Energy & Sustainable Development in Asia & the Pacific Region

1. Energy & Sustainable Development in Asia & the Pacific Region Nandita Mongia, Ph.d Regional Energy Program for Poverty Reduction In Asia & the Pacific (REP-PoR) United Nations Development Program, Regional Centre in Bangkok 64th ESCAP CommissionApril 27, 2008

2. Regional Centre in Bangkok

3. Supply- Demand Gaps

4. Consumption (Btu) - read from left side & Generating Capacity (GW) – read from right side

5. Since 2003, crude oil prices have risen from $22 to over $100 a barrel. Today it is fluctuating around $115. Steep rises in the prices of petroleum products used by poor households: diesel, kerosene, propane, gasoline A new era of expensive oil Oil products, quarterly prices, 2000-06

6. Oil consumption and human development index in 1995 & 2004 Poor households will need to increase consumption of modern energy, including oil Small increments in energy use can trigger a substantial improvement in HDI Per capita energy use and the human development index

7. Economic growth has continued..( how long?) Some increase in inflation Till now observed macroeconomic impact has been limited

8. This time the price rises came in the midst of a global economic boom Rising exports have enabled even some of the poorest countries to finance oil import bills Inflation was lower because governments subsidized the prices of oil products….the effect is wearing off Why the small apparent visible macroeconomic impact? …short lived ? The damages have started to appear, with the future looking unsustainable ecologically & economically - especially if the current high prices continue

9. Oil-based fuels represent the biggest component of merchandise imports for Pacific island countries In 2005, fuel imports as a percentage of total merchandise imports ranged from 14 per cent in Vanuatu to 30 per cent in Solomon Islands In Tonga and Samoa, the value of fuel imports was more than double the aggregate of all merchandise exports in 2005 For the larger PICs - Fiji, Kiribati, Solomon Islands and Vanuatu -fuel imports as a percentage of merchandise exports ranged from 42 per cent for Solomon Islands to 85 per cent for Kiribati (2005) The 250 per cent rise in imported fuel prices since 2001 translates to a 250 per cent rise in the value of energy imports for the PICs to maintain the level of energy consumption of the early 2000s Macroeconomic impacts…. Visible in the Pacific already

10. Economic strength : ( BOP, Budget Balance, Import Cover, Oil import Dependence) Economic performance: ( GDP Per Capita, Oil intensity of GDP ,or energy intensity to GDP) Importance of oil to growth: (Real GDP growth rate, share of energy in primary energy consumption ) Capturing Vulnerability to Energy Market Volatility Based on combination of macro variables impacting both demand and supply issues : Vulnerability Index: Low VI - Iran, China, Malaysia Medium VI - Bhutan, India, Papua New Guinea, Indonesia, Thailand, Mongolia, Viet Nam, Myanmar High VI - Philippines, Afghanistan, Nepal, Bangladesh, Pakistan, Lao PDR, Fiji, Samoa, Sri Lanka, Solomon Islands, Cambodia, Vanuatu, Maldives

11. Capturing vulnerability to Oil prices in Asia-Pacific Countries • Of the seven most oil price vulnerable Asia-Pacific countries four are PICs • Most vulnerable oil price country is a SIDS (i.e. Maldives) • PNG, an exporter, is an exception

12. Managing price risk– Pricing policies, targeted subsidies, financial tools. Enhancing supply– Strengthening oil exploration and extraction, building refining capacity, diversifying sources of supply, engaging in barter. Restraining demand– Increasing efficiency in conversion of primary to secondary energy & in end uses Preparing for emergencies– Building strategic reserves and planning for rationing. Diversifying fuels– In some cases this may mean using more coal or gas, but for many countries the opportunities will lie in renewable resources. Policies for reducing vulnerability Regional Centre in Bangkok

13. High priority Pricing of petroleum products Managing oil subsidies Rationing Financial tools Improve public transport Strategic reserves ( Coal Oil Ng) Medium priority Fuel efficiency in transport ( oil & coal ) Fuel efficiency in industry ( Oil ,coal, gas) Bio-fuels in transport ( ??) Oil substitution in agriculture Strengthening oil exploration Refining capacity to process sour crudes Selection of sub-strategies Lower priority • Better land-use planning • Fuel substitution in transport • Fuel efficiency in agriculture • Diversifying sources of primary energy • Barter • Oil substitution in industry Each country will choose its own policy mix, but countries with similar Vulnerability index rankings may use similar overall policy combinations. These will also change according to the fuel price & fuel mixes scenarios.

14. Bars represent petroleum product based electricity generation costs for alternate oil price scenarios :Baseline, SS shock, Peak Oil Price &Energy security Renewable systems versus gasoline gensets costs for off-grid electricity

15. Promising ‘Integrators’ on the ground are: Micro Finance Institutions Agencies promoting SMEs and micro-enterprises NGOs/ CBOs working with a holistic development approach RET vendors Community based energy projects Local and national government Development Banks & partners Establishing and strengthening cross-sectoral linkages for delivering rural energy

16. Substantially increase investments into grid-intertied RETs (and increase rural electrification, and share benefits with local residents,),. Increase investments into biofuels, but cautiously (and increase employment through community production of oil crops and biofuels to power multi-functional platforms and local transportation as well as for external sales), Expand access of the poor to off-grid RETs through community-based mini-grid systems and a “commercialization plus” approach for household technologies like biogas and solar PV, Expand high value applications of RETs in education, health, microenterprise, and telecommunications to benefit the poor. Strategic Recommendations(to increase private investments into RETs, )

17. Integrate commercially available RETs into a wide range of ongoing income generation and development activities aimed at reducing poverty - being carried out by government, NGOs/CBOs, micro-finance institutions, and donor financed projects, Financing policies to increase access to financing so that the poor can afford to access commercially available RETs, Facilitate the development of CDM projects to provide carbon financing to renewable energy projects with the largest MDG impacts (e.g., community carbon finance initiatives), bundling of small projects Strategic Recommendations (contd)(to increase private investments into RETs, )

18. Feeding in renewable electricity to the grid Policy and Legislation Set national targets and timetables for renewables Put in place: Renewable Portfolio Standards, establish feed-in tariff, net-metering, interconnection agreements, standardized power purchase agreements. Enact laws for sharing royalty from hydropower, wind with local residents for benefit of poor. Require green IPPs to distribute portion of power for rural electrification. Fiscal and Financial Incentives Provide direct investment subsidies, production tax credits, income tax holidays for green IPPs. Reduce import duties, VAT on equipment for green IPPs Public Investments Increase awareness of policy makers, utility officials, Technical support and training to investors and utility officials Pilot benefit sharing with local suppliers of inputs (e.g. rice husk) Policy Recommendations(to increase private investments into RETs)

19. Sustainable development of biofuels Policy and Legislation Implement mandates for blending biofuels into diesel and petrol,with caution Set standards for biodiesel Make legal provisions for poor and landless to grow jatropha and other biofuel crops under ‘leasehold forestry’ Limit use of food crops for biofuels (e.g., recent China policy) Fiscal and Financial Incentives Provide direct investment subsidies, production tax credits, income tax holidays for biofuels investors. Reduce import duties, VAT on equipment for biofuels investors. Public Investments Invest in R&D to maximize yields Examine the potential impacts of large-scale biofuels production on land, water, nutrient runoff.. Invest in R&D of small-scale seed press and esterification units for community production of biofuels Policy Recommendations(to increase private investments into RETs)

20. Off-grid RETs Policy and Legislation Announce targets and timetables for universal access to electricity and non-electricity services (milling, cooking fuels) through off-grid RETs complementing rural electrification Fiscal and Financial Incentives Provide direct investment subsidies, production tax credits, income tax holidays for manufacturers and suppliers of RET equipment Reduce import duties, VAT on equipment on off-grid RETs Public Investments Map renewable resources of the country and increase awareness Invest in public private partnerships for market-based supply of off-grid RETs Standardize equipment, provide training and quality control Provide additional grant support to complement commercialization such that the poor, women, and marginalized can access RETs Policy Recommendations(to increase private investments into RETs)

21. Help least developed countries overcome balance of payments and fiscal deficits linked to energy Finance essential structural changes in their energy economies to reduce their dependence on volatile global energy market Call For Asia-Pacific Compensatory Oil Finance Facility Rising oil prices have created balance of payments problems for the least developed countries AP-COIL would: The bulk of the funds could be mobilized through bonds issued in regional and international capital markets.

22. AP-COIL - flow of funds

23. The Time to Act is Now , Thank You Regional Centre in Bangkok