to enable them to best use these clean electrons to increase their family’s income and rise out of poverty. This is a thrust already embedded in GEAPP’s proposed approach that needs continued emphasis during implementation.

GEAPP is a multi-billion dollar program to help transition the energy system to renewables, with a focus on developing countries. It “aims to extend clean, productive-use energy to 1 billion underserved people, create tens of millions of green jobs, and avoid and avert over 4 billion tons of emissions.” A key component is investments to build distributed renewable energy systems that can be set up rapidly and located near consumers in poor, often rural, communities. Improving the lives of citizens is a key objective.

The billions to be invested in building new distributed renewables and other clean energy systems need to be accompanied by a massive investment in strengthening the capacity of the impoverished end-users themselves

We can, however, easily be distracted by the magnitude of the money being proposed to build out clean power systems and forget that electricity, in and of itself, will not overcome poverty. Appropriately, the GEAPP points to the new jobs in renewables and other clean energy businesses its investments will generate.

More significantly, it also emphasizes the even larger number of jobs it will create or improve in other sectors (such as agriculture and manufacturing) by providing electricity access to small businesses and other end-users quickly from nearby distributed generation systems. Giving more electricity to the energy-deprived will also produce health, education, safety and other benefits.

For all these reasons, the GEAPP is an important anti-poverty initiative in addition to a climate one, and its multibillion-dollar mass is not only impressive but also what is needed.

The world’s most impoverished, unfortunately, often lack the tools to transform electrons into incomes. The barriers they face include a lack of technical skills to select, operate and maintain the most suitable equipment; lack of know-how about setting up micro-enterprises; lack of exposure as to how to grow these enterprises into small and medium-sized businesses that can employ more people; and importantly, lack of access to credit to purchase new equipment and other assets to grow their businesses.

Impoverished entrepreneurs looking, with the benefit of newly supplied clean electricity, to set up a business or expand an existing one will need support in answering a variety of possible questions. Is there a potential market for a new tire repair store? Which equipment makes the most sense to buy, and is it available and affordable? With new access to locally provided, more reliable and cheaper electricity, does it make sense to expand a home-based business? Where can small or even micro-household entrepreneurs get the money to exploit that new distributed renewable electricity they now receive? Are there credit centers nearby and how do you apply for a loan? Does stable access to the internet powered through a reliable renewable electricity supply open up opportunities? To answer these and a myriad of other possible questions, many disadvantaged entrepreneurs need help.

To aid them to overcome these challenges, the entrepreneurs would benefit from targeted capacity building and other assistance programs. This support will often need to cover soft skills, in addition to assistance with hardware and money. Just as there have been agriculture extension programs to help farmers, we need electricity extension programs to help under-resourced entrepreneurs.

Vocational, technical and similar training programs, as well as mentorships, partnerships and twinning arrangements with more established businesses, are useful. Moreover, it is important to bring these services to the end-users, rather than requiring them to travel long distances, often to reach difficult urban centers. Distributed renewables generation needs to be mirrored by distributed training programs, together with local credit and equipment centers that bring support to the users in their communities.

These initiatives will not overcome all the barriers impeding poverty alleviation (such as the limited markets that can constrain business opportunities in many impoverished rural communities), but they can help.

GEAPP has the breadth and the ambition to implement the necessary expansive capacity support programs at scale. The billions to be invested in building new distributed renewables and other clean energy systems need to be accompanied by a massive investment in strengthening the capacity of the impoverished end-users themselves.

Experience, however, has demonstrated that it is often more difficult to bolster soft skills and successfully empower disadvantaged families than it is to build out electrical systems. Success will require not only substantial amounts of funding but also a large number of people on the ground in the communities and establishing complementary policies and programs for the impoverished.

GEAPP’s plans to work with local partners in each market and engage development banks and other delivery partners can help establish the necessary foundation for advancing on these fronts. Maintaining focus and commitment on the softer capacity and programmatic areas for those in poverty will be important even as GEAPP funds its large-scale investments reshaping the electricity system itself.

Strengthening the capacity of impoverished people to transform electrons from renewables into incomes and other economic and social advancements can help these families produce their own better future. GEAPP provides a strong potential platform to advance this effort. Actual implementation will be key and empowering those experiencing poverty needs to remain a focus.

First published in The Hill on November 17, 2021

Philippe Benoit has over 25 years of experience working on international development and energy issues, including in management positions at the World Bank and International Energy Agency.  He is currently managing director, Energy and Sustainability, with Global Infrastructure Advisory Services 2050.

the EU, the U.S. (beginning under Biden) ) and others have been campaigning for governments to end their financing for new overseas coal-fired projects. Credit: Bigstock.

By Philippe Benoit
PARIS, Oct 5 2021 (IPS)

President Xi announced last month that China is stopping its financing for new coal-fired power plants overseas. With this announcement from Beijing, the governments of the world’s largest economies have now achieved a consensus to halt their overseas funding of coal plants in developing countries, thereby advancing global efforts to reduce future carbon dioxide (CO₂) emissions.

Energized by this success on climate, these governments should now turn their efforts to mobilizing the massive financing required to build the clean power projects that the developing world still needs to fight poverty.

Globally, nearly 30% of the energy sector’s CO₂ emissions come from coal-fired power plants.  Even as various developed countries moved to reduce their own coal use to lower emissions domestically, new coal power plants were being proposed across the developing world, often with financing from China under its massive Belt and Road Initiative.

The EU, the U.S. (beginning under Biden) ) and others have been campaigning for governments to end their financing for new overseas coal-fired projects. China’s announcement last month, following on similar ones by South Korea and Japan (as well as the G-7) earlier this year, represents the culmination of a successful international campaign against this financing

As China, as well as notably Japan and South Korea, funded coal plants abroad (cumulatively providing 90% of overseas public sector financing), climate specialists raised the alarm that these new plants would threaten global emissions reduction efforts.

Given these concerns, the EU, the U.S. (beginning under Biden) ) and others have been campaigning for governments to end their financing for new overseas coal-fired projects. China’s announcement last month, following on similar ones by South Korea and Japan (as well as the G-7) earlier this year, represents the culmination of a successful international campaign against this financing.

Even though there are other sources of financing for coal power plants (by some estimates, substantially larger than China’s), the decisions by Beijing, Tokyo and Seoul, as well as the parallel international effort among private banks and other financial institutions, will significantly slow new coal power investments in the developing world.

For example, it has been estimated that China’s new commitment could impact 44 power projects in Asia and Africa, resulting in a cut of $50 billion in investment.  Moreover, the U.S. recently announced that it would oppose any new coal-based projects by multilateral development banks (MDBs), shutting off another source of potential financing.

And yet this success presents its own challenges, at least for poorer countries that were looking to benefit from the additional electricity these coal plants would provide.  For example, the International Energy Agency (IEA) foresees that Africa’s electricity generation will need to more than double over the next 20 years under a business-as-usual case, and more than triple under a high development scenario.

To achieve this high development scenario, Africa will need to add about 700 gigawatts in new plants, which is nearly three times the continent’s existing installed generating capacity.  Similarly, the IEA projects that the countries of the ASEAN region (such as Indonesia and Vietnam) will in the aggregate need to invest $350 billion in the power sector between 2025 and 2030 to further their economic development, a figure that rises to $490 billion under the Agency’s  low-carbon scenario.

But will poorer countries be able to mobilize the financing for these electricity investments, especially as overseas financing for new coal plants disappears?

The U.S. and China have both recently announced their intention to increase funding to help developing countries meet the climate challenge, with Biden looking to double the U.S.’s annual contribution to $11.4 billion and Xi coupling his decision to end overseas financing for coal plants with a pledge to step up China’s support for green and low-carbon investments in developing countries.

Unfortunately, there are concerns that poorer countries will nevertheless be left wanting, especially as previous pledges to provide them financing have failed to fully materialize, notably the $100 billion per year in climate finance that developed countries committed to mobilize by 2020 to address the needs of developing countries.

To avoid this outcome and enable poorer countries to obtain the additional electricity they need, the successful diplomatic efforts that have gone into eliminating public funding for overseas coal projects need to be matched, and even exceeded, by a drive to boost funding for clean power plants.

This should not only involve increasing flows from the large development finance institutions of the U.S., China, the EU, Japan, etc. and from their other overseas investment agencies, but also mobilizing more private sector investment in developing countries, both foreign and domestic.

Non-traditional funders (including private foundations) also have a role to play.   In addition, as the U.S. moves to block any coal projects and severely curtail other MDB investments in fossil fuel-based electricity, it and other wealthy nations should increase their shareholder contributions to these banks to increase lending to developing countries for clean electricity.

The rationale supporting these efforts is not only that the U.S., China, the EU, Japan, and South Korea are the world’s largest economies (representing over two thirds of global GDP), but also that they themselves continue to rely on coal plants to power their own economic growth.  These coal plants, in turn, are generating large amounts of emissions that are using up the common carbon budget and leaving less room for electricity-related emissions from poorer countries.

For example, in 2019, 65% of China’s electricity came from coal-fired power plants that generated 4.9 gigatons in CO₂ emissions (GtCO₂), while the U.S. emitted 1.0 GtCO₂ and the EU 0.5 GtCO₂ from these plants.  By comparison, all of Africa’s coal-fired power plants produced less than 0.3 GtCO₂.

As a result, there are also important equity considerations which justify stronger action by these wealthier countries to support clean power investments in poorer ones.  While many also point to the need for wealthier nations to reduce their own domestic coal emissions, the focus of this article is not on how these countries choose to run their national power systems, but rather on what poorer countries need and how wealthier ones can help.

As President Biden has repeatedly remarked, “climate change poses an existential threat to our future.” Ending investment in new overseas coal-fired plants will help to address this danger, for the benefit of both rich and poor.  But poverty is also an existential threat, albeit one that does not imperil everyone. Rather it is a life-threatening menace principally aimed at the poor of the developing world. It is also one which wealthier countries can help to counter.

To fight poverty, the developing countries of Africa, Asia and Latin America need a lot more electricity.  In the interest of climate, wealthy countries have succeeded in cutting off coal financing to these regions.  These wealthy countries now should build off this success by carrying out an even more ambitious poverty alleviation program funding clean power across the developing world.

Philippe Benoit has over 25 years of experience working in international energy affairs, including prior management positions at the World Bank and International Energy Agency. He is currently Managing Director-Energy and Sustainability at Global Infrastructure Advisory Services 2050.  

Inga I dam, with the feeding canal for Inga II in the foreground. Credit: alaindg/GNU license

By Philippe Benoit
PARIS, Jun 18 2021 (IPS)

Visions of Grand Inga, a proposed massive hydropower plant in the Democratic Republic of Congo (DRC) powering much of Africa, have excited energy experts, investors, and governments for decades.  The announcements this week by the Australian company, Fortescue Metals Group, and its chairman, billionaire Andrew Forrest, of their plans to develop Inga for green hydrogen exports brings this vision a little closer to reality. 

But for the Grand Inga project to successfully attract the massive funding it requires, it will need to address issues of equity and ethics which mostly stem from DRC’s problematic governance context, but also flow from concerns about ensuring the ”just transition” of the energy sector.

Inga Falls, situated on the Congo River in DRC, is the world’s largest hydropower site with 40,000 MW of potential generating capacity.  By comparison, the installed power capacity in all Sub-Saharan Africa (excluding South Africa) totals only 80,000 MW.

Inga Falls, situated on the Congo River in DRC, is the world’s largest hydropower site with 40,000 MW of potential generating capacity.  By comparison, the installed power capacity in all Sub-Saharan Africa (excluding South Africa) totals only 80,000 MW

DRC itself has one of the lowest electricity access rates in the world and the third largest poor population.  Given these figures, many have dreamt of unlocking the hydropower potential at Inga to generate clean renewable electricity both for DRC and for Africa, broadly.

Unfortunately, progress on Inga has been stymied by the daunting market risks inherent in selling its massive electricity output across Africa (as well as DRC’s governance challenges). However, as I wrote in a recent article, adding green hydrogen production can help the project overcome this marketing obstacle because it involves sending the electricity to factories nearby, to produce hydrogen which can then be shipped to creditworthy markets in Europe and elsewhere.

There has been growing interest in green hydrogen as a low-carbon fuel for use in transport and industry.  Because it is produced through electrolysis of water using electricity generated by hydropower or other renewables, it has little greenhouse gas emissions. Strengthening climate pledges are expected to drive growth in the demand for green hydrogen, which could reach $300 billion annually in exports by 2050.

Fortescue appears to draw on this potential demand in proposing a hydrogen export configuration that should make the Inga project more attractive to investors. But for this new approach to mobilize the billions of dollars  required from investors, the project will need to also manage equity and ethics concerns that can otherwise trigger three different but interrelated risks.

The first constitutes a new emerging risk regarding sales. Equity, ethics and overall justice considerations are taking on increasing importance in the climate effort.  Concerns about these issues will likely coalesce over the next decade into demands that any fuel, proffered as green to serve climate goals, be produced in a manner that also satisfies equity and ethics considerations.

The rising international pressure facing DRC’s cobalt production because of child labor and other issues is indicative of this type of nascent but growing non-financial risk that can affect a commodity’s marketing. The implication for the Inga project is that its developers need to ensure their green hydrogen is not tainted by equity or ethics problems . . .  because “tainted green hydrogen” may have difficulty being sold into Europe’s energy markets of the future, notwithstanding its climate benefits.

Second, unfair treatment of local communities or of DRC’s broader society in connection with the project can generate demonstrations, civil unrest and other actions that can disrupt project construction and operations.  Although this risk of business interruption is concentrated in DRC, it also extends to demonstrations down the supply chain (e.g., in European cities importing the hydrogen).

Third, failing to deal with equity and ethics issues can raise reputational risks for investors, especially in light of the rising interest in Environmental, Social and Governance (ESG) performance. This will be a particularly salient consideration for those investors attracted by the project’s green energy attributes, including many investment funds and commercial banks, as well as providers of climate finance.

Addressing these equity and ethics issues requires a multi-pronged approach.   Most importantly:

The project will need to manage its environmental and social impacts, including ensuring that local affected populations are treated adequately and fairly.  This treatment of local populations is an area of particular concern given both previous failings in this regard in connection with the construction of Inga’s two existing smaller dams and DRC’s ongoing governance issues.

One advantage of the hydrogen configuration is that it limits the need for transmission lines that are often the source of multiple biodiversity and other issues, but other significant potential environmental impacts would remain.

In general, meaningful consultations with and participation of local communities under the project will be key, as well as engagement by a broad cross-section of DRC’s civil society organizations and population.  Intimidation by government authorities of community leaders and other stakeholders must be avoided.

A meaningful portion of Inga’s power output should be dedicated to increasing DRC’s dismal electricity access rate and powering local businesses.  If, in contrast, virtually all the electricity from Inga were allocated to producing hydrogen exports, there would be criticism from a just transition perspective that the continent’s renewables were being used to fuel Europe and others rather than to electrify Africa.  Fortunately, Inga can produce enough electricity to power both hydrogen production and local-oriented productive uses.

Moreover, although the project could catalyze substantial employment in DRC (notably during construction), that will likely not be enough to satisfy concerns about fair distribution of benefits. Inga is a national treasure, and its development should similarly benefit all.

For that reason, a share of the project’s revenues should fund programs that benefit DRC’s population generally, not just a small elite.  To this end, the broader Grand Inga framework should include mechanisms to channel these revenues to poverty alleviation and broad-based development programs throughout the country. In addition, both the billions in initial capital expenditures and the subsequent project sales revenues need to be insulated from corruption.  The problems plaguing DRC’s cobalt and other industries must be avoided.

To implement these measures, the project developers and DRC government will need to involve a variety of partners. This group includes multilateral development banks (such as the World Bank and the African Development Bank), local and international civil society, and the international community generally (including DRC’s bilateral development partners from the European Union and the US).

The ability of the project’s developers to raise the required funding, and to construct and operate the facilities, will depend in part on their success in addressing issues of equity and ethics. The Fortescue announcement brings the dream of Grand Inga closer to reality, but it also makes designing elements to address these non-financial considerations more pressing.

Philippe Benoit has over 20 years of experience working in international finance, including previously as an investment banker and at the World Bank (where he worked on Inga).  He is currently managing director- Energy and Sustainability at Global Infrastructure Advisory Services 2050.

Indian woman bends over her wood-burning stove in her home in northern India. Credit: Athar Parzaiv/IPS

By Philippe Benoit and Jully Meriño
WASHINGTON DC, Apr 8 2021 (IPS)

As the world looks to address issues of gender equity, development and climate change, the importance of increasing the participation of women in the energy sector is gaining attention. To date, this topic has generally been framed around the underrepresentation of women in the energy workforce.

But this ignores an important reality: millions of women already participate as producers of energy – specifically of bioenergy for poor households.  To support sustainable development and gender goals, more attention needs to be given to these women energy producers who have remained largely invisible in much of the energy discourse.

Women account for only 22% of the jobs in the oil and gas industry and only 32% in the renewables sector.  When it comes to managerial and other decision-making positions, the share of women is even lower; for example, their representation in energy company boardrooms is less than 5%.

About 2.5 billion people globally rely for cooking on the traditional use of solid biomass, notably fuelwood, charcoal and dung.  This figure includes 680 million people in India and 800 million throughout Sub-Saharan Africa

In response, several programs have been launched to increase women’s participation in the energy sector. These programs are succeeding in raising awareness about the need for more women in the sector, building networks to support women practitioners, and giving visibility to the women already working in energy – albeit with a focus on the formal, professionalized segments that constitute the energy industry.

But this focus on addressing underrepresentation in the formal segments of the sector – a very important effort — can generate the misperception that women are in fact not active in producing the world’s energy. Many assume their role is largely limited to consuming energy (e.g., at home, at work, or for leisure), not supplying it.  And therein lies an overlooked reality: millions of women worldwide are producers of biomass, a form of bioenergy.

About 2.5 billion people globally rely for cooking on the traditional use of solid biomass, notably fuelwood, charcoal and dung.  This figure includes 680 million people in India and 800 million throughout Sub-Saharan Africa.

Biomass is also used by the poor for other purposes, such as heating homes in colder regions.  In many lower-income countries, biomass can constitute over 90 percent of the energy that poor households use.  It is provided through small-scale commercial ventures, but much is also generated by households for their own use.

Around the developing world, women play a central role in producing this bioenergy, notably by gathering wood and making charcoal. In fact, this is a segment of the energy sector where women are often overrepresented.

As the World Bank reported last year, “across most of Sub-Saharan Arica and in parts of China, women are the primary fuel wood collectors,” which is also the case in areas of South Asia. This is time-consuming and physically demanding work that can involve “collecting and carrying loads of wood that weigh as much as 25-50 kilogrammes” and can “take up to 20 or more hours per week.”  Unfortunately, we lack hard data about the number of women engaged in this energy production.

Biomass has already been receiving attention in development circles because of the problems associated with its use in traditional cookstoves, such as negative health impacts on notably the women who cook and the burdens of collecting firewood.

To address this issue, the United Nations has adopted as one of its Sustainable Development Goals the replacement of traditional biomass use with clean cooking technologies. This targeting of biomass and its harmful impacts does not, however, negate the role its women producers play in the energy sector (just as the climate and environmental concerns surrounding coal do not erase the role of miners).

Several actions can help to make these women producers more visible in the energy discourse.

First, recognizing the role they play in energy supply can help to shift the notion and perception of dependency: women actively participate in the production, not just the use, of household energy.

Failing to understand women’s contribution to global energy production will continue to perpetuate the myth of women as mainly (dependent) energy users, which can hamper efforts to ensure their full participation in decision-making and leadership roles within all levels of society.

Second, there is a paucity of data regarding these women producers – a situation that reflects the lack of attention they receive and also contributes to their lack of visibility.

How many women work in producing biomass (generally as unpaid labor)? How many women will be affected by changes in biomass production systems?  What will they do in a changed world?  This type of information can help address their needs and to plan for their engagement in the energy transition.  We need more data.

Third, it is important to acknowledge and properly value this work in producing household bioenergy, and to report it in energy workforce statistics. When a company produces electricity for its own use, it is called a “self-producer.”

When a woman produces biomass for use in her home, it all too often goes nameless.  The recognition of this women’s labor would also help in the effort to “achieve gender equality and empower all women and girls,” the UN’s fifth Sustainable Development Goal.

Fourth, in developing programs and initiatives to shift households from traditional biomass use to clean cooking technologies, it is important not only to consider the effect on women as consumers, but also address the impact on women as energy producers to ensure that their needs are being met.

Moreover, because these efforts to shift how households use biomass will also affect greenhouse gas emissions, the topic has entered the climate discourse. As world leaders discuss how to limit climate change at the upcoming summit convened by US President Biden or thereafter at the international COP negotiations, it is important to ensure that the situation of these women producers — their voices, concerns, and aspirations — are adequately taken into account when planning the clean energy transition (just as the concerns of coal miners and others are also considered).

Acknowledging the central role that millions of women play in producing the world’s bioenergy can lead to a greater empowerment of women across the sector.

As efforts to boost the participation of women in energy mature, it will be important to better recognize and analyze the contributions of these women producers, and to design policies that will help improve their standards of living, including as part of the clean energy transition.

Philippe Benoit is managing director, Energy and Sustainability at Global Infrastructure Advisory Services 2050 and adjunct senior research scholar at Columbia University’s Center on Global Energy Policy where he leads the energy for development research initiative.

Jully Meriño Carela is the director of the Women in Energy program at Columbia University’s Center on Global Energy Policy.

The views expressed are those of the authors in their personal capacities.

Future new building construction, which is an energy-intensive activity, will mostly take place in developing countries, not advanced economies. Construction site in Dubai. Credit: S. Irfan Ahmed/IPS.

By Philippe Benoit
WASHINGTON, Dec 16 2020 (IPS)

Energy efficiency (EE) is often marketed as a tool to save energy and money. The oft-repeated mantra is doing “more with less”, namely producing more goods with less energy. But, as set out in a recent World Bank report (which I co-authored), EE can do something that is often much more important for developing countries: it can produce the additional goods and services needed to raise standards of living. 

Shifting the focus from savings to more goods and services can help increase the uptake of EE in developing countries, thereby enabling them to grow faster while also promoting a more sustainable future for all.

EE deployment in these countries has suffered from a narrative that has too often been targeted at advanced economies.

From the European Union to Japan to the United States (under previous administrations and likely under the incoming Biden one), EE has generally been positioned as a tool to generate energy savings. Various other benefits are also recognized, notably employment generation and improved competitiveness which are often used to mobilize local political support.

Yet, the focus has tended to remain on EE’s ability to reduce things: energy use, as well as expenditures on energy and, more recently, greenhouse gas emissions. And, indeed, through a combination of EE and other factors, major advanced economies have succeeded in reducing their energy consumption, and they plan to use EE to achieve further reductions going forward.

A different context exists in the developing world where standards of living are all too often inadequate.  In these countries, the key to progress lies in generating more and higher-quality goods and services for their populations: more and better housing, more and better consumer products, more and better transport services, more and better office buildings, more and better schools, more and better hospitals – but also less pollution.  The overall focus is on producing and consuming more rather than on using less.

Developing countries are looking to secure more energy to fuel this progress.  From India to Indonesia, from South Africa to South America, the developing world is projected to demand increasing amounts of energy.

Total energy consumption of today’s developing countries is projected to rise by about 30% from 2015 to 2030, at which point it will nearly double that of developed countries (figure 1).  This reliance of developing countries on increasing energy use to support their economic growth (in contrast to advanced economies where energy demand has generally already peaked) reflects in part their development situation.

For example, future new building construction, which is an energy-intensive activity, will mostly take place in developing countries, not advanced economies, including emerging economies such as India where over 70% of the built environment of 2030 has yet to be constructed.

Figure 1: Evolving energy consumption in developing and developed countries. Source: Energy and Development in a Changing World: A Framework for the 21st Century (Columbia University’s Center for Global Energy Policy, 2019), figure 3, based on data from the IEA.

EE can ensure that this increasing energy consumption is used efficiently to raise standards of living.  The focus in the developing country context is less on producing “more with less” energy, but rather on generating “even more from more” energy.

Not only does EE help to decouple GDP growth from energy consumption, it also helps to magnify the impact of increasing energy use to power further economic expansion. Moreover, in these COVID times, EE can be particularly strategic for governments because its deployment generates employment (e.g., the hiring of workers to install energy efficient equipment).

And the coupling of EE and more energy can also provide benefits at the household and business levels.  Many of the poorer families in Asia, Africa and elsewhere want the opportunity to increase their consumption of modern energy fuels, for example for a refrigerator and other home appliances that generate the higher standards of living seen in other places.

Using efficient appliances is even better, magnifying, for example, the benefits of basic electricity access.  Similarly, businesses across the developing world are looking to expand their activities, increasing their outputs and growing their markets to generate larger revenues that can enable them to buy more energy to produce even more to sell.  EE can help them do this in a more efficient and profitable manner.

Unfortunately, traditional metrics for EE are at times ill-adapted to many developing country contexts.  These include metrics such as energy consumption/dwelling, energy for space cooling/square meter, or energy used for water heating/dwelling.

“Progress” is normally evidenced by lower levels . . . and this makes perfect sense in advanced economies whose populations will continue to enjoy high standards of living even as EE-generated energy savings deliver multiple benefits (such as energy security for the European Union).

But in the developing world, acquiring that first refrigerator (which will raise energy consumption in the dwelling), or installing air conditioning in public buildings (which increases energy use in areas previously cooled by fans) will elevate inadequate standards of living.

Irrespective of what might be inferred from a quick (albeit, incomplete and insufficient) scan of EE indicators, in the developing country context, this increased energy consumption per dwelling or per square meter of office space reflects progress.  It is development . . . and EE helps ensure that the equipment to deliver this advancement is efficient.

EE is also key to reaching global climate change goals.  For example, in the sustainable development climate model of the International Energy Agency, EE plays a bigger role (37%) in reducing emissions through 2050 than any other low-carbon tool, including renewables (32%).

This climate model also provides for rising energy consumption by non-OECD countries (a 16% increase between 2016 and 2040) to help to power their future economic expansion. The combination of more EE to support GDP growth, together with a deeper penetration of renewables and other low-carbon technologies, is the key to raising standards of living in developing countries while meeting global climate goals.

And achieving these goals will avoid the worst impacts of climate change that could devastate the vulnerable in the developing world and elsewhere.  When it comes to deploying more EE, the climate change challenge has transformed it from a “nice thing to have” into an “imperative”.

EE is a key to creating greater prosperity across the developing world because it enables even more goods and services to be generated from greater energy use so as to raise standards of living.

For developing countries, it is not about doing “more with less”, it’s about doing “even more with more.” As illustrated by the afore-mentioned World Bank report, pivoting the focus of EE from energy savings to the additional goods and services it produces can help to increase its deployment across the developing world . . . and this will promote stronger and more sustainable economic growth and social improvements.

Philippe Benoit has worked for over 25 years on international development issues, including in previous roles as Division Head for Energy Efficiency and Environment at the International Energy Agency and as Energy Sector Manager at the World Bank. He is currently Managing Director, Energy and Sustainability at Global Infrastructure Advisory Services 2050.

Across power, industry and transport, State-Owned Enterprises emit in the aggregate over 6.2 gigatons of carbon dioxide equivalent annually, which is more than any other country except China. Credit: Bigstock.

By Philippe Benoit and Alex Clark
WASHINGTON, Sep 24 2020 (IPS)

President Xi Jinping announced on Tuesday China’s aim to become carbon neutral before 2060. Achieving this goal will require the support and engagement of China’s state-owned enterprises (SOEs), as they currently generate more than half of the country’s energy sector emissions. SOEs are major drivers of greenhouse gas emissions globally, particularly in emerging economies. 

Across power, industry and transport, these companies emit in the aggregate over 6.2 gigatons of carbon dioxide equivalent annually, which is more than any other country except China.

SOEs are also major providers of low-carbon alternatives (over half of the world’s zero-carbon utility-scale power generation capacity is state-owned).  SOEs’ major role in driving emissions means that there will be no climate success without them.

Government officials and climate stakeholders currently meeting in New York (virtually) at the United Nations and for Climate Week need to give greater attention to engaging these SOEs on climate.

In this article, we present several tools that governments can use to prompt their SOEs to take climate action. We also describe the independent capacity of these enterprises to lead on low-carbon action, as well as their ability to resist government pressure to advance the climate effort.

Finally, we discuss one of the most important hurdles to effective engagement by most SOEs: what has often been too modest climate ambition from their government shareholder.

An oft-overlooked feature of SOEs is that the same governments that signed the Paris Agreement hold direct ownership over these enterprises (particularly in large, emerging economies such as China, India, Indonesia, Mexico, Russia and Saudi Arabia).

Arguably, the most important determinant of how much an SOE engages in the low-carbon transition is the extent to which its government shareholder prioritizes climate goals. Even the most powerful SOEs respond to the preferences and directions of their country’s ultimate leadership

Ownership provides a government with several distinctive tools to “push” SOE climate action that are more direct than the legislative and regulatory instruments largely used to influence private sector behavior. A government can, as shareholder, issue directives to its SOE though the company’s board of directors.

It can also appoint and remove senior executives (both through the board and often even directly). Selecting appropriate executive leadership with the commitment and managerial capacity to implement low-carbon programs can be decisive in driving effective SOE action on climate.

Governments also provide direction to SOEs through more informal exchanges between public officials and the company’s CEO and board members.  Lastly, governments can work to incentivize low-carbon action by middle managers (frequently the critical decision-makers in larger SOEs) by directing the company to adopt climate-friendly personnel and evaluation policies.

Governments can also deploy financial and bureaucratic resources to “pull” SOEs towards low-carbon action. For example, they can direct public funding to low-carbon investments (and away from high-carbon ones). State-owned commercial and development banks are often mobilized to deliver this climate-targeted financing, typically on preferential terms designed to accelerate uptake.

Governments also catalyze low-carbon investments by providing critical complementary infrastructure, such as the construction (often by another state-owned company) of a transmission line to an SOE’s remote renewable generation site. In addition, government funding for research and development can reduce costs for low-carbon projects, making them more attractive to SOEs (as well as the private sector).  Governments have even created new specialized SOEs to deploy specific low-carbon technologies. 

Government policies which pressure markets broadly, referred to herein as “press” tools, will also influence SOEs.

These include carbon taxes and emissions trading systems (ETS), which continue to dominate the policy discourse on emissions reduction strategies.  Although the two instruments are considered among the most effective for reducing emissions,  their impact on SOEs is likely to be more muted than on private sector companies, in part because SOEs often face multiple mandates beyond financial returns and profits.

For example, power sector SOEs are often required by their government shareholders to prioritize reliable electricity supply at low cost, as well as support other economic, social and political goals, such as employment, access expansion or using specific state-owned suppliers.

These factors lessen the responsiveness of SOEs to market-based instruments that make low-carbon alternatives more attractive in financial terms. Because costs and profitability do remain important considerations for SOEs even in the face of non-financial mandates, market-based instruments can still be useful climate tools to influence their operational and investment choices (such as the national ETS being considered for China).

These instruments, however, are unlikely to result in the same degree of meaningful decarbonization by SOEs foreseen for the private sector unless they are accompanied by some of the other measures described in this article.

Of course, an SOE might also simply decide to pursue low-carbon goals to serve its own corporate objectives, even in the absence of explicit government pressure. SOEs are often major corporations with substantial assets, financial resources, commercial know-how and technical capacity, enabling them to develop and implement robust low-carbon programs.

Motivating an SOE to act on climate in furtherance of its own corporate interests can be a highly effective way to advance low-carbon company action. A powerful SOE, however, is also able to exercise economic and political clout to resist government initiatives, including low-carbon ones.

Undertaking a strategic planning exercise to identify the corporate-level benefits of low-carbon action can help motivate an SOE to pursue climate goals (just as these benefits are increasingly influencing private sector companies).

Arguably, the most important determinant of how much an SOE engages in the low-carbon transition is the extent to which its government shareholder prioritizes climate goals. Even the most powerful SOEs respond to the preferences and directions of their country’s ultimate leadership.

To date, unfortunately, governments have exhibited only a modest commitment to these goals, especially relative to the perceived short-term economic and political gains generated by incumbent high-carbon assets.

The result has been tepid policies, programs and overall government signals on climate that have failed to produce the low-carbon actions needed from SOEs (and the private sector) to meet the temperature goals of the Paris Agreement.

Although there is some room for optimism given recent governmental pronouncements targeting carbon neutrality, a deeper understanding and appreciation among national stakeholders of how the low-carbon transition will best serve economic growth, poverty alleviation and social improvement objectives is needed to strengthen domestic resolve on climate and the government’s interest in using SOEs to this end.

For deep global emissions reductions to be achievable, SOEs must play a leading role in China and other countries where these enterprises are major actors in energy production and consumption.

Government ownership presents an under-explored avenue to engage these companies in advancing the climate effort.  A combination of “push”, “pull” and “press” measures will be needed.  In addition, a self-motivated SOE will further help to advance climate action.

As we move on from Climate Week into the lead-up to COP26 next year, governments and the climate community need to focus on developing initiatives that promote SOE engagement in low-carbon action.

Philippe Benoit is Adjunct Senior Research Scholar for Columbia University’s Center on Global Energy Policy.  He was previously the Head of the Energy Environment Division at the International Energy Agency and Energy Sector Manager for Latin America at the World Bank.

Alex Clark is a Ph.D. Researcher at the Smith School of Enterprise and the Environment at the University of Oxford, and former director of the GeoAsset Project under the Oxford Sustainable Finance Programme.

The views expressed are the authors’.

When it comes to climate, state-owned enterprises are and will remain major actors in energy and other sectors that are central to the low-carbon effort. Credit: IPS.

By Philippe Benoit
WASHINGTON, Sep 16 2020 (IPS)

Later this month, government officials and climate stakeholders will once again converge on New York City (this time virtually) for Climate Week and the United Nations meetings.  And while there will be much discussion about the important role that actors such as private businesses, civil society and cities will need to play in the climate change effort, there will once again be relatively little discussion about one key cohort: government-owned companies. 

Although these companies are not prominent in many of the OECD countries that to date have dominated the climate change dialogue, they are major drivers of greenhouse gas emissions, particularly in emerging economies and other developing countries. To meet the global warming goals of the Paris Agreement, these government-owned companies must receive greater attention in climate discussions.

Globally, government-owned companies (also referred to as state-owned enterprises or “SOEs”) annually emit over 6.2 gigatons of carbon dioxide-equivalent in energy sector greenhouse gases.  This is more than all the emissions of the United States, or of the combined total of the  European Union and Japan.  In China, the world’s highest emitting country, its state companies are responsible for over half of national energy emissions.

The importance of state-owned enterprises to the climate effort is not only about emissions, it is also about the low-carbon alternatives they provide.  Governments own over half of the world’s zero-carbon utility-scale electricity generation

SOEs are often controversial, generally viewed as inefficient by the development community that has sought to reform or even eliminate them — but when it comes to climate, these companies are and will remain major actors in energy and other sectors that are central to the low-carbon effort.

SOEs are important players in the power sector that is responsible for 40% of global energy emissions.  These companies are particularly weighty in many of the developing world’s power systems, notably in coal generation  that is key to reducing emissions.

Whether it is the larger emerging economies of Brazil, China, India, Indonesia, Mexico or South Africa or many smaller poorer developing companies (or even some advanced economies, such as France), government-owned companies are the lead players in electricity.

Oil and gas companies generate 15% of total energy GHG emissions through their own production and other operations, and provide the petroleum products burnt by others.   While many of the best-known companies are private sector ones, such as ExxonMobil, Shell and BP, most of the world’s oil reserves are owned by national oil companies and their governments,  and the world’s most profitable company in 2018 was state-owned Saudi Aramco.

Governments also own some of the largest coal mining companies in the world.  These oil, gas and coal producers present a particular challenge for the low-carbon transition because their corporate purpose is intertwined with fossil fuel production.

SOEs are also very present in heavy industry (such as steel, cement and chemicals) which uses large amounts of fossil fuels and produces correspondingly high amounts of emissions.  Many of the world’s urban transit systems are also major consumers of energy: from Latin America to Asia, and even in New York City and other major U.S. cities, the buses and other transport that people ride and which produce emissions are owned by government entities (often cities and regional organizations).

The importance of SOEs to the climate effort is not only about emissions, it is also about the low-carbon alternatives they provide.  Governments own over half of the world’s zero-carbon utility-scale electricity generation.

Similarly, state-owned cement and steel companies in India and elsewhere are developing energy efficiency and other low-carbon technologies to reduce their emissions, and many urban transit systems are reducing their carbon footprints by acquiring electric buses and making energy efficiency investments.

Moreover, the state plays a major role in funding both high- and low-carbon projects.  While much media attention is given to announcements by leading private international banks, state-owned banks are amongst the world’s largest financial institutions.

In many emerging economies and developing countries throughout Asia, Latin America and Africa, state-owned development and commercial banks are major sources of funding for energy projects, including smaller-scale low-carbon investments by the private sector.

One specific and often overlooked class of state-owned banks that plays an important role in the energy transition is multilateral financial institutions, such as the World Bank, the Asian Development Bank and the Inter-American Development Bank.  These organizations are not generally viewed as SOEs, but they are — it is merely that they are owned by several national governments simultaneously.

And, finally, SOEs play a critical role in adaptation and resilience.  Many of the world’s electricity transmission and distribution systems are owned and operated by government entities.  State Grid Corporation of China is the largest with over 1 billion customers.

Even as countries have moved to liberalize their power markets to promote private sector participation in generation, the electricity grid often remains under state control (e.g., in the form of an independent system operator).

The government also plays a central ownership role in many natural gas and other energy networks.  When hurricanes hit or rivers flood roads and towns or high winds knock down transmission lines, it is often up to government entities to get the energy system running again.  As the prospect for extreme weather events increases, SOEs will face a growing challenge to deliver resilient energy systems.

From emissions to low-carbon alternatives, from power to oil and gas and coal, from heavy industry to transport, from financing to resilience, state-owned enterprises are critical actors in the climate change effort.  They are also in many ways a class unto themselves, albeit a diverse one.

Their government ownership distinguishes them from the private sector actors that have generally been targeted in the conceptualization of climate policy tools (such as carbon taxes and other liberalized market-oriented instruments).  Given the importance of state-owned enterprises in driving emissions, more thought and attention need to be paid to developing SOE-tailored tools to effectively engage them in climate action.

Philippe Benoit is Managing Director for Global Infrastructure Advisory Services 2050 and has written extensively on the issue of state-owned enterprises and climate.  He was previously the Head of the Energy Environment Division at the International Energy Agency and Energy Sector Manager for Latin America at the World Bank.

The confinement policies put in place to address COVID have discouraged mass political gatherings, but the factors that drove the social unrest of 2019 remain and, in many ways, have been exacerbated by the COVID pandemic. Credit: Carlos Vera.

By Ricardo Raineri and Philippe Benoit
Aug 7 2020 (IPS)

While COVID-19 continues to wreak havoc across Latin America, its governments are developing policies which they hope will provide for a rapid economic recovery when the pandemic wanes.

In doing so, they will need to address the aspirations of the region’s growing middle and working classes — otherwise Latin America faces the prospect when it eventually emerges from the COVID crisis that widespread social unrest will undermine efforts to revitalize the economy.

From 2000 through 2014, Latin America significantly reduced poverty and created a vibrant middle class. These gains were fueled in large part by a natural resources export boon that generated a healthy 3.2% average annual growth rate (even after accounting for the financial crisis of 2008).

Equally important, many countries saw the consolidation of democratic regimes and the adoption of policies that produced important gains for many outside of the established elites. 77 million people rose out of poverty during this period and by 2010, the middle class exceeded the number of poor for the first time in the region’s history.

With this growing affluence, a new “citizenry” emerged, made up of the region’s expanding middle-class together with poorer working-class families, many of whom had risen out of poverty and struggled to maintain their position (the “strugglers”).

Latin America has seen the emergence of a growing and empowered citizenry whose aspirations must be addressed if the region hopes to produce significant and sustained economic and social advancements

Buoyed by economic and social gains, this citizenry looked forward to a better life marked by affordable transportation, more household appliances and consumer goods, improved healthcare, access to higher quality education for their children, and the prospect of increasing incomes and strengthened pensions.

By the end of 2014, Latin America’s economic fortunes had started to turn as the natural resources boon dissipated.  The price of minerals and other resource exports plummeted by 40% by 2016, which engendered an acute decline in the region’s annual growth rate to below 0.5% during the next four years . In the face of hardening fiscal constraints, governments began to reduce social and other benefits.

These changes, however, were taking place in a context of an increasingly vocal and confident citizenry that had emerged from the earlier period of economic gains and resulting societal shifts.

From Colombia to Chile to Ecuador and elsewhere, middle-income countries faced civil unrest in 2019 as the citizenry went out massively to protest in the streets against unmet expectations, economic dissatisfaction, inequality, discrimination and corruption.

Governments across LAC needed to address and adjust to this increasingly active citizenry, as epitomized by the Chilean government’s decision to move COP 25 to Spain in the face of widespread civil unrest in Santiago.

In March 2020, the COVID-19 pandemic burst upon Latin America, causing enormous economic and social damage. The IMF has projected that the region could see a 9% drop in output this year, potentially leading to the loss of more than 30 million jobs and the disappearance of well over 2 million of the region’s companies.

This crisis is pushing households out of the middle class and driving many strugglers back into poverty. The World Bank estimates that the number of poor people could increase by up to 23 million, taking the total number of people living in poverty in the region to more than 170 million.

Latin America will eventually emerge from the COVID-19 nightmare but will do so in a changed world presenting important challenges. The region’s governments are presently developing policies to revitalize economic growth, but are constrained by fiscal and other limitations that already were hampering their economies leading into the COVID crisis.

Moreover, many of Latin America’s trading partners are revisiting their reliance on global value chains, which may lower the demand for the natural resources that had helped to power the region’s economic growth.

Of particular significance, Latin America will need to address these macro-economic issues in a political and social context that continues to be marked by the forces that drove the civil unrest of 2019.  The confinement policies put in place to address COVID have discouraged mass political gatherings, but the factors that drove the social unrest of 2019 remain and, in many ways, have been exacerbated by the COVID pandemic.

Although the aspirations of the citizenry have arguably been somewhat obscured by the COVID crisis, they persist, as does the political and societal weight of this group.

To provide for an effective and sustainable outcome, Latin America must restart its economies in a manner that meets the needs of the region’s citizenry.

This requires a policy framework which: (i) promotes equitable and inclusive growth, ensuring that policies meet the needs of the citizenry and not simply the interests of entrenched elites; (ii) strengthens the quality and responsiveness of public sector institutions and services, notably by improving their accountability and technical capacities; and (iii) enhances the business environment for the private sector so as to transform the region into an attractive pole for both domestic and foreign investment.

The governments should also work to effect real regional economic integration which is severely lacking by promoting a collaborative rather than protectionist approach that provides for equitable exchanges amongst countries.

As Latin America looks to emerge from COVID, much of the policy discourse will be about regenerating the economic growth that is indispensable to increasing prosperity.  Yet, hidden behind the pandemic of 2020 are the events of 2019 that point to the ongoing risk of widespread civil unrest and societal disruptions.

While 2020 has reminded Latin America (and the world) that plagues are not confined to history books, it is similarly important not to forget the lessons of 2019.  Latin America has seen the emergence of a growing and empowered citizenry whose aspirations must be addressed if the region hopes to produce significant and sustained economic and social advancements.

Ricardo Raineri is former Minister of Energy of Chile and past President of the International Association for Energy Economics, and is currently a Professor of Economics at Pontificia Universidad Católica de Chile.

Philippe Benoit is a former Energy Sector Manager for Latin America at the World Bank and is currently a Senior Fellow with The Breakthrough Institute. 

The views expressed are those of the authors in their personal capacities.