An exciting future funding possibility CDM
A promising possibility for additional investment in renewable energy for rural electrification could result from the ratification of the Kyoto Protocol, an international treaty for reducing CO2 emissions. Under the treaty, the "annex" (rich) countries would be required to reduce their CO2 emissions by varying quantities. A of the treaty allows for these countries to partially fulfill their abatement requirements by supporting carbon abating initiatives in "non-annex" (poor) countries, called the Clean Development Mechanism (CDM).
This would greatly increase funding for renewable energy projects for those without access to the electricity grid. In turn, economists argue that such an influx of funds would lower the cost for the rural population, which in turn would increase demand, leading to increased production levels, further reducing the cost. Unfortunately, the refusal of the Bush Administration to sign the Kyoto Protocol has prevented its ratification. To date, environmentalists, experts, and activists are still fighting for its passage.
Social benefits of renewable energy resources such as not degrading the environment constitute a positive externality- they are not reflected in the market cost. Government policy should therefore try to correct this market failure with laws that encourage investment in renewable technologies to develop these markets. (For further reading on corrective policy for renewable energies, see policy options).
Financing is the trickiest barrier to rural electrification for the obvious reason that it is an expensive endeavor that it's intended consumers cannot afford the cost of the infrastructure and the service. Governments of developing countries have traditionally responded to this problem by funding electrification through public utility and subsidizing service, however these policies have historically led to massive problems with corruption, inefficiency and lack of accountability. These subsidies often disproportionately benefit the wealthiest households and undermine any incentive to improve services or extend the grid. The challenge facing sound policy is to devise a program that helps finance electrification but allows for market mechanisms to ensure efficiency and better allocate resources. Chile's policy is exemplary in that it granted one-time subsidies (on a competitive basis) and created market mechanisms whenever appropriate. The outstanding results of the program confirm the importance of good policy that corrects market failures yet doesn't oversubsidize electricity.
The Role of the International Community
Rural electrification requires multilateral support. Starting from the rural sector, there must be a desire for electricity and a community willing to support a project. The government's job is to implement apropos policy, guiding the process and addressing any market failures. The participation of the international community is vital as lenders, introducers of technology, foreign aid, and perhaps most importantly, as a forum for knowledge sharing. The UNDP website for Energy and Environment states:
"The UNDP helps countries strengthen their capacity to address these challenges at global, national and community levels, seeking out and sharing best practices, providing innovative policy advice and linking partners through pilot projects that help poor people build sustainable livelihoods."12
We must be cautious in not overstepping our boundaries from providing aid to imposing on a countries political autonomy. Unfortunately, once there are profits to be made, the objectives of international aid can shift from apolitical benevolence to a business opportunity. The actions of these agencies reflect the ideology and the interests not of the poor countries they are supposedly helping but the rich countries who decide the agenda.
For example, The United States (as well as other overly developed countries) has zealously pushed the idea of "privatization" and "market liberalization" as the answer to economic growth, which in terms of rural electrification, equates to the privatization of traditionally public utilities. This notion, refered to as the "Washington Consensus" is experienced in the most detrimental form when these ideas are turned into stipulations for receiving aid from the IMF and World Bank in the form of "Structural Adjustment Programs" (SAPs). The ideology behind these ideas is economically deterministic - complete faith in the market as the answer to development. It's supporters argue that publicly owned utilities only lead to inefficiencies and a misallocation of resources, and without competition, these industries lack incentive to decrease costs. In theory, these statements are true, only it fails to address what happens when privatization and market liberalization occur before proper social programs and regulations are put into effect. Often times "privatization" does not mean competition and increased efficiency, it means foreign investors with no concern for social issues buying electric companies, thereby inheriting an effective monopoly. Corrupt government officials would be rewarded heavily by the foreign company into undervaluing electric companies to be sold below their value. With a monopoly, foreign firms with no regard for the social implications of their actions could then hike up prices. What was once poor service would become cutthroat.
This sequence of events is not uncommon. In the Dominican Republic, for example, World Bank funded the construction of a power plant, half of which Enron then acquired in 1995. Four years later, as the Dominican Republic privatized their energy sector, Enron claimed a higher percentage of Dominican Republic's electricity industry. Power rates then skyrocketed, followed by rolling blackouts. After citizens also discovered that Enron and other foreign companies had purchased their public electric company almost $1 billion less than its real value, rioting ensued killing eight people. Riots due to Enron's practices as a buyer of a previously state owned electric company have also occurred in Panama, Columbia, Guatamala, Bolivia, India, and numerous other developing countries13. In fact, this scenario has happened so frequently in developing countries that it's argued that electrification projects funded by development agencies help large, multinational corporations secure business deals and expand to new markets as opposed to helping developing countries. Research from the Institute of Policy Studies shows that nine out of ten World Bank energy projects benefit corporations from a G-7 country (US, Canada, Japan, Germany, France, Britain, and Italy 14.
The support of the international community is crucial for the knowledge, financing, technology it can provide, as well as building capacity. However, empirical evidence suggests that local initiatives are more likely to reflect the desires of that specific population. In contrast, international development projects can often fall into the hands of people who care less about society's welfare and more about the bottom line. As members of the international community, it is our responsibility to hold these agencies accountable for their actions by speaking out against injustice and fighting for those who, due to poverty, can't be heard.
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