1995 es Corden, W. Max Corden, W. Max Una zona de libre comercio en el Hemisferio Occidental: posibles implicancias para América Latina En: La liberalización del comercio en el Hemisferio Occidental - Washington, DC : BID/CEPAL, 1995 - p. 13-40 2014-01-02T14:51:16Z hdl:11362/30858 ß ) ENERGY AND SUSTAINABLE DEVELOPMENT IN LATIN AMERICA AND THE CARIBBEAN: Approaches to energy policy PROJECT ENERGY AND SUSTAINABLE DEVELOPMENT IN LATIN AMERICA AND THE CARIBBEAN LATIN AMERICAN ENERGY ORGANIZATION ECONOMIC COMMISSION FOR LATIN AMERICA AND THE CARIBBEAN DEUTSCHE GESELLSCHAFT FÜR ZUSAMMENARBEIT Quito, Ecuador May 1997 900017249 9 0 0 0 1 7 2 4 9 - B IB L IO T E C A C E P A L © OLADE To reproduce the present publication, authorization should be requested fro m the D irector of Planning and Energy Projects of the Perm anent Secretariat o f OLADE. The m em ber countries and th e ir governm ent in stitu tio n s may reproduce it w ith o u t any p rio r authorization, but they are requested to m ention the source and in fo rm the Perm anent Secretariat of OLADE about any reproduction. ISBN 99 7 8 -7 0 -0 8 2 -X OLADE Latin American Energy Organization P.O. Box 1 7 -11 -641 3 and 17-09-7301 Quito, ECUADOR Phone: (593-2) 59 8-1 22/2 80 Fax: (59 3-2 ) 53 9-6 84/6 79 E-mail: olade1@ olade.org.ec ECLAC Economic Commission for Latin America and the Caribbean P.O. Box 179-D Santiago de Chile, CHILE Phone: (5 6 2 )2 1 0 -2 0 0 0 Fax: (5 6 2 )2 0 8 -1 9 4 6 /0 2 5 2 GTZ Deutsche Gesellschaft für Technische Zusammenarbeit GmbH Energy and Transportation D ivision Dag-H am m arskjöld-W eg 1-5 P.O. Box 51 80 65726 Eschborn, GERMANY Phone: (49 61 96) 79 -16 17/1 628 Fax: (49 61 96) 79-7144 FOREWORD Energy and Sustainable Development in Latin America and the Caribbean is a project jo in tly conducted by the Latin American Energy Organization (OLADE), the United Nations Econom ic C om m ission fo r Latin A m erica and the Caribbean (ECLAC), and the German Technical Cooperation Society (GTZ). This project is being sponsored and co financed by the German Government and was im plem ented to b uild up the region’s energy policym aking capacity to harmonize economic growth, social equity, and environmental protection so as to ensure that the energy reform s that are being undertaken by the regions countries w ill prom ote sustainable development. In order to achieve this objective, the project has adopted a system ic approach, one that recognizes that responsibility m u st be broadly shared by the players in charge o f energy development and that p olicy guidelines m u st be clearly defined and concrete instrum ents and actions identified to reach sustainable development orientations and objectives. As a re su lt o f the w o rk th a t has been conducted to date, i t is evident that sustainability in energy development requires the countries to take up a series o f challenges fo r the future. A long with the recovery o f economic grow th that has become apparent in the nineties, there is s till lo w energy productivity. Added to this there is a lo w coverage in terms o f meeting energy needs and extensive deterioration o f forests, as well as low-quality energy consum ption and environm ental im pacts from the em issions that are expected from the incorporation o f poilutant sources as a result o f the expansion o f regional energy systems. There is no doubt that a rise in energy productivity corresponds to higher efficiency in the use o f energy, an aspect that should be a p rio rity goal fo r energy reforms. This objective w ill n o t only exert a considerable im pact on international competitiveness and, as a result, economic growth, but w ill also exert a favorable im pact on social equity, by reducing the share o f energy spending to m eet the needs o f residential users. A longside the im p ro ve m e n t in energy efficiency, the so cia l coverage o f energy services m u st also be enhanced, with the adoption o f actions linking high energy consumption levels to jo b creation and higher income levels. There are various ways, as underscored in the p re se n t publication, to ensure the co m p a tib ility o f energy developm ent p ro g ra m s w ith economic decentralization actions, especially in rural areas. In addition, the book expresses current concerns about the sustainability o f energy system expansion. A t present, the countries o f Latin Am erica and the Caribbean do n o t account fo r a large share o f global environmental problems, since they only generate about 5% o f w orld CO2 emissions, whereas developed countries are responsible fo r about 70%. Nevertheless, new energy developments based on a higher consum ption o f hydrocarbons could increase the re g io n s contribution to environm ental degradation. A t the same time, expansion based on hydropow er generation also has its lim itations although it contributes positively to m itigating emissions, which im plies new challenges fo r energy sector reform. M o s t o f the re g io n s countries have taken m a jo r strides in re stru ctu rin g th e ir respective energy sectors. B ut these reform s have been m otivated m ore by the perspective o f consolida tin g m acroeconom ic s ta b ility and overcom ing financial obstacles to se cto r expansion. A ltho ug h th is approach m ay be valid over the s h o rt term, i t is necessary to incorporate lo nger-term objectives in vo lvin g im p ro ve m e n t o f energy p ro d u c tiv ity and efficiency and, as a result, international competitiveness, growth, social equity, and the use o f energy sources compatible with environmental protection. The present publication acknowledges the progress that has been achieved to date. Reforms have induced improvements in financial indicators and the operating efficiency o f energy sector companies, largely due to price and ta riff increases and, in some countries, to m ajor efforts to p u t state-owned enterprises that were privatized on a sound financial footing. Likewise, the elimination o f public monopolies, the search fo r competitive markets, and the application o f regulatory mechanisms to guarantee competitive conditions have stim ulated private investment, given impetus to the regions stock markets, and encouraged involvement in international capital markets. Nevertheless, in s titu tio n a l capacity b u ilding has to be ensured and re g u la to ry mechanisms perfected to reach the stability that investors are looking for. In this regard, the best incentives to prom ote both public and private investment are: overcoming certain trends toward the inappropriate use o f dominant market positions; im proving the flo w o f inform ation between companies and regulatory agencies; and above all transparency in determining the costs o f energy transactions. Likewise, it is im portant to coordinate the energy policies o f the countries with c u rre n t subregional and regional integration processes, in o rd e r to optim ize system expansion efforts and cope with the influence o f new exogenous variables that are emerging as a result o f the internationalization o f environmental issues. It is evident that environmental concerns have evolved to such a p o in t that they now extend beyond national boundaries and have become one o f the m ajor items on the international agenda. In short, the exploitation o f energy resources and the efficient use o f energy are crucial aspects o f environmental issues. Within this context, stances that favor international standard-setting, which could have highly significant repercussions fo r the development o f these resources, are gaining everm ore importance. LuizA.M . da Fonseca Gert Rosenthal Executive Secretary Secretary General OLADE ECLAC ACKNOWLEDGMENTS In the present pro je ct, the Federal Form er d ire cto rs of the project: Arnaldo R epublic of Germany, th ro u g h its Federal Vieira de Carvalho, Carlos M ansilla, and E conom ic C ooperation and Developm ent R o b e rto G om elsky. M in is try (B M Z ), has been able to coo pe r­ ate since 1993 w ith Latin A m erica and the ECLAC Caribbean in im p o rta n t aspects fo r su s­ Axel D o uro jea nn i (D ire c to r of S án che z-A lba vera URNE), tainable developm ent, such as the in te rac­ F ernando tio n s o f its variou s d im e n sio n s and ener­ A d v is o r), gy. The p ro je ct w o u ld n o t have been p o s­ C o nsu ltant fo r the sible w ith o u t its fu n d in g . P roject), and Fernando Cuevas (Energy Hugo A lto m o n te (R e g io n a l (Long-Term OLADE-ECLAC-GTZ Unit, ECLAC M exico). M any persons, especially fro m the th re e c o u n te rp a rts , th a t is, GTZ OLADE, ECLAC, and GTZ, have been involved in Paul H. S uding preparing and im p le m e n tin g the project Bernhard Bosl, Tilm an Herberg, and Ulrich (P ro je ct C o o rd in a to r), M ohr. since its con cep tion . The p ro je ct’s d ire c­ to rs w o u ld like to extend th e ir apprecia­ Country coordination tio n to each one o f the m fo r th e ir dedica­ tio n in c o n d u ctin g a ta sk that, in m ay Chile: ways, has turne d o u t to be quite innova­ tive. M arta Isabel González and José A nto nio The m ain co lla b o ra to rs in th is p ro ­ Ruiz (National Energy C o m m issio n). je ct are listed below. Colombia: The p ro je ct is being im plem ented G erm án C orredor and G ilberto Jaim es in close c o o rd in a tio n w ith the Executive S e cre ta ry of OLADE, th e (M in ing -E ne rgy Planning Unit). S e cre ta ry General of ECLAC, and the D ire cto r of P rogram ECLAC. El Salvador: P lanning and M anagem ent of M aria de Lourdes Arévaio de Sandoval and As fo r the German cou nterp art, Ernesto the p ro je ct benefits fro m the s u p p o rt p ro ­ vided by the agency in charge of its im p le ­ m e n ta tio n , th e G erm an C o ord ina tion ) T echn ica l (Lem pa Cooperation S ociety (GTZ). The p ro je c t is Arce (E con om ic and Social A dvisory Group, M in istry of Planning and and R iver Jorge M on te sin os Executive H yd rop ow e r Com m ission). headed by the The project also involved a large num­ ber of short-term consultants: D ire cto r o f P lanning and Energy Projects (DIPLAP) o f OLADE, the D irector o f the N a tu ral (UR NE) R e sou rces of and ECLAC, E nergy and th e U n it Consultants for the Case Studies GTZ C oordinator. Chile: Jaim e Tohá, Juan Sebastián Bernstein, The staff currently or previously active In carrying out the p re set Is list­ ed below: P a tric io L e ig h to n , Pedro M a ld o n a d o , M iguel Márquez, R icardo Paredes, Gabriel Inostroza, R oberto Andrade, and Sergio Lorenzini. OLADE Rafael A rm a n d o M e le in (D ire c to r Colombia: of DIPLAP), Francisco Figueroa de la Vega H é cto r (Long-Term M e d a rd o -P rie to , C o nsu ltant fo r the OLADE- ECLAC-GTZ P roject), and Byron Granda. I P isto n e si Rafael C ubillos. (A rg e n tin a ), C arlos Fonseca, José and El Salvador: V íc to r R o drígu ez and M o n te v e rd e (M é x ic o ), (A rg e n tin a ), Isaac M a u ric io D aniel C a stillo OLADE was in charge of editing and lay­ out F rancisco B ou ille G ustavo M artínez (e d ito ria l co o rd in a tio n ), (P anam a), Juan Carios Vega (la yo u t and g ra p h ic art), G onzález (El S a lva d o r), and and P atrick Saari (ed itin g and tra n sla tio n ). Angel Z annier (Bolivia). Information Consultants for the Regional Synthesis The A dilso n de O liveira (Brazil), Carlos S u ire z OLADEs data base, the E nergy-E conom ic m a in so u rce of da ta (A rgentina), A lvaro Umaha (Costa Rica), In fo rm a tio n System (SIEE). and W ito ld Teplitz-S em bitzky (G erm any). and tables th a t do has been The cha rts n o t quote spe cific sources have been prepared on the basis Other specific consultancies o f the SIEE. Alexander S chu be rt (G erm any), A lb erto A co sta (E cu a d o r), Isaac C a stillo (Panam a), H éctor P istonesi (Argentina), H elder P in to , Jr. (B ra zil), and June B udhooram (Trinidad and Tobago). Energy and Sustainable Development in Latin America and the Caribbean: Approaches to energy policy was coordinated and written by: The publication Paul H. Suding GTZ Francisco Figueroa de la Vega Hugo A lto m o n te OLADE ECLAC Héctor Pistonesi IDEE/FB The vie w s appearing in the present publication are the exclusive re sp o n sib ility o f the pro je ct’s directors and are not necessarily shared by the in stitu tio n s involved o r the national counterparts CONTENTS FOREWORD ...J ACKNOWLEDGMENTS ................................................................................................. m CONTENTS INTRODUCTION v .............................................................................................. ............ ............ 1 CHAPTER 1: CURRENT STATUS OF THE ECONOMIC, SOCIAL, ENVIRONMENTAL, AND ENERGY DEVELOPMENT IN LATIN AMERICA AND THE CARIBBEAN AND ITS SUSTAINABILITY ........................................ 3 1. Status of General Developm ent and Its S u sta in a b ility............................................................. 3 1.1. D e finitio n o f the hum an being as both the sub je ct and targe t o f sustainable developm ent ....... 3 1.2. A ssessm ent o f the degree o f developm ent and its s u s ta in a b ility ..................... 4 1.3. T ypification of situa tion s o f developm ent status and th e ir s u ta in a b ility .....................5 2. The Energy S ector’s influence on Sustainability: in te r-re la tio n s ..................... 6 2.1. Selection o f in d ic a to rs .............................................................................................................. 8 2.2. T ypification o f situa tion s on the basis o f energy in d ica to rs............................................9 2.3. C lassification o f cou ntrie s in te rm s o f energy s u s ta in a b ility ...................................... 11 3. General and Energy S ustainability P attern s. ............................. 4. C onclusion: Sustainable D evelopm ent Is Not Only Desirable But also P o s s ib le 12 12 CHAPTER 2: ENERGY AND ECONOMY .......................................................................................... 15 1. Energy and E conom ic G ro w th ...................................................................................................... 15 1.1. S tatus o f the reg io n’s energy p ro d u c tiv ity .................................................. 15 1.2. Energy p ro d u c tiv ity since 1 9 7 0 ........................................................................................... 16 1.2.1. O verview ........................................................................................................................ 16 1.2.2.Trends in con sum p tion s e c to rs ...................................................................................18 2. Energy S ector P e rfo rm a n c e ..........................................................................................................20 2.1. S ituation in the recent pa st................................................................................................... 20 2.2. C urrent perform ance of the three m ain sub sectors....................................................... 22 2.2.1. E lectricty s u b s e c to r....................................................................................................... 22 2.2.2. Oil s u b s e c to r.......................... :........................................................................................ 25 2.2.3. Natural gas s u b s e c to r....................................................................................................26 3. Energy Sector, M acro eco nom ic and Fiscal Policies, and Developm ent P o lic y 28 3.1. P rio rity o f m acro eco nom ic objectives in the p a s t..........................................................28 3.2. A d ju stm e n t since the eighties: Predom inance of fiscal o b je c tiv e s ........................... 28 3.3. New approachs: The catalytic role o f the energy s e c to r..............................................30 4. External and internal P olitical-E conom ic F a c to rs ................................................................... 33 4.1. P olitical and eco no m ic con sid eratio ns in fo re ig n re la tio n s ......................................... 33 4.2. Internal political and econom ic ra m ific a tio n s .................................................................. 33 5. C onclusion: P rio rity G u id e lin e s ............................... 34 CHAPTER 3: ENERGY AND EQUITY ................................................................................................39 1. Status and Evolution o f Equity in LA C ........................................................................................39 2. Residental Energy C onsum ption S tructures in the Countries o f LAC ................................. 40 2.1. Im portance of residential con sum p tion in the re g io n ....................................................40 2.2. Level and stru ctu re o f residential con sum p tion as a fun ction of average in c o m e ................................................................................................................... 41 2.3. S upply: E lectricity coverage and energy d ive rsifica tio n .......................... 41 3. Coverage o f Basic Energy N eeds................................................................................................. 42 3.1. C urrent status o f basic needs co v e ra g e ............................................................................42 3.2. Evolution o f residential con sum p tion and coverage in the p a s t.................................43 4. Energy Use and Spending by Incom e L e v e l....................... 44 5. Social Im pacts o f A djustm en ts and Energy R e fo rm s ............................................................ 45 6. C onclusions: P rio rity G u id e lin e s ................................................................................................46 CHAPTER 4: ENERGY AND NATURAL RESOURCES.................................................................. 49 1. Natural Resources and the Environm ent in LAC...................................................................... 50 2. Environm ental Im pacts o f the Energy S e c to r........................................................................... 51 2.1. Em issions in to the a tm o sp h e re............................................................................................51 2.2. Energy concerns and involvem ent in reducing fo re st reso urce s................................52 2.3. Environm ent and p o v e rty ...................................................................................................... 54 3. Scope o f Fossil Energy R e so u rce s..............................................................................................54 4. Renewable Energy R e sou rces...................................................................................................... 56 4.1. Firew ood and waste, biom ass, and biogas....................................................................... 56 4.2. H ydropow er ........................................................................................................................ 57 4.3. Sm all h yd rop ow e r stations and oth er renewables: geotherm al, w ind and solar e n e rg ie s ................................................................................................................... 58 5. C onclusion: P rio rity G u id e lin e s....................................................................................................58 CHAPTER 5: ENERGY POLICY GUIDELINES FOR SUSTAINABLE DEVELOPMENT 61 1. In tro d u ctio n and R e ca p itu la tio n...................................................................................................61 2. The S ecto r’s New Environm ent and T re n d s.............................................................................. 62 2.1. The energy secto r’s em erging org an izatio n...................... 62 2.2. Trends o f external c o n d itio n s ............................................................................................... 62 3. Energy P olicy G uid eline s................................................................................................................63 3.1. Energy po licy p rin c ip le s .........................................................................................................63 3.2. Enlarged and m ulti-dim e nsiona l objectives: Sequential approach to c o n flic t-s o lv in g ................................................................................................. 65 3.3. Political in stru m e n ts................................................................................................................67 3.4. Approaches and p ro c e s s e s ...................................................................................................69 3.4.1. Integrated and system ic approach, shared responsibility, situa tion in the appropriate s p h e r e ...........................................................................69 3.4.2. D evelopm ent fro m the bottom up: “ living space” and responsibilities a t diffe re nt levels............................................................................... 69 3.4.3. Processes and fun ctions o f the central State: P olicym aking and decision-m aking, coordination, planning, in fo rm atio n, and m o n ito rin g 71 4. C onclusion..........................................................................................................................................75 ANNEX I: S tatus o f Energy S u s ta in a b ility in L A C ...................................................................... 77 ANNEX II: T echn ica l and M e th o d o lo g ic a l N o te s ........................................................................ 80 ANNEX III: W o rkin g Papers o f the OLADE-ECLAC-GTZ P ro je c t.............................................. 87 ANNEX IV: OLADE-ECLAC-GTZ P ro je ct D is s e m in a tio n A c tiv itie s ......................................... 89 Tables Table 1.1: T ypification o f the status of hum an developm ent and its s u s ta in a b ility 5 Table 1.2: Energy objectives related to sustainable d e v e lo p m e n t............................................. 7 Table 1.3: Selected energy sustainability in d ic a to rs ...................................................................... 8 Table 1.4: T ypification o f situa tion s and classification of LAC countries in term s of energy su sta in a b ility ..................................................................................... 9 Table 1.5: Association o f developm ent patterns and types o f susta ina bility in term s o f energy............................................................................................................. 12 Table 3.1: Net and final energy in the residential s e c to r...........................................................43 Table 5.1: Energy policy objectives and in stru m en ts fo r sustainable de velopm e nt 66 Charts Chart 1.1: Types of developm ent and su s ta in a b ility................................................. Chart 1.2: Patterns of energy s u s ta in a b ility ............................................................................... 10 Chart 1.3: Energy susta ina bility ranking of LAC c o u n trie s .......................................................11 Chart 2.1: Final energy con sum p tion and gross dom estic pro d u ct (1 9 9 5 ).........................16 6 Chart 2.2: A re a s of energy intensity: 1 9 7 0 -1 9 9 4 .................................................................17 Chart 2.2.1: G roup 1: C ountries w ith grow th and decline of energy in te n sity .................... 17 Chart 2.2.2: G roup 2: Countries w ith grow th and rising energy in te n s ity .........................18 Chart 2.2.3: G roup 3: C ountries w ith e co n o m ic d e c lin e .......................................................18 Chart 3.1: Final energy co n su m p tio n d is trib u tio n ................................................................ 40 Chart 3.2: R esidential energy c o n s u m p tio n .......................................................................... 41 Chart 3.3: E lectricity coverage and G D P le v e l....................................................................... 41 Chart 3.4: G ro up A: Steady evolution of residential co n su m p tio n of final and useful e n e rg y ................................................................................................... 44 Chart 3.4: G roup B: Erratic evolution of residential co nsu m ptio n of final and useful e n e rg y ................................................................................................... 44 Chart 3.4: G ro up C: Stagnation of residential co n su m p tio n of final and useful e n e rg y ........................................................................................................... 45 Chart 3.4: G roup D: Evolution of the substitu tion of residential co n su m p tio n of final and useful e n e rg y ...................................................................................... 45 Chart 3.5: Colom bia: D istribution of energy co n su m p tio n by stra tu m ..............................46 Chart 4.1: W o rld structure of C 0 2 e m is s io n s ....................................................................... 51 Chart 4.2: Evolution of sp e cific C 0 2 e m is s io n s ....................................................................52 Chart 4.3: LAC: C 0 2 e m is sio n s and d evelop m en t............................................................... 52 Chart 4.4: LAC: Natural gas activity t r e n d s .......................................................................... 55 Chart 5.1: D im e n sio n s of su stainable developm ent and their in te r-re la tio n s.................... 65 Chart 5.2: M a jo r axes of energy p o licy ................................................................................... 68 Chart 5.3: S u stain able developm ent indicators in a co u n try of the r e g io n ....................... 74 Insets Inset 2.1: R e fo rm s of electric pow er s y s te m s ....................................................................... 21 Inset 2.2: R e fo rm s in the oil s u b s e c to r..................................................................................22 Inset 2.3: Gas se cto r boom and s tru c tu rin g ......................................................................... 23 Inset 2.4: Energy integration in L A C ...................................................................................... 34 Inset 2.5: Evolution of energy re g u la tio n ...............................................................................35 Inset 4.1: S ystem atizatio n and institutionalization of environm ental p o lic y ...................... 53 Inset 4.2: Internationalization of environm ental is s u e s ........................................................54 Inset 5.1: Rational use of e n e rg y ............................................................................................71 Inset 5.2: S u stain able m anagem ent of b io m a s s ...................................................................71 INTRODUCTION As of the m id -eig htie s, the co u n ­ w h e th e r the energy se cto r is actually tries o f Latin A m erica and the Caribbean evolving in the rig h t directio n. But before have a n y th in g , been liv in g tra n s fo rm a tio n the m o s t im p o rta n t o f th e ir energy s e c to r since the heyday o f nationalization. The the s itu a tio n th a t is being so u g h t has to be defined and expressed in te rm s o f objectives. curre nt tra n s fo rm a tio n extends to all s u b ­ sectors and entails, depending on the spe­ There is no doubt that the previous cific circu m sta nce s o f each country, the schem e of energy secto r m anagem ent is gradual a b o litio n o f m on op olies in som e no long er valid. energy m arkets and the corre spo nding on the basis o f a w ide range of other Now the State m ust act in tro d u c tio n o f c o m p e titio n and the pa r­ in stru m e n ts. ticip a tio n o f new players, a reorientation should not only m od ify its role, enabling of p u b lic oth er players to gain access to the sector, en te rp rise s to w a rd business In other w o rd s, the State approaches, a new d is trib u tio n o f a c tiv i­ but it sho uld also learn the duties o f its ties between the private secto r and the new State, the review o f se cto r regulation, lib ­ m u st also learn to observe, analyze, in te r­ role. G overnm ent a d m in istra to rs eralization to provide variou s o p p o rtu n i­ vene to com p le m e nt autogenous evolu­ ties fo r p riva te -se cto r enterprises (as co n ­ tio n , pare dow n cum b erso m e structure s tra c to r a n d /o r co m p e tito r), the s h ift of th a t jeopardize e q u ilib riu m , pro m ote the ow n e rsh ip as a resu lt o f the sale o f State g ro w th o f necessary but weak in gre di­ assets, etc. These changes are coincid in g ents, and accom m odate the insertion o f w ith o th e r tre n d s th a t are tra n s fo rm in g po w e rfu l players w h o can co n trib u te to the States o f the region, especially in developm ent w ith o u t m uch p o ssib ility of te rm s o f decentralization. They also c o in ­ c o n tro llin g them . cide w ith the g ro w in g trend tow a rd g lo b ­ A fte r a decade of fru stra tio n , there alization, on the one hand, and econom ic are m any expectations regarding the new integration, on the other. op p o rtu n itie s th a t are being provided fo r The rea son s fo r the se huge business a ctivities and the o u tlo o k fo r changes have been presented and d is ­ secto r gro w th. cussed places although th e ir prevent us fro m recognizing the problem s results have been analyzed only partially, that s till do exist, no r sho uld it lead us to in m any This situa tion should not m ainly fro m the v ie w p o in t o f fina ncing blin d ly tru s t the new m odels o r give up all and efficie ncy objectives. To date, there involvem ent in energy p o licym a kin g. Nor does not seem to be any general assess­ should the tra d itio n a l d is tru s t in m arket m ent o f these phenom ena, m uch less an m echanism s be the d rivin g force behind a sse ssm e n t any energy policy. of respect to the all th e se tre n d s w ith energy se cto r and the d e ve lo p m e n t, Although a sober analysis of what although the la tte r is increasingly recog­ w ould happen after applying sustainable nized as a m a jo r goal by cou ntrie s fro m developm ent criteria may be lacking, thus o b je c tiv e o f s u s ta in a b le leading to the a priori introduction o f m od­ both the region and ou tside it. els that may deflect reform efforts toward The purpose o f the present w ork, however, is to provide not a detailed assessm ent but a conceptual appraisal geared to encouraging the revision of energy policies to integrate them in to a hopeless utopias, any action aimed at defin­ ing sustainable de velopm e nt policies seems to be highly realistic and w e ll-fou nd­ ed, in view o f the political soundness and feasibility o f this approach. general p o licy aim ed at ensuring su sta in ­ able developm ent. The present w o rk, w h ich is the o u tcom e of the ongoing OLADE-ECLAC- R eform s in the energy secto r and GTZ project, is also aim ed at en suring that the entire p u b lic se cto r have led to a new the cu rre n t evolution, w ith its w ide range scenario. A w id e variety o f new players of changes, w ill tu rn o u t to be high ly p o s­ have em erged, but it is not yet clear itive fo r the countries. The book is broken dow n in to five chapters, the firs t focu sing opm ent: Do the recent re fo rm s po in t on general d e fin itio n s and analysis, the to w a rd sustainable de velopm ent? fo llo w in g th re e a n alyzing de velopm e nt dim en sion s, s u sta in a b le and the last • How external fa c to rs (fu tu re energy supply, sug ge sting policy guidelines, and strives to a n sw e r the fo llo w in g queries: are evolving im p lica tio n s fo r sup ply security, global em issions, globalization, in te gra tion, in te rn a tio n ­ • D e fin itio n o f s u sta in a b le alization of e n viro nm en ta l concerns, d e ve lo p ­ m ent: W hat do we mean by su sta in ­ the new role o f in te rna tiona l agencies, able developm ent in the energy sec­ fina ncing, tra n s fe r o f te ch n o lo g y) and how to deal w ith them : W hat im p lica ­ to r? tion s do these factors have fo r su s­ • tainable de velopm e nt and how can D escription of the status of su sta in ­ able developm ent in LAC: W hat are its adverse developm ent patterns? • States defend them selves against the econom ic, social, and environm ental these factors? Energy secto r’s c o n trib u tio n : does the How • im p a c ts s te m m in g fro m Is sustainable de velopm e nt possible in LAC? W hat are the lim its to w h at en erg y s e c to r exe rt an has already been done and w h a t still im p a ct on sustainable developm ent? needs to be done? • E volution o f the linkages between energy and sustainable developm ent: • New po litica l scenario: W hat is the role of the State? W hat happened to sustainable devel­ op m e n t and w h y? • • Concepts and exam ples o f policies Recent reform s (electricity, oil, gas, leading to sustainable developm ent: o th e r aspects) and sustainable devel­ W hat can be done? CHAPTER 1: CURRENT STATUS OF THE ECONOMIC, SOCIAL, ENVIRONMENTAL, AND ENERGY DEVELOPMENT IN LATIN AMERICA AND THE CARIBBEAN AND ITS SUSTAINABILITY 1. Status of General Development and its Sustainability p e rfo rm s an im p o rta n t role in Economy th is p rocess. 1.1 Definition of the human being as both the subject and target of sus­ tainable development point of the citizen and on the linkage The co n ce p t of developm en t refers and p olicym a king developed later in the T h is ou tlook, fo cu sin g on the vie w ­ between person s, society, and the State, prevails in all the reflection s of a n a ly sis to human development, s u m m a riz e d by the w h ich has been U n ite d present article. N a tio n s D evelopm en t P ro g ra m m e (U N D P) as “the The im perative of sustainability p ro c e s s o f e n la rg in g the range o f op tion s a d d s a dim en sio n of tim e sin ce a ctio ns o f p e rso n s, p ro v id in g them with g re a te r carried out in the present exert pow erful o p p o rtu n itie s fo r education, m e d ica l care, im p a cts on future opportunities. Because incom e, a n d em ploym en t, a n d co ve rin g of this, hum an developm en t m u st be s u s ­ the fu ll s p e ctru m o f h um an options, from tainable, that is, a d evelop m en t that m eets g o o d p h y s ic a l e n viro n m e n ta l co n d itio n s the n e e ds o f the p re s e n t w itho u t c o m p ro ­ to e co n o m ic a n d p o litic a l freedom . ” 1 T h is m is in g the a b ility o f future g e n eration s to a p p ro a ch m e e t th e ir ow n n eeds.2 to d e fin in g the concept of hum an d e ve lop m e n t has tw o m ajor m er­ its. On the one hand, it open s up the T hus, m eeting present needs is range of relevant d im e n s io n s and identi­ a lso a d im e n sio n of su stainable develop­ fie s so m e of th e ir elem ents: ment. Concretely, th is m eans that a s itu ­ ation can no t be co nside re d su stainable • health, w hen a co nsiderable part of the popula­ in com e, and em ploym en t, social and economic dimensions are h ig h lig h t­ by m e n tio n in g e d u ca tio n , tio n re ce iv e s e x tre m e ly lo w average w ages and is affected by d ifficu lt a cce ss ed: to b a sic se rv ice s, even th ou gh over the by referring to the p h ysical e n viro n ­ tion is expected. In addition, sp on ta n e o u s long term an im p ro ve m en t in th is situ a ­ • m ent, the environmental dimension ch a nge s cannot be expected. The lo w er the hum an developm ent Is in the present, is im plied; and the m ore urgent is the p olitical effort • by in d ic a tin g th at fre e d o m is an required to change th is situation. _ 1 o p tio n fo r p e rso n s in society, the political dimension is underscored. Nevertheless, there are certain lim - 2 itation s to the co n cep t o f su stain a b le On the oth e r hand, the hum an developm ent due to the in d iscrim in a te being is placed at the v ery heart of any use o f the global en viron m ent by certain co n side ra tion , and it is th u s cle a r that co un tries, th u s creating harm ful c o n d i­ d e ve lop m e n t sh o u ld be view ed a s s o m e ­ tio n s (greenhouse gas effect) over the ter­ th in g o c cu rrin g to p e rso n s and, by exten­ ritorial space of other co un tries, w h ich sio n , to society. Each hum an being is at can be corrected by in tro du cing the rig h t o n ce an active su bje ct and target of State to in te rn ation a l equality o f opportunities, policy, w h ich as a m anifestation of society w ithin each generation, to have a c c e s s to as a w h o le and not o n ly the ru lin g cla s s a nature th at is a s in ta ct a s p o s s ib le ,3 3 UNDP, 1992 Human Development Report, published fo r UNDP, Bogotá, 1 99 2 , page 18. W o rld C o m m ission on E nvironm ent and D evelopm ent (W E C D ), Our Common Future, N ew York-O xford, 1 987. S ee the proposal Zunkunftsfähiges Deutschland: Ein Beitrag zu einer global nach­ haltigen Entw icklung (A S ustainable G erm any: C ontribution to Global Sustainable Developm ent), W uppertal Institut fü r Klima, Um w elt, Energie Gm bH im W issen schaftszentrum N ord rhein, W estphalia, Septem ber 1 995. 3 In sh o rt, it is evident th a t the rele­ an im p o rta n t elem ent fo r eco n o m ic s u s ­ van t dim en sion s o f sustainable develop­ tain ab ility. m e n t are ing in to acco un t purchasing po w e r to e sti­ p o litic a l fre e d o m , eco n o m ic N evertheless, even w h en ta k ­ w e ll-b eing, social equity, and a healthy mate per capita GDP in con stant te rm s, it en viro nm en t, in addition to a certain con­ is evident that th is in d ic a to r im p lie s co n ­ servation o f natural resources. stra in ts in s a tisfa cto rily refle cting the p o p ­ These dim en sion s are extended in space and ula tio n s’s qu ality of living . over tim e (pre sen t and future ). In the case o f equity, it is un de r­ 1.2 Assessm ent of the degree of development and its sustainability tio n asym m e tries is so cia lly m ore su sta in ­ The cou ntrie s of Latin A m erica and trib u tio n do not change fro m one year to stoo d tha t a reduction o f incom e d is trib u ­ able. Average incom e levels and th e ir d is ­ the Caribbean display a w ide variety of s it­ another. uations w ith regard to the degree o f devel­ m edium term , lo w average incom e levels op m e n t attained. Because o f th is in ertia over the Because o f this, b u ild ­ o r sharp im balances in incom e d is trib u ­ ing a ty p ific a tio n fo r the countries o f the tio n are the su b je ct o f m uch concern, and region in term s o f degree and type o f fo r po licym a kin g, the y sho uld be view ed political, econom ic, social, and e n viro n ­ as severe pro blem s fo r sustainability. m ental developm ent tu rn s out to be a high ly com p le x task yie lding ve ry unsatis­ The th ird indicator, genuine sav­ fa cto ry results. Nevertheless, the present ing, is com plem ented by a fo u rth , the paper intends, as a firs t step, to charac­ sto ck of natural capital. terize the diffe re nt typica l developm ent genuine saving is d ire ctly linked to su s­ patterns, in o rd e r to h ig h lig h t the relative ta in a b ility since it reflects the e ffo rts th a t The no tio n of gap between the c o u n trie s’s cu rre n t situ a ­ are being made in the present to enhance tio n and the econom ic, social, and envi­ the pace o f de velopm e nt in the fu tu re . To ro n m e n ta l s itu a tio n s established as goals. been determ ine th is indicator, in ad d itio n to the The political situ a ­ th a t have tra d itio n a l calculation o f net investm ents tio n is n o t being considered at th is tim e (gro ss because it w o u ld involve an even m ore physical capital), red uctio ns in the sto ck in vestm en t less depreciation com plex dim ension. o f natural resources (due to depletion), e n v iro n m e n ta l d e te rio ra tio n (du e of to The degree and su sta in a b ility of degradation) as a result o f e m ission s, and de velopm e nt are typ ifie d by m eans o f the in vestm en ts financed by foreign capital fo llo w in g in dica tors (see the de fin itio n s in (extern al sa vin g s) s u b je c t to tra n s fe r Annex II): abroad are taken in to account. Thus, it provides an accurate • pe r capita GDP fo r the econom ic representation o f eve ryth in g in volving the physical e n viro n ­ m en t (see d iscussio n of th is in d ic a to r in dim ension; A nnex II). • incom e d istribution, w h ic h re p re ­ The sents the social dim en sion in term s show s o f fairness (eq uity); and in d ica to r, g re a te r ge n u in e v a ria b ility saving , over tim e because it involves a relative variable that • net domestic investment in physical and natural capital (genuine saving) fo r the p h y s ic a l-e n v iro n m e n ta l has p o s itiv e and ne ga tive value s. Nevertheless, it has been observed tha t cou ntrie s rem ain fo r m any years at about n a tural the same levels, and w hen they do even­ resources and the en viro nm en t. This tu a lly s h ift fro m one level to another, the per change takes place ove r several years and d im e n s io n , in c lu d in g in d ica to r is com plem ented by capita natural assets, w h ich include both na tural no nrenew able re so u rce s) and renew able is not rapidly reverted. (fo s s il assets (soil, forests, etc.). W hereas the three firs t in dica tors express cu rre n t annual levels (flo w v a ri­ ables) o r changes in stru ctu re (incom e A high pe r capita gro ss do m estic d is trib u tio n ), the fo u rth in d ic a to r reflects p ro d u ct (per capita GDP) not only means the physical-natural base fo r developm ent a high average incom e but also high p ro ­ (sto ck). The relevance o f th is in d ic a to r fo r d u c tiv ity o f the econom y, w h ich in tu rn is the su sta in a b ility o f de velopm e nt is o b v i­ ous w hen you take in to acco un t th a t the re g io n a l d iffe re n tia tio n , g re a te r na tu ra l base o f na tu ra l reso urce s, s e lf-s u ffi­ resources, all o th e r th in g s being equal, cie n t o r m o d e ra te ly d e pe nd ent on the th a t e n e rg y essentially depends on the use o f these Brazil). th e a b u n d a n ce h ig h e r the of e c o n o m ic g ro w th im p o rts (fo r im p o rta n t e xa m p le , resources, w h ich is the case fo r a large nu m be r o f the co u n trie s of Latin Am erica. C: M oderate or high do m estic p ro d u c­ tive integration and d iversifica tion , On the basis of the above -m en­ m arked social inequality, diversified tion ed crite ria and the co rre spo nding in d i­ exports based on natural resources cators, a p re lim in a ry characterization of (fo r example, Colom bia). the degree o f de velopm e nt in each co u n ­ try was prepared. A fte r exam ining the D. Relatively low developm ent based on resulting values, the extrem e values of natural resources and the exp ort of each in d ica to r (n o n su sta in a b ility and high prim ary, m in ing , a n d /o r energy p ro d ­ su sta in a b ility) were determ ined; the v a l­ ucts (fo r example, Bolivia). ues were then standardized to obtain a range of va ria tio n contained in the interval E/F. Low o r very low developm ent, w ith [0,1]. lim ited natural resource assets (for example, Guatemala and Haiti). 1.3 Typification developm ent sustainability of situations of status and their In Chart 1.1, som e of the ty p o lo ­ gies described above are characterized, in o rd e r to help the reader visualize the o ri­ On the basis of in dica tors fo r the e c o n o m ic , so c ia l, and entation of each group o f cou ntrie s w ith e n v iro n m e n ta l re sp e ct to su s ta in a b le d e v e lo p m e n t dim en sion s and takin g into acco un t c u r­ dim en sion s. The charts underscore bias­ rent trend s, it has been determ ined tha t es th a t may or may no t be the outcom e of there are at least six de velopm e nt patterns deliberate policies and that, in both cases, tha t can be differentiated (Table 1.1); may display an orien ta tion o r spo ntan eity in he rent to the lack of a conceptual fra m e ­ A: High levels o f average incom e, m o d ­ w o rk fo r sustainable de velopm ent aimed erate social inequality, low pro du ctive at ach ie ving in te g ra tio n , This visualization is on ly a p re lim ina ry d e p e n d e n t on energy m u lti-o b je c tiv e s o lu tio n s . exp orts (fo r exam ple, Venezuela). estim ate, w here each in d ica to r (o f the t r i­ H ig h p ro d u c tiv e th is p re lim in a ry estim ate involves a large high d o m e s tic nu m be r of im p lic it assum ptions, there is angle) is granted equal im portance. Since B: in te g ra tio n and d iv e rs ific a tio n w ith a b s o rp tio n , m a rk e d s o c ia l and no general ranking of su sta in a b ility of the Table 1.1: Typification of the status of human development and its sustainability Pattern Countries Economic Development (per capita GDP) Equity (social asymmetries) Investment In Resources (genuine saving) Endowment of Natural Resources (capital/per capita) A VE, TT, BB high medium high low high-medium high B AR, BR, CL, UY, PY high-medium high medium low high-medium medium high high C CO, CR, MX, PA, JM high-medium medium low high-medium medium high high-medium high high D BO, EC, GY, Nl, PE, SR, CU medium low-low medium high medium low-low high-medium high E G T.H N .D O medium low-low medium low medium low medium low F SV, GD, HT medium low-low medium low medium low low 5 Chart 1.1 : Types of development and sustainability Typ* D T yp» A E c o n o m ic D e v e lo p m e n t (p e r c a p ita GDP) 1 .0 E c o n o m ic D e v e lo p m e n t (p e r c a p ita GDP) 1.0 k /0 m\ ¿ S t. % ZN \ In v e s tm e n t In P h y s ic » ! R«tfe c r c e s ( g e m in e s a v in g ) / S o d a V E q u ity (in c o m e d is trib u tio n ) • it A3 / In v e s tm e n t In F tiy s ic a l R e i t f i t f o a s ’ (g e n u in e s a v in g ) \ S o d a l/E q u K y (in co m e d is trib u tio n ) 1 1 S 1 15 E n d o w m e n t o f N a tu ra l R e s o u r c e s (n a tu ra l c a p ita l p e r c a p ita ) E n d o w m e n t o f N a tu ra l R e s o u rc e s (n a tu ra l c a p ita l p e r ca p ita ) Typ* B E c o n o m ie D e v e lo p m e n t (p o r c a p ita QDP) 1.0 S o d a V E q u ity (in c o m a In v e s tm e n t in P h y s ic a l Ri (Bernina s a v in g ) A ttrib u tio n ) E n d o w m e n t o f N a tu ra l R e s o u r c e * (n a tu ra l c a p ita l p a r c a p ita ) Typ* C E c o n o m ic D « v *to p m a n t (p a r c a p ita GDP) 1.0 In v e s tm e n t in P h y s ic a l R i (g e m in a s a v in g ) ■i. S o d a lÆ q u ity (in c o rn a a t tr ib u t io n ) E n d o w m e n t o f N a tu ra l R e s o u r c e s (n a tu ra l c a p ita l p a r c a p ita ) Note: Physical resources include: Fixed assets, natural environm ental resources cou ntrie s. A t a iater stage o f the project, ron m en t. the analysis w ill be m ore in depth. energy system aspects th a t affect, in d if­ Table 1.2 indicates a set of 2. ty o f developm ent in th e ir p o litica l, eco­ fe re n t ways and degrees, the su sta in a b ili­ The Energy Sector’s Influence on Sustainability: Inter-relations no m ic, social, and e n viro nm en ta l d im e n ­ sions. The energy system is inter-related w ith som e o f the m a jo r aspects m en­ tion ed above. The level and stru ctu re of The asp e cts in d ic a te d are described as objectives and are assigned energy sup ply and uses interact in a co m ­ to d iffe re n t dim en sion s. plex w ay w ith socioe cono m ic develop­ several o f these objectives exert effects N evertheless, m ent, exert intense im pacts on natural 6 n o t o n ly on one d im e n sio n b u t also on resources, and bear heavily on the envi­ tw o o r m ore o f the m . A setback in c o m ­ Table 1.2: Energy objectives related to sustainable development Dimensions Objective/how the energy sector contributes to sustainability Political Sustaining political maneuverability Maintaining international weighMnfluence Breaking up political and economic power (State and private) Security of installations in face of conflicts Security and diversification of external supply Sufficient degree of energy autarky Reduced energy quota in imports Lesser weight of variable income in the budget Lesser weight of balance of payments Steady inflow of export earnings Taking energy earnings Steady inflow of public revenues Investment of energy earnings in other forms of capital Reduced energy intensity Rational use of energy in productive sectors Energy efficiency Productive efficiency In the energy sector Sufficient sector financing Higher added value in energy chains Higher energy supply quality Reliability of supply Reduced energy supply costs Diversification of energy mix Sufficient supply Meeting basic needs Access to modem energy products Greater access to electricity Supply of social services Reduction of local and global impacts from emissions Soil conservation Sustainable management of firewood Nonpollution of water Economic Sustainable Development Social Environmental Ecocompatlble management of the exploitation of fossil resources Sustainable management of hydraulic basins Sustainable programs for exploiting fossil resources Long-term sustainable exploitation of fossil resources Use of renewable resources pliance w ith the ob je ctives means a lesser n o t sustainable when there is a lo w level degree o f su sta in a b ility because it entails o f reserves and w hen it jeopardizes the risks, vu ln e ra b ilitie s, and con stra in ts fo r c o u n try ’s so cio e co n o m ic developm ent, u n fa ir b ia s­ developm ent, especially if there is in s u ffi­ es in energy supply, in con sistencies in the cie n t re -in ve stm e n t in o th e r fo rm s o f cap­ use ital. of re so u rce s, im p acts. and e n v iro n m e n ta l lo n g -te rm s o c io e c o n o m ic The list does n o t intend to be exhaustive n o r does its selection claim to The idea is that, on the basis of be fin a l o r lead to d e fin itive o r undebatable th is presentation o f the set o f objectives con clu sion s. in va rio u s dim e n sio n s, a new approach fo r po licym a kin g w ill be established, one in te ra c tio n s th a t takes in to acco un t the m any d im e n ­ between the energy s e c to r and general In a d d itio n sio n s o f a c o m p le x s o lu tio n th a t cannot d e velopm e nt pro cess, th is lis tin g h ig h ­ em erge spo ntan eo usly (as if led by an lig h ts the in te r-re la tio n s between the d if­ in visib le hand) o r be directed exclusively fe re n t d im e n sio n s. to the A certain de velop­ by a central a u th o rity (the g u id in g State). m ent level w ith respect to one dim e n sio n S trik in g a balance between these d iffe re n t cou ld je op ardize the lo n g -te rm de velop­ aspects co n stitu te s a m a jo r challenge fo r m ent o f o th e r d im e n sio n s. the new era th a t the region is in a u g u ra t­ For exam ple, the intense e x p lo ita tio n o f fo s s il energy is ing. 7 Table 1.3: Selected energy sustainability indicators No. Indicator High sustainability linked to: is Responds to objectives: 1 Energy autarky Low participation of imports in energy supply - external supply security - sustainability of political - 2. Low contribution of energy exports to GDP Soundness in the face of external changes maneuverability (high degree of political independence) reduction of the risk of balance of payments disequilibria - steady inflow of export earnings - lesser weight of variable incomes in the budget - reduction of risk of balance of payments disequilibria 3. High GDP per unit of energy Energy productivity - productive efficiency - energy efficiency - sufficient financing (as a result investment needs ) - reduction of energy supply costs o f the reduction o f sector - sufficient supply (due to the reduction in demand) - higher air quality (due to the reduction of emissions with local impact) - reduction of gas emissions with impact on the climate - extension of the durability over time of nonrenewable resources 4. Electric power coverage High percentage of electrified households 5. Coverage of basic energy needs Sufficient consumption useful residential energy 6. Relative purity of energy use Low - diversification of energy mix - sufficient supply - access to modem and productive energy products - supply of social services of - meeting basic needs - diversification of energy mix - sustainable management of firewood levels of em issions (C02) -higher air quality (due to the reduction of emissions with local and regional impacts) - reduction of gas emissions with impact on the climate 7. Use of renewables High p a rtic ip a tio n of - higher air quality (due to the reduction of emissions with local and regional impacts) renewables in energy supply - reduction of gas emissions with impact on the climate 8. Scope of fossil resources and firewood High reserves-produclion ratio of fossil energy and firewood 2.1 - extension of durability over time of long-term resources - long-term supply security - maintaining minimum natural assets Selection of indicators ceptually relevant fo r susta ina bility, fo r exam ple, energy sp e n d in g by incom e In o rd e r to determ ine the o p p o rtu ­ group, had to be discarded. On the basis nities a n d /o r co n d itio n in g factors fo r the of the availability o f data fo r the m a jo rity developm ent o f the cou ntrie s stem m in g o f the countries, there were eigh t in dica­ fro m th e ir energy sector, several im p o r­ to rs selected (and th e ir calcula tion ): three tan t secto r objectives, fo r w h ich it was fo r the econom ic dim en sion ; tw o fo r the possible to fo rm u la te quantitative in dica­ social dim ension; and three fo r the na tur­ tors, have been selected. al resources dim ension. in view of the d iffic u lty o f ob ta in ­ ing in fo rm a tio n , w h ich prevented ade­ Table 1.3 displays the in dica tors tha t were selected and th e ir respective quate regional coverage, the quantitative 8 d e fin itio n (the annex to the present chap­ estim ate o f several aspects that are co n ­ te r provides m ore details on the m etho d- Table 1.4: Typification of situations and classification of LAC countries in terms of energy sustainability Economy Countries Equity Energy autarky Soundness Natural Resources Energy productivity of Environmental Use of Scope Electric power Coverage purity of renewable fossil coverage basic needs energy use energy resources of a: VE, TT high very low medium low high medium high medium b: BB low low high high medium low medium low a: CO, MX high medium high medium low medium high medium medium high medium low high b: BO, EC, PE high medium low medium low medium low medium high medium low medium low III AR, CL, BR, UY, PY high high medium medium high medium high high medium high medium high IV a: CR, PA, JM low high medium low medium high medium low medium high medium low b: GY, SR, NI, CU medium low high medium low medium low medium high medium low low medium high I II c: GT, HN, DO, SV, HT, GD medium high high low . high I. S in g le -e xp o rt (oil and pro d u cts) cou ntrie s and high e lectricity coverage II. medium low E nergy-exporting cou ntrie s w ith: a. III. m edium high electricity coverage b. m edium low e lectricity coverage S e lf-su fficie n t cou ntrie s o r w ith a relatively low share o f energy im p o rts, but w ith a v a ri­ able coverage of basic needs. IV. E ne rgy-im p ortin g cou ntrie s w ith: a. m edium high coverage of e lectricity and basic needs b. m e d iu m -lo w coverage of electricity and basic needs c. lo w coverage of electricity and basic needs ology). In ad dition, each in d ica to r is relat­ • form ; ed to the variou s energy po licy objectives • po sitio n; and specified in Table 1.2. • size o f the profiles o f each set of countries (determ ined by the aver­ 2.2 Typification o f situations on the basis ot energy indicators age). The m ore the fo rm resem bles a On the basis o f the cla ssificatio n of octahedron, the greater is the soundness the LAC cou ntrie s, in keeping w ith the o f the energy system s. T his con figu ration eight in d ica to rs m entioned above, it was is evident in the G roups li-a and III. This possible to id e n tify seven types of situ a ­ soundness is based on the greater equi­ tion s, diffe re ntia te d by im p o rta n t d iffe r­ lib riu m between the eight dim ensions of ences in at least tw o o f these indicators. the radogram and the po ssib ility o f m ak­ As a result, it was observed th a t these s it­ ing gradual ad ju stm e nts in each one of ua tion s them to im prove sustainable developm ent co u ld be g ro up ed un de r fo u r basic types w ith su b g ro u p s (Table 1.4). The characterization used con ditions. is an in Groups l-a, II, and III, expansion estim ate th a t p e rm its id e n tifyin g in the o f the dim en sion s of soundness, cover­ (C h a rt 1.2 ) th e fo u r age, purity, and use o f renewables is d if­ typ o lo g ie s, w ith varian ts w ith in each one. ferent, ow ing to the d iffe re nt energy s tra t­ fo llo w in g ch a rts The elem ents of in te re st in these charts egy th a t each c o u n try has decided to involve th e fo llo w in g : apply in the past. 9 Chart 1.2: Patterns of energy sustainability Purity Group ll-a Soundnes Autarky Cover-ee Scope G roup ll-b S oundnes Autarky Scope Group III Cover-ee Soundnes Autarky Scope Cover-ee The size suggests the potential of provide them w ith a better ranking. Thus som e system s com pared to others. It is the potential does no t depend so m uch on evident th a t there are cou ntrie s that enjoy the natural advantages tha t each co u n try m ore advantageous situa tion s as a result has bu t rather the overall in te gra tion of of na tural en d o w m e n ts, of th e ir energy system s. There are system s, th e ir w illin g n e ss to im prove th e ir situa­ however, th a t display the same size but a tion. diffe re n t fo rm o r po sitio n. regardless This question requires suitable assessm ent since th is Nevertheless, there are countries an identical level o f sustainable develop­ al resources, have found so lu tio n s that 10 circum stance does not necessarily im p ly that, despite draw backs in term s of natur­ ment. Finally, the situ a tio n of cou ntrie s each indicator, the results sh o w diffe re nt th a t are ge og raph ica lly isolated w ith in the levels of susta ina bility; in oth e r w o rd s, the region is d iffe re n t fro m the situa tion of cou ntrie s are ranked (Chart 1.3) acco rd­ co u n trie s tha t are part of a sub reg ion al ing to the attention that, respectively, they geographic un it w ith energy integration have been able to grant to each one of the p o s s ib ilitie s . eig h t energy d im e n sio n s E nergy in te g ra tio n , by means of pow er tra n sm issio n , o il pipeline displa yed in Table 1.3. and gas line netw orks, helps to c o n s o li­ date the soundness of exporting cou ntrie s Since th is is but a p re lim ina ry esti­ and sub reg ion al autarky as a resu lt of mate, the ranking does not have to be energy d ive rsifica tio n and lo n g -te rm su p ­ explained in detail. ply security. in g of Jam a ica But the relative rank­ and H a iti m ust be explained because it show s the influence The cou ntrie s o f MERCOSUR, the o f the selection of in dica tors and the ir def­ Andean G roup, and Central Am erica are in itio n and standardization on the results. those th a t sh o w the best chances of im p ro vin g th e ir co n d itio n s, by m eans of As indicated by the data in Table C subregional in te g ra tio n , w ith respect to o f Annex II, Jam aica has a better ranking th e than Haiti in fo u r o f the eight indicators a b o v e -m e n tio n e d d im e n s io n s of soundness and autarky. whereas, in tw o indicators, its ranking is the same. Only in term s of em ission s and 2.3 C lassification of countries in terms of energy sustainability autarky does Jam aica sho w lo w er indica­ to rs. Evidently, Jam aica’s energy system em ission s are relatively higher o w ing to C lassifying cou ntrie s in te rm s o f a its extensive fu e l-co n su m in g pow er sys­ m u lti-d im e n s io n a l issue such as su sta in ­ te m and to high co n su m p tio n in its tra n s ­ able d e v e lo p m e n t p o rta tion sector. is a co m p le x task, in vo lvin g a w ide range of value ju d g m e n ts Haiti, despite its higher po pu latio n, does not have these system s. at d iffe re n t levels, w h ich are often tim es Regarding the autarky indicator, the fa ct is im p lic it in the selection of indicators, th e ir tha t Haiti does not im p o rt p rim ary energy standardization, th e ir relative valuation, p ro d u cts because it does not have fin a n ­ etc. If, in a p re lim in a ry attem pt, an eq uiv­ cial resources to do so whereas Jamaica alent share (equal w e ig h t) is assigned to is a large im porter. 11 It sh o u ld therefore be emphasized tw o cou ntrie s linked to the sam e su sta in ­ that, when com b in ing energy in dica tors of a b ility pattern d iffe r con sid erab ly in som e equity w ith of the in dica tors considered. econom ic developm ent, as Thus, fo r m easured by the per capita GDP index, example, Paraguay (PY) is d iffe re n t fro m there is a high correlation, indica ting a the lll- b pattern because of Its w idespread g ro w in g tre n d tow a rd higher coverage of use o f renewables, and S urinam e (SR) basic needs and electricity as average diffe rs fro m the IV-d g ro up because o f its incom es increase. This aspect seem s to high genuine saving. Brazil (BR) and prevail over oth e r in dica tors linked to eco­ A rge ntin a (AR), w h ich have been placed n o m ic to g e th e r under the sam e typica l situa tion , g ro w th and n a tural resources, w h ich display an erratic behavior regard­ are m arkedly d iffe re n t in te rm s o f indica­ ing this. to rs fo r eq uity and coverage o f basic ener­ gy requirem ents. 3. General and Energy Sustainability Patterns If sustainable developm ent c o n d i­ tio n s are represented bo th at the general C om parison o f general develop­ m ent patterns and the types of countries s o c io -e c o n o m ic -e n v iro n m e n ta l s yste m level and the energy level, the la rge r the regarding energy su sta in a b ility helps to area of its respective radogram , the m ore h ig h lig h t sustainable is the s itu a tio n (see Annex I). th e ve ry clo se a sso cia tio n between them . Table 1.5 therefore ranks the re g io n ’s cou ntrie s in term s o f the tw o criteria, developm ent and energy s u sta in ­ ability, to co n stitu te eight groups. 4. Conclusion: Sustainable Develop­ ment is Not Only Desirable But Also Possible The in dica tors th a t have been pre­ Even tho u g h a w ide num ber of in dica tors have been used and various sented sh o w deficie ncie s levels have been defined fo r each one, it energy po licy p rio ritie s fo r sustainable has been possible to establish relations developm ent. One energy strateg y co m ­ between the typical situa tion s tha t are p a tib le s u s ta in a b le observed at the so cio -e co n o m ic-e n viro n ­ w o u ld involve expanding the surface of m ental level and those tha t correspond to the radogram s p re vio usly sho w n , im p ro v ­ w ith and sug ge st d e v e lo p m e n t the energy sphere so th a t e igh t patterns in ing the ve cto r p o sitio n s of each in d ica to r te rm s of su sta in a b ility can be identified. w ith o u t u n d e rm ining tho se of the others. Nevertheless, linkage o f several cou ntrie s patterns The exam ples of the re g io n ’s m o st does no t alw ays turn o u t to be clear, and advanced cou ntrie s in term s of su sta in ­ re g a rd in g these s u s ta in a b ility a co u n try frequ en tly diffe rs fro m the ty p i­ able developm ent co n firm the via b ility of cal situ a tio n w here it has been classified th is approach. in som e of the dim ensions considered or develop the energy system so tha t it can It is possible to fu rth e r Table 1.5: Association of development patterns and types of sustainability in terms of energy Patterns G Y , NI, SR , CU E /F G T, H N , D O ,S V ,G D ,H T becom e m ore e fficie n t in te rm s o f p ro d u c­ cou ld design a m ore sustainable energy tivity, less vulnerable, and m ore equitable, schem e, in political, econom ic, social, and produce less e m ission s (regarding this environm ental term s, over the long term , the region is very advanced), use natural using th e ir ow n resources. resources on the basis o f a m ore balanced approach and w ith a clo se r focu s on tim e, Im ped im e nts and tap renew able energy resources even the m ore extensively. ad ju stm e nts and There are actually few co n flicts between objectives if it is un de r­ tra n s itio n usually em erge phase, w h ic h in in volve s re d istrib u tio n im pacts and also requires te m p o ra ry measures to stood th a t they can be achieved gradually. m itigate the crisis and social im pacts. In som e cases, they can even m utua lly The fear o f ending up in the gro up of la g­ reinforce each other. gards in this re d is trib u tio n often tim es prevents relevant groups fro m em barking Indeed it is possible to display co n flicts at the level o f the in stru m en ts on a strategy of change. If sustainable developm ent im plies a m ajor change in and th e ir relations w ith various objectives. m any social groups, the tra n sitio n w ill be The even m ore d iffic u lt. p ric in g in s tru m e n t, fo r exam ple, always has a positive side in te rm s o f e ffi­ A m a jo r e ffo rt in term s of con vin cing and coo rdinatio n is cient resource alloca tion and in p e rm ittin g needed, w ith careful m easures and above se lf-fin a n cin g and a m ore negative side all decentralization, to make the dem ocra­ due to its incom e effect, especially in tic system m ore effective. lo w er-inco m e groups. But, in this case as changes in the energy sector, carried out in others, if the in stru m e n ts are used fle x ­ w ith in the fra m e w o rk o f cu rre n t reform s, ibly, along w ith w e ll-o rie n te d co m p e n ­ em erged as a resu lt of the breadth of tan­ s a to ry g ib le m easures, the c o n flic t can be resolved. m a c ro e c o n o m ic extrem e situ a tio n s, The latest big p ro b le m s . the In m o s t radical changes w ith the sh o rte st periods o f tra n ­ It is evident th a t financial co n ­ s tra in ts im p o se lim its on the rapid achievem ent o f objectives such as greater s itio n have occurred in specific political s itu a tio n s ch a racterized by a certain am o un t o f a u thorita rian ism . The exam ple e le ctricity coverage, greater d ive rsifica ­ of o th e r cou ntrie s show s th a t the way to tio n o f energy sources, consensus is also feasible although it may renew ables, high er use of etc. appear to be slo w e r and m ore painful. To N evertheless, in view of the m u lti-fu n c ­ ensure the s h ift to w a rd sustainable devel­ tio n a lity of som e in stru m e n ts, if energy opm ent, the latter type of tra n sitio n is the integration, w h ich co n trib u te s to various m o st advisable. susta ina ble be tte r su p p ly quality, d e ve lo p m e n t o b je ctives, is considered on the sam e fo o tin g as rural Policym aking using a su sta in a b ili­ e le ctrifica tio n using an appropriate share ty approach should be rooted in local or o f renew ables and the adequate applica­ regional realities. W hen there are already tio n of taxes to enhance energy efficiency, highly sustainable situ a tio n s in cities o r reduce e m ission s, and secure revenues regions w ith in a given country, these s itu ­ fo r the State w ith o u t exerting a negative ations as w eli as the policies th a t fostered social im p a ct and o th e r exam ples, the the m should be exam ined to serve as the fina ncing pro blem is som e w h at relative. basis fo r the preparation o f practical p ro ­ posals that can be applicable to other A m on g the cou ntrie s of the region, cases. there are som e th a t have m anaged to im prove steadily th e ir situ a tio n over the Finally, it should be recalled that last 25 years, others th a t have o n ly m an­ the observations that have been made on aged to im p rove th e ir situa tion in term s of the basis of global in dica tors do not mean sustainable de velopm e nt over the last few that the m ost im p o rta n t elem ents fo r su s­ years, and yet others tha t are experiencing tainable developm ent should necessarily such a critica l situa tion th a t they seem to be placed at, or lim ited, to the overall have no chance of em erging fro m the ir national plan. Quite on the contrary, since problem s. N evertheless, the exam ple of eco no m ic and social developm ent co n ­ m ore advanced co u n trie s and the cu rre n t cretely affects individu al hum an beings backw ardness o f som e o f the countries and m o st environm ental damage exerts a im plies, in princip le , th a t there is a wide spe cific local im pact, the approach ad op t­ m argin fo r im p rovem e nt. ed fo r po licym a kin g should be form ulated All cou ntrie s to im p rove the living space of persons. te rm s o f the d iffe re n t d im en sion s o f su s­ T his space is determ ined tainable developm ent. by concrete The last chapter local consumption, production, and distri­ returns to p o licym a kin g concepts, in an bution styles, and it is precisely in these a tte m p t to dra w m ore concrete c o n c lu ­ areas th a t the use of energy is evolving in sions. a w ay th a t in certain aspects is quite d is­ and th e ir possible roles, in ad d itio n to tressin g. objectives, are presented m ore syste m a ti­ A ction s o r in stru m e n ts, players cally to facilitate the e sta b lish m e n t o f a The fo llo w in g chapters review the status and evo lu tion o f energy to date in sustainable d e velopm e nt stra te g y fro m the energy perspective. CHAPTER 2: ENERGY AND ECONOMY The in te r-re la tio ns between energy Energy is a p rod u ction factor or and the e co n o m ic d im e n sio n of s u s ta in ­ input in a lm o st all activities. Because of able d evelop m e n t take place at v ario u s th is, energy p rod u ctivity has becom e a levels. fundam ental e co n o m ic objective. The idea is to use energy m ore productively: A t the p o litica l level, the s e cto r is rational use of energy in the different co n ­ the su b je ct of m uch co n cern w ith respect su m p tio n se cto rs and energy efficien cy in to s itu a tio n s of d epend en cy and pow er processes. im b a la n c e s . betw een im p o rte rs), These c o u n trie s betw een s itu a tio n s occur (e x p o rte rs e c o n o m ic The present chapter attem pts to and g ro u p s p rovid e an in-depth a n a ly sis of these (su p p lie rs and cu sto m e rs), between regu­ inter-relations, co m p arin g the cu rren t sta ­ lators and th o se that are the target of reg­ tu s and the evolution of som e facto rs in ulation, and between the State and large the co u n tries of the region over the last co m p a n ie s (w ithin the fra m ew o rk of g lo b ­ few years, highligh tin g alization). cie n cie s, risks, persisten t defi­ and vuln e ra b ilitie s that have to be dealt w ith in energy policy. In te rm s of m a cro e c o n o m ic s, the se cto r exerts a heavy im p a ct on the fo r­ 1. Energy and Economic Growth eign trade balance and fisca l revenues and En ergy a lso on p u b lic sp e n d in g and investm ents. Before, there w a s the perception that the in te n s ity (e n e rg y end- use/G D P) o r its inverse, energy p ro d u ctiv ­ se cto r w a s a lso a driv in g force behind ity, is a m easure p rovid ing in form atio n on grow th, but th is view has not w orked as va rio u s a sp e cts of sustainability. expected. A t present, the se c to r’s co n tri­ energy intensity of G D P generally in d i­ bution to e co n o m ic d evelopm en t involves, cates (u n less it is because of a sp e cific in addition to m aking energy available in in dustrial structure) low prod u ctivity and High s u ffic ie n t a m o u n ts and at an adequate low co m p etitiven e ss of the econom y. quality, generating benefits and in v e st­ addition, it m eans that the e co n o m y is In m ents to in co rporate tech n ica l p ro g re ss h ighly exposed to ris k s stem m in g from and co o rd in a tin g w ith other se cto rs to energy price flu ctu ation s and high toxic in crease d o m e stic value added. e m iss io n s d isch a rg ed into the en viron ­ T hu s, it ap pears as the pivotal se cto r fo r the c o n ­ ment. cept of “ p ro d u ctive tra n sfo rm a tion with 1.1 Status of the productivity equity.” region’s energy d is p la y u nequ al On the s e c to r level, perform an ce of the energy s e cto r is cru cia l fo r the LA C c o u n trie s econom y, e s p e cia lly b e ca u se of the need e co n o m ic developm ent. The per capita for energy s u p p ly q u ality and reliability. G D P figu res in cu rre n t U.S. d o lla rs of To d o th is, the s e cto r m ust, firs t of all, be 1995 range b road ly from ab ou t U S $ 2 0 0 v iable and ca pa ble of p e rfo rm in g its p rin ­ to ab ou t U S $5 ,0 0 0 . cip al fu n ctio n s; th is im p lie s, am on g other en d -u se (per capita G D P), w h ich provides a spe cts, s o u n d fin a n cin g . an estim ate of energy used to produce A t a hig her Per capita energy level, the s e cto r h as to achieve o p tim al th is per capita GDP, co rrelates relatively operability, w h ich m e a ns e n su rin g energy w e ll w ith th is diversity. e fficie n cy in p ro d u ctio n , d istrib u tio n , and co n s u m p tio n p ro c e s se s and the efficien t a llo c a tio n of fin a n c ia l re so u rce s w ith in the sector. and hum an In Chart 2.1, energy en d-use of LA C co u n tries is displayed in an orderly fash io n (from le sse r to greater) by per capita co m m e rcia l energy co n su m p tio n The declining share of fire w o o d in Chart 2.1: Final energy consumption and gross domestic product (1995) the energy m ix, as a resu lt of gro w in g eco no m ic developm ent, sho uld be u n d e r­ scored. It is also in te restin g to observe exceptions to the rule in th is stru ctu re : high percentage o f fire w o o d c o n su m p tio n in 4500 3000 2500 2000 1500 1000 500 th a t are (P araguay, re la tive ly Chile, h ig h ly U ruguay, Brazil, and Colom bia) and very lo w per­ 4000 3500 co u n trie s de velope d 5000 cen tage s in c s B arbados, T rin id a d ” Jam aica). There is also a w ide variety of 1 £ o th e C aribbean and (Cuba, T obago, reasons fo r these situa tion s: and lack of fire ­ w ood supply, lo w com m e rcial fuel prices, diversifie d sup ply (liq u id fuels, gas, elec­ tric ity ). 0 A diversified energy s u p p ly is a fa cto r th a t favors eco no m ic developm ent. Using the range o f d iffe re n t energy p ro d ­ ucts available fo r to ta l co n su m p tio n in each co u n try as a benchm ark, Colom bia, (w ith o u t fire w o o d ). A fte rw a rd s, firew ood Chile, and Brazil w ith five energy sources is added, and this m od ifie s the ranking in (in a d dition to variou s oil p ro d u cts) seem te rm s to offe r th e best co n d itio n s, fo llo w e d by of to ta l c o n s u m p tio n . But the apparent exceptions are even m ore in te r­ M exico, Argentina (takin g into acco u n t the esting than the evident reg ularity of co m ­ use o f coal in electric pow er generation), m ercial co n su m p tio n . and Venezuela. W ith the de velopm e nt of natural gas use in these and o th er co u n ­ The cou ntrie s th a t sho w a close trie s (Peru), co n d itio n s w ill be even better. p ro x im ity between total energy co n su m p ­ tio n and per capita GDP are m ore energy­ in te nsive than oth ers. V ice-versa, The cases o f T rinidad Energy productivity since 1970 1.2.1 O v e rv ie w in te rm s of energy p ro du ctivity, they are less e fficie n t. 1.2 and Guyana, Three highly d iffe re ntia te d phases H onduras, Nicaragua, and Haiti should be can be identified in the eco n o m ic evo lu­ u n d e rs c o re d . tio n of Latin A m erican co u n trie s since Tobago, S u rin a m e , Cuba, L ike w ise , Venezuela, M exico, and Jam aica are relatively less 1970, coincid in g a p pro xim ately w ith the energy-intensive, especially in te rm s of decades them selves: com m e rcial energy. W hen includ in g fire ­ w o od , the D om inican Republic, Paraguay, • m ore energy-intensive than the average. As rule, it can be said tha t the ele­ rapid g ro w th (3 7 % ) between 1970 and 1980; and Peru and even El Salvador seem to be • crisis and ad ju stm e n t (-8 % ) fro m 1981 to 1990; and • recovery as of 1991. m ents indica ting low p ro du ctivity, apart By con tra st, energy in te n sity* the fro m statistica l and m easurem ent d iffe r­ an en ergy-intensive inverse of pro du ctivity, has no t changed eco no m ic structure , especially in in d u s­ considerably fro m the regional average try ; a high share of energy pro du cts tha t since 1970: ences, usually are: have a low useful energy con tent (such as fire w o o d ); low econom ic activity; and/or sim p ly the in efficie nt use o f energy. • The m ain causes are an energy-based in du s­ • 4. See OLADEs data E nergy-E conom ic System (SIEE). 1 6 base, the Inform ation available energy alternatives. It rose by about 7% between 1980 and 1991. trializatio n policy, unfocused subsidies fo r energy con su m p tio n , and the lack of local It declined by ab ou t 10% between 1970 and 1980. • It has rem ained at a sta n d still since 1991. N evertheless, there are actually few c o u n trie s th a t display an energy intensity perform ance sim ila r to th is aver­ age. The apparent regularity of this aver­ age is the outcom e of a w ide variety of evolutions in the countries. Chart 2.2 p ro ­ vides patterns of the evolution of energy intensity indicators and the per capita GDP fo r the region’s countries, w ith the fo llo w in g classification: Group 1: Countries th at made progress over the last 25 years in the rig h t d irection (rising per capita GDP and declining energy inten­ sity). Group 2: C o un trie s th a t m anaged to increase per capita GDP but e xp erien ced g ro w in g energy intensity. b u t m ore decline, BOE/US$103). Group 3: C ountries th at did not manage to increase th e ir per capita GDP and became less energ y-p ro­ ductive. The average o f LAC w ith respect to these ind ica tors show s a behavior th at is sim ila r to the countries of the firs t group (Chart 2.2.1). A ccord in g to th is average, the energy in ten sity o f LAC in 1994 was hardly 3% (0.1 BCIE/US$103 dollars of 1980), below the level of 1970, whereas the per capita GDP in 1994 was m ore than US$520 (o f 1980) higher than the figure fo r 1970 (a 33% increase), due to the increase achieved betw een 1970 and 1980 (US$591 of 1980). The first gro up of countries (Chart 2.2.1), characterized by grow th o f per capita GDP and declining energy intensity, includes: • • Brazil, C olom b ia, and Paraguay, w hich m anaged to im prove con sid er­ ab ly b o th in d ic a to rs (m o re than U S$500 and m ore than 1 BOE/US$103). • m ore than 1 Costa Rica and Guatemala (lesser grow th and lesser decline). W hereas C olom bia, C hile, and Uruguay im proved th e ir indicators rela­ tively steadily, the rem aining countries o n ly o r s u b s ta n tia lly im p ro ve d them th ro u g h o u t the seventies; Barbados and to a lesser extent Uruguay reduced th e ir energy intensity fro m even the reduced levels they show ed in 1970. The second group (Chart 2.2.2) includes Argentina, M exico, and Panama, w hich achieved higher per capita econom ­ ic grow th in the seventies and show stag- Chart 2.2.1: Group 1: Countries with growth and decline of energy intensity E n e r g y In te n s it y [BOE / 10(3)USS B arbados, C hile, Ecuador, and U ruguay, w ith h ig h e r e co n o m ic g ro w th but less decline (m ore than U S $500 but less than 1 BOE/US$103). 2000 o f 1980] 3000 6000 G D P pc [U S S o f 1980] • D om inican R epublic and Honduras (lesser g ro w th : less than US$500 -B A R B A D O S -C H IL E -P A R A G U A Y -B R A Z IL - a-C O L O M B IA -» -C O S T A R IC A -E C U A D O R ——G UA TEM ALA « -« -H O N D U R A S -D O M IN IC A N R E P .- » -U R U G U A Y ________ - a - L A C ___________ 17 C h art 2 .2 .2: G roup 2: C o u n trie s w ith grow th and ris in g e n erg y in te n s ity lost ground. Finally, Nicaragua, despite c o n tin u o u s e conom ic c o n tra c tio n , has m aintained the upw ard trend o f its energy intensity. E n e rg y In te n s ity [B O E / 1 0(3 )U S $ o f 1980 P er c ap ita G D P [U S $ o f 1980] A R G EN TIN A -«»-M EX IC O -*—PAN AM A -o-T R IN IDAO TOB AGO nation o r even a slig h t increase in energy in te n sity. In co n tra s t, Trinidad and Tobago, w hich is also included in this group, experienced a substantial increase in its energy intensity, ow ing to the indus­ tria l strategy im plem ented in the eighties and m ajor fluctu atio ns in the per capita GDP level, the result of sharp variations in oil prices. The third g ro u p (C hart 2 .2.3) seem s far m ore heterogeneous. W hat the countries in this group have in com m on is the experience of a prolonged econom ic c ris is and, in va rio u s cases, arm ed dom estic conflicts. On the one hand, there are Jam aica, Guyana, El Salvador, Bolivia, and Peru, w hich after setbacks in the seventies and eighties, are recovering Desirable evolution is character­ ized, at firs t, by the com bination of grow th trends in per capita GDP and reduction of energy intensity; nevertheless, regarding the latter, it should be em phasized that its m o dificatio ns are not exclusively associ­ ated w ith changes in efficiency in the use of energy. In the case o f developing co u n ­ tries, both the industrialization process and the rapid advance in m eeting the pop­ ulation’s energy needs generally im ply an increase in energy intensity. In addition, the m ost energy-intensive industries were gradually transferred fro m m ature indus­ trialized countries to developing regions during the seventies and eighties, thus co n trib u tin g to the energy in tensity in the latter regions.5 1 .2 .2 Trends in c o n s u m p tio n s e c to rs The above-m entioned relocation of energy-intensive in d u s trie s to w a rd the region’s countries that have an abundance o f energy resources has not enabled them to reduce th e ir energy intensity. In Brazil and M exico, energy-inten­ sive in d u s trie s expanded s u b s ta n tia lly during the eighties. Brazil stopped being an im porter of steel and became one of the region’s m ajor exporters. Venezuela and M exico considerably reduced their steel im p o rts and substituted th e m fo r national p ro d u c tio n . In T rinidad and C h art 2.2.3: Group 3: C o u n trie s w ith e c o n o m ic d e c lin e E n e r g y I n t e n s it y [B O E / 1 0 ( 3 )U S $ o f 1 9 8 0 ] 5 18 See Byron Granda, Efectos de la Relocalización Industrial sobre los Sistemas Energéticos Regionales [Impacts of Industrial Relocation on Regional Energy Systems], OLADE-ECLACGTZ, 1995. P e r c a p ita G D P [U S $ o f 1 9 8 0 ] f - * - B O L iV IA -p-E L SALVADOR^*- GUY ANA-*-HAITI -«-JA M A IC A ——P E R U - * - NICA RAGU A -«-V E N E Z U E L A « Tobago, a large ch em istry ind ustry was installed and is exerting a decisive im pact on the eco n o m y’s perform ance. The rela­ tiv e ly lesse r d iv e rs ific a tio n o f the econom ies o f Trinidad and Tobago and Venezuela has made the rise in energy intensity in these countries considerably higher than the one recorded in Brazil or M exico. W ith relocation grin din g to a halt, the energy inte nsity o f ind ustry also sta b i­ lized. Over the last few years, oth er d o w n ­ w ard tre n d s have becom e apparent. Several specific im provem ents such as the reduction of the energy content of copper prod uctio n in Chile and in other energy-intensive industrial activities of the region should be underscored. Greater exposure to external co m pe titio n, along w ith the reduction of subsidies and new environm ental requirem ents, has en cour­ aged industries to introduce new tech ­ nologies w hich have led to the reduction of specific energy consum ption. In addition, com parison of energy intensity between countries during d iffe r­ ent periods of developm ent can be d is ­ torted by the existence of an inform al econom y and by the estim ation o f real GDP in term s o f dollars. W hereas energy co nsu m p tion is recorded in energy sta tis ­ tics, its share of GDP is not recorded. In turn, the exchange rate m ay be subject to a devaluation policy and d is to rt real pari­ ties. In c o n tra s t to w h a t o c c u rs in industry, the energy used in tra n s p o rta ­ tio n has been increasing rapidly due to the g ro w in g prevalence o f the passenger car. N evertheless, som e exam ples w ith in the region indicate th a t it is possible to m od ify th is tren d. Energy policy and m unicipal in terve ntio n , fo r exam ple, can o rie nt c o n s u m p tio n to w a rd com pressed natural gas (CNG) and fo s te r a m ore rational e volu tio n of the tra n sp o rta tio n stru ctu re . O ther p ro d u ctive a ctivitie s w ith high energy co n sum ptio n are those o f the energy se ctor itse lf in both the m ining sector and tra n sfo rm a tio n centers (th e r­ m oelectric generation stations, refineries, etc.) or in d is trib u tio n . In LAC, this type of co nsu m p tion has increased m ore s lo w ­ ly than in the tra n sp o rta tio n and in d ustry sectors, no t only because o f structu ral changes in p o w e r ge n e ra tio n (h ig h increase in the share of hydroenergy) but also because of the lack o f oil refining d u r­ ing the eighties. D uring the firs t half of the nineties, however, th is consum ption has once again picked up m om entum as a result o f the expansion o f therm al genera­ tion capacity. In residential consum ption, energy use is quite inefficient. First of all, fire ­ w ood consum ption im plies low energy efficiency (see the fo llo w in g chapter); the e quipm ent or appliances fo r burning fire ­ w ood is also inefficient. A lthough the p ro fits from applying m odern technolo­ gies fo r energy use in household con­ s u m p tio n (fo r exam ple, flu o re s c e n t lam ps, efficient refrigerators) may be s ig ­ nificant, the higher costs of initial invest­ m ent and the lack of inform ation seem to be a m ajor obstacle fo r th e ir use. C ustom ers do not conduct com plicated dynam ic cost-benefit analyses to select am ong available options; they sim p ly p u r­ chase a stove, refrigerator, or household appliance w hose price is in keeping w ith the fa m ily ’s budget. A lthough structural changes can help to explain part of the energy intensi­ ty behavior observed in som e countries, it is also certain th a t th is behavior is affect­ ed by the lack o f progress in energy use efficiency. This prelim inary conclusion is draw n when elim inating energy efficiency levels fro m production processes in sev­ eral branches of heavy industry, technical characteristics, and the status o f m otor vehicle fleet m aintenance and the type of h ousehold appliances, am ong others, w ith in the region com pared to w hat is observed in industrialized countries. LAC has not as yet achieved m uch success in energy productivity. N or have reform s and price increases im plem ented since the m id -s e v e n tie s b ro u g h t the results th a t were expected, and the delib­ erate rational-use-of-energy policies that were applied have not exerted any s ig n ifi­ cant im pact. It has been concluded th a t there is a m ajor lag in rational use of energy (RUE). Even w hen it has been fully dem onstrated th a t it is an option that suc­ cessfully com petes w ith investm ent in the supply area, the energy policy of the m ajority o f LAC countries continues to focus heavily on the latter (see section 3 o f the present chapter). 2. Energy S ector P erform ance The aspects of energy subsector perform ance considered to be of m ajor im portance due to th e ir im pact on the econom y are, am ong others: • S u fficient energy service in term s of quantity and quality as a condition fo r the com petitiveness of the economy. Econom ic activity is conditioned by energy availability and is m ore flexible if it can benefit from a diversified energy supply. In turn, the quality of available energy facilitates econom ic grow th. As a result, in view of the high costs of supply system s, the objective is adequate avail­ a b ility in term s of both quantity and qual­ ity. High energy supply insecurity leads to the p robab ility of high costs, either stem ­ m ing fro m production losses or the need to install reserve system s. • V iability In order to provide a service that the econom y needs, the sector should be capable of operating efficiently. It should have enough resources (capital goods, natural resources, hum an resources, and financing). In addition, it should use these resources appropriately. • Efficiency As in other sectors of the econo­ my, the m ore closely the energy sector applies productive efficiency criteria, the m ore it conributes to econom ic grow th, because less resources per product unit are used and thus part of these resources are available to be used fo r other a ctivi­ ties. Efficiency also leads to cost reduc­ tion and, if there are no energy price d is­ to rtio n s fo r other production and con­ su m p tion sectors, efficiency inside the sector enhances com petitiveness. If via b ility is a m in im um condition fo r the sector to run adequately, efficiency is an objective to be reached by the sector. 2.1 6 20 See World Bank-OLADE assess­ ment in Evolution, Situation, and Outlook o t the Electric Power Sector in the Countries o f Latin America and the Caribbean, December 1991. m ents to expand supply fo r its dom estic and export market. Oil production, w hich in 1970 was already a m ature activity in som e coun­ tries of the region (Venezuela), grew by about 50% until 1994; the m ajor shares of th is p ro d u c tio n are fro m M exico , C olom bia, Brazil, Argentina, and Ecuador. N atural gas p ro d u c tio n d oubled, coal grew fo u rfo ld , and electricity ninefold. Installed capacity fo r refining grew tw o fo ld between 1970 and 1980 and since then has stabilized. The installed capacity of pow er generation grew fo u rfo ld . An additional e ffo rt has been the develop­ m ent of hydroenergy resources, w ith its share of installed capacity rising to close to 65% . Investm ent declined in the eight­ ies, and there were supply shortages. The debt of the pow er sector w as a heavy burden on public spending and could becom e a c o n s tra in t fo r develop­ m ent. The lack of funds and the deterio­ ration of reliability and service availability6 w ere a constraint arising fro m the in tru ­ sion of political factors, w hich prevailed over efficiency considerations in m ore than one country. The p rio rity granted in the seven­ ties to expanding energy service yielded positive results until the eighties, at w hich tim e it became evident that the strategy th a t had been chosen w as no longer su s­ tainable, since it depended on external co n trib u tio n s and rejected principles of productive efficiency. Oil, as the m ajor source of public revenues, had p rio rity over other energy sources in oil exporting countries, thus favoring exports and the dom estic con­ s u m ption of oil products because of their low prices, w hereas in the im p o rtin g countries th a t had th e ir ow n potential resources, after the successive crises of the seventies, huge am ounts of resources were focused on exploration and develop­ m ent to m itigate the im pacts o f eventual price hikes on the international m arket. S itu a tio n in the re ce n t past Over the last 25 years, the region has considerably developed its energy p ro du ctio n, tra n sfo rm a tio n , tra n s p o rta ­ tion, and d istrib u tio n infrastructure. Until the m id-eighties, it made huge invest­ Natural gas, w ith grow ing p roduc­ tio n associated to that of oil, barring few exceptions, lacked the necessary tra n s ­ port and distrib u tio n infrastructure; this led to the wastage of a large part o f its production (flaring into the atm osphere) o r its destination to inappropriate uses that did not ju s tify its com bustion. Coal, d e pe nd in g on g e o log ica l c onditions, product quality, and fo rm of exploitation, w as declinin g in som e co u n ­ tries, w ith considerable prospects in o th ­ ers. This situ atio n has not changed basi­ cally since the eighties. O ther energy investm ents were aimed at projects w hose prod uctio n fa c il­ itated the s u b stitu tio n o f oil and products, namely, hydropow er, national in te rco n­ nection system s, alcohol program s, geo­ therm al energy and nuclear power, am ong others, in cu rrin g a large share o f the sec­ to r’s external debt in the countries o f LAC. Severe d ic h o to m ie s betw een m acroeconom ic and energy interests in a large num b er o f coun tries were identified as one of the fundam en tal causes of the increasingly deficient perform ance o f the energy sector. These con tra dictio ns were closely tied to the role played by the ener­ gy se ctor in tackling in flationary pres­ sures, w ith the consequent im pact of p ric ­ ing and ta riff-s e ttin g policies on sector financing and the State’s m anagem ent of energy earnings.7 To revert this situation, the m a jo ri­ ty o f LAC countries have been undertaking reform s in th e ir energy subsectors since the eighties (see Insets 2.1 to 2.3). The targets of the reform s, m ainly carried out in the e le ctricity and oil sec­ tors, on the one hand, have been fo c u s ­ ing, on the se cto r itself, namely: • • • • increasing the reliability of system s; enhancing productive efficiency; securing financing by means o f private-sector involvem ent; and p ro te c tin g th e in te re s ts o f c o n ­ sum ers. On the o the r hand, these reform s have been focu sing on the m acroeconom ­ ic situation and are aim ed at balancing public se ctor accounts and elim ina tin g the deficit of state enterprises. 7 See F. Sánchez-Albavera and H. Altomonte, El Desarrollo Energético de América Latina y el Caribe [Energy Development in Latin America and the Caribbean], report prepared by ECLAC, September 1995. Inset 2.1: Reforms of electric power systems Regarding private-sector participation, the legal frameworks and market operation, the region’s electric power systems can be grouped as followed: Group 1: Legally segmented systems with mechanisms for competition and little constraint for private ownership and investment Group 2: Integrated or regionally segmented systems with limited openness for private investment Group 3: Integrated state-owned systems At the beginning of the eighties, the electric power systems of LAC fell mainly in Group 3 and, barring few exceptions, in Group 2. The reforms, despite the large variety of specific cases, can be classified in two modalities as indicated below: Modality 1: Modality 2: Broad openness for private-sector investment, competition in power generation, open access to grids (leading to Group 1 systems) Partial openness in power generation (leading to Group 2) At the beginning of 1996, in five countries of South America the systems belonged to Group 1 or were evolving in that direction (Chile, Argentina, Perú and, with certain reservations, Bolivia and Colombia). Legislation in Ecuador is also pointing toward openness. In Group 2 can be found the largest number of electric power systems of the region, the majority of which are small (Central American and Caribbean countries, but also Mexico). It is typical to have the indirect participation of independent power producers (IPP), under power purchase agreements (PPA) with power utilities, keeping the integrated State-controlled power generation, transmission, and distribution system intact. Another typical element of limited liberalization is the application of build-operate-transfer schemes (more commonly known as BOT schemes) to involve privatè-sector capital. One group of countries (Venezuela, Uruguay, and Paraguay) has not yet resorted to independent power producers (IPP) using power purchase agreements (PPA), which is a characteristic element for limited opening up; they can therefore be classified under group 3. In Brazil, the system is being liberalized to permit broader participation of the private sector, at least in the states, before the new federal legal framework enters into force. The transition process has not concluded. For the year 2000, the trend is toward in-depth changes: almost half of the 30 countries and about 60% of the installed capacity will have adopted some type of modality 1 and some countries that have at present adopted partial openness are not discarding the possibility of taking a further step toward total openness. 2 1 Inset 2.2: Reforms in the oil subsector Over the last few years, modifications have been made in the oil legislation of Argentina, Brazil, Bolivia, Colombia, Ecuador, Peru, and Vene­ zuela. The origin and motives of oil reforms that have been implemented in these countries are similar although there are several differences inherent to the specific characteristics of each country. As a rule, it can be said that they are in line with the prevailing trend, which grants to market forces the leading role in allocating resources and specifies that the States Intervention Is justified only when national interests are at stake, free competition is distorted, or there are adverse impacts in terms of social equity. In terms of general economic policy of the region’s countries, it is surprising that even Mexico and Chile, considered to be countries of greater openness and regulation, are among those countries with the least amount of change in the oil sector. In Argentina, Bolivia, and Peru, it was considered that the style of development of the oil industry, based on the hegemony of public enterprises, was no longer valid, and therefore radical changes were made. In Brazil, Colombia, Ecuador, and Venezuela, the reforms have been aimed at fostering foreign investment in oil exploration and exploitation. The need for a state oil company Is not being questioned; rather its adaptation to a free-market system in the different upstream and downstream sectors of the industry is being considered. In general, the sequence of reforms In domestic markets has taken the following course: • • • • price correction, restructuring the financial scheme of companies and putting them on a sound footing, organization of a competitive market, and promotion of private-sector investment and privatization. The objectives w ent beyond the sphere of the energy sector and became part of public sector reform s and general econom ic reform s being carried out in m any countries of LAC. These reform s radically contrasted w ith the conditions prevailing in Latin Am erica, w here it was believed that the pow er sector, especially, was a strategic sector fo r the econom y w hose objective was to supply electricity to the largest num ber of users. This approach enabled som e c o u n trie s to d irectly elim inate any kind o f econom ic consideration w hatsoever in m anaging p o w e r u tilitie s and the sector. The dom estic m arket fo r oil products, in oilproducing countries, was used to ensure the gro w in g participation of the popula­ tio n and fo r other m acroeconom ic p u r­ poses (see the fo llo w in g section). The natural gas subsector has not been reform ed overall. Nevertheless, in the nineties, there w as a boom in th is su b ­ sector w hich led to the fo rm ation of nat­ ural gas m arkets in various countries and the integration of netw orks. The coal subsector has experi­ enced m any different trends in the region. On the one hand, th e re has been a restructuring and rescoping to a more econom ically viable size, such as in the case o f Chile and, on the other hand, the developm ent of a highly com petitive and im p o rta n t export activity, as in the case of Colom bia. 2.2 C u rre n t p e rfo rm a n c e of th e th re e In the eighties a more flexible approach to the remuneration level of contractors in the oil contracting scheme was adopted in order to attract greater investment, as a result of greater available supply on the world market, but the contracting guidelines (service delivery, operation, partnership, participation) were not greatly changed. Oil openness In the nineties has involved the introduction of new modalities within the contracting scheme. These are In force In Argentina and Peru, with the reestablishment of the concession modality and licensing contracts, respectively, where contractors are entitled to the ownership of the petroleum that Is extracted In exchange for a royalty. In other countries, the idea is to share the risk and attract the participation of new contractors with the introduction of the R factor In partnership and participation contracts Other new events, of possibly even greater impact, are the elimination of the RETROBRAS monopoly in Brazil In 1995, the new contracts for exploiting marginal fields subscribed by PDVSA of Venezuela in 1992-1993, and the recent shared earnings contracts that Venezuela started to subscribe to at the end of January 1996. 22 m a in s u b s e c to rs M any years w ill elapse before the effects of reform and private-sector par­ ticip atio n in the energy sector o f Latin Am erica and the Caribbean can be fully assessed. Nevertheless, som e p re lim i­ nary trends can be observed. 2.2.1 Electricity subsector Since about 1990, the financial indicators have been im proving in the electric pow er sector of LAC (debt-capital ratio, internal project financing, debt ser­ vice coverage, am ong others), explained to a great extent by ta riff increases, debt reduction, and, in som e countries, fin a n ­ cial restructuring (o r ensuring a sound financial fo o tin g ) of the pow er utilities p rio r to the privatization process. The reform and privatization strategies have been successful in securing financing fo r the e xp a nsion o f the po w e r sector. Indeed, whereas the countries th a t under­ took d rastic reform s (Chile, Argentina) encountered less d iffic u lty in obtaining financing fo r th e ir expansion projects, those th a t introduced lim ited liberalization (M exico) are still m aking efforts to secure this financing. The problem s arising fro m the use of new fo rm s of fin a ncin g in a tra nsition period have been aggravated by the insta­ bility of regional and w o rld capital m ar­ kets (M exican crisis) and the increasingly greater num ber of investm ent o p p o rtu n i­ ties as m ore countries, som e of w hich involve a large m arket such as Brazil, launch a privatization strategy. Inset 2.3: Gas sector boom and structuring A prelim inary review o f the classification o f the countries regarding the trends o f their policy fo r the ow nership o f the assets o f natural gas chains underscores certain preferences o f the countries with respect to the role that their com panies should p e rfo rm in retaining an d controlling gas earnings. While som e countries gran t special im portance to the role o f state-ow ned enterprises in retaining earnings, others prefer m inority shareholding schemes, and the establishm ent o f royalties and taxes on earnings and gross income, am ong other, as a m eans o f obtaining revenues. Table 1: Classification of countries according to policy trends for restructuring their companies P re d o m in a n tly System s E xp lo ra tio n P ro d u c tio n Brazil, Venezuela M exico, T ra n s p o rt Mexico, Venezuela The adjustm ents to and changes in the criteria to determ ine price form ation, as w ell as the availability o f governm ent guarantees, have played an im p ortan t role in financing new capacity in system s such as A rgentina and Chile. It is d iffic u lt to determ ine to w hat extent price adjust­ m ents, w ith o u t sector reform s o r g overn­ ment guarantees, w ou ld have im proved the financial situation prevailing in periods before the reform s. Nevertheless, the reorientation of pricing and ta riff-setting policies has undoubtedly helped to put energy com panies on a sound financial footing. In a d d itio n , e ffo rts have been made to im prove operating efficiency and dow nsizing policies have been applied in order to reduce costs. Productive units have been broken up (w ith the creation of s u b s id ia rie s on the basis o f h o ldin g schem es) in order to ensure the tra n s ­ parency o (th e perform ance of productive R eg u lato ry M ixed S ystem s Ministry of Energy auth o rity P r e d o m in a n tly Private S ystem s Bolivia, Colombia Chile, Argentina, Peru Bolivia, Colombia Brazil, Argentina, Chile, Peru Brazil, Venezuela D is trib u tio n The cou n trie s that did not carry out any reform s are im p lic itly o r explicitly m o vin g to w a rd som e re s tru c tu rin g . Brazil, fo r exam ple, w ith a large num ber of projects being im plem ented, is currently looking fo r priva te -se cto r stakeholders interested in setting up partnerships w ith state enterprises to conclude these p ro ­ jects. Likewise, the severe supply p ro b ­ lems in Ecuador have pressured a u th o ri­ ties into find in g and m aterializing during 1995 various electric pow er generation projects w ith private-sector participation, including tem p ora ry leasing. State Mexico, Argentina, Bolivia, Colombia, Chile, Peru M in is try o f Energy (upstream) Regulatory agencies (downstream) M in is try o f Energy (upstream) Regulatory agencies (downstream) Source: Own data, April 1996. In the exploration an d production phases (upstream ), for the countries with predom inantly state systems, the concept o f supply security is largely view ed as a responsibility o f the State, whereas in those system s that are pred o m in an tly private the em phasis is the g ive-an d -take o f m a rk e t forces within certain legal constraints regulating the activity. In the transport and distribution phases (dow nstream ), policy trends Indicate a shift tow ard m ixed o r private systems. In these phases, the m ain concern involves supply security, free access to transport systems, an d service coverage to the poorest unattended sectors o f society. Nevertheless, p a rt o f these aspects tend to be resolved by creating regulatory agencies aim ed a t w atching o v er the co m m on in terest regarding public service d e live ry and m ediating and m onitoring compliance with licensing contracts. In Brazil, with the ap proval o f the co nstitutio nal am en d m en t that term inated the m o n opoly o f PETRO BRAS in a ll phases o f the gas chain, private-secto r participation was facilitated in transport and distribution. In Venezuela an d Mexico, there w ere governm ent declarations an d decisions tending to favo r p rivate-secto r involvem ent in tran s p o rt an d distribution, especially in the m arginal areas o f Venezuela. In Colombia, the Plan fo r the M ass A vailability o f N atural Gas, launched a t the sam e tim e as institutional reform s, has been aim ed a t facilitating the participation o f p riv ate-s ec to r activities in transport and distribution. In A rgentina, two natu ral gas transport com panies an d eight gas distributors controlled by the Gas Regulatory Agency are operating since 1992. Bolivia, as o f 1995, has been im plem enting a capitalization system fo r the state-ow ned com pany Yacimientos Petrolíferos Fiscales Bolivianos, which w ould involve the participation o f private-sector players, even in the operation o f com panies em erging fro m the reform . In Chile, agreem ents betw een A rgentina and Bolivia prom oting private and m ixed projects, which in a few years w ill change their energy matrix, have been draw n up. Peru is still in the process o f m aterializing the g o v ern m e n t’s p o lic y to favo r p riv ate-s ec to r initiatives in the field o f hydrocarbons. 23 process phases and avoid transfers (sub­ sidies) fro m one activity to another that perm itted discretionary actions and p ro ­ duced m ajor d isto rtio n s in the economy. It is quite evident that, as part of the positive im pacts, reform s tend to im prove the se cto r’s operating efficiency: service quality and system reliability, cost reduction, increase in p ro d u ctivity (calcu­ lated in term s o f em ployee used, cus­ to m e r served, o r energy sold) and the reduction o f technical and nontechnical losses stem m ing fro m changes in com ­ m ercial m anagem ent. It is m ore d iffic u lt to evaluate the effects on the reduction of pow er genera­ tion costs, since there are m arked biases fo r m edium -sized projects w ith sh o rt lead tim es (co n stru ctio n periods) and brief useful life, such as gas-fired com bined cycle tu rb ine s and plants. This bias tow ard low capital intensity m ay lead to generation schem es th a t are not econom ­ ically optim al. This is all the m ore evident in the various fuel oil and diesel plants operating on the base of the load stru c­ tures o f som e countries. This problem is even m ore severe in those cases where the new pow er therm al pow er stations are b u ilt by an independent pow er producer (IPP) on the basis of a rigid long-term pow er purchase agreem ent (PPA) that d is to rts the econom ic m e rit o rd e r by w hich pow er stations are dispatched. Com pared to the previous situa­ tio n, the conditions fo r sm all-scale elec­ tric pow er production, oftentim es using renewable energy sources, and cogenera­ tion have im p ro ve d o r at least have becom e m ore reliable, since the term s fo r delivering energy to the grid and rem uner­ ation have been defined m ore clearly w ith ­ in the new legal fra m e w o rks. Nevertheless, in practical term s, the posi­ tive im pacts of the reform s on the expan­ sion o f renewables and cogeneration have no t been observed in Chile and Argentina, although these options have been more w id ely accepted in countries that adopted a lim ited opening-up approach, such as M exico, Costa Rica, and Guatemala. See Inostraza G., Control del Estado y Gestión Empresarial en el Sector Eléctrico Chileno [State Control and Company Management In the Chilean Electric Power Sector], paper prepared fo r ECLAC, LC/R.1497, Santiago, February 1995. A ssessing the achievem ents in e ffic ie n c y s te m m in g fro m the reform process, changes in se cto r objectives should be taken into account. The new objectives are reliable supply at a low eco­ nom ic cost and risk, w here as the objec­ tive p rio r to the reform s freque ntly in clu d ­ ed social objectives th a t were not appro­ pria te ly fo cu se d , in fra s tru c tu re w ith unforeseen costs and o th e r developm ent goals. Likewise, this change of objec­ tives, evaluated in te rm s o f technical progress and specifically in the case o f the pow er u tilities o f Chile, suggests that “ after privatization, p rofitability, financial engineering, and m odern m anagem ent m ethods prevailed over the traditional electrical engineering approach.” 8 R eform o f the pow er sector nega­ tively affected rural electrification: on the one hand, the objective of m axim izing the earnings of the utilities by using a b usi­ ness approa ch enhances the s e c to r’s interest in suppiying only those areas th a t have a high pow er dem and density; on the other hand, public intervention, m easured in term s of concrete policies and actions (subsidiarity) applied, is as yet incip ien t and in m any cases to ta lly absent and therefore incapable o f closing the current gap between urban and rural electrifica­ tion. Nevertheless, som e countries w ith strong su p p o rt fro m bilateral and m u ltila t­ eral cooperation are beginning program s to p rom ote rural e le c trific a tio n using renewables (hydropow er, w in d energy, and solar photovoltaic energy). Regarding the rational use o f ener­ g y by custom ers, the reform s have not explicitly included energy efficiency. The vertical breakup introduced by reform s in som e energy chains (electricity, natural gas) does not encourage the interest of d is trib u tin g com panies in p ro m o tin g these conservation actions am ong cus­ tom ers. N or have regulatory agencies becom e involved in th is area. The role of reform s in general and privatization in particular in developing local capital m arkets is usually included am ong the positive im pacts. In addition, it has been argued th a t the privatized pow er utilities in several Latin Am erican countries, especially Chile, have been the firs t to gain access to international capital m arkets. From the vie w p o in t o f m arket reg­ ulation, it can be asserted th a t the p riva ti­ zation process in Latin A m erican stiii has m any various flaw s, som e of w hich affect the accumulation process, such as the lack of regulation in noncom petitive m ar­ kets (preventing the so-called efficiency e a rnin gs s te m m in g fro m p riv a tiz a tio n from being transferred to the co m m u nity throu g h low er prices) o r the extension of service coverage and quality im p rove ­ m ent. It has been concluded that to date the im prove m e nt in services as a result of their tra n sfe r to the national or foreign p ri­ vate sector is oftentim es, but not always, evident. Experience indicates th a t the reg­ ulatory capacity of the region’s govern­ m ents has been lagging behind reform processes. The success of future p riva ti­ zation p ro gra m s w ill depend on th e ir capacity to im p le m e n t re gu la tory and m o n ito rin g schem es th a t prom ote the com petitiveness and investm ent of priva­ tized com panies. 2 .2 .2 O il s u b s e c to r As indicated, in upstream activi­ ties, the pace of g ro w th picked up in the late e ig h tie s, o w in g to the increase recorded in Venezuela and, to a lesser extent, the increase in othe r o il-p ro du cin g cou ntries (A rgentina, C olom bia, Brazil, and Ecuador). Except fo r Argentina, these increases cannot be viewed as the o u t­ com e of re form s; they involve im p o rta n t fin d in g s to be tapped, as in Colom bia, and the oil policy w ith in the fra m ew ork of OPEC, as in Venezuela. A rg e n tin a u n d e rw e n t ra pid oil developm ent and its potential is about to reach a c e ilin g , w hereas M exico, Venezuela, Brazil, C olom bia, and Ecuador have developed th e ir capacity gradually to increase pro du ctio n, w hich rem ains co n ­ siderable, over the next five years. In downstream activities, the installed capacity fo r refining has not increased and the netw ork of oil pipelines has been extended only in som e parts (fo r exam ple, the in te rc o n n e c tio n betw een A rgentina and Chile). The to p ic in the refining segm ent is restru cturing (c o n ­ centration in Central Am erica, adaptation to environm ental con straints m odifying the s tru ctu re of process units to obtain cleaner products, etc.) and privatization. The re s tru c tu rin g process has m oved slow ly but successfully, whereas p riva ti­ zation has done so m ore gradually. As a result of this process, the refining s tru c ­ ture is now more in keeping w ith dom es­ tic dem and, although w ith som e im p o r­ ta n t e xceptions (C olom bia, Ecuador, Peru). The tra n s p o rt netw ork still has bottlenecks in som e cases (Ecuador). Regarding domestic markets, the price corrections aimed at reducing bud­ get transfers in the m ajority of LAC coun­ tries involved a gradual approach in keep­ ing w ith the goals of econom ic stabiliza­ tion program s. As a rule, pricing policies that used international schem es as refer­ ences (opportunity costs) w ere adopted, although in som e countries these are foot as yet being fu lly applied. Between 1988 and 1995, the evolution of prices of the m ajor oil products showed an upward trend in the m ajority of fuels, w ith d iffe r­ ences in intensity between countries and products. Thus, it can be observed that the highest increases were fo r gasoline and interm ediate products. Likewise, in the case of those countries that reduced o r elim inated their subsidies to liquefied gas fo r residential consum ption and to diesel oil fo r tra n s­ portation, the highest price increases in absolute term s were observed. The capacity of com panies to con­ solidate their financial situation has been enhanced, albeit not in all cases and depending on each national reality, by the reorientation of pricing policies, the low er transfer of resources from the com panies to the State, the restructuring of liabilities, and the rescheduling of the external debt. S ubstantial p rogress has been made in investm ent and financing, com ­ pared to the situation prevailing in the pre­ vious decade. In order to stim ulate the inflow of private-sector capital in upstream activities, various contracting m odalities w ith national and foreign capital have been adopted or firm s have been acquired to incorporate technology and management, as in the purchase of M axus by YPF of Argentina. Only M exico still m aintains restrictions in this phase of the industry. Beyond the export strategy fo l­ lowed by several countries, where the m edium or long-term sustainability of proven reserves can be questioned, cer­ tain contracting schem es being chosen that raise questions about domestic sup­ ply security can be m entioned. Those c o u ntries th a t opted fo r contracting m odalities w hich include the free availability of crude oil w ith o u t any c o m m itm e n t to supply the dom estic m ar­ ket could find them selves in a situation of greater vu lne ra bility than those countries th a t opted fo r dom estic supply security, especially if resources are not so abun­ dant. , This m ay be a situation that, in the future, countries like A rgentina and Peru (and probably Bolivia) w ill have to face, since they are m ore vulnerable to interna­ tio n a l m a rket flu c tu a tio n s and th e ir m acroeconom ic im pacts than countries like C olom bia w hich w ill have secured th e ir supply. Venezuela, w hich has opted fo r opening up the private sector under a p ro fit-s h a rin g schem e, m ay eventually find itse lf in the sam e situation. In the lat­ te r case, there are elem ents that w ould p erm it guaranteeing a better d istrib u tio n of earnings w hile ensuring dom estic sup­ ply. Vertical breakup is also an area of co n flict. In som e cases, oil industry activ­ ities are being radically fragm ented, w hich is in sharp contrast to current vertical integration, not only in LAC but also in the w orld The breakup, in any case, has taken place w hen operations acquired a certain m agnitude but this does not im ply that there is a holding com pany that has taken over central direction and therefore integral strategic planning. In this case, the idea is sim p ly to separate the business units, w ith tra nsfe r prices being set if the com pany strategies determ ine this should be done. There is no d oubt that those w ho have access to crude oil can enjoy new and additional p ro fit m argins in refining, w hich can be extended to direct m arketing and d is trib u tio n activities. This is how the largest com panies of the m arket, both p ri­ vate and public, regional and global, oper­ ate. ECLAC, Subregional Headquarters in Mexico, Istmo Centroamericano: Informe sobre Abastecimiento de Hidrocarburos” [Central American Isthmus: Report on Oil and Gas Supply], ECLAC-Germany Agreement, April 1995. 26 M aintaining an Integrated com pa­ ny provides the o pp ortu nity of creating an internationally com petitive com pany, such as the YPF of Argentina. Breakup and p ri­ vatization into parts, w hether by means of ca p ita liz a tio n (B o livia ) o r by b idding processes, p e rm its o th e r in te rn a tio n a l com panies to incorporate these parts. In short, the relatively better per­ form ance of the oil subsector cannot be attributed to a certain type of p olicy or to the application of a single m odel. Rather it seems, as a rule, that the im provem ent in dom estic m arket service stem s from the introduction of com petition and p ric­ ing policies. P rivatization does not seem to be necessary if m onopolies are elim i­ nated. The re g io n ’s experience in upstream activities, refining, and tra n s ­ p o rt appears to be quite m ixed, and it is not yet possible to associate these better results w ith one strategy w hile attrib u tin g less auspicious results to another. The review that has yet to be carried out m ust still address m any atypical cases, such as ENAP of Chile, YPF o f Argentina, PETROBRAS of Brazil, etc. As fo r relatively sm all m arkets, such as those o f the Central Am erican c ountries, even th o u g h there are not enough elem ents to facilitate a sound assessm ent of the results of the liberaliza­ tion o f oil and gas trade, som e data are available fo r a critical appraisal of the actions that were taken.9 Thus, Costa Rica and Nicaragua, w hose state oil com ­ panies are in charge of im ports, made purchases at an FOB price very close to Platt’s fo r the G ulf Coast o f the United States, a price that w as very m uch below the purchase or sale price used by the other countries. 2 .2 .3 N a tu ra l g a s s u b s e c to r The gas su b se cto r is relatively underdeveloped in the region. The idea is therefore not to reform it in order to achieve better results as in the other sub­ sectors, but rather to develop it. In all gas-producing countries in the region, m ajor changes in the role being attributed to th is energy product have been observed. In som e of these countries, this role has been reinforced by high expectations ste m m in g fro m the potential results of subregional integra­ tion processes, w hich are opening up new horizons fo r m arkets and fa cilitating a reappraisal of gas surpluses by p roduc­ ers, because of the large potential demand am ong neighbors. Until recently, w ith in the fle xib ility allowed by the gas-oi! ratio (GOR), oil d is­ coveries have been granted p rio rity over natural gas exploration in the region. This is partially due to the high oil prices in the seventies and the relatively low natural gas tra n s p o rt and d istrib u tio n capacity in a lm o s t all c o u n trie s , w h ic h in tu rn explains the high volum es of unused gas. Nevertheless, w ith the fall of oil prices in the m id-eighties, the GOR ratio began to grow , indicating an apparently greater interest in natural gas. In 1994, natural gas accounted fo r 19.6% of the re g ion ’s p rim ary energy su p ­ ply. This share was largely covered by countries w ith a high oil and associated gas p ro du ction w ith a high gas and oil ratio, in te rm s of resources, such as Venezuela, Bolivia, and Argentina, w hich have had to channel gas fo r diffe re nt uses to make available liquid fuels fo r exports or to reduce th e ir im po rts. In the case of Chile, w hich has a high gas and oil ratio, the distance of its reservoirs fro m con­ su m ptio n centers has led to its captive use in the s o u th e rn m o st part of the co un ­ try. In 1994, the gas su p p ly was 808.4 MBOE. Of th is supply, 15.7% w as co n ­ s um ed in p o w e r g e n e ra tio n p la nts, 33,9% was aim ed at LPG and gasoline p ro d u c tio n , 3 1 .9 % was fo r end-use by s o cio e co n o m ic secto rs, and the rest was a ttrib u te d to ow n co n s u m p tio n and lo s s ­ es. The energy end-uses were concen­ trated in ind ustry (7 0% ), w ith a co nsider­ able share in the re sid e n tia l s e c to r (1 7 .2 % ), p e tro c h e m ic a l in s ta lla tio n s (6.7% ), the com m ercial, public, and ser­ vices se ctor (3 .5 % ), and transportatio n (1.7% ). Penetration in residential co n ­ sum ption has enabled reductions in elec­ tric ity co n sum ptio n fo r cooking and w ater heating. P enetration of natural c o m ­ pressed gas (NCG) in the transportatio n sector was intense in Argentina, follow ed by other countries at the end o f the e ight­ ies; th is was quite advantageous since it reduced c o n s u m p tio n o f liq u id fuels, enhanced the perform ance of m o to r ve hi­ cles, and m itigated the environm ental im pact in cities. In the region, natural gas is the second energy source fo r pow er genera­ tion in therm oelectric plants after fuel oil, and it is expected th a t its penetration w ill continue and that it w ill substitute consid­ erable volum es of liquid fuels in addition to im proving the perform ance o f conven­ tional therm al plants. The s itu a tio n th a t is being described is by no means u n ifo rm am ong all countries. The w id e st dissem ination of gas can be found in Argentina, w hich in addition has the largest netw ork of gas lines fo r tra n s p o rt and d is trib u tio n (about 50,000 kilom eters) in the region. The penetration of NCG in public and private tra nsportatio n has fostered the develop­ m ent of a rather large in d u stry of bus and car equipm ent. The rem aining countries, w ith d iffe re n t degrees of d is trib u tio n , generally use natural gas fo r electric pow er generation and in d u stry as a p rio r­ ity. G a s -producing co u n trie s w hich are self-sufficient and have an abundance o f gas, such as Venezuela, M exico, C olom bia, and Argentina, have undertak­ en projects fo r expanding the use of gas in d ifferent sectors by opening up transport and d is tribution to the private sector. After sector reform , activity evolu­ tio n in d ica to rs in A rgentina show an im provem ent although it is as yet prem a­ ture, due to the s h o rt lapse of tim e that the new institutio nal schem e has been operating, to assert that the system w ill not produce the changes resulting from the adjustm ent process, in the rem aining countries, the reform s in the sector are very recent or are still in the process of im plem entation and, in som e cases, w ith lags due to the d iffic u lty of striking a rea­ sonable balance between governm ent and private-sector expectations. Countries that have little gas avail­ able o r w hose access to gas is hampered by its geographical location, such as Brazil, M exico, and Chile, have facilitated the developm ent of im p o rt projects w ith fin a n c in g fro m p u b lic a n d /o r private enterprises. The gas line th a t is currently being built to connect Argentina w ith Chile (Gasandes) or the one connecting Bolivia to Brazil are examples of the potential fo r a subregional gas netw ork th a t could becom e fully operational over the com ing 15 years. 3. E n e rg y S e cto r, M a c ro e c o n o m ic and F is c a l P o lic ie s , a n d D e v e lo p m e n t P o lic y 3.1 the tw o high-price periods (1 974-78 and 1980-96). W ith the fail of oil prices, pub­ lic e xp e n d itu re p ro g ra m s and habits became unsustainable. P r io r ity o f m a c ro e c o n o m ic o b je c ­ • To achieve the objective of econom ic grow th, and also fo r social purposes, the energy in fra s tru c tu re w as expanded, providing fu rth e r energy supply and extending service. In addition to fiscal im balance, the policy of high public spending and invest­ m ent, coupled w ith oth e r internal and external factors, fostered external indebt­ edness, w hich has becom e a severe b u r­ den fo r the region’s countries, halting th e ir econom ic developm ent w ell into the com ing century by absorbing a large part of th e ir dom estic savings. The electric pow er and oil subsectors have been the final destination or, in som e cases, the interm ediaries, fo r absorbing o r chan­ nelling these external fu n d s .10 • To achieve the socioeconom ic objec­ tive of fu ll em ploym ent, a w ide range of sta ff was hired and paid by state com panies. The sector ended up by being inefficie nt because it became a source of redundant jobs, creating a huge b u rea u cratic apparatus and fom en ting social conflicts. As a means to counteract the dele ­ terious effects of price fluctuations in the w o rld ’s energy m arket, but also to ensure greater supply security and other objec­ tive (see next section), broader energy integration in Latin Am erica has always been sought. This process intensified in the nineties (see Inset 2.4). • To achieve the objective of co n trolling inflation, econom ic policy regulated energy prices and prevented them fro m being adjusted to the costs th e ir production incurred, thus ignoring any kind of econom ic rationality. 3.2 A d ju s tm e n t tiv e s in the past In Latin A m erica and the Caribbean, the energy sector has been used fo r various purposes by overall gov­ ernm ent policies, thus subordinating the sector to m acroeconom ic objectives: • See OLADE, the External Debt of the Energy Sector o f Latin America and the Caribbean; and OLADE, Energy Prospects and Economic Development in the 21st Century: The Outlook for Latin America and the Caribbean in a World Context, Quito, 1993. Oil price fluctuations have been a m ajor fa cto r of instability in the fo r­ eign trade balance not o n ly fo r im p o rtin g c o u n trie s but also fo r exporting countries. Im porting c oun­ trie s have resorted to an energy resource diversification and im port s u b s titu tio n strategy w ith varying success. The exporting countries, however, have had to sustain severe fiscal im pacts in th e ir accounts. By g ra n tin g p rio rity to these m acroeconom ic objectives instead of the self-sustainin g developm ent of the sub­ sectors, the State fostered fiscal disequillbria in the m ajority of the regions coun­ tries. In the seventies and eighties, the pow er sector, as w ell as m any dom estic fuel m arkets, became a heavily subsidized sector. The earnings stem m ing fro m oil and gas exploitation led to w idely subsi­ dized c u rre n t expen ditu re program s, instead o f socially focused program s, in the exporting countries, especially during s in c e th e e ig h tie s : P re d o m in a n c e of fis c a l o b je c tiv e s M acroeconom ic adjustm ent pro­ gram s applied in the region, however, since the eighties have been overturning these p rio ritie s. P rio rity w as given to ensuring fiscal e q u ilibrium , w hich im plied the reduction of expenditures in the sec­ tor, the need to find private financing fo r the sector, and even financing fo r the General State Budget by selling energy sector assets. During th is phase the idea emerged that, in the energy subsectors as in other public sectors, it w ould be possi­ ble to introduce m uch m ore com petition, w hich w ould in tu rn im prove efficiency (see previous section) and the possible substantial w ithdraw al o f the State. Using the energy sector fo r m acro­ econom ic purposes usually involved a purely fiscal dim ension. At present, in only a few countries is price co n tro llin g p ra ctice d fo r a n ti-in fla tio n a ry ends. D ownsizing is also an im p o rta n t issue in the se cto r’s adjustm ent process although it has n o t been adopted by the sector as one of its objectives. Specific energy im p o rt s u bstitution program s have been allowed to expire. Expansion and opera­ tion of energy in frastructure is view ed as a business, financed and managed by the private sector o r at least on the basis of com m ercial criteria by private and public enterprises, depending on the type of m arket, w hether regulated or seif-regulated (see Insets 2.1, 2.2, and 2.3). The process of privatization has contributed to ensuring fiscal balance in the reg io n’s co u n trie s.11 The revenues that accum ulated as of the early eighties as a result of the tra n sfe r and sale of pub­ lic e n te rp ris e s (te le c o m m u n ic a tio n s , energy, m ining, and other) have increased considerably. The annual am ount co lle ct­ ed fro m p riva tiz a tio n , w h ich in 1985 am ounted to US$40 m illion , by the end of 1991 had reached a figu re of m ore than US$17 billion. At the end of 1994, the total a m ount accum ulated fro m the above am ounted to US$56 billion. These figures include investm ents com m itted or gener­ ated fro m the privatization process, w hich in som e cases in vo lved s u b s ta n tia l am ounts. Am ong the countries involved in a consolidated privatization process, Chile is noteworthy. The am ount obtained from this process between 1974 and 1989 am ounted to more than 16% of GDP. Chile is follow ed by M exico (8.8% of GDP) and Argentina (7% of GDP). Finally, there is Brazil, w hich displays a lower percentage w ithin this group (only 2% ), although the massive privatization plan announced fo r this country is scheduled fo r coining years. Since in m any cases the s h o rt­ term approach fo r obtaining revenues from privatization s till prevails, only In certain e xce ptio na l s itu a tio n s has an accum ulation process in the privatized sectors been encouraged, explicitly in c o r­ porating in bidding processes the p ro m o ­ tion of new investm ents, as in the Bolivian and Peruvian experiences. In the rem ain­ ing countries, the privatized com panies that expanded th e ir capital and invest­ m ents have been te le co m m u n ica tio n s, energy (hydropow er, gas, and oil), or large m inin g com panies, where there is a large p o te n tia l fo r expansion. Nevertheless, since in m any countries this process is quite recent, it is not as yet possible to see it reflected in the figures of gross fixed capita! form atio n. The im pact on public finances over the m edium and long term seem s uncer­ tain since the benefit depends on the des­ tination of the resources com ing fro m the sale of com panies. Fiscal constraints are and w ill continue to be an im portant factor in accelerating the process of selling pub­ lic enterprises in Latin Am erica over the last few years. In addition to the direct im pact of privatization on the situation, there are indirect im pacts such as not covering the annual de ficit of com panies, reducing public investm ents in the pow er sector, adjusting prices, and restricting subsidies to sm all consum er groups, w hich means relieving burdens on public revenues over the m edium and long term s. The oil and gas sector continues to be one of the basic sources fo r the state budget in many countries of the region. Even when the figures published are cal­ culated on the basis o f different criteria, it is possible to confirm that in som e coun­ tries oil earnings contributed decisively to public revenues12 and in certain enterp ris­ es the State takes the highest share of surpluses.13 During the period 1980-1990, the public sector of M exico was financed by the co u n try ’s oil earnings, w hich account­ ed fo r between 9% and 13% o f GDP, w hereas th is c o e ffic ie n t flu c tu a te d in Argentina and Bolivia between 2% and 9% and between 1.5% and 3% of GDP, respectively. In Venezuela, these earnings were in the range of between 10% and 19% of GDP during the period 1988­ 1992. The cases of Bolivia and Venezuela illustrate even m ore clearly the im p o r­ tance of oil earnings in public revenues, in Bolivia, the share of revenues stem ­ m ing from oil and gas accounted fo r between 42% and 50% of total public rev­ enues d u rin g the period 19 8 7 -1 9 8 9 whereas in Venezuela th is share flu c tu a t­ ed between 55% and 82% fo r the period 1982-1992. Using the average incom e tax rate (30% ) in force in the region as a refer­ ence, it is possible to differentiate three clearly d istinct cases. 1. Companies w ith high co ntributions to public revenues, as in the case of ECOPETROL of C olom bia (in 1990­ 1994, equivalent on average to about 52% o f ope ra tin g incom e) and 11 12 13 See Cominetti, R., ECLAC, El Proceso de Privatización en América Latina [The Privatization Process in Latin America], paper prepared for the Seminar on Exchange of Experiences on Economic and Social Policies for Development between Latin America, Russia, and Selected European Countries, Moscow, September 1995. ECLAC, “ Reformas Tributarias en América Latina: Análisis de Experiencias durante la Década de los Ochenta” [Tax Reforms in Latin America: Analysis of Experiences during the Eighties], paper prepared by R. Carciofi, G. Sarris, and 0. Cetrángelo, Regional Public Policy Reform Project, Santiago de Chile, 1995. ECLAC, “ Tendencias en la Reestructuración de la Industria Petrolera y Estrategias Empresariales en América Latina” [Trends in Restructuring the Oil Industry and Company Strategies in Latin America], study prepared by H. Compodónico fo r the Natural Resources and Energy Unit of the Environment and Development Division, Santiago de Chile, April 1996 (being pub­ lished). 29 PEMEX of M exico (63% of total incom e). 2. 3. Com panies w ith m edium c o n trib u ­ tio n s to public revenues, including PDVSA (fro m 44% to 23% during the period 1990-1994, yielding an aver­ age o f 3 3 % ), PETROECUADOR (between 1990 and 1992 this c o n tri­ bution declined fro m 65% to 28% of total incom e), and PETROBRAS (the average was one th ird of total incom e of the com pany in the period 1992­ 1994, w ith a gro w in g trend). Com panies w ith lo w co ntributions to public revenues, such as the case of ENAP of Chile (6% of total incom e) and PETROPERU, w hich actually ran a d e ficit w ith the State until 1990 and con tribu ted on average about 9% of its total Incom e during the period 1991-1994. the preference fo r clean energies, and allocate resources in general. A t the same tim e, attem pts are being made to design these taxes so that they can have a redis­ trib u tiv e effect. Ju s t as these taxes co n ­ trib u te to fiscal revenues, it is also possi­ ble to cut other taxes that could eventual­ ly hinder econom ic g ro w th . These fo rm s of taxes are currently being discussed in Europe and their possible application in the region should eventually be studied. In addition to its fiscal im portance, the sector perform s an obvious catalytic role In the strategy o f productive transfor­ mation with equity 14 in all o f its elem ents: opening up, fo rm ation of dom estic m ar­ kets of goods and services, fo rm a tio n of financial m arkets, greater value added, fo rm a tio n of hum an resources, and the incorporation o f technological progress. • As a sector w ith m any international linkages it is a key elem ent fo r open­ ing up the econom y to the outside. • Traditionally It is a sector w ith large investm ents and, under certain con­ ditions, it is used fo r attracting p ri­ vate capital. • Because of its capacity to absorb large am ounts o f investm ents, it is one o f the m o st appropriate sectors fo r the fo rm ation o f dom estic capital markets. If in addition the fo rm a tio n of dom estic m arkets manages to pro­ m ote dom estic savings, one basic condition fo r the region’s econom ic grow th is being fulfilled. 3.3 New a p p roa ch e s: The ca ta ly tic role of the e n e rg y s e cto r A lthough the experiences of m an­ aging the sector on the basis of m acro­ econom ic objectives have been partially negative, it is obvious that the energy sec­ to r can perform a catalytic role in the eco­ n om ic developm ent of a developing coun­ try. There is no doubt, however, that the sector should not be used by econom ic policy if this policy clashes w ith its own d e ve lo p m e n t o b je ctive s. N evertheless, there is a series of areas where the tw o sets o f objectives can coincide, fo r exam ­ ple, social and environm ental dim ensions. It is already evident that energy sector earnings are im p o rta n t fo r the State’s budget, w hich in turn is the p rin ci­ pal source of funding fo r social program s and the basis fo r future developm ent in the fo rm of education and other human capital investm ents. It is suggested as a rule that energy earnings be used fo r investm ents in physical capital, in conserving natural assets, or in human resources. 14 30 EC LAC. Productive Transformation with Equity: The Priority Task fo r the Development o f Latin America and the Caribbean in the Nineties, United Nations, Santiago de Chile, 1994. M oreover, another po s s ib ility is envisaged, that of com bining fiscal, eco­ nom ic, environm ental, and even social objectives in the appropriate levying of taxes. U sing a special diffe re n tia te d schem e fo r taxing the use of energy prod­ ucts, it is possible to issue signals to ensure the rational use of energy, foster In the eighties and nineties, the energy sector, especially the pow er sector, has contributed and taken advantage of local capital markets, w hich, in som e countries, have become a con­ siderable source of financial resources fo r the power utilities. The develop­ m ent of local capital m arkets has im plied an im portant taking of dom es­ tic savings, especially through pen­ sion funds and, to a lesser extent, through the national banking system. In Chile, the privatization of pow er u til­ ities and the emergence of in stitutio n­ al investors, especially pension funds, perform ed a decisive role in the fo r­ m ation of capital markets. Other in s ti­ tutional investors are being developed, such as insurance com panies and shared investm ent funds, w hich in other countries (Argentina) also con­ tribute, along w ith m ultilateral banks, to meeting the com panies’ long-term needs fo r resources. But fo r the tim e being, these capital m arkets can only be characterized as em erging.15 R eform , p riv a tiz a tio n , and private investm ent have induced an entirely new financial engineering approach to resolve pro ble m s involving the scope of operations, profitability, the d iffe ren t types of risk depending on the legal fram ew ork, and the o rga n i­ zation of the respective m arket.15 In addition to capital m arkets and financial engineering, the sector can prom ote the developm ent of new activities in its environm ent, creating above all m ore or less specialized service m arkets. The idea involves developing services and producing goods fo r the energy subsectors and fo r the rational use of energy under com petitive conditions. Regarding environm ental protection, increasing­ ly m ore services are needed. Greater th o rou gh ne ss and coordina­ tion w ith in the se ctor itself w ould lead to a higher value added. This does not m eans th a t each one of the countries should have a com plete system fo r each energy chain, but its does involve the idea of tryin g , on the basis of existing com petitive stake­ holders, of adding new parts w ith com petitive possibilities. The sector can given im petus to the tra in in g o f h ig h ly skilled hum an resources. The technological level of various energy subsectors is relatively high but technical progress is fast­ paced. In order to resolve problem s involving resource access o r environ­ mental problem s or sim ply to im prove efficiency and reduce costs, highly skilled hum an resources are generally required in research, engineering, managem ent, and finance. If they are trained and upgraded, national human resources w ill have better opp ortu ni­ ties in the sector, sector problem s w ill be the focus of greater attention and solution, and in addition there are dynam ic im pacts on other sectors such as technological externalities. T h o ro u g h n e ss and c o o rd in a tio n inward and outw ard, as well as the creation of d o m e s tic m arkets of products and services, oftentim es innovative, com bined w ith the tra in ­ ing of local personnel, can achieve the in c o rp o ra tio n of technical progress w hich in turn exerts im p o r­ tant im pacts on the country. A review of the incorporation of tech­ nical progress in the region’s energy sector17 indicates that, beyond the State’s induction m echanism s, there are p o s s ib ilitie s fo r associa ting dom estic m arkets and coordinating sector chains. In various energy subsectors, it can be observed that the quality of ener­ gy technologies being applied is infe­ rio r to that in industrialized countries. Low energy prices (still subsidized in many countries of Latin Am erica and the Caribbean), the existence of state o r private m onopolies in the different energy chains, and the policies of closed econom ies, pre va ilin g in alm ost all the countries of LAC up until the early nineties, generated few incentives fo r im proving te ch n o lo ­ gies and enhancing efficiency. Therefore, a large part of the techno­ logical facilities of LAC is character­ ized by age, obsoleteness, and lack of maintenance. This analysis show s that all transfer m odalities in the energy sector can be found in the region and in some cases th is diversity appears in one single facility. There are technologies w hose c o m p o n e n ts are, in part, im ported and, in part, built in the country under license o r else devel­ oped dom estically on the basis of know -how transfer w ithin a jo in t ven­ ture and sponsored by international technical cooperation. There are spe­ cific situations, however, where “ pas­ sive” technology transfer schem es prevail (purchase o f equipm ent, direct foreign investm ent, production under license). This is the case of traditional sectors of great econom ic im portance (oil industry, electricity g enera tion using fo s s il sources, hydroenergy, nuclear energy, indus­ trial sector, and transportatio n). In turn, in the case of “yo u n g ” technolo- 15 16 17 See F. Sánchez-Albavera, Globalización y Reestructuración Energética en América Latina [Globalization and Energy Restructuring in Latin America], Revista de CEPAL, No. 56, August 1995, page 133. See A. Vieira de Carvalho, PH. Suding, and F. Figueroa de la Vega, “ New Fortins of Financing for the Electric Power Subsector in Latin America and the Caribbean. ” OLADE, Energy Magazine, Year 19, No. 1, January-April 1995, pages 99­ 114. See B. Bosl, “ Las Transformaciones en el Sector Energético Derivadas de las Transferencias Tecnológicas de los Países Industrializados a América Latina y el Caribe” [Transformations in the Energy Sector Stemming from Technology Transfers from Industrialized Countries to Latin America and the Caribbean], Working Paper No. 44 of the OLADE-ECLAC-GTZ Project, Quito, October 1995. 31 gies, w hich as yet are not econom i­ cally im portant, the w idespread pres­ ence of “ active” types of transfer can be observed. Some exam ples of these are the p ro duction o f ethanol, the gasification of biom ass, and the diffe re nt renewable sources fo r elec­ tric pow er generation. In all these sectors, the transfer of know -how, sponsorship by technical coopera­ tion, and especially local develop­ m ents perform an im portant role. Therefore, in view o f the econom ic im portance of the sectors, it can be con clud e d th a t passive strategies prevail fo r the transfer of energy technologies to LAC. A lthough it is evident th a t there is local tech n o lo g i­ cal capacity, since som e countries have even built nuclear reactors, tu r­ bines fo r hydropow er stations are m anufactured, and offshore explo­ ration technologies have been devel­ oped, the pred om inan t trend has been the im p o rt of equipm ent. The lim ited m arket, the low turnover, and therefore the sm all am ounts of p ro ­ duction required oftentim es do not ju s tify investm ent in local production. U n fortu na tely, the re are various cases where governm ents or local ind ustry forced national production even though it was not a profitable business; these decisions, although w ell-intentioned, affected quality and led to even higher costs. Nevertheless, successful experiences are also apparent, especially in the use o f the instrum ents referred to above, and there are current exam ­ ples that prove that, if there are fa vo r­ able conditions, local know -how and experience, as w ell as m oderate incentives from the governm ent that do not ham per m arket forces, they can be highly successful and gener­ ate a self-propelling process of tech­ n o lo g ic a l d eve lo p m e n t (P ro A lco o l and biom ass gasification in Brazil). Apart fro m these reasons, based on m arket conditions, there are other very im p orta nt reasons, such as the absence of th o ro u g h professional train in g and the lack of later training possibilities. Likewise, regarding the efficient use of energy, especially in the residential sector, a s im ila r situation can be observed. Due to the lack of financial resources and in fo rm a tio n , a high p roportio n of household te c h n o lo ­ gies is obsolete, inefficient, and p o o r­ ly m aintained. The recent evolution and the im pacts of political changes on the develop­ m ent of internal m arkets of goods and services fro m and w ith in the energy sector have not as yet been studied satisfactorily. N or have the im pact on tra in in g o f hum an resources and the eventual external technological effects on other sectors been studied. The opening up to com petition, including co m petition fro m abroad, of energy m arkets and related m arkets (financial, services and products fo r p ro ­ duction, transport, and general energy use) provides o p portunities fo r the faster transfer o f technology although it also means heavy co m p e titio n fo r national players in these areas. Various concerns have emerged regarding the im pact on the developm ent of countries that are becom ing involved in globalization involving exclusion, the lack of co m m itm e n t w ith long-term develop­ m ent o f the country, the lack of p ro fit rein­ vestm ent in the co u n try or region, and investm ents in only a specific part of the energy chain, w hich w ill not be generating related services or production. This could even im ply a return to prim ary production schem es instead of creating a high value added. The reality of these dangers cannot be denied. Nevertheless, w ith o u t adopt­ ing an overly ingenuous stance, it can be asserted that the m ajority of the above­ m entioned negative effects can be m iti­ gated or neutralized by m eans of c u rre n t­ ly available policy instrum ents. Some countries of the region continue to display m ajor shortcom ings in the fo rm u la tio n of th e ir public policies, thus leading to the em ergence or aggravation of these nega­ tive effects. Other countries manage to subsist w ith globalization by m aintaining a policy that favors national players, even m aintaining certain in com ing barriers, practices that exist in other regions o f the w orld. The pow er utilities of Chile and p re vio u sly s tate-ow ned oil com panies became, under these conditions, m ore dynam ic o r were transform e d into in te r­ national com panies. An im p o rta n t role of the se cto r to counteract the dangers of globalization is to coordinate energy p o li­ cies am ong the region ’s countries, w hich is the to p ic of the next section. 4. E x te rn a l an d In te rn a l electrification program s have been im plem ented w ith the construction of h ydropow er facilities w ith a huge capacity, whereas alternative energy program s have been feasible only fo r co u n trie s w ith a high eco n o m ic potential such as Brazil (alcohol) and Venezuela and A rg e n tin a (natural gas). The m ultilateral or unilateral sup p o rt program s between countries and groups of countries have not been very effective, except fo r the coo p e ra tio n betw een M exico and Venezuela, on the one hand, and the Central Am erican countries, on the other hand, o r the shared binational hydropow er developm ents between the MERCOSUR countries. P o lit ic a l- E c o n o m ic Fa cto rs The energy sector lends itself to the accum ulation and concentration of political and econom ic power. A pplication o f th is pow er can weaken the position of individuals or g roups that depend on a service controlled by o ther individuals or groups w ho w ield power. This type of s it­ uation has occu rre d not o n ly am ong groups of countries, in term s o f foreign relations, but also inside countries. 4.1 P o lit ic a l and e c o n o m ic c o n s id ­ e ra tio n s in fo re ig n re la tio n s The concerns of im po rters regard­ ing supply security w ith its econom ic ram ifications (high costs) and political consequences (external pressures) have always been of the utm o st im portance and som etim es have even led to arm ed conflicts. Recently, energy exporters have also been faced w ith external conditions. • • The issue o f supply shortage (due to a cut in supply in order to ration a p ro d uct so as to raise its price or apply pressure to achieve a specific objective) is an ongoing concern of in d u strialize d cou n tries, confirm ed by the oil crisis of 1974 and once again em erging w ith the Persian Gulf crisis. These countries, in addition to inclu din g m ilita ry measures in th eir strategy, have erected and agreed u pon in te rn a tio n a l co n tin g e n c y m echanism s involving strategic s to r­ age schem es, e ffo rts to increase dom estic supply, m easures aim ed at d iversifying energy sources and su p ­ ply o rig in s , and ensuring general energy savings. For th e regio n’s o il-im p o rtin g coun­ trie s , the con cern over eventual sh ortfa lls on the international m arket w ith its co nco m ita nt price hikes is no less im p o rtan t. The strategies of these countries have focused on th e ir ow n resources. In m any countries, • O il-producing countries have to deal in cre a s in g ly w ith new c o n d itio n s im posed upon them by im porting countries or, m ultilaterally, by w orld trade organizations w hich go beyond the quality of the products and extend to the very means of production and even go so far as the call fo r em bar­ gos. There are actually very few fo ru m s where the region’s exporters or im porters can defend their inter­ ests, and even those have yielded highly unsatisfactory results. This underscores the need fo r greater regional coordination and organi­ zation. The grow ing physical integration of energy system s w ill lead to greater sup­ ply security, not only favoring greater eco­ n om ic grow th but also m ore policym aking freedom in critical s itu a tio n s.18 Energy integration (see inset 2.4) is a basic instrum ent fo r national supply security over the short, m edium , and long term ; it is also a w ay o f preventing the intrusion of factors that are external to energy supply that could be wielded by the foreign p o li­ cy o f third countries. 4.2 In te rn a l p o lit ic a l and e c o n o m ic ra m ific a tio n s Inside the countries, the traditional concentration of sector control and m an­ agem ent has in the past led to the co n ­ c e n tra tio n o f p o litic a l and eco n o m ic pow er in the hands of those groups clos­ est to each successive g o v e rn m e n t adm inistration. This concentration has See OLADE, Energy Integration in Latin America and the Caribbean, (Central Topic of the XXVI Meeting of Ministers): F Figueroa de la Vega, “The Impact of Bloc Formation on Regional Energy Integration, OLADE-ECLAC-GTZ Working Paper, 1995; IDEE, Energy Integration in Latin America and the Caribbean in a Context of Sustainable Development, paper fo r GTZ, 1995; and P.H. Suding, “ The Contribution of Energy Integration to Sustainable Development: Elements for an Assessment, Energy Magazine, OLADE, Year 20, No. 1, January-April 1996, pages 75-82. 33 enabled these groups, on the one hand, to use the sector fo r m acroeconom ic pur­ poses and, on the other hand, to abuse the sector fo r personal ends. Inset 2.4: Energy integration in LAC Since the eighties, renew al o f integration processes in LAC has taken p la c e a lo n g w ith th e g ro w in g in te n sificatio n o f the im p ac ts s te m m in g fro m globalization a n d the unilateral liberalization policies that the regions countries w ere adopting. In m a n y cases it was observed that the co m bination o f trade liberalization an d deregulation an d privatization p ro c e s s e s le d the p riv a te s e c to r to d evelo p a sp ecial in te re s t in n e w b u s in es s o p p o rtu n itie s , su rp ass in g even the ex p ec tatio n s o f the governm ents. In Latin A m e rica an d the C aribbean, the follo w in g su bregion al blocs are identified: the C om m on M a rk e t o f the South (M ER C O SU R ), the A n d ea n G roup, the C en tra l A m e ric a n C o m m o n M a rke t, the G roup o f Three, a n d the Caribbean C om m on M arket. The first step to link LAC with the U n ite d S tates a n d C anada has been the s ig n a tu re o f the N orth A m erican Free Trade A g ree m en t (NAFTA), w hich includes M exico. The se co n d h a s been the p ro c ess th a t s ta rte d in D e c e m b e r 19 9 4 w ith the S u m m it o f the A m ericas. Physical integration involves various activities: electric p o w e r in te rco n n e ctio n s, g a s pipelines, o il pipelines, a n d the d evelopm ent o f sh ared h y d ro p o w er resources. There are, a m o n g the co u n tries o f the region, various en erg y aspects th at involve co operation elem ents a n d form s that oftentim es are lin ked to p h y s ic a l integration. R egarding this, there is a g rea t deal o f potential, a m o n g w hich the follo w ing are notew orthy, according to the degree o f integration an d institutionalization: = C oordination betw een various countries on specific issues: jo in t negotiation o f specific projects: im plem entation o f environm ental m a n a g e m e n t p ro g ra m s ; a d o p tio n o f c o o rd in a te d stances in internation al forum s. = B ila te ra l e c o n o m ic a g re e m e n ts a n d c o llab o ra tio n betw een = J o in t training program s. = E xchan ge national entities. o f res u lts a n d c o o rd in a tio n in research a n d developm ent; transfer o f technologies; a n d energy innovations. = S haring o f inform ation (creation a n d m aintenance o f inform ation = C ooperation m echanism s in case o f contingencies o r crises. = R egional p o licy su bsidiary to co untry policies. = P erm an e n t co ordination of en ergy policies. = R eduction o f cu stom s a n d no n -cu sto m s barriers in energy. = H arm o nization o f dom estic la w s an d regulations, including public = C reation o f unified m arkets fo r one o r various energy products. system s). revenue policies (taxes, subsidies). The in c ip ie n t p ro c e s s o f re g io n a l in te g ratio n has g e n e ra te d en ergy trade flow s that have led to a substantial increase in transactions o f o il an d products, as w ell as coal. The highest increase was observed in 19 90 , y e a r in w hich trade flow s w ere redirected to w ard the regions m arket. M E R C O S U R a n d the Andean Group have been the m o s t dynam ic regions reg a rd in g this n e w schem e a n d have given p rio rity to exports aim e d a t the countries o f th eir ow n subregion. A sim ila r tendency has been observed in the C entral A m erican C om m on M arket, which although s till a n e t im p o rtin g s u b reg io n has in c re a s e d its sh are o f oil p ro d u c t exports a im e d a t its ow n subregion. 34 Reform , starting w ith the separa­ tion of state duties fro m com pany fu n c ­ tions and the com m ercial reorientation of state-ow ned enterprises, but especially privatization itself have led to the p o ss ib il­ ity of breaking up th is stranglehold over supply. Reform intends to create o p p o r­ tu nities fo r decentralizing political and econom ic pow er in the sector. To w hat extent th is de ce n tra liza tio n has been achieved w ould have to be studied. In som e cases, pow er is concen­ trated in the hands o f the m anagers of pow er utilities that are vertically integra­ tion or affiliated. In other cases, co n g lo m ­ erates have been set up w ith im portant interests in various phases of the energy chains. The State, as part of its regulato­ ry fu n ctio n s and as the representative of consum er interests, is in a relatively weak position, above all because of the asym ­ m etry of inform ation in the regulatory processes (see Inset 2.5). The sector reform s discussed in the previous section, supported by trends that are consolidating a subsidia ry State that intervenes only in correcting m arket flaw s and external conditions, raise cer­ tain questions about the eventual con­ straints that the State may have to face w ith respect to its capacity fo r form ulate public policies that w ill enable sustainable developm ent objectives to be achieved. The free a v a ila b ility o f natural resources, the critique of public e nterp ris­ es, the distrib u tio n of public and private c ontrol over oil earnings and contracting schem es, the relationship between regula­ to rs and the target of th e ir regulation can be underscored as im p o rta n t variables fo r the fo rm ulation of an energy policy geared to ensuring the goals of sustainable devel­ opm ent. In certain countries, it w ould m ore d iffic u lt to achieve these goals sim ultaneously. 5. C o n clu sio n : P rio rity G u id e lin e s The pivot of energy policy regard­ ing its econom ic dim ension seems to be energy productivity, observing the p rio rity of low er cost and risk. This em phasizes the im portance o f efficiency in energy processes in p a rticu lar and rational use of energy in general. Nevertheless, the im per­ ative should not only be saving energy and producing energy efficiently but also, o f far m ore im portance, pro vid ing a restructured supply that w ill ensure sustainable devel­ opm ent. Inset 2 .5 : Evolution of energy regulation There is still a great deal of role confusion regarding regulatory Issues. For example, there are different concepts under the same name; politics in general, jurisdictional authority, the function of state companies in competitive markets. In many cases, political, regulatory, and entrepreneurial duties are discharged by the Energy costs are an im portant fac­ to r in only very few branches o f the econ­ omy. The quality of energy, that is, energy fo rm s available and supply reliability, how ­ ever, is im p o rta n t in alm ost all branches. For the developm ent o f industry, between higher-quality supply at a higher cost, on the one hand, and low er-quality supply at a low er cost, on the other hand, the firs t alternative seem s preferable. same entity. Nevertheless, beyond the modalities assumed by energy Industry reforms in the different countries, a widespread tendency toward greater clarification of these roles has become apparent. Likewise, important changes have been introduced with respect to policymaking roles and, in particular, the design of regulatory norms (legal frameworks, regulatory resolutions) with reference to those functions that are most closely tied to supervision and monitoring of compliance with standards, the arbitration of conflicts, and the policing of services. Nevertheless, the general trend is that the separation and clarification of these roles is in a much more incipient The creation o f energy-intensive industries based on cheap and possibly subsidized energy has oftentim es led to failures due to th eir lo w pro d uctivity and high vulne rab ility to price changes ste m ­ m ing fro m m arket shifts and o ther rea­ sons, such as the nonsustainability of sub­ sidies, the inconsistency of prices w ith environm ental costs. Even in som e cases subsidized prices have been an obstacie to econom ic integration. A reduced incidence o f energy on the costs of producing goods and services coupled w ith a potential rationalization in energy consu m ptio n, means the p o ssib ili­ ty of effectively using pricing m echanism s to induce a m ore productive use of energy. A nother c o n ditio n is a stable dem and fo r products. These co n d itio n s do not exist in all the countries of the region, nor are they apparent in all branches o f the econom y. stage, since this requires a far more complex learning process. The design of regulatory standards is a specific responsibility of public policymaking agencies, since, by means of these norms, certain objectives linked to productive structure, institutional organization, and the functioning of markets in the different energy chains can be achieved. Regarding the functions m ost closely related to the application and enforcement of these norms and with the arbitration of conflicts that m ay emerge among the different players, the trend is toward the establishment of institutions that have greater autonomy with respect to political power. Nevertheless, In these two areas, there are still major problems: • In some cases, there is no clear separation between these two sets of functions, and there are various regulatory agencies with overlapping jurisdictions. • In other cases, the functions of supervision, monitoring, and arbitration, although they were clearly differentiated from the more political roles, were attributed to specialized subsector agencies (electricity, natural gas, etc.). Keeping in mind the strong interaction of energy chains, in both production and consumption, the establishment of externally specialized standard­ setting institutions and frameworks creates regulatory voids (no mans lands). Especially in countries in tra nsitio n , w hich have not yet im plem ented and over­ com e the effects o f stru ctu ra l reform s of the public and energy sectors, a cautious strategy w ould have to be applied. We do not believe that a shock strategy is advis­ able fo r ine fficie n t h ig h -cost industries, leaving them the option to adapt or to die. In these cases a syste m a tic approach should be applied (w ith technical assis­ tance fo r technological and m arketing m at­ ters, loans, tiered price increases) so that the com panies w ill have better chances of adapting, rescuing these activities in the country, m aintaining em ploym ent, etc. • At the other extreme, there are situations where the agency in charge of supervision covers a very broad jurisdiction (the full range of public services), but not always with the necessary internal specialization. Because of the conviction that, in one single production chain, only in some of the links or segments is competition permitted, the following were suggested as means to achieve this objective: vertical and horizontal breakup, open access to the grids (electricity, natural gas), and the liberalization of markets for oil activities. Nevertheless, in some cases, the concrete restructuring of electric power and natural gas chains did not fully respond to this segmentation approach, thus leaving, at the same time, the regulatory agency without any instruments to control monopolistic practices. Beyond these practices, the economic concentration that was fostered by privatization in some countries in the face of regulatory agencies that are still weak is reducing the capacity of the latter to defend the interests of consumers, which is one of the main purposes, explicitly stated, of their fucntions. 35 The collaboration of associations and cham bers, on the one hand, and national and local authorities, on the other hand, to prom ote and su p p o rt industry, seems essential. This collaboration w ould have to adopt a long-term outlook, for w hich purpose adapted production styles w ould have to be defined. Energy supply should contribute to offering appropriate energy se rvice s (heat, cold, lig h tin g , m o to r pow er) instead of am ounts of determ ined energy products. as a locally supplied good, around w hich e conom ic activities can be developed. Thus, providing energy to the rural sector, involving m ore than ju s t traditional elec­ trific a tio n and a m ore differentiated sup­ ply in the rural sector, Is the correct stra t­ egy. A nother tim e, th is requires a sys­ tem ic approach by local and national p ri­ vate and public players involved in the energy sector, rural developm ent, a g ricu l­ ture and forestry, rural financing, and engineering. Energy p ro du ctivity In the tra n s­ portation sector Is evolving in a way that is the cause of m uch concern. Rising in d iv id u a l passenger tra n s p o rta tio n , despite im provem ents in the efficiency of in d iv id u a l m o to r vehicles, seem s inevitable. Nevertheless, there are exam ­ ples, albeit not many, in cities of Europe, A sia, U nited States, and also Latin Am erica where the use of individual cars has been reduced In favo r of m odern and effective public transportatio n system s. Avoiding the copy of individualized tra n s­ portation system s means setting cities on a d ifferent course In term s of lifestyles. This is also a highly system ic task, w hich involves alm o st all the fu n ctio n s of city governm ent and support fro m the govern­ m ent and other central Institutions, w hich should not only finance projects but also establish a favorable fram ew ork of traffic, urbanization, pricing, and energy supply regulation laws. A relatively low energy intensity is like Insurance a g a in s t energy m arket risks. This is true at both the com pany and national level. Low intensity reduces the vulnerability stem m ing fro m m arket changes or other energy supply risks. Inter-city public transportatio n in the large countries of Latin Am erica is being tra n s fo rm e d in to system s w ith increasingly sm aller units using oil prod­ ucts (car, bus, plane), whereas railways seem to be disappearing. At the same tim e, various European and Asian co u n ­ tries are m aking m ajor efforts fo r to revive th e ir railways, w ith a certain degree of success. Transportation policy w ill have to be reviewed (including privatization) favoring this highly energy-efficient mode of transportation. Finally, the way of producing, liv­ ing, and tra nsporting in the countryside, in other w ords, the lifestyle of the rural sector, depends on available energy and, in turn, determ ines energy use. Rural pro­ ducers need to gain access to m arkets since, to stim ulate rural production, m ar­ kets are needed. In both aspects, energy is involved, firs t as a m o to r fuel and then 36 High energy prices are not advo­ cated sim p ly to prom ote the rational use of energy. They should also be based on cost internalization, such as environm en­ tal costs. This should in no w ay mean giving carte blanche to a costly energy sector because of inefficiency. One of the p rio rity objectives of the energy sector should be productive efficiency, including energy efficiency. Regarding the reform of energy subsectors, in addition to efficiency objec­ tives, the specific characteristics of each subsector should be underscored. The vertical breakup of pow er system s that are sufficien tly am ple in the course of p ri­ vatization seem to be an effective elem ent to reach efficiency and increase service quality. This does not necessarily mean that oil industry should also be vertically broken up. As in the case of industry, the gov­ ernm ent should becom e concerned over the viability and survival of a national energy industry, w hich is not the same as a nationalized industry. The cases of both Argentina (in the oil sector) and Chile (in the pow er sector) show th a t private enter­ prises, on the basis of a to ta lly c o m m e r­ cial m anagem ent, can co ntribute to a structure of dom estically and in te rn a tio n ­ ally com petitive national enterprises. P rivatization and a co m m e rcia l focus are not necessarily at loggerheads w ith a national developm ent strategy or w ith objectives such as m ore extensive m arkets, better incorporation of advanced technology, and a higher added value of the energy chain. It seem s that the co u n ­ tries that have taken the road of broad lib ­ eralization in the ir energy sectors have achieved better results in this aspect than the countries w ith a lim ited opening up (see Inset 2.1). B u ild -o w n -tra n sfe r (BOT) schem es and ta ke -o r-p a y co n tra c ts ensure, on the one hand, supply capacity and, on the other hand, keep technology transfer w ith in a lim ited fram ew ork. Surely the evolution In these co un ­ tries has led to a re d istribu tion of political and e conom ic pow ers generally in favor of the private sector, especially specific groups. Nevertheless, w e do not believe that these im pacts are m ore im po rta nt than the achievem ents m ade by efficiency. The extension o f these powers has to be co u n te ra c te d and e ven tua lly a tte m p ts have to be made to d im inish them . The only player that can do this is the State, fo r the preservation of the com m on good. The Idea, therefore, Is not to blin d ­ ly apply theoretical recipes but to move fo rw a rd cautiously. The treatm ent of and dealings w ith transnational com panies are surely a field w here the m ost caution, intelligence, and experience are required. The coordination between the region’s countries should prevail over any com pe­ titio n between them that m ight exist. Finally, we believe that energy inte­ gration is another key elem ent fo r the sus­ tainable econom ic developm ent of the region. It is d iffic u lt to identify any draw ­ backs from greater Integration. Once again, great caution should be applied to resolve any tra n s itio n p ro b le m s th a t m ight arise and so that the advantages of integration are distributed as satisfactorily as possible fo r all the parties involved. CHAPTER 3: ENERGY AND EQUITY The in ter-relatio ns between energy requ ires the form u la tio n o f value ju d g ­ and equity being d iscu s se d in the p resent m e n ts. ch apter take place at different levels: in co m e distrib u tion is one of the m o st N e v e rth e le ss, it is c le a r that im p o rta n t dim e n sio n s of equity. • Inequality betw een countries: The energy co n su m p tio n stru ctu re s and The firs t ch ap ter sh ow ed that eq u i­ co n su m p tio n of h o u se h o ld s are d if­ ty in term s of in co m e d istrib u tio n in the ferent th ro u g h o u t all the co u n tries of region is clearly lagging. LA C and depend not on ly on e c o ­ so m e co u n trie s are h ighly unsatisfactory. Indicators for n o m ic p ro g ress, that is, in co m e and d istrib u tion , w h ich affects dem and, In the co un trie s of LAC, the gaps in but a lso on energy su pp ly (expansion in co m e d istrib u tion w idened co n sid era b ly of p ow er se rv ice s, energy a v a ila b ili­ du rin g the eighties. The trend in the early nineties, however, is less clear sin ce in ty). so m e cases a reversal of the previous • A part of the h o u se h o ld s do not m an ­ trend is apparent, and in other countries, age after so m e im provem ent, on ce again there to needs: c o v e r th e ir b a s ic en e rg y The percentage of coverage varies, and in m any co u n trie s this are sig n s that in co m e distrib u tion im b a l­ ances are in cre a sin g ly sharper. coverage does not even reach half of the popu lation. In addition, a part of s o c ia l se rv ice s lacks energy. The e v o lu tio n of d is trib u tio n in equality did not to ta lly correlate w ith the m agnitude of w id espread eco n o m ic dete­ • Inequality w ithin the countries: In rioration that w a s evident in m any co u n ­ a d ditio n the lo w er-in co m e g ro u p s are tries o b liged to channel a su bstan tia l share exam ple, M e x ic o and Venezuela displayed of th e ir in co m e and/or tim e available a s im ila r rise in distrib u tio n inequality, during the e ig h tie s.19 T hu s, for on lo w -q u a lity energy supply. T his y et in M e x ic o the fa m ilie s th e m se lv e s (men, w om en, grow th did not decline as sh arply as in and ch ildren ). • em erging fro m co m paratively lo w levels, in v o lv e s d ifferent efforts w ith in the V en ezu ela. B ra z il’s high d is trib u tio n inequality increased, although its per c a p i­ pace o f e c o n o m ic Energy se cto r reform s, along w ith ta G D P rem ained a lm o st co n sta n t during re fo rm s in other p u b lic se cto rs, have th is decade. exerted a m a jor im p a ct on available rose at the sam e tim e as in co m e d is trib u ­ in co m e and the w e ll-b e in g of broad tio n s e c to rs o f the p opu latio n and have C o lo m b ia m anaged both to im p ro ve its affected e m p lo ym e n t in the sector. In Chile, the per capita G D P in e q u a litie s in cre a se d . In turn, in co m e distrib u tio n and to en sure steady e co n o m ic grow th. Before p rovid in g m ore details on these inter-relations, the status and e vo lu ­ tio n o f general equity in LA C w ill be described. In im p ro ve d Status and Evolution of Equity in LAC Equ ity is u n d o ubte dly a co m p le x th a t e m b ra ce s e q u ity in v a rio u s lev e ls co u n trie s o f 19 8 0. a broad se t of D u rin g th is p erio d , im p ro vem e n ts in d istrib u tion did not fully m atch per capita G D P m ovem ents. exam ple, notion n in e tie s, although they w ere unable to return to the le v e ls 1. the slig h tly C o lom bia , w h ich , For alon g w ith Uruguay, had been one o f the few cases w h e re d is trib u tio n a s y m m e trie s had aspects o r dim e n sio n s; any a sse rtio n that declined during the eighties, sh ow e d a is m ade regarding th is co n cep t inevitably change of trend between 199 0 and 1992, 19 See ECLAC, Social Panorama 1994, United Nations. Santiago de Chile, 1994. 39 even tho ug h its per capita GDP continued g row ing. Both those countries that made e conom ic adjustm ents, such as Chile, M exico, and Argentina, and others such as Venezuela and Brazil recorded declines in th e ir d is trib u tio n equity. On the basis o f the above, it can be concluded tha t the adjustm ents that have been prom oted in LAC as o f 1980 have indeed led to a considerable deterioration in social equity conditions. These co n d i­ tio ns, however, are not clearly reflected in the variations recorded in the average indicators such per capita GDP, and it seem s th at the recovery o f econom ic grow th o f the nineties does not necessar­ ily im ply im provem ents, at least o f the sam e scope, in d istrib u tio n inequality. 2. R e s id e n t ia l E n e rg y C o n s u m p tio n S tru ctu re s in the C o u n trie s of LA C 2.1 Im p ortan ce of re s id e n tia l co n s u m p ­ tio n in the re g io n The previous chapter describes the correlation between energy consum ption levels and gross dom estic product. Since per capita GDP is the m easure o f a coun­ try ’s average incom e, its relationship w ith per capita energy consum ption in the countries of the region also provides a prelim in ary indication (Chart 2.1) of the relative social conditions of the countries and th e ir resulting energy consum ption. The po or countries of the region consum e m uch less energy per capita than the rela­ tive ly rich countries. Further along this line, Chart 3.1 show s how the share of the re sid e n tia l s e c to r in energy end-use declines as per capita incom e increases, w ith a sharp dow nw ard trend up to the incom e level o f U S$1,500 and vice-versa in the re m a in in g e c o n o m ic s e cto rs. Further along, it w ill be seen, even when re sid e n tia l c o n s u m p tio n is re la tive ly im p o rta n t in lo w -in c o m e c o u n trie s , a large part of the population does not m an­ age to m eet its basic needs. Econom ic g ro w th therefore exerts a strong im pact on society’s d ire ct and indirect energy co n sum ption, in low incom e countries, the high percentages of direct energy consum ed reflect the poor developm ent of in d u s try and tra n s p o rta ­ tio n and the shortage of goods and ser­ vices. W hen c o m p a rin g to ta l end-use (see previous chapter) w ith residential consum ption, it is apparent that as per capita GDP grow s not only is there a greater availability of com m ercial energy in the residential sector but also the ener­ gy aim ed at o th e r s e cto rs increases. C om paring the relative rankings in term s of per capita end-use (C hart 2.1) and res­ idential consum ption (C hart 3.2), Trinidad and Tobago, Surinam e, Cuba, Guyana, Brazil, and C olom bia fa v o r the c onsum p­ tion o f com m ercial energy products in p ro d u c tiv e s e c to rs , w hereas the D om inican R epublic and Grenada, as w ell as Uruguay, Chile, and Argentina, favor com m ercial energy use in the residential sector. If firew ood consum ption is taken into account, Chile and Uruguay, as w ell as Paraguay, the Central A m erican coun­ Chart 3.1: F in a l en e rg y co n su m p tio n d is trib u tio n 100 % 90% 80% 70% 60% ♦ Residencial D Resto 50% 40% 30% 20% 10% ♦ 0% 1000 1500 2000 2500 3000 Per capita GDP [US* o f 1898] 3500 4000 4500 5000 tries, and M exico, m ove even fu rth e r up on th is ranking scale and display the same level o f re s id e n tia l c o n s u m p tio n as A rgentina and Venezuela. Chart 3.2: Residential energy consumption 2.2 L e v e l a n d s tru c tu re of r e s id e n tia l c o n s u m p tio n as a fu n c tio n of a v e ra g e in co m e There is no clear c o rre la tio n between residential energy consum ption and average incom e (pe r capita GDP). But if only com m ercial energy is co n sid ­ ered, the c o rre la tio n is m ore evident (Chart 3.2). It can therefore be inferred that, as a rule, the direct con sum ptio n of c o m ­ mercial energy is positive ly tied to the econom ic developm ent status of a c o un ­ try whereas fire w o o d co nsu m p tion is neg­ atively linked. There are exceptions to th is rule, such as Chile, Uruguay, M exico, and other c o u n trie s , w here o th e r fa c to rs are involved, such as access to firew ood su p ­ ply, the pricing policies fo r other energy products, w hether d is tric t heating is need­ ed or not, or a certain m arginalization of part of the population, w h ich can lead to high levels of fire w o o d co nsu m p tion in households because they have no access to oth e r energy sources. Som e cou n trie s have managed to achieve a high d ive rsifica tion of residen­ tial se cto r supply sources. For exam ple, in Colom bia, in addition to firew ood, the energy m ix inclu des different types of fo s ­ sil fuels, electricity, coal, and increasingly natural gas. Other cou ntries w ith a broad­ er d iversifica tion are Argentina, Chile, and M exico. ICM E5SB5S3CO EffiüaiJGN K ffliM JEE i ^ » L E — P b TJ ~ (including LPG), tend to be replaced by natural gas in the highest-incom e coun­ tries. 2.3 S u p p ly : E le c tr ic ity c o v e ra g e and en ergy d iv e rs ific a tio n A higher share of electricity in res­ idential c o n su m p tio n depends on the existence o f c o rre s p o n d in g supply, am ong other causes. Electric pow er cov­ erage, in fact, show s varying degrees in LAC (C hart 3.3). Only a handful of coun­ trie s reach satisfactory levels o f coverage. Evidently, the m ost dram atic situations of Chart 3 .3 : Electricity coverage and GDP level A t the o ther extrem e, there are countries w ith on ly a s lig h t diversification in th e ir energy m ix, such as Haiti, where the share of electric pow er consum ption is v irtu a lly zero, and o th e r c o u n trie s where fire w o o d and liquid fuels account fo r m ore than 80% o f residential sector supply (Guatem ala, Nicaragua, Honduras, and Guyana). It is also evident th a t the highest co nsum ptio n of e lectricity in households can be fo u n d in those countries th at have the highest average incom e, whereas the use o f o th e r fu e ls, p re fe ra b ly liq u id 41 insufficiency can be found in the previ­ ously m entioned countries w hose energy m ix is only s lig h tly diversified. The m ost im po rtan t determ inant of electricity coverage is the degree of eco­ nom ic developm ent. Am ong other factors that ensure w ide electrification, there are the extent and types of urbanization of each co u n try (Brazil), adm inistrative and social policy (Costa Rica, Chile, Uruguay, Jam aica, Trinidad and Tobago, Barbados), the policy of mass dissem ination of oil p ro d u c ts in o il-p ro d u c in g co u n trie s (Ecuador, C olom bia, M exico), and the abu nd a nt a v a ila b ility of e le c tric ity (Paraguay). The factor of equity is also involved, since som e countries w ith a fa ir­ er incom e d istrib u tio n structure achieve h ig h e r degrees of e le c trifica tio n . Nevertheless, the latter aspect cannot be attributed exclusively to equity since there have also been governm ent policies pro­ m oting household connections and subsi­ dized pow er supply to population groups th a t a rig orou s m arket system w ould have been otherw ise unable to attend. E le c trific a tio n has tra d itio n a lly received m ore attention and has been id e n tifie d w ith energy in general. Recently, it has been recognized that ener­ gy supply can be im proved appropriately by prom o ting other energy products and im p roving the supply infrastructure w ith energy products such as LPG, kerosene, and coal, creating the g rou nd w ork fo r the application of renewable energy te chnolo­ gies in the rural sector and even natural gas in urban areas. The creation of bal­ anced firew ood m arkets based on sus­ tainable supply, eventually ensured by m u lti-fu n c tio n a l plantations, also c o n ­ trib u te s to expanding and diversifying energy supply. In addition, this can gen­ erate new jobs and incom e. See R.K. Bhatia, Demand Analysis Methods,” in V.K. Ramani et al. (ed ), Rural Energy Planning: Asia and Pacific Experiences, APDC and 6TZ, Kuala Lumpur, 1988. This is the result of an analysis conducted by H, Pistonesi; see OLADE-ECLAC-GTZ, Energy and Development in Latin America: Case Study ot Colombia, OLADEMinistry of Mines and Energy, Quito-Santafe de Bogotá, chapter 11. The crux of the problem of unm et supply seem s to be the sm all size of the m arkets in general, especially energy m ar­ kets, in m arginal urban and rural areas of the region; th is in tu rn is both the result and the cause of the previously indicated social im balances, preventing large strata of the population fro m gaining access to these m arkets. The sm all econom ies stem m ing fro m this situation, due to the lack of an appropriate scale of production, generate a regressive process that is d iffi­ cult to resolve and w hich oftentim es is only vaguely perceived by decision m ak­ ers. In other situations w here the percep­ tio n is clearer and w idespread, there may be a paralysis due to m anagem ent s tru c ­ tures th a t prevent actions fro m being taken. These situations have favored non­ com petitive activities th a t system atically require state protection. It is im possible to break away fro m this schem e by only focusing on energy; an integral approach is needed. M odels of m ore balanced so c i­ eties display broader m arkets th a t offer greater o p portunities fo r choosing and low er costs o f goods and services, w hich in tu rn broaden the pop u la tio n ’s purchas­ ing capacity and, therefore, ensure th a t its needs are m et m ore satisfactorily. 3. 3.1 C o vera g e of B a s ic En erg y N e e d s C u rre n t s ta tu s of b a s ic needs co ve ra g e The low average co n sum ption of com m ercial energy p ro d u cts suggests that m any households in LAC are unable to com pletely m eet th e ir basic energy needs. Using a theoretical calculation, it is estim ated that fo r tem perate regions about 0.18 barrel of oil equivalent (BOE) of useful energy per inhabitant (700 kcal per day fo r cooking, lighting, and heat­ ing),20 that is, about 25 kilogram s of oil equivalent (KOE), is needed to m eet basic energy needs. Table 3.1 show s the consum ption of final energy and useful energy (the lat­ te r is calculated on the basis o f coeffi­ cients) fo r the region’s countries. It can be observed th a t the average of certain countries like Bolivia, Nicaragua, Guyana, Guatemala, Jam aica, and others barely reach the theoretically necessary level of 0.18 per capita BOE and th a t Bolivia has still not managed to achieve th is level. A below -average household consum es only half or less of the average per capita use­ ful energy of the residential sector as a w hole .21 On the basis o f th is estim ate, it is evident that m any households of the region do not have enough useful energy available to m eet th e ir basic needs. Taking the case of C olom bia, a country w ith an average per capita useful energy s ligh tly low er than the average in LAC, population groups 1 and 2 (that is, 40% of households) do not have an acceptable energy coverage to m eet th e ir basic needs. The percentages in the countries farthe r fro m the average are m ost certain­ ly higher. The region m ust therefore co n ­ fro n t the reality o f this underconsum ption as one of its m ajor challenges. The ener­ gy needs of large social groups of the region are vital, but th e ir present energy con su m ptio n can scarcely ensure co n d i­ tion s o f survival. This m anifestation of poverty has even greater im plica tion s fo r the en vironm ent (see next chapter). 3.2 E v o lu tio n of re s id e n tia l co n su m p tio n and c o v e ra g e in the past D uring the period 1970-1994, final per capita energy con sum p tio n of LAC in the residential secto r declined fro m 1.5 to 1.3 barrels of oil equivalent per inhabitant (per capita BOE). This decline of final per capita energy co n su m p tion in the residen­ tial se cto r is clearly associated to fire ­ w ood s u b s titu tio n processes. Thus, despite this drop, there was a steady increase in per capita useful energy co n ­ sum ptio n du rin g this period (in BOE per inhabitant): 0.31 in 1970; 0.38 in 1980; 0.41 in 1990; and 0.46 in 1994. In addi­ tion to firew o od s u b stitu tion , there are other su b s titu tio n processes, especially the increased share of electricity w hich has led to this differen t pattern of per capita final energy and useful energy. These trends, in term s o f regional aver­ age, indicate that a certain am ount of progress is being achieved in m eeting the energy needs of ho use h old s. Nevertheless, the evolution in the different countries has been quite varied. Chart 3.4 (G roups A-D) provides a com parative evolution of per capita final energy and useful energy in the different countries over the last 25 years. Three different types o f behavior have em erged: • increased per capita final energy and useful energy consu m p tion (G roups A and B); • sta g n a tio n o f u se fu l energy c o n ­ su m p tion and sharp reduction o f final co nsu m p tion (G roup C); and • rise in useful energy consum ption and reduction of final consum ption (G roup D). Table 3 .1: Net and final energy in the residential sector FINAL ENERGY fBOEpcl ARGENTINA BARBADOS BOLIVIA BRAZIL COLOMBIA COSTA RICA CUBA CHILE ECUADOR EL SALVADOR GRENADA GUATEMALA GUYANA HAITI HONDURAS JAMAICA MEXICO NICARAGUA PANAMA PARAGUAY PERU DOMINICAN REP. SURINAME T T URUGUAY VENEZUELA Mexico Central America Caribbean Andean Zone Brazil Southern Cone LAC 1970 1,364 0.529 0.444 1.685 1.516 2.107 0.556 1.739 1.395 2.251 0.543 2.000 0.808 1.592 2.602 0.446 1.523 1.960 1.769 2.428 1.749 0.884 0.970 0.364 1.567 0.861 1.523 2.129 0.833 1.351 1.685 1.536 1.527 1980 1.675 0.912 1.097 1.252 1.211 1.791 0.780 1.645 1.190 2.174 0.541 2.290 1.519 1.846 2.377 0.359 1.632 1.811 1.684 2.252 1.662 0.954 1.237 0.510 1.501 1.113 1.632 2.111 1.019 1.290 1.252 1.696 1.426 1990 1.475 1.314 0.868 0.886 1.223 1.571 0.743 1.824 1.045 1.406 0.832 2.180 1.613 0.996 2.005 0.507 1.602 1.672 1.608 2.358 1.444 1.159 1.151 0.523 1.390 1.067 1.602 1.827 0.911 1.194 0.886 1.628 1.245 USEFUL ENERGY fBOE pc] 1994 1.678 0.702 0.766 0.830 1.220 0.830 0.608 2.205 1.045 1.969 0.495 1.871 1.540 1.485 1.812 0.562 1.760 1.618 1.435 1.967 1.382 1.449 1.164 0.644 1.486 1.611 1.760 1.702 1.051 1.286 0.830 1.824 1.305 1970 0.596 0.321 0.110 0.249 0.295 0.388 0.230 0.447 0.214 0.276 0.132 0.248 0.185 0.166 0.309 0.173 0.347 0.260 0.387 0.274 0.305 0.183 0.273 0.170 0.448 0.399 0.347 0.291 0.199 0.294 0.249 0.529 0.313 1980 0.816 0.534 0.206 0.266 0.285 0.443 0.335 0.493 0.302 0.294 0.150 0.284 0.246 0.197 0.319 0.155 0.479 0.259 0.496 0.295 0.343 0.241 0.433 0.308 0.449 0.582 0.479 0.324 0.268 0.352 0.266 0.678 0.381 1990 0.732 0.890 0.209 0.311 0.350 0.394 0.344 0.506 0.296 0.241 0.271 0.274 0.234 0.118 0.289 0.207 0.553 0.216 0.529 0.363 0.306 0.348 0.383 0.383 0.464 0.569 0.553 0.297 0.287 0.369 0.311 0.631 0.407 1994 0.855 0.437 0.192 0.322 0.358 0.356 0,277 0.638 0.301 0.331 0.257 0.233 0.220 0.157 0.284 0.238 0.660 0.213 0.349 0.402 0.279 0.458 0.421 0.428 0.550 0.837 0.660 0.279 0.299 0.422 0.322 0.745 0.456 Group A show s a continuous rise in per capita final and useful energy con­ su m ption over three decades: this group is c o m p rise d o f Caribbean co u n trie s (Jamaica, D om inican Republic, Trinidad and Tobago, and Surinam e) in the lower tie r and S o uthern Cone co u n trie s (A rgentina and Chile), Venezuela, and M exico in the upper tier. This m ovem ent seems desirable if the rise in final energy is not faster than that of useful energy and if the ratio between final energy and use­ fu l energy does not surpass certain lim its. Regarding this, the evolution of consum p­ tio n in Chile gives som e cause fo r con­ cern. The second group, that is, Group B, w hich also increased consum ption in both indicators, is different fro m the pre­ vious group inasm uch as its increase was not steady. This group is com prised m ainly o f the o th e r c o untries o f the Caribbean and Bolivia. The elem ent that should be underscored here is the reduc­ tio n of per capita useful energy consum p­ tion w hich can only be explained by a deterioration in the level and/or d is trib u ­ tion of incom e along w ith energy price hikes. 43 o f per capita final and useful energy, in d i­ cating situations w here firew ood s u b s titu ­ tio n has been effective and significant. C h a rt 3.4: G roup A: S te a d y e v o lu tio n of re s id e n tia l co n s u m p tio n of fin a l and u se fu l e n erg y 4. En e rgy U se and S p e n d in g by Incom e Level U nfortunately, there is as yet no system atic analysis o f energy c o n su m p ­ tio n by s o c io e c o n o m ic stra ta fo r the countries of LAC. There are only isolated studies of national cases. For exam ple, there are results stem m ing fro m case studies on El S alvador22 and C olom bia,23 but we believe that additional studies w ill c o n firm the general valid ity of the results. 1 1.5 In El Salvador, the highest- and m iddle-incom e strata, w hich account fo r 37% of the population, consum e the highest-quality, m ost versatile, and least p o llu­ tant energy sources, such as LPG (70% ) and electricity (65% ). At the other end of the scale, the lo w e s t-in c o m e sectors, w hich account fo r about 62% of the pop­ ulation, consum e m ostly fire w o o d and kerosene; this phenom enon is even m ore marked in the rural area. These figures c o n firm the unequal d is trib u tio n of sources. It is assum ed th a t th is is a region-w ide phenom enon. FINAL ENERGY (BOE per capita) C h a rt 3.4: G roup B: E rra tic e v o lu tio n of re s id e n tia l co n s u m p tio n of fin a l an d u sefu l e n e rg y LU 0 6 o CO L o w -incom e fa m ilie s and those th a t do n o t have alte rn a tive sources require the same final energy but end up by obtaining far less useful energy. This is due to the low energy yields of firew ood fo r cooking and of kerosene fo r lighting. LU zU L —I 730.2 0 .6 0.8 1 1,2 1.4 FlNAtENERGY(BOE per capita) HATH 22 23 44 See H. Altomonte, Analysis of the Effects of Energy Policy on Equity in El Salvador,” working document from the OLADEECLAC-GTZ Project, ECLAC, June 1995, page 23. See OLADE-ECLAC-GTZ, Energy and Sustainable Development in Latin America: Case Study of Colombia,” op. cit., chapter 11. The th ird group, Group C, has been recording this pattern, w hich is the source of m uch concern, fo r several decades, coupled w ith a sharp decline in fin a l energy consum ption. This group is com prised of the Central Am erica coun­ tries and Peru. It m ay be indicating that the poorest sector o f the population is experiencing firew ood supply constraints and has no possib ility of gaining access to com m ercial energy sources and is also affected by the factors indicated fo r Group B. The last group, G roup D, c o m ­ p rised o f C olom bia, Ecuador, Brazil, Paraguay, and Uruguay, show a reduction In the eighties, the energy spend­ ing of households fro m different urban socioeconom ic strata did not show any m ajor difference: the poor paid as much as the rich but fo r m uch low er quality energy. In the rural sector, the poorest s e c to r o f the p o p u la tio n m anaged to reduce its m oney spending because it had access to firew ood gathering. W ith the gro w in g shortage of fire ­ w ood in the nineties, the poorest groups in the rural sector of El Salvador now have to curtail their energy consum ption due to the lack of energy alternatives and m one­ tary resources; fo r the poorest urban groups, however, the supply situation is im proving and relative spending is declin­ ing thanks to a policy o f subsidies fo r electricity and LPG. In C olom bia, the highest-incom e g ro u p (s tra tu m 6) co nsu m e s a lm o s t seven tim es m ore useful energy than the low est-incom e group (stra tu m 1), and it consum es 3.2 tim e s m ore final energy. In the tw o lo w e r stra ta , the pre va ilin g sou rces are fire w o o d , c o c in o l, and kerosene, w hereas in the tw o upper stra ­ ta, the m ain sources are electricity, na tur­ al gas, and LPG. In the tw o low er strata, cooking accounts fo r m ore than 80% of total household energy consum ption. Chart 3.4: Group C: Stagnation of residential consumption of final and useful energy If the Lorenz curves corresponding to energy co n su m p tio n d istrib u tio n by urban socio eco no m ic group are co n sid ­ ered, the above is corroborated (Chart 3.5). FINAL ENERGY (BOE per capita) — • — COSTA RICA ; -» -N IC A R A G U A First of all, it is evident that d is trib ­ ution im balances in e lectricity co n su m p ­ tio n are s ig n ific a n tly h ig h e r than the im balances in useful energy consum ption. This fact, w h ic h also tu rn s out to be quite c om m on w hen analyzing residential con­ su m p tion , is of special im portance in C olom bia ow ing to the presence of elec­ tric ity fo r the use of cooking, w h ic h is increasingly intense beginning w ith stra ­ tu m 3. 0 X CL SALVADOR PANAMA a GUATLMALA —©— HONDURAS —H— PERU Chart 3.4: Group D: Evolution of the substitution of residential consumption of final and useful energy S e cond, th e a s y m m e trie s in incom e d is trib u tio n are less notew orthy than the asym m etries in energy c o n s u m p ­ tion d is trib u tio n ; although they declined during the eighties, in C olom bia th e y con­ tinue to be com paratively high level. FINAL ENERGY (BOE per capita) The asym m etries m entioned w ith respect to average energy co nsu m p tion in the d iffe re n t so cio eco no m ic strata are correlated w ith the coverage o f uses and the q u ality of sources used. Even w hen the details in the co un ­ tries are different, the structu res o f use and spending by incom e level are sim ilar. In the countries of the case studies, the low er-inco m e gro up s pay the sam e price as u p p er-in com e g ro u p s even th o u g h th e ir purchasing pow er is inferior. One should keep in m ind tha t the poorest rural sectors spend the tim e they have available, instead of money, to g a th ­ er fuel. On the one hand, it is a kind of earning because they save m oney by spending tim e on these chores instead. On the o the r hand, th is an a ctivity w ith low re m u n e ra tio n w h ic h o fte n tim e s ♦ BRASIL —B— COLOMBIA ■ A — ECUADOR —©— PARAGUAY —» — URUGUAY involves an additional burden on w om en and children. A recent s tu d y fo r Brazil has reached s im ila r results and asserts that the quality of living of a fa m ily is closely related to the quality of energy it consumes.24 5. Social Impacts of Adjustments and Energy Reforms Over the last fe w years, energy spending in households has been deeply affected by p rice a d ju s tm e n ts in the region’s countries th a t undertook reform processes. In addition, there are the 24 See A. de Oliveira and E.L.F. Almeida, Estilo de Vida e Consumo de Energia no Brasil” [Lifestyle and Energy Consumption in Brazil], IEI-UFRJ, Rio de Janeiro, 1996. 45 of em ployees w ith o u t any parallel social policy to reabsorb th is m an­ pow er, as a rule, c o n trib u te d to increasing unem ploym ent rates; on the other hand, this phenom enon led to increased productivity. Chart 3.5: Colombia: Distribution of energy consumption by stratum % H ousehold s social im pacts stem m ing fro m broad eco­ nom ic adjustm ents: • Price adjustm ents have affected, in v a ry in g w ays, the lo w e r-in co m e social g ro u p s. In certain cases (A rgentina, Peru), when the ta riff structures w ere changed, the tariffs exerted adverse im pacts on lowerincom e sectors. In other countries (C olom bia), a cross subsidy system fro m high-incom e groups to low incom e groups was chosen. • W hen pow er utilities are put on a sound financial fo o ting by means of pricing regulations, there are redis­ trib u tive effects between the ow ners of the pow er utilities and th e ir cus­ tom ers, especially sm all custom ers in captive m arkets (Chile, Peru). • The decline in the pace of rural elec­ trific a tio n directly affects m eeting the needs of the rural population and indirectly affects th eir productivity. • Privatization reduced the negotiating pow er of public sector unions, lead­ ing in som e countries to a re d istrib u ­ tion of political and econom ic power. • 46 In certain cou ntries w here public e n te rp ris e s acted as a d isguise d m echanism fo r absorbing unem ploy­ ment, the process of privatizing and rationalizing the public sector has exerted a dual im pact: on the one hand, a sharp decline in the num ber The re p e rcu s s io n s have been m uch m ore im portant in the countries w here the adjustm ents in the energy sec­ to r were associated w ith adjustm ents in other public service sectors (te le co m m u ­ nications, water, sewage system , etc.), w hich w ere coupled w ith indirect effects, especially because of increases in tra n s ­ portation costs. Salaried groups, w ho before the adjustm ent benefitted fro m low costs fo r theses services and, oftentim es, lost th e ir em ploym ent during the general adjustm ent, were the ones w ho suffered m o st fro m these changes. 6. Conclusions: Priority Guidelines Sustainable developm ent means that all households should be able to meet at least th e ir basic needs, inclu din g ener­ gy needs. The objective is therefore to visualize a great m a jo rity o f fam ilies per­ fo rm in g the tasks of cooking, lighting, c o m m u n ic a tin g , p re se rvin g fo o d , and heating both effectively and practically in keeping w ith th e ir needs, w ith o u t in c u r­ ring an extrem e burden on w om en and children, and w ith in th e ir econom ic co n ­ straints. There are increasingly m ore alternatives, in term s o f technology and energy products used, to ensure the fu l­ fillm e n t o f these activities. This means that the goal of s u ffic ie n t energy supply does not involve any pre-determ ined fo rm of energy. The basic constraints are econom ­ ic in nature: the lim ited capacity to pay fo r energy services and make investm ents in installations fo r low er-incom e groups. In the rural sector, one has to add high costs fo r supplying scattered energy products, w hich lim it accessibility. The approach o f the strategies applied to reach these objectives, instead of the traditional state or private-sector paternalism , should be based on efforts of the people supported by local or national, state or nonstate in stitu tio n s or agencies. T here fore, a social p o lic y s p e c ific a lly focusing on energy should not be the p ri­ ority; rather w hat is needed is a broad social policy that tackles energy needs, coupled w ith a general developm ent p o li­ cy w hich, to the extent possible, uses energy secto r in strum ents. In the m arginal urban area, the extension of energy supply is an objective, but im p lem enting it tu rn s ou t to be less of a problem if there are m unicipal standards to define a given settlem ent of the popula­ tion. • • A com petitive fuel m arket is able to develop its urban coverage w ith o u t extensive regulation, since there are no regulations that ham per supply, othe r than security concerns. Power d is trib u tio n utilities in tu rn are interested in expanding th eir service in cities under certain conditions. An extrem ely effective approach involves the m andatory connection and s u p ­ ply of all custom ers w ho request ser­ vice at c u rren t ta riffs , but w ith sup­ port fo r the u tilitie s in th e ir effo rts to reduce tech nical and nontechnical losses, in other w ord s, to avoid illegal connections. A w idespread practice involves granting subsidies to those groups th a t consum e the least elec­ tricity. The d eficit can be absorbed by the State or by other private cus­ tom ers. This w ou ld im ply a cross subsidy, th a t could be viewed as an in d ire c t m eans o f re d is trib u tio n . Nevertheless, it is im p o rta n t to e lim i­ nate th is type o f political action when it does no t suitably focus on the sec­ to rs th a t require its benefits. vice w ould nevertheless be lim ited to high- and m edium -incom e groups. Since it involves netw ork service, like electricity it is suitable fo r price d is­ crim ination, striving fo r ta riff s tru c ­ tures th a t enable coverage to be extended m ore rapidly. In any case, energy supply should be an elem ent to be considered in housing policy and urban developm ent policy in general. In the rural sector, reaching energy supply objectives is far m ore d iffic u lt due to the high cost of energy supply expan­ sion and the high degree of poverty. The strategy is based on the participation of co n su m e rs in supply, co m p le m e n tin g central supply w ith decentralized system s, and applying a system ic approach involv­ ing the intervention of various players. The expansion of natural gas service also c o ntrib u tes to d iversifying sup­ ply; the cost characteristic of th is ser­ • Beyond the fro n tie r of pow er expan­ sion by means of netw orks, decen­ tralized technologies can be applied. In sm all rem ote settlem ents there is often the possibility of tapping local h yd ra u lic potential using m ini or m icro pow er stations. Likewise, the tra d itio n a l diesel s o lu tio n can be replaced by other fo rm s of sm all pow er generation, using w ind energy or biom ass, where supply provides them w ith the opp o rtu n ity to ensure the sustainable exploitation of planta­ tions. The problem s of these stand­ alone system s are not so m uch tech­ nical as m anagerial and involve d iffi­ culties in term s of econom ic sustain­ ability. In these situations, the grass­ roots sectors need the su p p o rt of local, national, and international insti­ tutions, as w ell as the intervention of local pow er d istrib u tio n utilities. A nother option fo r providing an ener­ gy source to a rural household fo r the purpose of lighting, com m unicating, o r other low -w attage service is pho- For the le a s t-fa v o re d s e c to rs , a reachable s u p p ly has to be provided. An elem ent to achieve basic e le c tric ­ ity service is the ap plicatio n of a re stricte d s u b s id y policy. In co n ­ tra s t to the po w e r sector, subsidies fo r tra d a b le fu e ls (LPG and kerosene) have one m a jor draw back: th e y are d iffic u lt to fo ca lize . Because of th is , it is preferable not to use them as a social p olicy in s tru ­ m ent. N evertheless, fro m the po in t of view of en viro n m e n ta l policy, they can be effective in prevent the lo g ­ ging of fo re sts. • The pow er u tility extends the central system by means of netw orks until the p ro fita b ility of the add itio n a l extension reaches its low est point. The State or its decentralized branch­ es, by means of pow er d is tribution utilities, can intervene in the financ­ ing or investm ent of the pow er infra­ structure to enhance coverage. • • • to vo ltaic system s. The usefulness and fe asibility of th is technology in the m arginalized rural sectors have been tested in various countries of the region. Once again, the problem s these system s m ust cope w ith are not technical; rather they are organi­ zational. State su p p o rt is still im p o r­ tant. No state organization is needed to ensure the penetration of these technologies; but a financial c o n tri­ bution to the extent th a t it can be ju s ­ tifie d due to external, econom ic, social, and environm ental im pacts m ay indeed be needed. S upply of energy needs (cooking, and heating) in the rural sector can continue to be based, in the m ajority o f the countries, on biom ass if it is used In a balanced fa shion. Som etim es this im plies the regulato­ ry in te rv e n tio n of, or s o m e tim e s incentives fro m , local in s titu tio n s , w hether m unicipal o r the agencies in charge of rural developm ent or w ood conservation and protection organi­ zations, com bining conservation w ith the rational and sustainable exploita­ tio n of natural areas. In the countries and areas where deforestation has reached extrem e s itu a tio n s , all the players in the ecosystem have to coordinate their respective exploitation. It m ay be essential, fro m the enviro n m e n ta l point of view, to use alternative fuels to m itigate the situation and fin d tim e to com e up w ith a sustainable so lu ­ tio n (see next chapter). Ensuring a s upply of tradable fuels (LPG, kerosene, etc.) fundam en tally con­ tributes to diversifying rural energy sup­ ply. In addition to fostering o p portunities (s upport fo r the installation of storage facilities, etc.), one m ust co n tro l prices because when the size of the m arket is reduced, m o n o p o lis tic s itu a tio n s are enhanced, unless there are price controls. This Is by no m eans the place to describe alte rn a tive te c h n iq u e s . It is im p o rta n t to h ig h lig h t th e ir potential and clarify the roles of the different players. A system ic approach means th a t the d iffe r­ ent players (national, provincial, m u n ic i­ pal governm ents and the energy, social, financial, and technological sectors, or international cooperation, and the popula­ tio n as a w hole) m ust collaborate and coordinate th e ir activities to su p p o rt the efforts of persons striving to achieve a higher standard of living. CHAPTER 4: RESOURCES ENERGY AND NATURAL Economy S trictly speaking, the e n viron m ent d ep e n d s on the in ten sity and fo rm by is part o f natural resou rce s. The difference w h ich energy p ro d u cts are explored, p ro ­ between the tw o s te m s fro m the fact that, d u ce d , before, the en viron m ent, esp ecia lly air, used. tra n sp o rte d , tra n s fo rm e d , and Intensity and fo rm have re p ercu s­ w as view ed a s a free co m m o d ity w h ereas s io n s on the qu ality of the atm osph ere, tradition al natural re sou rces, su ch as fo s ­ the du ration of fo re sts, and the sco p e sil and m in in g re so u rce s and even the (d u ra b ility land and forests, w ere co n side re d scarce resources. resou rces, w h ich th erefore over tim e ) of f o s s il m eant that they had e co n o m ic value. W h ere a s s u b ­ The d is co v e ry of adverse effects, s o il and su rfa ce land re so u rce s are the w h ich first becam e evident w ith the death s u b je c t of e x p lo ita tio n , of the fo re sts in Europe in the eighties, e n v iro n m e n ta l resou rce s su ffe r the external effects of placed the issue of e m is s io n s ste m m in g these activities. fro m energy p ro c e sse s at the center of s y s te m s , re s o u rc e s , the In national a cco u n tin g d e p le tio n in c lu d in g of n atural e n v iro n m e n ta l c o n c e rn s . A t firs t, it e n v iro n m e n ta l fo cu se d on the S O 2 and NOx e m issio n s degradation, w ill have to be co n sid ered on from large co m b u stio n fa cilitie s (power par w ith ph ysical capital depreciation so generation) w ith th eir regional im pacts, that national sa v in g s can be adequately s o lid quantified (see A n n e x II). s u b s ta n c e s p articu lates, metal and em itte d by ch em ical in d u stry , and tran sportation w ith th eir local im pacts. T he present ch apter therefore p ro ­ poses the term “ natural re so u rce s” in The m ultiple inter-relations between ener­ gy and the e n viron m en t are even m ore addition to o r in lieu of the environm ent, apparent in g lo b al clim ate effects, w hich sin ce these to p ic s w ill be d ealt w ith as one w ere co nfirm ed again in the report from sin g le Issue ow ing to the cause-effect the linkages and in te ra ctio n s they im ply. In te rg o v e rn m e n ta l S c ie n tific C o m m is s io n P an el on of the C lim a te Change (IPCC), w h ich co n clu d e s that “the Indeed, th ere is a c irc u la r inter­ balance of evidence su g g e st that there is a relation betw een the exploitation of land d istin g u ish a b le hum an influence on g lo b ­ re so u rce s and e n viro n m e n ta l resou rce s. al clim ate .”25 Likew ise, the energy secto r P ro d u ctio n , co n s u m p tio n , and d is trib u ­ and the energy sou rce m ix have been tio n placed at the very heart of the d is cu ss io n p ro c e s se s in v o lv in g re s o u rc e s (c o a l, fo s s il energy h y d ro c a rb o n s , etc.) on CO 2 e m issio n reduction. em erge as d e te rm in a n ts of e n viron m ental im p a cts on the a ir and the atm osphere. Latin A m e rica and the Caribbean is In turn, the q u ality of the en viron m en t part of the d is c u s s io n and has been the exerts an im p a ct on s u rfa c e resou rces, target of m any actions, not because of its the so il, and water. ow n C 0 2 e m issio n s, w h ich are very low, The pollu tio n and d e te rio ra tion of w ater and s o il e n ta ils an but because it is the region w here the im m ed iate lo s s of p ro d u ctive re sou rces, larg est reserves of C 0 2 are located in the w h e re a s a tm o s p h e ric p ollu tio n im p lie s a fo rm of forests; th is m eans it has a huge d irect threat to health as a re su lt of s u r­ a b so rp tio n cap acity (see Inset 4.1). face w a rm in g and to the bases of life of S e cto r a ctivitie s have also exerted future gen eration s. d ire ct and in d ire ct adverse im p a cts on N a tu ra l re s o u rc e s and e n e rg y other m e d iu m s su ch as water, soil, and p ro c e s se s intervene in v a rio u s a sp e cts land cover. and in d ifferent pla ce s in th is cycle. The o bjectives su ch su sta in a b ility of th is c y c le ve ry (low er e m issio n s), s o il co n se rva tio n (low m uch That is w hy environm ental as a tm o s p h e ric purity 25 See IPCC, Science of Climate Change, 1995,” Report of Working Group I, Chapter 8. 49 deteriora tion ), the sustainable m anage­ m ent of firew ood (reforestation), the non­ po llu tio n of water, the eco-com patible m anagem ent of fossil resource exploita­ tion, and the sustainable m anagem ent of hydro basins have becom e so im portant. The energy sector perform s an im p o rta n t role on tw o fronts, w hich inter­ act w ith each other: on the one hand, handling of natural resources, and on the other hand, its im pact on the environ­ m ent. Since, at present, energy use is m ainly based on fo ssil resources, the issue of depletion of energy resources as w ell as oth er nonrenewable resources has been the subject of m uch concern fo r the sector and its long-term developm ent pol­ icy, th a t is, sustaina ble developm ent. Therefore, objectives such as greater sus­ ta in ab ility of program s fo r tapping fossil resources, aim ed at m itigating environ­ m ental im pacts and conserving natural resources, require that the w id e r use of renewable resources becom e a m ajor p ri­ ority. 1. N a tu ra l R e s o u rc e s and Brazil and Venezuela, around U S$21,000, fo r Chile U S$30,000 per capita, and fo r Argentina U S$61,490 per capita, not to m ention Guyana at US$82,730 per capita and Surinam e at U S$298,360 per capita. The aver­ age value depends heavily on popula­ tion density, the relative value of the land and, to a lesser extent, the abun­ dance of m ining and energy fossil resources (C hile, T rinidad and Tobago, Venezuela, and M exico). • The d is trib u tio n of valuable land o w n­ ership is highly uneven w ith in the countries them selves, in Ecuador, fo r example, only 3% of the farm units ow n about 50% of all fa rm ­ land.27 • The exploitation of fossil resources increased m ore rapidly in the seven­ ties than gross dom estic product, especially as of 1977. In real term s, the m arket value of natural resources use (pro d u ctio n ) in 1982 am ounted to 400% of the value fo r 1970, rising from 3% of GDP in the latter year to 7% in 1982. This value rem ained high until 1985 and only as of 1986 did a dow nw ard trend becom e appar­ ent.28 It is clear that th is behavior of the p ro d u c t of n atura l resource exploitation has been decisively in flu ­ enced by crude oil price patterns. N evertheless, it is im p o rta n t to emphasize that, in term s of physical am ounts, the e x tra c tio n o f fo s s il resources has grow n steadily in LAC since 1975. In addition to this deple­ tion of fossil resources, there has been land deterioration, w hose value is hard to quantify. • If the natural capital w ere to decline gradually (w ith o u t the depletion of fo s s il resources o r e n vironm ental degradation), dem ographic g row th in itself w ould be enough to reduce the per capita natural capital. Over the last 25 years, the im pact of this factor am ounts to 36% . the E n v iro n m e n t in LAC 26 27 28 50 Preliminary estimates of World Bank working groups. See “Global Approach to Environmental Analysis, internal technical support paper for the project Monitoring Environmental Progress (see the report “ A Report on Work in Progress,” Environm entally Sustainable Development Vice-Presidency, Washington, D.C., 1995). See World Bank, “ Ecuador: Poverty Report, World Bank paper, 1995. This analysis is based on internal World Bank documents, especial­ ly “ Global Approach to Environmental Analysis, internal technical support paper for the project Monitoring Environmental Progress. As indicated in Chapter 1, LAC has an abundance of natural resources both on the surface of its land (soil, flora, and fauna) and underground (m inerals, hydro­ carbons, and geotherm al energy). In addi­ tion, it has vast inland and sea w ater resources, a relatively unpolluted atm os­ phere, an abundance of solar radiation, and e x p lo ita b le w in d resources in va ri­ ous countries. This w ealth of per capita natural resources in LAC seems highly satisfactory. An estim ate of the value of per capita natural capital (including, land, fossil resources, and w ater) am ounts to US$18,400 per capita, w hich places LAC above any o th e r developing region, inclu ding the M iddle East.26 It w ould be a terrible m istake to conclude th a t th is relatively high average o f natural capital should not be the focus of concern fo r sustainability: • The w ealth of natural resources is very different in each country. The estim ate fo r Haiti tu rn s out to be only US$200 per capita and fo r Salvador US$570 per capita, whereas the val­ ues calculated fo r M exico am ount to a b ou t U S $1 2,0 00 per capita, fo r 2. E n v iro n m e n ta l Im pacts of the Energy S e cto r The e n v iro n m e n ta l im p a c ts of energy activities are m ultiple: air, water, and land pollution in the cities due to the em ission o f SO 2 and NOx, gases, lead and other heavy metals, as w ell as different toxic m aterials and untreated discharges from energy use and tra n sfo rm a tio n activ­ ities; river p o llu tion due to the production of bio-fuels; and in the rural sector the loss of soil due to unplanned human set­ tlem ents, inappropriate land use, m ining, and the building of hydropow er dams. The im pacts on the atm osphere and th e ir inter-relation w ith the evolution of the forests seem to be the m ost im pressive, despite the o th e r im pacts. To these d irect im pacts of energy a ctivity on the atm osphere and, to a less­ er extent, on fo re s t resources, m u st be added indirect im pacts stem m ing from , fo r exam ple, the exploration of h ydrocar­ bons in fragile ecosystem s such as the Am azon regio n , w here e rosion and destruction of b iod ive rsity occurs not so m uch because of the exploratory activities them selves (bu ilding access facilities fo r exploration, p ro du ction , and tra nsp ort, such as oil, gas, and pow er lines) but because of later hum an settlem ents (facil­ itated by the opening up of energy a c tiv i­ ty) and the intensification o f land use in the hydrogra phic basins, partially fostered by the co n stru ction of the dam s and reservoirs, w h ich has contributed to ero­ sion and sedim entation. Nevertheless, environm ental policy has made im portant progress (see Insets 4.1 and 4.2). parts of the w o rld and have rem ained at a relatively low level. In 1990, total C 02 e m is sio n o f Latin A m erica and the Caribbean accounted fo r only 5.8% of the w o rld total (Chart 4.1). The behavior o f the above-m en­ tioned em issions indicator, in addition to being linked w ith econom ic grow th rates, has been influenced by factors inherent to the energy sector, such as s tru c tu re changes in the supply system (rise of hydropow er generation and the declining Chart 4.1: World structure of CO2 emissions 1990 E u ro p e a n U nion 1 8 .0 % U SA 2 8 .0 % U S A 33 E u ro p e a n U nion 2005 ^ ía V iá X in ^ ric a 5 ,8 % J a p a n 7 .1 % A s ia (w ith o u t C h in a ) C h in a 1 6 .6 % L a tin A m e r ic a Japai 6.0 % C h in a 2 1 .5 % -A fric V % 5 .5 % A s ia (w ith o u tC h in a 1 3 .9 % Source: 1DEE-FB, on the basis of Energy in Europe: A View to the Future, EC. DG XVII, September 1992 2.1 Emissions into the atmosphere As a result of the activities that produce toxic emissions into the atm os­ phere, e m is sio n s w ith s tric tly local im p a cts (p a rtic u la te s , ch em ical s u b ­ stances, etc.) are d iffe re n tia te d fro m those tha t exert regional im pacts, such as SO2 and NOx, and global im pacts, such as CO 2 . The use o f CO2 volum es as an in d i­ cator to represent the behavior of a tm o s­ pheric em issio ns fro m the energy sector is ju stifie d in LAC, because there is a high correlation w ith the em ission of these gases since SO 2 and NOx m itigation te ch ­ nologies have never been im plem ented. use of firew ood) and, to a lesser extent, technological m odifications in production and consum ption. The countries of LAC have m an­ aged to achieve re la tive ly s ig n ific a n t progress in reducing regional and global atm ospheric pollution from the energy sector, w hich is m ostly clearly evident in the specific em issions. The specific em is­ sions o f C O 2 fro m the total energy system declined by m ore than 20% between 1970 and 1990; the m ost im portant reduction (2 3% ) to o k place between 1972 and 1985.3Q Since 1985, specific em issions have rem ained constant. In LAC, total C 02 em issions ste m ­ m ing fro m the energy sector rose from 664 m illio n to 1,008 m illio n tons (that is, by 5 2 % ) betw een 1970 and 1 9 9 0 .29 Bearing in m ind that the grow th o f other em issions has been on the same order, it should be observed that LAC em issions have risen at a slo w e r pace than in other The m ost im portant achievem ents in reduction to o k place in Brazil, where between 1970 and 1980 specific em is­ sions from the energy sector declined by one third, and the level achieved at that tim e has rem ained unchanged up to 1995 (Chart 4.2). M exico, however, managed to reduce by 15% the specific em issions 29 30 See C. Suárez, Diagnóstico de Impactos Ambientales de la Evolución Histórica del Sistema Energético de América Latina y el Caribe [Environmental Impact Assessment of the Historical Evolution of the Energy System of Latin America and the Caribbean], Energía, No. 2, December 1995. See N. Di Sbroiavacca and C. Suárez, Impacto de la Energía en el Desarrollo y el Ambiente de América Latina y el Caribe, OLADE-IDEE. 1992. 51 of the energy se cto r between 1975 and The last in ve n to rie s of green ho use 1983, but th is decline w a s partially offset gas e m is s io n s indicate that the e m is s io n s by ste m m in g from la te r in cre a se s . In and Andean A m e rica n su breg ion s, the C e n tra l the burning of fo re sts the exert, drop of th is in d ica to r w as s lo w but steady. e ffe ct In the in the N evertheless, it sh o u ld be kept in m ind no cle a r tre n d s w ere that the energy s e cto r co n trib u tes in d i­ C a rib b e a n , S o u th ern Cone, as w e ll as recorded. in m any co u n trie s, a m u ltip lie r on en e rg y s e c to r e m is s io n s . rectly to these e m is s io n s as a resu lt of the hum an settlem ents fostered by the im p le ­ m entation of energy projects in the tro p i­ cal rain forest. Chart 4.2: Evolution of specific CO2 emissions Alth ou gh the energy s e cto r of LAC co n trib u te s little to g lo b al o r regional en vironm ental p ro b le m s, it doe s how ever c o n trib u te h e a v ily to lo c a l p o llu tio n . A m o n g these d ire ct effects, the fo llo w in g sh o u ld be u nderscored: a ir p o llu tio n due to ch e m ica l su b sta n ce s (CO 2, S O 2, NO*, etc.) and particulates (lead, soot, etc.) in large cities, produ ced by m otor ve h icle traffic and in d ustrial activities; local air p o llu tio n fro m p a rtic u la te s s te m m in g from co al p roduction; land and w ater p o l­ * O M é x ico “ O — B rasil C . A m é ric a A “ “ X— C ono Sur O C a rib e lution from oil explo itatio n or intensive 0 . A n d in o alternative energy program s; and finally “A LyC the lo ss of land due to the co n stru ctio n of h yd ro p o w e r dam s and reservoirs. The average e m iss io n o r pollution values, given as national estim ates, do not re fle ct Chart 4.3: LAC: CO2 emissions and development the lo ca l in c id e n c e of th e se im pacts. Even m ore elo quen t than these averages are the sp e cific exam ples: air pollu tion ste m m in g from m o to r ve h icle tran spo rtatio n and in d u stria l a ctivities in NI \ ♦ large ♦ HN i SV CO * ♦ BO ♦ SA ♦♦ GR ♦ AR ♦ JM ♦ 1 VE TÜV ♦ DO citie s (M e x ic o City, S a n tia g o de Chile), sp ills, and oil s lic k s in the jungle, ♦ CU ►CR etc. 2.2 Energy concerns and involvement in reducing forest resources 05 BR 1► In addition to the value ste m m in g fro m O 500 1000 1500 2000 2500 3000 3500 3000 4500 500C PBIpc its d e v e lo p m e n t as a re s o u rce (w ood, firew ood, the p ro d u cts of its b io d i­ versity), the forests co ntribute other e sp e ­ cia lly im p ortant fu n ctio n s for e n v iro n m e n ­ tal s u s ta in a b ility a b s o rp tio n such ca p a city. as th e ir B e c a u se CO2 of th is, h um an kind attributes sp e cia l im p o rtance to LA C fo r its v ast fo re st areas and, th ere­ The ratio between sp e cific e m is ­ fore, its huge ca p a city as a CO 2 sin k, its s io n s generated by the energy se cto r and biodiversity, and other fu n ctio n s as well. the in co m e level in the region sh o w s a R eg a rd less of the fact that the reason for dow nw ard trend (Chart 4.3), w h ich w ould th is im portance g oes far ba ck in history, be m ore m arked if, at the extrem e end of in volvin g other regions of the planet, the the range, there w as not an atypical case e x p lo ita tio n su ch as Trinidad and Tobago. so u rce s, th eir depletion, and the intensity of th e ir ow n n a tu ra l re ­ of greenhouse g a s p rod u ction , the w o rld 52 hopes th a t forests in general, especially the region’s natural tropical forests, w ill continue to p erform the above-m entioned role and therefore watches w ith m uch concern th e ir deforestation. Inset 4.1: Systematization and institutionalization of environmental policy A t the sta rt o f the nineties, there w as an im p o rtan t breakthroug h in The e lim in a tio n and indiscrim inate use of fo re st resources increase the load o f CO2 in the atm osphere and reduce, at the sam e tim e, th e ir capacity to absorb greenhouse gases, th us generating insta­ bility in the earth’s life system ; if th is per­ sists it can lead to critica l situations of no return. In the ten years between the m id ­ seventies and the m id-eighties, the forests of LAC declined by 5% as a result of steady inroads made by a gricultural and livestock activities, encroaching upon the fo re st.31 In m onetary term s, the total value o f the land has p ro b a b ly not changed m uch, since the tra nsfo rm a tion of forests into farm able lands increases th e ir value w h ile th e ir conversion into grazing land dim inishes th e ir value. But the value of LAC resources probably has dim inished considerably since the losses have been greater in te rm s of biodiversity and o th e r in ta n g ib le a sp e cts.32 D eforestation reached a ceiling in the m id ­ eighties.33 e n vironm ental p o lic y in LAC. In a lm o s t a ll the countries, the le g a l fra m e ­ w o rk a n d institutional stru ctu re o f en vironm ental policy have ch an g e d c o n ­ siderably. Various countries have m an ag ed to system atize efforts th a t p re ­ viously h ad been isolated, scattered, a n d p ro b a b ly high ly inconsisten t in various areas a n d subsectors. A t the sam e tim e, there w as been w ide­ s p re ad decentralization a n d citizens are increasingly involved in the deci­ sions th at affe c t them . This task has b eco m e even m ore co m p lic ate d w ith the reform s a n d b ro a d er p rív ate-s ec to r participation in the en erg y su bsec­ tors. Concern fo r the en viro n m en t em erg e d g rad u ally in s o m e countries o f LAC in the sixties. The first activities to n o t only clean up the en viron­ m e n t b u t also reduce em issions in the a ir a n d w ater s te m m in g fro m oil in d u stry factilities, such a s refineries a n d wells, took p lace in the en ergy sector. The state o il industries o f Venezuela, Colom bia, M exico, B razil a n d o th e r co untries established en viro n m en ta l co n tro l units w ithin th e ir respective com panies. The o il industrys exam ple o f incorporatin g en vi­ ro n m e n tal issues into its activities was ad o p ted b y co m pan ies fro m o th e r subsectors (electric p o w e r an d coal). The im plem entation o f ecological considerations d e p ended heavily on the w illingness o f the co m pan ies in the differen t subsectors. The larg escale h yd ro p o w er p rojects o f the eighties in the region included, on a reg­ u la r basis, studies on th e ir en viro n m en tal a n d so cial im pacts, a t the requ est o f m u ltilate ral an d b ilateral financing institutions. The la tte r in s ti­ tutions p e rfo rm e d an im p o rta n t role in fostering the incorporatio n o f en vi­ ro n m e n tal aspects Into g e n eral developm ent p o lic y and, specifically, the establishm ent o f en vironm ental im p ac t assessm ent studies, w hich eventu­ In som e regions, deforestation is the principal cause of soil degradation and erosion; in oth er areas, however, th is is only a secondary cause, and rather it is agricu ltural and livestock activities that adversely affect the land. There are v a ri­ ous reasons fo r deforestation in Latin Am erica. The use of w ood fo r energy pu r­ poses is only one o f them , especially in Central A m erica and the Caribbean; this use, how ever, is s e co n d a ry in o th e r regions.34 The trends observed in the past in Central Am erican and Caribbean countries indicate a reduction in firew ood su p ply and/o r an increase in supply costs. As indicated in the preceding chapter, the a lly becam e m a n d ato ry fo r large projects. A ir p ollution p ro b le m s in large cities le d so m e o f them , such as M exico C ity a n d Santiago de Chile, to develop specific regulations fo r transportation a n d industry, including the estab lish m en t o f sp ecific ag en ­ cies a im e d a t im p ro vin g a ir quality. In term s o f n a tio n al en erg y policy, environm ental considerations ap peared in regulations focu sing on fuel quality and, in so m e countries, on the p ro m o tio n o f less toxic en e rg y p ro d ­ ucts. O ver the la st fe w years, n e w en viro n m en tal la w s w ere en acted In m a n y countries o f the region. In te rm in is teria l en viro n m en ta l co m m issio n s w ere organized, and, in s o m e cases, Environm ental M in istrie s o r Executive Secretariats w ere established. M u nicipalities a n d even individuals w ere em p o w ered to participate in en erg y p ro je c t d e cision-m akin g processes. Nevertheless, in m a n y cases, the re a l p o w e r o f these n e w institutions is still quite lim ited. The cu rre n t en vironm ental debate focuses on the p o llu te r pays 31 32 33 34 See, WRI, World Resources 1990-91, Oxford, New York, 1990. According to the estimates of the Global Environment Facility (GEF) and the World Resources Institute (WRI), LAC has 28.6% of natural capital estimated in non-monetary terms, whereas its share amounts to only 8.7% in monetary terms. See E. Rodenburg et al., Environmental Indicators for Global Cooperation, GEF, Working Paper No. 1, Washington, D.C., 1995. See WRI, op. cit., page 42. See WRI. op, cit., page 127. principle, the internalization o f en vironm ental costs, a n d the resulting allo­ cations. N evertheless, in the im plem entation o f policies to date, the m a jo r­ ity o f the m easures w ith environm ental objectives in LAC have been “c o m ­ m a n d a n d c o n tro l. There have been virtually no incentive-type m easures (such as ta x discrim ination ag ain s t en erg y p roducts th a t e m it a g re a te r a m o u n t o f toxic substances) a n d very fe w m easures b a sed on m a rket m echanism s (tradable p e rm its fo r the em ission o f particulates a n d sanc­ tions im p o se d on urban h ig h w ay use rights fo r buses in Santiago). 53 Inset 4.2: Internationalization of environm ental issues In LAC, local ecological problems are felt much more keenly than global problems. In fact, the contribution o f the Latin American energy sector to global and regional ecological impacts (greenhouse effect) is slight, especially because of low energy consumption and the relatively high share of hydroenergy reservoirs and dams for the generation of electric power. Therefore, the countries of Latin American may be considered the beneficiaries of an “outstanding environmental credit” whereas the industrialized countries, due to their high CO2 intensity and the disappearance of their forests, have over the years accumulated an ,environmental debt. Although the latter countries do not view themselves as responsible for global ecological problems, they do understand that part of the solution lies in this region, more concretely speaking, in the conservation of tropical forests. A certain group of countries (to which the Caribbean countries belong), which are most severely affected by global warming, are advocating the application of strong and immediate measures for the reduction of C02 everywhere. One group of coal- and oil-exporting countries (Venezuela, Mexico, Co­ lombia, and Ecuador) feels especially affected by the efforts of industrialized coun­ tires to reduce C02 emissions by levying taxes in these countries (for example a tax on C02) and by imposing environmental standards in the region on the exploration, production, and transport of oil for export. Both of these measures will curtail the export earnings of the region’s oil-producing countries. Further taxes on the con­ sumption of oil products and coal would lead to a decline in consumption, which is what is being sought, but it would also lead to a decline in sales in the oil coun­ tries. In addition, this would lower the prices of crude oil and coal. If, at the same time, more environmental costs are internalized in the region’s production chain, energy margins and revenues will drop even more. Although, to date, the Europeans have failed to enact the introduction of a general tax on C 02 in the European Union, there are nevertheless some countries that are making progress in this direction. The most critical point in a system of this kind is the equitable distribution of the tax and the use of the environmental funds stemming from it. Indeed, when externalities attain planetary levels and affect the entire world population, it seems reasonable that the distribution of these funds be made in accordance to some principle related to population. The use and application of these funds should, at the same time, focus on development and environmental protection objectives, as well as social equity. The present description of the problems indicates that, regarding climate change, a multilateral agreement covering all environmental aspects within the framework of a New International Environmental Order is missing, although It is apparent that there is a noteworthy trend in this direction. Nevertheless, much time will be needed before it can materialize, as it was apparent in the conferences of Berlin in 1995 and Geneva in 1996, where no substantial agreement was drawn up. Instead of agreements of this nature, bilateral instruments at the project level, such as debt-for-nature swaps, joint implementation, the program of mea­ sures to prevent climate change, etc., have been established, within the context of the Framework Convention on Climate Change of the United Nations Conference on Environment and Development held in Rio de Janeiro in 1992. While the debt-swap scheme (bilateral and commercial) has been applied in the majority of the regions countries, joint implementation has been limited to only a few specific countries in the region (Central America). Another specific instrument is the Global Environment Facility (GEF) of the World Bank and the United Nations Development Programme (UNDP), which focuses on differential investment financing caused by greater environmental protection in project development.37 54 backdrop to this problem is a depletion of firew ood resources in certain countries o r areas. If the population has no access to any other alternative, this depletion is quite severe, because it prevents the pop­ ulation fro m m eeting its basic needs and does n o t rem ove the pressure on forest resources. 2 .3 E n v iro n m e n t and poverty The com m on den o m in a to r of the m ajority of environm ental problem s in Latin Am erica and the Caribbean is pover­ t y ^ The m igration of the poor to m a rg in ­ al regions, oftentim es located beyond the agricultural fro n tie r in the jungle o r the m ountains, accelerates deforestation and erosion; m igration to the m arginal zones of cities also underm ines the situation of the inhabitants, since here the fam ilies often have no basis fo r sustaining th e m ­ selves. It has been acknow ledged that poverty and the environm ent are inter­ related problem s. This inter-relation is starting to be reflected in recent econom ­ ic and ecological policy proposals.3® This approach m ust also be extended to ener­ gy policies. Therefore, in the m o s t affect­ ed countries of Latin Am erica and the Caribbean, it is increasingly urgent to im plem ent a decisive p o licy fo r enlarging energy supply (see conclusion to the pre­ ceding chapter). 3. S c o p e (D u ra b ility ) of F o s s il E n e rg y R e s o u rc e s R egarding the use o f fossil energy resources and its sustainability, the d is­ cu ssio n usually focuses on the ratio between proven reserves and cu rre n t p ro ­ duction (R /P), that is, the num ber o f years that present production can rem ain at the same level. N evertheless, this is a static in dicator that requires cautious interpreta­ tion. The R/P ratio in LAC grew over the last 25 years fo r all fo ssil energy p ro d ­ ucts, ow ing to the intensification of explo­ ration, the application of new technologies 35 36 37 See ECLAC, Sustainable Development: Productive Transformation, Equity and the Environment, Santiago de Chile. 1991. See Development and Environmental Commission for Latin America and the Caribbean, Our Own Agenda, IDB/UNDP, Washington/New York. 1930. See C.l. Pérez and A. Umaña, El Financiamiento del Desarrollo Sustentable” [Financing Sustainable Development], INCAE, Alajuela, 1996. Chart 4.4: Natural gas activity trends 2025 “ C u m Disco v 2035 Years Y e a rs Resources (92 in exploration and production, and a reap­ praisal based on higher m arket prices. M any an alysts believe that reserves w ill continue to g ro w in the future by means o f the same m echa­ nism s. Nevertheless, th is belief stum bles against the certainty that It is Im possible to have an in fin ite am ount o f resources. The question is therefore when w ill the fin ite ch a ra cte r o f these resources become apparent? On the basis of a dynam ic analysis, w hich takes into account the level o f u lti­ mate resources (C hart 4.4), a better per­ spective of su staina bility of the policy regarding nonrenewable energy resources can be o b ta in e d .^ On the basis of this approach, the R/P ratio cannot increase but rather it w ill tend to fall to a m inim um , w here exploration and developm ent costs are equal to the econom ic value of the resources (C hart 4.4.4). — Annual Production A ssum ing that the geological esti­ mates of the current ultim ate resources adequately reflect their definitive availability39 and that the speed of discovery o f reserves is m aintained at the sam e pace as the one observed over the last few years, it can be concluded that a certain lapse of tim e w ill be needed fo r these resources to becom e proven reserves: in the case of natural gas, fo r example, this w o u ld am ount to about 15 years (Chart 4.4, fro m 1 to 4). A ssum ing that the trends observed in the exploration, exploitation, and inter­ nal use of the above-m entioned resources are m aintained and by applying a model based on this approach, the course of p roduction can be traced (Chart 4.4.3). The curve w ould show a peak and then a decline until reaching a point in tim e when g row th of dom estic dem and cannot be m et in increasingly m ore countries until fin a lly even the m ost richly endow ed countries are unable to export. 38 39 See F. Figueroa de la Vega and 8. Bosl, “ Production, Reserves, and Renewable Energy Sources In Mexico and the Andean Group, working paper, QLADE-ECLACGTZ, Quito, January 1996. Historically, geological estimates of ultimate resources have varied to such an extent that present cumulative production is greater than initial geological estimates. 55 It is clear that reality w ill not nec­ essarily adjust to this evolution, w hich in addition to assum ing that the estim ate of ultim ate resources w ill rem ain at their cur­ rent levels does n ot take into account the technological changes that may affect all th e tre n d s being considered. N evertheless, bearing in m ind all of these constraints, the progressive depletion of fossil energy resources in the w orld and LAC im plies price hikes and changes in exploration, production, and consum ption patterns, w ith considerable costs to adjust to the new conditions. A single message arises from this analysis, one th a t does not involve the lit­ eral consideration of the ceilings over tim e that have been estim ated but rather the m ore qualitative aspects, that is, the co sts o f a d ju s tm e n ts a fte r a rapid exploitation of available resources. It is clear th a t this m essage w ill have a d iffe r­ ent content depending on the situation of available reserves and th eir exploitation in the d ifferent countries. resources. E cuador w o u ld have resources to develop a lim ited dom estic m arket, and A rgentina w ould reach its peak in a few years. Regarding coal, C olom bia could fo llo w its policy w ith o u t encountering any lim itations fo r a long tim e, in view of the resources it has available. M exico fo re ­ casts an increase in its coal im p o rts w hich tu rn s out to be sustainable in view of the regional and w o rld availability o f this resource. 4. R e n e w a b le E n erg y R e s o u rc e s Regarding renewables, the con­ cern does not focus on th e ir depletion and scope or durability over tim e, but rather on th e ir optim al use. From the environ­ m ental view point, it is desirable that their share in the energy m ix grow increasing­ ly. From the econom ic view point, capital availability needed to take th is fo rm of energy has to be taken into account. 4.1 F ire w o o d and w a s te , b io m a s s , and b io g a s In the case of oil, the approach yields the fo llo w in g results: M exico, if it keeps the same policy it has applied over the last few years, w ill reach its oil pro­ duction peak in 20 years and w ill lose its status o f oil exporter in 30 years. For Ecuador, these critical m om ents w ill be 10 years earlier, whereas fo r C olom bia the figures are s im ila r to those fo r Mexico. The oil fu ture of Peru has yet to be defined, because fo r many years it was engaged in very little exploratory a ctivi­ ties; nevertheless, it is clear that it cannot expect to enjoy a situation sim ila r to the ones estim ated fo r M exico or Venezuela. O nly Venezuela can rem ain a m a jo r exporter over the long term . Because of its broader ultim ate resources and its less advanced exploitation, Brazil may be able to m aintain its level of autarky show n in Chapter 1 fo r m ore tim e than Argentina. In the case o f natural gas, a high sustainability of the cu rre nt policy is only possible in Venezuela and Peru. Bolivia’s export program s w ill not be sustainable over a term greater than 20 years and they w ill need back-up from Peruvian reserves. M exico and C olom bia w ill be able to m ain­ tain the developm ent of th e ir gas on their dom estic m arkets if they intensify explo­ ratio n and de ve lo p m e n t of th e ir gas The use o f firew ood as an energy resource is characterized by im balances. W hile in som e areas, such as the Am azon region, available firew ood is not used as an energy product and firew ood w aste is left to rot in standing forests or areas that have been logged or is burned in farm land extension processes, in other areas, the lack of any other alternative fo ste rs log­ ging, thus co n trib u tin g to deforestation, as in the Caribbean islands and certain areas of Central Am erica. The objective is therefore not to reduce the use of fire ­ w ood, w ood waste, or products such as charcoal but rather to achieve a balance. This could include the production o f fire ­ w ood fo r energy purposes in appropriate areas. In the case of shortages, in addi­ tio n to the lack o f a lte rn a tiv e s , the absence o f title rights over resources has perm itted indiscrim inate access and log­ ging. The enforcem ent of entitlem ent rights leads to controlled use and can even foster the establishm ent of a fire ­ w ood m arket w ith incentives to renew the resource. As fo r the opposite situation, the lack of a m arket, possibly due to the exis- tence of subsidized energy alternatives, leads to wastage. In the region, there are exam ples of a balanced developm ent of firew ood in situations of se lf-con sum ptio n but also thro ug h the m arket m echanism . A t the residential co n su m p tion level, the use of coffee shrub branches has reduced the logging fo r firew ood in Costa Rica and oth er countries. The energy use of w oody biom ass of the fo re sts fo r industrial pu r­ poses has a long history, w ith high expec­ tatio ns fo r its extensive application in Brazil and Paraguay (carbonization and gasification o f fire w o o d ); the renewed use of fire w o o d w aste in the paper and ce llu ­ lose in d u stry in Chile is n otew orthy in the nineties. W aste fro m the w ood, paper, and cellulose, and sugar industries are highly appropriate fo r the cogeneration of elec­ tric ity and heat fo r ow n use and sale to the e le c tric p o w e r g rid . In G uatem ala, Jam aica, Brazil, and other countries o f the region, im p o rta n t steps have been taken in the sugar industry.4^ The econom ic c o n d itio n s fo r coge n e ra tio n have not im proved in the course of the reform s, ow ing to the relative depreciation of elec­ tric ity supplied to the public grid. Thus, the sig n ifica n t potential fo r cogeneration in sugar m ills has taken tim e to m aterial­ ize. The energy recovery fro m m u n ic i­ pal soiid w aste is still being studied and o nly in vo lves p re lim in a ry in s ta lla tio n s (Brazil and Argentina). The m o st im p o rta n t biom ass use program is the PROALCOL Program of Brazil, im plem ented after the oil crisis of 1973. Brazil m anaged to substitu te a co n ­ siderable p o rtio n o f its gasoline use in the tra n sp o rta tio n sector. A positive elem ent of th is program is its co n trib u tio n to the co u n try ’s autarky, the conservation of fo s ­ sil resources, added value and em ploy­ m ent fo r the entire alcohol industry, the reduction o f CO2 em issions, and oil co n ­ s e rv a tio n . Its d ra w ba cks, how ever, include p roblem s linked to single-crop farm ing , w ater p ollutio n, and a s lig h t eco­ nom ic loss fo r the oil ind ustry to the extent that there was a s lig h t decline in the prices o f oil and its products. Despite th e ir apparent econom ic advantages and m any private exploitation projects, the production of biogas by means of anaerobic digestion has not yet achieved any m ajor significance. 4.2 H ydropow er In the eighties, the expansion of h ydropow er generation was considered to be the pivot of energy policy aimed at e n su rin g greate r s e lf-s u ffic ie n c y and autarky, that is, reducing the dependence on im ported oil. The m agnitude, long lead tim es, and cost overruns of various pro­ jects and the absence of full-capacity operation have been added to the unex­ pected econom ic burden stem m ing from the capital intensity and long return period w hich contributed to the high indebted­ ness o f many of the region’s countries. In addition to its positive im pact on s elf-sufficiency, h yd ro p o w e r has had a h ighly positive effect on em issions. The m itig a tio n of em issions as a result of the s u b s titu tio n o f therm al sta tio n s has n o t been fu lly appraised despite the acknow ledg m e nt of the breadth of global c lim a te p ro b le m s . T h is e ffe c t has becom e an asset fo r the region in w orld n egotiations on strategies to prevent c li­ mate change. There is still a broad untapped h ydro potential. OLADE s ta tistics sug­ gest the po s s ib ility o f increasing sixfo ld the current hydropow er capacity of 100 GW.41 N evertheless, the expansion of hydraulic expansion m ust address its own e n viro n m e n ta l lim its in th o se places where increasingly larger extensions of land42 and the displacem ent of larger am ounts of persons are required o r where it m u st com pete w ith w ater use fo r other purposes, m ainly irrig a tio n . In te n ­ sification of land use in hydrographic basins, partially fostered by the co n stru c­ tio n of the dam s, has contributed to ero­ sion and sedim entation, even in the reser­ v o ir itself. S ettlem ent and deforestation in the hydrographic basin have produced in som e cases local clim ate changes so that, in certain extrem e situations (El Salvador, C olom bia, Ecuador), the available capaci­ ty and/or energy available have turned out to be considerably below those that were planned. See the Proceedings o i the Regional Sem inar Legal Framework and Economic Characteristics o f Cogeneration in Latin America and the Caribbean, Monterrey, Mexico, OLADECONAE-GTZ. See OLADE, Energy-Economic Statistics and Indicators o f Latin America and the Caribbean, June 1996. There is no clear trend in the use ot land fo r new reservoirs. In several different regions of LAC, there are still projects whose implementation would entail the flooding of only small areas (1 to 20 hectares per MW), whereas plainland projects involve up to 1.000 MW per hectare (see Suarez, C., op. cit., page 136). 57 4.3 S m a ll h yd ro p ow e r s ta tio n s and other re n e w a b le s: g e o th e rm a l, w ind, and s o la r e n e rg ie s Renewable energies managed to reach a certain level of developm ent in LAC. Nevertheless, the current level is unsatisfactory, except fo r the use of largescale and m e diu m -scale h y d ro e le ctric projects and geotherm al energy. Nevertheless, it seems that a new phase in m arket penetration is beginning. The p o ssib ility of building facilities using solar, geotherm al, w ind, and other energy below 10 M W has increased considerably. There is no lack o f prom oters, financiers, kn o w -h o w , o r m arketable te chnology. The political w ill dem onstrated in national program s and the new international hem i­ spheric agreem ents recently subscribed to seem ve ry im portant. The reform s of legal fram ew orks and the sector’s stru c ­ ture in the region should provide new pos­ sib ilitie s fo r the integration and rem unera­ tio n o f self-producers, cogenerated ener­ gy producers, and private developers of sm aller pow er stations. Com pared to the previous situ a ­ tio n , the theoretical conditions fo r sm allscale pow er production and cogeneration have im proved o r at least have become safer, since the term s fo r grid connection and rem uneration have been m ore clearly defined w ith in the new legal fram ew orks. In practical term s, the im pacts of the reform s on the expansion of renew ­ ables in general, as w ell as cogeneration and energy efficiency, are still taking tim e to be felt. The im plem entation o f an in­ depth reform in Chile and Argentina has not co ntributed m uch to prom oting the use of renewables or cogeneration in elec­ tric po w e r generation, w hereas these options have been m ore w idely accepted in som e countries that adopted the lim ited liberalization of M exico, Costa Rica, and Guatemala. One of the reasons fo r these high­ ly disappointing results m ay be that the sm all-scale and industrial pow er produc­ ers of Chile and Argentina do not belong to any club or pool, tha t is, as m em bers of the bulk m arket, central dispatch c o m m it­ tees, etc. They are viewed as lower-catego ry supplies w ho oftentim es are not linked to any a s s o c ia tio n , u n io n , or defense group w ith any kind o f political leverage. Local transm ission rig h ts are not clearly defined and d istrib u tio n u tili­ ties are not obliged to purchase o r tra n s ­ m it electricity produced by sm all projects. In addition, governm ents have not been able o r are not w illin g to im plem ent an effective incentive program fo r renew ­ ables or cogeneration. The relatively greater success of renewables and cogeneration in countries w ith lim ited reform s is due to special p ro ­ gram s or legal provisions. Guatemala prom oted the p roduction of ele ctricity using biom ass in the sugar in d u s try by means of a specific program . The Federal E lectricity C om m ission (CFE) of M exico started c o o p e ra tio n w ith in d u s try to develop cogeneration and w ith various prom oters to develop generation fueled by renewables. Costa Rica facilitated the establishm ent of sm all private stations of up to 20 M W w hich channeled private investm ent in th is direction. N evertheless, the high expecta­ tio n s fo r th is m arket, duly supported, do not involve renewable energy te c h n o lo ­ gies in sm aller units such as sm all photo­ voltaic plants designed fo r decentralized energy supply. The m assive dissem ina­ tio n of these facilities depends on support fro m technical cooperation and the State. It has already been proven that participa­ tory approaches are unsuccessful, and in order to ensure th e ir expansion individual projects have to be grouped under one single package and need a p ro pitious fram ew ork and decisive system ic support. The sm all pow er sources based on renewables are appropriate to meet the pow er demand of rem ote com m unities. As indicated previously, som e of the LAC countries, w ith strong s upport fro m bilateral and m ultilateral coopera­ tion, are beginning program s to prom ote rural electrification on the basis of renew ­ ables (hydropow er, w ind and photovoltaic solar energy). 5. C o n clu sio n : P rio r ity G u id e lin e s The p re s e rv a tio n o f natural resources and the environm ent are o b vi­ ous objectives fo r sustainable develop­ ment: rational use of energy; s u b stitu tio n of energy products w ith high contents of toxic substance fo r clean energy, especial­ ly the use of renewables; and the applica­ tion of clean energy production, transport, and use technologies and processes. The issue is w hen w ill these objec­ tives be achieved over tim e. The problem lies in the course of action that m ust be taken to ensure that these objectives w ill be reached. To date, the approaches have been m ostly isolated, lim ited in space and tim e. Thus, the energy efficiency of cer­ tain indu strie s in som e countries and the efficiency of electric pow er use in a sector of a city have been enhanced, p hotovolta­ ic system s have been dissem inated to a certain extent in a given area of a country, sm all h yd ro p o w e r s ta tio n s have been retrofitted and b uilt in other countries, and a prototype fa cility fo r the clean use of coal has been com m issioned. In som e cases even, a project has been expanded into a national program , w ith financial su p p o rt from a specific institu tio n . Nevertheless, in very few cases is it possible to discern a system ic and w id e ­ spread policy approach. A policy of this nature w ould mean creating, at the least, equitable m arket conditio ns fo r rational use of energy and the sm all-scale use of renewables. Energy sector reform s in the m ajority of countries have given little im portance to these topics. Generally, the cond ition s fo r rational use of energy and renew ables have n ot im proved m uch, even fo r cogeneration. Vertical breakup, restricted participation on the m arket, and ta riff-s e ttin g schem es have done nothing to prom ote them . The im pact that certain changes in rules can exert is evident in the boom of natural gas use fo r electric pow er genera­ tion, because the technology is perfectly adjusted to b u sin ess c o n d itio n s , and above all, to the risk. This boom may exert positive environm ental im pacts if it manages to reduce the use of coal and oil products in electric pow er generation. It rem ains to be seen w hether it w ill really contribute to m itiga ting em issions as it replaces the use of em ission-free te ch­ nologies such as hydrogeneration. At least it is apparent that efforts are being made to m aintain the pace of grow th of renewable energy technologies and rational use of energy but, as m en­ tioned before, w ithin the fra m e w o rk of funding projects or program s. These e ffo rts w ill d e fin ite ly not change the course of events. There is no considera­ tio n of im pacts and incentives in the rele­ vant parts of the legal fra m e w o rk and the policy that is being im plem ented. Quite on the contrary, in the m ajority of coun­ tries, the prices of renewables do not even reflect o p portunity costs; in various coun­ tries, prices still encourage wastage or the use of the m ost polluting energy prod­ ucts. And in those countries that have undergone a certain international price adjustm ent, there is no serious initiative to foster the use of renewables and penal­ ize the use of rival energies that are toxic due to th e ir external enviro n m e n ta l im pacts. For both econom ic (see Chapter 2) and social reasons (see Chapter 3), and e sp ecially fo r e n v iro n m e n ta l and resource-conservation reasons, the coun­ tries should not allow these policies to be applied. The countries that still do pro­ m ote the nonrational use of energy should change their approach as soon as possi­ ble. In the countries that have already im plem ented reform s and price adjust­ m ents, the rules of the game of the m ar­ kets and energy use standards should be reviewed and developed not only so that the building of com bined cycle stations (u sing natural gas as feedstock) can becom e a profitable business but also so that w ind, geotherm al, sm all, and m ini hydro stations, as w ell as solar water heaters, can be installed. The countries producing hydrocar­ bons and coal should be particularly inter­ ested in the developm ent and application of clean technologies that reduce the e m is sio n s s te m m in g fro m energy processes, consum ption, and above all transform ation . This is where the respec­ tive energy chains have opportunities fo r coordinating their activities and increas­ ing th e ir added value. The industries of the co u n trie s of LAC m u s t becom e involved in the production of clean energy technology equipm ent. R egarding th e ir in te rn a tio n a l stance, the countries of LAC should inten­ sify th e ir e ffo rts to reach m ultilateral agreem ents that com pensate the coun­ tries fo r th e ir energy sector’s relatively benign im pact on the environm ent. The concept of international equality of o p p o r­ tu n ity in using the environm ent suggests th a t industrialized countries th a t tackle th e ir global environm ental problem s by internalizing costs and levying taxes and duties in th eir countries should share these revenues w ith developing countries to the extent that the latter have con­ tribu ted to reducing global em issions. M u ltila te ra lis m w o u ld be very appropriate fo r the region’s countries, since the prevalence of national approach­ es could lead to trade reprisals, thus gen­ erating an even m ore pernicious fo rm of unequal trade, im posing conditions on the developm ent of natural assets w ith o u t c o n s id e rin g c o m p e n s a to ry m easures. Thus LAC should capitalize on the efforts it has made in the past to m itigate envi­ ronm ental damage. Although m ultila teralism is m oving ahead slow ly, the countries could take advantage of those new in strum ents that already exist such as jo in t im plem enta­ tio n , debt sw ap s, and the G lobal E n viro n m e n t F acility (SEF). Nevertheless, it w o u ld have to ensure that a selective application and different c o n d i­ tio n s w ill not divide the region’s countries. CHAPTER 5: ENERGY POLICY GUIDELINES FOR SUSTAINABLE DEVELOPMENT 1. Introduction and Recapitulation A m on g the priority g u idelin es fo r energy policy, the objective of ra tio n a l use The prese nt ch apter sh o u ld start o f en erg y is notew orthy fo r its co n trib u ­ w ith a re m a rk that w ill help to put into p e r­ tio n to spective the need to begin su stainable dim en sion s: d e ve lop m e n t actions: ductivity, reducing e xpo sure to the risk of of n o n ren e w ab le w ith the depletion re so u rce s and im p ro vin g the situ a tio n in all in creasin g e co n o m ic p ro ­ so m e rationing or rising c o s t of energy inputs, renew able resou rces and the deterioration enhancing the productive efficie n cy of the of en viron m e nta l re sou rce s, there w ill be energy sector, m itigating pollution, fa c ili­ in cre a s in g ly ta tin g le ss e c o n o m ic o p tion s fo r the future. and s o c ia l If th is situ ation is not overturned, hum an developm en t w ill the c o n s e rv a tio n of n atural resou rces, and even reducing household spending. co m e to a sta n d still and the opportunity fo r p o litics to prom ote th is developm ent w ill be in cre a sin g ly curtailed, sin ce over A n o th e r e n e rg y im p o rta n t g u id e lin e d iv e rs ific a tio n and is im p ro v in g the long term p olitical o p tio n s depend on a cce ss to a w id e range of p rodu cts and e co n o m ic grow th, w h ich in tu rn depends te ch n olo g ie s. T h is helps to ensure su pp ly quality and security, op en s up new pro­ on natural, ph ysical, and hum an capital. du ctio n op po rtu nities, as w ell as so cia l O nly if a ctio n s are taken in the p re ­ se rv ice and w elfare option s, and co n ­ sent, keeping in m ind the need to m aintain tribu tes to co n se rv in g resou rces and m it­ th ese a sse ts in all o f th eir sh apes and igating to xic e m issio n s. fo rm s to ensure lo ng-term opportu nities, w ill there be hope fo r em b arking upon a su stain a b le develop m en t process. The in crea sin g use o f renew able en e rg y re so u rce s evidently also has p o si­ tive m u lti-d im e n sio n a l im pacts. If no action is taken to increase th is capital in general and preserve natur­ A n oth er line of action w ith positive al capital in particular, the idea that p o li­ tics can determ ine s o c io e c o n o m ic devel­ im p a cts in m any aspects is e n e rg y in te­ gration, w hether in the form of p h ysical o p m e n t w h ic h , integration or m arket integration. in tu rn , can d e v e lo p reso u rce s over the long term may well end up by being a s im p le m irage or illu ­ sio n fostere d by an ove re stim a tion of p o litical power. The latter approach im p lie s joint, m a tch in g p o litic a l a c tio n s by v a rio u s co u n trie s, w hereas the other three are rather the ou tco m e of a strategy to be In the p reviou s chapters, the evo­ defined w ithin each country. The defini­ lution and situ atio n of energy in term s of tio n of guidelin es and the d e scrip tio n of the three d im e n sio n s of su stain a b le de ve l­ o p tio n s fo r a su staina b le energy d evelop ­ opm en t were analyzed. A serie s of p rob ­ m ent strategy is the focu s of the present lem s, in su ffic ie n c ie s, lags, and risk s to chapter. reach s u sta in a b le developm en t objectives w ere identified. P rio rity lines o f action to im pro ve the situ a tio n w ith respect to each The p re v io u s ch a p te rs m en tion several p rin cip les for a su itable strategy: d im e n sio n have been indicated, u nder­ it has to be integrated, sy ste m ic, and sco rin g the fact that m any of the p roblem s w id e s p re a d are s o clo se ly in tertw ined that a so lu tio n m erely at the project level. On the b a sis of and s h o u ld n ot fu n c tio n to one p rob le m in one d im e n sio n m u st external co n d itio n s and the new in stitu ­ fo rcib ly c o n s id e r its im p a ct on the other tio n al schem e, th is chapter trie s to co n ­ d im e n sio n s. ceptually system atize energy po licie s in order to configure a strategy fo r sustain­ able developm ent: objectives, approach­ es, instrum ents, players, and processes. 2. T he S e c to r’s N ew E n v iro n m e n t and T rends 2.1 T h e e n e rg y s e c to r s e m e rg in g o rg a n iz a tio n The re fo rm s th a t have been applied, o r are in the process o f being im plem ented, in the State’s adm inistrative system , public enterprises, and energy system m anagem ent have led (or w ill lead, after a m ore or less prolonged tra n ­ sitio n phase) to profou nd m odificatio ns in th e ir organizational structure. The s tru c ­ tural details of the energy sector w ill be different, depending on the country, but it is still possible to underscore th e ir m ost com m on features. In a few years, the State w ill have w ith d ra w n fro m its entrepreneurial role in m any countries, even in those areas con­ sidered strategic and of public service. Com panies under corporate law and using private-sector approaches w ill be per­ fo rm in g these fu n c tio n s , although, in term s o f ow nership, they m ay be stateowned, private, or m ixed. Regarding gov­ ernm ent adm inistration, the Central State w ill have transferred m any o f its duties to provincial and m unicipal entities. In the energy sector, there is sh ift in ow nership structure, w ith greater par­ ticip a tio n of the private sector, re stru ctu r­ ing o f sub secto rs, ofte n tim e s vertical breakup, the in trod uctio n of elem ents of co m p etitio n w ith the subsequent need fo r regulation, and external opening up. A new d is trib u tio n o f w o rk between the State and the private sector has been established in the energy sector. The insets of the previous chapter attem pt to pro vid e a general but sy ste m a tic overview of the electricity, oil, and gas subsectors (Insets 2.1 to 2.3), the current s itu a tio n o f energy m arket regulation (Inse t 2.5), the new institutio nal fram e­ w o rk of environm ental concerns (Insets 4.1 and 4.2), and regional integration trends (Inset 2.4). The new w ay of m anaging the sec­ to r is closely tied to the role and nature of planning, an energy policy instrum ent that has been highly privileged in the past. The State s till displays a great deal of insecurity w ith respect to energy develop­ m ent planning and developm ent process­ es in the new m acroeconom ic and sec­ toral in stitutio nal schem e. The follo w in g sections attem pt to outline possible future approaches to an energy p olicy that w ill ensure sustainable developm ent w ith in a new in stitutio nal environm ent. 2.2 T rends o f e x te rn a l c o n d itio n s The conception of national energy policy m ust take into account the pre­ dictable situation of external m arkets, as w ell as the behavior and expectations of im portant external players w ho can in flu ­ ence the data of the business they are interested in and even affect the m aneu­ verability and o ptions of a country. W orld econom ic and energy m ar­ ket trends are highly relevant fo r energy policy: • iow econom ic g row th in in d u s tria l­ ized countries and greater buoyancy in som e developing regions; • g row th o f dem and in the w o rld oil m arket w ith im plications fo r the con­ centration of supply; • rapid grow th of th e rm oelectric gener­ ation in e m e rg in g e conom ies, increasing the em ission o f CO2 and other toxic substances; • a larger volum e of international ener­ gy trade; • the establishm ent of new capital m ar­ kets and new financing schem es; • the applicability of m arket forces to capital account m anagem ent; greater international m o b ility in the allocation of resources and the elim ina tion of constraints fo r internal and external c re d it use, w h ile re g u la tio n s fo r attracting capital are made m ore fle x­ ible (issuance of share, bonds, and other titles); • a general rise o f globalization, placing developing countries in a m ore d iffi­ cu lt situation but also providing them w ith opportunities, and com petition between countries fo r fo reign invest­ m ents, w hich could be coordinated if a m b itio n s are curtailed o r partner­ s h ip s are e s tab lishe d to ensure greater benefits; and • new resources, enlarge and m odern­ ize existing developm ents, and in general absorb the benefits of techni­ cal advances; the concentration and d iffic u lt acces­ s ib ility of technological developm ent. • elim ination of energy trade barriers; and The fo llo w in g political trends are n ote w o r­ thy fo r the repercussions they can have on energy policy: • the co n so lid a tio n of a su b sid ia ry State w hose legitim acy to intervene stem s fro m its capacity to correct m arket im perfections. • the reassertion ot an in stitu tio n a l fra m e w o rk in w o rld m arkets, keeping in m ind th a t g ro u p o r u n ila teral a ctio n s to in flu e n ce the m a rke t (OPEC) are c o n tra ry to free trade; • the fo rm a tio n of regional blocs; • internationalization of environm ental concerns; • p ro m o tio n of international standards w ith in the fra m e w o rk o f the OMC and others; • redefinition of the role of m ultilateral and international cooperation agen­ cies, lesser p rio rity fo r financing state energy p ro je cts, and p riva tiza tio n schem es of greater im portance w ith ­ in term s of conditionality; • • the inclusion of issues involving su s­ tainable developm ent, w ith an envi­ ronm ental bias, as part of the objec­ tives of international organizations and national states, where one of the central issues continues to be ener­ gy; and 3. En ergy P o lic y G u id e lin e s 3.1 En ergy p o lic y p rin c ip le s On the basis of the new national organizational schem e and new interna­ tional coexistence and bearing in m ind experiences to date, a series of energy policy principles is being proposed to face internal challenges (reverting econom ic, social, and environm ental deficiencies) and external challenges (c o n tributing to the com petitiveness of national players faced w ith globalization), w hich can be used as general principles to form ulate an energy policy fo r sustainable develop­ ment. • All the countries o f the region have th e ir own p roblem s and o ptions, re q u irin g a va rie ty o f s o lu tio n s . Keeping in m ind the political and eco­ nom ic culture, as w ell as the basic operating conditions, of each coun­ try, the conclusion has been reached that there is no single, blanket recipe. • It is not advisable to apply extreme m odels, but rather fle xib ility and pru­ dence should be applied, nor should policies be judged o r selected on the basis of ideologies but rather by ana­ lyzing the s itu a tio n , o b jectives, options fo r action, probable effects regarding all the dim ensions, etc. Paradigm s can serve as a reference but not as mandates. • A form al reform of the public sector is not enough to foster the private in i­ tiatives that are expected, the self­ organization of com m unities, and the appropriate intervention of decentral­ ized entities such as m unicipalities. The policy should induce measures to fom ent all of these desirable in itia ­ tives. Even w hen it is apparent that in incip ien t consideration of equity and energy issues. In a ddition to the previous, already visible trends, m odel trends shared by m ainstream th in kin g and supported by the th in k tanks of international organiza­ tions m ust be taken into account: • consideration of assets and natural resources, as w ell as free availability, governed by m arket rules; • questioning the con tro l of assets of natural resources by the State; • elim in a tio n of restrictive policies fo r direct fo reign investm ent to exploit m any countries statism has been o ffi­ cially abandoned, the notion of a ph il­ a n th ro p ic state in both p o litica l spheres and civic attitudes, especial­ ly in those areas that were previously governed by the State, such as ener­ gy s e c to r m anagem ent, rem ains strong. The concept of a self-regulated m ar­ ket (w ith its elem ents of supply, dem and, and price fo rm a tio n ) involves a series of advantages, and therefore its im plem entation is rec­ om m ended in many parts of the sec­ to r to replace the concept of public m onopoly and the concept of self­ supply in the rural sector. Therefore, w herever feasible, m arkets should be m ultiplied, prom oting this system but jealously co n tro llin g its operation and the balance of powers. • D uring the course of energy sector reform , w hich all the regions coun­ tries have undertaken sooner or later and in one w ay or another, a new d iv i­ sion of labor between the private sec­ to r and the State has been estab­ lished. Nevertheless, the State m ust perform an im p o rta n t role in various sector aspects: A reform is a not an end in itself, but an in strum en t to provide the sector w ith better conditions to carry out its duties and achieve its objectives. Reform s, even when they are pro­ found (including restructuring, regu­ latio n, a n d /o r p riva tiz a tio n ) are unique developm ents in a co u n try ’s evolution, although they may take place over a long transitional period. A fter reform , the processes become part of everyday routine, eventually changing the course of the co u n try ’s econom y. Therefore, efforts m ust already focus on the post-reform era in those countries that are approach­ ing it. S ector m anagem ent, after the reform , assigns to the State var­ ious precise d uties, w h e th e r m odified or new, especially in the regulation of m ono p o listic m arkets. If these duties are not perform ed, the results that are being expected from the reform s w ill not appear, especially in term s of efficiency of resource allocation. * It has becom e evident that, in effect, it is possible to apply the principle of com p etitio n as a reference fo r the sectors organization and private-sec­ to r participation in m ore sections of the energy sector than w hat was th o u g h t possible in past decades. Indeed there are less natural m onop­ olies in the sector that need regulated m arket schem es, when the corre­ sponding regulatory entities are cre­ ated. This observation holds true especially fo r more m ature and larger m arkets, where the objectives of pro­ ductive efficiency prevail over the objectives of infrastructure develop­ ment. * The re fo rm e d syste m , even when it fu n ctio n s better in term s of econom ic efficiency, does not autom atically ensure that all the hum an developm ent objectives th a t so cie ty expects w ill be achieved, th e re fo re , the State m ust adopt a balanced and cau­ tious approach to its subsidiary role and consolidate its respon­ sibilities regarding the sustain­ ability of developm ent. * In view of the energy s e c to r’s inherent characteristics (in te n s i­ ty o f capital and natural resources, in v e s tm e n ts w ith slo w return , p ro d u c tio n of essential services and c o m m o d i­ ties fo r quality of life and the fu n ctioning of social and p ro ­ ductive activities, m arked o li­ g o p o lis tic or in d is p u ta b le m o n o p o lis tic m arkets, heavy e n v iro n m e n ta l im p a c t), it is indispensable that, in this sector, m arket m echanism s are com ple­ mented by coordinating actions by the State, in m any cases indicative in character and in other cases using indirect in s tru ­ ments or actions. * The principle that the State has em inent dom ain over nonrenew abie natural resources should be reasserted so that th e ir use can be m onitored and directed. • G lob aliza tion processes such as d o m e s tic lib e ra liza tio n and the dynam ic forces stem m ing fro m these processes should not be viewed as forces that are s u p erior to those of the State itself, thus perm itting a sort of laissez-faire approach. The State should not surrende r Its prerogatives and sink into inertia, but rather create options and take advantage of those that are available. Thus, fo r example, external financing sources m ay be c o n sid e re d as c o m p le m e n ta ry sources; likew ise, the role to be played by foreign investm ent m ust be defined and national capital m arkets consolidated. • Due to the lack of a supranational political pow er In charge of regulating the actions o f globalized com panies and c o rre c tin g the undesira ble effects they m ig h t produce, national governm ents should take over these duties. It is im perative that the gov­ ernm ents of the region identify the national factors they can control. • Interfaces between tw o and three dim en­ sio ns can also be observed in th is scheme. The range of objectives that have been presented by classification of im pact dim ension is used once again in Table 5.1, but indicating a list of actions that w ill help to achieve these objectives. This w ide range of objectives im plies an open­ ing up and reorientation of current energy policy. At present, the e ffo rts being deployed to reorient energy policy tow ard sustainability over the long term have been displaced and conditioned by energy sector restructuring to ensure com peti­ tiveness, an aspect that can be seen as a lim itation fo r sustainability. The transition and im plem entation phase of the reform s is still In full process of developm ent. Therefore, the energy policy of the coun­ tries of Latin Am erica and the Caribbean faces a dual challenge: suitably im ple­ In international term s, the region’s c o u n trie s s h o u ld coo rd in a te and cooperate to im prove their participa­ tion in the institutio na l fram ew ork of w o rld energy m arkets. They should also co o rd in a te and co n solid a te region al stances in in te rn a tio n a l negotiations on environm ental Issues. W ith o u t g oin g in to fu rth e r detail regarding the strategy to be used to ensure these guidelines, it should be em phasized th a t regional energy inte­ gration exerts such decisive im pacts on developm ent that it can be viewed as an energy policy principle. 3.2 E n la rg e d and m u lti- d im e n s io n a l o b je c tiv e s : s e q u e n tia l a p p ro a ch to c o n flic t-s o lv in g Placing sustainable developm ent as the highest goal of energy policies im plies enlarging the range of secto r objectives. Chart 5.1 provides a view of sustainable developm ent as an area in the shape of a large circle in w hich three sm alle r circles representing the areas of energy and econom y, equity, and resources. The blank area is m eant to be the area of political sustainability, w hich serves as the base fo r the three others. m ent the reform s and prom ote long-term objectives, especially those involving sus­ tainable developm ent. But, as th is phase com es to an end, it w ill becom e apparent that the region’s energy problem s go far beyond mere reform . Of course, not all the objectives are equally relevant fo r each c ountry; fo r 65 exam ple, fo r countries that do not have an abundance of fossil resources, the objec­ tives involving the rational exploitation of these resources are not as relevant as fo r those countries that indeed do have a w ealth of these resources. The expansion of objectives, taking into account various dim ensions, height­ ens the problem of fo rm u la tin g policies w ith m ulti-dim e nsio na l objectives. If in a m u ltid im e n s io n a l policy there are already c o nflicts between objec­ tives and inconsistencies between mea­ sures and objectives (undesirable sec­ ondary effects on the objectives of third parties), these co n flicts are sim p ly m u lti­ plied when considering the other dim en­ sions. Chapter I w arns that, despite these problem s, the sustainable developm ent of the energy sector is not only desirable but also possible. The so lu tio n fo r these Table 5.1: Objectives and instruments of energy policy to ensure sustainable development Dimension Objectives Actions/Instruments Political Sustaining political maneuverability Maintaining international weight Breakup of political-economic power Security of installations during conflicts External supply security Sufficient degree of autarky Small energy share in imports Lesser weight of variable incomes in balance of payments and state budget Steady inflow of export earnings Steady inflow of public revenues Taking energy eamings Investment of revenues in other forms of capital Low energy intensity Rational use of energy in production sectors and transportation Energy efficiency in processes Productive efficiency in the sector Sufficient sector financing High energy supply quality Reliability of energy supply Low energy supply costs Higher added value in energy chains and related sectors Coordinating liberalization policies in the region Participating in organizations and forums Setting up international coalitions Separating sovereign from entrepreneurial functions Consolidating authority and autonomy of regulators Ensuring democratic control of regulatory functions Consulting defense and domestic security authorities Diversifying energy sources and countries of origin Drawing up long-term contracts Storing energy products for short-term shortages or outages Promoting the development of national sources Furthering the regions energy integration Diversifying exports Creating and administering income stabilization funds Limiting risks in futures markets operations Applying instalments for taking eamings in order to provide incentives, instead of fiscal measures Restructuring the States budget toward investment in human resources Promoting the rational use of energy (range of instruments) Ensuring orientation from prices to costs Structuring and regulating tariff-setting with incentives for energy savings Limiting the establishment of energy-intensive industries Incorporating the subject of rational use of energy in urban policy Considering the rational use of energy in land use and the planning of transportation Considering the rational use of energy in traffic regulations Creating and supervising competition in self-regulated markets Ensuring the sound functioning of regulation in regulated markets Regulating cautiously the profitability of regulated enterprises Considering the competitiveness of the users of regulated services Permitting sufficient self-financing in the regulation of prices Giving impetus to interaction with domestic financial market players Ensuring the access to international capital markets Taking advantage of private-sedor management benefits Supporting the control of technical and nontechnical losses Regulating the quality of sendees and energy products Ensuring reserve capacity in regulation Promoting internal development and transfer of technology Ensuring technology transfer in regulations for foreign investments Promoting an entrepreneurial environment for the sector (sendees for the sector) Promoting the transformation of energy produds in the country Promoting the production and purchase of efficient facilities Promoting the use and application of energy and appropriate technologies Promoting diversification of supply in urban areas Promoting basic infrastructure to extend access in the rural sector Creating energy markets in the rural sector Reforesting and promoting energy plantations Ensuring ownership rights and regulating access to firewood Permitting price discrimination to foster market development Struduring tariffs that permit well-focused and transparent subsidies Internalizing external effects in energy prices PromoSng the penetration of dean energies Assessing environmental impacts of projects and their consequences Creating terms of reference for sector activities and ensuring their compliance tTefining fossil energy exploitation profiles and enforcing their compliance Defining norms, standards, emission ceilings, etc., in consumption sedors Creating and operating effective and practical compliance enforcement mechanisms Creating contingency systems for all the installations Fostering the development of appropriate emission mitigation technologies Creating a legal framework and equitable roles for renewables Economic Social Environmental/ Resources 66 Diversification of energy mix Sufficient supply Access to efficient and appropriate energy products Coverage of basic needs High electricity coverage Supply of social services Purity of atmosphere Soil conservation Sustainable managment of firewood Preservation of water Ecocompatible management of hydraulic basins Sustainable profiles of fossil resource exploitation Greater scope of fossil resources Greater use of resources problem s can be fou nd in procedures. The idea is not to attem pt to resolve p ro b ­ lem s aside fro m the dynam ic force of the system s, but to underscore the fact that the solutio n o f these problem s is part o f a process. Policies w ill have to identify the actions th a t exert a positive im pact on the m axim um a m o un t of objectives w ith o u t adverse effects on any of them (the w inw in so lu tio n ). These respective actions or instrum ents already exist in energy policy, as we saw previously (p rom o tion o f ratio­ nal use o f energy, renewables, and region­ al Integration). This is m ore feasible in a situation in w h ich the degree of achieve­ m ent of the objectives is less in the m a jo r­ ity o f dim ensions, a situ atio n tha t prevails in m ost countries of the region. O ther actions may have co n tra d ic­ to ry e ffe cts on v a rio u s aspects. C onsidering these actions to im prove the p o sitio n o f the c o u n try reg a rd ing an objective, collateral actions m ust be car­ ried out to stim ula te the e ffort in other objectives o r avoid adverse effects on som e o f them (com pensatory solutions, avoid a tra d e -o ff). The d y n a m ic s o f de ve lo p m e n t processes and po litics enable th is p rin c i­ ple to be prom oted and to make progress relatively m ore in one d irection and rela­ tively less in another. Therefore, policies and the intensity o f actions stem m ing fro m them have to be harm onized. It is not enough to conceive a strategy th a t resolves problem s once and fo r all, progress should be achieved step by step, gaining experience and correcting m istakes along the way. The best p o in t of departure to set up, in practical term s, this type o f strategy w ould probably be an analysis of cu rre n t policy, firs t identifying perverse incentives, that is, m easures and instrum ents cu rre n tly in force tha t are curtailing the achievem ent of one o r sev­ eral objectives. For exam ple, one per­ verse incentive of the past, w hich was w idespread in the region, was m aintaining the price of energy products fa r below their econom ic costs. A n other was, fo r exam ple, m aintaining the price of a p ro d ­ uct th at causes environm ental damage below the price of a clean substitute. A second practical step w ould be to identify im pedim ents to reaching the objectives. There are m any obstacles of this type in all countries of the w orld. One obstacle is the exclusion o f sm all electric p ow er generation capacity, ofte n tim e s based on renewables or cogeneration, from the grid o r discrim ination in access co n d itio n s fo r these plants. A nother example is the custom s discrim ination against renewable energy technology and equipm ent com pared to convention tech­ nology and equipm ent. . Finally, the possibility o f in tro d u c­ ing sound incentives w ill have to be stu d ­ ied in order to achieve sustainable devel­ opm ent objectives, such as fo r renewable energy technologies, rational use of ener­ gy, etc. 3 .3 P o litic a l in stru m e n ts Table 5.1 sum m arizes the m ost relevant actions of sustainable develop­ m ent along w ith objectives. The actions are defined generally and w ith o u t indicat­ ing in te r-re la tio n s betw een them Nevertheless, som e of the actions involve various possible instrum ents. Specific­ ally, w here the action “ p rom ote” is in d i­ cated, the entire range previously present­ ed should be considered, fro m in fo rm a ­ tio n to reg u la tio n and m andate. A fterw ards, they should be structured hierarchically, an aspect that we do not intend to deal w ith in the present chapter. The changes in the role of the State w ill im p ly a pro fo u n d change in the m odalities of energy policy im plem enta­ tion, The State w ill no longer perform a leading role, directly m anaging energy supply by means of sector institutio ns .and enterprises and c o n trolling variables such as investm ents and prices. Nevertheless, even w hen the State has abandoned these m odalities of direct control, it s till has at its disposal a broad spectrum o f instrum ents, as indicated in Table 5.1, w ith a w ide variety o f character­ istics, w hich to date have been used only slightly, to achieve its objectives: • soft instrum ents, such as in fo rm a ­ tion, training, prom otion of research and technological developm ent; • • • m ore intrusive instrum ents, such as fiscal incentives, subsidies, and taxes (includ in g the taking of revenues and th e ir re d istrib utio n) and even public investm ents; in strum ents that provide new o p p o r­ tunities fo r new players, such as the establishm ent of m arkets that until then did not exist (creation of tra d ­ able ow nership rights, licenses); and instrum e nts that lim it, in different ways, the sphere of action of the players, e sta b lish in g fra m e w o rks, rules of the game, and regulatory sta n d a rd s, s a n c tio n in g certain actions in the ir m ost restrictive form , arranging actions, etc. Energy policy instrum ents can be divided into tw o m ajor groups. One of these groups is com prised of instrum ents linked to the organization of structures and procedures, w hich have to be set and m a in ta in ed w ith o u t any su b sta n tia l changes fo r long periods of tim es, thus perm itting greater security fo r the expec­ tation of players, w hich m eans lesser risk, • • • • energy production chain structures; institutio nal organization (ow nership, rights, m arket structure, and obliga­ tions); transaction rules; and standards and lim itations. The other group contains in s tru ­ m ents that are appropriate to actively intervene in sector m anagem ent over the s h o rt and m edium term , in other w ords, interventions that are variable, such as: • • • • • • inform ation; m easures of persuasion; research; education and training; fiscal incentives (tra n sfe rs, s u b s i­ dies, and taxes); and public investm ents These interventions do not have to be abrupt but rather m ust be the outcom e of a previously announced and transpar­ ent policy, in order to avoid any unneces­ sary instability fo r the players involved. Thus, once the changes related to the firs t group of policy instrum ents have been introduced, the State’s intrusion by m eans of its energy policy w ill be much m ore in d ire c t and a lm o s t ex c lu siv e ly linked to the second group of in s tru ­ m ents. Thus, prices, in ve s tm e n ts , and energy s u p p ly in general, ju s t like dem and, w ill be the outcom e of various factors, and the State w ill control oniy som e that are relevant, such as subsidies and taxes. These stru c tu rin g policies, on the one hand, and transparent intervention, on the other hand, should be com bined, if possible, w ith other general axes: o u t­ w ard integration and inw ard decentraliza­ tion. • The need to harm onize policies w ith n eighboring c o untries to fa cilitate energy integration should be taken into account. • The role of the State should be clas­ sified at decentralized levels, espe­ cially the ju ris d ic tio n of m u n icip a li­ ties and provinces w ith respect to energy. • N o n -e n e rg y rules (e n v iro n m e n ta l regulations, etc.) that have m ajor im p licatio ns fo r the energy sector should m atch energy rules. Chart 5.2 provides a picture of the differen t axes of th is energy policy and its instrum ents. 3.4 A p p ro a c h e s and p ro c e s se s 3.4.1 In te g ra te d and s y s t e m ic a p p ro a ch , s h a re d re s p o n s ib ility , s it u a t io n in th e a p p r o p r ia te s p h e re The political approach fro m the energy perspective should be inserted in a m ore general context, because the energy sector, as a subsystem th a t meets human needs, interacts w ith the other p rod uc­ tio n , tra n s p o rt, d is trib u tio n , and c o n ­ sum p tion subsystem s. It has been observed that many susta in ab ility problem s stem m ing fro m energy secto r im pacts are closely inter­ related w ith o th e r sectors of activity. S uffice it to m ention, as an example, the p ro b le m s appearing in certain h y d ro ­ graphic basins w here there has been an unbalanced use of land and water, espe­ cia lly as a re s u lt o f the b u ild in g of hyd rop ow er stations and extensive fa rm ­ ing, dim in ish in g overall pro d u ctivity and even leading to drastic land depreciation. A nother exam ple involves sustainability problem s stem m in g fro m urban tra n s­ portation, inclu ding very low p ro du ctivity and unbearable air and noise pollution, as w ell as other living quality problem s fo r the population. In o rder to tackle th is type of p ro b ­ lem, an integral approach is needed, one that goes fa r beyond the energy secto r’s policy, covering the entire range of m acro­ econom ic, industrial, social, and e n viro n ­ m ental policies. Basing developm ent on the p a rtic­ ipation of players at different levels (local, national, and even international or supra­ national) and of differen t types (private and public) im plies a systemic approach fo r policy conception and im plem entation. T his m eans ta k in g in to a c co u n t the actions o f many players, each one han­ dling o f wide range o f instrum ents as a result of political-econ om ic opening up. In order to achieve the objectives that were listed, the State can rely on cer­ tain aspects, on m arket forces, and espe­ cially on efficiency measures, since in the energy sector, the State should be m ore w atch ful so that the m arket and com peti­ tio n w ill reach the results that are being sought. Nevertheless, there are m any other areas where it should act on its own initiative, in som e cases organizing m ar­ kets w here there are none and in others co n tro llin g any im perfections that m ight arise. Therefore, the policies and actions that are to be applied in the energy sector require a system ic approach, as w ell as analogous efforts in the other sectors. In a d d itio n , th is approach requires the involvem ent of players that are the both the protagonists and target o f sustainable developm ent, such as the pow ers of the State (executive, legislative, and judicial branches) at d iffe re n t levels (central, p rovincial, and m unicipal), as well as com pany representative^, w orkers, and the rest of society because sustainable developm ent is a shared responsibility that is unavoidable and is com patible w ith d em ocratic system . W hile the latter establishes a p o litica l m echanism fo r social coexistence, sustainable develop­ m ent prom otes equilibrium in m eeting social needs, w hich ensures this coexis­ tence. Since considerations tied to the sustainability of developm ent im ply an enlargem ent of policy objectives and in view of the changes in the role of the State, p riv a te -s e c to r players, and the nature of new instrum ents available, the countries w ill have to rebuild the energy se cto r’s assets structure and its relations in the State’s organization and the energy policym aking m odalities. For this, a learn­ ing process is necessary to assim ilate the new m odalities of operation, responsibili­ ties m ust be defined, and strategies that com bine appropriate instrum ents m ust be developed The details o f redefining the d iv i­ sion of labor and the roles between the public and private sectors, as well as the appropriate m ix of instrum ents, depend on the conditions of each country. 3 .4 .2 D e v e lo p m e n t fro m th e b ottom up: “ liv in g s p a c e a n d r e s p o n s ib ili­ tie s a t d iffe re n t le v e ls The basic idea behind the system ic approach and shared responsibility is that all the players should be involved in resolving problem s, especially h ig h lig h t­ ing those th a t are affected by or involved in these problem s, since the ultim ate overall goal is sustainable developm ent, w hose target and subjects are persons. palities or regional (such as provinces), country, or supranational entities have to be identified since certain responsibilities are transferred by the countries. The m unicipalities are the political entities that should exert the m o st influence on the fo l­ low ing tangible living spaces: • Cities, fo r the organization of housing and in dustrial, c om m ercial, tra n s ­ portation, and public service a ctivi­ ties and the co n stru ctio n of th e ir respective facilities. • The reference system fo r design­ ing policies is space, where people live and act, that is, the ir living space. This living space is not only the tangible area (the en vironm ent in the stricte st sense of the te rm ) w here a person lives, it is also the intangible aspect of this area, that is, the set of conditions, aptitudes, skills, rig h ts , o b lig a tio n s , and o p p o rtu n itie s . Local com m u nitie s and social groups, in one w ay or another, share all of these aspects. D esigning policies to im prove this living space (w hich has been dow ngraded and o ftentim es considerably reduced in size) and to recover it (w here it has been lost), m eans adjusting the p olicy’s per­ spective to an approach fro m the bottom up. Nevertheless, the responsibility over th is living space does not always lie w ith the grass roots. This responsibility there­ fore has to be determ ined according to the scope and effectiveness of the policy action. Thus, in the p ost-refo rm era, areas where problems occur have to be identified and activities and responsibili­ ties have to be inter-related so th a t actions can be taken. In addition, som e objectives and issues do not directly affect the concrete living space of citizens, they only do so indirectly, such as the taking and use of energy revenues. A lthough it may be nec­ essary fo r citizens to supervise the use of these revenues depending on the objec­ tives of society, negotiations on the taking o f revenues s h o uld n o t necessarily involve the grass-roots of society. There are topics w hich, because of their charac­ te ristics and handling, pertain exclusively to top-level governm ent institutions. S tarting fro m the bottom and m ov­ ing up, the political spaces of the m u n ic i­ . R ural areas, fo r iocal s tru c tu re s , housing, farm ing and livestock devel­ opm ent, fo re st and energy and m in ­ ing activities, as w ell as the installa­ tio n of infrastructure. The interm ediate levels of respon­ s ib ility should be m in im u m (one o r tw o) u n til ce n tra l g o v e rn m e n t a u th o rity is reached. Tangible liv in g spaces do not exactly m atch p o litic a l d e lim ita tio n s ; som etim es they are s m a lle r than the extension of a m unicipality, in o th e r cases they are m uch larger. As a result, living spaces of different sizes can be delim ited according to the to p ic and type of inter­ relation. For example, m any h ydrogra ph­ ic basins are m uch m ore extensive than m unicipal te rritories, and they som etim es even stretch beyond a given c o u n try ’s boundaries. On occasion, the m u n icip a li­ ty provides the space fo r acting, p e rm it­ ting the self-organization of the popula­ tion. The d ecentralized agencies, w hether state o r private, deserve a fa r m ore im p o rta n t role in the fo rm a tio n of a m ore efficient, equitable, and dynam ic energy structure. Therefore, the trends to w a rd d e ce n tra liza tio n of the State should be taken advantage of and p ro m o t­ ed to create new options fo r rural devel­ opm ent and integrate energy actors into urban developm ent concepts, delegating to the m unicipalities responsibilities to favor a lifestyle that is com patible w ith the better use of energy. A n o th e r g ro u p of players th a t should be m uch m ore involved is the large consum ers and the organizations repre­ senting consum er groups (cham bers of com m erce, industry and transportatio n associations, housew ives, etc.), at the so- called m iddle level. Insets 5.1 and 5.2 provide the stru cture fo r a policy w ith a system ic approach to better achieve cer­ tain sustainable developm ent objectives. In m any countries, the objective rational use o f energy is already one of the p rincipal goals of energy policy (Inset 5.1). In oth e r w ords, attem pts are being made to ensure high efficiency in all ener­ gy uses, especially, by order of im p o r­ tance, in industry, tra n sp o rta tio n , and households. Finally, it has been dem onstrated that the to p ic sustainable development of biomass, in various countries and areas w ith in the countries, is a fundam ental issue fo r social and environm ental sus­ tainability. Inset 5.2 provides elem ents fo r a policy aim ed in th is direction. Inset 5.1: Rational use of energy PR IM A R Y OBJECTIVE: Reduce in general econom ic costs, enhance produc­ tivity, improve accessibility, and mitigate environm ental impacts. PROBLEMS: Great potential fo r conserving untapped energy resources. APPROACH: Using public policies to influence energy use deci­ sions (behavior) and investment decisions determining the energy use of indi­ viduals or organizations. WHERE TO FOCUS: Energy sector (generation, transformation, transport) and end-use o f sectors (industry, transportation, residential, public sector). CONDITIONS: Prices that reflect econom ic costs, tangible and reversible energy spending. INSTRUMENTS: Information, awareness-raising, persuasion, educa­ tion: technological dissemination, research and development of technology; revi­ sion and reorientation of relevant regulations and standards, even spatial struc­ turing (eliminating obstacles): incentives (subsidies and taxes, financing pro ­ grams, creation of markets, licenses, etc.); creation o f specific or related envi­ ronm ental norms, standards, and regulations: creation of, o r support from, spe­ cialized institutions. PLAYERS/STAKEHOLDERS: 3 .4 .3 P r o c e s s e s a n d fu n c tio n s o f the CENTRAL: c e n tra l S ta te : p o lic y m a k in g a n d (industrial, transporter, owner, institution, etc.): energy company, service com ­ d e c is io n - m a k in g , pany, agency in charge o f energy policy. c o o rd in a tio n , Users (tenant, driver, worker, keeper, etc.); investor p la n n in g , in fo rm a tio n , a n d m o n i­ INTERMEDIATE: to rin g tants; consum er associations, investors, and residents; chambers and federa­ Manufacturers and importers of equipment; consul­ tions; educational system; research and training centers; financial institutions As indicated previously, as a result of in stitutio n al changes, the opening up to private-sector participation, decentraliza­ tion, and re structuring of the State and dem ocratization, new energy p olicym ak­ ing and decision -m aking processes are being im plem ented. In addition, focusing attention on sustainable hum an develop­ m ent as a policy guideline requires new decision-m aking approaches, based on social consensus. In various countries of the region, p o lic y m a k in g proce sses have already changed and the participation of those affected by p ro je c t d e cisio n s has increased. Nevertheless, w ithin a sustain­ able developm ent perspective, participa­ tory processes have to be reviewed and system atized. One basic co nd ition is a consen­ sus on the orientation of energy policy in society. C onsidering the m any diverging positions ste m m ing fro m different p o liti­ cal currents and opposing interests of pressure groups, it w ould be illu s o ry to strive fo r a total consensus of society. Nevertheless, w hat can be achieved is a consensus on m ajor guidelines, fo r exam ­ ple, that energy sector evolution should correspond to sustainable developm ent. and funds; foundations and other NGOs; international cooperation agencies; municipalities; political parties. POLITICAL: Executive; legislative. Inset 5.2: Sustainable management of biomass PR IM A R Y OBJECTIVE: Sustainable exploitation o f biomass, enhanced avail­ ability of, and access to, energy products fo r users. PROBLEMS: In areas where there are shortages: loss o f the natural capital stock. In areas where there are surpluses: suboptima! development. APPROACH: Attract constructive forces acting from the bottom up; prom ote local interest in supporting the living space; involve private players; ensure the com m itm ent of large-scale players. WHERE TO FOCUS: Rural areas in disequilibrium. CONDITIONS: INSTRUMENTS: Awareness raising; information, education, training; creating local energy markets; supporting specific production and trading of bio­ mass, ensuring ownership deeds, regulating rights-of-way, granting licenses for forests that are not privately owned; incentives (financing, payments to upkeep forests, paym ent for services such as C 02 absorption, recreation, etc.), interna­ tional sources (Jl, GEF, etc.); creating income from the existence of the forest; restructuring of space (use o f land, reserves, parks, exploration zones). PLAYERS: CENTRAL: Communities, municipalities, campesinos, resource owners, exploiters, traders, loggers, tourist promoters, biomass energy develop­ m ent companies. INTERMEDIATE: Local NGOs, associations, international cooperation agencies, join im plem entation institutions (Jl), GEF, FAO. POLITICAL: Executive (forest authorities); legislative; local govern­ ment. 71 In any case, the groups involved in, and affected by, decisions should be consulted before any im p ortant decisions are taken. The new legal fram ew orks estab­ lished in m any countries of the region provide opportunities fo r redefining the level and scope of participation. In those countries where the reform has already been im plem ented, participation has been m ainly extended to sector players that are in d e pe nd e nt of the g o vernm ent. D ecisions are now being shared by v a ri­ ous players. Nevertheless, some coun­ tries are quite concerned because they believe that the w eigh t has shifted too m uch to the private sector and because priva te-se cto r players now have m ore freedom in m aking investm ent decisions that determ ine the energy system ’s future (fo r example, on the size and laying of a gas pipeline) and these decisions often­ tim es do not m atch society’s objectives over the long term . The new regulatory fram ew orks, in addition to private-sector participation, provide fo r the broader participation of affected groups (sector custom ers, indus­ trialists, w orkers, and com panies) in reg­ u la to ry and s u p e rv is o ry in s titu tio n s . From the point of view of certain social g roups, this participation is not w ide enough because it excludes representa­ tives of the large mass of consum ers. Generally, one has to abandon the custom of discretionary governm ent deci­ sion m aking. The establishm ent of transparent rules and the enforcem ent of com pliance d im inish the risk fo r all players and cre­ ates a culture of com pliance. In those cases where conflicts arise between the objectives eventually being sought by d if­ ferent groups of society, decision-m aking rules have to be laid dow n and com plied w ith. The regulatory and su pervisory fu n c tio n has to be conceived as an autonom ous function to be carried out by a specialized institutio n outside the direct d om ain of the c u rre n t governm ent. Nevertheless, it is possible to introduce into the law and regulations governing the in s titu tio n ’s operation criteria and rules 72 that consolidate sustainable developm ent, that is, objectives aim ed at favoring, fo r example, the rational use of energy or prom oting the use of renewables. The integrated approach suggest­ ed below requires coordination between the entities in charge of the areas covered (fiscal policy, econom ic policy, social pol­ icy, environm ental policy, energy policy) and the associated regulatory agencies. A system ic approach requires, in a d d itio n to a v e rtic a l c o o rd in a tio n between central, regional, and local agen­ cies, systemic management. In contrast to tra d itio n a l m anagem ent, w here the State and its in stitu tio n s were in charge of handling everything except energy con­ sum ption, system ic m anagem ent em pha­ sizes a system that is relevant fo r a given objective. Progress in attaining certain objectives (rural energy supply, rational use of energy, etc.) is oftentim es ham ­ pered by the lack of know -how , the lack of inform ation on in stitutio ns, the lack of players w ith know -how , and the lack of suitable program s in existing in stitutio ns. System ic m anagem ent facilitates connec­ tions between players so that they can carry out the necessary tra n sa ctio n s, eventually supporting them in the creation of the link of the m issing system (for example, the appropriate hype of credit), providing incentives fo r the transactions desired, etc. The idea is to activate a latent potential and dynam ic. In this m anage­ m ent, the in te rm e d ia te o rg a n iza tio n s, such as financial, research, and engineer­ ing institutio ns, industry and trade associ­ ations, cooperatives, local com m ittees, m anufacturers of equipm ent, consulting firm s, etc., as well as local governm ent adm inistration, play an im p o rta n t role. The previous energy policym aking scheme, in w hich the State perform ed a leading role and was broadly responsible fo r the se cto rs overall developm ent, required in -d e p th and com p re h e n sive energy planning, w hich served as a guide­ line fo r building and expanding the sector. W ith the w ithdraw al o f the State fro m its entrepreneurial functions, a substantial change took place w ith respect to the need to resort to the traditional norm ative style of energy planning. At present, there is considerable insecurity regarding the future role of sector planning and its in s ti­ tutional structure. In order retrieve w hat is m ost im p orta nt fro m energy planning, the radi­ cal stances fo r and against “ planning,” as a result of the association of this term w ith ce rtain p a ra d ig m s, have to be dropped and the subject dealt w ith ra tio ­ nally. There is nothing bad about plan­ ning. It is evident that all players co n tin ­ ue planning to ensure rationality in their org an iza tio ns actions, w hether in the public o r private sector. All kinds of orga­ nizations resort to planning in th e ir opera­ tions, objectives, activities, procedures, resource allocations, etc. This procedural planning is also conducted by energy p o l­ icy in s titu tio n s (planning advisory ser­ vices, c o n s u lta tio n s , p re p a ra tio n and debate o f b ills and regulations, etc.). Insecurity arises when the fo llo w ­ ing questions are posed: to w hat extent, in w hich part o f the energy chain, and fo r w hat purpose (norm ative, indicative, o ri­ entational, referential) should the State carry out substantial planning of the ener­ gy system when it has no entrepreneurial functions? A p o s itivis t approach (on the basis of existing criteria) to answ ering these questions involves the legal fram e w ork of different countries, where the divisio n and allo catio n of re s p o n s ib ility have been determ ined. For exam ple, if a coun try opts fo r lim ited liberalization in electric pow er generation, w here the State or its respective agency defines the electric pow er generation expansion program and enters in to b u ild -o w n -o p e ra te -tra n s fe r (BOOT) c o n tra c ts w ith p riv a te -s e c to r players, it is evident that considerable planning in the fo rm of a m aster plan is necessary. If, on the contrary, a coun try opts fo r broader com petitiveness in elec­ tric pow er generation, it w ould not be advisable to establish norm ative planning in this subsector. Nevertheless, it m ay be useful fo r the State to provide pow er gen­ eration system forecasting to serve as a g u id e lin e fo r p riv a te -s e c to r players regarding its expectations. The State could upgrade the in fo rm atio n fo r all the players and reduce the risk o f m istaken inve stm e n ts by p ro m o tin g fore ca stin g studies conducted by th ird parties (s c i­ ence institutes, consultants) and e ncour­ aging sector com panies to participate in the debate, c o n trib u tin g the results of th e ir ow n strategic planning. In order to m o n ito r the im pacts of its own policy and verify to w hat extent the system deviates from the optim um , the State should prom ote studies com par­ ing the system w ith a referential system to study costs, em issions, and other system aspects. In addition to the State, there are, as a rule, other organizations (fo u n ­ dations, political parties, com pany associ­ ations, academ ic in stitu tio n s) that con­ duct o r sponsor energy sector studies. In the latter topics, the fu nction of planning is com bined w ith th a t of m o n i­ to rin g and inform ation. Another example of where plan­ ning is needed in the energy sector is the regulatory agencies, w hich require specif­ ic planning in accordance w ith the form and scope of the regulatory rules. Moreover, th is planning function is necessary so that the State can perform its subsidiary role in private-sector deci­ sion m aking, especially in the area of rural and m arginal urban electrification. Other exam ples fo r appropriate planning can be planning o f energy supply installations and procedures, urban trans­ portation and environm ental im pacts. The need fo r the State’s guiding hand is increasingly being fe lt as a result of the intensification of links between energy chains in the area of energy pro­ duction, especially between electricity and natural gas in those countries or econom ­ ic regions that have, or can gain, access to the latter energy source. Regarding this, coordination and orientation of invest­ m ent decisions by private and/or players are especially relevant in order to bring m icroeconom ic rationality closer to a sus­ tainable developm ent approach in ail of its dim ensions. Energy planning should therefore have a strategic and indicative character and abandon the rigidity inherent to the tra d itio n a l norm ative approach. Thus conceived, it is an essential instrum ent fo r the form ulation of an integrated, flexible, and feasible energy policy, aim ed at explicit objectives regarding sustainable d evelopm ent, ve rifia b le by m eans of quantitative indicators and based on a fo re c a s tin g o f the s e c to r’s probable Chart 5.3: Sustainable development indicators in a country of the region behavior. For a new fo rm ulation of p oli­ cies, the energy policy that is currently in force m ust be reviewed, m aintaining to ta l­ ly or partially the previously m entioned objectives, incorporating those aspects Involving sustainability, and taking into account the entire spectrum o f newly available instrum ents. The State can considerably fa c ili­ tate the perform ance of decentralized and p riv a te -s e c to r entities, p roviding them w ith a relevant, practical, and up-to-date inform ation system . W ithin the fram e­ w o rk of th is information system, forecast­ ing of the s e cto r’s evolution can be made available to the players. Today, one has to d is tin g u is h between forecasting and political objec­ tives. Forecasting is an estim ate whereas the presentation of objectives is a disclo ­ sure, so to speak, of priorities and prefer­ ences o f the governm ent, acting as m ajor­ ity representative o f society. Frequently, there is a confusion regarding this aspect not only w ith in the group of external gov­ ernm ent players but also its internal play­ ers. Any forecasting carried out by the governm ent or any other interested party entails a certain am ount of w ishful th in k ­ ing o r political w ill. Because o f this, the d is tin c tio n between fo re c a s tin g and objectives can only be achieved partially. One way o f differentiating them Is to use diffe re nt fo rm s and means of presenta­ tion. On the basis of a s tric tly statistical inform ation system , the State can create, in a d d itio n , a system of in d ic a to rs . Indicator system s are used fo r various purposes and should therefore be con­ ceived depending on these purposes. The firs t chapter presented a sys­ tem o f in d ic a to rs to characterize the region’s countries in te rm s o f overall developm ent and energy developm ent. A system of indicators sim ila r to the one used fo r the energy portion In C hapter 1 (see Chart 5.3) could serve as the basis fo r monitoring the situation and progress o f a country tow ard sustainable develop­ m ent. Evidently, the system should be adapted to the situation of each country and its principal concerns. This system , w ith relatively few indicators, can be used fo r top-level policy m o n ito rin g , because it perm its assessing the situation in an aggregate and sum m ary fashion. This same system of indicators could also be applied to forecasting (Chart 5 .3 .b). Thus, an in strum ent w ith the m ost im p o rta n t im p lic a tio n s w o u ld becom e available, w ith a scenario on the economy, the social situation, the environm ent, and natural resources In a concise but in fo r­ m ative and attractive form at. For other levels and political p u r­ poses, the system of indicators should be m odified. For exam ple, the analysis of impacts stemming from a specific policy w ould require the corresponding indica­ 74 tors. A rational-use-of-energy policy can­ not be m onitored on the basis of m erely one aggregate indicator; efficiency indica­ tors in diffe re nt subsectors of industrial pro d u c tio n , tra n s p o rta tio n , p ub lic and com m ercial sector, energy tra n s fo rm a ­ tion, etc., w ou ld also have to be included. duct energy planning. But the real results have not emerged at random . This and the challenge to effectively conduct a pol­ icy in current conditions, w ith a vision tow ard the future, prevent us fro m fru it­ lessly yearning fo r the past. The new real­ ity has to be confronted. Finally, the State should fo ste r the estab lish m e nt of in d ica to r system s to assess the social and environm ental s itu ­ ation of developm ent, not only to m o n ito r policies but also to enable researchers, scientists, and the public as a w hole to exam ine the situation, its im pacts, and inter-relations. A ltho u gh existing sta tis ­ tics contain a large am ount of econom ic info rm atio n, provided by the accounting system s of com panies and stem m in g from the sta tistics of established in s titu ­ tions, the developm ent of statistics is still in its infancy in the area of the e n viro n­ ment. The energy secto r can contribute to m aking in fo rm a tio n available and closing the gap between developm ent indicators at a very decentralized and specialized level to m easure the local environm ental situation and highly aggregate indicators. The present w o rk has dealt w ith all the aspects m entioned in an orderly fash­ ion, developing a conceptual fra m e w o rk in w hich each aspect finds its place. The readers, however, should not be m isled or governm ent o fficials seduced into finding new concepts fo r conducting policy in a directed fashion. This w o rk strives to o ffer an overview or a broad map, not a m aster plan. 4. C o nclu sio n The re structuring of the energy sector w ith in each country, the require­ m ent to decentralize, outw ard energy inte­ gration, the challenge of globalization, the m u ltitu de o f new players participating from w ith in and outside in the countries, the cla im s fo r w id e r p a rtic ip a tio n , enlarged and m ultidim e nsiona l objectives aim ed at ensuring sustainable develop­ ment, and the extension of the range of policy instrum ents, all of w hich is evolv­ ing in a situation of scarce inform ation and know -how , may seem to be a huge chaos com pared to the traditional closed energy system , theore tically governed by central planning. Nevertheless, it is neither possible nor desirable to return to the conditions prevailing a decade ago. It may be that, in the fo rm e r situation, it was easier to con­ M ost efforts m ust seek to place the players in th e ir respective space. Because of this, they need freedom to act and also a sufficien t dose of supervision. Above all, they need enough human and financial resources, to share responsibili­ ty, and locate the treatm ent in its appro­ priate context. The State, on the one hand, should m ainly organize processes so that the system , w hich appears chaot­ ic, w ill adopt a course tow ard sustainable developm ent. In addition, when guiding, supervising, regulating, and correcting, the State should intervene to favor sus­ tainable developm ent objectives. To do this, it m ust be inform ed and provide inform ation to others; it m ust also be involved in fo re c a s tin g and planning depending on its needs, system ically and s y s te m a tic a lly m o n ito rin g , p ro m o tin g , and coordinating. The ideas described in the present w o rk are open-ended, receptive to fu rth e r inform ation on the current situation, and are aimed at generating a vision of the future. V isions and forecasting in the shape of desirable scenarios have to be fostered, and research m ust be carried out on the conditions and actions that are required to achieve a sustainable future fo r Latin A m erica and the Caribbean, in all of its dim ensions. S ituation of Energy S u s ta in ab ility in LAC The exam ples p rovide d below describe the energy situations presented in Table 1.4 and Chart 1.2 (I to IV), s h o w ­ ing the su sta ina b ility o f various countries belonging to the patterns indicated. Pattern l-A is characterized by its heavy reliance on natural resources (oil), w hich is also the m ajor source of exports, on w hich the countries depend. In term s of value, the e x p lo ita tio n o f these depletable resources considerably s u r­ passes the level of net investm ents, so th a t these c o u n trie s (Venezuela and Trinidad Tobago) do not com pletely com pensate fo r the disin vestm en t s te m ­ m ing fro m the use of the ir natural assets w ith capita! investm ents of another kind. T heir resources, however, enable them to m aintain this hardly sustainable accum u­ lation pattern fo r a relatively long lapse of tim e. N evertheless, th is developm ent schem e is subject, especially In the case of Venezuela, to price fluctua tion s on the w orld m arket and the conditions of its ow n h y d ro c a rb o n s p ro d u c tio n . Broad coverage has been achieved in dom estic energy supply. Renewable resources still account fo r an in su fficie n t share of the energy m ix. Low energy p ro du ctivity (high intensity) is partially the result of structural problem s (due to the industries of interm ediate chem ical goods and iron and steel). Nevertheless, to the extent that it reflects inefficie nt energy use, it can end up by being a barrier to the c o m pe ti­ tiveness of production activities. The level of em issions is high com pared to Latin Am erican standards, but m edium c o m ­ pared to industrialized countries. The case of Barbados, w hich is atypical in Group l-A, is even m ore a typ i­ cal in term s of energy sustainability, since it has high p ro d u ctivity and electric pow er coverage, thu s differentiating it fro m the other countries considered in this and other patterns. Pattern lll-B is represented by Argentina, Brazil, and, albeit w ith certain biases, Chile and eventually could include U ruguay and Paraguay. This pattern seems relatively w ell balanced in term s of the econom y because of the diversified production stru ctures and/or the large size of the dom estic m arket. But som e features of im balance can be observed, inclu din g marked asym m etries in incom e d istrib u tio n in Brazil and d e a r trends of co n c e n tra tio n o f e conom ic pow er in Argentina, fo r w hich it has not yet been possible to define an indicator. The abun­ dance of natural resources is tapped both fo r supplying the dom estic m arket and fo r exports, w ith a relatively more diversified pattern com pared to the su b re g io n (increasingly so) or the rest of the w orld. Investm ents and genuine saving show highly satisfactory levels. In term s of energy, m ajor breakthroughs have been made In ensuring self-supply and even in c o n trib u tin g to exportable su rp lu se s (Argentina and Paraguay). This situation m itig a te s the v u ln e ra b ility of the econom ies to the ups and dow ns of the hydrocarbons m arkets. In addition, ener­ gy intensity is relatively low. Pattern C is d iffe re n t fro m A because it has less natural resources and a greater diversification of the econom y and export base. In addition, this group is characterized by the level of econom ic developm ent reached and dom estic sav­ ings w hich surpass the depreciations of physica l assets and d is in ve s tm e n t (exploitation) of depletable resources. Group ll-C Is com prised of oil e x p o rtin g c o u n trie s th a t d isplay th is developm ent pattern. Because of their greater diversification, these countries are not as affected by changes in w orld oil m arkets. In addition, they have higher energy productivity, w hich grants them greater sta b ility than the countries of Group A. In addition, they have made sub­ stantial progress in the coverage of basic energy needs, although at a lower level and, in the case of Colom bia, w ith m ajor shortages. This group also uses renew­ able energy sources m ore extensively. The characteristics of Pattern C are also evident in Costa Rica, Jamaica, and Panama, w hich constitute Group IV-C. T heir m edium per capita incom e, relative equality of distrib u tio n , and genuine sav­ ing are notew orthy. As energy im porters, they are different from the Group ll-C countries. In contrast to the latter, they are therefore highly affected by changes taking place in the oil m arkets and they have no fossil energy resource base. Chart: Development and energy sustainability patterns ^ G ru p o . A l-A S0U n i dnes A uta rk y *. T V b ^ 77 -®— V E ,-------- Productivity 08 0.6 \ V 4 ° ^ •C o v e r-o a s , U se R Pur ity G r u p o ll-C —^ - M X \ . Autarky \ -B— CO \Productivi Yjtto-------- 04 r-ef j \jS Use ^Cover-oas Pur IV _ tl _ Souria ° eS ^ G r u p o ll-D I —+ — BO ■ \ Autarky A ~_ 0^ t\ \ f ^ Use R E ^. / 1 -0 — EC Proouctivity A— r t Cover-bas Pur G r u p o lil- B Soundnes Productivity BR —o — A u ia r k y j- i^ ^ ^ / y — AR —A— CL X — ee c U s e R P ^ \ \ \ ^ ¿ - - ^ ^ C o v e r D3s.Duritv 78 UY PY in a d d itio n , cou ntrie s applied a p p ro a ch to resources. in th e a very the past, these unsustainable ta p p in g ences between G roups E and F: high fo re s t energy intensity, dependence on im ported A t least in Costa Rica, this energy sources, and m ajor deficiencies in approach has im proved. of te rm s o f energy, there are no m a jo r d iffe r­ The rem aining m eeting basic needs. High de m ographic cou ntrie s s h o w s im ila r values fo r th e ir pressure and extension of the a g ricu ltural energy in dica tors: m a jo r pro gre ss in elec­ fro n tie r have led to the virtu a l disappear­ tric po w e r coverage, m eeting basic energy ance o f natural resources. needs, and tap pin g renewables, m edium energy p ro d u c tiv ity in regional term s. This characterization of the situa­ tio n of developm ent susta ina bility o f the Group ll-D sho w s a relatively high d iffe re n t cou ntrie s of LAC has been car­ e n do w m en t of natural resources, w h ich is ried out, taking in to account national aver­ the basis fo r exp orts o r self-supply, slig h t age values. co o rd in a tio n a n d /o r ta p p in g fo r overall w ith in the cou ntrie s has not been refle ct­ de velopm e nt, and lo w Therefore, regional d iversity genuine saving ed. This does not mean th a t it ignores tha t (Ecuador, Bolivia, and Peru). The im p o rt­ th is diversity, in som e cases, is so p ro ­ ing co u n trie s w ith the pattern of Group IV- nounced th a t the national average ends up D, th a t is, Guyana, S urinam e, Nicaragua, by and Cuba, display a high dependence on so cia l/te rrito ria l groups inside the co u n ­ re p re se n tin g v e ry p o o rly m a jo r hyd roca rbon s im p o rts fo r th e ir do m estics try. This occurs especially in those cou n­ supplies, and th e ir de velopm e nt is heavily trie s where eco no m ic and social asym m e­ affected by the price variatio ns o f these trie s correspond to te rrito ria l asym m e­ energy pro du cts. trie s. Thus, fo r exam ple, a large part of the po pu latio n of northeastern Brazil displays The co u n trie s o f Group IV-E, tha t a situa tion w h ich, both fo r the present and is, Guatemala, Honduras, the D om inican the future , is n o t to o far fro m th a t of Republic, and Grenada, have fe w natural G roup E. resources. T heir eco n o m ic developm ent southeastern, and southern is lim ite d . There are som e positive s ig ­ Brazil in national averages, however, has nals, however, co m in g fro m genuine sav­ de term in ed the c o u n try ’s cla ssificatio n ing, w h ich are at relatively high er levels under pattern B. The prevalence o f the central, regions of than the savings achieved by the groups of cou ntrie s included under types A and In calculating averages, lifestyles D. High energy in te n sity and dependence and fo rm s of organizing p ro du ction th a t on im p o rte d sources, however, underm ine are sup ply security. c o u n try are m ixed. E lectric po w e r coverage h igh ly d iffe re n t w ith in one sin gle It is clear th a t these is low, and there are m a jo r deficiencies (in lifestyles depend on both the natural con­ term s o f both qu a n tity and quality) in ditio n s o f the region w here the population m eeting basic needs. In vie w o f the lim it­ is located and the o p p o rtu n itie s th a t arise ed am o u n t o f natural resources, the heavy fro m , o r are generated th ro u g h , local eco­ pressure being exerted by the po pu latio n no m ic and social in stitu tio n s. At the same on these resources (especially fo re sts) is tim e, these lifestyles and livin g qualities one of the m o s t d istre ssin g signals fo r the are high ly diverse, depending on th e ir su sta in a b ility o f th is de velopm e nt pattern. association to d iffe re n t ethnic g ro u p s and social classes. The co u n trie s of Group IV-F, El S alvador and Haiti, have such fe w natural resources th a t these resources indeed run the ris k of d is a p p e a rin g alto ge th er. Econom ic de velopm e nt is quite lim ited (H aiti). El Salvador, however, over the least fe w years has taken rapid strides tow a rd de velopm e nt and at present may w e ll have o ve rta ken the c o u n trie s of G roup F. As in G roup E, there are positive sig na ls co m in g fro m genuine saving. In 79 Technical and Methodological Notes to Environm ental Analyses (GAEA);” and K. A. General Sustainability indicators H a m ilto n , “ G enuine S aving in Developing C o un tries,” all pu blishe d in 1995), the notion o f genuine saving is a. Definitions, calculations, standardization by sector and aim ed at reflecting the m agnitude of the net in vestm en t fund that is based on do m estic e fforts and represents a varia­ 1. Per capita GDP tio n of total social capital. The 1993 real per capita GDP, in U.S. do lla rs tra n sfo rm e d acco rding to purchasing pow er parities (PPP), United N a tio n s so u rce s (UNDP, Human The latter is co m p rised of the sum o f the values of produced assets (m anmade capital), natural capital, and hum an capital. Therefore, the q u an tificatio n of Development Report, 1994 and 1995), and the W orld Bank ( W orld Development Report, 1995), was used here. variatio ns (po sitive o r negative) o f these Standardization was linear, taking flo w s in a given so cioe cono m ic space genuine saving sho uld reflect the annual three com p on ents of total capital, as a result o f the co rre spo nding net annual the ab solute m in im u m o f U S$100 as (co u n try o r region). unsustainable (= 0) and U S$10,000 as sustainable (= 1). This concept reflects the weak s u s­ ta in a b ility approach 2. Income distribution dem anded by the a d d itivity and s u b s titu ta b ility of all fo rm s of capital, high ly criticized by m any envi­ The G ini in de x is no t d ire c tly ronm entalists. The approach seem s valid applicable here because it is an inequality as a firs t estim ate and, above all, because coe fficien t and therefore it correlates neg­ of its result in the shape o f an in d ica to r atively w ith sustainability. W ith data avail­ tha t h ig h lig h ts an im p o rta n t fact: w h at the able fro m 1994) ECLAC ( S ocial Panorama, and additional in fo rm a tio n fro m the P roject’s case studies, an equality index cou ntrie s o f the region are saving on aver­ age is not enough fo r th e ir fu tu re develop­ m ent. was b u ilt fo r the year 1992, correlating the area below the Lorenz d is trib u tio n curve This approach w ill have to be co m ­ w ith the area below the equitable d is trib u ­ plem ented by id en tifying w here su sta in ­ a b ility has already been lo st w ith respect tio n line. to a given dim en sion , w here m in im u m linear, w ith lim its are already being reached, and up to the coe fficien t of 0.2 considered unsus­ S tandardization w h at p o in t d isin ve stm e n t and su b s titu tio n tainable (= 0) and the coe fficien t of 0.8 sho uld not be pe rm itte d (stro n g su sta in ­ sustainable (= 1). ab ility). 3. was Genuine saving T raditional national acco un ts con­ tain 3.1 Definition and calculation a q u a n tific a tio n of net d o m e s tic investm ent, w h ich represents the varia­ tio n of produced assets, de du cting the The concept of genuine saving is annual depreciation of gro ss do m estic recent, and a m ore in-depth investm ent. To valuate total capital va ria ­ explanation of the in dica tor used and a tion s, the variation of natural capital and relatively d iscussio n of its application to LAC co u n ­ hum an capital has to be calculated, a task trie s seem appropriate. that tu rn s out to be fa r m ore com plex. As defined e sp e cia lly in fro m the The recent lite ra tu re , W o rld B ank’s E nviron m entally Sustainable Developm ent P residency W o rld uses B an k’s s h o rtc u t ESD obtain the tw o m o st im p o rta n t elem ents (ESD) Vice Presidency (see the presenta­ of the variation o f natural capital: tion tio n by Ism ail Serageldin, “ M o n ito rin g Vice m e th o d s to due to the exp lo itation deple­ of natural in the resources and degradation of the e n viro n ­ Third Annual World Bank Conference on m ent due to em issions. Extraction of nat­ E nvironm entally Sustainable Development, the paper “ Global Approach c urre nt price (50% o f the price on the E nvironm ental Progress (M EP)” ural assets (or assets sales) valued at a w o rld m arket o f the respective pro d u ct) taken in to account. w as used fo r the depletion part whereas a investm ent continues to be weak in many value o f US$20 per ton o f C 02 em ission cou ntrie s of the region; thu s, genuine sav­ Nevertheless, this was used as a pro xy value fo r the negative ing, in clud in g in vestm en t in hum an capi­ im p act on water, land, and air. tal, w ill not sho w a relatively better pic­ ture. By d is c o u n tin g net d o m e s tic in ve stm e n t due to depletion and degrada­ There are m any reasons fo r this tion , one obtains genuine saving w ith o u t situa tion . D epreciation and de pletion due in vestm en t in hum an capital. to the exploitation of natural resources seem to be im p o rta n t factors, although in The in vestm en t in hum an capital reality only exploitation is relatively m ore varies acco rding to p re lim in a ry estim ates s ig n ific a n t fro m the W o rld Bank itse lf between 2% regions. tha n in o th e r d e ve lo p in g The crucial reasons, however, By can usually be fou nd in oth er areas, in d i­ adding th is investm ent, one obtains gen­ cated above in the calculation o f national uine saving. accounts: relatively low savings and the and 9% o f GDP (H a m ilton , page 16). ob lig atio ns ste m m in g fro m external debt The present w o rk uses, as the basis fo r the respective indicator, the e sti­ repaym ents, th a t is, the net negative pay­ m ent to external factors. mates o f the W o rld Bank and its co lla b o ­ rators (H a m ilto n ) fo r the reg io n’s co u n ­ tries. This is genuine saving w ith o u t in ve stm e n t in hum an capital, In ord e r to develop and refine the concept of genuine saving in the future, because several m od ifica tions, in addition to the there are no general estim ates fo r this ones m entioned below (id e n tifica tio n of investm ent as yet. m in im u m thresh olds, even investm ent in hum an resources), are being proposed. Average genuine saving was calcu­ First, reappraisal o f fo ssil reserves, highly lated fro m 1986 and 1991, and the cou n­ frequ en t as a result o f exploration a ctivi­ tries were classified by susta ina bility level ties, as capital a d ditions w ill have to be acco rding to th e ir genuine saving rates: considered. Second, the genuine saving approach shouid in corp orate m ore th o r­ S usta ina bility o f the genuine sav­ ing rate/GDP: ou gh ly w o rld en vironm ental degradation. These m o d ifica tio n s w o uid enable the cal­ culation to provide a relatively better pic­ high (0.9) = about 10% and ture o f the region. high er m ed iu m high (0.7) = ab ou t 5% Regarding the environm ent, it can m edium lo w (0.5) = about 0% be said that the overall natural assets of lo w (0.3) = about -5% hum ankind are com p rised of tw o parts: very lo w (0.1) = less t h a n -10 % one is made up o f those elem ents th a t are appropriate fo r the nation and the oth er is 3.2 Discussion made up of natural capital that is co m ­ m o n ly owned by the planet. The concept o f genuine saving and its calculation are som e w h at new, since Since the notion o f genuine saving they s h o w d istre ssin g va ria tio n s o f total is defined in the above-m entioned lite ra­ The estim ate is ture at the co u n try o r regional level, that s till pre lim ina ry. N evertheless, even if the capital in Latin A m erica. variatio n (net flo w ) corre spo nding to nat­ calculation were to be refined, the result ural capital, if it is to be com patible w ith fo r the region w o u ld be sim ilar. The aver­ the others, sho uld refer to th a t part of the age genuine saving fo r the region has capital th a t belongs exclusively to each turne d o u t to be ve ry un sa tisfa cto ry over nation. The previous calculations used to the last 15 years and fa r below, fo r exam ­ take in to acco un t the im p acts (variations) ple, the genuine saving o f newly in d u s tri­ on co m m o n ly ow ned natural capital (fo r alized and developing cou ntrie s in the Far exam ple, the atm osphere o r international East. w aters) and external im pacts (elem ents of natural capital o r actions o r a co u n try that W hen e stim a tin g genuine saving, in d ire ctly lead to benefits o r dam ages to the in ve stm e n t in hum an capital has to be o th e r cou ntrie s) w ith in the calculation o f genuine saving m ay lead to severe d is to r­ tio n s , especially between co u n trie s or regions. These com p en sation s should be view ed as debts by tho se cou ntrie s th a t cause an above-average degradation of the These d is to rtio n s are conceptually c o m m o n ly payable to th o s e ow ne d e n v iro n m e n t c o u n trie s th a t are independent of the pro blem s linked to the responsible fo r a below -average degrada­ valuation of im pacts on the natural envi­ tio n and by those co u n trie s th a t produce ronm ent. im p acts tha t in d ire c tly dam age the natural capital belonging to oth er co u n trie s. This The problem is relevant fo r net approach w o u ld s till be valid even if quan­ variatio ns linked to natural capital by the tita tive th re sh o ld s w ere im p ose d on these degradation of the rem aining elem ents of im pacts. the enviro nm en t, since som e im pacts on the com p en sation s fo r these debts should the natural capital tha t is view ed as co m ­ be calculated on the basis of the average m on ly ow ned by the planet (fo r example, m agnitude o f the im p a ct and no t in incre- It is clear that, in the firs t case, ChartA: Genuine saving On the basis of data fro m the W orld Bank’s E nvironm entally Sustainable Developm ent Vice Presidency greenhouse gases) are incorporated into m entai term s. Even then, com p en sation s it. To validate the above-m entioned co m ­ fo r cum u la tive h isto rica l im p acts up to the pa riso ns o f the genuine saving indicator, present w o uld not be in corp orated into there are d ifficu ltie s not on ly if a partial th is calculation. consideration of these im pacts is included but also if the y are to ta lly ignored, co n sid ­ erin g o n ly th e im p a cts on the local Beyond the discussio n on ho w to best calculate these com p en sation s, th e ir consid eratio n w ith in the con cep t of gen­ (national) environm ent. uine saving w o u ld im p ly fin a n cia l flo w s One way of de aling w ith the fro m the industrialized cou ntrie s to those im pacts on assets co m m o n ly ow ned by belonging to the developing w o rld . Thus, the w o rld and the above-m entioned exter­ the relative ranking of the evo lu tio n of nal effects w ith in the concept of genuine genuine saving of som e co u n trie s (for, sa vin g example LAC) and others (in du stria lized to enable va lid c o m p a ris o n s between cou ntrie s o r regions to be made countries o r regions) w o u ld be different. is to resort to a system of com pensations. W ith the in co rp o ra tio n of these con sid er- Table A: Macroeconomic sustainability Country Code AR BB BO BR CO CR CU CL EC SV GR GT GY HT HN JM MX Ni PA PY PE DO SR TT UY VE Economy (real per capita GDP) Argentina Barbados Bolivia Brazil Colombia Costa Rica Cuba Chile Ecuador El Salvador Grenada Guatemala Guyana Haiti Honduras Jamaica Mexico Nicaragua Panama Paraguay Peru Dominican Rep. Suriname Trinidad S Tobago Uruguay Venezuela United States C anada Germany United Kingdom France Italy Spain Australia Japan South Korea China India Equity (income distribution) 0.885 0.966 0.233 0.519 0.543 0.543 0.335 0.839 0.429 0.217 0.376 0.326 0 .1 72 0.096 0.192 0.313 0.727 0.272 0.556 0.332 0.323 0.321 0.367 0 .976 0.603 0.851 0.683 0.385 0.552 0 .6 26 0.600 0.100 0.568 0.436 0.300 0.050 0.600 0.500 0.100 0.500 0.445 0.694 0.562 0.469 0.638 0.568 0.700 0.500 0.100 0.900 0.500 0.100 0.656 0.100 0.744 0.788 0.810 0.709 0.771 0.801 0.893 0.738 0.883 0.806 0.772 0,843 0.869 0.985 0.743 0.693 0.768 0.713 0.763 1.000 0.697 0.576 0.472 0.464 Original $100 $5,050 $10,000 genuine 0.829 0.558 0.723 0.748 0.662 0.6 40 0.670 0.775 0,639 0.477 0.506 0.559 0.852 0,398 0.579 0.766 0.707 0.602 0.688 0,719 0.682 0.531 0.948 0.671 0.738 0.748 0.050 0.900 0.600 0.900 0.498 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 0.924 0.187 0.114 0.00 0.50 1.00 the Resources (per capita natural capital) 0.600 Standardization ations, Genuine Saving saving 0.2 0.5 0.8 - 50% +/- 0% +15% 0 771 5 9 4 65 0 curve d is ­ Land was valued using m u ltip le s of per played in the cha rt w o uld s h ift upw ard and capita incom e o f the respective land (clas­ w o uld th e re fo re pro ba bly not sh o w the sifie d by land type according to FAO), negative values observed between 1979 whereas forest and su b so il assets were and 1983 o r between 1989 and 1991. calculated on the basis o f 50% of the w o rld m arket price. 4. Per capita natural capital As in the case of genuine saving, the For th is indicator, data fro m the calculation of per capita natural capital W orld Bank’s E nviron m entally Sustainable involves only a prelim inary estimate. D evelopm ent (ESD) Vice Presidency, d is ­ deepest critique focuses on the com m ercial in th e paper M o n ito rin g Environmental Progress (MEP) and p u b ­ lished in the d o cum e nt Global Approach to Environmental Analysis in 1995. valuation of natural capital, w hich ignores It is an estim a te o f the com m e rcial given to the biodiversity of the natural value o f natural resources, in clud in g land. forests and their value as sinks fo r C02, etc. cusse d The everything that is not at present appraised in term s of market prices or in term s of its exploitation fo r the purpose of creating income. Likewise, scarce consideration is 83 Table B: Sustainability indicators in energy terms Indicator 1. Definition Energy autarky Source of data Standardization Share of imports in total im ports and OLADE-SIEE, project cal-culations 0 =100% 1 =0% primary production, 1994 w ithout standardization 2. S oundness in the of S hare of energy exports in GDP, fa c e external changes 3. OLADE-SIEE, project calculations 0 = 1 4 BOE/US$1,000 1994 (BOE/US$(1980)) Energy productivity 1 = 1 BOE/US$ 1,000 linear standardization Inverse o f GDP en e rg y intensity, OLADE-SIEE, project calculations 0 = 0 US$/BOE 1 = 1,000 US$/BOE 1994 (GDP/BOE) w ithout standardization 4. Electric power coverage P e rc e n ta g e o f h o u s e h o ld s with W orld Bank/OLADE 1991 0 1 electric power supply, 1989 = 0% =100% without standardization 5. C overage o f basic energy needs Residential u s e fu l e n e rg y OLADE-SIEE, project calculations 0 = 0 BOE/capita consumption, 1994 (BOE/inhab) 1 = 1 BOE/capita w ithout standardization 6. C 02/energy consumption, 1994 Relative purity of energy use OLADE-SIEE, project calculations 0 ==1 t/BOE 1 = = 0 .3 t/BOE linear standardization 7. Use o f renewables Share of re n e w a b le s in e n e rg y OLADE-SIEE, project calculations 0 supply, 1994 = 0% 1 = = 50% linear standardization 8, S cope (durability over tim e) of R atio between production and fossil OLADE-SIEE, project calculations resource s fossil resources and firewood (R /P ); and ra te 0 of = 0 years; =1% 1 = 25 years; =0% deforestation, 1994 linear standardization In the present w ork, standardiza­ nerabilities of national econom ies due to tion was non-linear. A m in im u m value of external factors. The firs t in d ica to r points US$100 was considered unsustainable (= to the fragile eco no m ic su sta in a b ility of 0), a value of about US$800 m oderately e n e rg y-im p o rtin g cou ntrie s; the second su sta in a b le (= 0 .5 ), and a value of U S$21,000 high ly sustainable (= 0.75). hig h lig h ts the vu ln e ra b ility of econom ies th a t are high ly dependent on th e ir energy exports. b. Results scope The in dica tors of autarky and (d u ra b ility o ve r tim e of fo s s il resources and fire w o o d ) con stitu te a n o th ­ Table A presents the degrees of er group, since they m utua lly enhance s u sta in a b ility calculated fo r the reg io n’s each other. cou ntrie s and other selected countries. resources, autarky is w o rth even m ore, in W ith a broad term s o f sustainability. B. Sustainability Indicators from the Energy Viewpoint a. scop e of That is w h y the Definitions tw o in dica tors are placed together. 3. Productivity This indicator is the inverse of the 1,2, and 8. Autarky, soundness, and scope usuai energy intensity indicator. The con­ cept has a m ore norm ative connotation and than that of energy intensity and seems soundness co n stitute, so to speak, a set. m ore suitable fo r the sustainable develop­ They represent the dependencies and v u l­ m ent fram ew ork. It is positively correlated The 84 in d ic a to rs of a u ta rky Table C: Energy sustainability indicators Economy Autarky TT BB AR Soundness 0.289 1 0.215 0.965 0.307 0.026 1 0.654 1 1 0.541 1 0.689 0.98 1 0.304 0 0.475 0.438 0.87 0.693 0.449 0.956 0.464 BR EC GD SR CU PY GT Productivity 0.041 0.886 0.289 0.924 1 VE CL MX UY PA CO CR Equity DO JM Nl BO SV HN 0.651 1 1 1 0.545 1 1 1 1 1 0.654 1 1 GY HT 0.531 0.921 1 1 PE 0.856 0.294 0.165 0.66 0.984 0.584 Electric power coverage 0.018 0.958 0.6 0.27 0.37 0.35 0.5 0.31 0.33 0.4 0.4 Coverage of basic needs 0.97 0.98 0.95 0.85 0.91 0.86 0.87 0.58 0.64 0.9 0.7 0.36 0.51 0.15 0.15 0.27 Resources and Environment 0.65 s/d s/d s/d 0.46 0.31 0.38 0.38 0.58 0.38 0.25 0,48 0.34 0.3 0,29 0.4 0.428 0.515 0.437 0.855 0.837 0.638 0.66 0.55 0.349 0.503 0.779 0.587 0.301 0.257 0.421 0.277 0.402 0,07 0.721 0.61 0.896 0.719 0.947 0.764 0.823 0.684 0.233 0.279 0.458 0.238 0.213 0.192 0.331 0.284 0.22 0.1 0.19 0.12 0.811 0.818 0.907 0,787 0.763 0.848 0.952 0.358 0.356 0.322 s/d 0.31 0.17 0.31 0.18 Purity 0.157 0.343 0,738 0.531 0.759 Use of renewables 0.03 0.253 0.171 0.117 0.161 0.116 0.488 0.258 0.339 0.383 0.654 0.214 0.12 0.321 0.703 1 0.191 0.316 0.131 0.128 0.32 0.393 0.282 Scope (durability) 0.482 0.128 0.273 1 0.955 0.963 1 0 0.576 0 0.388 0.473 0 0.364 0.272 0 0.052 0.386 0 0 0.8 0.393 0 0.808 0.682 0.287 0.477 0 0.8 0.795 0.098 0 w ith a higher degree of sustainability. High E con om ic energy p ro d u ctivity means that m ore GDP ap p lyin g is produced per energy unit consum ed. fina l energy delivered in useful energy fo r In fo rm a tio n S ystem tra n s fo rm a tio n each energy product; (SIEE), e fficie ncies of e le ctricity (0.8), In addition to its unusual version, LPG (0.4), gasoline, kerosene, diesel, fuel th is in dica tor has to be interpreted w ith oil (0.35 ), natural gas, oth er gases (0.5), great caution; it does not necessarily in d i­ coal (0.2), fire w o o d , charcoal (0.1), and cate energy efficiency. o th e r prim a ry pro du cts (0.07). The stru ctu ra l im pacts, am ong others, have to be taken into account (the w e igh t of energy-inten­ 6. Environmental purity sive industries), as w ell as in fo rm al sector acco un ting o f the respective econom y, Standardization enables the scale conversion effects in a com m o n currency, to be inverted: and the calculation of real GDP. em ission s per BOE o f energy c o n su m p ­ a level o f 1 to n of C 02 tio n is considered unsustainable, whereas 4. Electric power coverage a value o f 0.3 ton per BOE, a lm o st attained by som e cou ntrie s, seems to be susta in­ U nfortunately, there are no u p da t­ able. ed data fo r all the co u n trie s fro m one s in ­ gle source. A m a jo r e ffo rt w o u ld be need­ 7. Use of renewables ed to bu ild an u p -to -d a te data base. The 5. Coverage of basic needs renew able considered were: en erg y sou rces hydroenergy, geothe r­ m al energy, sug ar cane products, and C o nsu m ption o f useful energy was based oth e r p rim a ry sources on data fro m OLADE’s SIEE). As long as deforestation OLADE’s Energy- (as defined by 85 rem ains at unsustainable levels, fire w o o d is considered, along w ith fossil resources, Those co u n trie s th a t have no fo s s il as a nonrenew able energy source (in d ica ­ energy reserves and th a t reported, in the past, a de forestatio n rate of over 1% are to r No. 18). assigned a value o f 0 in te rm s o f su sta in ­ 8. Scope of fossil resources and firewood ability. Because o f th is, the co u n trie s type The in d ica to r is b u ilt w e ig h tin g scope levels. F, E, and C.b (Central A m erica and the Caribbean islands) tend to displa y lo w these variables by the relative share o f each energy pro d u ct in the p ro d u ctio n o f b. Results p rim a ry energy. Firew ood w as included w ith fo s s il resources to h ig h lig h t the degradation o f fo re s t resources in those cou ntrie s w ith a high share o f fire w o o d in d o m e stic supply. 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