Ideas to Action:

Independent research for global prosperity

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Let’s not be the fat guy bully in the room. I’ll explain.

An estimated 1,300,000,000 people will go to bed tonight without lights. The “energy poverty” gap hurts people’s health, education, and contributes to keeping them poor. Lack of affordable and reliable electricity is also among the top constraints on business and job growth in Africa . So, it’s pretty obvious that international development agencies, including those within the US Government, should be encouraging power production and distribution. The leading US agency for promoting investment in poor countries is the Overseas Private Investment Corporation, so we should also expect OPIC to play a major role in helping bring power to those without.

But there’s an added wrinkle. The USG also wants to reduce global CO2 emissions (or at least appear to be trying to do so). So the administration has self-imposed a carbon emissions ceiling on OPIC’s portfolio. In practice, this excludes OPIC from participating in all but a handful of electricity projects Worse, the current policy is a lose-lose since it has almost zero appreciable impact on global emissions.

I’ve complained about this before, but now I think I have a win-win alternative that would allow OPIC to help improve access to energy for the world’s poorest while also meeting concerns about global carbon emissions. A better policy would tweak OPIC’s investment rules to reflect the following principles:

  • Pragmatism about potential power sources. While OPIC’s growing investments in renewable energy are encouraging and should continue, closing the energy poverty gap will realistically require a range of new energy sources, including gas-fired power stations and related infrastructure. Fortuitously, Kenya, Tanzania, Mozambique, Ghana, Papua New Guinea and other countries in need of power have had major natural gas finds. Yet the current policy prevents OPIC from participating in nearly all new power projects fueled by natural gas.
  • Reflection of global emission shares. Global CO2 emissions are dominated by a handful of countries, almost none of which are among the poorest. (The US and China combined account for nearly half, while all of sub-Saharan Africa is only about 2%.) Moreover, the IEA estimates that achieving universal electricity access would increase energy-related CO2 emissions by 2030 by less than 1%.
  • Policy fairness & consistency. The emissions cap applies to all foreign countries yet the US of course has no such limits on its own domestic energy investments while per capita emissions in poor countries are a tiny fraction of those in the United States. (It’s like the US is the fat guy in the room, forcing all the skinny undernourished people on a low fat low carb diet to make up for his own gluttony.)
  • Potential net emissions reductions from new gas-fired power investments. In Nigeria, for example, 97% of large firms own (costly, inefficient, and polluting) diesel generators which provide nearly 2/3 of their power. New on-grid power generated by gas-fired plants that replaced such generators would actually reduce emissions, not increase them.
  • Transparency and simplicity. New rules should be based on clear guidelines and third party data. A complicated formula could be open to dispute and manipulation.

So, the idea is simple: Let’s exempt projects from OPIC’s emissions cap in the countries where poverty is greatest and emissions are lowest. More specifically, I propose a 20x Exemption Rule. This rule change would allow OPIC to participate in non-coal projects in countries where U.S. GNI and CO2 emissions per capita are at least 20 times greater. Here’s a graph showing all countries, with their per capita income and CO2 emissions. The proposed exemption zone is the tiny box in the corner.

Source: World Bank, WDI, 2012. Note: This chart excludes some small oil-producing outliers for reasons of scale.

This 20x Exemption Rule would, based on current data, enable OPIC to invest in energy projects in these 49 countries.

None of these 49 countries are major CO2 emitters and all have huge unmet energy needs. In fact, these countries alone have some 700 million people without access to electricity. And by using a ratio of the US level, a country would naturally graduate if it suddenly became a major emitter or got rich quickly.

The 20x Exemption Rule would help to close the energy poverty gap while having a trivial effect on global emissions targets. It is strategically counterproductive and morally dubious for the USG to deny access to electricity to those with a tiny fraction of American levels of income and emissions. OPIC rules should reflect this. An exemption at the 5% level makes sense—and could be easily implemented by the next administration.