market-driven mechanism enough for sustainable energy development?...(28/1)

A recent article from the Economist has drawn attention of an unwelcome renaissance of coal, the energy with most carbon emission, in Europe due to a one-third drop of the world’s coal price since August 2011. While natural gas is comparatively more expensive, “cheaper” coal, partly also driven by a less rampant demand for energy from China, was exported from the United States (US) to Europe. Europe imported more coal also because of a halt of certain nuclear power generation. While it is general consensus that environmental concern and sustainability should be the long-term focus of energy development, the short-term game plan in Europe’s pick of energy seems to be another story. Take a look at the market-driven cap-and-trade model in the European Union. Last week, carbon price has seen a record low of EUR2.81 per tonne. The European parliament has voted to let the market decide the carbon price and in comparison with paying almost EUR30 per tonne since the system launched in 2005, carbon emissions cost far below “the expected minimum” now, and there is no incentive for enterprises to trade carbon emission permits. Has the slump of market carbon price related to the supply side, i.e. the number of carbon permits issued in the market, or it is still more “cost-beneficial” for enterprises to opt for energy with higher emission while there has yet been any sound global policy on carbon emission? Can cap-and-trade be carried out effectively at a regional level? While Europe has taken the advantage to import coal at a lower price, the US is turning its national strategy of energy generation. The country’s shift to shale gas has come with a reduction of domestic carbon emission (well, this may not be what is exactly seen from the space, and its consequence to lowered emission compared to the use of coal is subject to further analysis). Since 2005, the proportion of electricity generation from gas has risen from 18.8% to 24.8% (and can reach 27% by 2020 according to Annual Energy Outlook 2013 released by US’ Energy Information Administration), while that of coal has dropped from 49.6% to around 42%. It seems like a rosy picture as emissions intensity of the US has a steeper downward trend since 2001 (Chart 1). Carbon emissions from fossil fuel in the US have decreased by 8.6% since 2005 and as illustrated by Broderick and Anderson in the study, “emissions avoided due to fuel switching in the US power sector may be up to 50% of the total reduction in US energy system CO2 emission since their peak in 2005”. However, emissions have been displaced through export of coal to importers like China and the EU. The net export of coal from the US reached 28.6 million tonnes in 2012. US was a net importer of coal in 2005. Another economy that shifts to more carbon-intensive energy is Japan, though under quite a different scenario. The Fukushima incidence has severely questioned the sustainability of nuclear power for the country. Only two nuclear reactors at present out of fifty are in operation. Instead, its energy is much imported from overseas. Last week, Japan released its record trade deficit at JPY6,927 trillion (or USD78.3 billion). One of the key factors of the triple jump of deficit is due to the surging import of natural gas. It accounted for 8.5% of Japan’s total import and without resolving an alternative for domestic energy generation, the scenario will remain in the near future. Underlying the abovementioned trends of trade for carbon-intensive energy is a basic question: How could/should the economies fulfil the long-term demand for sustainable development and reduction of carbon emission? What should the least developing countries such as the Sub-Saharan Africa (SSA) adopt for sustainable energy generation, as they are in a stage of high energy-dependent to support their rapid economic growth? Renewable energy such as solar, water, wind and geothermal are regarded as the new wave to combat carbon emission. Developing renewable energy though is much limited by geographical, infrastructural and investment constraints. Unless they are grid-connected, trading of these sources is staying at much a local/regional level. In the case of the least developed region, such as the SSA, the abundant renewable resources can be a source of energy to be mainstreamed to tackle the “energy poverty” (access to less than 120kWh of electricity per capita per year for lighting and basic household needs) and support rural development. Biomass currently accounts for the largest share of renewable energy in SSA, but the majority of it is in the form of wood and charcoal that is not efficient, and in most cases, there is severe negative impact to the rural environment and the ecosystem. The share of charcoal fuel in SSA is in a growing trend, and for wood fuel, 60-80% of the wood’s energy is estimated to be wasted in the existing process of energy generation in Africa, according to a report of European Commission’s Joint Research Centre. The situation is clear and there is an imminent need for capacity building in the more efficient use of renewable energy for rural development. Increased green investment is the key driver in SSA to further boost sustainable energy generation. It is estimated that an annual USD0.7 trillion of incremental investment would be required to close the global warming challenge gap we are facing now. According to the latest Green Investment Report, “developing countries are playing a growing role in scaling up green investment”. South-south trade in green projects should be further examined and identified as good practice examples to support replicable sustainable development. If renewable resource can be a reliable path to go for rural development in SSA, ever-rising electricity demand for expanding cities in Africa may need a different strategy. Chasing the two most populated cities in Africa, Lagos and Cairo, which have a population of over 10 million, cities in SSA are expanding very quickly. Kinshasa, for example, has a population hitting 9.9 million this year. Managing the close relationship between trade-led growth and sustainable development, including the generation of green energy, is going to be the core subject policy makers and investors should quickly address. There is a lot to do to mobilize public and private investment as well as build up capacity in mainstreaming sustainability and inclusiveness in the development process.