Developing countries will contribute significantly to global prosperity and peace only if they can access sufficient quantities of affordable energy.
Global improvement in living standards, increased political stability and conflict avoidance depend on achieving economic progress in developing countries. They are rising fast in aggregate world GDP share and will pass the developed countries by 2030.
- Developing countries’ share of world GDP from 2000 to 2009 increased from 19 percent to 28 percent.
- The top long-term GDP growth countries after 2020 will be India, Indonesia, and Africa, not China.
- Africa’s population will double from 1 to 2 billion by 2050. Its trade with the rest of the world increased 200 percent in the last decade, with only one-third related to commodities.
Developing countries need secure, accessible, and affordable energy to perform value-creating work (agriculture, transport, manufacturing, service industries, IT and communications, resource extraction, and processing) and to improve living standards. And they need energy in a context of rapid industrialization, urbanization, and population growth.
Between today and any sustainable and prosperous future lies a period of major transition for developing countries and their energy economies. The starting conditions for many are difficult, including energy import dependency and/or energy scarcity:
- Some developing countries, such as Jamaica, spend as much as 30 percent of GDP on imported energy.
- Some developing countries, such as Malawi, spend close to 0 percent of GDP on energy consumption. They have limited indigenous energy production capability and limited fiscal capacity to import energy.
- Africa, for example, spends almost 70 percent more on energy as a share of its GDP than OECD countries .
The developed and developing world can be, and should be, interdependent collaborators in regard to energy supply, to ensure an efficient transition to sustainable, greener prosperity and peace.
Consumer behavior, government policies, and investments in infrastructure must interact properly to achieve growth in GDP. Well-planned investment in energy infrastructure and energy supply will lead to more-sustainable, less carbon-intensive energy supply and economic growth.
To achieve effective and efficient development of developing-world energy economies requires well-coordinated national and global policy ecosystems. These ecosystems are comprised of domestic and international policies, agreements, trade, capital markets, innovation, technology, and technology transfer. Such ecosystems, properly structured and implemented, can provide secure, accessible, and affordable energy through mutually beneficial transactions between developed and developing countries.
Effective energy ecosystem development requires harmonizing the development of the right energy supply systems and the right energy financing systems more effectively than presently occurs if long-term global goals of increased sustainability, increased health for the large populations still dependent on highly polluting solid fuels, and diminished carbon emissions are to be achieved. It requires coordination of policies across policy sectors and national boundaries, more effectively than presently occurs.
How can good global results be achieved most effectively?
- The international system must devise ways for developing countries to get long-term financing for energy infrastructure and supply, without impairing their development by weakening their national balance sheets or sapping their early-stage fiscal capacity.
- Public and private capital sources in developed countries should be induced to invest on acceptable terms in developing countries to help those countries access and afford energy and to develop the right energy infrastructure in those countries.
- The direction of such energy investment should gravitate toward sustainable energy solutions as the relative costs of sustainable solutions fall and the capability of developing countries to afford and maintain sustainable solutions increases.
The benefits would be significant in both human terms and for the world system:
- For humanity, increased access to, and use of, cleaner fossil fuels such as natural gas and liquefied petroleum gas (LPG), as well as increased deployment, where appropriate and economically feasible, of renewables such as wind, biomass and solar, will lead to economic development and improved living standards.
- For the world system, improved human living standards lead to increased social stability, which in turn leads to greater political stability, which in turn leads to lower capital costs and increased foreign trade and investment, which in turn lead to even greater improvement in human living standards. A virtuous cycle.
Kimball Chen is Chairman & CEO of Energy Transportation Group.