1 SA3
i E N V            I R  O N M E N T
tA   t3        ~~D E P A R T M E N T
_t ^         PA PERS                            PAPER NO. 016
TOWARD ENVIRONMENTALLY AND SOCIALLY SUSTAINABLE DEVELOPMENT
. POLLUTION MANAGEMENT S E R I E S
sustainable Energy
Development (SED):
Issues and Policy
Mohan Munasinghe
June 1995
Environmentally Sustainable Development     The World Bank
ESD



rX            Pollution & Environmental Economics Division
Sustainable Energy
Development (SED):
Issues and Policy
Mohan Munasinghe
June 1995
Papers in this series are not formal publications of the World Bank. They are circulated to encourage thought and discussion.
The use and citation of this paper should take this into account. The views expressed are those of the author and should not
be attributed to the World Bank.



Contents
Acknowledgments   iii
1. Energy, Environment and the Economy: The Nexus    1
Current Status   1
Future Economic Growth and Energy Needs   2
2. Key Role of the Electricity Sector   5
Electricity and the Developing World   6
Power Sector Problems and Investment Needs in DCs   7
Electricity, Environment and Regional Concerns   9
3. The Need For Sustainable Development   13
Economic, Environmental and Social Approaches   13
National Issues   15
Transnational Issues    18
Global Issues   18
4. A Framework for Sustainable Energy    21
Integrated Approach   21
Identifying Sustainable Energy Options: "Win-Win" Options vs. Tradeoffs  23
Improving Energy Efficiency   26
Implementing Environmentally More Benign Technologies   30
Price Reform   31
Institutional and Regulatory Reform   32
SED Options Matrix   34
5. Sustainable Energy Development: A Case Study of Sri Lanka    37
Environmental Issues   37
Methodology   38
Application to the Sri Lanka Power Sector   40
Some Illustrative Results  42
6. Conclusions    47
References    49



Sustainable Energy Development
Tables
1. Average Annual Growth Rates of Energy Demand and GDP   2
2. Electricity Demand And Its Share In Total Primary Energy   5
3. Growth Trends in Electricity, Energy and Economy   6
4. Electricity Fuels Share in Total Primary Energy   7
5. CO2 Emissions From Energy Use   9
6. SED Options Matrix   35
Figures
1. Past and Future Energy Demand   3
2. The Economic, Social and Environmental Dimensions of Sustainable
Development   14
3. Conceptual Framework for Sustainable Energy Development   22
4. Complementarities and Tradeoffs Among the Three Main Dimensions of
Sustainable Development   25
5. Three Scenarios of Emissions from Electricity Generation in Developing
Countries, 1990-2030   29
6. General Methodology for Environmental Analysis of Power Systems 39
7. Cost Versus Health Impacts   43
8. Cost Versus Biodiversity Impacts   44
ii                                                              Environment Department Papers



Acknowledgments
An earlier version of this paper was presented  The author is deeply grateful to Vittal
at the International Conference on Energy,    Anantainula, Asitha Sandanaychke and Noreen
Environment and Economy, Taipei, August       Beg for assistance in preparing the paper.
1994.                                         Thanks are also due to Karen Danczyk for
editorial support.
iii



Energy, Environment and the Economy: The
Nexus
The state of the environment is a major    growth and human well-being. Economic growth
worldwide concern today. Pollution in      prior to the 1970s was always accompanied by a
particular is perceived as a serious threat in  corresponding global increase of demand for
the industrialized countries, where quality of  energy. As a direct consequence of the oil price
life had hitherto been measured mainly in  increases, decoupling between economic growth
terms of growth in material output. Mean-  and energy demand growth was achieved in the
while, environmental degradation has be-   mature economies of industrialized countries
come a serious impediment to economic      (ICs) which were able to reduce energy wastage
development and the alleviation of poverty in    relatively easily and also achieve a better energy
the developing world. The growing evidence  management by restructuring and through energy
of environmental problems is due to a combi-    efficient technologies. Such decoupling was not
nation of factors. Over the last three decades  observed in developing countries (DCs). As DCs
the environmental impact of human activities  are still in the early stages of economic develop-
has grown considerably due to the increase in  ment and have higher growth rates, there is a
economic activity, population and per capita  much closer linkage between economic growth
consumption.                               and energy consumption than in industrialized
countries (Munasinghe 1991).
Among the human activities that cause
changes in the environment, those associated  Current Status
with the energy sector have great impact.
Energy production, conversion, transporta-  At present developing countries comprise 77
tion and utilization have been and continue to    percent of the world's population but utilize only
be a primary source of local, transnational  a quarter of the world's energy. A majority of this
and global pollution. The environmental    population have little or no access to any form of
effects of energy are: groundwater and air  commercial energy. A large proportion of the DCs
contamination; land degradation and changes  population live in rural areas and continue to rely
in use; marine and coastal pollution; ecosys-  heavily on traditional biomass fuels such as wood,
tems destruction and loss of biodiversity;  crop waste and animal dung. OECD countries, in
damage to health, synethic structures and  contrast, consumed over half the world's energy
natural systems from SO2 and NO. and ash   and nearly six times more energy per person than
particulates which degrade air quality; and  did developing and CEE/CIS countries. However,
finally, greenhouse gas emissions which may  energy demand has been growing rapidly in the
have long-term implications for the global  developing countries in the past fewdecades
environment.                               (Table 1). In the last decade alone, the rate of
growth of DC energy consumption has been about
Despite such problems, however, energy     six times that of the OECD countries and twice the
services such as heating, refrigeration, cook-  average world growth rate.
ing, lighting, communications, motive power
and electricity are essential for economic
1



Sustainable Energy Development
The rapid growth in energy demand in DCs      Future Economic Growth and Energy
(driven primarily by economic expansion,      Needs
population growth, urbanization, the increasing
penetration of energy-using products, and the  The world economy is expected to continue to
transition from traditional energy sources to  grow at a healthy rate over the next few
commercial sources) has surpassed the growth in   decades. The World Bank estimates the GNP of
energy production and power generation capaci-   large industrialized countries (ICs) to grow at
ties, thus creating shortages in primary fuels and    an average rate of 2.7 percent annually over the
electricity. To meet this rising energy demand,  1994-2003 period and that of DCs to grow at
DCs require tremendous financial resources. In  4.8 ercent annuall over the same eriod with
addition to the economic burden, environmental    above average growth in East and South Asia
degradation associated with an expanding     (7.6 percent and 5.3 percent respectively). The
energy sector compound the energy-related     prospects for economic growth in DCs prompt-
problems in DCs.                             ing a similar increase in energy demand are
The crucial dilemma for the developing world is    obvious.
how to reconcile development goals and the    The world's population is expected to grow by
elimination of poverty, which will require    3 billion during the period 1990-2020, with
increased use of energy and raw materials, with  ninety percent of the increase taking place in
responsible stewardship of the environment.   DCs. Onlv eight countries are expected to
This has to be done without overburdening their    a
already weak economies. Hence, the challenge  and a significant portion of global energy
facing DCs today is meeting the rising energy  demand gronth, over the next 30 years: India,
demand in a manner that will not absorb inordi-
nate amounts of investment, which in turn     China, Pakistan, Bangladesh, Brazil, Indonesia,
would divertfunds ofrm msthen  worthy develop-    Mexico, and Vietnam (WDR 1992 and WEC
would divert funds from other worthy develop-  1993). According to the WEC "high-growth"
ment goals, such as poverty alleviation and the  case, Acord     to thergy  "high-growth"
proviion o eductionand halth are.case, world primary energy consumption is
provision of education and health care.       estimated to double to roughly 17.2 Mtoe
Table 1
Average Annual Growth Rates of Energy Demand and GDP
Erg                                  Econonic Growth-
--Year   OECD   D-.QC     C&EEs    world -     OECO ECD-           s     Wrd
1961-70    5.0     4.1      5.2       4.8        4.7     4.7      5.2       1.7
1971-80    1.8     4.7      3.4       3.0        3.2     4.8      3.4       1.5
1981-90    0.8     4.7      2.2       2.3        2.9     5.6       1.3      3.8
Sources: WEC 1992.
Khatib & Munasinghe 1992.
2                                                             Environment Department Papers



Energy, Environment and the Economy: The Nexus
(megatons of oil equivalent) in the next 30 years,    almost double to 60 percent during the same
with almost 90 percent of the growth coming   period.The International Energy Agency (IEA)
from the DCs (see Figure 1). Under this sce-  has forecast that through the year 2010, world
nario, the share of total energy consumption  energy use will grow at an annual rate of 2.1
accounted for by the OECD will have fallen    percent, with East Asian countries energy use
from over 5.Q percent in 1990 to under 30     growing at more than 4 percent (World Energy
percent by 2020, while the share of DCs will  Outlook, OECD, 1994).
Figure 1
Past and Future Energy Demand (Mtoe)
18
16 
14 
12-
0  0 10                                                  0    OECD
8                                                            CEEICIS
6-D
4-
2
I960     1970       1980      1990    *2020
Source: World Energy Council 1992,
3






2Key Role of the Electricity Sector
Electricity is clean, versatile, easily accessible  Electricity has not only transformed the quality of
and simple to distribute. It is also essential to  life and work, but also created one of the largest
maintain a reasonable quality of life, and for  industries, with worldwide revenues estimated at
sustainable development. Due to this phe-     more than $800 billion in 1992 (Flavin and
nomenon, electricity is gaining a larger share  Lenssen 1993). Thus, in addition to its widely
of energy in final use and the demand for it is  recognized role as a catalyst to economic activity
increasing worldwide at almost twice the rate  in other sectors, the electricity sector itself makes a
of demand for primary energy. Currently, the  direct and significant contribution to the economy.
worldwide electricity demand is increasing
at a rate of over 3.6 percent annually, which  Despite a general recognition of the indispensable
is slightly higher than the world's economic  nature of electricity, one third of the world's
growth rate, twice the population growth      population is still deprived of access to electricity,
rate and more than 1.5 times that of global   mostly in developing countries. The ICs are the
commercial energy consumption. Presently      most electricity intensive, containing 16 percent of
fuels for electricity production are claiming  the world population and consuming almost 60
36 percent of total energy demand and in the  percent of the globe's electricity. On average,
next thirty to forty years, more than half the  developing countries use only 500 KWh of elec-
world's primary commercial energy sources     tricity per capita per year compared with more
would be utilized in electricity production.  than 5000 KWh in Europe and more than 10,000
KWh in the USA (World Bank 1992).
Table 2
Electricity Demand And Its Share In Total Primary Energy
1990 (actual)               2000                           2020
OECD    6800        41       8600        -       2.40      10900     49.0       1.2
DCs     2630       30       5050        -       6.75      12000     47.3       4.5
C&EEs    2270       34        2850       -       2.30      3700      50.0       1.2
World   11700       36       16500      -        3.20     26600      48.3       2.4
Source: Khatib and Munasinghe 1992.
5



Sustainable Energy Development
Electricity and the Developing World                 sumption increasing over thirteen fold since
1960. During this period electricity consump-
Of the various forms of energy, electricity is       tion has grown at a rate which is over 1.5 times
particularly important in the context of the        the rate of energy consumption and economic
developing world. The provision of electricity       growth (Table 3).
greatlv enhances the quality of life in DCs
particularlv for the poor. It improves health        A direct relationship between electricity and
standards, and assists in education and in           economic growth cannot be deduced as easily
motivating people. Rural electrification (RE)        as in the case of total energy. This is mainly
also helps to retard migration from rural areas      because electricity growth depends not only on
to cities and enhances opportunities for income      economic growth, but also on the substitution
generation and employment in rural areas. To         of electricity for other commercial and non-
the extent that it displaces less efficient and      commercial energy. Such a substitution de-
more environmentally damaging fuels, electric-       pends on the cost and productivity of electric-
ity is essential for sustainable development.        ity use compared to other commercial fuels,
Hence, given the vital role electricity plays in     and also on the changes in quality and style of
the development process, the future prospects       life. In the more developed OECD countries,
for economic growth are closely linked to the        such substitution decreases as more energy
provision of adequate and reliable electricity       uses are shifted into electricity use, moving the
supplies. Electricity demand in DCs grew very        share of electricity in final energy to saturation.
rapidly over the past three decades with con-
Table 3
Growth Trends in Electricity, Energy and Economy
Electricity growth              Electricity/GDP
Year      OECD       DC       Woeld       OECD        -C E. W6rld
1961-70      5        4.1       4.8          1.6        2        4.7
1971-80      1.8      4.7        3           1.3        2        3.5
1981-90     0.8       4.7       2.3          0.9       2.2       2.7
1991-2020    0.7       4.2       2.2          0.7       0.9       0.7
Energy/GDP                     Electricity/Energy
. Year    n : OECD_    DC     Worl-.      OI) -   .  -ii.ld
1961-70      1.1       09       2.8          1.5       2.3       1.7
1971-80      0.6       1        0.5          2.4        2        1.8
1981-90      0.3      1.3       0.6          3.1       1.8       1.5
1991-2020     0.3      0.8       1.7          2.3       1.2       1.2
Source: Munasinghe 1991.
WEC 1992.
6                                                                     Environment Department Papers



Key Role of the Electricity Sector
Table 3 shows an interesting contrast between  assuming no drastic changes in the past trends
electricity demand and economic growth in      with respect to demand management and
OECD countries and DCs. Owing to the           conservation, the World Bank estimates that the
decoupling of economic growth from energy      demand for electricity in DCs will grow at an
demand in the 1970s, the ratio of electricity  average annual rate of 6.7 percent in the 1990s
growth to economic growth in OECD countries    (Table 2). This compares with actual growth
steadily declined. Developing countries which  rates of 10 percent and 8 percent in the 1970s
still have a long way to go in satisfying their  and 1 980s respectively. Such rates of growth
basic electricity needs showed a very high     indicate the need for large additions in capacity.
electricity/economy growth relationship in the  The Asia Regions requirements dominate with
past three decades. While it is evident that there  almost two-thirds of the total, and coal and
is a trend in OECD countries to decouple       hydro are the primary sources- both which
economic growth from dependence on in-         have specific environmental problems associ-
creased electricity consumption, in developing  ated with their use (Munasinghe 1992).
countries the electricity/economy ratio will
remain relatively high. Developing countries   Power Sector Problems and Investment
will require more electricity in the future and  Needs in DCs
this growth in demand is influenced by the
electricity share in their economies and energy  Currently industrial and residential electricity
demand, as well as by their economic growth.   demand in DCs have exceeded their power
Table 4 outlines this relationship. From the   generating capacities, resulting in frequent
table it is clear that the growing share of    power shortages and blackouts. Power short-
electricity fuels in total energy is increasing, but  ages in any country affect it in two ways: they
at a declining rate. This growth will continue  handicap productive activities and delay social
until electricity reaches a point beyond which it  development. On the output side, electricity
cannot fully replace other fuels (Khatib and   shortages disrupt production. For India the cost
Munasinghe 1992).                              of power shortages to the industrial sector has
been estimated at 1.5 percent of GDP and in
Given the benefits of electricity and its impor-  Pakistanat 1.8    percent   of aD Mnasin
tance to the developing world, the demand for
electricity can only grow. In the medium-term,  1992). Power shortages also discourage inves-
Table 4
Electricity Fuels Share in Total Primary Energy (%)
1970         32            27          18           29
1980         38            32          25           34
1990         41            34          31           36
Source: Khatib and Munasinghe 1992.
7



Sustainable Energy Development
tors by affecting production and requiring more  trillion (in current terms) to finance future
investment for on-site electricity production or  capital investments. In comparison with the
standby supplies. This not only requires more    total projected annual requirement for DCs of
investment by entrepreneurs in DCs where         $100 billion for the early 1990s, the present
capital is already limited, but it also distracts  annual rate of electricity related investment in
investors from their main productive activity. It  developing nations is only around $50 billion.
would (for small investors) increase the cost of  Even this present rate is proving difficult to
operation, since electricity from small private  maintain. Developing country debt, which
generation is more expensive than public          averaged 23 percent of GNP in 1981, increased
national supplies (Munasinghe 1990b).             dramatically to 42 percent in 1987 and, although
it has since declined to 37 percent due to
Structural, institutional and financial problems  improved economic performance and trade
further exacerbate the already inadequate         conditions, is still significant (World Bank,
electricity supply in DCs. Poor operating         1992). Capital-intensive power sector invest-
performances, poor maintenance of plants,         ments have played a major role in this observed
technical and non-technical transmission and      increase. Investments required to meet growth
distribution system losses and high fuel con-     of demand for energy in DCs will rise to an
sumption have resulted in high energy wastage     average of $200 billion per annum in the late
and economic losses. Poor maintenance prac-       1990s, or 4 percent of GDP. Added to this,
tices account for some of the low availability of  private investors are reluctant to re-enter those
power generating capacity, which averages less    DCs that continue to experience difficulties in
than 60 percent for thermal plants in DCs,       servicing their foreign debt (Saunders and
compared with more than 80 percent in devel-     Gandhi 1994).
oped countries (World Bank 1994). In DCs,
power plants consume 15-30 percent more fuel      The future expansion of the power sector in DCs
per unit of electricity than that of ICs (WRI     also has serious environmental impacts to meet
1994). Transmission and Distribution system      the growing demand. WDR estimates indicate
losses represent a loss to DCs of about $30      that, under the worst scenario, emissions of
billion a year through increased supply costs     pollutants from electric power will rise tenfold
(Saunders and Gandhi 1994). Inadequate tariffs   bv 2030. In addition to the basic investments
due to governmental policies and poor revenue    mentioned above, the World Bank, in the 1992
collection due to inadequate metering, as well   WDR, estimates incremental investment for
as poor accounting and billing, have led to large  energy-related environmental management
financial losses and difficulties in raising     programs in DCs in 2000 as follows:
investment capital. While institutional building
(training of power utility staff, modernization)  *$2 billion for controlling particulate matter
has continued to progress, conflicts between     emissions from coal-fired power stations.
government's role as owner and its role as
operator of utilities, have affected sector perfor-  *$5 billion for reducing acid rain deposition
mance. Opaque command and control manage-        from new coal-fired stations.
ment of the sector, poorly defined objectives,
government interference in daily affairs, and a   *$10 billion for switching to unleaded fuels,
lack of financial autonomy have affected         and for implementing controls on the main
productive efficiency and institution perfor-    pollutants from vehicles.
mance (World Bank 1992).
*$10-15 billion for reducing emissions, effluents
To accommodate the projected growth in           and wastes from industry.
electricity demand, assuming no major gains in
energy efficiency, DCs will require about US $1
8                                                                 Environment Department Papers



Key Role of the Electricity Sector
*$3-4 billion per year by the end of the century  Electricity, Environment and Regional
would enable a major program of research,
development, and demonstration projects for     Concerns
renewable energy to be undertaken.
Although electricity is relatively benign in use,
Controlling emissions of particulates will raise  the generation of electricity is one of the world's
investment costs by about 1 percent, or 0.04    major environmentally damaging activities.
percent of GDP. In areas where controls on      While the energy sector contributes 49 percent
sulfur dioxide and nitrogen oxides are neces-   of greenhouse gases, electricity generation alone
sary, a further 5-15 percent of capital costs (or  produces more than 25 percent of energy-
0.5 percent of the regions' GDPs) would be      related carbon dioxide emissions. During the
incurred if low-sulfur coal or natural gas were  past 20 years, half of all increases in energy-
not available. With these investments, DCs will  related carbon dioxide emissions were from
be able, in 2030, to produce ten times as much  electricity (Energy Analysis Program 1991).
electric power as today, with lower emissions of  Most of the growth in world carbon dioxide
eletrticulater asntodacid rain-causithnr e onts. o emissions from 1971 to 1990 is due to the CEE
particulates and acid rain-causing pollutants.  and developing countries (Table 5).
Taking account of the impact of energy effi-
ciency and environmental considerations, the    Despite alternative energy sources such as
WEC (1993) estimates a broad order of magni-    wind, solar, and biomass, the largest segment of
tude figure for the cumulative investment       new electricity in the world is projected to come
requirements (at 1992 prices) of the world's   from coal firing in the next several decades, and
requirenergyeindus(atry992 overi  the ntwent o  this will bring related environmental problems
energy industry over the next twenty-five to    along with it (U.S. Industrial Outlook 1994).
thirty years at around $30 trillion. By compari-
son world GDP in 1989 was approximately $20     The expected growth of electricity generation in
trillion. The WEC estimates that the DCs could  DCs escted prously    genera
be investing in excess of $2 trillion (at 1992  DCs described previously is confronted by a
prices) annually by the year 2020; over 50      variety of technological, economic, and environ-
percent of world annual energy investments,     mental problems. Although the electric power
About $1.2 trillion annually will be needed to  sectors in industrialized nations are concerned
raise energy efficiency and environmental       with environmental problems related mainly to
standards in the former USSR to the average     generation, in many DCs environmental issues
level of the OECD.                              are not considered such a high priority. The
Table 5
CO2 Emissions From Energy Use
1971    4380    2427        -        -        -
1980    5500    2750    1570       1180     37%
1985    5800    2640    1700       1460       -
1990    6550    2900    1700       1950     39%
Source: Various IPCC Reports.
9



Sustainable Energy Development
problems of the electricity sectors in the devel-  their growing economies and the improvements
oping world differ among regions and countries    in people's living standards. China and India,
(Winje 1991).                                  which have almost 37 percent of the world's
population (mostly rural and poor), are cur-
Africa                                         rently following a path of economic reform and
will continue to depend on coal for electricity
Many African nations import oil, and indig-    generation over the next two decades. There-
enous commercial energy resources play a small    fore, these nations will continue to be the largest
role in domestic electric power generation. This  regional sources of transnational and global
practice has worsened the debt situation in    environmental problems in the future. With an
these countries. In much of Africa, existing   increasing awareness of regional and global
electricity systems are isolated, and consist of  environmental impacts of coal combustion, both
small generation units that have low efficiency  China and India are increasingly searching for
and reliability. Therefore, the demand for     ways to minimize environmental impacts of
electricity usually exceeds supply. Confronted  power generation while focusing on problems
with these basic problems, many African        such as inadequate supplies of electricity for
governments are concentrating mainly on        economic growth and to improve living stan-
improving and expanding existing systems, and  dards of poor rural populations. Another
believe that environmental issues in the power  major problem facing countries in this region is
sector are relatively unimportant. Therefore, in  the loss of power in transmission and distribu-
this region, there is an urgent need for the   tion. When compared to the typical rates of 6-8
development of national and regional electricity  percent in the industrialized countries, these are
master plans, with assistance from industrial-  enormous: China, 16 percent (UNICEF 1993);
ized nations (Winje 1991). In many parts of    India, 22 percent; Pakistan, 28 percent;
Africa there is substantial hydroelectric poten-  Bangladesh, 31 percent; South Korea, 12
tial, but its exploitation has been subject to  percent; Sri Lanka, 18 percent; and Thailand
many environmental and social problems         and the Philippines, 22 percent each. In contrast,
(Akosombo Dam in Ghana, Aswan Dam in           the United States and Japan had corresponding
Egypt).                                        values of 8 percent and 7 percent respectively
(Munasinghe 1991).
Asia
Apart from the above problems, nations in the
The consumption of commercial energy in        region suffer from inefficiencies resulting from
developing countries in the Asian region grew  inadequate pricing and excessive governmental
rapidly in the last two decades. Between 1980  interference.
and 1992 energy consumption grew at an
annual rate of 5.6 percent in east Asia and the  Latin America and the Caribbean (LAC)
Pacific and 6.8 percent in south Asia. While the
dependence of oil has decreased in many        Electricity generation in the LAC region is
countries, the use of coal, an abundant resource  distributed evenly between hydroelectric and
in the region, has increased especially in China  thermo-electric plants. The development of the
and India. China is currently the world's largest  power sector in many nations has been over-
coal producer with an output of 1082 Mt        shadowed by the general debt problem in Latin
followed by India. The consumption of coal is  America. In spite of this, the environmental
expected to increase rapidly in the next two   impact of electricity supply has been given
decades. Although the percentages of electricity    increasing attention in the last 10 years. Many
generated from coal are 92 percent for China   countries have begun to consider the environ-
and 70 percent for India, current electricity  mental impacts of mining fossil fuels and
generation is inadequate to meet the needs of  constructing large hydropower and thermal
I10                                                             Environment Department Papers



Key Role of the Electricity Sector
power plants. In some cases reforestation        ratios. Many of the above factors have also
projects are now required by law. Concerted      resulted in the emission of high levels of sulfur
international action in Latin America will       dioxide, nitrogen oxides, and total particulate
ensure the development of an efficient electric-  matter. Cooperation with industrialized nations
ity system in a sound environment (Winje 1991).    is needed to enable measures such as restructur-
ing the fuel mix in the power sector, and
Eastern Europe (EE) and Former Soviet            implementing stack gas cleaning equipment, to
Union (FSU)                                      occur (Winje 1991). Technology could be one
solution to lower energy intensity levels.
EE and FSU countries consume a larger amount     Historically, such technical advances have led
of primary energy and electricity than industri-  to large reductions in the amounts of energy
alized countries in terms of energy intensity.   required for any given economic activity - for
Their electricity intensity is two to three times,  example, the electricity required to produce a
and the energy intensity is three to four times,  ton of aluminium has declined steadily since the
higher than that of developed nations. This is  last century.
mainly the result of the existence of vast energy
resources in the region, which were made         In Central Asia, another area of high hydroelec-
available at highly subsidized prices. The      tric potential, electricity planning is made
inefficiency of energy generation, the poor      difficult by conflicts with irrigation and by the
quality of commonly used energy carriers such    problems faced by the newly independent states
as coal and lignite, and the large portion of    in continuing development towards an inte-
primary industries, contribute to these high     grated system.
11






3 The Need For Sustainable Development
The increasing level of environmental pollu-  scarce resources. Problems of interpretation arise
tion in both industrialized and developing   in identifying the kinds of capital to be main-
countries as well as resource depletion, have  tained (for example, manufactured, natural, and
led to a recognition of the need for ICs and  human capital) and their substitutability, as well
DCs to find a less material intensive develop-  as in valuing these assets, particularly ecological
ment path. In the past, industrial countries  resources. The issues of uncertainty, irreversibility
that faced a tradeoff between economic        and catastrophic collapse pose additional difficul-
growth and environmental preservation        ties (Pearce and Turner 1990).
invariably gave higher priority to the former.
These richer countries have only recently     The environmental view of sustainable develop-
awakened to the environmental consequences    ment focuses on the stability of biological and
of economic progress. This model of economic  physical systems. Of particularly importance is
and social development has been adopted by    the viability of subsystems that are critical to the
many third world regions. However, an         global stability of the overall ecosystem (Perrings
increasing awareness by both ICs and DCs of   1991). Protection of biological diversity is a key
the consequences of following such a path     aspect. Furthermore, "natural" systems may be
have led them to explore the concept of       interpreted to include all aspects of the biosphere,
sustainable development. This is an approach  including human-created environments like cities.
that will permit continuing improvements in   The emphasis is on preserving the resilience and
the present quality of life at a lower intensity  dynamic ability of such systems to adapt to
of resource use, thereby leaving behind for   change, rather than conservation of some "ideal"
future generations an undiminished or even    static state.
enhanced stock of natural resources and other
assets.                                       The social concept of sustainability seeks to
maintain the stability of social and cultural
Economic, Environmental and Social            systems, including the reduction of destructive
Approaches                                    conflicts (UNEP et al. 1991). Both intra-genera-
tional equity (especially elimination of poverty),
Sustinabedvsthree key  and inter-generational equity (involving the rights
Suementstainableodev entironmental hasof future generations) are important aspects of
eocalees-economic, 2)The enonmet and         this approach. Preservation of cultural diversity
social (see Figure 2). The economic approach  acostegb,anbterkwldeocrig
to sustainability is based on the Hicks-Lindahl  esstainblee  raies embedded inoless conceming
concept of the maximum flow of income that    cultures,
. .  cuturesshould be pursued. Modern society
could be generated while at least maintaining  wulduneed to enurage        smcand
the stock of assets (or capital) which yields  would need to encourage pluralssm  and
these benefits (Solow 1986, Maler 1990). There  strengthen empowerment and grass roots partici-
is~~~~~~~~ an uneligcnet.fotmltn        pation into a more effective decisionmaking
iscanounde ryiconce    optimatity and         framework for socially sustainable development.
economic efficiency applied to the use of
13



Sustainable Energy Development
Figure 2
The Economic, Social and Environmental Dimensions
of Sustainable Development
ECONOMIC
0
E* fficiency
* Growth
* Stabitity
* Poverty                                     Biodiversity/Resilience*
i    * Consultation/Empowerment                          Natural Resources     4
• Culture/Heritage                                         Pollution-
0  inter-generational equity
SOCIAL                      * popular participation                   ENVIRONMENTAL
Source: Munasinghe 1993a.
14                                                                Environment Department Papers



The Need for Sustainable Development
Given the foregoing three criteria for sustainable,    disease, toxicity and cancer. Disposal of solid
development, the rapidly increasing demand tfor i waste leads to. health risks associated with
energy, particularly electricity, in the DCs, aand    . leachate and groundwater contamination.
the corresponding increase in investment re-      Natural gas-fired plants pose a public health
quirements, the need for a comprehensive and:     risk from nitrogen oxides and particulate
integrated conceptual framework for analysis     . emissions, but are significantly less hazardous
and decisionmaking is evident. Sustainable  .     to health in comparison with oil- or coal-fired
energy options may be identified by using ax      plants. Coal mining, transportation and
framework that takes into account multiple        washing also have substantial adverse impacts
actors, multiple criteria, multi-level  'on environment.
decisionmaking, and many impediments and
constraints. However, any discussion of a        i The contribution of fossil fuels to carbon
framework within which to define sustainable     . dioxide emissions depends on the carbon
energy options would be incomplete without a     'content of the fuel. Fuel oil emits 87.7 percent
delineation of the environmen'tal' and social'    as much carbon dioxide as coal, and natural
implications of energy use. They can be broadly   gas only 58 percent for the same thermal
categorized into national, transnational and .    content. Without control or treatment, coal
global issues.                                    emits more particulate matter (PM), sulfur
dioxide, and nitrogen oxides, than any other
National Issues                                   fuel. While PM emissions in the case of oil and
gas are negligible, coal emits almost 10 percent
National environmental and social issues arising . ofits oil equivalent in weight as ash and other
from energy use are mainly related to electricity  matter. Sulfur dioxide emissions depend on
generation. While electricity has relatively few -  sulfur content of the fuels, while emissions of
environmental and health consequences at the   X   nitrogen oxides are not significantly different
point of end use, the same cannot be said for     between fuels, with gas emitting only two-
electricity generation. The extent and nature of,  thirds that of coal.
impacts, however, differ among energy sources.
Oil- and coal-fired plants not only have national   . - Nuclear Plants
impacts but also regional and global environ-
mental and health effects. Even sources like wind  Nuclear fission reactors, currently producing
power, geothermal energy, and ocean energy,   .   . almost 17 percent of electricity worldwide,
which are perceived to be "clean," have some      were intended to replace fossil-fueled capacity
negative impacts on the surroundings. The        in the medium-term. Safety concerns, driven
environmental and social consequences of some     by iaccidents at Three Mile Island and
typical energy sources are described below.       Chernobyl, have contributed to the current
status of nuclear energy as neither politically
Fossil-fired Plants                               nor economically attractive in many countries.
However, in a few countries, such as France
In the case of oil- and coal-fired plants, a signifi-  arnd Japan, nuclear reactors are used exten-
cant public health risk results from exposure to  sively. Though nuclear energy has the advan-
the large amounts of gaseous and solid wastes'    tage that it emits none of the atmospheric
discharged in the combustion process. These       pollutants of concern with 'fossil fuel technolo-
emissions include sulfur dioxide, carbon mobrox- . ' gies, the fission reaction does generate long-
ide, nitrogen oxides, hydrocarbons, polycyclic .  lived highly radioactive wastes; their ultimate
organic matter, and in the case of coal, additional    disposal is extremely controversial. Nuclear
pollutants include fly ash, trace metals, and   ' power also causes groundwater contamination.
radionuclides. The presence of these pollutants  ' It is more capital intensive than fossil fuel
leads to increased incidence of respiratory
15



Sustainable Energy Development
power generation. There is also a great deal of  South Asia and South America. Furthermore, still
controversy about the true cost of nuclear    water reservoirs create ecological environments
power.                                        favorable to the spreading of parasitic and
waterborne disease. Decades of experience have
Studies indicate that occupational health risk,  been developed internationally with mini and
which may have inter-generational conse-      micro-hydro schemes that cascade many small
quences, exists from exposure to radiation.  run-of-the-river turbines. These designs are
Pubiic health risks result from exposure to   becoming a visibly popular means for providing
low-level radiation from power production,   local power supply and irrigation without the
waste storage and waste disposal. High        massive environmental and social impacts that
exposure to radiation is possible in the event  have plagued some large hydro schemes. Micro-
of major accidents, with potential long-term  hydro projects are currently underway in India
health implications. While actual public risk  and Malaysia and other DCs. These projects also
may be relatively small, public fears of risks  have the advantage of providing electricity to
from nuclear plants and waste disposal sites  rural areas beyond the central grid.
are extremely strong and cannot be dismissed
(often based on risk- averse reactions to     Hydropower plants have many other advantages
potentially catastrophic but rare accidents).  which include longer service life, lower staffing
requirements, operational flexibility, reliability,
Hydroelectricity                              and fast response time to changes in demand.
Nineteen percent of worldwide electricity is  Solar Energy
produced currently by flowing water, mostly
in large hydroelectric dams that utilize      Direct solar radiation is another vast potential
reservoirs or natural steep drops and water-  energy source for electricity generation. Ad-
falls. Since the capital investment require-  vances in solar thermal technologies and direct
ments for large hydroelectric schemes are     electricity generation by photovoltaics (PV) have
significant, many sites in DCs must compete  reduced costs significantly over the past decade
for scarce capital. Hydroelectric power utilizes    (Ahmed, 1994). While these techniques pose no
a renewable indigenous resource without       significant occupational and health risks at the
producing air emissions or radioactive wastes.    generation stage, some environmental impacts of
However, this technology is not entirely      solar thermal generation, may arise from the loss
environmentally benign. Hydroelectric power   of land use resulting from its high land intensity.
generation has primarily local environmental  Solar energy is constrained by its limited applica-
and social consequences. These consist of the  bility.
damage caused by dam construction: destruc-
tion of habitats and loss of local/national   Geothermal Energy
biodiversity, the inundation of productive
land and forests, siltation, and possibly the  Geothermal energy is harnessed in several
loss of cultural sites and mineral resources.  countries (for example, the United States and the
Water shed disturbance sometimes leads to     Philippines) by using geothermal steam to drive
increased flooding, and low flow in the dry  steam turbines. Cost competitive exploitation of
season. (On major river systems, this can have  geothermal energy with current technology
transnational consequences causing significant    largely limited to the volcanically active Pacific
political and social unrest over water rights).  "Ring of Fire" and the Mediterranean, where
suitable steam reservoirs are located within one
Such environmental and social impacts of
hydropower projects have recently led to
public protest against proposed projects in
16                                                              Environment Department Papers



The Need for Sustainable Development
mile of the surface. Geothermal steam carries  technologies for waste incineration do not emit
with it a number of atmospheric pollutants    more atmospheric greenhouse gases than if the
including carbon dioxide, mercury and radon.  wastes were allowed to decay. In addition to the
Under current technologies, the toxins are    option of direct incineration, small power plants
commonly reinjected into the reservoir. With  that burn landfill gases (mostly methane) have
commercialization of designs expected late in  been employed for decades around the world.
this decade, hot dry rock technology is expected  The ultimate potential of municipal solid waste
to be competitive with conventional geothermal    incineration and landfill gas plants as an energy
technology and fossil-fueled plants.         source, is limited both by public concern over
emissions and by the shortage of concentrated
Biomass                                       sources of solid waste. In tropical areas, the
water content of municipal solid wastes reduces
A wide range of options exist for converting  its attractiveness as a fuel.
biomass into electric power. Dendrothermal
power plants burn wood from fast growing      Wind Power
species (grown on a dedicated plantation), in
boilers, to generate electricity through a conven-    Large grid-connected wind generators (75kW-
tional steam cycle. Most potential applications  450kW), configured in multi-turbine "wind
are for remote power supply in DCs. Concerns  farms", now supplement fossil fuel capacity in a
about the effects of dedicated fuelwood planta-  number of countries. Research is currently
tions, on the local environment and competing  underway in the United States on combined
land uses, impose major constraints on the    wind and gas turbine power supply schemes
widespread adoption of dendrothermal power   that would provide reliable power on demand,
supply schemes.                               at minimal cost. Although wind generators do
not produce air or water emissions, planners
It is economical to use biomass for energy    often face public opposition since the larger
purposes only where it is available as a      turbines do present a visual impact on the
byproduct of other processes. Crop residues,  landscape, emit acoustic noise, generate electro-
agricultural waste, and animal dung produced  magnetic interference, and present a hazard to
in DCs are currently used as fuels, mainly by  birds.
the poor.
Ocean Energy
Another source of biomass for power generation
is municipal solid waste. High temperature    Pilot plant experience has indicated that tem-
incinerators for municipal solid waste have   perature differences of 20 degrees centigrade
been developed in Germany and the United      between surface waters and waters about 1000
States. The public has voiced opposition to   meters below are sufficient for economic power
incineration in both countries due to concerns  generation. As a large proportion of the tropical
over emissions of dioxin, furans and other    oceans contain such thermals, a vast potential
toxins that are released when plastics are   resource is available. Due to significant capital
burned. Virtual elimination of toxic effluents is  requirements and risks inherent in an unproven
achieved in some of the new high temperature  technology, no commercial plants have been
designs that utilize a slanted bed to ensure total    built to date. In addition, this technology poses
combustion and wet scrubbers. A 25 MW         some environmental concerns about effects on
incinerator can consume about 400,000 tons of  sea life and atmospheric release of carbon
municipal solid waste each year, thereby      dioxide stored in deep ocean waters.
reducing the volume of waste ash for disposal.
In addition to energy recovered and reducing
urban waste disposal problems, leading edge
17



Sustainable Energy Development
Transnational Issues                           degrees centigrade over the last century. While
-the study does not suggest that the case for
Acid deposition is perhaps the most serious of  -   global warming is fully established, several
the transnational issues faced today. Acid     important issues remain unsolved. The warm-
deposition is a result of oxides of sulfur and  est year for the planet Earth since measurements
nitrogen that originate from fossil fuel combus-  of surface temperatures were initiated was in
tion, falling to the ground as particulates and  1990. Six of the seven warmest years since 1850
acid rain. Coal- and oil-fired power stations  have all occurred since 1980. Changes in recent
emit significant amounts of sulfur dioxide and  .rainfall patterns, and frequency of storms, may
nitrogen oxides into the atmosphere. The       also be attributable to the phenomenon. Over
transport of sulfur dioxide occurs over long   the last one hundred years global sea level has
distances (greater than 1000 km), causing the  increased by 10 to 20 cm (IAEA 1991). These
deposition of emission products over national  climatic changes may have contributed to
boundaries. This may result in sensitive ecosys- -   natural disasters, such as the floods in
tems receiving depositions of sulfur well above  Bangladesh and serious drought conditions in
their carrying capacity. Acid depositions caused  Africa, which resulted in extremely high social
by sulfur and nitrogen oxides result in damage  costs- high mortality, the spread of diseases
to trees and crops, and sometimes extend to    such as typhus and cholera, widespread starva-
acidification of streams and lakes, resulting in  tion/malnutrition, and significant population
destruction of aquatic ecosystems. They also   displacement.
lead to the corrosion, erosion, and discoloration
of buildings, monuments and bridges. Indirect  The relative contribution of electricity genera-
health effects are caused by the mobilization of  tion to overall global warming (mainly in the
heavy metals in acidified water and soil (IAEA  form of CO2 emissions) has been estimated at
1991).                                         about 25 percent compared to about 14 percent
caused by deforestation. Of this amount, coal
Other important transnational issues include   and oil each contribute about 40 percent of
environmental and health impacts of radiation  *anthropogenic carbon dioxide emissions, and
due to severe nuclear accidents (Chernobyl),   gas about 15 percent. OECD and other Euro-
oceanic and coastal pollution due to oil spills  pean countries account for about 75 percent of
(Amico Cadiz, Exxon Valdez and Braer),         global fossil fuel CO2 emissions, at present.
downstream siltation of river water in one     Energy consumption as a whole is the single
nation due to deforestation of water sheds and  largest contributor to greenhouse gas emissions
soil erosion in a neighboring country, and     in developing countries. While the use of
changes in hydrological flow and water condi-  traditional fuels is declining as a share of energy
tions caused by dams.                          supply in many developing countries as a result
of growing prosperity, India and China will be
Global Issues                                  forced to increase coal-fired generation through
domestic energy sources to meet the growing
The increase in atmospheric concentrations of  energy needs of their citizens.
CO2 and other radiatively active trace gasses  Given the considerable problems faced by the
(N20, CH4 and chlorofluorcarbons, or CFCs) has
led to an increase in global mean temperatures,  power sector in DCs, the additional growing
or global warming. According to a study        concerns about the environmental consequences
conducted by the intergovemmental panel on     of energy use considerably complicate the
climate change (IPCC), increases in greenhouse  policy dilemma facing the DCs. Developing
gas concentrations from anthropogenic activi-  countries share the deep worldwide concerns
ties are believed to have resulted in mean     about environmental degradation, and some
surface temperature increases of 0.3 to 0.6    have already taken steps to improve their own
18                                                             Environment Department Papers



The Need for Sustainable Development
natural resource management as an essential   levels of future greenhouse gas accumulation as
prerequisite for sustained economic develop-   well as a more general depletion of natural
ment. However, they also face other urgent     resources.
issues like poverty, hunger and disease, as well
as rapid population growth and high expecta-   Up to now, scientific analysis has provided only
tions. This paucity of resources constrains the  broad and rather uncertain predictions about
ability of DCs to undertake costly measures to  the degree and timing of potential global
protect the global commons.                    warming. However, it would be prudent for
humanity to buy an "insurance policy" in the
The challenge facing the developing world is  form of mitigatory actions to reduce greenhouse
how to harmonize development goals and the     gas emissions. Ironically, both local and global
elimination of poverty (which will require     environmental degradation might affect devel-
increased use of energy), with environmental   oping nations more severely, since they are
goals without worsening their weak economies.  more dependent on natural resources, while
In 1992 per capita income in low income devel-  lacking the economic strength to prevent or
oping nations was almost one-sixtieth of that in  respond quickly to increases in the frequency,
the high income nations ($390 in low income    severity and persistence of flooding, drought,
countries versus $22,600 in high income coun-  storms, and so on. Thus, from the DC view-
tries). Correspondingly, per capita energy     point, an attractive low cost insurance premium
consumption in low income countries was 338    would be a set of inexpensive measures that
Kg of oil equivalent as compared to 5,101 Kg of  could address a range of national and global
oil equivalent in high income countries (WDR   environmental issues without hampering
1994).                                         development efforts.
The disparity in both per capita income and    The report of the Brundtland Commission
energy use among different countries also raises  (WCED 1987), which has been widely circulated
additional issues in the context of current global  and accepted, has presented arguments along
environmental concerns. Fossil-fuel related   the theme of sustainable development, which
carbon dioxide accumulation in the atmosphere  consists of the interaction of two components:
is a relevant example. The developed countries  needs, especially those of the poor segments of
accounted for over 80 percent of such cumula-  the world's population; and limitations, which
tive worldwide emissions during 1950-86 -      are imposed by the ability of the environment to
North America contributed over 40 billion tons  meet those needs. The development of the
of carbon; Western and Eastern Europe emitted  presently industrialized countries took place in
25 and 32 billion tons respectively, while the  a setting which emphasized needs and de-
DCs share was only about 24 billion tons. On a  emphasized limitations. The development of
per capita basis the contrasts are even more  these societies have effectively exhausted a
stark, with North America emitting over twenty  disproportionately large share of global re-
times more and the developed countries as a    sources - broadly defined to include both the
whole being responsible for over eleven times  resources that are consumed in productive
as much total cumulative carbon dioxide        activity (such as oil, gas and minerals), as well
emissions as the DCs. The DC share would be    as environmental assets that absorb the waste
even smaller if emissions prior to 1950 were   products of economic activity and those that
included. Clearly, any reasonable growth       provide irreplaceable life support functions
scenario for developing nations that followed  (like the high altitude ozone layer). Indeed,
the same material-intensive path as the industri-    some analysts argue that this development path
alized world, would result in unacceptably high  has significantly indebted the ICs to the larger
global community.
19



Sustainable Energy Development
The division of responsibility in this global      tute environmental protection for further
effort is clear from the above arguiments. 'TThe   growthi of material output. On the other hand,
unbalanced use of common resources in the          thl<i)Cs can be expected to piarticipate in the
past should be one important basis on whi ichli the  global effort onilv to the extent that this partici-
developed and developing countries can work        pation is fully consistent with and complemen-
together to share and preserve what remains.       talry to tileir- immediate economic and social
The ICs have already atta iniedl most rTeaSmle)'hic  develornient ob4jcltives.
goals of development and can afford to suK4i-
20                                                                  Environment Department Papers



4 A Framework for Sustainable Energy
Development
The broad rationale underlying all national level  conceptual framework for sustainable energy
planning and policymaking is the need to ensure  development (SED) that can be implemented
the best use of scarce resources, in order to further  through a set of energy supply and demand
socio-economic development efforts and improve  management policies.
the quality of life for citizens. Power and energy
planning must also be part of and closely inte-  The core of the SED framework is the inte-
grated with overall economic planning and policy  grated multilevel analysis shown in the
analysis, to meet many specific, interrelated and  middle column. Although SED is primarily
frequently conflicting national objectives. Specific  country-focused, at the global level it is
goals might include: (a) ensuring economic      recognized that there are transnational
efficiency in the supply and use of all forms of  energy-environmental issues. Thus individual
energy, to maximize growth- other energy        countries are embedded in an international
efficiency-related objectives are energy conserva-  matrix, and economic and environmental
tion and elimination of wasteful consumption, and  conditions at this global level will impose
saving scarce foreign exchange; (b) raising suffi-  exogenous inputs or constraints on
cient revenues from energy sales, to finance sector  decisionmakers within countries.
development; (c) meeting the basic energy needs
of the poor, and income redistribution; (d) diversi-  The next hierarchical level in the figure
fying supply, reducing dependence on foreign    focuses on the multi-sectoral national
sources, and meeting national security require-  economy, of which the energy sector is a part.
merits; (e) contributing to development of special  This suggests that energy planning requires
regions (particularly rural or remote areas), and  analysis of the links between the energy
priority sectors of the economy; (f) price stability;  sector and the rest of the economy. Such links
(g) preserving the environment; and so on.      include the energy needs of user sectors (for
example, industry, transport, and agricul-
Integrated Approach                             ture), input requirements of the energy sector,
and impact on the economy of policies
Successful planning and implementation of       concerning energy prices and availability.
national energy programs must explicitly take
account of the role of the energy sector in eco-  The intermediate level of SED treats the
nomic development relative to those of the other  energy sector as a separate entity composed
parts of the economy. This will require an inte-  of sub-sectors such as electricity, petroleum
grated approach that will help decisionmakers in  products and so on. This permits detailed
formulating policies and providing market signals  analysis, with special emphasis on interac-
and information to economic agents that encour-  tions among the different energy sub-sectors,
age more efficient energy production and use.   substitution possibilities, and the resolution
Summarized in Figure 3 is such an approach to   of any resulting policy conflicts.
decisionmaking which emphasizes a hierarchical
21



U)
Figure 3
Conceptual Framework for Sustainable Energy Development                                                                                        r
fD
Multiple         Multiple                                                                                          Pollicy
Actors          Criteria                  Integrated Multilevel Analytical Framework                               Instruments   Impediments                               r
5-
lnteinsUlonel    Economic                                                                                                                  Uncertalintes
Inautlullona     smelcency                              Globai/Transnatlonal Level                                 liiaoWIac                lcnlg
(International Interecflons)                        TechnologY Irenifet    development,
--4-    Treaties. sod             envilonmentel
MullnsUonel                                IonlyCountry                                            ICountry          protocol$
coipomattone                                  A                                                        N           GuIdelines              knpecls, cols,,
OC                                                                             si~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~tc.)
a  - - - -            = = - -                                                 ~~~~~~~~~~~~~~~~~~Lack of
1                      e~~~~~~~~nelyfeloe tools
NGOs  SocialequIty  ~        [National MacroeconomIc  Level
-       nteracuions between enerigy setor W entest of lie ecarono
Dank,                           ~~~~~~~~~~Industry  Trnport  Woter [Enegy elt   Agricultureothef         Feqieguailna           intretruclure
Financial                                                            O~~-=  -I          uidelines            end drklled
Governments      viabIlity                       --           ---R&D                                                                       manpower
Energy  Sector Level                   ~~~~~~instruments       Week
Energy Sector Level                    ~~~(inclluding         instltuUons
R&D Insillullons,      ++                ~~~(inlerseatons within the energy ectior)           4+       Price)
Now and      Ga        iIl iaCa                         I      Iwoo
Energy      ~~Environ-                 Renewable      .            EolericjCa              0      te
utlitues         susZain.                     --       -      -        lPwrInadequate
C
Consumers                        SuElectric Power SUbsector/Project Level                                          Timnely plans
(Subsector planning and masnagement)                      Plant requirements      Lack of public
4-*                                                          1:11~~~~~~~~~~~~4+ (itng, lIcensing,  comnprehension
0          ~~Public nineesto                                        Supply                          Deadtchnlogy. et.                                  and consIstent
groups           OhrMenagemont                                                       manage-en                     Publc partIcpatIon      poilttlat vwil
Declelonmakrln Process to Determine Buetelnable Energy Development Path
(D
Source: Munasinghe 1991.
CD~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~w



A Framework for Sustainable Energy Development
The most disaggregate and lowest hierarchical   by putting in place policies, legislation, mecha-
level pertains to energy analysis within each of  nisms, systems, and incentives that facilitate
the energy sub-sectors. At this level most of the  sustainable energy development.
detailed energy resource evaluation, planning
and implementation of projects is carried out by  Identifying Sustainable Energy
line institutions (both public and private).    Options: "Win-Win" Options vs.
In practice, the various levels of SED merge and  Tradeoffs
overlap considerably, requiring that (inter-)
sectoral linkages should be carefully examined.  The primary objective of sustainable energy
Enetoralnirnkges uld binteractions (represented  development (SED) is to maximize welfare,
Energy-environmental itrcon(epsned              while maintaining or increasing the stock of
by the vertical bar) tend to cut across all levels  e mic,   ogicreand     s tock of
and need to be incorporated into the analysis as  economic, ecological, and sociocultural assets
far as possible. Such interactions also provide  over time (to ensure the sustainability of
important paths for incorporating environmental    income and intragenerational equity) and
considerations into national energy policies,   provide a safety net to meet the basic needs
and protect the poor (thereby advancing
SED facilitates policymaking and does not imply    intergenerational equity). In considering
rigid centralized planning. Thus, such a process  sustainable energy options, policymakers must
should result in the development of a flexible  therefore take into account all three aspects of
and constantly updated energy strategy de-      sustainable development (that is, economic,
signed to meet national goals. This national    social and environmental). Options that lead to
sgned tstrategy (of which the investment pro-   improvements in all three indices are referred
energy staey(fwihteivsmn  r-to as "win-win" options. Once "win-win"
gram and pricing policy are important elements),    otios "win-win"   poi cem"win-win"
may be implemented through energy supply and    options are realized, policymakers are able to
demand management policies and programs that    make tradeoffs among other available options.
make effective use of decentralized market forces
and incentives.                                 The incorporation of environmental externali-
ties into decisionmaking is particularly impor-
Consequently, SED implies improvements in       tant in the power sector, where environmental
overall economic efficiency through better      concerns (ranging from greenhouse gas emis-
energy management. As shown in Figure 3, a      sions of fossil-fueled plants to the impacts of
variety of policy instruments are available for  inundation at hydro plants) have posed
decisionmakers for instituting sound energy     increasingly difficult constraints to project
management. While formulating policy, it is also  implementation. It is also clear that in order for
desirable to consider the interests of multiple  environmental concerns to play a real role in
actors (shown in the figure), ranging from      power sector decisionmaking, one must
international institutions to local energy users.  address these issues early-at the sectoral and
This figure also indicates the most important   regional planning stages, rather than only at
impediments that limit effective policy formula-  the stage of project environmental assessment.
tion and implementation.                        Unfortunately, as soon as one is dealing with
New investments offer a good opportunity to     power sector issues at this aggregate planning
pursue sustainable energy development. In ten   level, the application of many project-level
years, new plants will account for more than half    valuation techniques becomes extremely
of the industrial output of developing countries  difficult, for two main reasons. The first is the
and in twenty years, for practically all of it. As a  nature of the impacts themselve: the health
result, it will be possible to have a major impact  effects of pollutants from coal-fired generating
stations, the potential loss of biodiversity
23



Sustainable Energy Development
associated with large scale hydro reservoirs,   We may assess the policy options as follows.
and the impacts of greenhouse gas emissions,    First, triangle ABC describes the existing
are all exceptionally difficult to value. Indeed,  fuelwood stove where economic efficiency is
attempts to do so would very likely focus       moderate, social equity is low, and overall
attention on the validity of the valuation      environmental impact is worst. Next, triangle
techniques themselves, rather than the policv   DEF indicates a "win-win" future option in
trade-offs that must be made. The second        which all three indices improve, as could occur
reason concerns the scale of analysis. Many     with an improved fuelwood stove that provided
techniques used are most appropriate at the     efficient energy and health benefits to the poor.
micro-level: the use of the contingent valuation  The economic gains to low income households
approach is much more valid where respon-       would include monetary savings from reduced
dents can be asked specific questions about     fuelwood use and increased productivity from
impacts of a particular project to which they can  reductions in acute respiratory infections, lung
relate. However, this may be very difficult to  disease and cancer caused by pollutants in
apply in situations where one is dealing with a  biomass smoke. Social gains would accrue from
potentially large number of technology, site and  the fact that the rural poor benefit the most from
mitigation options.                             this innovation-for example, due to the
reduced time spent on collecting fuelwood,
It is in these kinds of situations that the tech-  thereby, increasing time spent on other produc-
niques of multi-criteria analysis (MCA) may be  tive activities, and the lightened health and
applied. Such techniques first gained promi-   labor burden on women and children. The
nence as practical evaluation tools in the 1970s,  environmental benefits occur because a lower
when the intangible environmental externalities  demand for fuelwood will reduce deforestation
lying outside conventional CBA methodologies    and reduce green house emissions resulting
were increasingly recognized. It also met one   from inefficient combustion (Barnes, Openshaw,
objective of modern decisionmakers, who         Smith and Van der Plas 1994).
preferred to be presented with a range of
feasible alternatives as opposed to one "best"  After realizing such "win-win" gains, other
solution. MCA allows for the appraisal of       available options would require tradeoffs. In
alternatives with differing objectives and varied  triangle GIH, further environmental and social
costs and benefits, which are often assessed in  gains are attainable only at the expense of
differing units of measurement.                 sharply increasing costs. For example, shifting
from fuelwood to LPG or kerosene as a fuel may
Multi-criteria analysis offers policymakers an  increase economic costs, while yielding further
alternative when progress toward multiple       environmental and social benefits. In sharp
objectives cannot be measured in terms of a    contrast to the move from ABC to DEF, which is
single criterion (that is, monetary values). Take  unambiguously desirable, a policymaker may
the case of an efficient fuelwood stove-an end  not wish to make a further shift from DEF to
use option for sustainable energy development   GIH without knowing the relative weights that
(see section on SED Options Matrix). While the  society places on the three indices. Such prefer-
economic value of an efficient fuelwood stove is    ences are often difficult to determine explicitly,
measurable, its contribution to social and      but it is possible to narrow the options. Suppose
environmental goals is not easily valued mon-   a small economic cost, FL, yields the full social
etarily. As shown in Figure 4, outward move-    gain DG, while a large economic cost, LI, is
ments along the axes trace improvements in     required to realize the environmental benefit
three indicators: economic efficiency (net      EH. Here, the social gain may better justify the
monetary benefits), social equity (improved     economic sacrifice. Further, if purely budgetary
benefits for the poor), and environmental       constraints limit costs to less than FK, then
benefits (reduced pollution and deforestation).
24                                                              Environment Department Papers



A Framework for Sustainable Energy Development
Figure 4
Complementarities and Tradeoffs
Among the Three Main Dimensions of Sustainable Development
ECONOMIC
(EFFICIENCY)
F
0
EXISTIN   B
WIN-WIN
//                       E\
G,it             TRADE-OFFS               H
SOCIAL                                     ENVIRONMENTAL
(EQUITY)                                      (POLLUTION)
Source: Munasinghe 1993b.
25



Sustainable Energy Development
sufficient funds exist only to pay for the social
benefits, and the environmental improvements  related adverse environmental impacts may be
will have to be deferred.                    included (to the extent possible) in the energy
economics analytical framework, to determine
A recent World Bank study of power system     how much energy use and net output that
planning in Sri Lanka demonstrated the versa-  society should be willing to forego, in order to
tility of the MCA approach (see section on SED  abate or mitigate environmental damage.
Options Matrix, for details). In this case, end-
use energy efficiency measures provided "win-  Energy use and generation in the
win" options (that is, they were superior to all  developingworld can be improved in two main
other alternatives on the basis of air quality,  ways to make them more sustainable. First,
biodiversity loss, and economic costs). Con-  energy efficiency can be increased by supply
versely, several prominent hydropower projects    and demand side improvements. Along with
could be excluded because they performed      this, environmentally more benign technologies
poorly in terms of both biodiversity loss and  can be introduced. Fuel switching and
economic costs.                               renewables are relevant in the latter case. In
addition, options such as price reform and
In many countries, especially those in the    institutional and regulatory reform can be
developing world, inappropriate policies have  further implemented in order to achieve the
encouraged wasteful and unproductive uses of  required objectives of SED.
some forms of energy. In such cases, better
energy management could lead to improve-      Improving Energy Efficiency
ments in economic efficiency (higher value of
net output produced), energy efficiency (higher  "Energy efficiency," or the efficiency with
value of net output per unit of energy used),  which energy is produced and used, is one of
energy conservation (reduced absolute amount  the most widely advocated methods of reducing
of energy used), and environmental protection  pollution. During the past two centuries, the
(reduced energy related environmental costs).  efficiency of energy producing and using
activities, as measured by the amount of energy
However, it may not always be possible to     needed to provide a given output or service, has
satisfy all of the above goals simultaneously.  improved by factors ranging between 50 and
For example, in some DCs where the existing   100, sometimes more (Anderson and Cavendish
levels of per capita energy consumption are   1992). However, the demand stimulated by
very low and certain types of energy use are  subsequent reduction of the cost of energy, the
uneconomically constrained, it may become     expanding areas of energy utilization, and the
necessary to promote more energy consumption  growth of population and industry, has dra-
in order to raise net output (thereby increasing  matically expanded energy use. During the
economic efficiency). In spite of this particular  present century, during which energy efficiency
case, there are many instances where it may be  grew by factors of more than 10 in key sectors
possible to increase energy efficiency while  such as electricity, world commercial energy
decreasing energy consumption.                consumption has increased tenfold-an average
growth rate of 2.5 percent a year (Anderson and
The economic efficiency criterion which helps  Cavendish 1992).
us maximize the value of net output from all
available scarce resources in the economy     The carbon intensity of world economic product
(including energy), should effectively subsume  dropped by more than 20 percent during the
purely energy-oriented objectives such as     period 1970-1986, and 75 percent of this was
energy efficiency and energy conservation.    achieved due to energy efficiency measures. In
Furthermore, the costs arising from energy-   the future, DCs offer even greater potential to
improve energy efficiency and a corresponding
26                                                            Environment Department Papers



A Framework for Sustainable Energy Development
decline in carbon emissions. In 1990, OECD      savings and positive environmental conse-
countries were able to produce a unit of eco-   quences of efficient plant operation are quite
nomic output using little more than half the    significant.
energy required by the DCs and CEE countries.
The use of modern electricity generation with
There is a spectrum of technological options    high technical efficiencies, such as combined-
which the DCs could potentially utilize in order  cycle power stations, is beneficial to the environ-
to improve energy efficiency. Among these,      ment and resource conservation, but these
improvements in both the supply, and the end    techniques require high investment and techni-
use of energy, should be considered.            cal expertise. Therefore, they may not be fea-
sible for use in financially troubled developing
Supply Side Improvements                        nations. There is an acute need for increased
research in cost-effective, efficient, energy
Among the short-term technological options for  supply techniques.
the DC power sector, reducing transmission and
distribution losses, and improving generation   Demand Side Improvements
plant efficiencies appear to be the most attrac-
tive. Recent studies show that up to a certain  Significant gains in energy efficiency can also be
point, these supply efficiency enhancing mea-   achieved by conservation on the demand side.
sures yield net economic savings or benefits that    Johansson et al. (1987) provides an insightful
are several times the corresponding costs       review of the developments that have been
incurred (Munasinghe 1990b). Total energy      taking place in end-use technologies which can
losses in DC power systems are estimated to     have a major impact on energy efficiency. These
average in the 16 to 18 percent range. The      technologies, which were developed in the
average system losses in South Asia have been  industrialized countries as a response to the oil
estimated at 17 percent and in East Asia at 13  price escalation in the seventies, can be easily
percent (Munasinghe 1991). A comparison with    applied to achieve more efficient lighting,
OECD countries presents a more grim situation.  heating, refrigeration, and air conditioning
It has been estimated that older power plants in  around the developing world.
many developing countries consume 18 to 44
percent more fuel per KWh produced than is      Since major demand growth in DCs is expected
the norm in OECD countries and utilities suffer  over the next few decades, and technologies and
transmission and distribution losses 2 to 4 times  appliances are generally based on 1970s designs,
higher (Levine et al. 1991).                    a number of authors have concentrated on the
gains in overall electricity system efficiency that
The consequences of reducing these losses can   are possible from end-use efficiency improve-
be quite important. On the basis of previous    ment programs in DCs. The National Energy
estimates of capacity requirements, a 1 percent-  Conservation Program (PROCEL) in Brazil is a
age point reduction in losses per year would   case in point. This program advanced the
reduce required capacity by about 5 GW          development and commercialization of a
annually in the DCs. The estimated savings in  number of energy-efficient lamps, reflectors for
capital investment would be around 10 billion   fluorescent fixtures, and building control
dollars per year. Meanwhile, the Agency for     systems. These technologies are now manufac-
International Development (USAID 1988) has      tured and sold in Brazil, and their adoption has
estimated that the average heat rate of DC      provided an estimated 1.1 TWh of electricity
power plants is around 13,000 Btu/kWh,          savings in 1989. For the residential sector, most
compared to 9,000-11,000 Btu/kWh if these       of the potential cost-effective savings come from
plants were operated efficiently. The energy    the adoption of efficient refrigerators, air
conditioners and compact fluorescent lamps
27



Sustainable Energy Development
(CFLs). The cost of conserved energy (CCE),   percent of industrial sector energy consumption
which is a measure of annualized increased    and 10 to 25 percent of power sector energy
capital costs divided by kWh saved over the life  consumption (Saunders and Gandhi 1994).
of the device, can be evaluated for each im-
proved technology. Under moderate economic    Construction for both residential and commer-
assumptions, the CCE of improved air condi-   cial buildings has special importance because of
tioners, improved refrigerators, standard     the large amount of energy consumed within
fluorescent lamps, and CFLs, relative to incan-  interior work spaces. For example, over one-
descent bulbs in Brazil, are 3.2c/kWh, 3.0c/  third of the total energy consumed in the US is
kWh. 6.lc/kWh and 3.lc/kWh, respectively; all    used to heat, cool, and light buildings or to
well below the marginal cost of residential   operate equipment, such as computers, used by
electricity supply of 12c/kWh. Analysis of a  the occupants of buildings (Glicksman 1991).
proposed program to induce the adoption of    Although DCs in colder regions may have
efficient appliances in seven categories could  similar energy requirements, those countries
reduce residential demand by 33 TVh/year, or  which are closer to the tropics will require much
31 percent of projected residential demand, in  less energy for heating purposes. Some of the
Brazil by 2010 at an average annual cost (CCE)  energy consumption for cooling purposes may
of 3.lc/kWh (Khatib and Munasinghe 1992).     be relevant in these cases.
One major reason DCs hesitate to adopt these  Although new technologies, such as "smart
technologies is their belief that this will increase  windows," which control the solar energy
costs dramatically. However, the OTA study    entering a building, are being developed, much
shows that when all the system-wide financial  of the improvement in the energy efficiency of
costs are accounted for, energy efficient equip-  buildings has been achieved by applying
ment usually can provide the same energy      technologies already at hand.
services at a lower installed capital cost than
less efficient equipment (OTA 1991). Unfortu-  A number of market-based incentives have been
nately, consumers who purchase end-use        proposed to improve building standards. These
equipment see the increase in capital costs of  include efficiency standards and labeling for
more efficient designs, but not the decrease in  buildings, appliances, and lighting; utility fees,
capital costs as fewer power plants have to built    offsets, and rebates; and urban infrastructure
to provide a given level of energy service.   improvements to battle summer heat islands
and greenhouse gases (Rosenfield 1991).
In DCs, an important barrier to demand side
energy improvement is lack of information     Making these efficient electricity end-use
about the availability and reliability of new  technologies widely available in DCs could
energy efficient equipment. Other reasons such  contribute in important ways to a global effort
as subsidized and low energy prices, absence of    to increase electricity end-use efficiency, thus
competitive end-use markets, and government-  reducing growth in electricity supply, local
regulated weak energy supply sources, are also  environmental and social impacts, and in
impediments to efficient use of energy on the  greenhouse gas emissions (Lawrence Berkeley
demand side. Few energy supply enterprises in  Laboratory 1991).
DCs have the necessary customer information
base to predict results of end-use efficiency  Cost Savings
improvements. However, the potential for
demand side improvements is attractive.       Increasing efficiency in energy production and
Technically proven cost-effective end-use     use in DCs will result in large savings in the
conservation techniques can save DCs 10 to 30  public and private sectors as pointed out by
Anderson and Cavendish (1992). They conclude
28                                                            Environment Department Papers



Figure 5
Three Scenarios of Emissions from Electricity Generation
in Developing Countries, 1990-2030 (Index: 1990 = 100)
600 -
(AU PolluMaut s
600 -                                     eE;Zcy ~~~~~~~~~~~~~~~~~~~~~~~(AU Pollulants)
400 -
ludLow Polludag
l          ~~~~200                                                            max / ; iq  l       
O                    P)
1990   1996   2000   2005   2010   2015   2020   2025   2030
CrED
Source: Anderson and Cavendish 1992.



Sustainable Energy Development
that the approximately $125 billion per year of  Fuel switching, and the use of renewable energy
cost-savings estimated for electricity production  sources, are two important technology changes
in DCs, for instance, amounts to several times  which should be implemented in the develop-
the financial requirements of accelerated       ing world.
programs in each of several other sectors such
as education, water and sanitation, health, soil  Fuel Switching
erosion control, agricultural research and
extension, and family planning. Price and       The substitution of primary energy sources in
institutional inefficiencies in energy supply are  power generation is an important potential
not only damaging to the (environmentally       means of achieving dual benefits which are
responsible) growth of the energy industry itself    evident in the case of substituting natural gas
in DCs, but are a huge burden to the rest of the  for coal or oil. The economic benefit of natural
economy.                                        gas substitution comes from either import
substitution for petroleum products or releasing
Figure 5 emphasizes the importance of energy    these products for export. As a second benefit,
efficiency. The reduction of pollution emissions  natural gas firing typically achieves a 30-50
this method alone can achieve is significant,   percent reduction in carbon emissions. Many
even in the absence of other measures. The      Asian countries are endowed with significant
figure also illustrates the dramatic reduction of  resources of natural gas, including Malaysia,
pollution when low polluting technologies are  Indonesia and Thailand.
introduced simultaneously.
The fuel used for electricity generation often has
Implementing Environmentally More               high sulfur content, thus causing a high level of
Benign Technologies                             atmospheric pollution. A considerable reduc-
tion of these emissions can be achieved by
In the long-term, DCs will need to rely on more  substituting quality coal or other fuels for low-
advanced technological options which are        grade coal. Investing in gas- and oil-fired power
currently being developed in industrialized     plants would also reduce carbon dioxide
countries. As discussed earlier, power genera-  emissions. This should be considered more
tion capacity in DCs is expected to nearly      carefully, however, because it wouid mean
double by the turn of the century, and will    increased dependence on imported oil or gas
increase further thereafter. This provides many  for most DCs (Winje 1991).
opportunities for developing nations to add
state-of-the-art technologies which have been   Finally, when considering fuel switching, the
designed with consideration of economic and     relevant time frames should be taken into
environmental criteria. Clean coal technologies,  account. Historical experience suggests that
cogeneration, gas turbine combined cycles, and  even under strong incentives, roughly fifteen
steam-injected gas turbines, are part of this   years to switch from one fundamental produc-
menu of technologies which have important      tion process (for example, basic oxygen process
potential in developing nations. Similar applica-  steel making) to newer processes, throughout a
tions will become available for emission control  national industrial sector. Major fuel switches in
technologies. However, the DCs will look to the  energy systems have taken even longer-on the
industrialized nations to provide leadership in  order of twenty-five years (Clark 1991). This has
refining and testing these technologies before  important bearing on the efficacy and feasibility
they are implemented in the developing world.   of proposals for fuel substitution.
30                                                              Environment Department Papers



A Framework for Sustainable Energy Development
Renewable Energy Sources                            The range of estimates clearly indicates the level
of uncertainty regarding the potential of renew-
The World Energy Council (WEC) estimates            able energy to meet global energy demand
that, under an Ecologically Driven Scenario, the    within the next thirty years. However, while
contribution of new renewable energy sources        statistics vary, it is evident that non-conven-
(defined as total renewable energy sources          tional sources of energy have a key role to play
minus traditional biomass and large hydro) will    in meeting energy needs in an efficient and cost-
reach 13-14 percent of total energy use by 2020.    effective manner, particularly in DCs where
Total renewable energy use is expected to reach     most of the growth in demand will occur.
30 percent, nearly a tenfold increase over 1990     Price Reform
figures (Darnell et al., WEC, 1992). This would
allow for a reduction of 30 percent in annual
global energy-related carbon dioxide emissions.     Economically efficient pricing policies serve a
It is important to emphasize that this Ecologi-     dual role in the electric power sector, and are
cally Driven Scenario assumes almost immedi-        especially important in the context of the
ate radical changes in energy policy and con-       developing world. Prices that reflect the true
sumer behavior, leading to a decline in global      value of the resources employed in the supply
energy intensity over the next thirty years.        of electric power, ensure that consumers are
These changes would have to occur at a rate         given the correct economic signals to use
three times faster than average annual rates        electricity in the most efficient manner. Efficient
achieved over the past fifteen years (Jefferson     prices also indicate consumer demand to the
1992). Jefferson provides a more conservative      power utility, which can accordingly augment
estimate, predicting that new renewables would      supply capacity. Finally, correctly set prices
account for not more than 8.5 percent of total      ensure that the power sector is able to internally
primary energy supply by 2020, with fossil fuels    generate the financial resources required to
still accounting for up to 70 percent of total      maintain the requisite investment levels, and
primary energy supply.                              thus operate the sector efficiently.
In one recent scenario, Johansson et al. (1992)     In the past, electric power pricing policy in most
estimates that, given the appropriate techno-       countries was determined mainly on the basis of
logical and financial support, renewable sources    financial or accounting criteria. The practice of
of energy could meet three-fifths of the world's   raising sufficient sales revenues to meet operat-
energy market (with contributions from hydro        ing expenses and debt service requirements,
power, wind and solar power, and biomass)           while providing a reasonable contribution
and two-fifths of the market for fuels (mostly      towards capital needed for future power system
biomass-derived) used directly by 20501.            expansion, is an example. However, there has
recently been increasing emphasis on the use of
This renewables-intensive energy scenario assumes an  economic principles to produce and consume
eightfold increase in world economic output by 2050, as  electric power efficiently, while conserving
projected by the Response Strategies Working Group of  scarce resources. This is especially relevant in
the Intergovernmental Plan on Climate Change (IPCC). In  the DCs where a great deal of attention has been
this forecast the demand for electricity increases 265
percent between 1985 and 2050, in spite of a marked  paid to the use of marginal cost pricing policies.
increase in energy efficiency.
A comprehensive approach to power pricing
Provided that energy efficiency and renewable      recognizes the existence of several objectives or
energy promotion measures are aggressively          criteria, not all of which are mutually consistent.
implemented, the authors estimate that global       First, national economic resources must be
carbon dioxide levels could be reduced to 75        allocated efficiently not only among different
percent of 1985 levels by 2050.                     sectors of the economy, but within the electric
31



Sustainable Energy Development
power sector itself. Second, certain principles   over a period of several years, without subject-
relating to fairness and equity must be satisfied.  ing long-standing consumers to "unfair" shocks
These include (a) fair allocation of costs among  in the form of large abrupt price changes.
consumers according to the burdens they
impose on the system, (b) assurance of a reason-  Recent studies of the electric power sector in
able degree of price stability, and (c) provision  DCs indicate that electricity tariffs have not kept
of a minimum level of service to low income      up with cost escalation (Munasinghe et al. 1988,
consumers. Third, power prices should help        Besant-Jones et al. 1990). Based on a survey of
raise sufficient revenues to meet the financial  60 developing countries, electricity tariffs on
requirements of the sector. Fourth, the power     average declined between 1979 and 1988 from
tariff structure must be simple enough to        5.21 cents/KWh to 3.79 cents/KWh in 1986 US
facilitate metering and billing customers.       constant dollars. The operating ratio (defined as
Finally, other economic and political require-   the ratio of operating costs before debt service,
ments, such as incentive and penalty pricing      depreciation and other financing charges, to
schemes, subsidized electricity supply to certain  operating revenue) for the almost 400 power
sectors or geographic areas, also exist.         utilities studied, deteriorated from 0.68 in the
1966 to 1973 period to 0.8 between 1980 and
Since the above criteria are often in conflict with  1985. In some countries these deviations are
one another, it is necessary to accept certain   significantly greater (Munasinghe 1991).
trade-offs among them. The marginal cost
approach to price-setting has both the analytical  World Development Report 1992 emphasizes
rigor and inherent flexibility to provide a tariff  using taxes and regulations as an incentive for
structure that is responsive to these basic      the energy industry and its consumers to adopt
objectives. In the first stage of calculating    cleaner fuels and clean fuel technologies.
marginal costs, the economic (first-best) effi-
ciency objectives of tariff-setting are satisfied  Recent advances in low cost metering and
because the method of calculation is based on    switching equipment have made it possible to
future economic resource costs (rather than      consider (where appropriate), more sophisti-
sunk costs) and also incorporates economic       cated approaches to supply-demand balancing
considerations such as shadow prices and         such as spot pricing and load control. In spite of
externalities. The structuring of marginal costs  the added costs of implementation of these
permits an efficient and fair allocation of the  schemes, potential savings to both the power
tariff burden on consumers. In the second stage  producer and the consumer are often signifi-
of developing marginal cost-based tariffs,       cant. Producers benefit by achieving some of
deviations from strict marginal costs are consid-  their demand management objectives such as
ered in order to meet important financial and    peak shaving and load shifting. Consumers
other social, economic (second-best), and        benefit by being able to select service levels
political criteria. This second stage of adjusting  according to their individual needs and by a
strict marginal costs is generally as important as  reduction in total cost.
the first-stage calculation, especially in the DC
context.                                         Institutional and Regulatory Reform
Any marginal cost-based tariff is a compromise   Excessive government interference in organiza-
among many different objectives. Therefore,      tional and operational matters has been a major
there is no "ideal" tariff. By using the marginal  problem in many parts of the developing world.
cost approach, it is possible to revise and      This has adversely affected least-cost procure-
improve the tariff on a consistent and ongoing   ment and investment decisions, hampered
basis and thereby approach the optimal price      attempts to raise prices to efficient levels,
mandated low salaries tied to civil service
32                                                                Environment Department Papers



A Framework for Sustainable Energy Development
levels, and promoted excessive staffing. This in  taining large centralized public sector organiza-
turn has resulted in inadequate management,    tions. Nevertheless, given the observed prob-
the loss of experienced staff due to           lems inherent in stimulating management of
uncompetitive employment conditions and        these enterprises to be cost conscious, innova-
poor job satisfaction, weak planning and       tive, and responsive to consumer needs, there
demand forecasting, inefficient operation and  may be a need for more fundamental change. It
maintenance, high losses, and poor financial   could be worthwhile to trade off some of the
monitoring, controls, and revenue collection.  perceived economies of scale in energy enter-
Incentives for utility managers to pursue      prises for other organizational structures which
technical efficiency and financial discipline, to  provide greater built-in incentives for manage-
consistently minimize production costs, and to  ment efficiency and responsiveness to consum-
provide reliable services, are lacking in DCs.  ers.
Lack of internal funding, together with poor
planning, operation, and maintenance practices  In particular, there appears to be considerable
has resulted in a wide-spread maintenance      interest in the scope for more decentralization
backlog and poor availability of generation    and greater private participation. DC power
capacity in DCs, thereby increasing the pressure    sector officials have been very active in studying
for new generation. At the same time the cost of    such options, and some countries have already
maintaining an existing plant is far less than the  prepared the necessary legislative and institu-
expense of building a new capacity.            tional groundwork for this transition. In coun-
tries as diverse as Jordan and Malaysia,
Therefore, political decisionmakers, senior    privatization initiatives have taken root, includ-
government officials, and ministry-level staff,  ing divestiture of state-owned energy compa-
should focus on critical macroeconomic and     nies and encouragement of private power
energy sector strategy and policy. The senior  schemes.
management of a power company, appropri-
ately guided and buffered by an independent    India plans to install as much as 5000 MW of
board of directors, would then conduct their   private power capacity over the 1990-95 period,
daily operations free from government interfer-  and similar plans are underway in Indonesia,
ence to meet the overall national policy objec-  Malaysia, Thailand, and the Philippines. In
tives and targets within regulatory guidelines.  Pakistan, the 1292 MW Hub Power Project is
As far as possible, the utility management     now under construction, with a further 2000
should be assured of continuity at the top, even  MW of private power in smaller plants cur-
in the face of political changes. While the    rently under consideration. Jamaica is under-
enterprise is provided wider autonomy, it      taking a BOT (Build-Operate-Transfer) power
would now become more accountable in terms     project. In Sri Lanka, a private company has
of performance measured against an agreed set  been distributing power since the early 1980s
of specific objectives and monitored indicators.  and significant efficiency and service improve-
ments have been observed during this period.
Although delegation of authority to lower
managerial levels can be extremely beneficial,  Options for private and cooperative ownership
staff training and education at all levels and  of energy enterprises could include both local
stages of career would play a critical role in  and foreign participation as well as joint ven-
ensuring the success of such an approach.      tures. As long as a given regulatory framework
prevails, it can be argued that the form of
The natural monopoly characteristics of some   ownership (private and public) would not by
power enterprise functions, and necessity to   itself affect operating efficiency. A first step
manipulate these enterprises for general policy  towards decentralization could be for govern-
purposes, have been cited as reasons for main-  ment-owned power enterprises to competitively
33



Sustainable Energy Development
contract out activities or functions better    large-scale generation; (3) developing grid
handled by others. Many companies already       systems and encouraging regional interconnec-
subcontract various construction-related        tions; (4) recognizing the need for a national
activities. Some portions of the billing and    and regional master plan for electrification; and
collection process, or routine maintenance, can  (5) putting into place sound energy policies,
also be subcontracted. Among the advantages     standards, and regulations that improve envi-
of such arrangements are lower costs and        ronmental aspects of energy use (Boutros 1991).
greater programming flexibility.
During the Cold War period, the power systems
There are also opportunities for decentraliza-  of the Eastern European nations were intercon-
tion on a spatial basis. For example, larger   nected. Development plans for the system were
countries may have independent regional         coordinated by the Central Dispatching Organi-
power grids. Power distribution companies       zation (CDO), located in Prague. Many of the
could be separate by municipality, with per-   nations had plans to construct nuclear power
haps limited overlap in some fringe franchise   plants. However, because of the persisting input
areas, and have the right to purchase from      capacity deficiencies and unreliable equipment,
various suppliers, when feasible. If private   significant efforts are currently being made to
participation were allowed, one advantage       enable connection to the 330,000 MWe Western
might be that at least the large power consum-  European grid (UCPTE). Advantages to an East-
ers could also be legitimate shareholders who   West grid are outlined by Levai and Jazay: (1) a
would be concerned not only with service        mutually advantageous energy exchange
efficiency, but also with the financial viability of    through improved electricity generation and
the company.                                    utilization will be financially beneficial for both
East and West. For example, the peak of an "all
Power generation also has potential for effi-   European" load can be reduced by 1.5 to 2.5
ciency improvements through divestiture.       percent (or even 5 to 8 percent) due to the time
While the bulk power transmission and distri-   zone differences between regions. Maximum
bution functions might be regarded as having    consumption occurs at a different time in
more natural monopoly common-carrier type       Eastern and Western European countries.
characteristics, this is not so with generation. In  Seasonal and daily fluctuations in energy
fact, there is substantial scope for competition  demand may also increase availability of energy
in power generation with independent (perhaps   resources for both regions; (2) an integrated grid
foreign-owned enclave) producers selling to a  permits savings of 10-15 percent in spinning
central grid, as in the case of large industrial  reserves, generating capacity, compared with
cogeneration. Free-standing generation compa-  the total reserve required when the two systems
nies would put up all or part of the capital and  operate independently; and (3) it would be
be paid only out of revenues from power sold at  easier to provide mutual assistance in emergen-
guaranteed prices. This would result in the    cies (Levai and Jaszay 1991).
desirable de-emphasis on large lumpy capital-
intensive projects.                             SED Options Matrix
The case of Africa is an important exception to  The summary in Table 6 shows the impacts of
the above policy of decentralization. The      the various options on the three elements of
problem in Africa is that electricity generation  sustainable development. While, efficient
is too decentralized, and hence inefficient. Some  supply side options (that is, reductions in T&D
measures to remedy this situation include: (1)  losses), have clear economic gains in terms of
modernizing and improving the efficiency of    savings in capital investments and environmen-
existing power systems; (2) developing and      tal benefits from reductions in greenhouse
using local and regional primary energy for     emissions that result from increased electricity
34                                                              Environment Department Papers



A Framework for Sustainable Energy Development
Table 6
SED Options Matrix
M.- 5Xi  nEmic       Envrironmn           Seci I
Supply Efficiency              +                 +
End-Use Efficiency              +                 +                +
Advanced Technologies             -                 +                +
Renewables                   -                 +                +
Pricing Policy                +                +                +/-
Privatization/Decentralization      +                +1-              +1-
supply, they do not have obvious social ben-     many developing countries cannot afford such
efits. Efficient end-use options as shown in the  high cost technologies. Likewise renewable
case of an efficient fuelwood stove have benefits    energy sources also provide environmental and
relating to all three elements. Although ad-     social benefits by reducing a country's depen-
vanced technologies such as clean coal combus-   dence on traditional fossil fuels. However, in
tion technologies are essential for reducing air  terms of generating costs renewables are more
pollutants such as CO2 and NOX that cause        expensive than fossil fuels.
respiratory diseases and reduce productivity,
35






5 Sustainable Energy Development: A Case
Study of Sri Lanka
An MCA based approach was used by Meier     ing the likely extent of potential land-related
and Munasinghe (1994) in a study of Sri     environmental impacts across projects is the area
Lanka. The objective was to demonstrate how  inundated per KWh of capacity. This varies
environmental externalities could be incorpo-  between zero and as much as 150 hectares per
rated into power system planning in a sys-  KWh. The correlation between the installed
tematic and efficient manner. Sri Lanka     capacity and the amount of land to be inundated
presently depends largely on hydro power for    is poor; large projects do not necessarily mean
electricity generation. However, if increased  worse environmental impacts and vice versa.
demand is to be met over the next decade,
there seems little choice other than to begin  The progressive loss of Sri Lanka's natural forests
building large coal- or oil-fired stations, or to  over the past fifty years is well documented, and
build hydro plants whose economic returns   is one of the country's most important environ-
and environmental impacts are increasingly  mental concerns. Power sector projects will be
unfavorable. In addition, there are a wide  scrutinized very carefully for their potential
range of other options (such as wind power,  impact on what natural forest areas remain, even
increasing use of demand side management,   if it is true that the power sector per se has been a
and system efficiency improvements), that   relatively minor contributor to the loss of forest
make decisionmaking quite difficult- even in    lands. The main reason for deforestation in the
the absence of the environmental concerns.  past has been planned agricultural development
The study is relatively unique in its focus on  and settlement schemes, chena cultivation,
these kinds of planning issues, as opposed to  encroachment by unplanned settlement and
the more usual policy of assessing environ-  cropping, illicit logging and uncontrolled
mental concerns oniy at the project level after  fuelwood and timber extraction.
the strategic sectoral development decisions
have already been made.                     Relatively little is krnown about ambient air
quality in Sri Lanka. In most parts of the country
Environmental Issues                        the air quality is fairly good, a reflection of the
limited extent of industrialization except in
Sri Lanka is one of the more densely popu--  Colombo, and the natural ventilation provided by
lated countries of the world, and land avail-  strong monsoon winds. In Colombo, however, the
ability is an important issue. In general, hvdro  sharp increase in automobile and bus traffic over
plants are in the wet zone areas where there is    the past decade has led to strong indications of
little vacant land nearby for resettled inhabit-  increasing deterioration of air quality. Neverthe-
ants to relocate, while land that is available at  less, based upon what we do know about patterns
greater distances is often seen by potential  of energy utilization certain inferences can be
evacuees as undesirable because of questions  drawn. It is fairly certain that at present the power
concerning the availability of adequate water  sector contributes only marginally to air pollution
supply. A rough but effective way of compar-    in Sri Lanka. However, this is expected to change



Sustainable Energy Development
significantly once the anticipated coal burning  it is inevitable that sites will need to be found
power plants are added to the system beginning  on the coast to accommodate such thermal
in the late 1990s. Acid rain is likely to become an  plants. The economic importance of preventing
increasingly important environmental issue in   environmental degradation in the coastal zones
the Asia-Pacific region given the fact that the  is well established. Foreign tourism, an impor-
energy plans in many countries, in particular   tant source of foreign exchange, is largely
India and China, call for rapid development of  focused on the country's sandy beaches and
fossil energy systems.                          coastal estuaries and lagoons. The marine
fishery industry provides employment to some
Acid rain is largely a long-range phenomenon,   100,000 persons, and is the largest source of
and it is fairly obvious that the extent to which  animal protein for Sri Lanka. The main envi-
acid rain is or will be experienced in Sri Lanka is    ronmental issue concerns the discharge of
as much a function of emission trends of acid   heated effluents into waters of the coastal zone,
rain precursors in India as in Sri Lanka itself.  where there exist numerous ecosystems that
are extremely sensitive to temperature in-
Global warming and transnational acid rain are  creases, including (1) coral reefs, sea grass
conceptually different from local environmental  beds, benthic communities, mangrove stands,
impacts, since in the former case the impacts will   rocky and other shores; (2) zooplankton and
occur predominantly in other countries. If the  phytoplankton communities which are free
main economic objective is to maximize welfare  floating; and (3) nursery grounds for fish and
in Sri Lanka, decisionmakers in Sri Lanka would  prawns.
be unwilling to incur additional costs if the
benefits of such actions accrue mainly to other  Methodology
nations. In this case study, it is assumed that Sri
Lanka will be reimbursed by the international   Multi-criteria analysis has been developed
community for the incremental costs of global   expressly for situations wvhere decisions must
warming mitigation efforts, or that the Govern-  be made taking into consideration more than
ment would have signed an international agree-  one objective which cannot be reduced to a
ment committing itself to undertake certain     single dimension. Its central focus is the
carbon dioxide emission reduction measures.     quantification, display and resolution of trade-
offs that must be made when objectives con-
Because Sri Lanka is a small island (65,000     flict. In the case of application to the power
square kilometers), which has been isolated for  sector, there mav well be strategies that have
relatively long periods, there are a large number  beneficial impacts on both environmental and
of endemic species. Among Asian countries, Sri  economic objectives--most energy-efficient
Lanka has the highest level of biological diver-  investments that are economically justifiable
sity. The NSF Committee on Research Priorities  also bring about a reduction in emissions and
in Tropical Biology identifies Sri Lanka as     hence improve environmental quality as well
demanding special attention. Biological diversity    as economic efficiency. But most options
is under threat in Sri Lanka primarily from the  require that trade-offs must be made: wind
progressive reduction in its natural forests and  plants, for example, potentially provide
other natural habitats, especially through the  substantial environmental benefits but are
selective exploitation of tree species, particularly  more expensive than other options.
for timber. Therefore, the power sector is likely
to come under intense scrutiny from this per-   The overall methodology is illustrated in
spective.                                       Figure 6, and involves the following steps:
As the generation mix shifts from one that is   (1)The definition of the options to be examined.
predominantly hydro to one in which large base
load fossil fueled plants play an increasing role,
38                                                               Environment Department Papenc



Figure 6
General Methodology for Environmental Analysis of Power Systems
DEHNF                ENVIRONNIENTAL,               DEFINE SilTNG
FIURES                    jSStJES                   TECIINOLOGY,
AND MITIGATION
OPTIONS
NO
<,' QEANTIFY                ADDITIONAI.  _
-,                    ~~~~~~~OTPIONS
YES|
L     DEFINE                                              APPLY
ENVIRONNMENTAL,      NO 74CONOMIC       YES          VAUTON
______   __ ___  t         ZVAVALAJTION?
ATTRIBUTES             YAUTN?                      TEChINIQUFS
NMULTI-ATTRIBUlTE L1-1                                               I
ANALYSIS            ECONOMIC ATTRIBUTE        E O    ANALYSIS
H   (SYSTEM NPV)OMCALYI
I                                  ~~~~~~~~~~~~~~~~~~~~~~CD)
POLICY       l 
TLK 1-- ---- ---------- - - D - : ANALY'SIS --C
Source: Meier and Munasinghe 1994. C
_____________~~                                                                   r



Sustainable Energy Development
(2)The selection and definition of the at-       ered only a very narrow range of options: all
tributes, selected to reflect planning objectives.  a]ternatives studied involved sites on
Trincomalee Bay, with once-through cooling to a
(3)The explicit economic valuation of those      shallow bay inlet. Other south coast sites had
impacts for which valuation techniques can be    been eliminated earlier on grounds of high cost
applied with confidence. The resultant values    (because these sites could not accommodate large
are then added to the system costs to define     coal transport vessels, resulting in higher trans-
the overall cost attribute.                      port costs). Yet the additional costs of an evapora-
tive cooling system, or of an outfall system that
(4)The quantification of those attributes for    would discharge heated effluents to the deeper
which explicit economic valuation is inappro-    parts of the Trincomalee Bay, proved to be less
priate, but for which suitable quantitative      than the incremental coal transport costs to a site
impact scales can be defined.                    on the south coast.
(5)The translation of attribute value levels into  The main set of policy options examined, beyond
value functions (known as "scaling").            variations in the mix of hydro and thermal plants,
included (1) demand side management (using the
(6)The display of the trade-off space, to       illustrative example of compact fluorescent
facilitate understanding of the trade-offs to be  lighting); (2) renewable energy options (using the
made in decisionmaking.                          illustrative technology of wind generation); (3)
improvements in system efficiency (using more
(7)The definition of a candidate list of options  ambitious targets for transmission and distribu-
for further study: this also involves the        tion losses than the base case assumption of 12
important step of eliminating from further       percent by 1997); (4) clean coal technology (using
consideration options that are clearly inferior.  pressurized fluidized bed combustion (PFBC) in a
combined cycle mode as the illustrative technol-
In some applications it may be appropriate to    ogy); and (5) pollution control technology options
add two further steps: the definition of         (illustrated by a variety of fuel switching and
weights for each attribute, and the application  pollution control options such as using imported
of an amalgamation rule to provide a single     low sulfur oil for diesels, and fitting coal-burning
overall ranking of options. However, the Sri     power plants with flue gas desulfurization (FGD)
Lanka case study did not follow this ap-         svstems).
proach.
Attribute selection: Great care needs to be
Application to the Sri Lanka Power               exercised in criteria or attribute selection- they
Sector                                           should reflect issues of national (as opposed to
local project-level) significance, and ought to be
Policy option definition: A variety of options  limited in number. There is little gain from a
were selected for studv, including a whole       proliferation of attributes. Increasing the number
range of siting, pollution control mitigation    of attributes is not a substitute for assigning
and technology options. Indeed, it is very       proper weights to environmental attributes in the
important that as few a priori judgments as      decision process. On the contrary, the more
possible are made about the "feasibility" or     attributes considered the more complex the
"practicality" of options, because for the       analysis, and the higher the probability that the
analysis to be useful, meaningful trade-offs     results will be hard to interpret and
must be examined. For example, in the case of    decisionmakers will not find the exercise useful.
the Trincomalee coal-fired power plant (on the   It often occurs that, in a desire to be comprehen-
northeast coast), the environmental impact       sive, there is an inclusion of all possible impacts,
assessment prepared in the mid-1980s consid-
40                                                                  Environment Department Papers



SED: A Case Study of Sri Lanka
making it more difficult to demonstrate trade-  capture the potential biodiversity impacts, a
offs, and possibly introducing biases through a  probabilistic index was derived (as discussed
reluctance to assign low weighting to attributes.  below).
The following environmental criteria or at-     Attribute quantification: The problems of
tributes were used in the study. To capture the  quantification are well illustrated in the case of
potential impact on global warming, carbon      the biodiversity attribute. At the planning level,
dioxide emissions were defined as the appropri-  detailed site specific information at the potential
ate proxy. To be sure, the relationship between  power plant sites is unlikely to be available.
global carbon dioxide concentrations and the    Consequently the only quantification that
actual physical impacts that may follow, such as  appears possible is to derive a probabilistic
sea level rise or changes in monsoonal rainfall  index that gives the decisionmaker information
patterns are still poorly understood, and in any  about the likelihood that the detailed environ-
event, unlikely to be captured by simple linear  mental impact statement will reveal the pres-
correlations. However, since Sri Lanka's contri-  ence of an endemic species, significantly impact
bution to worldwide emissions will remain       ecosystems of high biological diversity, or affect
extremely small, the assumption of linearity of  a habitat already in a marginal condition.
impacts (relative to global carbon dioxide
emissions) is not unreasonable.                 There are a number of practical problems in
deriving an appropriate index. The first is that
To capture health impacts, use was made of the  the value of the area lost is a function of what
population-weighted increment in fine particu-  remains of the habitat. For example, the loss of
lates and nitrogen oxides attributable to each  the last hectare of an ecosystem would be
source. To this end a simple Gaussian plume     unacceptable, whereas the loss of one hectare if
model was applied to all of the major sites;    1,000 hectares remain would be much less.
incremental ambient concentrations for 1 km     Second, ecosystems may require a minimum
square cells were calculated to within a 20 km  area for long-term survival, which implies that
radius, and then multiplied by the population in    the value function would need to tend to
each cell.                                      infinity as it approaches that minimum value.
Perhaps even more importantly, the argument
To capture other potential air pollution impacts,    is sometimes made that the value to be ascribed
such as acid rain, emissions of sulfur dioxide  to the loss of habitat associated with some
and nitrogen oxides were used. As an illustra-  regulatory or governmental decision depends
tive social impact, the study used the creation of  on whether it remains secure.
labor opportunities. Employment creation is an
important objective of national policy, and in Sri    Some impacts, however, resist direct quantifica-
Lanka there has occurred frequent discussion of  tion, even in terms of the sort of probabilistic
the need for employment creation in the south   scale derived for biodiversity. For example, the
where youth unemployment rates are especially   quantification of potential damages to aquatic
high. It should be noted that what is captured in  ecosystems from thermal discharges is ex-
this attribute is the separate and purely political  tremely problematic, in large part because of the
objective of employment creation, and is to be  difficulties in extrapolating from one ecosystem
distinguished from strictly economic benefits   to the other. The general effects of thermal
that would be captured by the use of shadow     discharges into coastal waters are of course well
wage rates appropriate to reflect high unem-    known. Discharges into the well-mixed, surface
ployment in the construction cost estimates. All  layer would usually have the general tendency
of these impacts were appropriately discounted  to repel fish. On the other hand, if the discharge
and expressed as a present value. Finally, to   is below the thermocline, thermal discharges
would have a generally beneficial effect, as the
41



Sustainable Energy Development
up-welling effect caused by plume buoyancy         range of 50 to 100: the no hydro option has an
brings nutrients to the layers near the surface.   essentially zero value, because the thermal
Still, attaching specific numerical estimates to   projects that replace hydro plants in this option
the values of this general function is essentially  tend to lie at sites of poor biodiversity value
impossible. What can be done as a generic          (either close to load centers or on the coast). For
calculation that can be used to compare differ-    example, while wind plants would require
ent sites is to begin with a definition of what is  rather large land area, the vegetation of the area
considered to constitute an acceptable environ-    on the south coast has relatively low
mental risk; for example, say a temperature        biodiversity value, and therefore the overall
increase of no more than 1 degree centigrade at    increase in biodiversity impact of this option is
the surface. The surface area over which this      small. Thus, the best options (or non-inferior
criterion is exceeded is then calculated as a      curve) includes the no hydro option, and run-of-
function of the cooling system design proposed.   river hydro options that require essentially zero
inundation. Note the extreme outliner at the top
Some Illustrative Results                         right hand corner, which is the Kukule hydro
dam- it has a biodiversity loss index (B=530)
With options and attribute definitions in hand,   that is an order of magnitude larger than for
the case study then generated the multi-dimen-     other options (B=50 to 70).
sional trade-off space. Using the ENVIROPLAN
model, the attribute values for each of the        The case study drew several useful conclusions.
environmental attributes, and the cost attribute   The first four listed below are of a methodologi-
(for which average incremental cost over a         cal nature, and deal with the extent to which
twenty year planning horizon was used) were        multi-attribute methods are potentially effective
calculated for every option, with results dis-     in assisting decisionmakers. The remaining ones
played as a series of two-dimensional trade-off    deal with the substantive policy recommenda-
curves. In a final step, the list of candidate plans  tions whose focus is to ensure that environmen-
for further study was then derived by examin-      tal considerations are appropriately incorpo-
ing dominance relationships among all criteria     rated in the planning process.
simultaneously.
First, the results of the case study indicate that
Figure 7 illustrates a typical trade-off curve, in  those impacts for which valuation techniques
this case for health impacts. The "best" solu-     are relatively straightforward and well-estab-
tions are those that lie closest to the origin, and  lished- such as valuing the opportunity costs
the so-called trade-off curve, defined by the set  of lost production from inundated land, or
of "non-inferior" solutions, represents the set of  estimating the benefits of establishing fisheries
options that are superior, regardless of the       in a reservoir- tend to be qu-ite small in com-
weights assigned to the different objectives. For  parison to overall system costs, and their
example, on this curve, the option defined as      inclusion into the benefit-cost analysis does not
"iresid", which calls for the use of low sulfur    materially change results.
imported fuel oil at diesel plants is better on
both the cost and the environmental objective      Second, even in the case where explicit valua-
than the use of flue gas desulfurization systems   tion may be difficult, such as in the case of
(identified as the point "FGD").                   mortality and morbidity effects of air pollution,
implicit valuation based on analysis of the
A quite different trade-off curve was derived     trade-off curve can provide important guidance
for biodiversity, and on Figure 8 is illustrated   to decisionmakers. For example, the study
the trade-off between biodiversity index value     determined that the value of human life neces-
and average incremental cost. Most of the          sary to justify flue gas desulfurization at poten-
options have an index value that falls in the      tial sites for coal-fired power plants was on the
42                                                                  Environment Department Papers



Figure 7
Cost Versus Health Impacts
5.9                                                         __
5.8                    + kukuleHD
5.7
5  no DSM
5.6
lowScoal + iresid
5.4                * +FGD                                 noCoal
E
5.3 -                      l *owScoal
¢   5.2   k iresid                               * Mawella>D
5.2       ,,                   T&D>11
5.1-
\     *U + wind
5 -Trade-off curve \
4.9          ++U 2001 * noHydro
-   - - -----  - U basecase(with DSM)                                              C
4.8 _ Quadrant III + PFr 
4 7  U02001                                                     >
4.7            ~IIIC
2         3          4          5          6          7
PV (HEALTH IMPACTS, 2010, 10%)
Source: Meier and Munasinghe 1994.



C-l.
DC
Figure 8                                                 DJ
Cost Versus Biodiversity Impacts
CD
5.9                          _                                                     Q
5.8                                                U * +kukulef 0 D
CD
5.7~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~5
a no DSM
5.6
5.5-
_         5.4 -I +FGD
c
E         5.3 -         IowScoal
5.2 -         iresid
UT&D>Il
C.)       5.1
+ wind
5
4.9 _lioHydro    Trade-off curve
ku
4.8-
i  U02001
4~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 7J l  ___  __ ____   l   - I.
)X 1100        200     300      400     500      600
BIODIVERSITY tMPACT INDEX VALUE IN 2010
Source: Meier and Munasinghe 1994.
CD~~~~~~~~~~~~~~__ 



SED: A Case Study of Sri Lanka
order of $1.5 million. This is at least one (if not  the specific economic value assigned to health
two) orders of magnitude greater than what         effects. Thus, the study clearly demonstrated
would be needed to justify the installation of     that if the health effects of pollutants associated
modern diagnostic equipment at the regional        with fossil fuel combustion (particularly fine
hospitals.                                         particulates and nitrogen oxides) are to be
considered, then the most effective strategy for
Third, the case study indicated that certain       reducing the overall population dose is to install
options were in fact clearly inferior, or clearly  tighter pollution controls at oil-burning power
superior, to all other options when one exam-      plants located in or near urban areas, rather
ines all impacts simultaneously. For example,     than installing FGD systems at the more remote
the high dam version of the Kukule hydro           sites suitable for coal-burning power plants.
project can be safely excluded from all further
consideration as a result of poor performance      Finally, with respect to the practical implica-
on all attribute scales (including the economic   tions for planning, the study came to a series of
one). On the other hand, implementation of        specific recommendations on priority options,
certain demand side management measures            including (1) the need to systematically examine
dominates all other options; that is, they yield   demand side management options, especially
positive gains in terms of economic and envi-      fluorescent lighting; (2) the need to examine
ronmental criteria.                                whether the present transmission and distribu-
tion loss reduction target of 12 percent ought to
Fourth, the results indicate that it is possible to  be further reduced; (3) the need to examine the
derive attribute scales that can be useful proxies  possibilities of pressurized fluidized bed
for impacts that may be difficult to value. For    combustion (PFBC) technology for coal power;
example, use of the population-weighted            (4) replacement of some coal-fired power plants
incremental ambient air pollution scale as a       (on the south coast) by diesel units; and (5) the
proxy for health impacts permitted a number of     need to re-examine cooling system options for
important conclusions that are independent of      coal plants.
45






6 Conclusions
Increasing levels of energy-related environ-  development and the large number of options,
mental degradation in both industrialized and  may require techniques of multi-criteria analysis
developing countries have led to a recogni-  (MCA), rather than conventional cost-benefit
tion of the need for improved energy options  analysis (CBA) methods, to provide a range of
for sustainable development. The primary    feasible alternatives as opposed to one best
objective is to maximize net economic welfare  solution. Using MCA, "win-win" energy options
of energy development while maintaining the  that satisfy all three elements of sustainable
stock of economic, ecological and sociocul-  development (that is, economic, environmental
tural assets for future generations and provid-  and social) may be identified and after having
ing a safety net to meet basic needs and    done so, trade-offs can be made from other
protect the poor. Sustainable energy options  available sustainable energy options. A case study
may be identified using a comprehensive and  of the Sri Lankan power sector demonstrates this
integrated framework for analysis and       approach of MCA may improve decisionmaking.
decisionmaking that takes into account
multiple actors, multiple criteria, multilevel  Dealing with energy-related environmental and
decisionmaking and many impediments and     social issues will require increased cooperation
constraints. In the past, the principle planning  between industrialized countries and developing
objective of energy development has been to  countries. Developing countries have limited
meet the anticipated needs at least economic  capabilities to address global environmental
cost. Now, environmental and social concerns  concerns. Without enhanced flows of incremental
also must be incorporated early at the re-  technical and financial resources from industrial-
gional and sectoral planning stages in order to    ized countries, positive prospects for energy
ensure sustainable energy development.      development that will move the world towards a
However, difficulties in valuing certain    more sustainable development path will be
environmental and social impacts of energy  hampered.
47






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52                                                           Environment Department Papers



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