The Geopolitics of Electricity

Charles K. Ebinger and John P. Banks

A blackout in Italy won’t raise electricity prices in New York City.

Unlike oil, electricity is not a globally traded commodity. Were the Strait of Hormuz to be shut down, consumers filling up at the pump in the U.S. would immediately feel the pinch. There is no such analogous situation for electricity.

Still, electricity is growing in importance. The closer we look at ways to reduce CO2 emissions and ensure reliable, affordable and clean energy, the more we see the electricity sector at, or very near, the center of the global security agenda. In particular, we need to start thinking about the mounting geopolitical implications of electricity in the developing world.

Three recently issued high-profile reports — from, respectively, the United Nations and the World Health Organization, the International Energy Agency (IEA) and ExxonMobil — highlighted how electricity in developing countries is at the center of two inter-related and daunting challenges: domestically, to help alleviate poverty and foster economic development, and internationally to curtail greenhouse gas emissions.

The IEA, in its annual World Energy Outlook, reported that global electricity demand is set to increase 2.5 percent per year between now and 2030, making electricity the world’s fastest growing energy source. Exxon’s outlook echoes this forecast noting that power generation “is not only the largest energy-demand sector,” but it will also represent 55 percent of the total growth in world energy demand by 2030. More ominously, power generation is forecast to be fueled mainly by coal, with severe implications for rising CO2 emissions and the world’s poorest countries that have little financial or institutional capacity to deal with climate change.

The IEA said that more than 80 percent of global electricity growth will occur in developing countries, mainly in China and India. Currently, India has an estimated 500 million people without access to electricity, while China, according to MIT’s 2007 study, The Future of Coal, is adding the equivalent of nearly the entire U.K. power grid each year in power generation.

But this crisis extends well beyond China and India. There are 1.5 billion people who have no access to electricity, 80 percent of whom live in South Asia and Sub-Saharan Africa. The U.N.-WHO report also notes that with global population growth, an additional 1.2 billion people will need access to electricity by 2015 to meet the Millennium Development Goal of halving the proportion of people living in poverty.

Somewhat obscured in all this data is the stark reality that many people counted as having access to electricity in the developing world often have little more than a few light bulbs and perhaps a fan. Moreover, there are many people further up the income ladder poised to join the middle class and to increase their electricity use. Indeed the World Bank predicts that by 2030 the middle class in developing countries will grow by 1.2 billion, or 200 percent over 2005.

The correlation of access to modern energy and indicators of human development — such as life expectancy, infant mortality and level of education — is well documented. When electricity reaches a poor village, children who work during the days collecting water or helping in the fields can study at night. Crops that were previously lost because a truck did not arrive can be refrigerated; medical procedures can occur at night and vaccines can be refrigerated; cottage industries can develop, generating employment; radios and TV and even one internet connection can bring entire villages in contact with the outside world and empower people.

Even in more advanced developing economies, the need for reliable and affordable power is critical: In 2008 rolling blackouts in the industrial city of Tangerang in Indonesia caused between $2-3 million in losses each day for manufacturers and textile producers.

There are also military and national security implications to the growing electricity crisis in the developing world, especially its contribution to greenhouse gas emissions. The IEA report indicates that, in a business as usual scenario, all of the projected global increase in energy-related CO2 to 2030 comes from developing countries.

Climate change has the potential to increase poverty as it degrades the environment, creating environmental refugees that will weaken governments. This could lead to more failed states, which very well may require a military response, including humanitarian and reconstruction assistance. These are not exaggerations. The Pentagon is including a climate section in its Quadrennial Defense Review, due out this February.

Immediate, crucial foreign policy objectives are also not unrelated to electricity concerns. For example, in Afghanistan despite the pouring in of hundreds of millions of dollars of assistance over the last eight years, only 6 percent of the population has access to electricity and 80 percent of those live in Kabul.

Electricity is also having an impact on U.S. foreign policy with China. China’s growing influence is not all about military power; it’s also about how China is going to find the energy and water needed to feed its rapid economic growth, and specifically how will it find clean electricity. U.S. and Chinese officials have placed cooperation on carbon capture and storage and efficiency in buildings at the top of their agenda, two areas directly related to electricity.

In our view, the major story coming out of the recent Copenhagen climate conference was the increasing relevance of developing countries. Specifically, the issues of binding emissions targets, technology transfer and financial assistance for the world’s poorer nations still remain largely unresolved. To move forward on these important issues, the industrialized countries need to see the way forward in the context of what leaders in developing countries face on the domestic front every day: decisions on how to improve quality of life and economic prospects for its citizens. Electricity lies at the heart of this daily challenge. Maybe if we see the picture this way, we can spur much needed and urgent solutions on a global climate framework.