Cross-border energy trade and the poor

1
Cross-border energy trade and the poor

• Highlights so far

2
Outline

• Objectives Scope
• Energy trade motivations and strategies
• Potential costs benefits of energy trade
• What does it mean for the poor?
• Are these impacts being realised?
• The implications of energy services trade
• Where are we heading?

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Objectives

• Review recent developments in cross-border energy
  trade
• Assess overall impacts of cross-border energy
  trade (economic, social, environmental, energy
  security)
• Assess poverty impacts of cross-border energy
  trade
• Assess impacts of cross-border trade on MDGs
• Identify opportunities barriers, and make
  strategic policy recommendations

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Scope of study

• Literature review
• Global assessment
• Energy trade patterns, trends, outlooks drivers
  at global level
• Regional assessment
• Assess impacts at regional level
• Review strategies policies
• National assessment
• Set of national case studies
• Macro micro links between energy trade
  poverty
• Cover both energy goods services
• Synthesis recommendations
• For both regional governments UNDP

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What are motivations for energy trade?

• Familiar trade rationales apply to energy too
• Lower costs, export revenues, diversity
  security of supply etc
• Energy balances are changing in the region
• Several oil exporters are switching to net
  importers
• China is now second largest oil importer in the
  world
• Energy security is an increasingly urgent topic
• Increasing focus on gas production use
• Gas power infrastructure bottlenecks exist
• Increasing political attention given to
  sub-regional infrastructure networks rather than
  trade agreements

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Energy trade strategies being pursued

• Energy security is really back on the agenda
• Not just in industrialised nations
• Increased exploration could again change energy
  balances
• But cross-border acquisitions appear expensive
  and of limited effect
• Price security is also driving strategies
• Countries are promoting domestic energy
  production
• Renewables are benefiting from this attention
• The rise of gas continues
• Removing infrastructure bottlenecks
• Is a major political priority
• Advances are being made in promoting
  sub-regional networks for energy trade

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Potential benefits of energy trade

• For exporting countries
• Increased exports GDP BoP
• Fiscal receipts from ownership/royalties/taxes
• Ability to develop national resources where local
  markets are small
• Investment economies of scale in energy
  production
• Downstream activities associated with energy
  production
• For importing countries
• Access to required energy inputs
• Increased diversity security of supply
• Low prices compared to domestic self-reliance
• Less pollution domestically
• Several benefits to power grid interconnection

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Potential costs of energy trade

• For exporting countries
• Export of energy means import of global/regional
  energy prices
• Dutch disease resource curse of poor
  management of natural resources esp oil
• Social environmental impacts of large
  energy-industrial development
• For importing countries
• Exposure to global prices volatility
• Can mean dependence on politically unstable
  suppliers

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What does it all mean for the poor?

• Public sector revenue management is critical
• For exporters, there is a risk of destroying the
  economy, with the poor being particularly badly
  hit
• For both exporters importers, energy trade can
  mean a lot for the resources available for social
  expenditure
• Access to modern energy services means a lot
• For achieving almost all the MDGs
• Energy trade should reduce shortages
  bottlenecks
• Does not necessarily imply investment in access
• Domestic policies can mean more than the trade
  regime
• Price effects can affect the vulnerable
• Exposure to market prices should promote
  efficiency, but the poor are vulnerable to price
  shocks volatility
• Income effects
• As in all trade liberalisation, though there are
  net gains, there are both winners losers

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Are these impacts being realised?

• Fiscal impacts are very real
• Energy export revenues have been very important
  for several A-P countries
• Subsidy policies have often become unsustainable
  as energy prices have risen, with implications
  for public expenditure
• Access is improving
• But not necessarily more so in exporting
  countries
• Altho some exporters (esp electricity) allocate
  export profits to promoting access low prices
  for the poor
• The poor are vulnerable to price volatility
• Recent energy price increases have had
  considerable effect
• But high prices are stimulating domestic energy
  production with income benefits for the poor
• Income effects appear localised
• Many A-P economies are dynamic and adapt rapidly
  to changing trade regimes and price levels

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Trade in energy services is on the agenda

• Doha round is addressing trade in services
• Definition of energy services can be vague and
  broad
• Liberalising trade in energy services implies
  domestic liberalisation of energy supply
• This will constrain governments policy choices
  in organising energy supply
• However, it appears unlikely that countries will
  be forced to liberalise faster than they wish to
• Liberalising energy services has implications for
• Investment
• Costs and prices, including cross-subsidies
• Incentives to provide access to poor customers

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Implications of energy service trade

• Fiscal implications
• Shift investment burden to private/international
  players
• Reduction in operating subsidies to loss-making
  utilities
• Costs technology
• Liberalisation should reduce costs improve
  service
• But private sector capital can be expensive
• Improved access to management skills technology
• Prices access
• Move towards cost-reflective prices
• Efficiency gain at expense of equity loss
• Reduced incentive to expand access supply
  low-income areas

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How is this affecting the poor?

• Access programs are not a result of energy
  services liberalisation
• In most countries that have liberalised, access
  programs are the result of explicit policy
  measures
• Increased commercial incentives are actually
  reducing access levels due to disconnection
• Prices are on the increase
• As tariffs move to cost-reflective levels
• Protection of the poor is, again, a policy
  measure rather than consequence of liberalisation
• Costs technology transfer
• Careful attention is required to contractual
  arrangements explicit pro-poor measures are
  required

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Where are we heading?

• Study is helping to
• More closely define the linkages between energy
  trade and the MDGs
• And identify their relative importance
• This should help raise awareness among trade
  policy makers
• Certain policy and strategies are emerging
• Avoiding the resource curse is becoming easier,
  but requires a commitment to good governance
• Improved access requires intervention, but these
  interventions can become costly
• Price protection is not always affordable, unless
  carefully targeted
• Political initiatives can be more important than
  trade agreements
• Particularly for addressing infrastructure
  deficits
• But also for creating a mutually beneficial trade
  relationship