Energy governance in much of the developing world works like this: Hopeless people surviving in crowded squalor organize themselves enough to demand relief from a remote government. Fearful of mass disquiet, officials string electrical wires through slums so inhabitants can have light and, if they're fortunate, television. Afterward, the poor remain poor and the government, self-serving. At the margins of human existence, conditions nevertheless have improved. The poor spend evenings watching television rather than protesting in the streets.
Against the harsh metrics of poverty, such as hunger and infant mortality, how much can it matter—beyond relative cost—whether electrical power provided to mollify slum dwellers comes from a coal-fired generator or a wind farm?
Troubling problem
The question applies to a World Bank Group "management response" to the extractive-industries review published last December. The review, overseen by Emil Salim, former Indonesian minister for population and environment, highlighted a problem the oil and gas industry should find deeply troubling: Resource development usually does not relieve poverty in developing countries and often makes it worse. On the basis of this and other observations, the review recommended that the World Bank phase out investments in oil production by 2008. It suggested that the group concentrate instead on natural gas as a "bridging fuel," renewable energy, emissions reduction, energy-use efficiency and conservation, and "other efforts that delink energy use from greenhouse gas emissions (OGJ, Feb. 16, 2004, p. 29)."
The June 4 management response politely and properly rejects the prohibition against World Bank participation in oil projects. "While all forms of energy have a role to play—and we strongly support a major scaling up of renewable and clean energy sources—oil and coal will inevitably continue to be major fuel sources for the world's poorest peoples for the foreseeable future," it says. Importantly, it also asserts hope for resource development as a way to alleviate poverty, saying, "Extractive industries and how they are developed will be important for the economies of many developing countries."
On its web site, the World Bank states a straightforward mission: to fight poverty and improve the living standards of people in the developing world. Its core strategy is economic growth. Energy contributes to that strategy in two ways. It amplifies human achievement to the extent it's affordably available. And it generates wealth to the extent it derives from resource development.
Renewable energy, however appealing, is more costly and less abundant than oil, gas, and coal. To prefer it implies elevated cost and limited supply. To prefer it to the exclusion of oil for a developing world destined for a population surge is ludicrous.
Fighting poverty through economic development in a growing world requires more than electrifying homes of the poor; it requires industrialization, which in turn requires more and cheaper energy than will come anytime soon from wind farms and solar complexes. To succeed with its mission, the World Bank must carefully balance energy fashion—and affiliated political pressures—against the energy imperatives of meaningful growth.
It also must maintain its faith in wealth creation from resource development. Yes, development too often fails to benefit whole populations in countries where it occurs. It fails because local economic systems can't adapt to rapid growth of national income, because cash flows dissipate through corruption, or because of some combination of both.
Problem not oil
Oil companies, while not faultless, receive more blame than they deserve in these matters. They can't liberalize the economies of countries where they work or prosecute officials demanding illicit payments. The problems begin with developing-world governments, too many of which remain undemocratic and corrupt. To insist that the fundamental problem is oil, when some countries have achieved general prosperity through development of petroleum resources, is to dodge a diplomatically difficult but very serious issue.
To its credit, the management response to the extractive-industries review recommends improvement in several areas of host-country governance. Among them is a requirement for "revenue transparency as a condition for new investments in the extractive-industries sector." This is a strong and necessary step. By addressing a fundamental constraint on the distribution of wealth, it will fight poverty in the developing world much more effectively than can any system of fuel priorities assembled by politics rather than markets.
