Thursday, February 28, 2013

Can Africa's Energy Growth Be Green?

At least as measured by emissions of carbon dioxide, "Africa is the green continent," as Paul Collier and Anthony Venables note in the most recent issue of the World Economic Review. Of course, the reason is that the standard of living across Africa is so low that not much energy is being consumed. As the economies of Africa develop, can its energy demand be green?

The common relationship between economic growth and environmental pollution is sometimes called the "environmental Kuznets curve." It's an inverted-U; that is, economic development first brings a rise in pollution, but then later leads to a reduction in pollution. Much of the underlying reason involves political tradeoffs: the very poor are more willing to sacrifice environmental protection for gains in consumption, while those who are better off become less willing to do so. For a review of these arguments in my own Journal of Economic Perspectives from back in 2002, see "Confronting the Environmental Kuznets Curve" by Susmita Dasgupta, Benoit Laplante, Hua Wang and David Wheeler.( Like all articles in JEP back to the first issue in 1987, it is freely available on-line courtesy of the American Economic Association.) Here's a figure from Collier and Venables, showing production of carbon dioxide relative to economic output as measured by GDP.

The hope that Africa might be able to minimize the rise or even sidestep the rise in pollution that often comes with technological development is rooted in several underlying facts. Africa has strong natural potential for use of some renewable energy resources, like solar power. In addition, Africa has what economists have long referred to as "the advantages of backwardness" (the phrase comes from the writings of Alexander Gerschenkron back in 1962, available at various places on the web like here ). The notion is that countries which start out behind may be able to catch up rapidly because they can draw on technologies already developed elsewhere. In some cases, they may even be able to leapfrog certain stages of techology; for example, many areas of Africa may move directly to mobile phones rather than land lines for all and, for example, to retail banking based on these phones, rather than following the historical path of phones and banking from high-income countries.

Could Africa also use modern technologies for energy conservation and alternative sources of energy to sidestep the environmental Kuznets curve? Collier and Venables pose this question in "How Rapidly Should Africa Go Green? The Tension Between Natural Abundance and Economic Scarcity." The essay is a nice readable version of a more technical research paper that they published last year in Energy Economics--"Greening Africa? Technologies, Endowments and the latecomer effect"--which is available as a working paper here.  Their conclusion is not optimistic: 

"Superficially, Africa appears well-suited for green energy. Sunshine, water, land, forests, and being a latecomer all confer significant advantages. However, energy generation, energy saving, and carbon capture are intensive in capital, governance capacity and skills. Unfortunately, all of these factors are scarce in Africa. These factor scarcities offset the advantages conferred by natural endowments and are often decisive. Similarly, the historic advantage of being a latecomer to the installation of generating capacity is offset by the historic disadvantage of the acute energy scarcity inherited from past under-investment: Africa cannot afford to wait for further developments in green technologies. Nevertheless, there is scope for Africa’s natural advantages for green energy to be harnessed to a global advantage. But to do so will require international action that brings global factor endowments to bear on Africa’s natural opportunities."

What sort of international action would be especially useful? They emphasize three possibilities: 1)
"It is cheaper for the international community to pay for the installation of green technology in Africa’s new plants than to retrofit it in existing Northern plants;" 2) " A second Africa-specific opportunity in generation is for international public finance, perhaps through guarantees, to subsidize the cost of switching from gas flaring to either LNG or gas-fired electricity generation;" 3) "A third would be to provide international public subsidies or guarantees for hydropower mega-projects."

For an overview of the scale of this issue, a useful starting point is a 2011 World Bank report by
Anton Eberhard, Orvika Rosnes, Maria Shkaratan, and Haakon Vennemo called "Africa’s Power Infrastructure:Investment, Integration, Efficiency." The report has all sorts of useful detail on the potential for different kinds of power generation, but here's the big-picture overview of where sub-Saharan Africa stands on power generation and what is needed (with citations and references to figures omitted). 

"The combined power generation capacity of the 48 countries of Sub-Saharan Africa is 68 gigawatts (GW)—no more than that of Spain. Excluding South Africa, the total falls to 28 GW, equivalent to the installed capacity of Argentina (data for 2005 ). Moreover, as much as 25 percent of installed capacity is not operational for various reasons, including aging plants and lack of maintenance. The installed capacity per capita in Sub-Saharan Africa (excluding South Africa) is a little more than one-third of South Asia’s (the tworegions were equal in 1980) and about one-tenth of that of Latin America. Capacity growth has been largely stagnant during the past three decades ...

"We assume that over a 10-year period the continent should be expected to redress its infrastructure backlog, keep pace with the demands of economic growth, and attain a number of key social targets for broader infrastructure access....  Installed capacity will need to grow by more than 10 percent annually—or more than 7,000 megawatts (MW) a year—just to meet Africa’s suppressed demand, keep pace with projected economic growth, and provide additional capacity to support efforts to expand electrification. ... Based on these assumptions, the overall costs for the power sector between 2005 and 2015 in Sub-Saharan Africa are a staggering $41 billion a year—$27 billion for investment and $14 billion for operations and maintenance."
The task of increasing energy production in Africa is enormous: roughly speaking, the World Bank estimates mean a doubling of annual infrastructure spending. The potential economic gains of improved power infrastructure to countries in Africa, and thus to hundreds of millions of the poorest people in the world, are also enormous: the World Bank economists cite estimates that economic growth might increase by 2-3 percentage points per year. But the environmental consequences of this increase could also be substantial, and so the policies that seek to promote growth of energy production in Africa also need to be designed to make it green. An environmental Kuznets curve is likely to arise--but with an effect, its peak can be flattened.