Energy efficiency is emerging as one of the most viable options for climate change mitigation in South Asia, where urbanization, economic growth and expanding middle class is resulting in rapidly growing energy demand, which will continue to be fueled largely by fossil fuels. Realizing the fact that fostering energy efficiency is an impediment and not a choice anymore, these countries have started making major efforts to scale up energy efficiency as a part of meeting national goals through their low-carbon roadmaps and to help meet their global commitments through Nationally Determined Contributions (NDC) targets.
Transforming energy efficiency markets on scale requires addressing several barriers which most developing countries face. One way to leap-frog into scaling up efforts in the energy efficiency area is to learn from others on how to become more energy efficient and adapt and apply those implementation models. It was against this backdrop, that a group of energy practitioners from Bangladesh, India, Nepal, Pakistan and Sri Lanka came together in Korea on Feb 26 to March 2 this year, to learn from each other through the South-South Knowledge Exchange Program on Energy Efficiency. Organized by the Korea Energy Agency, in collaboration with the World Bank and with support from the Korea-World Bank Partnership Facility, this week-long training provided a great opportunity for 12 experts from South Asia, along with World Bank energy specialists and practitioners from Korean organizations to learn about energy efficiency policies, business models and financing mechanisms to promote demand-side energy efficiency improvements across different sectors.
This exchange program provided a platform for dissemination, sharing and exchange of knowledge, primarily drawing upon Korea’s extensive leadership in the area of energy efficiency and demand side management. This has been reinforced by robust policies and legislations since 1980, and supported by financial mechanisms, institutional development and increased awareness. Korea’s experience in energy efficiency is even more relevant – it meets 95% of its energy needs through imported resources, contributing almost a quarter of the country’s total imports. Through its energy efficiency and green growth strategies, Korea has been able to reduce its energy intensity in industries and buildings through the application of robust and innovative measures and targets. The knowledge exchange platform provided a chance to the World Bank specialists, country practitioners from South Asia and key players in energy efficiency from Korea to network amongst themselves and understand the challenges and solutions.
During this week, the participants attended a blend of classroom presentations and training in energy efficiency and demand side management at the headquarters of the Korea Energy Agency located in Yongin-si, Gyeounggi-do, about 40 kilometers outside of Seoul – as well as a visited a number of relevant stes in and around Seoul where modern, innovative energy efficiency solutions are put into practice. Leading Korean experts from the Korea Energy Agency, energy saving companies (ESCOs – firms which design, finance and implement energy savings projects) and other experts from Korea, along with the Global Green Growth Institute and the Green Climate Fund, met and discussed on a host of issues – ranging from industrial energy efficiency, energy efficiency in buildings and public facilities (e.g., street lighting) to ESCO and energy financing mechanisms, energy auditing, energy efficiency standards and labelling programs for appliances, building codes as well as financial mechanisms like soft loans and tax incentives to support energy efficiency investments. The participants actively engaged with the trainers to learn more about success factors and how those could be replicated in their respective countries.
Participants learned about the importance of concessional loans for energy efficiency investments. These are provided with an interest rate of 1.5% (below the market rate), up to 10 years tenor and with a grace period from three to seven years, in addition to a tax credit of up to 10%. The mandatory energy auditing introduced in Korea in 2007, targets 3,400 facilities of energy-intensive companies using more than 2,000 ton-oil-equivalent per year. Another topic that impressed the participants was Korea’s ESCO program with its Energy Use Rationalization Fund through which the banks lend (up to USD 18 million per project) to ESCO projects. With 310 registered ESCOs, their market and business in Korea has boomed in recent years, with USD 1.3 billion in loans to ESCOs during 2014 to 2016. The innovative ESCO factoring business model of financial transaction where a business sells its accounts receivable to a third party at a discount in exchange for immediate cash – has been successful in addressing the ESCO liability issues in Korea.
During the visit to Land and Housing “Smartium”, participants saw how Korean government housing policies and programs are supporting development of with buildings and homes with state-of-the-art energy efficient appliances and systems, ranging from intelligent refrigerators to smart dressers to organic waste recycling systems. The Seoul Metropolitan Government showcased a highly energy efficient building where more than 28 percent of the energy used comes from eco-friendly energy sources, like photovoltaic solar panels, solar thermal and geothermal – and the Lotte World Tower – Korea’s tallest building and the 5th tallest in the world, with a very modern, green construction practices have been adopted.
Over the time, the World Bank Group has funded several energy efficiency efforts worldwide, with the Bank’s own resources supplemented by Clean Technology Fund (CTF) and Global Environment Facility (GEF) and other resources. The financing mechanisms included credit lines, risk sharing facilities, dedicated funds, program-for-results (PforR), and development policy loans. One of best case practice in this respect is the proposed new US$300 million PforR-cum-guarantee India Energy Efficiency Scale Up Operation with EESL which should leverage over $1.5 billion of demand side energy efficiency investments across residential and public sectors in this South Asian nation. This knowledge exchange program provided an opportunity for the participants to also share knowledge based on the experience from their own countries in South Asia and engage in active discussions to explore ideas that they could pursue upon their return home. For instance, they learned about the successful story of the largest Light Emitting Diode (LED) bulb distribution program in the world (about 300 million LED bulbs) in India implemented under the ULAJA program by Energy Efficiency Services Limited (EESL), the world’s largest public ESCO.
The one-week interaction in Korea added a new page to the successful partnership and cooperation in energy efficiency between the World Bank and the Korea Energy Agency that started over ten years ago. At the end of the one-week training, the participants noted that the program was very rewarding. They were not only content about the level of knowledge they acquired and of which their countries can potentially benefit from, but also that they were able to learn from each other about their accomplishments and challenges, especially given that some of these South Asian nations are in their early stage on the path towards more energy efficient economies.
‘America First’ vs. Global Financial Stability
The recently concluded annual meeting of the IMF and World Bank group, held in Indonesia last weekend, has highlighted a series of concerning trends with regard to the global economy. It has subsequently left many considering the impacts of a possible global recession that may be looming ahead in the next of couple of years to come. These fears were evident in the worldwide sell-off in global equities last Thursday that has been widely attributed to the IMF revising down its global growth forecast in its World Economic Outlook (WEO) report. The report highlighted growth in a number of developed economies as having plateaued, with rising trade tensions and policy uncertainty greatly contributing to the slow-down. This includes the ongoing trade war between the US and China, as well as the numerous uncertainties pervading within the Euro-Zone.
All of this has had a significant knock-on effect on emerging markets, including Pakistan which has already been struggling with massive fiscal and current account deficits amid rampant inflationary pressures. With tensions between the United States and China still on the rise, Pakistan presents a notable example of how deteriorating global macro-economic conditions have been exacerbated by rising geo-political tensions between these two global powers.
For instance, it took Imran Khan’s fledgling government months to accept the reality of another IMF bailout (Pakistan’s 13th in the last 30 years) despite its $68 billion investment commitment with China. This is because the US, being the largest contributor of funds to the IMF has increasingly politicized this bailout in light of its own deteriorating relations with China. In fact, the US has directly blamed China for Pakistan’s recent debt woes referring to what has been come to known as China’s ‘Debt Trap Diplomacy’. The argument being that the massive loans being doled out by China to developing countries under its Belt & Road Initiative are leading to unsustainable debt levels, eroding their sovereignty while expanding China’s hold over them. Pakistan’s loan obligations to China as part of the China Pakistan Economic Corridor are presented as a case in point.
Despite both Pakistan’s and China’s protests to the contrary, it is widely expected that some of the IMF’s conditions attached to Pakistan’s requested bailout are thus likely to include greater scrutiny and revisions regarding the CPEC initiative. This is likely to form part of the US’s overall objective of limiting and constraining China’s influence over Pakistan and the wider region. The impact this would have on Pakistan however is likely to prove critical considering its precarious economic as well as geo-political position. Not only would the IMF’s conditions limit the new government’s ability to maneuver its economy around an increasingly unstable world financial system; it would also delay the much needed infrastructure projects being planned and implemented under CPEC with Chinese assistance. Therefore, the very purpose of the IMF bailout which is to provide some semblance of stability to Pakistan’s ailing economy, would embroil it deeper in uncertainty as a direct result of the US’s unilateral push against China.
It is worth noting here that during its annual meeting, the IMF clearly voiced its concerns regarding escalating trade tensions between the US and China. While calling for increased dialogue and a careful examination of debt induced risks across the world, the IMF seems to be warning both sides over the fragility of prevailing global economic conditions. At the same meeting, China too echoed these concerns and called for increased dialogue with the US to promote open trade and growth. As a country that has for the last few decades championed globalization, China’s vision of shared global growth and win-win partnerships in emerging markets such as Pakistan, have however been directly challenged by the US. A US, that is in contrast aggressively willing to defend the prevailing status quo, as part of President Trump’s mantra of ‘America First’. Hence it was no surprise that US representatives, in response to these concerns brought up by the IMF and China, have continued to downplay the risks of their policies on global economic stability.
With respect to China and numerous emerging markets such as Pakistan, the fact still remains that the world financial system is currently replete with risks and uncertainty as a direct result of US policy. All of this is occurring while the US President continues to boast about surging US equities and record employment figures as a direct outcome of these policies. While the US economy has experienced sustained growth since the 2008 financial crisis, markets and business cycles have a way of correcting themselves, especially when world leaders themselves point to overbought and overextended conditions.
If the US economy truly is on the cusp of a potential downturn, then present geo-political tensions are more than likely to exacerbate the impacts of an impending global recession. For Pakistan, with its precariously low foreign currency reserves and an unsustainable debt to GDP ratio, such a recession is likely to bring on even bigger problems than any of the potential cuts the IMF may propose on CPEC. Thus, while the US may limit China’s rise as an economic power in the short-term, it does so at the expense of emerging markets and global economic stability in the long-run. This lack of foresight is likely to hurt the US more as it realizes how economies cannot exist within a vacuum in an increasingly interdependent world.
How to finance Asia’s infrastructure gap
Asia’s countries famously need to invest trillions of dollars a year to provide infrastructure required to keep traffic flowing, ports trading, and factories humming. Yet most countries in the region consistently fall short.
The 2017 Asian Development Bank (ADB) report “Meeting Asia’s Infrastructure Needs” puts the infrastructure tab for 45 developing Asian countries at more than US$1.7 trillion per year. Developing Asia now invests only about $881 billion a year, or slightly more than 50 percent of that. This is the infrastructure gap.
Less well known, however, is that the investment shortfall is frequently not for a lack of funds or technology. The money may be available, particularly in the private sector, but not enough of it is going where Asia needs it. And this is because many developing countries lack the knowledge and capacity to design and implement bankable infrastructure projects that integrate new technologies.
To encourage private sector investment in infrastructure, high-quality bankable projects must adopt current levels of proven technology as well as be “future-proofed” to further advances in technology.
Delegates from across the development spectrum — from government through the private sector — will gather on Oct.13 in Bali for the Global Infrastructure Forum 2018 to discuss several trillion-dollar questions. How can governments and the private sector help fill the infrastructure gap? How can authorities’ better pair the world’s big investors with the many inclusive, resilient, sustainable, and technology-driven infrastructure projects this region needs to advance economic progress? And how can multilateral development banks best help?
To be sure, strong infrastructure projects are going up all over Asia. Take Indonesia, the Forum host; the country has made enormous strides under its ongoing and ambitious infrastructure program.
The country has seen progress: from the trans-Papua road project in one of the country’s most remote and underdeveloped regions to better information and communications technology under the Palapa Ring (satellite) Project. Indonesia has also launched innovative and clean energy projects such as the 72-megawatt Tolo wind-farm in South Sulawesi and massive urban infrastructure to boost Jakarta’s livability and competitiveness. This latter project includes a new modern airport terminal, rail link, and the first phase of the mass rapid transit expected to open in 2019.
Knowledge is crucial to get such projects off the ground, and this is where the multilateral development banks, including ADB, can assist.
The development banks are providing governments financial and technical support to enhance knowledge in numerous areas.
ADB is also helping strengthen government and private sector project development and governance capacity, for instance, for preparing high-quality projects able to support private finance. It also established the Asia Pacific Project Preparation Facility, a $73 million multi-donor trust fund to support project preparation, monitoring, and project restructuring, as well as capacity building and policy-reform initiatives linked to specific projects.
In addition, the organization is promoting public-private partnerships, catalyzing regulatory reforms to make infrastructure more attractive to private investors, and encourage more bankable projects. Potential is vast, in that pension funds alone, which hold $7.8 trillion in assets, are estimated to invest only about 1 percent of funds under management in infrastructure.
A recent ADB report, “Closing the Financing Gap in Asian Infrastructure,” notes that the richer Asian economies, such as Japan — where savings rates top 30 percent — can clearly play a stronger role if it only could. Yet, the country still invests almost $4 trillion in portfolio assets outside Asia.
Likewise, ADB is developing alternative financing structures and is backing green finance to encourage a bankable green finance project pipeline that can access funds from commercial and institutional investors. Many major investors are now strictly subject to environmental, social, and governance requirements in their investment decisions.
Finally, as technology rapidly evolves, particularly digital, it is creating substantial opportunity. Land acquisition, for example, significantly delays infrastructure projects across the region. Digital technologies are therefore being tested in several countries and watched closely for an ability to improve land titling. Likewise, ADB is involved in Spatial Data Analysis Explorer to help in decision-making relevant to climate hazards and resilience across urban systems.
Multilateral development banks can play multiple roles, from assisting and advising on the creation of appropriate legal and regulatory frameworks, developing bankable projects, direct financing or providing credit enhancement tools to finance projects, to structuring innovative “blended finance” solutions in circumstances where the underlying project is incapable of supporting a financing structure priced at commercial funding rates. In all of this, multilateral development banks and other development partners can assist developing countries gain the knowledge to better develop sustainable, accessible, resilient, and quality infrastructure.
Prema Gopalan Honoured as India Social Entrepreneur of the Year 2018
The Schwab Foundation for Social Entrepreneurship, in partnership with the Jubilant Bhartia Foundation, announced Prema Gopalan of Swayam Shikshan Prayog (SSP) as India Social Entrepreneur of the Year (SEOY) 2018. The award honours her exceptional contribution in revitalizing rural economies by empowering women to succeed in remote and ailing markets. The SSP model comprises four ventures: a federated network of 5,000 self-help groups; a resilience fund for women-led businesses; a rural school of entrepreneurship and leadership for women; and a market aggregator that provides warehousing, branding, marketing and distribution services to last-mile business women. In addition, it has catalysed the government, investors, financial institutions and Indian and global corporations to partner directly with grassroots women business leaders.
Over two decades, this has had a domino effect in 2,000 climate-threatened villages across six states of India. Over 97,000 women in drought and flood-affected villages have set up enterprises in clean energy, sanitation, basic health services, nutrition and safe agriculture. They have transitioned from self-employment to diversify their ventures, aggregate into value chains and mentor thousands of others to get on the path of entrepreneurship – 900 women are recognized locally as climate resilience leaders and 500 are playing a role in local governance. SSP’s grassroots women entrepreneurs are taking their communities forward as part of their business success. As SSP partners with the government to scale its model, it is demonstrating that investing in rural women entrepreneurs can be a solid strategy for transforming India.
Smita Ram and Ramakrishna NK of Rang De were also selected as finalists for their work on unlocking unusual channels of capital for India’s poorest, building bridges between India’s credit-starved communities and ordinary citizens who contribute to meet the education, health and enterprise needs of resource-poor populations. Working on the premise of “micro-investment for micro-loans”, this peer-to-peer lending platform has to date disbursed INR 70 crore from 14,000 social investors and philanthropists to benefit 60,000 families.
“The World Economic Forum has long championed gender equality on the global agenda,” said Hilde Schwab, Chairperson and Co-Founder of the Schwab Foundation for Social Entrepreneurship. “The 2018 winner, Prema Gopalan of Swayam Shikshan Prayog, has demonstrated that investing in rural women is a good investment. Female entrepreneurs are critical actors to help bring about the transformation that India seeks!”
Congratulating the winner, Shyam S. Bhartia, Founder and Chairman, Jubilant Bhartia Group, and Founder Director of Jubilant Bhartia Foundation, said: “We are entering the tenth year of partnership with the Schwab Foundation. In the last nine years, we received more than 1,400 applications for this award. The response is indeed overwhelming and the quality of the applications very competitive. We are glad to see how the SEOY India Award is able to identify and bring to the forefront the enterprises who are achieving social impact at a larger scale. We hope that this year’s SEOY India Award winner will serve as an inspiration to future generations of social innovators.”
The SEOY India Award brings some of the country’s most remarkable change-makers on to a common platform. These social entrepreneurs are promising self-starters, with a strong inclination towards addressing the most pertinent needs of marginalized communities in scalable and sustainable ways. Their endeavours encapsulate alleviating poverty, hunger, gender inequality, promoting women empowerment and education. These social entrepreneurs are torch-bearers who have taken the onus of working towards managing micro-finance needs and finding solutions to daunting challenges like climate change. The tenets of this year’s finalists are aligned with the United Nation’s Sustainable Development Goals.
The winner will be invited to join the Schwab Foundation’s global community of over 350 social innovators. Social Entrepreneurs are driven by their mission to create substantial social change and promote inclusive growth, developing new products and service models that benefit underserved communities.
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