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This week’s Wonkcast consists of testimony that Todd Moss, CGD senior fellow and COO, recently offered to the House Energy and Commerce Subcommittee on Energy and Power about energy access in the 21st Century.
In what was perhaps another sign that the challenge of energy poverty is finding a voice in Congress, the House Energy and Commerce Subcommittee on Energy and Power held a hearing recently on electricity access in the 21st Century.
While three of the five witnesses spoke about US domestic energy access, Todd and Paul O’Brien of Oxfam, offered an international perspective, framing energy poverty as a serious and pressing development challenge. Read the testimony, Erin Collinson’s account of the hearing (with Todd’s son making faces as he addresses the Congress!), or for those on the go, listen to the audio above or watch the video below.
One of the most impressive things about Power Africa is that it has two clear and measurable goals: 30 gigawatts of new generation capacity and 60 million new connections for homes and businesses.
One of the least impressive things has been—at least up to now—how the government has been measuring what counts as a “new connection.” Some three-quarters of the Power Africa-affiliated connections so far have been solar lanterns or small single-household systems with very limited capacity. These tiny electrical systems that charge a cell phone or run a few lights are better than costly and dirty kerosene or old car batteries. And they’re far better than nothing. But they’re also not exactly what most people—or congressional authors of the Electrify Africa Act—would consider an electricity connection.
That’s why we should welcome Power Africa 2.0 and its emphasis on higher power solutions. As part of this, the team will soon halt counting solar lanterns as new connections, capping the total at 12 million or 20 percent of the target. (They’ll still track lantern distribution, but not as part of the connections goal.) This all fits with Power Africa’s sensible evolution toward encouraging a range of higher capacity home systems, physical connections to national grids, and the development of minigrids.
This positive shift is important because larger output electricity systems become necessary as consumers move up the energy ladder to higher power appliances (like my favorite refrigerator). Even more importantly, if people expect to use electricity for what economists call productive uses—and what regular people call jobs—they need a lot more than what small systems can currently deliver. And if African governments want to create prosperous economies that compete globally, they will need not just slightly more efficient small systems, but high-energy systems that provide orders of magnitude more energy.
Now that the US government is moving toward fixing this connection measurement problem and raising its energy ambitions, it should also use its influence to encourage others to aim higher on energy targets. In particular, the World Bank, the UN, and others still use the International Energy Agency (IEA) standard for energy access, which is a paltry 50 kWh per person per year in rural areas and 100 kWh for people living in cities. That’s also the yardstick being used to judge success against the UN’s SDG7 to achieve universal access to modern energy by 2030.
As a CGD Energy Access Targets Working Group concluded, this level of energy is more accurately an “extreme energy poverty line” than anything close to modern energy access. The working group called on the world to raise the bar.
Bravo to Power Africa 2.0 for moving in a positive direction that’s more reflective of how energy contributes to economic development over time. Let’s see the other energy policy actors step up too.
Africa’s energy deficits are well known. But it’s very rare to hear policymakers talk openly about nuclear power on the continent.
I’ve known about South Africa’s nuclear power sector and have heard a little about that country’s development of new pebble-bed technology. I knew that the Democratic Republic of the Congo and several other countries have small research reactors. I’ve been aware that France, whose own domestic electricity mix is heavily nuclear, depends on uranium from Niger, one of the most energy poor countries on the planet. And I even discovered a surprising African link to US nuclear technology: the original material for the Manhattan Project came from the Shinkolobwe mine in Congo (Ryker fans will know I use this historical nugget to drive a subplot in my thriller Minute Zero).
But I, like many of my development colleagues, never really thought seriously about nuclear power as an option for Africa’s energy future. Thinking back, I probably even dismissed it as a crazy idea.
Yet the more I’ve learned about nuclear power, including from this paper on the small modular reactor market in Ghana by a former colleague Priscilla Atansah, the more curious I became.
Clearly, African governments desire a lot more power for their economies and their interest in nuclear power appears to be growing. Ghana, Nigeria, Namibia, Kenya, and others are all pursuing nuclear power in one way or another. And Russia is actively marketing its own civilian nuclear technology in African countries.
Nuclear power is attractive because once built, it’s a reliable source of zero carbon power. Of course, nuclear power has a long list of downsides too, including security, regulatory and oversight requirements, and especially cost. At first glance, these might seem like insurmountable barriers, making Africa poorly suited for this type of power. And that’s probably correct for large traditional light-water reactors.
But what about small modular reactors? What about an array of potential next generation nuclear technologies not yet in the market? Might some of these have different requirements or cost structures that could make them more attractive in Africa’s energy-hungry emerging markets?
I honestly had no idea, but I wanted to find out. To start to get a better understanding of the status, opportunities, and challenges of nuclear power on the continent, CGD commissioned an overview paper from researchers at the Breakthrough Institute, a think tank in Oakland that specializes in technology and the environment. I think of the paper as a beginner’s guide to nuclear power for developmentistas.
My main takeaways from the paper:
Interest in nuclear power among African governments is stronger than many people realize.
Some of the new designs and technologies under development or expected in the marketplace soon might be particularly well-suited to the needs and conditions in many African markets, including prefabricated small modular reactors, floating reactors, and sealed micro-reactors.
None of these are shovel-ready yet. While the potential may be real, deployment is at least a decade away.
The peculiarities of financing construction of nuclear power projects, including the total absence of traditional infrastructure finance organizations like the World Bank, are likely to drive a lot of the decision making toward Chinese and Russian models.
Read the full paper here. And for more on this issue, I would also recommend this Titans of Nuclear podcast with one of the paper’s authors, Jessica Lovering.
In the push for electricity access in the developing world, many policymakers are trying to figure out where on-grid or off-grid solutions make the most sense. My new CGD paper with colleagues Ben Leo and Jared Kalow asks 39,000 consumers in 12 African countries about their energy use and demand. The big takeaway: African consumers don’t view grid versus off-grid as a binary question.
Among our findings:
Off-grid (non-generator) electricity is largely inadequate. A significant proportion of respondents reported that their off-grid electricity solution did not fulfill any of their power needs, including almost two-thirds of Rwandans with off-grid systems.
Off-grid customers still exhibit strong demand for grid electricity. In most countries, off-grid respondents reported a high desirability for grid electricity. In fact, demand for a grid connection is significantly higher among off-grid households than those with no electricity at all.
On-grid customers rely heavily on generators. For example, nearly half of on-grid Nigerians also report generator reliance.
While these findings undermine a key assumption implicit in the on-grid versus off-grid question, they make sense given energy consumption patterns. Off-grid customers may appreciate the lights and basic appliances (e.g., phone charger, fan, small TV) that off-grid systems can power, but want to move up the energy ladder toward higher power appliances (refrigerator, larger TV) enabled by a grid connection. At the same time, on-grid customers face a host of reliability issues and thus see off-grid options as an important backup.
So what might this all imply for policymakers or initiatives like Power Africa?
We shouldn’t assume rural means off-grid and urban means on-grid. Better information about actual consumer behavior and demand would present a more nuanced picture and a variety of solutions.
Low-energy off-grid solutions should expect growing consumer demand for higher-energy systems over time.
Grid reliability is a major problem.
Fuel subsidies are bad for the planet, expensive, and often regressive. With new, high-frequency price data researchers explore why they’re also so hard to kill.
Economists rarely reach the kind of consensus that we see on the topic of fuel subsidies. Bottom line: they’re a really bad idea. On the one hand, they encourage us to burn more fossil fuels and kill the planet, and on the other hand, they’re a massive drain of fiscal resources—equivalent to 6.5 percent of global GDP according to the most eye-popping IMF estimates—that are very poorly targeted at the poor.
Yet attempts to roll back subsidies often provoke strong political backlash. Movements from the Arab Spring in Jordan to Occupy Nigeria have marshalled popular resistance to raising fuel prices, and generally won.
So in the wake of the Paris accord, are countries doing anything to unravel these inefficient subsidies? At a CGD event this week organized by my colleague Todd Moss, Michael Ross of UCLA presented his multi-year project with Paasha Mahdavi of Georgetown and others to gather high-frequency gasoline prices from 157 countries around the world since 2003.
Global fuel subsidies are falling—but mostly due to a falling market price in the face of fixed price ceilings, not politically difficult reform
Two things jump out from the visualizations of their data that Ross, coauthor Chad Hazlett, and Mahdavi present in their recent paper in the journal Nature Energy.
First, the price you pay at the pump in most countries is higher than the global benchmark price of fuel, i.e., most countries are net taxers—not subsidizers of fuel. As it turns out, 95 percent of global fuel subsidies are concentrated in just 22 countries, all of which are also oil exporters. (Note the definition of a subsidy here is more restrictive than the expansive definition that IMF researchers use to get to 6.5 percent of GDP.)
Figure 1: Gasoline prices by country and benchmark price trends over time – Ross et al (2017)
Source: reproduced from Ross et al (2017): “Individual country price trends are shown in grey, and the global benchmark price is plotted in red. Countries fall into two groups: those with prices above the benchmark (who tax gasoline) and those below it (who subsidize it). The overall shape of many trend lines is driven by changes in benchmark price. In general, countries that tax gasoline also allow the price to fluctuate in tandem with global prices, while those that subsidize gasoline keep their prices fixed for long periods. All prices are in constant 2015 USD per litre.”
Second, the lower lines are much less squiggly. That means that countries which subsidize fuel, by charging a retail price below the world price, tend not to let the price move with market fluctuations—whereas taxes are more often defined in proportional terms.
Fixing the retail price has an interesting side-effect: when the world price of fuel drops, the subsidy—defined as the gap between the world price and the retail price—automatically falls. Cheaper gas masquerades as subsidy reform! Mahdavi et al note that most reductions in fuel subsidies since 2014 have come from this phenomenon—which is fine from a fiscal perspective, but isn't going to save the planet or our lungs from air pollution.
Figure 2: Net taxes and subsidies by country in 2003 versus 2015 – Ross et al (2017)
Source: reproduced from Ross et al (2017): “Eighty-three countries increased their net taxes or reduced their net subsidies between the first six months of 2015 and the first six months of 2003; they are shown in blue and lie above the 45◦ dashed line. By contrast, 46 countries reduced net taxes or increased net subsidies over the same period, and are shown in dark orange below the 45◦ line. While most countries had net taxes in both periods (placing them in the upper-right quadrant), 14 countries had subsidies in both periods (placing them in the lower-left quadrant). Just two countries changed from net taxers to net subsidizers (lower-right quadrant) while two others changed from net subsidizers to net taxers (upper-left quadrant). Text size is proportional to average gasoline consumption.”
Overall, are things getting better or not? The short answer is yes, but slowly. From 2003 to 2015, most countries started and ended as net taxers. And countries gradually raised gas taxes, shown by the cloud of names above the diagonal line in the upper-right quadrant. But most countries who started off with net subsidies kept those subsidies, as see in the population of the bottom left quadrant relative to the upper left.
So why do governments subsidize fuel? And why are climate-killing, anti-poor subsidies considered vaguely left-of-center and populist?
The proximate cause is obvious: attempts to remove subsidies are often met with angry protests. Subsidies are politically popular. But at a deeper level, why?
Trust in government appears to be one factor. In a forthcoming paper in Comparative Political Studies, Jordan Kyle looks at public support for replacing fuel subsidies in Indonesia with a targeted transfer program—in which, crucially, monies would have to pass through local government. Kyle documents large variation in corruption in existing programs and finds that this corruption is highly predictive of support for fuel subsidy reform. In villages where transfers tend to go missing, poor households in particular would prefer to keep inefficient fuel subsidies than move to a transfer system.
In a separate project in Tanzania with colleagues Nancy Birdsall, Jim Fishkin from Stanford, and Mujobu Moyo, we found hints of a similar dynamic: citizens who have more trust in the current government were more supportive of exporting Tanzania’s recently discovered natural gas reserves and using the money for other purposes—whereas those with low trust were somewhat more inclined toward using the gas on shore or subsidizing fuel.
The technocratic hope, embodied in India’s Aadhaar system of biometric identification, is that new technology will make it possible to replace inefficient subsidies with reliable electronic transfers that don’t leak and are beyond the reach of local corruption and rent-seeking. My colleagues Neeraj Mittal, Anit Mukherjee, and Alan Gelb have documented in detail how the Indian government has pursued this goal with the reform of cooking fuel subsidies. The politics of Aadhaar remain contentious to say the least.
Using their price data, Ross and Mahdavi have now turned to exploring the determinants of successful (i.e. lasting) reform, asking who raises the retail price of gas and when? That work is still in process, but preliminary results suggest a few factors. Reform is more likely when prices are low (so a price hike is less painful), countries face sovereign risk (so the expense of subsidies bites), and elections are far off.
At the end of the seminar, Ross noted that so far their model has very little explanatory power. A slew of political and economic factors can't seem to predict when fuel subsidy reform will happen. And that seems to be a good metaphor for experts’ understanding of this topic more broadly. Fuel subsidies are bad economics. They cost gobs of money, increase carbon emissions, and fail to reach the poor. But they remain popular, often with the people we think benefit the least.