Energy and Environment


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What is the right balance between meeting the World Bank’s objective of eradicating poverty while limiting environmental consequences? The Sustainable Energy for All initiative aims to achieve universal access to sustainable energy, but, this would mean providing electricity access to over one billion new people. Globally, approximately two-thirds of greenhouse gas emissions already come from energy extraction and use (IPCC 2014). Agriculture is the largest sector in many developing country economies, but deforestation contributes between 10 and 17 percent of annual carbon emissions (Samii et al., 2014).

While we are on target to eradicate extreme poverty by 2030, we are also on target to increasing the Earth’s temperature to irreversible levels that are anticipated to have far-reaching long-term consequences on economic growth, vulnerability, and the environment. While the problem of climate change is fundamentally a global collective action challenge, there are important program-level activities and insights that can help us mitigate its effects and strengthen resilience.

The initiation of an Energy and Environment (E&E) program was motivated by the dearth of rigorous impact-evaluation evidence in these sectors and the influential role they play in poverty alleviation and climate change. In 2011, the World Bank had 12 ongoing or completed impact evaluations in both energy and environment (compared to over 100 in education), despite the fact that these programs consist of almost 20 percent of the World Bank’s lending portfolio. 


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E&E Impact Evaluation Program

The E&E program was launched in Lisbon in October 2014. It brought together 19 project teams (financed through DFID, the GEF, CIF, IDA and IBRD) and 28 researchers from 11 academic institutions to refine research opportunities based on project interest and operational feasibility. This was complemented by a parallel set of workshops focused on measurement opportunities in the sector.

The first workshop, held jointly with CEGA in August 2014 in Berkeley, brought together engineers, economists and World Bank counterparts to explore leveraging new technologies to improve measurement in energy and environment projects and research. A follow-up Berkeley measurement workshop, focused on innovative measures for climate resilience, was held in June 2015. To strengthen the economic theory underpinning each IE, a research workshop was then held in Chicago under the leadership of John List and Michael Greenstone. A set of project teams were given a chance to present their current design and receive critical feedback from leading academics within the E&E research team to ensure the work is able to maximize its contribution to the global knowledge agenda.

The original set of 12 impact evaluations was selected from a funding window in Jan 2015 that laid out the research program focusing on two pillars: (i) environmentally sustainable electricity supply, access, and efficiency; and (ii) natural resource and sustainable land-management issues, with a focus on incentive schemes, governance, and vulnerability. Transport, industrial pollution, and urban development relate directly to energy and environment and present major development challenges with important economic and environmental implications. However, these topics are addressed by other programs.

The research agenda has benefited from direct engagements with the World Bank’s Climate Change Cross-Cutting Solutions Area, Energy and Extractives Global Practice, Environment and Natural Resources Global Practice, Water Global Practice within the World Bank, the Global Environment Facility (GEF), the Climate Investment Funds (CIF), the Energy Sector Management Assistance Program (ESMAP), and DFID (including the evaluation department and climate-change teams). Work under the main themes is summarized below.


Topic 1: Energy Access, Reliability, and Efficiency

There is a growing body of evidence on the impacts of energy access on health, education, and productivity. But, important questions remain about the cost-efficiency of investments to balance the coverage (extensive margin) and per-connection availability (intensive margin) of providing electricity. The average annual energy consumption of electrified households in Kenya is 20 times less than the average American household. Therefore, understanding the demand and impact of different tiers of access from solar lanterns (Tier 1) through to full grid access (Tier 5) becomes an important concern to help governments efficiently allocate resources. There is an important trade off—while lower tiers of access may provide less opportunities for economic growth (for example, being unable to power large appliances and machines), the benefit of lower investment costs and easier expansion may outweigh this concern.

We explore this question programmatically by looking at the demand for, and impacts of different levels of energy access in Senegal (solar lanterns), Argentina (solar home-systems) and Kenya (grid connections). We offer different subsidies in the various projects to elicit demand curves for solar-energy products and produce evidence that will help policymakers learn how to set efficient subsidy levels to balance expanding access with fiscal sustainability for service providers.

Moving beyond access, there is emerging evidence that focuses on the importance of providing reliable electricity for industrial development and the effects of rural electrification on household welfare finding strong negative effects on firm revenues and producer surplus. The program is currently working with two large infrastructure investment projects in Nepal and Bangladesh—both of which face acute energy constraints—to understand the impacts of improving reliable energy access by rehabilitating and expanding transmission lines and upgrading grid substations.
 

Topic 2: Incentivizing Sustainable Land Use and Natural-Resource Management

The overuse of natural resources can be a result of externalities, unclear property, or high discounting of the future. Since natural-resource management has both local and global implications. Finding the right interventions and policy approaches to address these issues presents a challenge. For instance, a systematic review on the effectiveness of one of the most common policy interventions used to overcome coordination failures—the creation of decentralized forest management groups—found limited evidence of reduced deforestation rates and could not reject the possibility that these programs have negative economic consequences (Samii et. al., 2014). The objective of this program is to generate knowledge on effective ways to address the causes of unsustainable use of natural resources.

One common intervention to address the externalities associated with sustainable forest and land management is Payment for Ecosystem Services (PES). The program includes four PES projects that offer financial incentives to landholders to reduce deforestation and promote sustainable land management in Uganda, Burkina Faso, Ghana, and Mexico. Here, we explore the role PES incentives play in reducing deforestation, but also whether alternative livelihood options may help ensure the economic well-being of beneficiaries and increase the sustainability of these programs.

We also explore the dynamics associated with incentivizing long-term behavior change. For instance, in Uganda we explore the impact of PES after incentives are removed. Does deforestation remain low, return to pre-intervention rates, or increase to catch up with total deforestation in control areas? Each scenario has plausible justifications, but results in very different interpretations around the overall role that PES schemes can play to mitigate our impact on the climate. 


Going Forward

Since the program began two years ago, the focus on using rigorous evidence in the energy and environment sectors has only modestly increased. It still requires a more concerted effort to catch up to other evidence-led sectors like education and health. The mapping of evidence to development projects is currently skewed in favor of subtopics that are more amenable to impact evaluation. While the impacts of energy access have been a preoccupation in current economic literature, the reality is that the vast majority of development funds are directed towards generation and supply.

Tackling questions on the drivers of energy availability to connected customers will be the primary focus of the energy agenda, moving forward. This is more aligned with the major development challenges in the sector. The program aims to work with utilities and other service providers to explore the interplay between pricing, service delivery guarantees, billing and payment schemes and enforcement. This will help identify the bottlenecks and associated solutions to optimally utilize electricity infrastructure and provide reliable energy to households and industry.

For environment topics, we aim to expand the focus area beyond financial incentives, to also include co-management practices and regulatory influences to better represent the major development tools available to practitioners and policymakers.    



Experts

Aidan Coville

Economist

Arndt Reichert

Economist