Energy and Development

The developing countries constitute an increasingly important component of the global energy scene. With three-quarters of the world's population, they account for one-quarter of total energy consumption and they dominate the trade in oil. Most of them are oil importers, who share with industrial countries the problems of coping with sharply higher prices and uncertain supplies and devising for the longer term effective alternatives to imported oil. Many face the further problem of dwindling supplies of traditional forest- and farm-based fuels, with severe consequences in environmental degradation and reduced agricultural productivity.

Even before the energy price shocks of the seventies, the developing world faced severe challenges in its struggle for economic progress—population pressures, capital shortages, a paucity of technological skills, and deep-rooted institutional and cultural obstacles to modernization and reform. Energy poses a major additional challenge that could frustrate further development and even reverse the progress of recent decades.

The immediate problem is to cope with high oil import bills through adjustments in other imports and exports, oil conservation and substitution, and international private or public financing of the difference, all while minimizing the adverse impact on continuing development.

Both domestic and international measures will be required. OPEC countries, which have undertaken a number of new aid programs since 1974, could help through concessional prices or credit terms or through more automatic mechanisms for recycling a portion of petrodollar surpluses into developing-country investments. Cooperation among central banks and the International Monetary Fund will have to be enlarged and intensified. Debt rescheduling is likely to become more common. But the crisis mostly reflects a basic and permanent shift in energy costs, technologies, and sources of supply, and not merely the skillful manipulation of prices by a cartel: the developing countries cannot expect to be fully shielded from its effects.

How does a country make an orderly transition to an altered energy regime involving higher relative costs, different resource demands, and possibly new strategies for energy supply and use? For most developing countries, the future energy regime must depend less on imported oil and ultimately less on oil and gas regardless of source. There are three broad policy areas involved in getting from here to there: energy policy in relation to broader developmental strategies; energy conservation and improved efficiency in use; and energy supplies.

Comprehensive energy planning has become an important objective for most developing countries. It is essential, however, that the energy sector not be planned in isolation from broader national objectives, and in particular that the energy tail not be allowed to wag the development dog. At the same time, the changing economics of energy may entail changes in overall strategies, especially in relation to the energy implications of industrial technology and regional policies.

A critical strategic issue is the extent to which a country should seek self-sufficiency in energy. All nations prefer to have vital resources under their own control. But depending on their resource endowments, many countries will find the costs of total self-sufficiency in energy—as in the case of food—more damaging to overall development than a reduced level of oil imports or replacing them with imported coal or other lower-cost energy sources. Security against short-term supply interruptions is usually achieved more economically by stockpiling and diversifying sources. Some countries will find it more rewarding to pay for imported energy by increasing exports than to seek self-sufficiency at any price.

Appropriate energy strategies will vary with the specific conditions of each country, especially the resource endowment and degrees of industrialization and urbanization. It is important to avoid faddish prescriptions or generalizations about the Third World as if it were homogeneous. In particular, industrial-country advocacy of low technology and renewable energy sources as universal solutions to developing-country energy problems may be interpreted—and understandably so—as advice to abandon the goals of economic modernization or as disguised efforts to keep the world's dwindling hydrocarbon supplies as a preserve of the already industrialized countries.

Low levels of per capita consumption and limited needs for space heating make it impossible for the developing countries to secure the same degree of conservation gains as can the industrial countries. There are, however, important opportunities for more efficient use of both commercial and traditional fuels.

The transportation sector typically expands rapidly in the course of development. Conservation measures may be directed at slowing rates of growth of transportation, a shift toward more energy-efficient transportation modes, or an improvement in energy efficiency of a given mode. Urban settlement policies and arrangements for mass transit also bear directly on possibilities for energy conservation in transportation.

In the industrial sector, conservation opportunities arise partly from changes in the mix of products and partly from changes in methods of production. And here the very lack of development is a comparative advantage. Since most developing countries are still in the early stages of industrialization, they often are able to select energy conserving processes from the start, rather than retrofitting or waiting until existing equipment needs replacement.

In the residential sector, the main possibilities for conserving petroleum products lie in bypassing the traditional use of kerosine in favor of charcoal, gas, or electricity generated from primary sources other than oil. This sector—especially n rural areas in Africa and Asia—is dominated by traditional cooking fuels, used at very low levels of efficiency. Improved cookers would boost conservation considerably.

The most effective single incentive to use energy more efficiently is for it to become more expensive. In addition to higher prices, such measures as loans and subsidies for energy-saving investments, regulation of energy efficiency of vehicles and major appliances, and rationing may be required to secure conservation objectives. Higher prices raise serious equity problems for lower-income groups, however, and developing countries often lack social security or welfare systems as alternative means for handling such problems.

Supply is the most critical part of the energy transition regardless of what may be accomplished through revising development strategies and conservation and improved efficiency. And fossil fuels and conventional hydroelectricity should continue to be the main commercial energy forms for at least the next two decades.

Geological prospects for new discoveries of oil, gas, coal, and uranium in developing countries are sufficiently good to warrant major efforts at exploration. Even if there are no more "Mexicans" or "Saudi Arabia's," more modest resource discoveries could transform the balance-of-payments and development prospects of the countries directly involved and help relieve pressure on global energy markets.

Hydroelectric power is long established, and high-cost oil has made it relatively attractive. For many countries, the hydro potential is very large in relation to foreseeable electricity needs. Small-scale "mini-hydro" installations could contribute, but their current vogue should not be allowed to overshadow the larger potential of conventional hydroelectric development.

Direct and indirect uses of biomass (forest products, farm residues, and so forth) appear to be the most promising types of renewable energy resources. And these could be enormously expanded by systematic forestry management. Theoretical calculations of annual increments give impressively large figures, but they must be qualified by considerations of transportation costs and the competition for land among forest products, food, fiber, feed, and fuel. Nor are the ecological implications of intensively cultivated, large-scale tropical forest plantations fully understood.

Ethanol and methanol fuel alcohols appear to be especially attractive bio-mass options, for they can be produced from locally available feedstocks that often are higher yielding and easier to produce than in most industrial countries. Of the two, ethanol is the less risky. It already is heavily used in Brazil in gasohol mixtures and with an early prospect of use as a pure motor fuel. Its relatively high cost and competition with food crops for land and other basic resources are drawbacks, but the development of practical extraction of sugars from wood could improve the outlook.

There is widespread interest in decentralized energy technologies in rural areas, sometimes referred to as village technologies. Some of these are simply more efficient ways of using traditional fuels; others (such as photovoltaic cells) require high technology for production but are easy to use in small-scale applications.

While economic comparisons with conventional methods are straightforward, sociopolitical considerations are more complex and best left to the national and local authorities concerned. Gains in community solidarity and local self-sufficiency can involve significant financial and other social costs. The objective should be to ensure that appropriate technologies are genuinely appropriate in terms of the full range of social costs and benefits and value systems.

In short, there is a wide variety of factors beyond the technical and economic comparisons which are at the core of microeconomic analysis. They include limitations on the availability of specialized labor skills or other factors of production, "lumpiness" or indivisibility of certain necessary inputs, inadequacies of capital markets and credit arrangements, opportunities for external public or private financing, broad characteristics of the existing economic infrastructure, health and environmental effects, and questions of equity.

As with other aspects of economic development, implementing energy strategies is primarily a task for the developing countries themselves. But they can be given vitally important financial and technical support from industrial countries and international institutions.

As noted, various kinds of financial assistance will be needed to help overcome the short-term energy crisis. For the longer-term transition, support could be valuable in the form of:

• Assessments of energy resources and demand patterns;
• Training and management for the energy sector;
• Exploration for mineral energy resources and appraisal of hydroelectric potential;
• Applying modern forestry practices; and
• Transferring research results on alcohol fuels, synthetic oil and gas, and renewable energy technologies as they become practical supply sources.

In the nuclear energy field, supplier-country policies should be clarified regarding conditions governing exports of fuels and enrichment services, spent fuel management, and requirements for international safeguards.

More generally, the whole array of bilateral and multilateral aid programs should be analyzed for their appropriateness, both with respect to quantity of aid offered and its quality, including possible implicit biases toward unduly energy-intensive technologies carried over from the era of cheap oil.

There are formidable obstacles to effective global energy cooperation, but the stakes are so high that it is essential to explore all promising paths. There are grounds for some optimism, for there is a broad and basic mutuality of interest among industrial and developing countries in a peaceful transition to a more durable energy regime that meets the needs of all.