This damage is set to increase, as shown, for example, by recent scenarios published by the International Energy Agency (IEA). Based on its reference scenario, the IEA expects energy demand to rise by approximately 60 per cent by 2030 if government policies do not change. Since fossil fuels will be the main source of energy, the IEA expects carbon dioxide (CO2) emissions to increase in parallel. These are worrying trends. But an alternative scenario is possible.

If governments take energy security and efficiency measures, worldwide energy demand could decline by 10 per cent and CO2 emissions by 16 per cent. The potential for energy efficiency measures is enormous; for developing countries savings are estimated at 30-45 per cent. Governments can also encourage the major new advances in technology that will be necessary to reduce demand beyond that point.

More effort is needed to promote the use of renewable energy sources

More effort is needed to promote the use of renewable energy sources, so that they can eventually meet a greater proportion of our needs. For the next 30 to 50 years, however, there will be no realistic prospect of meeting all of our energy requirements through renewables. So we must also work on energy efficiency, cleaner fuels and modern fossil fuels.

To stimulate debate on this whole range of issues, I and my colleague Agnes van Ardenne, Minister for Development Cooperation, organized a World Conference on Energy for Development on 10-12 December 2004. It focused primarily on the energy needs of developing countries, with the aim of making energy a higher priority on the international development agenda.

Four years ago, government leaders around the world endorsed the Millennium Development Goals. Although these do not include a specific energy goal, the goals for poverty reduction, education and health will not be achieved without increased access to energy supply services. Yet many developing countries’ national policy plans ignore the issue – especially the Poverty Reduction Strategy Papers drawn up to obtain loans from the World Bank and the International Monetary Fund (IMF).

Disappointing investment
Over the last 10 years, donor countries have also shown a less lively interest in the subject of energy. This has been partly due to a general belief that private investment would take their place. But the level of private investment remained disappointingly low in the run-up to the millennium: indeed it declined. The reasons were that, in general, the restructuring of the energy sector proceeded less rapidly than expected; it proved more difficult than anticipated to cover costs (partly because of the inability of local people to pay); and the risks were significantly greater than foreseen. Increasing access to energy will require vast investment. According to the IEA, $5 trillion will have to be invested in power generation, transmission and distribution between now and 2030 to meet the demand for electricity in developing countries. Two thirds of this demand will come from Asia. Clearly, this will exceed the resources of the public sector, even with the help of Official Development Assistance (ODA): total world ODA, after all, amounts to only around $50 billion. So private sector investment will be essential.

The conference brought together the public and private sectors, non-governmental organizations and other relevant institutions to examine possible ways of increasing such investment. Success will crucially depend on evidence of good governance and sensible policies in the developing countries themselves. Private sector investment will not be attracted without a stable and transparent investment climate. The bulk of the investment capital will have to come from the local and international private sector. The performance of the energy sector must also be improved. Government must back off from markets so that companies can generate the cash flow they need to make the necessary investments.

Public sector finance in both developing and donor countries can be used more effectively to attract private sector capital. Developing countries can cut their spending in other areas to provide microcredit for households and small businesses. There are countless examples of success: the Grameen Bank in Bangladesh is probably the best-known lender to the poor, but similar systems are also operating successfully in other countries. If they are to work, however, governments must create conditions that enable banks to operate; otherwise, cuts in their spending will not have the desired effect. International organizations, like UNEP and the World Bank, are also supporting and launching projects of this kind.

ODA can be used more effectively to attract private capital, for example through public-private partnerships. Donor countries can do more to provide guarantee capital for businesses. The challenge is to combine available public and private sector resources more effectively to create sustainable power supply services. Carbon-finance initiatives should be expanded so that they can be used to finance environmentally friendly forms of power generation and energy consumption. Emissions trading and associated instruments – such as Joint Implementation and the Clean Development Mechanism – should be used more widely.

Smarter subsidies
Meanwhile, experience shows that subsidies on energy consumption in developing countries more frequently benefit the rich than the poor, for whom they are intended. Subsidies can be useful in encouraging certain developments, but they must be used in such a way that they benefit the right target groups and do not have too many unintended side effects. Industrialized countries also need to learn this lesson, and can also use subsidies in smarter ways to achieve sustainable energy provision.