Energy cooperation with the developing countries

1) OBJECTIVE

To propose a framework for discussion and cooperation and concrete recommendations to integrate energy more effectively into cooperation with the developing countries.

2) ACT

Communication from the Commission to the Council and the European Parliament of 17 July 2002 - Energy cooperation with the developing countries [COM(2002) 408 final - Not published in the Official Journal].

3) SUMMARY

Background

For a long time, energy was neglected in measures to promote sustainable development at international level. However, it has a central role in the three dimensions of sustainable development: the social dimension (fight against poverty), the economic dimension (security of supply) and the environmental dimension (environmental protection).

The energy sector is also of vital importance in cooperation with the developing countries since problems such as limited access to energy sources, the very widespread use of traditional biomass and dependence on imported energy sources constitute a significant obstacle to social and economic development.

It is only recently that energy has emerged as a matter of increasing international concern. This communication was presented as part of the contribution of the European Union to the Johannesburg World Summit in August/September 2002 on sustainable development issues.

Analysis of the energy situation in the developing countries The energy situation in developing countries is very diverse.

Energy demand

Per capita energy consumption is significantly less than that in industrialised countries. Nevertheless, the annual rate of growth in energy consumption in the developing countries is three to four times higher than in industrialised countries. These figures mask very unequal access to energy worldwide. In Africa, per capita consumption remains very low whereas in Asia it has almost doubled since 1970. On present trends, energy demand and intensity (the relationship between consumption and the gross domestic product) will increase sharply in most developing countries (particularly in Asia). These phenomena require urgent action such as the application of new technologies for the development of renewable energy sources and improved energy efficiency.

Energy supply

At present, the developing countries tend to make greater use of coal and certain renewable energies (particularly traditional biomass) rather than oil, gas and nuclear energy. However, nuclear energy, gas and oil in particular are destined to play a more important role in the future. Increased use of gas and oil could entail financial risks since the international oil market is volatile and resources of these two fuels are limited. There will probably be a reduction in biomass use in the future. It should be noted that this source of energy, which is frequently used in developing countries, presents risks for health and the environment, partly due to the way in which it is used.

Lack of funding and a regulatory and institutional infrastructure

Lack of funding in the energy sector is a significant problem for developing countries which cannot be resolved by public funds or development aid alone. Private investment must therefore be attracted. The situation is made worse by the absence of clearly defined energy policy and the lack of institutional capacities and human resources. Nor is there an adequate legislative, regulatory and financial framework which is vital for attracting private investment and ensuring the proper functioning of the market.

Reference framework for energy cooperation

The approach of the European Union (EU) in this respect has hitherto been on a case-by-case basis. Energy cooperation should play a greater role in strategy documents by country and by region and strategy documents for the reduction of poverty.

Horizontal aspects

Two key horizontal actions have been identified:

• reform of the energy sector;
• technology transfer.

As regards reform of the sector, in order to meet the requirements concerning the opening up of the market, an appropriate legislative and regulatory framework is necessary, in particular as regards regulation, the unbundling of activities, pricing and the promotion of private participation. Apart from the formulation and implementation of an energy policy, work should be concentrated on two aspects: opening up production and distribution to the private sector and pricing.

Technology transfer and creating the conditions for it are fundamental aspects. Technologies relating to clean coal, renewable energy, energy efficiency and nuclear safety are of particularly importance in this connection.

Demand-side cooperation

Cooperation at this level is one of the most promising avenues of approach. The aim is to manage demand more effectively and save energy in particular through measures which promote energy efficiency. However, this requires guaranteed access to technologies, adequate funding and a propitious legal and financial framework. To this end, cooperation has to be established between public institutions, the private sector and international organisations such as the European Union.

Supply-side cooperation

More efficient management of energy supply can lead to greater stability in the energy sector. Actions are proposed in two areas:

• promoting diversification of energy supply;
• facilitating the development of networks, and in particular interconnections.

Energy diversification

This is important both for the consuming countries which are often dependent on a limited number of energy sources and the producing countries which are often monoexporters. The objective is to reduce dependence on the traditional fossil fuels such as oil and gas.

Promoting clean coal technologies is one of the possibilities. Alternatives to oil are currently limited but natural gas is a promising substitute fuel since it has less impact on climate change. More efficient use of these two fuels is necessary as their reserves are limited. As regards renewable energies, their use is currently higher in developing countries than in industrialised countries but in most cases it involves sources such as firewood which presents a risk in terms of sustainable development (for example, deforestation) and human health. Unlike the European Union, there is no specific policy for the development of renewable energies which are often fairly costly in developing countries. To promote the development of these sources, it is necessary to help these countries gain access to the technology, support efforts to establish a legal framework and develop appropriate financial mechanisms. In the field of nuclear energy, technical assistance is a priority to ensure nuclear safety. Apart from the fundamental need to guarantee a high level of safety, this could help to attract private investment to this sector.

Facilitating the development of networks, and in particular interconnections

The development of regional energy infrastructures can offer the benefits of economies of scale, especially in small developing countries. Sharing the development, management etc. of infrastructures can reduce transaction costs and improve competitiveness. However, this solution is not always appropriate since energy consumption varies significantly from one country to another. Consideration must also be given to setting up national infrastructures as there are developing countries which still do not have an adequate national network.

Operational recommendations

The objective of the recommendations is to establish an innovative approach based on the experience of the European Union which focuses on energy efficiency, reduction of energy wastage and promotion of renewable energies. However, this should not call into question the fundamental objective of guaranteeing access to basic energy services for people and firms in developing countries.

Long-term objectives

There are five recommendations for the long term:

• integrating energy as a horizontal element of EU development aid programmes;
• developing institutional support, technical assistance and networkingThe aim of these actions is to give developing countries the capacities to implement their energy choices and they comprise initiatives such as the secondment of EU experts to those countries, support for training, etc.;
• developing a regulatory framework and innovative financial mechanismsThis is vital to encourage private capital. Measures such as public-private partnerships are envisaged;
• encouraging regional cooperation;
• developing coordination within the EU and with other international providers of finance and organisations. The Commission is proposing that an international organisation should be designated to act as a focal point and take responsibility for the analysis and management of statistics concerning the situation in the developing countries.

The EU Energy Initiative

The European Union launched a European Union Energy Initiative at the World Summit on sustainable development. The initiative is part of the process of achieving the Millennium Development Goal of halving the number of people in extreme poverty by 2015.

Actions will be launched at national, regional and international level in partnership with all public and private players. The key actions will include:

• institutional capacity building;
• transfer of knowledge and skills;
• technical cooperation;
• market development.

The Initiative and the recommendations will lead to an increase in financial aid for the energy sector in the developing countries.

Last updated: 01.06.2006