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Research Roundup (2008-2011): Environment, Energy, and Sustainable Development

EE_Roundup2008_2011

World Bank research on energy, environment, water, and climate change provides information and insight on integrating environmentally sustainability with economic efficiency in advancing growth and poverty reduction. Issues concerning urban-regional development and infrastructure cut across all these topic areas.
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Themes

Energy is both a key factor in economic development and a central focus in addressing the environment and climate change. Energy research examines the economic and environmental implications of alternative energy resources, increased access to energy services, and improved efficiency in public utility regulation.

Research on environmental, water, and other natural resource problems in developing countries examines policies for reducing pollution and congestion in urban transportation, the economic value of environmental and natural resources, and nontraditional policies for their protection.

Climate change poses significant risks through its effects on temperature, precipitation, sea level, and natural disasters. Climate change research examines the implications of these risks for a wide range of investment decisions, as well as policies for reducing climate change risks and mitigating the greenhouse gases that contribute to climate change.

Development is accompanied by significant spatial transformations—changes in the distribution of people and economic activities. Adequate infrastructure is needed in turn to stimulate and sustain development. Research on these topics focuses particularly on urban density, access to markets, and impacts of inter-regional transport improvements on trade flows and economic performance, as well as on the importance of energy availability.

Highlights

Alternative energy resources present a complex mix of pros and cons

Even with greatly improved energy efficiency, demand for different forms of energy will increase significantly as incomes in developing countries rise. The challenge is to satisfy growth in demand affordably and sustainably.[1]  Coal is plentiful and cheap, and its use can be easily scaled-up, but expanded coal use with current technologies intensifies already strong concerns about global warming and local air pollution. Liquid biofuels made from plant matter can be a low-emissions resource, but current food-crop based sources require subsidies for large-scale production, and may not decrease greenhouse emissions substantially—especially if expanded supplies increase deforestation. By competing with food supplies, a global expansion of biofuels could cause important economic losses in some regions, though other regions would gain economically from being biofuels sellers.[2]  Better biofuel production technologies exist, but it will be some years before they are technologically and economically feasible on a large scale.[3]

Wind and solar energy for electricity generation have advanced significantly over the past two decades. However, the intermittency of these sources and the need to connect together an enormous number of far-flung, small resources remain significant technical and economic challenges to deploying them at a scale that would replace large quantities of fossil fuels.[4,5]  Expansion of nuclear power faces the opposite set of challenges. It can produce a steady supply of electricity at a large scale, but it currently faces an unknown future given concerns about safety and proliferation, as well as a high and still-uncertain initial capital cost.[6] Ultimately, all of these and other energy resources will be needed to successfully meet growth in global demand.

No single solution for increasing access to affordable and clean energy

Lack of access to reliable, affordable, and safe energy—“energy poverty” —is a key barrier to economic development in both rural and peri-urban areas.[7]  The challenge is how this is to be accomplished. In many cases, rural households can obtain the limited quantities of energy they need through small-scale, decentralized sources, often using locally available renewable energy sources. Even in Africa, however, the trend toward urbanization and the current cost premium paid for small-scale energy can tip the balance toward extending the electricity grid into areas not too far away.[8]  Aside from choice of technology, however, the necessary institutional measures for monitoring and charging for electricity use must be put in place in order to maintain financial sustainability. A study of illegal electricity connections in the favelas of Belo Horizonte, Brazil found that electricity theft was motivated not just by low incomes, but also by poor quality of service and equipment.[9] Such a situation can create a vicious circle in which poor service undermines the willingness of costumers to pay for service, which exacerbates funding shortages for upgrading service.[10

Several tools needed to solve environmental and congestions problems with urban transportation

As cities grow throughout the developing world, so do transport-related problems—traffic congestion, local air pollution, and increased greenhouse gas emissions. Continued road investments lock in urban sprawl and private reliance on private vehicles, making it harder to reduce time wasted in traffic congestion and pollution from automobile emissions. Part of the solution is investments in public transportation that connect urban centers with each other and with surrounding areas.[11]  However, policies to limit transportation services demands also are needed, since the price of fuels does not reflect the cost of the resulting pollution and with a very few exceptions, there is no direct pricing of road access that could reduce congestion. Even without road pricing, there could be significant overall benefits from raising fuel taxes to reflect pollution and congestion “externalities.” However, a study of externality pricing in México City indicates reaping these gains would require significant increases in fuel prices and total driving cost.[12] The full social costs of road travel needs to be considered in evaluating alternative transportation infrastructure investments and designing measures to finance the necessary infrastructure.

People value water access and cleanliness—but how to provide it in practice?

There is significant evidence that even low-income individuals put a high economic value on improved access to water and on the cleanliness of their water supply.[13,14]  Yet water supplies often are inadequate and nowhere near potable. Some evidence shows that people would be willing to pay more for improved water.[15] In practice, however, increasing water tariffs can have a mix of desired and unwanted effects: water quality and availability may improve, reducing adverse health effects of contaminated water use, but the necessary cost increases could impose a significant burden on the poor and indirectly limit access to water supplies in rural areas.[16] There is also need for social mechanisms to induce cooperation in limiting pollution of community water supplies.[17]

Alternatives to traditional regulation can extend the reach of environmental protection

In many parts of the developing world, the mechanisms for limiting degradation of environmental and natural resources—pollution standards, land use controls, taxes and fines—are not readily applicable because the institutions for their use are not yet adequately developed. However, some alternative approaches show promise. A “Payment for Environmental Services” (PES) system provides financial incentives for those in charge of sensitive resources to reduce their degradation and promote more sustainable use of them. Financing for such services can come from direct user fees, indirect taxes on environmentally damaging goods, or general revenues. Provided performance can be adequately monitored and payments are sufficiently large to motivate changes in behavior, the system can achieve its environmental goals.[18

Information disclosure programs and environmental performance ratings also can provide an alternative to difficult-to-implement pollution regulation. In China’s Jiangsu Province, the “Green Watch” performance rating and disclosure program has led to greater pollution reduction among rated companies than non-covered firms, after adjusting for differences among firm characteristics.[19]

Environmental assets and other intangible wealth are important factors in economic development

One of the puzzles of national wealth accounting is that the value of tangible assets—fixed capital and land—is a smaller multiple of national income than expected given realistic rates of return. New and more comprehensive national wealth measures indicate that while intangible wealth, including a number of environmental assets, is not measured in national accounts, it represents 60 to 80 percent of comprehensive wealth across most countries. Increasing environmental assets thus is one key contributor to the growth and development of nations.[2021

Natural hazards exacerbated by climate change will require a range of responses

Developing countries cope with several types of natural disasters that are likely to be exacerbated by climate change, including storm surges that overwhelm coastal areas as well as other impacts of tropical storms.[2223] Increasing and more dense urbanization in pursuit of greater economic opportunity will greatly increase the number of city inhabitants exposed to high risks of tropical cyclones, especially with inadequate risk prevention and mitigation measures as simple as unblocking drains.[24]  However, there is also evidence that the risk of dying from flooding decreases with income, so higher incomes in urban areas would lessen risks.[25]  Effectively responding to growing risks from natural disasters with climate change necessitates a mix of larger-scale and smaller-scale measures over time. In Bangladesh, for example, where much of the country is less than 5 meters above sea level, major improvements in dikes can be combined with reforestation of coastlines, strengthening of private homes (with provision for also sheltering livestock), and improvement in early warning systems.[26]  Agreements among countries for use of shared water bodies will have to adjust to reflect changes in precipitation runoff.[27]

Farmers in Africa and elsewhere have several potential options for adapting to climate change

Agricultural crops and grazing lands comprise 40 percent of global land use, and in many developing countries agriculture provides employment and livelihood for three-quarters of the population. More than 15 years of Bank research on the impact of, and long-term adaptation to, climate change in agriculture under a variety of conditions has been synthesized in a recent book spanning more than 22 countries across four continents.[28] Comparison of long-term adjustments across countries is used to examine the impact of climate change on agriculture and livestock, as well as to quantify how farmers adapt to climate change. Because cropping is more sensitive than grazing to climate change, and rain-fed cropland is generally more sensitive than irrigated cropland, farmers may be able to adjust to climate change by switching crops and livestock species, increasing irrigation, and moving between livestock and crops. However, research shows that future farm incomes in Africa are very climate sensitive, and will be severely threatened in the event of extreme climate change scenarios.[29] Adaptation policies and measures also must be location-specific. Public policies to increase resilience through investments in knowledge diffusion and infrastructure can increase productivity across a range of future climate scenarios.

International cooperation to reduce greenhouse gases remains limited

Climate change is a global problem that can only be met with global cooperation to reduce greenhouse gas emissions. Cooperation between developed and developing countries for emissions mitigation has broadened over the past decade, but it remains limited in scope and impact. The Clean Development Mechanism (CDM), a voluntary mechanism for developed countries to help fund projects in developing countries, has grown in size, but there are lingering questions about how well it operates and about how many projects are “additional” to activities that would have been undertaken anyway.[3031]  Unless stronger international agreements are reached to actually reduce greenhouse gas emissions, it will be difficult for broader “market mechanisms” like the CDM (or higher energy taxes to limit emissions) to be instituted. More piecemeal interim measures may have to implemented, instead.

One possibility is putting internationally coordinated taxes on aviation and maritime fuels, which so far have been exempted from such measures under a variety of international treaties. Such taxes could have a small but noticeable effect on global emissions while raising billions of dollars each year that could be used for “climate smart” purposes. Even if lower-income developing countries have tax revenues returned to them in the interest of international equity, obtaining international agreements to change multiple treaties ruling out such taxes would be a formidable task.[32] Ultimately such sector-based measures could be aggregated into an architecture for emissions mitigation based on a variety of approaches tailored to differing circumstances in the various sectors. For example, agreements to limit the emissions intensity of countries’ electricity sectors on the one hand, with agreed changes in technical standards and practices to improve building energy efficiencies.[33]

“Connectedness” of infrastructure and institutions enhances regional growth in Africa

Expanding trade within Sub-Saharan Africa by upgrading and maintaining the trunk road network connecting capitals and the largest cities is estimated in the tens of billions of dollars each year—well in excess of costs—with additional benefits accruing from greater within-country trade, increased access to global markets, and considerable employment effects.[34] Similarly, harmonization of legal, regulatory and institutional frameworks along with development of regional-scale “backbone” infrastructure for “network” industries like telecommunications or electricity can lead to reduced cross-border transaction costs, greater economies of scale, and the potential for increased competition, as illustrated by examining regionalized telecommunications policy in West Africa.[35]  However, a country’s ability to benefit from such spillover effects also depends on broader institutional factors, such as participation in formal trade agreements and how well agreements function in practice.[36

China’s expressway construction supports growth, but regional disparities remain

China’s ambitious program of expressway network expansion over the past two decades is estimated to have raised national income in 2007 approximately 6 percent above what it otherwise would have been. However, the expressway network appears to have reinforced existing patterns of spatial income inequality, although the results vary across the country. While increased disparities may stimulate further migration to coastal growth centers in the short term, there is evidence from more advanced developed countries that the disparities will decline in the longer term—especially if infrastructure investments that promote urbanization and economic concentration are accompanied by policies that ensure access to health, education, and other basic services in rural and lagging areas.[37]

Contact

Michael A. Toman, Research Manager, Development Research Group, Development Economics Vice Presidency, World Bank (research@worldbank.org)

Notes

1. Kessides, Ioannis N., and David C. Wade. 2011. “Towards a Sustainable Global Energy Supply Infrastructure: Net Energy Balance and Density Considerations.” Energy Policy 39(9): 5322–34.

2. Timilsina, Govinda R., John C. Beghin, Dominique van der Mensbrugghe, and Simon Mevel. Forthcoming.  “The Impacts of Biofuel Targets on Land-Use Change and Food Supply: A Global CGE Assessment.” Agriculture Economics. (Based on Policy Research Working Paper 5513, World Bank, Washington, DC.)

3. Carriquiry, Miguel A., Xiaodong Du, and Govinda R Timilsina. 2011. “Second Generation Biofuels: Economics and Policies.” Energy Policy 39(7): 4222–34.

4. Timilsina, Govinda R., Lado Kurdgelashvili, and Patrick A. Narbel. 2012. “Solar Energy: Markets, Economics and Policies.” Renewable and Sustainable Energy Reviews 16(1): 449–65.

5. van Kooten, G. Cornelis, and Govinda R. Timilsina. 2009. “Wind Power Development: Economics and Policies.” Policy Research Working Paper 4868, World Bank, Washington, DC.

6. Adamantiades, Achilles, and Ioannis N. Kessides. 2009. “Nuclear Power for Sustainable Development: Current Status and Future Prospects.” Energy Policy 37(12): 5149–66.

7. Barnes, Douglas F., Shahid R. Khandker, and Hussain A. Samad. 2011. “Energy Poverty in Rural Bangladesh.” Energy Policy 39(2): 894–904.

8. Deichmann, Uwe, Craig Meisner, Siobhan Murray, and David Wheeler. 2011. “The Economics of Renewable Energy Expansion in Rural Sub-Saharan Africa.” Energy Policy 39(1: 215–27.

9. Mimmi, Luisa M., and Sencer Ecer. 2010. “An Econometric Study of Illegal Electricity Connections in the Urban Favelas of Belo Horizonte, Brazil.” Energy Policy 38(9): 5081–97.

10. Strand, Jon. 2012. “Low-Level versus High-Level Equilibrium in Public Utility Services.” Journal of Public Economics 96: 163–72.

11. Anas, Alex, and Govinda Timilsina. 2009. “Lock-in Effects of Road Expansion on CO2 Emissions: Results from a Core-Periphery Model of Beijing.” Policy Research Working Paper 5017, World Bank, Washington, DC.

12. Parry, Ian W. H., and Govinda R. Timilsina. 2010. “How Should Passenger Travel in Mexico City Be Priced?” Journal of Urban Economics 682(2): 167–82.

13. Nauges, Celine, Jon Strand, and Ian Walker. 2009. “The Value of Water Connections in Central American Cities: A Revealed Preference Study.” Environment and Development Economics 14(3): 349–70.

14. Wang, Hua, Yuyan Shi, Yoonhee Kim, and Takuya Kamata. 2011. “Valuing Water Quality Improvement in China: A Case Study of Lake Puzhehei in Yunnan Province.” Policy Research Working Paper 5766, World Bank, Washington, DC.

15. Wang, Hua, Jian Xie, and Honglin Li. 2010. “Water Pricing with Household Surveys: A Study of Acceptability and Willingness to Pay in Chongqing, China.” China Economic Review 21(1): 136–49.

16. Barrera-Osorio, Felipe, and Mauricio Olivera. 2009. “Does Society Win or Lose as a Result of Privatization? The Case of Water Sector Privatization in Colombia.” Economica 76(304): 649–74.

17. Kremer, Michael, Jessica Leino, Edward Miguel, and Alix Peterson Zwane. 2011. “Spring Cleaning: Rural Water Impacts, Valuation, and Property Rights Institutions.” Quarterly Journal of Economics 126(1): 145–205.

18. Pagiola, Stefano, Ana R. Rios, and Agustin Arcenas. 2010. “Poor Household Participation in Payments for Environmental Services: Lessons from the Silvopastoral Project in Quindío, Colombia.” Environmental and Resource Economics 47(3): 371–94.

19.  Jin, Yanhong, Hua Wang, and David Wheeler. 2010. “Environmental Performance Rating and Disclosure: An Empirical Investigation of China’s Green Watch Program.” Policy Research Working Paper 5420, World Bank, Washington, DC.

20.  Ferreira, Susana, and Kirk E. Hamilton. 2010. “Comprehensive Wealth, Intangible Capital, and Development.” Policy Research Working Paper 5452, World Bank, Washington, DC.

21. World Bank. 2011. The Changing Wealth of Nations: Measuring Sustainable Development in the New Millennium. Washington, DC: World Bank. Download

22. Dasgupta, Susmita, Benoit Laplante, Siobhan Murray, and David Wheeler. 2011. “Exposure of Developing Countries to Sea-Level Rise and Storm Surges.” Climatic Change 106: 567–79.

23. Mendelsohn, Robert, Kerry Emanuel, and Shun Chonabayashi. 2011. “The Impact of Climate Change on Global Tropical Storm Damages.” Policy Research Working Paper 5562, World Bank, Washington, DC.

24. Lall, Somik V., and Uwe Deichmann. Forthcoming. “Density and Disasters: Economics of Urban Hazard Risk.” World Bank Research Observer (doi: 10.1093/wbro/lkr006, July 7).

25. Ferreira, Susana, Kirk Hamilton, and Jeffrey R. Vincent. 2011. “Nature, Socioeconomics and Adaptation to Natural Disasters: New Evidence from Floods.” Policy Research Working Paper 5725, World Bank, Washington, DC.

26. Dasgupta, Susmita, Mainul Huq, Zahirul Huq Khan, Manjur Murshed Zahid Ahmed, Nandan Mukherjee, Malik Fida Khan, and Kiran Pandey.  2010. “Vulnerability of Bangladesh to Cyclones in a Changing Climate: Potential Damages and Adaptation Cost.” Policy Research Working Paper 5280, World Bank, Washington, DC.

27. Dinar, Ariel, Brian Blankespoor, Shlomi Dinar, and Pradeep Kurukulasuriya. 2010. “Does Precipitation and Runoff Variability Affect Treaty Cooperation between States Sharing International Bilateral Rivers?” Ecological Economics 69(12): 2568–81.

28. Mendelsohn, Robert, and Ariel Dinar. 2009. Climate Change and Agriculture: An Economic Analysis of Global Impacts, Adaptation and Distributional Effects. Washington, DC: World Bank, and North Hampton, Mass.: Edward Elgar.

29. Seo, S. N., Robert Mendelsohn, Ariel Dinar, Rashid Hassan, and Pradeep Kurukulasuriya. 2009. “A Ricardian Analysis of the Distribution of Climate Change Impacts on Agriculture across Agro-ecological Zones in Africa.” Environmental and Resource Economics 43(3): 313–32.

30. Rahman, Shaikh M., Ariel Dinar, and Donald F. Larson. 2010. “Will the Clean Development Mechanism Mobilize Anticipated Levels of Mitigation?” Policy Research Working Paper Series 5239, World Bank, Washington, DC.

31. Strand, Jon, and Knut Einar Rosendahl. 2011. “Carbon Leakage from the Clean Development Mechanism.” Energy Journal 32(4): 27–50.

32. Keen, Michael, Ian Parry, and Jon Strand. 2012. “Market-Based Instruments for International Aviation and Shipping as a Source of Climate Finance.” Policy Research Working Paper 5950, World Bank, Washington, DC. 

33. Barrett, Scott, and Michael Toman. 2010. “Contrasting Future Paths for an Evolving Global Climate Regime.” Global Policy 1(1): 64–74.

34. Buys, Piet, Uwe Deichmann, and David Wheeler. 2010. “Road Network Upgrading and Overland Trade Expansion in Sub-Saharan Africa.” Journal of African Economics 19(3): 399–432. 

35. Kessides, Ioannis N., Roger G. Noll, and Nancy C. Benjamin. 2009. “Regionalizing Telecommunications Reform in West Africa.” Policy Research Working Paper 5126, World Bank, Washington, DC.

36. Roberts, Mark, and Uwe Deichmann. 2009. “International Growth Spillovers, Geography and Infrastructure.” Policy Research Working 5153, World Bank, Washington, DC.

37. Roberts, Mark, Uwe Deichmann, Bernard Fingleton, and Tuo Shi. 2010. “On the Road to Prosperity? The Economic Geography of China’s National Expressway Network.” Policy Research Working Paper 5479, World Bank, Washington, DC.


Last updated: 2012-01-31




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