ADB's Draft Energy Strategy: Recycled Prescription
By Hemantha Withanage, NGO Forum on ADB
Around 1.6 billion people around the world have no access to secured energy sources. Today,
2.4 billion people in developing countries rely heavily on traditional biomass, wood charcoal
and organic waste for cooking and heating. According to the Asian Development Bank, the total world energy demand will be 17 billion tons of oil equivalents in 2030. India and China will be the most energy-hungry economies in Asia.
In this context, the ADB brings its ambitious vision to have “energy for all” in its new draft strategy released in May 2007. Critiques have said that its draft energy strategy does not provide any new approach to the energy crisis in Asia and the Pacific region and no solution to the growing climate concerns due to excessive use of fossil fuels.
The ADB first introduced its Energy Policy in 1981. While the existing policy was approved in 1985, the strategy was reviewed in 2000. The Bank initiated its on-going strategy review in late 2005, as a response to civil society’s call against “funding climate change” since it has been supporting fossil fuel-dependent projects. After a slow and non-transparent process, the Bank issued its first consultative draft strategy in 28 May 2007 inviting public comments within a 60-day period. It has also organized public consultation in Kazakhstan, India, China and in the Philippines with participants coming from the government, civil society organizations, academe, donors and industry, among others.
The new strategy is based on three key pillars, namely: (i) meeting the energy demand in a sustainable way, (ii) providing modern energy access to all, and (iii) addressing sector reforms and governance. CSOs have pointed out that the proposed pillars sounded more like “advertising slogans” which are not quantifiable. According to CSOs, the draft is a mediocre and its quality does not fit its purpose.
Civil society groups agree with ADB’s non-support for nuclear energy and promotion of natural gas as a transition fuel; emphasis on energy efficiency; recognition of importance of renewables, including biomass and specific applications particularly in cooking and off-grid electricity: greater articulation of climate crisis, comprehensive discussion of this key environmental issue; and expansion/enhancement of renewable off-grid applications as the strengths of the new draft strategy.
However, the Bank was heavily criticized for not considering the result of the Special Evaluation Report prepared by its Operation Evaluation Department (OED). The report recommends that ADB should promote exhausting “energy efficiency” before focusing on adding new capacity. They also suggested good governance as another policy consideration for the ADB’s energy strategy. They wrote, “The focus on poverty reduction as a major driver of ADB’s energy sector operations, although relevant, was over emphasized in the 2000 review.”
The draft was also criticized for not having timeframes, thresholds, targets, benchmarks, or hurdles to provide secured and sustainable energy. CSOs pointed out that there was no transition roadmap to low carbon economy, nor any plan to operationalize the strategy.
The draft strategy is inconsistent with its annexes. While the strategy promotes private sector and continues to support restructuring, unbundling and privatization track, the appendices discussed the failure of privatization. Civil society groups have suggested that collective bargaining agreements should be respected and upheld. The draft has a very narrow definition of power sector governance, seemingly defining it only as unbundling when it should be much more than that, including public participation and encouraging bottom-up participation for designing power sector reforms in any given country. Critiques have said that the power sector reform and governance section is simply a cookie-cutter approach stated in new language.
In addition, the business-as-usual framework of ADB’s Energy Strategy will negate ADB’s recognition of the need to shift to low carbon economy and of providing energy for all. Based on experience, it will actually result in a more carbon intensive economy. The draft strategy is very weak in articulation on the sustainable transport sector.
Government representatives who participated in the Manila consultation believed that ADB should support large hydropower. Moreover, industry groups have also proposed that the strategy should include large hydro as a renewable energy. Civil society groups criticize the draft strategy for lacking definition of what constitutes large hydropower, when ADB will “selectively” engage in these projects and when it will avoid them. Would the Bank consider the standards of the World Commission on Dams?
Greenpeace has said that the draft strategy promotes a fantasy of cheap, clean coal. It does not discuss actual costs related to coal expansion. Nor, it discusses the fact that new technologies do not actually reduce carbon significantly and that most of the costs are transferred to taxpayers. When the ADB promotes coal, it doesn’t actually tell its DMCs that the balance sheet is actually more than just the price. Coal is more expensive than what it seems. The draft strategy ignores the key recommendations of the OED report, along with the 1995 Policy and 2000 Energy Policy Review on externality costs. The 1995 Energy Policy and 2000 Energy Policy Review explicitly stated that externality costs are implicit subsidies which should be in the balance sheet, and should be quantified when considering a project.
The draft ignores the huge policy and market drivers and experience on renewables, e.g. policies which drove the spike in wind energy development in India, Spain, and Germany, and how that could be applied in terms of power sector reform in Thailand or the Philippines.
The draft strategy was criticized for its gender blindness. Isagani Serrano of the Philippine Rural Reconstruction Movement said that the draft had no mention of the baseline of inequality between the rich and the poor vis-à-vis energy access. According to Louie Corral of ALNI, the draft is weak on social protection and core labor standards, especially on restructured entities during power sector reforms. The draft does not incorporate strategies already outlined in ADB’s Social Protection Strategy and in its Core Labor Standards Handbook.
The draft was heavily criticized for the sources of its data and its relevance to Asia and the Pacific region. Government representatives said that “data does not reflect the Asian situation and regional realities.”
The Bank was also criticized for not showing the relationship of the strategy with other sector policies/strategies. Moreover, participants have questioned how the strategy interlinks with policies in other sectors such as transport, water, agriculture.
Industry groups said that the draft does not describe how the draft strategy fits in with other donor agencies. According to the bilateral, multilateral and academic groups, the draft has no mention of perspectives of other donor agencies and other global institutions. They said that since donors have limited resources, collaboration among donors and other global organizations should be part of the strategy to prevent overlap.
The strategy also lacks a vision statement. The document could be a tool for expressing vision by setting quantifiable goals and setting schedules for meeting them. The ADB has an opportunity to take a real leadership role in setting those goals, e.g., percentages of renewables or reductions in energy consumption. However, such have been in the draft strategy. Moreover, critics have said that the twenty-three year projection of energy demand is unrealistic. They have said that the Bank should build flexibility into the draft by looking at energy projects 20 years in advance.
The goal of poverty reduction and electricity for all are unattainable goals if the poor do not have an increase in income to pay for electricity.
Promotion of transparent rate structures is especially important in developing renewable energy sector so that businesses that want to develop renewable resources have a clear understanding of the return they would have on their investments.
Commenting on one of the pillars, which is electricity for all, the groups expressed their concern that this might be too ambitious. This may lead to misallocation of resources. There are other factors to be considered in poverty reduction, such as health care. The ADB has been told that setting a single goal might lead to misappropriation of resources for some countries.
Academic and multilateral groups further suggested three new pillars: energy investment, energy technology and energy institutions.
The Pacific Island groups said, “Energy data poorly reflects Pacific Island DMCs. Most of the references are from IEA, and we do not reflect well in IEA data. ADB needs [to] get energy data directly from our countries.”
According the Mr Woochong Um, director of the RSDD, the 2007 strategy will replace its 2000 Energy Review. However, ADB’s 1995 Energy Policy will remain as its Energy Policy. According to the ADB, most sector policies will be converted to strategies. Strategies would always be referred to the ADB Board of Directors. However, they will not be approved by the Board but by the ADB Management. Moreover, strategies are less binding as compared with policies.
The draft strategy was criticized for its poor quality, irrelevant data, unreliable sources, lack of vision, lack of benchmarks and non-transparent consultation processes. The ADB was asked to release a second draft which should include suggestions from civil society, industry, government, donor and academe groups before it goes to the Management for approval.
However, the ADB did not give its commitment. Perhaps this energy consultation would be another showcase for business as usual.
Watch out! We are vigilant on your practice of good governance.