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Energy Sector Strategies to
Support Green Growth
Module 01
Green Growth and Energy: an Introduction

Lesson 1
The Rationale for an Energy Sector Transformation

World Bank
Institute
Presentation Script
Energy Sector Strategies to Support Green Growth

Module 1: Lesson 1 The Rationale for an Energy Sector Transformation
Presentation Script
About this Presentation

This introductory presentation provides a brief overview of green growth in

general, and why a strategic transformation of the energy sector is a key
component of green growth. In addition, this presentation identifies some
of the key challenges of green growth strategies specific to the energy sector.

In this presentation, you will learn about;
What the term Green Growth means in practice,
How Green Growth can transform the energy sector,
Challenges and key elements of green growth for energy, and
The role of governments and policy makers.
We will also provide some links to references and resources for more
information.
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A Framework for Green Growth

Over the last twenty years, rapid economic growth has resulted in an 80%
increase in GDP per capita in developing countries. Living standards have
improved for many with more than 500 million people rising out of poverty
and notable progress in literacy, life expectancy, child mortality, access to
clean water and in reduced air pollution.

However, there is serious doubt about the current growth models ability to
deliver on the sustainable development goals that were set two decades
ago... Many question our planets ability to feed 9 billion wealthier people
and absorb the waste they produce. There are growing concerns about
climate change and the degradation of ecosystems and biodiversity.

This is motivating a rethinking of how to better integrate economic growth
and the environmental concerns a search for a new framework that focuses
on significant improvement of our resource use efficiency, a transformation
of our energy systems, and a greater degree of social inclusion. In this
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context, a number of multilateral institutions, policy makers and researchers

are launching initiatives on green growth, green economy, or green
development.

What is Green Growth

So, what precisely is green growth? Green growth refers to a focus on

addressing the twin challenges of expanding economic opportunities and
mitigating environmental pressures in an integrated manner. The United
Nations Environmental Management Group defines Green Growth as
economic progress that fosters environmentally sustainable, low-carbon and
socially inclusive development

Within this definition, growth refers to economic progress rather than
simply output growth or increases in GDP. Focusing on economic progress
broadens the focus on the quality of growth.

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Environmentally sustainable refers to respecting the Earths carrying capacity

and efficient use of natural resources

In the context of the energy sector, green growth has an explicit focus on
climate change mitigation and Low-carbon energy

Finally, green growth should also strive to be socially inclusive.
What is Green Growth

Other organizations definitions of green growth include a focus on specific
actions and impacts. All of the definitions share a vision for driving innovation
and economic growth with new and environmentally friendly technologies.

Click on the organization to see their definition of green growth.
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The Green Growth Challenge: Moving Away from the Status Quo

The rationale of moving away from the traditional growth model to follow a
green growth approach is based on the need to address some of the major
environmental problems facing the world: air pollution, water stress,
biodiversity loss, and climate change. Each of these environmental problems
are predicted to worsen under business as usual economic growth. Click on
each environmental issue to learn more.

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The Green Growth Challenge: Moving Away from the Statues Quo

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Green Growth Challenge: Decoupling Environmental Impacts

One component of a green growth strategy is to work to decouple
environmental impacts from economic growth. This graph shows some
decoupling trends in the OECD between GDP and several environmental
indices from 1990 to 2010. For example, while GDP has increased by roughly
50%, energy supply has increased less than 20%.

For the energy sector, there are two distinct forms of decoupling. The first
objective is to decouple energy from growth and reduce the energy intensity
of our economy to allow subsequent economic growth without a
corresponding increase in energy use. The second objective is to decouple
emissions from energy in order to reduce the emissions-intensity of our
energy sector. This will allow the quantity of global energy services to
increase dramaticallyexpanding energy access and allowing for industrial
growthwhile still reducing overall greenhouse gas emissions
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The Economic Rationale for Green Growth

Continuing business as usual economic growth has substantial

environmental implications. The impacts of economic activity on
environmental systems put future economic growth and development at risk.

These environmental impacts often carry economic costs. Consequently, the
perceived trade-off between economic growth and environmental protection
is increasingly being called in to question.

Economists have a number of economic arguments to promote green growth
strategies. Select your choice to learn more.

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What Green Growth Means in Different Countries

Green growth development strategies can provide net benefits for upper
income, middle income, and less developed countries. While economic
priorities diverge from one country to another, the rationale for green
growth often remains.

Middle income countries are expanding economically, often at high rates of
industrialization. At this stage, a green growth strategy can bring essential
elements for development and vast opportunity to invest in large green
infrastructure as the energy system expands, avoiding the problem of locking
in emissions in the future.

For instance, Mexico will use a US$1.5 billion loan of the World Bank to
stimulate the economy and to help reduce emissions in the urban transport
and energy sectors through actions such as energy efficiency measures.
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What Green Growth Means in Different Countries

One of the typical priorities for less developed countries is energy access.

It is estimated that 20% of people in the world, approximately 1.3 billion
people, lack access to electricity. In least developed countries, this figure is
almost 80%. A lack of energy services affects health, limits opportunities for
education and development, and ability to rise out of poverty. The impacts of
climate change and volatile energy prices are expected to exacerbate the
existing problem.

For example, consider the typical problem of a low income country that
cannot supply electricity to its entire population and whose current electricity
grid suffers from low-quality and frequent power outages. Individuals
without access to reliable electricity often spend a significant portion of their
income on expensive on fuel-based lighting such as kerosene and candles.

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Practical solutions to this problem are being developed and implemented

around the world. An example of one solution is the Lighting Africa program,
developing commercial off-grid lighting markets in Sub-Saharan Africa as part
of a wider effort to improve access to energy. This program will reduce the
reliance on expense fuel-based lighting and increase energy access by
mobilizing the private sector to provide off-grid lighting to 2.5 million Africans
by 2012 and to 250 million Africans by 2030.
Green Growth and the Importance of the Energy Sector

Why is a transformation of the energy sector so important for a green growth

strategy? There are three main reasons that stand out: the importance of
energy to our economy, the increasing demand for energy, and the large
environmental footprint of the energy sector.

Energy is essential to our modern economy. It is a key input in the production
process for a variety of goods in our economy.
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Due to population and economic growth, global energy demand is increasing

rapidly. This is especially true in the developing world.

By 2035, an estimated 5,900 gigawatts (GW) of new gross capacity are
needed with over 90% of this capacity in the developing world. As a
comparison 2009, global installed power generation capacity was about
5,000 GW.

Cumulative global investment in the power sector is estimated at USD 16.9
trillion 2011 to 2035, an average of USD 675 billion per year.
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The energy sector has a large environmental footprint.

The importance of improving the environmental performance of the energy
sector cannot be understated.

The energy sector is highly dependent on fossil fuels and currently accounts
for 84% of global CO2 emissions.

Consequently, any serious attempt to address climate change must begin
with a full transformation of how energy is supplied and consumed.

In sum, we need to transform the energy sector along green growth
principles because it is a key input in the productive process, the sector is
growing rapidly, and the sector has a large environmental footprint.
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Transforming the Energy Sector: Key Technology Areas

In order to meet the two-degree warming goal, a large scale transformation
of our energy systems is needed, and innovation is central to this
transformation. These are examples of technologies currently available for
reducing global CO2 emissions within the energy sector.
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End-Use Energy Efficiency cover technologies that are based on the simple
concept of using less energy to provide the same level of output or perform
the same task.

The reason end-use energy efficiency technologies are increasingly being
seen as practical solutions are that they avoid the environmental and
economic costs of energy supply and distribution, and reducing the
consumption at the end use provides leverage for reducing emissions from
generation.

Some common examples of these technologies are weatherstripping
buildings, adopting green building principles, and the use of energy control
systems.
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Renewable energy covers a variety of technologies that derive their energy

from renewable sources. These include solar, wind, biomass, hydro, and
geothermal.

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End-Use Fuel Switching involves choosing the most appropriate energy
carrier to supply a given end use while minimizing primary energy
consumption. For example, in most contexts, natural gas is more than twice
as efficient at providing space heating, domestic hot water and heat for
cooking compared to electricity. Consequently, switching to more efficient
fuels for specific end-uses can increase the overall efficiency of the energy
system and reduce the environmental impacts.
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Power Generation Efficiency improvements can increase the output of power
while reducing, or keeping the same, the quantity of inputs. Fuel Switching in
power generation means using less carbon-intensive fuel sources such as
feedstock and biofuel or using natural gas instead of coal.

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In addition to the technologies areas described above, there are several
advanced technologies currently under demonstration that may prove pivotal
in reducing the environmental impacts of the energy sector.

The most well-known of these is Carbon Capture and Storage, or CCS. CCS
captures carbon dioxide from large point sources and stores it in deep
geological formations, in deep ocean masses or in the form of mineral
carbonates. While several examples of CCS have been demonstrated, there
continues to be issues surrounding costs, other environmental effects, and
long term viability.

With these technologies explained, we can now discuss the extent of the
transformation that is needed in the energy sector.

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Transforming the Energy Sector: Scale of Transformation

What is the scale of transformation required in the energy sector?

What is the scale of transformation required in the energy sector? We
answer this question both in terms of greenhouse gas emissions and
investments. In terms of emissions, the energy sectors emissions need to be
reduced by one half by 2050, according to recent analysis by the International
Energy Agency.

Where will these emission reductions come from? The report titled, Energy
Technology Perspectives 2010, outlines the different roles that each of the
technologies is estimated to play in reducing emissions. The graphic presents
a baseline emission scenario and a emissions scenario consistent with the 2
degree Celsius climate goal, the BLUE Map emissions scenario. The BLUE Map
scenario estimates that by 2050, the energy-related CO2 emissions are
reduced in half compared to 2005 levels. Moving from the baseline emission
level in 2050 of 57 Giga tonnes to the goal of 14 Gigatonnes will require a
wide deployment of several key technologies. End-use fuel and electricity
efficiency is predicted to make up the highest share of emission reductions at
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38%, followed by Carbon Capture and Storage at 19%, Renewables at 17%

and End-Use fuel switching at 15%.

In terms of costs, the OECD estimates that the transformation of the energy
sector will require an additional cumulative investment of USD 46 trillion
between now and 2050. This represents a 17% increase on top of baseline
investments in the energy sector. It is estimated that this additional
investment will generate cumulative fuel savings of USD 112 trillion higher
than in baseline.

Key Elements of Green Growth for Energy

A recent paper by scholars at the Brookings Institution suggested four key
elements of a green growth agenda for the energy sector: Innovation,
Integration, Implementation and Energy Transformation. Click on each
element to learn more.

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Identifying the Key Challenges of Green Growth for Energy

We have learned about the important economic and environmental rationale
and key elements of transitioning to green growth in the energy sector. It is
also important to review some of the key challenges.

First, greening the energy sector will require large upfront capital
investments that may not be available in many developing countries.
Financing is a challenge.

Second, green energy often needs to be integrated into the grid. This
sometime poses additional costs for transmission.

Third, the often unpriced costs of traditional energy such as carbon emissions
makes it harder for greener technologies and energy efficiency to compete.

Fourth, new technologies may require a shift in how people behave or
perceive the energy problem
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Throughout the rest of these modules, we will focus on solutions to these

challenges and others as we explore available policy instruments.

The Role of Government

What is the role of governments in promoting green growth in the energy

sector?

It is useful to start with the basic justification for government intervention:
market failures. Market failures arise in situations where private markets do
not result in the socially optimal outcomes.

Market failures exist in the energy sector due to environmental externalities
such as carbon emissions, insufficient investments in clean energy research
and development, uncompetitive markets, and a lack of information on
available green approaches and alternatives. For example, absence a price on
carbon emissions, the private market outcome will produce more carbon
emissions than is socially efficient. Conversely, R&D in clean energy may be
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less than socially optimal because the private benefits from research are less
than the social benefits from research. This is due to the positive spillover
benefits from R&D. Consequently, the private sector will under invest in R&D
in the clean energy sector.

Due to these market failures, transforming the energy sector will require
strong government support.


What type of government support is necessary? The government can

send policy signals, create initial markets, educate and persuade
stakeholders, internalize externalities, and regulate and incentivize
individuals and businesses.

It is important to note that these roles are best viewed as complements and
can be combined to improve the overall effectiveness of public policies.

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What is the role of the government in the policy process? Primarily, the
government will be involved with four main stages of the policy process:
Setting the Policy Objective, Designing the Policy Instrument, Implementing
the Policy, and Data Collection and Policy Evaluation.

After the rationale for public policies had been established, the first step is
setting the policy objective. Essentially, determining what the policy should
try to achieve. The government can develop the policy, or act as a facilitator
for the various stakeholders in defining the objectives of the policy.

A policy may have multiple objectives, but it is important to keep the
objectives simple and clear to provide all the stakeholders with a robust
understanding of its purpose. For example, in assessing the complicated
problem of climate change, the worlds governments have set a policy
objective of keeping the global temperature increase below 2 degrees Celsius
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in comparison with pre-industrial levels. A target that is more directly

achievable for governments may be encouraging a renewable electricity
share of 20%.


Once the objective has been set, the next step is policy design and
instrument choice. Policy instruments are chosen to achieve the objectives of
the policy.

Policy instruments may be assessed on multiple criteria including their
environmental effectiveness, cost, flexibility, feasibility, complementarity to
other existing policies and/or efforts, equity concerns, and co-benefits.

Overall, there is a growing consensus that an important role of public policies
should be to provide signals to consumers and investors; signals that are, to
borrow Nicholas Sterns phrase, clear, credible, and long term.

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But a key issue is what policy instruments are available to governments to

facilitate green growth in the energy sector. The goal of this course is to
answer that question.


Once the policy has been designed and the policy instrument chosen,
implementing the policy is the next step. (cue second animation) This can
present a range of challenges, including economic, technical, political and
social issues.

Depending on the policy instrument, the role of the government during
implementation may range from facilitating information sharing amongst
stakeholders to providing active financing of different energy projects.

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After implementation, the final step is to collect the necessary data and
information for monitoring and evaluate the effectiveness of the policy. This
step will ensure that the policy is being working as intended and allows for
policy refinements and improvements.

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Example: The Role of Government for Fossil Fuel Subsidies Reform

In some cases, existing government policies can undermine the objectives of
green growth. A prime example are existing subsidies on fossil fuels such as
gasoline, diesel and natural gas. The objectives of fossil fuel subsidies are
diverse, and range from using cheap energy to promote industrial growth, to
equalizing energy prices across regions and to helping consumers deal with
rising energy prices. While some of the objectives of fossil fuel subsides
are laudable, such as helping the poor, there is a growing recognition
amongst policy makers of the negative consequences of these
subsidies.First, fossil fuel subsidies have a large economic cost. Global fossil
fuel consumption subsidies totalled $409 billion in 2010 and another $100
billion are spent on fossil fuel production subsidies. Second, these
subsidies are often justified as a means of redistribution, but they are an
extremely inefficient means of assisting the poor. For example, only 8% of the
$409 billion spent on consumption subsidies went to the poorest 20% of the
population. Third, the unintended environmental impacts of fossil fuel
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subsidies are also substantial. It is estimated that removing these subsidies

would reduce CO2 emissions by 7% and reduce global energy demand by
about 6% by 2020.

Fossil Fuel Subsidy Reform

Lets take a look at the results of the fossil fuel subsidy reforms. After reading
the background information, roll your cursor over each question to learn
more.

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References and Further Reading

Now that you have completed this lesson, we invite you to review the
following references.
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Energy Sector Strategies to

Support Green Growth

Green Growth and Energy: an Introduction

The Rationale for an Energy Sector Transformation

Energy Sector Strategies to Support Green Growth

About this Presentation

This introductory presentation provides a brief overview of green growth in

Energy Sector Strategies to Support Green Growth

A Framework for Green Growth

Energy Sector Strategies to Support Green Growth

context, a number of multilateral institutions, policy makers and researchers

So, what precisely is green growth? Green growth refers to a focus on

Energy Sector Strategies to Support Green Growth

Environmentally sustainable refers to respecting the Earths carrying capacity

Energy Sector Strategies to Support Green Growth

Energy Sector Strategies to Support Green Growth

Energy Sector Strategies to Support Green Growth

Energy Sector Strategies to Support Green Growth

Energy Sector Strategies to Support Green Growth

Energy Sector Strategies to Support Green Growth

Green Growth Challenge: Decoupling Environmental Impacts

Energy Sector Strategies to Support Green Growth

The Economic Rationale for Green Growth

Continuing business as usual economic growth has substantial

Energy Sector Strategies to Support Green Growth

The Economic Rationale for Green Growth

Energy Sector Strategies to Support Green Growth

The Economic Rationale for Green Growth

Energy Sector Strategies to Support Green Growth

The Economic Rationale for Green Growth

Energy Sector Strategies to Support Green Growth

The Economic Rationale for Green Growth

Energy Sector Strategies to Support Green Growth

The Economic Rationale for Green Growth

Energy Sector Strategies to Support Green Growth

What Green Growth Means in Different Countries

Energy Sector Strategies to Support Green Growth

What Green Growth Means in Different Countries

Energy Sector Strategies to Support Green Growth

Practical solutions to this problem are being developed and implemented

Why is a transformation of the energy sector so important for a green growth

Energy Sector Strategies to Support Green Growth

Green Growth and the Importance of the Energy Sector

Due to population and economic growth, global energy demand is increasing

Energy Sector Strategies to Support Green Growth

Green Growth and the Importance of the Energy Sector

The energy sector has a large environmental footprint.

Energy Sector Strategies to Support Green Growth

Transforming the Energy Sector: Key Technology Areas

Energy Sector Strategies to Support Green Growth

Transforming the Energy Sector: Key Technology Areas

Energy Sector Strategies to Support Green Growth

Transforming the Energy Sector: Key Technology Areas

Renewable energy covers a variety of technologies that derive their energy

Energy Sector Strategies to Support Green Growth

Transforming the Energy Sector: Key Technology Areas

Energy Sector Strategies to Support Green Growth

Transforming the Energy Sector: Key Technology Areas

Energy Sector Strategies to Support Green Growth

Transforming the Energy Sector: Key Technology Areas

Energy Sector Strategies to Support Green Growth

Transforming the Energy Sector: Scale of Transformation

What is the scale of transformation required in the energy sector?