Energy and Development: The Need for Relevant Information (Excerpt)

Lincoln Gordon
Resources for the Future

To place the issues of energy information in developing countries in a broader perspective, one might well ask; "Information for whom and for what purpose?" Today that may seem like a naive question, to which the obvious answer is "Information for energy policy makers and development planners for the purpose of resolving each country's national energy crisis."

Upon investigation, however, it soon becomes clear that energy policy is itself not a simple or clear-cut concept. The relationships between energy policies and development are highly complex. The crises or problems to be resolved or managed require careful definition. Unless systematic thought is given to the linkages between problems and policies, and the relevance of information to policy issues, the gathering and analysis of information may waste budgetary resources and scarce technical talent.

Energy policy makers must consider the effects of energy supply and use on development processes: To what extent does energy constrain the rate of economic growth or force development into particular patterns? What is the relation ship between energy policies and alternative development strategies? Are there particular aspects of development on which energy policies exert a decisive influence? If energy is certain to become scarcer and higher in cost, what adaptations and adjustments can minimize the adverse effects on development? In order to answer such questions both developing and industrial countries are now trying to work out comprehensive plans for their energy sectors. Such plans include an analysis of demand related to the hopes or expectations for economic growth; an analysis of supply, examining alternative ways of meeting the projected demand; and a financial analysis covering investments in the energy sector and the impact on the balance of payments. An important component affecting both demand and supply concerns the possibilities for conservation, or improved efficiency in energy use.

THE DEVELOPING COUNTRIES AND THE WORLD ENERGY FRAMEWORK

As a group the developing countries account for about 75 percent of the world's population, but only about 22 percent of the world's economic output. When the exchange rates are corrected to reflect comparative purchasing power more accurately, 22 percent becomes something like 37 percent. Since developing countries now consume about 20 percent of total commercial energy and very large amounts of traditional noncommercial energy, there is a rough correspondence between total energy consumption and total economic output.

For most purposes of development planning and energy policy making, aggregated figures on developing countries as a group are useless. The group is much more heterogeneous than the industrial countries. Per capita incomes range from $100 to $2,500 per year; some have large industrial sectors while others are almost purely agricultural; some are oil exporters and others are entirely dependent on imports for commercial energy supplies; some are enjoying rapid growth while others are suffering from stagnation or even retrogression. The aggregate figures, however, are interchangeable to some extent at the margin and most countries are either energy importers or exporters, so that all changes in supply or demand ultimately impinge on the world oil market. Oil accounts directly for 45 percent of commercial energy consumption, and almost 60 percent of the oil produced in the world moves in international trade. For cereal grains, in contrast, total exports amount to only about 11 percent of world production. Of total oil exports, 86 percent comes from developing countries (80 percent from OPEC members), and only 14 percent from industrial countries --mainly, the Soviet Union, Canada, Norway, and Britain.

Much less widely appreciated is the growing importance of the developing countries on the demand side. For example, three salient aspects of change in the world energy economy between 1955 and 1978 were: (1) the large increase in total energy consumption (2.7 times, or 4.4 percent per year); (2) the even greater increase in consumption of liquid fuels (6.2 percent per year); and (3) the spectacular growth in the developing countries' share (from 9.5 to 21.1 percent) of the total, reflecting a 7,9 percent annual growth rate.

For all energy projections for the rest of the century consumption growth rates for commercial energy in developing countries will most likely exceed those of the industrial countries by 2-4 percentage points. Part of this reflects the differential in population growth, while the rest reflects differences in the character of structural change in the two sets of countries and in expectations concerning demand response to higher prices. That outlook might be reversed, either by a major and long-lasting worldwide economic depression or by unavailability of adequate energy supplies at costs affordable to the developing countries. Assuming, however, that macroeconomic disaster can be averted, a continued energy consumption growth differential of 3 points or more between industrial and developing countries appears highly probable. If realized, the developing countries' share in world commercial energy consumption would rise to about 25 percent by 1990 and over 30 percent by the end of the century, which could have a major impact on market conditions.

If additional commercial energy consumption continues to take the form of imported oil, as has been the case for many developing countries, pressures on the balance of payments may lead either to cuts in other essential imports or to levels of borrowing that undermine the countries' creditworthiness. In either case, the prospects for sustained development will be jeopardized. At the same time, the added demand will put further upward pressure on world oil prices. The 1973 oil price jumps affected the growth rates of developing countries less than those of the industrial group, although it should be borne in mind that with population increasing at over 2 percent a year, the 21 percent reduction in overall growth rates (6.7 to 5.3) translates into a 30 percent reduction in growth rate per capita. Still, the catastrophes anticipated in 1974 did not come to pass, largely due to international borrowing by developing countries, mostly from commercial banks-so large, in fact, that it not only covered the increase in trade deficits but also built up reserves of foreign exchange. Meanwhile, the real price of oil was being eroded by general inflation and the OPEC (Organization of Petroleum Exporting Countries) countries were increasing their imports very rapidly, so that the volume of surplus petrodollars fell from $62 billion in 1974 to $9 billion in 1978. It looked as if the world were making a successful set of adjustments to the oil price shock.

That optimistic prospect has disappeared with the second round of major price increases-roughly a doubling during the course of 1979, and more in 1980, The OPEC surplus surged back to over $60 billion in 1979 and may reach $90 billion or more in 1980. High interest rates have made borrowing more expensive, and a growing number of developing countries are approaching the limits of ability to service debt; the banking system is also showing signs of nervousness. There is no realistic prospect of repeating in the early 1980s the comfortable adjustments of the mid-1970s. The world energy situation now facing us, therefore, combines both long-term problems and short-term crisis, the latter arising from the absence of coherent policies for assuring a gradual and nondisruptive longer-term transition.

Policies are needed in four areas: (1) national and international macroeconomic adjustment to sudden price increases, including the recycling of petrodollars; (2) minimizing and managing the short-term disruptions arising from any supply-price "crunch" that may occur in the oil market; (3) coping with the international security dangers of supply interruptions (to which might be added the other set of security dangers related to nuclear proliferation); and (4) defining and moving to patterns of energy supply and use to replace the era of cheap oil and gas. Developing countries are deeply involved in all these areas, and relevant information is an essential ingredient of policy making in all four.

ENERGY POLICIES AND DEVELOPMENT STRATEGIES

Energy planning must be an integral part of broader development planning and must be subordinated to wider goals and strategies. Energy supply and use are not ends in themselves; they are only means or instruments.'

In examining the relationships between energy and development, one concludes that the energy sector is more strongly linked to economic growth in the developing countries than in the industrial countries, and that there is no alternative development strategy offering an easy escape from the constraints of higher energy costs. Energy self-sufficiency is not to be pursued at all costs; for many countries, economic development will be better served by maintaining some level of imports, perhaps replacing some oil with coal, and by other forms of energy interdependence. Nor are there any panaceas in the form of either cheap supply substitutes or dramatic conservation opportunities.

Rather the answers will be found in a host of actions on both the demand and the supply sides, sector by sector and region by region. With energy now a costly resource, the needs, costs, and benefits must be evaluated objectively. That purpose can only be served with a foundation of reliable and relevant information.

INFORMATION NEEDS FOR ENERGY PLANNING

On the supply side, the starting point is obviously an inventory of known and probable conventional energy resources: coal, oil, gas, and water power. With the escalation of oil prices, many formerly submarginal resources of these types will now be competitive with imports or close enough to become so soon under plausible estimates of further oil price increases. An analysis will require geologists, engineers, and economists. Unless all three are involved, the end results are likely to be misleading.

With old or new types of renewable resources, other than large hydropower, supply information becomes much more complex, involving insolation at various places and seasons, water runoff at different seasons, soil and forest surveys, and wind measurements. Thus it might be best to concentrate on information relevant to clearly applicable technologies and avoid the dissipation of resources on comprehensive surveys with no visible applicability.

This workshop, however, is mainly concerned with information for demand analysis, including conservation opportunities. In many cases, of course, demand and supply are inseparable, one creating the other. The starting point is a reasonably complete base-line picture of how energy is presently used, arrayed by sectors and major subsectors and by principal forms of energy. Noncommercial sources must be included. If any historical data are available, they will help suggest trends and perhaps give some guidance on price and income elasticities.

One object of demand analysis is to predict with some confidence the energy implications of major policy measures, either programs or projects. Examples might be increasing agricultural yields, building a highway, encouraging industries to produce wage goods, rural electricification in a given region, or providing new types of urban services. In most cases the purpose will be to determine the energy requirements associated with these policies so that they can be supplied at least cost. But there will also be an increasing number of cases in which higher energy costs will sufficiently affect the cost-benefit balance to lower the priority of a given project or to rule it out entirely. Alternatively, the energy analysis may point to the need to revise the program or project to obtain greater energy efficiency or to adapt it to the use of lower-cost energy sources.

Information is not a free good. Its collection and analysis require not only money but a combination of scarce talents, and the design of every information project should therefore be consciously related to the purposes it is intended to serve. If those purposes can not be specified, the project itself becomes questionable. But as we open this new decade, the critical place of energy as a constraint on both rates and patterns of growth looms so large that there will certainly be an ample supply of important policy purposes necessitating energy information programs of sound design and execution.