This is an archived USAID document retained on this web site as a matter of public record.

Remarks of J. Brian Atwood
USEA/USAID Energy Partnership Summit at the 17th World Energy Congress "Energy, Development and Climate Change: The Role of Energy Partnerships"
Houston, Texas.

September 14, 1998

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Thank you very much. It is a pleasure to be here. Over the last several years, I have had the chance to see fist-hand the work done by the U.S. Energy Association (USEA) both in the United States and overseas. The program has grown impressively since the initial partnerships in Poland and Hungary in 1991. I believe this partnership is a great example of what we can achieve through foreign assistance programs. The notion behind the partnership and, indeed, behind all of our foreign assistance programs is simple: we stand to gain domestically by assisting developing nations in becoming more prosperous, productive and stable.

I think a great deal of credit should go to the leadership of Barry Worthington. As head of USEA he, and his very capable staff, have brought tremendous energy and creativity to our work on four continents. We are fortunate to have such a good collaboration. I am happy to be able to announce several new agreements between USAID and the U.S. Energy Association today, and I will get to those a little later in my remarks.

I would like to spend a few minutes on two major challenges facing the program in the future: the situation in the international financial markets and its implications for energy investments; and global climate change and the implications of the Kyoto Convention.

The energy industry is a capital-intensive sector that is profoundly influenced by changes in financial markets given the size of most projects and their sensitivity to interest rates and currency devaluations. With their sizeable capital assets, energy companies can also be basic building blocks for the development of a country's capital market. The current uneasiness in international financial and currency markets and their implications for investment in developing and transition countries is a troubling development.
Over the last two decades, we have witnessed a growing realization that the large investment requirements of developing and transition countries can only be met with the participation of international private capital. This is particularly true in the developing countries which have been facing steady and often sharp growth in energy demand.

The Asian financial crisis and its spill-over effects has clearly raised questions concerning the pace of future economic and energy growth as well as the capacity of countries to mobilize the large capital needed for planned and prospective projects.
The reduced petroleum demand from slower growth is already having a major downward impact on international petroleum prices. This will of course affect considerations with respects to the feasibility of project investments and the competitiveness of alternative energy technologies.
Although the political and economic context is vastly different, the Russian financial crisis has also pointed to the need for a sound and effective legal and regulatory framework for privatization and banking system development.

The energy companies in this room are important players in the development of national and international financial systems and capital markets. Your concerted efforts are urgently needed to develop the financial and investment conditions and frameworks that will allow both your countries and companies to grow and modernize as well as give new opportunities for citizen participation in the ownership of important productive assets.

I also feel the fact that the financial crisis has been driven by a crisis of governance, transparency and accountability only highlights the importance of America's long-term development programs. We need to continue to invest in building sound institutions in developing and transition countries if we wish to see them fully integrated into the global economy.

In terms of climate change, Mark Twain once noted that "Everyone talks about the weather, but no one does anything about it." Well here in Houston, there has certainly been a lot of talk about the weather, and with good cause. As you know better than I, much of Texas has been experiencing record-breaking heat for the last three months.

In June, the smoke from the Mexican fires darkened skies throughout the Southwest -- fires sparked by the combination of El Nino and unsound agricultural practices. July brought no relief, with a heat wave that resulted in over 125 deaths and $1.8 billion in agricultural losses in Texas alone.

The evidence is compelling. Human activity is changing the weather -- and changing it in ways that will impact all of us. The threat from climate change is not some distant and hypothetical event; it is here today and it is very real.

Globally, eight of the ten warmest years in recorded history have occurred in the last decade. July 1998 was the hottest month on record. Every month this year has set a new record for average global temperature.

As Vice President Gore noted, "El Nino gives us a taste of the extreme, erratic weather our children and grandchildren can expect more of unless we reverse the trend to global warming." A panel of over 2000 scientists has concluded that we can expect average global temperatures to increase by two to six degrees by 2100, with a sea level rise of as much as three feet.

With increased temperatures, we will face more severe weather and more droughts as a hotter planet experiences greater rates of evaporation. Vector-borne diseases, like malaria and dengue fever, will spread, and are already doing so.

Global warming is getting people's attention. The reinsurance industry -- not a group particularly known to be populated with wild-eyed environmentalists -- is certainly paying attention to the risks created by climate change. Insurance payouts for weather-related damage worldwide was $14 billion in the 1980s, and rose to over $35 billion in the first half of the 1990s. Professional risk managers are taking this issue seriously -- and so should we.

If we hope to begin to reverse this alarming trend, we are going to have to make some changes in the way we manage natural resources and use energy. And we are going to have to do so in ways that continue to allow economies to prosper.

In the developing world and transition countries we have seen the tremendous improvements in standards of living, prosperity and productivity that energy can bring. However, all too often we have also seen the downsides of increased energy use. The World Health Organization estimates that over 1.2 billion people live in cities with unacceptable levels of air pollution. This pollution contributes to half-a-million premature deaths each year -- and the loss of countless billions of dollars in productivity.

Costs associated with respiratory illness alone can run as high as 2.5 percent of gross domestic product in some developing countries -- and respiratory illnesses are major killers of children in these nations.

On the global level, higher rates of economic growth mean that developing countries also have the highest growth rate in greenhouse gas emissions. Their emissions are expected to surpass those of industrialized nations by 2015. As countries like India and China bring dozens of new coal-fired power plants on line each year, emissions of carbon dioxide will skyrocket. China alone expects to install 15,000 megawatts of new capacity per year.

The involvement of developing countries is essential to successfully tackling the climate challenge. As many of you know, the U.S. Senate has made clear that ratification of the Kyoto Protocol is conditioned on the participation of developing countries. President Clinton has stated that we will not submit the protocol to the Senate without meaningful participation by developing countries, and all parties agree that dealing with climate change must be a collaborative effort if it is to be effective.

While much more can be done by all of us to reduce the carbon-intensity of our economies, the actions already taken by developing and transition nations are not often recognized in public discourse. The myth that these nations are doing nothing should be dispelled. One of the most significant efforts in the developing world to combat greenhouse emissions has come through efforts to reduce or eliminate energy subsidies.

Fossil fuel subsidies in developing countries declined 45 percent between 1990 and 1996, a remarkable step in rationalizing energy prices in a short period of time. In China, total fossil fuel subsidies in 1996 were less than half of those in place in 1990. The average retail energy price is now at or above the cost of supply.

As part of its privatization of the power sector, Brazil is also leveling the playing field between renewable and nonrenewable generation by phasing out subsidies for diesel-powered generation in rural areas.

We have also seen the developing world and Eastern Europe and the New Independent States take important steps forward in promoting conservation and renewable energy. Over 900 megawatts of wind capacity have been installed in India. India's National Thermal Power Corporation has reduced carbon emissions in its coal-fired plants by 2 million tons a year through improved efficiency and coal beneficiation.

Mexico has completed its national inventory of greenhouse gas emissions and has developed a mitigation strategy that includes a $10 billion program to replace oil with natural gas for power generation, lighting efficiency, improved efficiency of motors and boilers, and co-generation.

On January 1, 1998, China passed an Energy Conservation Law that develops national efficiency standards, invests in clean and renewable energy sources and retires inefficient plants and equipment. By the end of 1995, the use of renewable energy in China approached 300 million tons of coal equivalent annually.

These are but a few examples of the many and wide-ranging reforms developing countries have undertaken in this decade. While many of these actions --from macroeconomic policy, to energy sector reform to national program initiatives -- were undertaken for reasons other than climate change, these efforts have contributed to slowing the rate of growth in emissions. The fact that all of these measures promote these nations' competitiveness shows that reducing greenhouse gases can be achieved through win-win strategies.
More needs to be done, however, if we have any hope of stabilizing atmospheric concentrations of CO ₂ in the next century. Most developing countries have refused to consider binding limits on greenhouse gas emissions, arguing that it will impede economic growth opportunities. Let me suggest that the opposite is true.

The Clinton Administration has made clear that any developing country emissions target under the framework Convention on Climate Change would likely be a growth target -- that is a target that recognizes that the demands of economic development and population growth will require increased access to energy in the coming decades.

Unlike the U.S. and other industrialized countries, which have committed to actual reductions, developing countries would adopt a target above current levels, but below projected "business as usual."

This approach has two significant benefits: it would provide incentives for a cleaner and more efficient energy path for developing countries without imposing economic penalties; and, it would allow developing countries to generate significant capital flows by engaging in emissions trading and the Clean Development Mechanism.

If we assume that a ton of carbon can be reduced more cost-effectively in developing countries, a robust emissions trading system will generate billions of dollars of trade. And the Clean Development Mechanism will help attract significant capital investment in cleaner energy production. For example, Eastern Europe and the New Independent States have the potential to benefit from the development of an effective international emission trading regime given the reductions that have occurred since 1990 in emissions levels and the large potential for energy efficiency and increased use of natural gas. We are working closely with Russia, Ukraine and Poland in particular to explore participation in emission trading and joint implementation schemes.

The pressures of soaring energy demand, economic growth and environmental degradation offer a golden opportunity for "win-win" solutions. USAID programs are helping prove that economies can grow without destroying the environment -- with the help of many of you here today.

A transformation must continue to take place in the ways we produce, distribute and use energy. The great demand for energy by developing countries in the next decade makes the transformation to truly clean technologies both more feasible and more necessary.

Recognizing this challenge, President Clinton announced at the United Nations in 1997 a plan to invest $1 billion over the next five years in programs and activities to help developing countries and countries in transition to reduce greenhouse gas emissions that contribute to global warming.

USAID's new five-year Climate Change Initiative is a vital part of this plan. We will continue helping countries undertake the complex restructuring and privatization of inefficient state-run or monopoly utilities. We also offer technical assistance work with key policy makers throughout the privatization and deregulation process.
Our goal is to ensure that energy efficiency and renewable energy are built into the new systems in developing and transition countries from the start. We clearly recognize the vital role of the private sector. The human, financial and institutional capacity to make significant and lasting changes in the way we use energy lie with you in the business world. And that is why it is so critical that we engage practitioners like you in direct cooperation through the Energy Partnerships sponsored by USEA.

Since 1991, USEA has established 47 utility and regulatory partnerships in 21 developing countries or countries in economic transition. USEA has been especially active in India, Indonesia, the Philippines, Central and Eastern Europe, Russia, Ukraine, Central Asian republics, Senegal, Egypt and Brazil.

More than 5,000 overseas and U.S. utility executives and managers have participated in partnership activities, with about 65 percent of the total being from overseas.

As you all know, these partnerships are intended to transfer knowledge and experience about market-oriented approaches to energy production, transmission, distribution, end-use and regulation. These programs are demand driven, designed and implemented by the partners with major commitments of partner executive staff time and resources. USAID and USEA are catalytic to be sure, but our collective efforts are truly a customer-owned program and reflective of a new approach to development assistance.

Our partnership provides opportunities to all parties. It is not only the developing country utility that benefits, but American utilities benefits as well. Only recently a U.S. utility was telling us how they had improved their procurement tendering process, increasing their competitiveness and lowering costs by acting on suggestions of an Indian utility manager. Niagara Mohawk's affiliate, Plum Street Enterprises, now has an office in New Delhi and their partnership activity has led to other business opportunities. Similarly, Calcutta Electric Supply and their partner Gulf Power are now working together on a 500 megawatt private power project, and other commercial ventures are in the works. These are good solid examples of the potential for partners to create lasting and profitable operations.

I am pleased to announce today new actions by USAID to bolster the ability of overseas utilities and regulatory commissions to assure the reliable, cost efficient and environmentally acceptable supply and use of energy for sustainable development. First, USAID, through our Global Bureau Office of Environment, has awarded cooperative agreement to USEA to continue 12 energy partnerships and launch 12 new partnerships over the next three years.

Second, through USEA and the International Utility Energy Partnership, USAID will be establishing a special fund to support Climate Change Mitigation Project Support Fund.

Through this Fund, USEA and the International Utility Energy Partnership can support U.S. investor-owned utilities, their subsidiaries and other investor-owned energy companies that are seeking to implement specific projects in USAID-assisted countries to reduce the climate change impacts of greenhouse gas emissions. It is anticipated that many of these projects would qualify as Joint Implementation/CDM projects or for emissions trading activities, as set forth in the United Nations Framework Convention on Climate Change

Third, we have released the Handbook of Climate Change Mitigation Options for Developing Country Utilities and Regulatory Agencies to assist you in undertaking actions that both improve your business and reduce greenhouse gas emissions.

Fourth, through our Bureau for Europe and New Independent States, USAID is awarding USEA additional funds to expand its partnerships in that region, especially the U.S./Caspian Oil & Gas Environmental Partnership Program that is helping revise environmental regulations for oil and gas production and transportation in the region.

Finally, through USEA, USAID will establish the "Electricity Management Development Institute for Central and Eastern Europe" to provide in-depth training to senior-level managers in the region's power sector. Electric utilities in the region and the U.S. will cost-share this effort. These partnerships cover restructuring and privatization, demand-side management and integrated resource planning.

All of these new opportunities will expand our ability to work as partners with you in the field of energy, environmental protection and in promoting economic growth. Today, we have a tremendous confluence of interests between those of the developing world, industrialized nations, the energy community, environmentalists, public health officials and individuals the world over hoping to improve their lives and the lives of their children. Dealing with climate change is an imperative that we simply cannot duck. And in meeting our responsibilities, we can greatly expand prosperity both here at home and abroad. I look forward to our continuing partnership and thank you all for your efforts. Thank you.

This is an archived USAID document retained on this web site as a matter of public record.

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