Sustainability For Developing Countries

SUSTAINABILITY FOR DEVELOPING COUNTRIES
David Halomoan Malau

MSc. Sustainable Energy Systems, University of Edinburgh
This discussion is related to OPINION: New Climate Economy Begs for Investments in
Developing Countries by Ali Tauqeer Sheikh in Climate and Development Knowledge
Network, later known as 1st article, and A Renewable Energy Boom by Editorial of The New
York Times, later known as 2nd article.
Electricity price has an impact on total welfare, for instance, increases in electricity price from
4.85 c/kWh to 7 c/kWh (44% increases) resulting in 3-5% household welfare losses to poor
households in Montenegro. This welfare loss is expressed as a total loss of household consumer
surplus as a portion of their total expenditures by changes in electricity price. This number is
twice as large as welfare losses experienced by high-income household because poor household
spends higher share from their income to energy consumption. While poor household in
Montenegro already spends 12.9% of their budget to energy, in an inelastic model of electricity
demand, increases in electricity price will not change the household demand for electricity and
results in linear reduces of household share on other expenditure (Silva, Klytchniova, & Radevic,
2007). Those statements show that high electricity price impact poor household more than highincome household.
Electricity supply in one country could have causality link with economic growth and some
research shows that increases in electricity supply in some developing countries has an
unidirectional relation to economic growth (Morimoto & Hope, 2001; Asafu-Adjaye, 2000).
Furthermore, estimated nearly 1.3 billion people still do not have access to electricity (Energy in
Developing Countries, 2016), emphasising electrification ratio remains a crucial issue and could
significantly contribute to developing world economic growth.
Both premises above conclude that availability of affordable electricity is still the main problem.
Difficulty in reducing carbon emitted from generating electricity in developing countries (2 nd
article) comes from countries demand for cheap electricity. Due to electricity supplier inability
to fully control electricity price, one way to pursue profit maximisation is to minimise production
cost. When the cost of generating electricity from renewable resources is still high, cheap but not
environmental friendly primary energy like coal is used to provide affordable electricity.
Assumed only changes in price of primary energy to generate power considered, renewable
energy generation could provide more stable energy prices. Production cost of generating
electricity from fossil fuels relies on its fluctuating fuel price based on market or other political
conditions, in the other hand renewable source (i.e. solar irradiation, wind, etc.) are free to be
harnessed from nature, and more stable energy price could enhance economic growth (World
Economic Forum, 2012).
As per 2nd article, renewable energy generation cost keeps falling. Private sector and government
need to invest more in the development of renewable energy technology to provide more
advanced technology so renewable energy projects become more economically interesting.
Furthermore, the government needs to start implementing policies to support renewable energy
utilisation, expecting increases in renewable energy investment.
Implementation of carbon tax could also be a solution to enhance renewable energy utilisation in
developing country (2nd article), but due to different regulation related to energy in each country,
the imposition of tax needs to be compared first to Feed in Tariff or subsidy. The best possible
scheme could be determined through welfare analysis for each alternative by comparing the sum
of changes in consumer surplus and producer surplus. Research done in Philippine shows that
implementing a carbon tax provide the least welfare losses compared to Feed in Tariff and
subsidy scheme (Garcia & Pormon, 2014).
In addition to energy-related issue in developing country, 1 st article implies that developing
countries need to drive their economic development from climate change point of view, taking
increases in environmental losses and damages into account. Decreasing generation cost from
renewable and suitable carbon emission mitigation policies could support developing countries
attempt to achieve sustainable development.
Climate change is a worldwide issue, which each countrys carbon emission contribute to global
environmental issue. One of several attempts in worldwide scale to help developing countries
adapt to climate change is to raise USD 100 billion fund per year by 2020. This non-binding
pledge was taken in 2009 through Copenhagen Summit, 15th United Nations Climate Change
Conference (COP15). But by giving this USD 100 billion fund there is no specific property right
induced for developed countries. Furthermore, if there are only several developed countries
contribute in raising USD 100 billion fund and eventually this fund successfully reduced carbon
emission worldwide, the benefit will also be received by countries that did not comply with this
agreement. This absence of property right and gaining benefit without effort, called free-riding,
causing nobody wants to cope with the agreement made (Inman, 2009) and 2 nd article says that
United States and other industrialised countries have not lived up COP15 agreement.
Climate change leads to global scale catastrophe and per survey taken by World Economic
Forum will be the biggest threat to the global economy (Elliott, 2016). The 1 st article states that
developing countries are more vulnerable to the risk than developed countries that they need to
invest in disaster risk reduction as insurance. Potential disaster cost could be calculated and
invest in lower amount now in terms of insurance and hopefully, could lower the damage cost in
the future. Although calculating direct and indirect economic impact of potential disaster that
never happened before is hard and the opportunity cost of allocating fund to other investment
could easily undertake the disaster risk reduction (Vorhies, 2012), but 1 st article found that 70%
of infrastructure in developing countries has yet to be constructed and this is an opportunity.
Renewable energy generation could provide affordable electricity with more stable price and in
the same time reduces carbon emission, but still needs proper analysis to determine suitable
policy between carbon tax, Feed in Tariff, or subsidy scheme to support it. Beside energy-related
issue, developing countries need to start driving their economic development through climate
change point of view and preparing their infrastructure more suitable for the probability of future
disaster caused by climate change through disaster risk reduction programme.
References
Asafu-Adjaye, J. (2000). The Relationship Between Energy Consumption, Energy
Prices and Economic Growth: Time Series Evidence from Asian Developing
Countries. 2000 Elsevier Science B.V.
Elliott, L. (2016, 11 02). Climate Change Disaster is Biggest Threat to Global
Economy in 2016, Say Experts. Retrieved from The Guardian:
https://www.theguardian.com/business/2016/jan/14/climate-change-disasteris-biggest-threat-to-global-economy-in-2016-say-experts
Energy in Developing Countries. (2016, 11 01). Retrieved from Oxford Energy:
http://www.energy.ox.ac.uk/wordpress/energy-in-developing-countries/
Garcia, K., & Pormon, M. (2014). Welfare Analysis of the Energy Policies in the
Renewable and Non-Renewable Energy and their Implications on Phillipine
Energy Sector. Global Illuminators.
Inman, M. (2009, 10 29). The Climate Change Game. Retrieved from nature.com:
http://www.nature.com/climate/2009/0911/full/climate.2009.112.html?
cookies=accepted
Morimoto, R., & Hope, C. (2001). The Impact of Electricity Supply on Economic
Growth in Sri Lanka. Cambridge: Judge Institute of Management Studies,
University of Cambridge.
Silva, P., Klytchniova, I., & Radevic, D. (2007). Poverty and Environmental Impacts of
Electricity Price Reforms in Montenegro. Centre for Competition Policy.
Vorhies, F. (2012). The Economics of Investing in Disaster Risk Reduction. UN
International Strategy for Disaster Reduction.
World Economic Forum. (2012). Energy for Economic Growth. World Economic
Forum.

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SUSTAINABILITY FOR DEVELOPING COUNTRIES

David Halomoan Malau

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