Energy and Sustainable Development

Abstract

This chapter introduces the basic tenets of sustainable development and presents the global initiatives towards creating a better world for all. It then discusses how energy contributes to unsustainable practices by focusing on energy trilemma and highlights the options available to create a sustainable energy sector that is aligned with the sustainable development agenda.

Annex 13.1: A Brief Summary of Three Sustainability Dimensions

Ecological Perspective of Sustainable Development

The ecological dimension suggests that the developmental activities of present and future generations we should be carried out in such a way that the humanity can live within the ecological limits of the biospehere. Life is found in the biosphere in different ecosystems, where an ecosystem is a “dynamic complex of plant, animal and micro-organism communities and their non-living environment interacting as a functional unit” (Millennium Assessment 2005). There are main three categories of ecosystems, namely terrestrial, freshwater and marine ecosystems, where abiotic (non-living) and biotic (living organisms) components support circular flows of energy and material in the ecosystem to support life. The abiotic component consists of non-living elements such as air, water, rocks, solar energy, and nutrients whereas the biotic component consists of living biological elements—plants, animals and organisms. Within any ecosystem, there are three main categories of members: (1) producers who are responsible for converting inorganic materials into organic matter by capturing energy from the sun; (2) consumers who do not produce their own food and obtain nutrition from other organisms; and (3) decomposers who break down the organic matter of producers and consumers at the end of life into inorganic materials and help recycling the materials within the ecosystem. The natural recycle-reuse process is ensured through this—it maintains energy balance and material balance respecting the thermodynamic and material balance laws.

The ecosystem provides different services (see Table 13.4) to maintain life on the earth. For example, pollination is a key service which entails the transfer of pollen grains by bees and other insects that produces fruit and seed that we consume. Our entire food production is highly dependent on this service but we take the availability of this service for granted. However, human interventions such as deforestation, urbanisation, and industrialisation have changed the ecosystems and in many cases have reduced their ability to provide a range of services.

Table 13.4 Ecosystem services

The Millennium Assessment Report of the state of ecosystem services (Millennium Assessment 2005) found that (1) the ecosystem has significantly changed over the past 50 years due to human interventions, resulting in irreversible and substantial biodiversity loss; (2) the changes to the ecosystem have contributed to human well-being and economic development, but unless corrective actions are taken, the future generations would not be able to get benefits from ecosystem services; (3) the ecosystem services are likely to continue to degrade in the first half of the new millennium; and (4) major changes to policies, institutions and practices would be required to reverse the degradation and ensure meeting the growing needs for services in the future.

The Convention of Biological Diversity (CBD) defines ecosystem approach as ‘an integrated management of land, water and living resources that promotes conservation and sustainable use in an equitable way. The 12 principles, known as Malawi principles of ecosystem approach were adopted by the CBD in 2000. The framework recognises alternative options and allows for careful trade-offs at the discretion of the stakeholders and society. For example, a forest can be managed to maximise wood production but this will reduce the tourism potential. The scientific analysis and advice could help in managing the interactions. The framework highlights the long-term perspective of ecosystem management. The attention to short-terms gains may crease a bias over long-term benefits and affects. The costs and benefits of alternative options over a longer time frame are important to look at. However, there has been limited reflection on the principles and the discussions have been limited to biodiversity related areas and not in environmental area. The principles taken individually are quite vague and do not necessarily offer a sense of practical management principles. Moreover, the implementation is challenging and the concept is ambitious (Waylen et al. 2013).

The trade-off mentioned above brings the issue of valuation of ecosystem services into limelight. The debate in this area remains inconclusive: on one extreme, there are supporters of maintaining the pristine form of nature without any human interference—this view does not see any trade-off opportunities; on the other, there are those who believe that the nature is an economic capital, which is amenable to substitution. Depending on the degree of substitution considered, the composition of the asset (or capital) left behind for future generations can vary. The implication of substitution is discussed below in the economic dimension of sustainability.

Traditionally, putting a value to these services has been neglected. As these services tend to be public goods with jointness of supply and lack of exclusivity, they are often treated as freely available services. Moreover, most of the services are non-traded and there is no invoicing required for most of them. As a consequence, values for these services do not enter in the decision-making process and this encourages their overconsumption and non-optimal use.

The stocks of resources (non-renewable assets) and the flows from them (renewable assets) as well as the ecosystem and ecosystem services can be considered as natural capital (Fig. 13.14). For any decision-making purposes, the valuation of such capital is important but in the absence of a functioning market, the monetary or financial value may be difficult to assign. For the valuation of ecosystem services, the concept of total value of a good or service is used. The total value is composed of (1) use value (Direct and Indirect use value), (2) option value and (3) non-use value. Two broad valuation approaches, namely economic and non-economic valuation, can be used. The economic valuation methods try to determine the public preferences for changes in the state of the environment in monetary terms. Two broad categories of approaches are revealed preference methods and stated preference methods. The revealed preference methods focus on observed behaviour of users directly or indirectly and arrive at the value. These methods rely on market prices or prices of goods and services in the related markets (e.g. effects on housing price as in Hedonic price method, expenses incurred for travelling to enjoy the nature through the travel cost approach, etc.). The stated preference methods on the other hand rely on questionnaires to understand user preferences for a change in the state and to put a value therefrom. Attempts have been made to use these alternative methods to value the nature and one of the international efforts in this area was the Economics of Ecosystem and Biodiversity (TEEB) project (TEEB 2010). Although there has been awareness in this area, more work is required to systematically include valuation of natural capital in the decision-making processes.

Fig. 13.14

Data Source TEEB (2010)

Natural capital classification.

Economic Dimension of Sustainability

The economic debate on sustainability has focused on the following issues: (1) GDP as a measure of wellbeing; (2) decoupling economic growth from resource dependence; (3) inter-generational welfare and resource use.

GDP as a measure of economic activity of a country is widely used globally. The health of an economy is often viewed by looking at the GDP growth rate. As growth implies an increase in the size of the pie, countries all over the world have pursued the growth agenda and higher the growth rate, it is assumed that the country is doing better. Between 1960 and 2015, the global GDP has in fact increased seven-fold (as shown in Fig. 13.15)—thus following an exponential path and the income per person on average has also grown over this period. This implies that the economic growth has outpaced the population growth at an aggregated level.

Fig. 13.15

Growing size of the pie

The economic growth agenda has brought visible changes to the world. Countries have been successful in containing poverty and between 1990 and 2012, the share of population living in extreme poverty has fallen from 44% to 15% (de la Fuente, 2016). Millions of people have come out of poverty in China and India since 1990 and the process accelerated in the new millennium. Progress has also been made in other countries and regions as well. Studies have shown that growth and poverty reduction has followed an inverse correlation: a study by Sala-i-Martin and Pinkovskiy (2006) suggested that in sub-Saharan Africa between 1970 and 2006 “the evolution of poverty is almost an exact mirror image of the evolution of GDP per capita”. This implies that when GDP per capita was growing, poverty was falling and vice versa. This clearly indicates that economic activity growth was the main driver behind poverty reduction.

The growth addiction has served different stakeholders well. Governments can maintain the services (health, benefits, education, etc.) when the economy is growing. Industry benefits from growth as it supports profit generation and expansion of activities by firms. Households also enjoy employment opportunities and income opportunities. But economic growth in the past has come at a cost. According to (UNEP 2011), cheap natural resource availability has supported the phenomenal economic growth over the past century. Natural resource use has grown exponentially between 1900 and 2005: extraction of construction materials grew 34 times, ores and minerals 27 times, fossil fuels by a factor of 12 and biomass by a factor of 3.6 (UNEP 2011). The report suggests that although the resource price followed a somewhat cyclical trend, the composite resource price over the past century has fallen about 30% and the low resource price has supported the expansion of resource-intensive economic growth.

However, such a resource-intensive development path is not sustainable for the following reasons:

• As extraction of resource has intensified, the quality of resources has degraded. The report estimates that to obtain same quantity of ore, three times more mineral volume has to be extracted in the future.

• More physical extraction activity would mean more environmental degradation, more displacement of people, and more damage.

• The resource depletion will mean that prices will rise and cheap resource availability that drove past economic growth cannot be ensured in the future.

Accordingly, the linear system of extract-use–dispose cannot be followed in the future and is not a sustainable practice. This is why sustainable development focuses on development and not growth. Growth means physical increase and if something grows indefinitely, it cannot be sustainable. Thus ‘sustainable growth’ is an oxymoron—contradiction of terms.

Sustainable development then requires growth to be decoupled from resource dependence. Conceptually, this can be viewed from Fig. 13.16, where the slope of economic activity curve is much steeper than that of resource use curve. This suggests that higher economic output is achieved with fewer resources (i.e. doing more with less), which in turn reduces the environmental impact. The aim of development is to improve human wellbeing where economic activities contribute but other activities (non-economic) also has a role.

Fig. 13.16

Data Source UNEP (2011)

Decoupling economic growth.

Decoupling could be seen as an approach of moving away from material-intensive physical growth to a non-material based growth, particularly in the case of developed countries. Innovation plays an important role here—technological and institutional innovations will be required to drive down the losses and improve resource use efficiencies. The concept of circular economy can be a strategy here. Our search for the zero-emissions economy will require us to recover, repair, reuse, and recycle resources and look for radically different ways of doing things with less. For developing countries, there is need for an inclusive material development first so that wellbeing of majority of the population can be achieved. Then at a second level, through technological leapfrogging and governance improvements, they can move to a non-material intensive development.

Intergenerational Welfare and Genuine Saving

The economic literature on sustainable development has paid significant attention to the idea of intergenerational welfare. This follows from the definition that “development that meets the needs of the present without compromising the ability of future generations to meet their own needs”. This suggests that at least the future generations should enjoy at least as good a quality of life as we are having now. This in other words requires a non-declining wellbeing over time.

Recalling our discussion of GDP, and assuming that GDP measures wellbeing, we can make a link between the above requirement (i.e. non-declining wellbeing) and GDP. As GDP measures aggregate consumption of a nation, sustainability would require a non-declining flow of consumption or at least a constant level of consumption over time. How can this be achieved?

In 1977 Hartwick claimed that this can be achieved following the principle suggested in his study. This so-called Hartwick rule says that:

constant consumption is possible if, among other things, natural resource rents from an economically efficient depletion programme are saved and invested in man-made capital, and if the economy’s production function has the necessary substitution possibilities between natural and man-made capital.

However, in reality, countries do not appear to follow the path of development suggested in the Hartwick rule. Hamilton et al. (2005) found that the actual capital accumulation was much lower than the level suggested by the Hartwick rule for most of the resource dependent countries. Countries like Venezuela, Trinidad and Tobago and Gabon could have produced a stock of capital of comparable to that of South Korea if their economies followed the Hartwick rule but in reality they have achieved a lower stock of capital.

This brings us to the important issue of savings. Recall that in the circular flow of economic activities, households can save a part of their income. The saving then supports capital investments which in turn generates the flow of income. Thus, in order to ensure a non-declining consumption level in the future, higher saving is required.

In traditional national accounting, saving is the difference between disposable income and consumption. However, this measure of saving considers only physical capital and does not include the natural capital. The World Bank came up with the idea of genuine saving where they tried to capture the environmental and human capital dimension. The genuine saving starts with the accounting saving but makes the following adjustments: deducts depreciation of physical capital, rent received from natural capital, and damage due to carbon emission (estimated at $20/t of CO₂ emission), and adds the current expenditure on education.

Thus,

$$ {\text{GS}} = {\text{S}} + {\text{E}} - {\text{D}} - {\text{R}} - {\text{C}} $$

where GS—genuine saving, S—gross domestic saving, E—expenditure on education, D—depreciation of capital, R—rent from natural capital, and C—damage cost of carbon emission.

The genuine saving rate is obtained by dividing genuine saving by GDP. It is expected that countries with higher genuine saving rate will be better off compared to those with lower saving rate.

Figures 13.17 and 13.18 present some information on genuine saving estimates. Figure 13.17 presents the top and bottom 10 countries for 2008 whereas Fig. 13.18 presents the trend of genuine saving rate for selected regions.² The list looks surprising at a first glance although the regional trend looks familiar.

Fig. 13.17

Data Source World Bank data (https://data.worldbank.org/indicator/NY.ADJ.SVNG.GN.ZS)

Top and bottom 10 countries in terms of genuine saving (2015).

Fig. 13.18

Data Source World Bank

Trend of genuine saving in selected regions.

The methodology of genuine national saving has however been criticised (see for example Pillarisetti 2005) for several reasons. The inclusion of CO₂ emission damage as a ratio of GDP skews the saving rate. For example, although the US is a large emitter of CO₂, it receives one of the lowest value for CO₂ damage whereas Azerbaijan contributes a miniscule amount of CO₂ but gets the highest score for damage. Similarly, the data quality for several of the elements is low. The rent from natural capital is estimated using limited data which does not really capture the depletion of natural resources. However, this is an attempt in the right direction.

Social Dimension of Sustainability

The social dimension of sustainable development focuses on social development that meets people’s needs and aspirations at present and in the future. The main emphasis is on human wellbeing by addressing the social challenges (like poverty, basic amenities for life, etc.). The link with the economic dimension becomes obvious as a result but the concept of sustainable development requires living within the planetary boundaries and the social dimension has a significant influence in this area. The main objective of the social dimension is to focus on human society, individuals within the society and their interactions with the environment and the economy to ensure wellbeing.

Any society has two integral elements: individuals and the collective. They interact with each other and their mutual influence defines the structures, values and goals of the society. On the other hand, individuals learn from the collective and shape their values, knowledge and visions. Two elements influence each other simultaneously and co-evolve to define the dynamic evolution of the society.

In this context, the social capital is an important concept. OECD defines the social capital as: ‘networks together with shared norms, values and understandings that facilitate co-operation within or among groups” (OECD 2001). In simple terms, it is ‘the links, shared values and understandings in society that enable individuals and groups to trust each other and so work together’ (OECD 2001).

The social capital concept has been used to explain how societies create enabling environment to support prosperity. For example, Putnam focuses on public goods, networks of civic engagement and norms of reciprocity. Some other authors view social capital as a private resource or private good. Most of the authors focus on shared values and understanding. Distinctions are also made between micro-level networks (families) and meso-macro level networks (society). Accordingly, social capital can be considered at different levels: such as bonds (families and close friends, ‘people like us’), bridges (stretches to distant relatives, friends and associates) and linkages (links to people further up or down the social ladder)—OECD (2001).

The social dimension of sustainability has focused on social issues like poverty reduction and improving living conditions such as ensuring basic amenities of life. Poverty is considered a major threat to environment and political stability. This calls for investment in social capital and developing a caring society so that individuals are able to acquire the desired skills and knowledge and prepare themselves for income-generating opportunities. At the same time, the society has to develop a shared vision about the future so that the social development does not lead to degradation of the natural environment.