CENTRE FOR ENERGY, PETROLEUM AND MINERAL LAW AND POLICY STATEMENT OF ORIGINALITY I.D.

STUDENT: PROGRAMME: MODULE: 050014043 MSc. Energy Studies (Energy Economics)

Energy, Environment and Sustainable Development

Code CP 51009

TITLE OF THE RESEARCH PAPER: ENERGY USE, POVERTY AND DEVELOPMENT IN LATIN AMERICA: A CROSS COUNTRY ANALYSES ABSTRACT:
This paper examines the nexus between energy, poverty and development in four Latin America Countries (LACs). The case studies presented here are based on the idea that satisfying peoples needs for modern and adequate sources of energy is an effective entry point for poverty reduction, jobs creation and business opportunities, improving standards of living, health and education, and contributing to country progress towards the achievement of the Millennium Development Goals (MDGs). To this extent, relationship is drawn between human development indices, energy consumption, economic growth and poverty. The paper will find out that lack of adequate access to energy is the bane of poverty eradication and economic development in the selected LACs. However, significant prospects and opportunities for development exist in these countries.

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CONTENTS
Table of Contents....i Lists of Figures....ii Abbreviations..iii 1
INTRODUCTION.1

1.1 1.2 2

Review of Relevant Literature.3 Methodology...5

GROWTH, POVERTY AND DEVELOPMENT: A FRAMEWORK FOR ANALYSIS.6

2.1 The Millennium Development Goals (MDGs)..8

GLOBAL ENERGY USE AND POVERTY...9

3.1

Energy Access in LAC Countries..14

3.2 The Poor and Conventional Energy Use..15 4

ENERGY USE, POVERTY AND DEVELOPMENT IN SELECTED LAC.16

4.1 4.2 4.3 5

Poverty, income and energy access.19

BOLIVIA21

HONDURAS25

CROSS- COUNTRY COMPARATIVE RESULTS28

5.1

Prospects and Opportunities for Development30

Bibliography....31

LISTS OF TABLES AND FIGURES

ii

1.

List of Tables

Figure 1: Figure 2: Figure 3: Figure 4: Figure 5: Figure 6: Figure: 7: Figure 8: Figure 9: Figure 10: Figure 11: Figure 12: Figure 13: Figure 14:

Per Capita Energy Consumption in Selected Regions Energy Ladder: Household Fuel Transition Per Capital Electricity Consumption for Selected Regions HDI and Per Capita Energy Consumption, 2007 HDI and Per Capita Electricity Consumption, 2007 Bolivia: Real Change in Yearly GDP Bolivia: Monthly Inflation Rate (%), yearly Bolivia: Gini Coefficient, 1999-2007 Bolivia Per capita energy and electricity consumption, 1990-2007
Bolivia residential electricity consumption per capita Central America per capita GDP (Current US dollars)

Honduras: income inequality Honduras Per capita energy and electricity consumption, 1990-2007 Figure 14: Honduras residential electricity consumption per capita

2.

List of Tables:

Table 1: Table 2: Table 3: Table 4: Table 5:

Dominant Fuels in Developing Countries by End-Uses Human development index for the Selected LAC Countries, 2005-2007 Development Indicators, 2009 Bolivia Poverty and Living Standards Central America: % of Households below the poverty line

iii

ABBREVIATIONS
HDI HPI IEA MDGs OLADE SADC Human Development Index Human Poverty Index International Energy Agency Millennium Development Goals Latin America Energy Organisation Southern African Development Community

iv

INTRODUCTION

Providing adequate, affordable energy is essential for eradicating poverty, improving human welfare and raising living standards world-wide.1

In recent years, the nexus between energy and poverty and its impact on development has attracted scholarly attention particularly within the field of sustainable development studies. Several pathbreaking development studies including The Club of Rome Report Limits to Growth (1974), the Brandt Report(1983) and the Brundtland Report (1987) have broadened the hitherto narrow focus of energy issues on questions of geopolitical power, supply security and economic growth and helped to put other important issues such as energy poverty and sustainable development to the vanguard of political and public debate. The 2010 Human Development Index (HDI) report with its focus on Rethinking Human Development is expected to further broaden the scope of the linkage.

A re-orientation of poverty alleviation strategies which began in the last century has also helped paved the way for the contemporary energy -poverty debate. Prior to this time, poverty alleviation was pursued through the use of macroeconomic policies, infrastructural development and investment in human capital. Energy was however, seen as an independent sector issue and was not given due recognition as an important aspect of poverty itself. Little surprise therefore that the Millennium Development Goals (MDGs), with the overarching objective of eradicating global poverty by 2015, does not recognise the significance of energy vis--vis the attainment of its objectives. Contrarily, the current energy-poverty debate presents a more holistic approach and revolves around the assumption that energy and poverty are inseparable.
1

World Energy Assessment, 2000, p.31

In the present age, 2.5 billion people do not have access to modern energy, relying instead on traditional biomass sources like fuel wood, charcoal and animal dung. 2 This has severe consequences for the daily life of the vast number of poor people in developing countries because energy is essentially linked to numerous important dimensions of development, including but not limited to economic productivity, nutrition, health, and environmental quality. The low level of modern energy services in the developing countries further compounds the misery of poor populations and further compromises their prospects for a better future and the attainment of the key objective of the MDG - halving global poverty by 2015.

This paper focuses on the issues of energy use, poverty and development for four of the least developed LACs (Honduras, Nicaragua, Bolivia and Ecuador). It is intended to show the extent to which energy access affect poverty level and by extension, development in the selected countries. To this extent, relationship is drawn between human development indices and energy consumption, economic growth and poverty.

The significance of the paper lies in the fact that, unlike sub-Saharan and South-East Asian countries, Latin America has been less fortunate in terms of the presence of scholarly work on the energy-poverty nexus and its overall implications for development particularly in the least developed countries.

1.1

Review of Relevant Literature

As noted above, the links between energy, poverty and development have been explored in many literatures. However, Latin American countries have been less fortunate in this regard. Joy Clancy and Margaret Skutsch (2001), while focusing on rural livelihoods, recognise energy as a strategic issue in poverty, women
2

UNDP 2005

empowerment and sustainable livelihoods. They however contend that important challenges exist in the way of providing energy services to the poor.3

A DFID4 report, Energy for the poor (2002) examined the linkage between energy and Millennium Development Goals (MDG 1). The report argued that access to energy services facilitates economic development - micro-enterprise, livelihood activities beyond daylight hours, locally owned businesses, which will create employment - and assists in bridging the digital divide, thereby contributing directly towards MDG 1 goal of halving extreme poverty.

J. Clancy (2003) focused on gender and household energy issues in a global context. The author looks at the gender-energy-poverty nexus in general, and the role of household energy in reducing vulnerability and women empowerment. The role of international development agencies in addressing gender and household energy issues also came under scrutiny. The issues of privatisation of the energy sector and the impacts of fossil fuel combustion oh household energy and health were examined.5

Marc Ringel (2004) and Simon Drexler (2007) agree with Clancy on the significance of energy access, particularly electricity in poverty reduction. He argued further that alleviating the problem of energy poverty is crucial in achieving most of the UN's millennium goals. In order to deal with all aspects of energy poverty, the potential to mitigate the lack of energy supply in developing countries is systemised and discussed along the value chain of energy services. He concluded that, at each stage of the chain, the potential to fight energy poverty effectively does exist. The example of India

Joy Clancy and Margaret Skutsch, The Gender - Energy- Poverty Nexus- Finding the energy to address gender concerns in development, DFID Project CNTR998521 4 DFID, Energy for the Poor, 2002 5 J. Clancy, Household Energy & Gender: The Global Context, Intermediate Technology Development Group, 2003

is used in order to highlight the energy-poverty nexus and clarify potentials to overcome the vicious circle of energy-poverty.6 A World Bank publication, Indigenous Peoples, Poverty and Human Development in Latin America: 1994-2004 (2005) throws some light into the problem of poverty in Latin America. While considering the patterns of evolution of social conditions in the five Latin American countries with the largest indigenous populations (Bolivia, Ecuador, Guatemala, Mexico, and Peru) during the last decade, the book found that indigenous peoples represent 10 percent of the regions population and the largest disadvantaged group in Latin America. The authors provide a useful insight into the present research by observing that the incidence of poverty in Latin America is high but it is particularly severe and deep among the indigenous population. J C Nkomo (2007) echoes Clancy and Ringels positions above but focused on the Southern African Development Community (SADC) countries. The author noted that poverty has a bearing on the types of energy consumed, which in turn, affects health, education and income earning opportunities. He concluded that access to reliable and affordable energy remains an essential prerequisite for combating poverty.7

Amie Gaye (2008) examines the linkages between energy services and human development in developing countries. It does so by comparing modern energy use in developed and developing countries and argues that a threshold of modern energy is required to achieve growth and improvement in human development. The paper also assesses the effect of fossil fuel use on greenhouse gas emissions and developing countries capacity to adapt to climate change. He discusses the dual challenge of

Marc Ringel, J C Nkomo, Energy Use, Poverty and Development in the SADC Journal of Energy in Southern Africa, Vol 18 No 3, August 2007

mitigating climate change and meeting the energy demands of developing countries in a sustainable way.8

1.2

Methodology

This paper primarily relies on important global development indicators of poverty such as the Human Development Index (HDI) and Human Poverty Index (HPI) for its analysis. The HDI is a summary or single statistic measure of human development using three indices of health, education and ability to achieve a decent standard of living. These indices are graphically demonstrated for each country to allow for a cross-country analysis. The HPI also uses the three indices of HDI as a measure of poverty. However, the HPI measures poverty in terms of deprivation as opposed to lack of income. Important data on global and regional energy consumption patterns

(including those of the selected countries) were sourced from the World Bank, IEA, and OLADE. In using these data significant focus was placed on per capita final and residential energy consumption. Overall, a cross-country comparative result is presented in the conclusion.

The above literatures have clearly shown that energy is a sine qua non for poverty alleviation and economic development. Much of these studies have been global and region-specific. Not many however, have considered the LAC particularly the poorest of the poor in that region. This paper therefore sets out to fill this gap by focusing on the Latin American countries of Honduras, Nicaragua, Bolivia and Ecuador. The paper develops into five parts. It starts with an analysis of the most important concepts and variables that form the hub of the study. The second section gives a global overview of energy use and poverty. This is followed by a discussion of the experiences of the
8

Amie Gaye, Access to Energy and Human Development, Human Development Report. UNDP, 2007/2008

selected LAC in this regard. A cross-country comparative result is presented in the final section as a basis for policy recommendation. Here also, prospects and opportunities for development are considered.

GROWTH, POVERTY AND DEVELOPMENT: A FRAMEWORK FOR ANALYSIS

Growth is generally an important element in increasing employment and improving peoples standard of living. While growth does not necessarily translate into improved quality of life, since even in times of opulence the quality of peoples lives can be poor, it is necessary for reducing poverty and for generating resources required for basic human development.

The notion of poverty and its measurement is intricate. Poverty is a multidimensional concept and includes easily measureable attributes e.g. income and non income attributes of poverty, which are difficult to measure. Therefore, economic growth is not the only panacea to poverty reduction: the income measure approach only provides a partial assessment such as the standard of living. Education and health are also important variables since they contribute to enhancing the welfare and life expectancy of individuals, while at the same time enhance their income-earning capacity.9 Lack of adequate access to energy is considered in this paper as an element of poverty. Energy poverty as this situation is often called can further be defined as the inability to cook with modern cooking fuels and the lack of a bare minimum of electric lighting to read or for other household and productive activities at sunset.10 By this definition, the 2.5 billion people relying on biomass for cooking and the 1.6 billion people with no access to electricity could be classified as being energy poor. As shown in table 1, firewood, dung and charcoal dominate household energy consumption in
9

10

UNDP, Human Development Index UNDP 2005

many developing countries. Other important dimensions of poverty include assets, freedom, justice, social exclusion, and the individuals or households own prejudiced view of poverty and quality of life.11

There are important measures of development as stated earlier which form the bedrock of this analysis. These are the Human Development Index (HDI) and Human Poverty Index (HPI-1). The HDI is a single statistic measure of human development using three variables of health, education and ability to achieve a decent standard of living. A long and healthy life is measured by life expectancy at birth, and the resulting index is an indicator of longevity, with resulting values for all countries lying between 0 and 1 (0 < HDI < 1). 12 The education index takes into account the adult literacy rate with a 2/3 weight and the gross enrolment ratio with a 1/3 weight. The decent standard of living takes into account the income factor, and is measured as GDP per capita (purchasing power parity in US dollars).13

The Human Poverty Index (HPI-1) measures poverty in terms of deprivation as opposed to lack of income. The three basic dimensions of human development used in the HDI, but defined using different indicators, are also used in the HPI as a measure of deprivation.

2.1 The Millennium Development Goals (MDGs)

In September 2000, world leaders came together at United Nations Headquarters in New York to adopt the United Nations Millennium Declaration, committing their nations to a new global partnership to reduce extreme poverty and setting out a series of timebound targets - with a deadline of 2015 - that have become known as the Millennium Development Goals.14There are eight goals and each is further divided to arrive at 48
11 12

Supra No.7 Supra No.9 13 ibid 14 The UN, http://www.un.org/millenniumgoals/bkgd.shtml (Last viewed on 25th Jan, 2010)

indicators about development achievements; each indicator is used to monitor and measure progress and document any shortcomings. Effort is also being made to remedy any slippages that occur. The overarching premise of the MDGs is poverty reduction and within that, education and health are a primary focus. A major gap in the MDGs which of significant interest to this paper is that energy is not seen as a goal in itself. So if energy is not in itself considered important to the MDGs, all development interventions have to be examined if and how, access to energy assists in the achievement of the primary MDGs, in particular poverty reduction, improved health and gender equality. This gap further emphasises the significance of this paper.

3: GLOBAL ENERGY USE AND POVERTY The focus of this paper is access to electricity. However reference shall be made to other energy sources when and where necessary. Global inequalities in terms of

access to energy services are a stark reality. More severe is their impact on livelihood strategies, health, education and human development in general. While the worlds average energy consumption is estimated at 1.7 tonnes of oil equivalent (toe) per person per year in 2004, there are wide variations between industrialised countries and developing countries energy consumption levels. Per capita energy consumption in North America for example, is about 18 times that of Africa and four times the world average (see Figure 1). During the past twenty-five years, electricity supplies have been extended to 1.3 billion people living in developing countries. Yet despite these advances, roughly 1.6 billion people, which is one quarter of the global population, still have no access to electricity and some 2.4 billion people rely on traditional biomass, including wood, agricultural residues and dung, for cooking and heating. 15 More than 99 percent of people without

15

IEA, World Energy Outlook, 2006

electricity live in developing regions, and four out of five live in rural areas of South Asia and sub-Saharan Africa.16 Figure 1: Per Capita Energy Consumption in Selected Regions
Per Capita Energy Consumption in Selected Regions
5 4.5 4 3.5 toe/capita 3 2.5 2 1.5 1 0.5 0 1980 1990 2000 Periods World OECD Total Africa Latin America Middle East Asia (excluding China) 2005 2006 2007

Sources: ESDS, 2010

Figure 2: Energy Ladder: Household Fuel Transition

Source: IEA Analysis, World Energy Outlook 2002.

In the past 25 years, access to electricity and modern energy services have been extended to over one billion people around the world. Commercial energy use by developing countries has also increased at a rate higher than the OECD countries. On

16

ibid

a per capita basis, however, this has not resulted to equitable access to modern energy services.

In developing countries, especially in rural areas, 2.5 billion people rely on biomass and other traditional fuel types (see Table 1), to meet their energy needs for cooking17 and 1.6 billion people lack access to electricity 18 due to reasons of availability and affordability. Without strong new policies, the number of people depending on biomass will increase to over 2.6 billion by 2015 and 2.7 billion by 2030 because of population growth.19

Figure 3:

Per Capital Electricity Consumption for Selected Regions

Per Capita Electricity Consumption for Selected Regions

9000 8000 7000 6000 kWh/Capita 5000 4000 3000 2000 1000 0 1980 1990 2000 Periods World OECD Total Africa Latin America Middle East Asia (excluding China) 2005 2006 2007

Source: ESDS, 2010

There are also wide variations between energy consumption levels of the rich and poor. On average, the poorest 2.5 billion people in the world use only 0.2 toe per capita annually while the billion richest people use 5 toe per capita per year, which is 25 times more. In terms of electricity consumption, the richest 20 per cent uses 75 per cent of all electricity while the poorest 20 per cent uses less than 3 per cent.20
17 18 19

ibid

Modi et al, 2005

Supra N0. 12 World Energy Council, 2000 cited in Rosario 2002

20

Table 1:

Dominant Fuels in Developing Countries by End-Uses

Source: World Bank/ WLPGA, 2002

Variations in modern energy consumption across countries partly explain the wide variations in human development, even among developing countries. United States uses about fifteen times more energy per person than does a typical developing country. While its share of the worlds population is only 4.6 per cent, it accounts for 24 per cent of the worlds energy consumption and over 30 per cent of GDP GDP. But the least developed countries (LDCs) with 10 per cent of the worlds population account for about 1 per cent3 of energy consumption and a mere one per cent of the worlds GDP.21

21

Huq, et al. 2003

For the 31 low human development countries, electricity consumption per capita is below 1000 kWh. It ranges from a low 11 kWh per capita in Chad to 998 kWh per capita in Zimbabwe22. Against this background, strategies to mitigate climate change should not limit the ability of least developed countries to meet their basic energy needs for development but rather support access to cleaner energy sources.

3.1: Energy Access in LAC Countries

In 2007, the installed capacity for electricity generation in the LACs totalled 278,284.47 MW, an increase of 9,445 MW compared to 2006, for a yearly growth rate in the order of 3.51 %, higher than the growth rate of the past 10 years, which was 3.22 %.23 A comparative analysis of installed power growth percentages in 2007 over 2006 gives four countries with the highest growth: Chile 17.35 %; Ecuador 12.29 %; El Salvador 11.49 %; and Nicaragua 9.44 %.24

Also in 2007, power generation in the region stood at 1,226 TWh, which is 4.38 % over 2006 for a yearly growth rate that surpassed North America, Western and Eastern Europe.25 The dominant source of power was hydroelectric plants, at 56.7 %, followed by thermoelectric with 39.7 %. The countries with electricity coverage rates of over 96 % are Chile, Costa Rica, Barbados, Uruguay, Brazil, Suriname, and Venezuela, while those with the lowest coverage levels are Honduras and Haiti, with 67 % and 34 %, respectively.26

3.2: The Poor and Conventional Energy Use

Poverty is usually measured in terms of the proportion of people who do not achieve specified levels of health and other socioeconomic indicators. A major aspect of

22

23

HDR 2006 Emmanuel Skoufias and Gladys Lopez-Acevedo, Welfare Disparities within Latin

American Countries, IBRD/World Bank, 2009, p.36.

24 25

ibid ibid 26 Ibid

poverty which is often neglected is energy poverty. Energy plays a vital role in poverty both in terms of being a source and a means of eradication.

Poor people pay a high price in health, labour, time and cash for the energy they use. Moreover, they spend a much greater proportion of their income on energy than wealthy people. This is not only because the incomes of poor people are much smaller but also because the type of fuel (majorly conventional energy) and stoves they use are less efficient.

Health cost In most cultures, staple foods are subjected to lengthy cooking. Burning of solid biomass in inefficient stoves and/or in unventilated spaces produces pollutants, such as carbon monoxide, resulting in indoor air pollution. In clear terms, there is a strong connection between indoor air pollution and acute respiratory infections in children and chronic obstructive pulmonary diseases in adults. Energy and Gender There is a differentiated impact of access to energy services for women and men but gender and energy concerns hardly enter macro-level policies. In most of the developing world, food processing, and water and firewood collection are traditionally female gender roles and take much of womens and girls time and energy. The effect of fuel wood use on womens health, future potential and safety can be quite severe. Sometimes girls have to forgo their education to fetch wood for the family, trapping them in inter-generational poverty.

Energy and HIV/AIDS

In 2005, it was estimated that over 65 million people around the world were living with HIV.27 HIV/AIDS related mortality and prolonged illness have resulted in shortage of labour and increased vulnerability of affected households to hunger and poverty. Lack of access to energy services leads to a vicious circle of poverty, poor health, low productivity and household food insecurity. Therefore, access to modern energy services can substitute for labour required for food processing and firewood collection.

ENERGY USE, POVERTY AND DEVELOPMENT IN SELECTED LAC

The issues of energy access, poverty and development have been discussed in the preceding paragraphs. Suffice here to show how the selected LAC Countries fare within the purview of these three sets using the HDI and HPI indices as a measure of human development. Though the GDP per capita only provides an indication of output within an economy, it is also used where necessary. However, neither GDP nor HDI measure long run human well-being, and have deficiencies as tools for judging economic progress

The Human Development Index data for the four LAC Countries in 2007 reveals that Ecuador has the highest HDI (0.806) followed by Honduras (0.732). At the lower end are Bolivia (0.729) and Nicaragua (0.699). Interestingly, an analysis of HDI reveals that with the exception of Nicaragua, life expectancy index in all other countries for the years lies below the educational index. One can therefore argue that the HDI is a useful tool for directing resources to areas of individual capacity building such as education and health. Figure 1 shows the influence of energy consumption on the achievement of certain levels of HDI or quality of life. The different energy consumption levels for the selected countries are mainly due to large disparities in income. Similarly, Figure 2 reveals that Ecuador has the highest per capita electricity consumption (about 8000 kWh threshold

27

WHO Report, 2006

corresponding to an HDI of 81%). Annual electricity consumption for the other countries is below 8000 kWh, with the lowest being Nicaragua.

Table 2: Human development index for the Selected LAC Countries, 2005-2007 Country Ecuador 80 Honduras 112 Bolivia 113 Nicaragua 124 Rank Years 2005 2006 2007 2005 2006 2007 2005 2006 2007 2005 2006 2007 Decomposition of HDI LEI EI GDP index 0.828 .. 0.712 0.831 0.867 0.717 0.833 0.866 0.719 0.775 0.806 0.593 0.779 0.806 0.600 0.783 0.806 0.607 0.662 0.892 0.615 0.667 0.892 0.620 0.673 0.892 0.624 0.782 0.758 0.534 0.789 0.760 0.538 0.795 0.760 0.542 HD Index .. 0.805 0.806 0.725 0.729 0.732 0.723 0.726 0.729 0.691 0.696 0.699

Notes: LEI = life expectancy index, EI = the educational index

Source: Human Development Report (2007)

Figure 4:

HDI and Per Capita Energy Consumption, 2007

H and Per C DI apital Energy Consum ption 2007

0.8 2 0.8 0.7 8 0.7 6 0.7 4 Boliv ia 0.7 2 0.7 0.6 8 0 0.1 0.2 0.3 0.4 0.5 toe/capita N icaragua Boliv ia H onduras Ecuador 0 .6 0.7 0.8 0.9 1 N icaragua Ecuador

HDI index

H ondu ras

Source: Data extrapolated from the Human Development Report (2007)

Electricity consumption above 700 kWh/ per capita is associated with increasing GDP per capita. Increases with the HDI imply increases in the HDI values (i.e. life expectancy, educational level and the income factor), which, in turn, are positively influenced by availability of energy. It is logical to add that an increase in the use of energy help reduce poverty through income, health, education and the environment. Some problems however, arise with the measures on human development. Firstly, the

HDI comparisons provide an insight of the level of development among the selected countries. Such a measure depends on data availability and quality.
Figure 5: HDI and Per Capita Electricity Consumption, 2007
HD and P Capital Electricity Consum I er ption 2007
0.820 0.800 0.780 0.760 0.740 B oliv ia 0.720 0.700 0.680 0 10 0 200 300 400 kW h/capita N icara gua Bo ia liv H nduras o Ecuador 500 600 700 8 00 900 N icaragua E cuador

HDI index

H onduras

Source: Data extrapolated from the Human Development Report (2007)

Improvement or worsening of data collection can results in different results and conclusions. Secondly, the level of data aggregation at a country level conceals both spatial and other disparities that exist in different parts of the country. Even though the HDI data given in Table 1 yields useful information that enables inter-country comparisons, it cannot be used to draw a comparison of individual households or translate it into policy plans. Moreover, by its extrapolation, the data used for the HDI measure does not take cognisance of qualitative variables such as human rights, safety and security, which might further show country differences.

4.1 Poverty, income and energy access

Economic growth no doubt is one of the key drivers for poverty alleviation. However, its influence can be weakened by inequality. The Gini Coefficients in Table 3 below show that the selected LAC Countries have different distributional patterns on human development. It is very high for the selected countries with varying degrees, indicating a much distorted distribution of income. The consequence is the high prevalence of poverty as shall be shown in the country by county analysis.
Table 3: Development Indicators, 2009

DEVELOPMENT INDICATORS, 2009

Country Human Poverty Index (HPI-1) (%) 11.6 7.9 13.7 17 Gini Coefficient28 in % 58.2 54.4 55.3 52.3 Population (Millions)29 Population below Income Poverty line US $1.25/day % 19.6 4.7 18.2 15.8

Bolivia Ecuador Honduras Nicaragua

9.5 13.3 7.2 5.6

Source: Data extrapolated from HDR, 2009 and poor health.

The HPI-1 results in the second column of Table 3 indicate the percentage of citizens living in poverty and show the degree of deprivation within the four countries. The level of poverty is more acute in Nicaragua than any other country. The third column of Table 3 gives an insight of the degree of household income inequality, with the worst levels again in Nicaragua, followed by Ecuador, Honduras and Bolivia. Table 3 further reveals a dismal picture of the poverty rate as well as considerable variation among the countries using the international poverty line of US$1.25/day in 2009 to allow absolute judgments about the state of poverty. The poverty line approach is based on some perception of failure to channel resources to meet basic minimum needs in food, mainly because of lack of employment or inadequate income earning opportunities. The fifth column of Table 3 includes the poor who lack access to modern forms of energy, with poverty higher in rural and peri-urban areas. Worst results are for Nicaragua, Honduras and Bolivia respectively. Per capita energy and electricity consumption varies

significantly by country, with high rates in Ecuador (see Figure 3). As of 2007 residential electricity consumption in Ecuador was 25,000 ktoe/capita compared to Nicaragua which was slightly over 10,000
28

World Bank (2009d). "World Development Indicators

29

UN (2009e). "World Population Prospects: The 2008 Revision". New York: Department of Social and Economic Affairs.

ktoe/capita (see Figure 4 and 5). From a national growth perspective, there is a strong relationship between energy access and economic income (see Figure 1 above), indicating that economies with higher per capita incomes have higher percentage access and that as income increases; the percentage access to electricity also increases. As household access to electricity increases, modern energy services can be expected to become an invaluable means of improving social equality. In turn, this helps to drive economic growth by improving productivity and promoting local income generation. Below is a country by country analysis of the correlation between energy, poverty and development.

4.2:

BOLIVIA

Located in southwest of Brazil with a population of 9,775,246 (2009 est.), Bolivia is one of the poorest and least developed countries in Latin America. The GDP (PPP) rose from $41.37 billion in 2007 to $45.13 billion in 2009. Inflation rate also rose from 7.5% in 2008 to 8.5% in 2009. 30 The life expectancy index and educational index for Bolivia in 2007 were 0.673 and 0.892 respectively, with the former lying below the latter as shown in Table 2. As shown in Table 3, 19.6% of the population fell below income poverty lines in 2007. Interestingly, when compared to other three countries, Bolivia has the highest percentage in this regard, as high as 19.6 %.

Bolivia

has

an unusually

disproportionate

distribution

of income

and

high

underemployment. The Gini Coefficients in Table 3 above show that Bolivia has the highest (58.2%), indicating a much distorted distribution of income. Its HPI value is also significantly high (11.6), only second to Nicaragua. These show high prevalence of poverty and human underdevelopment.

30

Supra no.27

Figure 6: Bolivia: Real Change in Yearly GDP

Source: Instituto Nacional de Estadstica 2009b, IMF 2009b, Garca 2009.

Figure 7: Bolivia: Monthly Inflation Rate (%), yearly

Source: Banco Central de Bolivia 2009i.

The Figure above shows inflation, as measured by the Consumer Price Index and also core inflation, excluding food and energy. Inflation accelerated from 4.9 percent at the end of 2006 to 14.1 percent in March 2008.31

Mark Weisbrot et al, BOLIVIA: The Economy during the Morales Administration, CEPR, Washington, December, 2009, p. 5
31

There is little movement in the poverty rate since 2005; it increases by 0.5 percentage points from 2005-2007 as shown below. Similarly, the extreme poverty rate increases by one percentage point.

Table 4: Bolivia Poverty and Living Standards

Source: Instituto Nacional de Estadstica 2009d

Figure 8: Bolivia: Gini Coefficient, 1999-2007

Source: Instituto Nacional de Estadstica 2009d

In the two years 2005-2007 there is decline in inequality as measured by the Gini Coefficient, from 60.2 to 56.3.

Figure 9: Bolivia Per capita energy and electricity consumption, 1990-2007

Bolivia Per Capita Energy and Electricity Consumption (1990-2007) 0.7 Energy(toe)/Electricity(mWh) 0.6 0.5 0.4 0.3 0.2 0.1 0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Years Bolivia Per capita Energy Consumption Bolivia Per capita Electricity Consumption

Source: ESDS, 2010.

Figure 10: Bolivia residential electricity consumption per capita

Boliv Residential Electricity Consumption/Capita ia 18.000 16.000 14.000 12.000 10.000 8.000 6.000 4.000 2.000 0.000 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Source: ESDS, 2010

4.3:

ktoe/capital

HONDURAS

Honduras is located in Central America. It borders the Caribbean Sea, between Guatemala and Nicaragua and the Gulf of Fonseca (North Pacific Ocean), between El

Salvador and Nicaragua. It has a population of 7,833,696 (2009 estimate) out of which about 48% was urban in 2008. 32 As a result of HIV/AIDS, there is excess mortality; with significant impact on life expectancy, infant mortality, death rates, population growth rates, and the distribution of population by age and sex.

As the second poorest and smallest economy in Central America, Honduras has an extraordinarily uneven distribution of income and high underemployment. As shown below in the Figure, in terms of per capita income, Honduras is ahead of Nicaragua, but behind the other three countries shown in the figure below. In 2001, more than 64 percent of Honduran households lived below the poverty line. This proportion declined slightly over the next two years, only to move up again in 2005 to 66 percent. It has the lowest GDP index of 0.624 in 2007 in comparison to the other three countries. It HPI was the highest for the same year, standing at 13.7 % among the selected LAC countries. The rate of unemployment has continued to rise, moving from 3.5% in 2008 to 6% in 2009. Inequality is shown as the share of each decile of the population in total income; it decreased in 2006. From 2005 to 2006, the percent of income captured by the lower (poorer) deciles went from 2.1 to 2.5 percent, and the percent going to the intermediate deciles also increased from 35 to almost 39 percent. At the same time, the share captured by the richest segment fell, from nearly 47 percent in 2005 to 42.4 percent in 2006. 33

Figure 11: Central America per capita GDP (Current US dollars)

32

Supra No.27
Jose Antonio Cordero, Honduras: Recent Economic Performance. Centre for Economic and Policy

33

Research, Washington DC, November 2009, p.5

Source: Consejo Monetario Centoramericano 2009a, 2009b; Jose Antonio Cordero, Honduras Recent Economic Performance, CEPR, 2009.

Table 5: Central America: % of Households below the poverty line.

Source: socioeconomic data base for Latin America and Caribbean (SEDLAC)

Figure 12: Honduras: income inequality

Source: Socio-Economic Database for Latin America and the Caribbean (SEDLAC)

Honduras remains one of the poorest countries in the hemisphere, with sharp contrasts between the urban and rural populations, and between the rich and the poor. Within urban zones, 97.7 percent of the housing units have access to electricity, but this rate drops drastically (to 49.8 percent) in the rural sector. 34 This is in addition to other challenges such as an estimated poverty rate of 64%; an infant mortality rate of 34 per 1,000; chronic malnutrition (33% of children under five years); an average adult education level of 5.3 years; and rapid deterioration of water and forest resources, according to the U.S. Agency for International Development. Honduras also has a significant HIV/AIDS crisis, with an adult infection rate of 1.8%. Even though both per capita and residential electricity consumption have been rising from 1995, access to modern energy remains a big challenge for the vast majority of the poor particularly in the rural areas. Little surprise that in 1998, Honduras had the third largest per capita firewood consumption in the whole of Latin America (see Figure 7 above)

Figure 13: Honduras Per capita energy and electricity consumption, 1990-2007
Energy(toe)/Electricity(mWh)

H n u a P rC p aE e g a dE c ic yC n u p n o d r s e a it n r y n le tr it o s m tio ( 90 07 1 9 -2 0 )
0 .8 0 .7 0 .6 0 .5 0 .4 0 .3 0 .2 0 .1 0
9 0 9 1 9 2 9 3 9 4 9 5 9 6 9 7 9 8 9 9 0 0 0 1 0 2 0 3 0 4 0 5 0 6 2 0 1 9 1 9 1 9 1 9 1 9 1 9 2 0 2 0 2 0 2 0 2 0 2 0 1 9 1 9 1 9 1 9 2 0 0 7

Y as er H n ua P r C p l E eg C n u p n o d r s e a ita n r y o s m tio H n ua P r C p l E c ic C n u p n o d r s e a ita le tr ity o s m tio

34

CRS Report for Congress, Honduras: Political and Economic Situation and U.S.

Relations, Updated October 13, 2006

Source: ESDS, 2010

Figure 14: Honduras residential electricity consumption per capita

H n ua R s e tia E c ic C n u p n a ita o d r s e id n l le tr ity o s m tio /C p 3 .0 0 0 0

2 .0 0 5 0 ktoe/capita

2 .0 0 0 0

1 .0 0 5 0

1 .0 0 0 0

5 0 .0 0

0 0 .0 0
9 0 9 1 9 2 9 3 9 4 9 5 9 6 9 7 9 8 9 9 0 0 0 1 0 2 0 3 0 4 0 5 0 6 2 0 1 9 1 9 1 9 1 9 1 9 1 9 1 9 1 9 2 0 2 0 2 0 2 0 2 0 1 9 1 9 2 0 2 0 0 7

Source: ESDS, 2010

5.

CROSS- COUNTRY COMPARATIVE RESULTS

The objective of the study was to discuss the nexus between energy, poverty and development. It also set out to examine the prospects and opportunities for development in the selected LAC countries. In an attempt to shed light on this growing issue within the LAC region, the authors explored the living conditions of the poor in using both the HDI and HPI values as the basis for the determination of the extent of poverty prevalent in these countries. The common denominator of all the four cases is that relief measures for energy poverty are insufficient, although they may, in varying degrees, constitute an important step towards mitigating poverty and improving the quality of life of the poor.

All four case studies show options that could resolve this situation, and which would help both the poor and the utilities. The correct coordination of government policies will play a key role as long as companies and users participate. This requires education for the poor and the cooperation of the decision-makers and those social sectors most

favoured by the unfinished modernisation processes in Latin America and the Caribbean.

Though clearly there are differences and similarities, the four case studies all reveal the scale and significance of the problem of the poor. This is an increasingly influential structural phenomenon with numerous negative consequences. With 4.7% of its entire population below poverty lines, Ecuador appears to be on the threshold of achieving the MDGs. Bolivia, Nicaragua and Honduras continue to be held down by poverty. The challenges of the poor in these countries are further compounded by lack of access to clean and modern energy sources. Of the twenty six LAC countries in Figures 7 and 8, Nicaragua and Honduras rank among the top six in terms of per capita firewood consumption and share of firewood in final energy consumption. This is a further demonstration of the problem of poverty and access to modern energy in these countries.

5.1

PROSPECTS AND OPPORTUNITIES FOR DEVELOPMENT

There are opportunities for energy development and access in the selected countries. For instance, interstate power connection as exists between Honduras and Nicaragua. The length of time that interconnected power lines have operated among the countries of Central America make them the oldest in Latin America and the experience gained in the region makes it an example to be followed. Power interconnection began in this region in 1976, when the Honduras-Nicaragua line commenced operations. This

interconnection was expanded to Panama in 1986, and currently operates at 230 kV with a 138 kV intermediate link in Costa Rica. The Honduras Nicaragua line arose from a need for Honduras to sell its excess energy produced by the enormous El Cajn hydroelectric plant.

The advantage of power interconnection in Latin America is the opportunity for promoting a competitive power market regionally. This would ensure lower sales costs to service users, take advantage of the differing climates in each country and the fact that demand peaks do not coincide, as well as making it possible to reduce power reserves and develop more generation plants with a regional projection.

Substantial reserves and opportunities exits in the four countries four the development of renewable energy sources to further enhance access to energy and poverty alleviation. Although whether or not renewable energy sources are poor friendly is another issue for discussion, this paper is of the view that access to alternative energy sources will go a long way in enhancing energy access for the poor and help greatly in reducing poverty.

6.

BIBLIOGRAPHY

SECONDARY SOURCES Books Alleviating Urban Energy Poverty in Latin America: Three Cities Three Approaches, World Energy Council, 2006 Alleviating Urban Energy Poverty in Latin America, World Energy Council, 2006. Amie Gaye, Access to Energy and Human Development, Human Development Report. UNDP, 2007/2008 Amitav Rath, Energy, Women and Rural Poverty: A review focusing on Latin America, Policy Research International Inc. 2005 Emmanuel Skoufias and Gladys Lopez-Acevedo, Welfare Disparities within Latin American Countries, IBRD/World Bank, 2009. J Clancy, Household Energy & Gender: The Global Context, Intermediate Technology Development Group, 2003 Joy S Clancy and Margaret Skutsch, The Gender - Energy- Poverty Nexus- Finding the energy to address gender concerns in development, DFID Project CNTR998521 Securing Energy Supply and Enlarging Markets through Cleaner Fossil Technology, Deutsche Montan Technologie/ OLADE, 2005. UNDP, Rethinking Human Development -Human Development Index (HDI) Report (Summary), 2010 UNDP, Gender and energy for sustainable Development: A toolkit and Resource Guide, UNDP, 2004 Yianna Lambrou and Grazia Piana, Energy and Gender in rural sustainable development, FAO, 2006 Journal Articles

J C Nkomo, Energy Use, Poverty and Development in the SADC Journal of Energy in
Southern Africa, Vol 18 No 3, August 2007