Messages from the Chief Economist

Sustainable energy requires systemic change 

• Tracking progress
• Policies for change

Ukraine is highly inefficient in its use of energy. You do not need to spend much time in the country to realise this. Even if the modern hotels often have sophisticated energy saving technology you visit buildings where the heat in the middle of the winter is regulated by opening windows. The fast congesting streets are filled with highly inefficient remnants from Soviet times and, increasingly, with the latest equally gas-guzzling luxury SUVs. According to a recent Pew Poll of a large number of emerging markets, the country also ranks lowest in terms of awareness of climate change.

But things are changing. Recently I participated in an activity we co-organised with the International Energy Agency in Kiev. The meeting had gathered stakeholders with an interest in energy efficiency. My anticipation was rapidly decimated when the newly- appointed head of the recently established energy efficiency agency opened the meeting reading from a written speech with lofty goals and non-committing verbiage. There were no doubts about his good intentions, but it was clear that the agency had a long way to go before it could become an effective advocate.

However, what followed was very interesting. Representatives of several large companies took the floor. They were all in the process of implementing ambitious energy savings plans, each one sufficient to power a medium-sized city in Western Europe. In the ensuing discussion small and medium-sized companies made their voices heard. For them access to energy-efficiency credit lines offered an interesting opportunity to cut costs, but they saw little action from the government in supporting the development of such products. Several NGOs focusing on the environment and energy efficiency also challenged the head of the energy efficiency agency. What I saw was the embryo of a constituency in favour of more sustainable energy use.

Tracking progress

It is to support these nascent debates in our countries of operation that the Chief Economist’s Office is publishing a new tool to monitor progress in sustainable energy policies. The new indicator, the Index of Sustainable Energy (ISE), allows experts and policy-makers to benchmark individual countries’ progress in reform of three key areas – energy efficiency, development of renewable energy sources and policies to address climate change. In particular, the Index provides a way of assessing how closely a country’s policies, institutions, practices and performance follow international best practice and serves as a guide for pinpointing areas of potential improvement.

The ISE shows that Ukraine along with most other CIS countries lag considerably behind the countries in Central and Eastern Europe and the EU-15 even more in the policy framework for sustainable energy. Some countries continue to be highly energy intensive and lack the basic incentives for energy savings, especially as tariffs remain very low. The countries in the former Soviet Union use more than three times as much energy to produce a unit of GDP as in western Europe. At the high intensity end are the Central Asian countries, which are four to six times less energy efficient than the EU average. However, the good news is that countries in south-eastern Europe and new EU member states are converging their energy intensities with the OECD average.

The Index is a first attempt to capture these differences across countries and there is room for refining the individual components and measuring better enforcement of laws and regulation. The results must be assessed against the conditions in individual countries, particularly the country’s access to large-scale hydro generation (improving the outcome on carbon-intensity) and the extent to which demand is met in a country (some countries have severe energy shortages), but we are convinced that the ISE indicator will generate a valuable discussion of appropriate policies to encourage energy efficiency, renewable energy and climate change mitigation. Moving forward on these fronts will not only support long term economic growth but also contribute to enhanced energy security: more efficient generation and energy use, combined with the further development of renewable sources, open the way for non-depletable, domestically available and diversified energy resources that are affordable and have a smaller environmental footprint. The main point is that the path towards sustainable energy requires systemic change.

Towards a sustainable future

The topic will not go away. Many of our countries are facing looming power shortages. As demand for electricity continues to grow, as losses in conversion and transmission remain high and as investment in capacity has failed to keep pace, shortages are imminent, particularly in south-eastern Europe, several regions of Russia and southern Kazakhstan. Lack of heating in houses, frequent power blackouts and rationing of gas in Central Asian countries (in particular in the Kyrgyz Republic, Tajikistan and Uzbekistan) during recent extremely cold winters have exposed the poor state of crumbling Communist-era utilities and pipelines. Unless significant investments both in new supply and more efficient demand are undertaken, the situation could become worse with serious social consequences especially to vulnerable groups.

The international debate on global warming is also having an impact. Some Russian policymakers have tended to dismiss the issue or point to the potential benefits for the country of a warmer climate. Closer scrutiny questions whether these benefits outweigh the costs even from a narrow Russian perspective, but the game is more complicated than that. The country ranks as the third largest global emitter of carbon dioxide from the combustion of fossil fuels after China and US. Kazakhstan, Poland and Ukraine rank among the top 25 countries for global carbon emissions. The rest of the world is unlikely to just stand by. 

 

 

 

 

 

 

18 May 2008