Energy Transitions in Emerging Economies: What Success Looks Like and How to Replicate It

December 10, 2020

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by Lachlan Carey and Nikos Tsafos (Center for Strategic and International Studies) Can emerging economies grow while reducing their greenhouse gas emissions, either on an absolute basis or against some business-as-usual baseline? The Energy Security and Climate Change Program at the Center for Strategic and International Studies engaged in a yearlong project to grapple with “decarbonization” in an emerging economy context. What opportunities exist for policymakers today? How have various places managed to make progress in reducing (or avoiding) emissions while still meeting societal expectations for development? What can we learn from their progress? More broadly: how should we think about the supposed trade-offs between economic development and a cleaner environment and how can we overcome them?

We approached these questions through in-depth case studies. We organized our thinking around three places and four sectors: Vietnam, Ethiopia, and the state of Gujarat in India, the last as a way to look at subnational dynamics in such a vast country. At the sectoral level, we looked at energy access, especially for rural areas, and the power, industrial, and transportation sectors, trying to go beyond a discourse that tends to confuse “electricity” with “energy.”

We wanted to ground discussions in actual experiences and not theoretical constructs. To do so, we examined past success and identified promising opportunities for the future. We did not want to come up with an idealized version of the world—a model-generated pathway from here to “net-zero” that works on paper but not in practice. We wanted to talk about politics and political economy as much as we wanted to talk about policy tools and metric tons of carbon dioxide (CO₂). We wanted to point to concrete examples of places that had done something right and articulate what others could learn from that experience.

Over the past 12 months, we organized three workshops, one each for Vietnam, Ethiopia, and Gujarat. For each gathering, we invited experts to write papers on the power sector, industry, transportation, and energy access, asking them to document success and see opportunities for the future. Their insights, alongside our research, led to the publication of three reports, as well as the working papers. This report synthesizes the findings from these individual publications and is meant to draw connections among them—we do not repeat everything we wrote, so while this report is a stand-alone product, it draws from the lessons articulated in the earlier reports.

Some of the lessons here will be familiar to academics and practitioners: we found, in various settings, corroboration for long-established ideas and propositions. Others were more surprising. What follows is a blend of the familiar and the surprising, organized around three main sections: what does the energy transition look like in an emerging market; what are the preconditions for success; and how can policymakers and other stakeholders advance the energy transition on the ground?

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What Does the Energy Transition Look Like in Emerging Economies?
In many ways, there is no difference between an energy transition in an advanced, developed economy and one in a poorer, developing setting: both will rely on similar technologies, and both are likely going to be enabled by a mix of market forces and government regulation.

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But in other ways, the energy transition looks different away from developed economies. For one, most emerging markets are still building out their infrastructure, and so their challenge is to make sure that infrastructure can be made sustainable, as opposed to replacing whatever earlier generations built. For another, the resources that they can devote to the energy transition are more limited ....

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It is far easier to make progress in the power sector than in transportation, industry, and buildings. ... In all three cases, there was far more progress in generating low-carbon electricity than in reducing emissions from industry, electrifying passenger transportation or supporting low-carbon transport modes, or avoiding emissions from buildings.

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The tool kit to boost power generation from renewables is well understood. ... there are also questions about the ability of the grid to handle so much solar energy.

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Energy access is still largely dependent on a centralized approach. ... But we also saw that access is not enough—the quality of access varies, and there is still a place for off-grid solutions.

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There is far more focus on electricity than clean cooking fuels, even though both are important the Sustainable Development Goals agenda. In all three places, electrification is a national goal with political salience, one pursued over time by credible state institutions and sold to the public as an urgent and important undertaking. There is rarely a similar focus on clean cooking. As the number of people worldwide without electricity falls below 1 billion, there are still over 3 billion people without access to clean cooking. Our cases showed a far more laissez-faire approach to clean cooking; in Vietnam, for instance, it is mostly rising incomes that has brought clean cooking fuels.

In the transportation sector, we identified fewer success stories but saw the potential of cities eschewing the path of building systems based on private cars. In Vietnam and Gujarat, two-wheelers are important modes of transportation, and their electrification is simpler and easier than that of vehicles. Gujarat also relies heavily on natural gas vehicles, which may only make modest contributions in terms of decarbonization but make a difference in urban air pollution. In Vietnam, mixed-use neighborhoods are an important legacy feature that promise to lessen transportation needs. In all three places, we saw mixed experiments with public transport options, which tend to be technologically simple but politically hard, especially in environments with rapid and unmanaged urban growth. Transportation, more than other sectors, underscored the prudence in stopping problems before they emerge rather than trying to solve them after they have appeared: good urban planning and urban infrastructure are hard to come by, but they are far easier than reshaping a city built around private cars.

In the industrial sector, we saw more success in sourcing cleaner energy sources than in implementing energy efficiency programs.

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In buildings, we saw few clear success stories but enormous opportunity for smart design and policy to avoid emissions. ... But the growing demand for cooling was a recurrent challenge. ... We also saw a lot of evidence of tighter standards merely pushing less efficient appliances into the second-hand market, a reminder of the pent-up demand and the need to not merely sell new efficient appliances but also take out of circulation older, less efficient ones.

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What matters for an emerging economy is not necessarily leadership in research and development but the ability to adopt a technology quickly once it has matured. Keeping up with technological innovations and best practices for adoption is arguably more important than research and development, and early adoption seems to have been a wise strategy for our case studies.

But countries can anticipate changes in technology and position themselves as suppliers or manufacturers.

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Every year, it is becoming easier to adopt low-carbon solutions.

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Competitive prices, however, are not enough by themselves. Energy systems do not necessarily follow the path of least cost—politics, political economy, and institutions matter. Time and again, our case studies underscored the importance of political leadership—leaders making something a priority and pushing for bureaucracies to do something. We also saw the importance of political economy and ensuring alignment of political and business interests, in particular, in driving outcomes. The ability to align private capital behind a low-carbon goal was probably the easiest way to supercharge those goals. And finally, there is just no substitute for high-quality institutions that can plan, lay out targets, make decisions, and adjudicate competing interests. For example, all three places have laid out high-level “green growth” frameworks and policy platforms that set a tone in terms of direction, even if they may not yet filter down to every decision.

Our cases also showed how success begets success.

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Finally, there is a complicated relationship between higher incomes and energy outcomes. In some cases, higher incomes made it much simpler to achieve energy outcomes: the ability to pay for electricity or clean cooking fuels, for example. But in others, the aspirations that come with higher incomes underscored the necessity of early policy interventions: to prevent an excessive reliance on privatized motorization, for instance, or on energy inefficient appliances. These cases are also demonstrating how it is easier to avoid carbon emissions by investing in sustainable industries that generate future growth opportunities than to try and reform existing industries built on a more carbon-intensive model.

Recommendations for Policymakers and Stakeholders
What do all these insights mean for policymakers? We have identified six major takeaways:

“Clean up later” can be costly—it is best to intervene early and mitigate against path dependence.

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2. There is no substitute for getting institutions and markets right.

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3. Standardization is an essential precondition for scale.

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4. Engagement is essential—with industry, state-owned enterprises, associations, non-profits, and multilateral organizations.

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5. Let first movers move.

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6. It is very hard to declare ultimate victory; it is important for stakeholders to celebrate wins and keep moving.

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Conclusion
The lessons across these three places—Vietnam, Gujarat, and Ethiopia—are encouraging. We observed places able to deploy cutting-edge technology and solve problems. We saw public institutions leading and coalitions between state-owned companies, private industry, and non-profits coming together to create networks that lobbied for change or pushed the boundaries to try something new. Equally important is what we did not see: we did not see a place hampered by the effort to decarbonize—a country whose economic growth or overall prosperity was somehow hit when it tried to implement a solution that was less carbon intensive. Instead, these success stories came alongside, and were often enabled by, rapid economic growth, rapid urbanization, and impressive declines in poverty. If there is a balancing act between economic growth and decarbonization, it is far more evident in the minds of policymakers and thinkers than it is in the specific places and sectors that we analyzed—even though deeper gains in decarbonization will be harder to achieve, a fact that applies to both mature and emerging economies. We saw plenty of examples of real success and plenty of opportunities to tackle problems using simpler interventions today. And that, in the end, is the most heartening lesson of all. READ MORE

Energy Transitions in Emerging Economies: What Success Looks Like and How to Replicate It (Center for Strategic and International Studies)

Podcasts (Energy 360)

Ethiopia’s Energy Transition Pathway

Gujarat’s Energy Transition Pathway

Vietnam’s Energy Transition Pathway