4.5.4.3 Barriers to providing energy sources for sustainable development

The high investment cost required to build energy-system infrastructure is a major barrier to sustainable development. The IEA (2004a) estimated that 5 trillion US$ will be needed to meet electricity demand in developing countries by 2030. To meet all the eight Millennium Development Goals will require an annual average investment of 20 billion US$ to develop energy infrastructure and deliver energy services (UNDP, 2004b). Access to finance for investment in energy systems, especially in developing countries, has, nonetheless, been declining.

Available infrastructure also dictates energy types and use patterns. For instance, in a study on Peruvian household demand for clean fuels, Jack (2004) found that urban dwellers were more likely to use clean fuels than rural householders, due to the availability of the necessary infrastructure. Investment costs necessary to capture natural gas and divert it into energy systems and curb flaring and venting are a barrier, even though efforts are being made to overcome this problem (World Bank, 2004a). It is estimated that over 110 billion m³ of natural gas are flared and vented worldwide annually, equivalent to the total annual gas consumption of France and Germany (ESMAP, 2004).

Levels of investment vary across regions, with the most needy receiving the least resources. Between 1990 and 2001, private investments to developing and transition countries for power projects were about 207 billion US$. Nearly 43% went to Latin America and the Caribbean, 33% to East Asia and the Pacific and approximately 1.5% to sub-Saharan Africa (Kessides, 2004). Accessibility and affordability of clean fuels remains a major barrier in many developing countries, exacerbated when complex supply systems are required that lead to high transaction costs.

Corruption, bureaucracy and mismanagement of energy resources have often prevented the use of proceeds emanating from extraction of energy resources from being used to provide local energy systems to meet sustainable development needs. Forms of corruption have encompassed such schemes as:

• the granting of lucrative power purchase agreements (PPAs) by politicians, who then benefit from receiving a share of guaranteed prices considerably higher than the international market price (Shorrock, 2002; Vallete and Wysham, 2002);
• suspending plant operations, thereby compromising access to electricity and persuading government agencies to pay high premiums for political risk insurance (Hall and Lobina, 2004); and
• granting of lucrative sole-supplier trading rights for gas supplies (Lovei and McKechnie, 2000).

Oil-backed loans have contributed to high foreign debts in many oil-producing countries at the expense of the poor majority (IMF, 2001; Global Witness, 2004). Despite heavy debts, such countries continue to sign for such loans (AEI, 2003) and potential revenues are used as collateral to finance government external debt rather than to reduce poverty or promote sustainable development. These loans are typically provided at higher interest rates than conventional concessionary loans (World Bank, 2004b) and so the majority of the local population fail to benefit from high oil prices (IRIN, 2004). The problem could be overcome by legal frameworks that enable the channelling of revenue into investments that provide energy systems and promote sustainable development in communities affected by energy-resource extraction. In the meantime, the problem remains a key barrier to sustainable development and, although several countries including Peru, Nigeria and Gabon have mandated enabling mechanisms for such transfers, progress in implementing these measures has been slow (Gary and Karl, 2003).

Poor policies in the international financing sector hinder the establishment of energy systems for sustainable development. A review of the extractive industries (World Bank, 2004b), for example, revealed that the World Bank group and the International Finance Corporation (IFC) have been investing in oil- and gas-extractive activities that have negative impacts on poverty alleviation and sustainable development. The review, somewhat controversially, recommended that the banks should pull out of oil, gas and coal projects by 2008.

Population growth and higher per-capita energy demand are forcing the transition of supply patterns from potentially sustainable systems to unsustainable ones. Efficient use of biomass can reduce CO₂ emissions, but can only be sustained if supplies are adequate to satisfy demand without depleting carbon stocks by deforestation (Section 4.3.3.3). If supplies are inadequate, it may be necessary to shift demand to fossil fuels to prevent overharvesting. In Niger, for example, despite the concerted efforts through a long-term World Bank funded project, it is not possible to provide sufficient woody biomass on a sustainable basis. As a result, the government has launched a campaign to encourage consumers, particularly industry, to shift from wood to coal and has re-launched a 3000 t/yr production unit, distributed 300 t of coal to Niamey, and produced 3800 coal-burning stoves (ISNA, 2004). Further, in the electricity sector, PPAs that are not favourable to the establishment of generation plants that promote sustainable development are increasingly common. These include long-term PPAs with payments made in foreign currency denominations, leaving the power sector extremely vulnerable to macro-economic shocks as demonstrated by the 1998 Asian crisis (Wamukonya, 2003).