China, India, Indonesia, the Philippines, Pakistan, and Vietnam are critical for global climate action. Why? Among other reasons, because three-fourths of all new coal-fired power plants to begin operations before 2020 globally will be in these six Asian countries. Fostering more energy efficiency will be imperative in the countries’ efforts to adopt a low carbon energy path.
One initiative that supports efforts to scale up energy efficiency and clean energy – and lower greenhouse gas emissions – in these six countries is the Energy Transition in Asia program managed by the Energy and Extractives Global Practice.
Comprising of knowledge exchange and capacity building on key issues, the program recently held a workshop in Singapore to share lessons learned on energy efficiency, following last year’s learning forum on solar auctions, also held in the city-state. Participants agree that peer-to-peer learning works. After sharing best practice efforts in China, India, Japan, Korea, Mexico, the United Kingdom, and host country Singapore, team spirit and friendships strengthened, along with confidence, productivity and learning outcomes.
By the end of the three-day workshop, participants from governments not only requested follow-up assistance but also to learn more from their newfound friends about conserving more energy. “We were able to advance country engagement with the clients on energy efficiency,” explained Xiaodong Wang, team leader for the Energy Transition in Asia initiative. “Conducive policies that combine mandatory regulations with financial incentives are essential drivers to create market demand for catalyzing investments in energy efficiency.”
Results are already encouraging. China is a leading example. From 1990 to 2010, more than half of global energy savings took place in China, thanks to the government’s ambitious targets, stringent regulatory policies, generous financial incentives, and effective institutions – all of which reiterate strong commitment to energy efficiency. Reducing energy intensity was made a mandatory target, allocated to each province and 17,000 energy intensive enterprises. Efficiency standards for appliances, buildings, and vehicles were upgraded and complemented with billions of dollars of financial incentives in output-based subsidies, rebates for energy efficient consumer products, and compensation for the phase-out of inefficient stocks. All these efforts were monitored across the country.
India also led by example. Energy savings targets – at least for energy intensive industries – were made mandatory with the Perform, Achieve, and Trade scheme (PAT), which also allows the trade of Energy Savings Certificates to achieve targets in a least-cost way. Non-compliance at the end of the three-year cycle incurs a financial penalty. The results of the first phase surpassed targets. The second phase began in April 2017.
Workshop participants from India reminded, however, that these are early years. Following a visit to the district cooling system under Marina Bay Sands – the world’s largest underground facility and its most efficient – S.P. Garnaik, Chief General Manager of India’s Energy Efficiency Services Ltd. (EESL), a joint venture under the Ministry of Power, envisioned replicating such a system in India. But while a policy framework is being prepared to support the use of district cooling systems in rapidly urbanizing India, Garnaik admits that substantial results may take time, as “these are very new concepts.”
In addition to the mandatory output-based target approach in China and India, participants also noted Singapore’s green mark program, which combines mandatory building codes with financial incentives from the government for auditing and investment costs, as a model to emulate.
Indeed, the knowledge gap between participating countries is large. Yet even countries in the ‘nascent’ phase are eager to make progress.
Energy intensity in Asia is highest in Vietnam, with energy consumption by industry accounting for almost half of the country’s total energy use. Current efforts towards energy efficiency are encouraging. Labeling schemes have been established and energy management systems now require energy managers and auditors in large energy users. Indonesia is implementing a similar system.
Learning from one’s peers can be galvanizing. As Trinh Quoc Vu of Vietnam’s Energy Efficiency and Sustainable Development Department at the Ministry of Industry and Trade explains, Vietnam is eager to learn from China’s and India’s shift to a mandatory target approach. Indonesia’s delegates were inspired by their peers’ experience in expanding pilot programs. The Bank is providing advisory services to both Indonesia and Vietnam in their efforts to scale up energy efficiency.
The workshop also highlighted the critical role of strong government support in developing the ESCO business. ESCOS are energy service companies which design and implement energy savings projects. Energized by his peers, Trinh is now intent on exploring mechanisms for promoting and incentivizing the ESCO business in Vietnam.
The World Bank Group supports many energy efficiency financing mechanisms worldwide, including through credit lines, risk sharing facilities, dedicated funds, program-for-results (PforR), and development policy loans. Critical to success is a strong pipeline for deal flows, as well as technical assistance.
In India, the Partial Risk Sharing Facility for Energy Efficiency initiative, financed by the Clean Technology Fund (CTF) and Global Environment Facility (GEF) resources, is supporting private sector ESCO-implemented energy efficiency projects through partial credit guarantees. The proposed new US$300 million India Energy Efficiency Scale Up Operation with EESL is expected to leverage over $1.5 billion of demand side energy efficiency investments across residential and public sectors. Similarly, the China Energy Efficiency Financing Project has leveraged the original World Bank financing eight times over, with a total investment of US$2.6 billion. The project has led to an annual reduction of 11 million tons of CO2 emissions.
Such figures may seem ambitious, but workshop participants were unfazed. Many are confident they will accomplish similar achievements. When learning from one’s peers, who all face challenges in their respective development journey, anything can seem possible.
“Oil for development” budget, challenges and opportunities
Iran has recently announced that its next fiscal year’s budget is going to be set with less reliance on oil revenues.
Last week, Head of the Country’s Budget and Planning Organization (BPO) Mohammad Baqer Nobakht said “In the next year’s budget – it starts on March 19, 2020 – oil revenues will be only spent for development projects and acquisition of capital asset, and not even one rial is going to go to government expenditures and other areas.”
At first glance, the idea is very appealing and it seems if the government manages to pull it off, it will be a significant step for Iran in its movement toward an oil-independent economy. However, it seems that cutting oil revenues from the budget and allocating them only to a specific part of the country’s expenditures is not going to be an easy task.
Although, BPO has already suggested various substitute sources of revenue to replace those of oil, some experts believe that the offered alternatives are not practical in the short-term.
So, how successful will the government be in executing this plan? What are the challenges in the way of this program? What are the chances for it to become fully practical next year?
To answer such questions and to have a clearer idea of the notion, let’s
take a more detailed look into this [so called] ambitious program.
The history of “oil for development”
It is not the first time that such a program is being offered in Iran. Removing oil revenues from the budget and allocating it to development projects goes way back in Iran’s modern history.
In 1927, the Iranian government at the time, decided to go through with a plan for removing oil revenues from the budget, so a bill was approved based on which oil incomes were merely allocated to the country’s development projects.
This law was executed until the year 1939 in which the plan was once again overruled due to what was claimed to be “financial difficulties”.
Since then up until recently, Iran has been heavily reliant on its oil revenues for managing the country’s expenses. However, in the past few years, and in the face of the U.S. sanctions, the issue of oil being used as a political weapon, made the Iranian authorities to, once again, think about reducing the country’s reliance on oil revenues.
In the past few years, Iran’s Supreme Leader Ayatollah Seyed Ali Khamenei has repeatedly emphasized the need for reducing reliance on oil and has tasked the government to find ways to move toward an oil-independent economy.
Now that Iran has once again decided to try the “oil for development” plan, the question is, what can be changed in a program that was aborted 80 years ago to make it more compatible with the country’s current economic needs and conditions.
The substitute sources of income
Shortly after BPO announced its decision for cutting the oil revenues from the next year’s budget, the Head of the organization Mohammad-Baqer Nobakht listed three alternative sources of income to offset oil revenues in the budget planning.
According to the official, elimination of hidden energy subsidies, using government assets to generate revenue and increasing tax incomes would be the main sources of revenues to compensate for the cut oil incomes.
In theory, the mentioned replacements for oil revenues, not only can generate a significant amount of income, but they could, in fact, be huge contributors to the stability of the country’s economy in the long run.
For instance, considering the energy subsidies, it is obvious that allocating huge amounts of energy and fuel subsidies is not a good strategy to follow.
In 2018, Iran ranked first among the world’s top countries in terms of the number of subsidies which is allocated to energy consumption with $69 billion of subsidies allocated for various types of energy consumption including oil, natural gas, and electricity.
Based on data from the International Energy Agency (IEA), the total amount of allocated subsidies in Iran equals 15 percent of the country’s total GDP.
The budget that is allocated for subsidies every year could be spent in a variety of more purposeful, more fruitful areas. The country’s industry should compete in order to grow, people must learn to use more wisely and to protect the environment.
However, practically speaking, all the above-mentioned alternatives are in fact long term programs that take time to become fully operational. A huge step like eliminating hidden subsidiaries cannot be taken over a one or event two-year period.
The development aspect
One big aspect of the government’s current decision is the “development” part of the equation.
A big chunk of the country’s revenues is going to be spent on this part and so the government is obliged to make sure to choose such “development” projects very wisely.
Deciding to allocate a huge part of the country’s income on a specific sector, makes it more prone to corruption, and therefore, a plan which is aimed to help the country’s economy could become a deteriorating factor in itself if not wisely executed.
The question here is, “Is the government going to spend oil money on all the projects which are labeled as ‘development’ even if they lack the technical, economic and environmental justification?”
So, the government needs to screen development projects meticulously and eliminate the less vital ones and then plan according to the remaining truly-important projects.
Even if the “oil-free” budget is a notion that seems a little ambitious at the moment, and even if there are great challenges in the way of its realization, but the decision itself is a huge step toward a better future for Iran’s economy. Although realizing this plan seems fairly impossible in the short-term, it surely can be realized with proper planning and consideration in the long term.
Sooner or later Iran has to cut off the ties of reliance on oil incomes and start moving toward a vibrant, dynamic and oil-free economy; a journey of which the first step has been already taken.
From our partner Tehran Times
Growing preference for SUVs challenges emissions reductions in passenger car market
Authors: Laura Cozzi and Apostolos Petropoulos*
With major automakers announcing new electric car models at a regular pace, there has been growing interest in recent years about the impact of electric vehicles on the overall car market, as well as global oil demand, carbon emissions, and air pollution.
Carmakers plan more than 350 electric models by 2025, mostly small-to-medium variants. Plans from the top 20 car manufacturers suggest a tenfold increase in annual electric car sales, to 20 million vehicles a year by 2030, from 2 million in 2018. Starting from a low base, less than 0.5% of the total car stock, this growth in electric vehicles means that nearly 7% of the car fleet will be electric by 2030.
Meanwhile, the conventional car market has been showing signs of fatigue, with sales declining in 2018 and 2019, due to slowing economies. Global sales of internal combustion engine (ICE) cars fell by around 2% to under 87 million in 2018, the first drop since the 2008 recession. Data for 2019 points to a continuation of this trend, led by China, where sales in the first half of the year fell nearly 14%, and India where they declined by 10%.
These trends have created a narrative of an imminent peak in passenger car oil demand, and related CO2 emissions, and the beginning of the end for the “ICE age.” As passenger cars consume nearly one-quarter of global oil demand today, does this signal the approaching erosion of a pillar of global oil consumption?
A more silent structural change may put this conclusion into question: consumers are buying ever larger and less fuel-efficient cars, known as Sport Utility Vehicles (SUVs).
This dramatic shift towards bigger and heavier cars has led to a doubling of the share of SUVs over the last decade. As a result, there are now over 200 million SUVs around the world, up from about 35 million in 2010, accounting for 60% of the increase in the global car fleet since 2010. Around 40% of annual car sales today are SUVs, compared with less than 20% a decade ago.
This trend is universal. Today, almost half of all cars sold in the United States and one-third of the cars sold in Europe are SUVs. In China, SUVs are considered symbols of wealth and status. In India, sales are currently lower, but consumer preferences are changing as more and more people can afford SUVs. Similarly, in Africa, the rapid pace of urbanisation and economic development means that demand for premium and luxury vehicles is relatively strong.
The impact of its rise on global emissions is nothing short of surprising. The global fleet of SUVs has seen its emissions growing by nearly 0.55 Gt CO2 during the last decade to roughly 0.7 Gt CO2. As a consequence, SUVs were the second-largest contributor to the increase in global CO2 emissions since 2010 after the power sector, but ahead of heavy industry (including iron & steel, cement, aluminium), as well as trucks and aviation.
On average, SUVs consume about a quarter more energy than medium-size cars. As a result, global fuel economy worsened caused in part by the rising SUV demand since the beginning of the decade, even though efficiency improvements in smaller cars saved over 2 million barrels a day, and electric cars displaced less than 100,000 barrels a day.
In fact, SUVs were responsible for all of the 3.3 million barrels a day growth in oil demand from passenger cars between 2010 and 2018, while oil use from other type of cars (excluding SUVs) declined slightly. If consumers’ appetite for SUVs continues to grow at a similar pace seen in the last decade, SUVs would add nearly 2 million barrels a day in global oil demand by 2040, offsetting the savings from nearly 150 million electric cars.
The upcoming World Energy Outlook will focus on this under-appreciated area in the energy debate today, and examines the possible evolution of the global car market, electrification trends, and consumer preferences and provides insights for policy makers.
While discussions today see significant focus on electric vehicles and fuel economy improvements, the analysis highlights the role of the average size of car fleet. Bigger and heavier cars, like SUVs, are harder to electrify and growth in their rising demand may slow down the development of clean and efficient car fleets. The development of SUV sales given its substantial role in oil demand and CO2 emissions would affect the outlook for passenger cars and the evolution of future oil demand and carbon emissions.
*Apostolos Petropoulos, Energy Modeler.
A Century of Russia’s Weaponization of Energy
In 1985 a joint meeting between U.S. President Ronald Reagan, and former Soviet leader, Mikhail Gorbachev conveyed this enduring sentiment during the height of the Cold War, “a nuclear war cannot be won and must never be fought.” This sentiment began moving both countries, and the world away from Mutually Assured Destruction (M.A.D.); and soon thereafter the Cold War ended. With the rise of Vladimir Putin, and the return of the Russian strongman based on the Stalin-model of leadership, Russia now uses and wields Russian energy assets, as geopolitical pawns (Syrian and Crimean invasions) the way they once terrorized the world with their nuclear arsenal.
Russia will remain a global force – even with an economy over reliant on energy – and Putin being the political force that controls the country. What makes the Russian weaponization of energy a force multiplier is “its vast geography, permanent membership in the UN Security Council, rebuilt military, and immense nuclear forces,” while having the ability to disrupt global prosperity, and sway political ideologies in the United States, Europe, Middle East, Asia, and the entire Artic Circle.
Putin understands that whoever controls energy controls the world – mainly fossil fuels – oil, petroleum, natural gas, coal, and nuclear energy to electricity is now added to this dominating mix. Now that Stalin has taken on mythological status under Putin’s tutelage, Joseph Stalin once said: “The war (WWII) was decided by engines and octane.”Winston Churchill agreed with Stalin on the critical importance of fuel: “Above all, petrol governed every movement.”
The most devastating war in human history, and one that killed millions of Russians continues driving Putin’s choice to make energy the focal point of their economy, military, and forward-projecting foreign policy. This began the modern, energy-industrial complex that mechanized and industrialized energy as a war-making tool that still affects people-groups, countries, and entire regions of the world.
Russia, then the U.S.S.R. (former Soviet Union), and now current Russia have always thought of energy as a way for their government to dominate their countrymen, traditional spheres of influence (Ukraine, Georgia, Moldova, Ukraine, Estonia, Latvia, Lithuania, Belarus, Central Asia), and a strategic buffer zone against land-based attacks that came from Napoleon and Hitler’s armies that still haunts the Russian psyche.
The timeline of Russia from the 1917, violence-fueled Russian Revolution that brought the Bolsheviks to power, the rise and death of Stalin in 1953, World War II in-between, the Cold War that began March 5, 1946 in Winston Churchill’s famous speech declaring “an Iron Curtain has descended across the Continent,” has been powered by energy.
This kicked off the Cold War until the collapse of the Soviet Union in 1991. During this epoch in history the Soviets promoted global revolution using their economy and military that ran on fossil fuels and nuclear weaponry. In 1999 Vladimir Putin becomes Prime Minister after Boris Yeltsin resigns office, and the rebirth of the Soviet Union, and weaponization of energy continues until today under Putin’s regime.
What Russia now promotes foremost over all objectives: “undermining the U.S.-led liberal international order and the cohesion of the West.”Russia’s principal adversaries in this geopolitical tug-of-war over energy and influence are the U.S., the European Union (EU), and North Atlantic Treaty Organization (NATO). All of these variables are meant to bolster Russia and Putin’s “commercial, military, and energy interests.”
This geopolitical struggle doesn’t take place without abundant, reliable, affordable, scalable, and flexible oil, and natural gas. This is likely why Russia has begun a massive coal exploration and production (E&P) program that has grown exponentially since 2017 according to Russia’s Federal State Statistics Service.
The entire Russian economy is now based on rewarding Putin’s oligarchical cronies, and ensuring Russian energy giants Rosneft and Gazprom can fill the Kremlin’s coffers to annex Crimea and gain a strategic foothold in the Middle East via the Syrian invasion. This economic system is now referred to as “Putinomics.” Using energy resources to fund global chaos, and wars while rewarding his favorite oligarchs and agencies that do the Kremlin’s bidding.
Russia is now in a full-fledged battle with western powers, and its affiliated allies over the fossil fuel industry. While the rest of the world is attempting to incorporate renewable energy to electricity onto its electrical grids, and pouring government monies into building momentum for a carbon-free society, Russia is going the opposite direction.
Moscow’s energy intentions are clear, and have been for over one hundred years. Currently, there Syrian foothold has allowed them to entrench themselves back into the Middle East. This time they aren’t spreading revolutionary communism, instead it is Putin-driven oil and natural gas supplies through pipelines and E&P rights acquired in “Turkey, Iraq, Lebanon, and Syria.”
Russia has a clear pathway to block U.S. liquid natural gas (LNG) into Europe, and a land bridge from the Middle East to Europe almost guarantees Russian natural gas is cheaper, more accessible, and maintains that Europe looks to Russia first for its energy needs. By cementing their role as the “primary gas supplier and expands its influence in the Middle East,” the U.S., EU, and NATO’s military dominance are overtaken by natural gas that Europe desperately needs to power their economies, and heat their homes in brutal, winter months.
To counter Russian energy influence bordering on a monopoly over European energy needs, the current U.S. administration should make exporting natural gas into LNG a top “priority.” Work with European allies in Paris, Berlin, and NATO headquarters to operationally thwart Moscow’s “Middle East energy land bridge.” Global energy security is too important by allowing Russian influence to continue spreading.
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