As global leaders gather for the UN’s annual COP meetings on mitigating the impacts of climate change, an energy revolution is underway with enormous implications, not least for the world’s poor. Renewable energy adoption will be a crucial component of meeting the Paris Climate Agreement to hold a rise in global temperatures below two degrees Celsius, and market forces are accelerating those adoption rates. Perhaps as important as the impact this could have on our environment though, is the promise it holds for improving conditions and development prospects in the developing world.
Fossil fuel based energy systems serve poor people, especially rural dwellers, very badly. About 1.2 billion people, nearly all in rural zones, are left literally in the dark due to lack of access to electricity. Access to energy, including electricity, is much better in urban zones; but the urban poor often suffer most heavily from severe local pollution from traditional energy sources, such as the dismal air quality in Beijing and New Delhi. And, poor people are widely viewed as most vulnerable to the climate change resulting from fossil fuel emissions.
Prospects for change have never been better, but we still need deliberate action to realize them. These bright prospects are driven by ongoing technological advance in renewable energy systems. Between 2010 and 2016, solar and wind electricity generation costs at auction fell by factors of about five and two, respectively. With these advances, the economics of power systems are changing. Lazard Freres, an investment bank, lists wind as the lowest cost generation technology (unsubsidized) for the United States in its most recent analysis of levelized cost of energy. Utility scale photovoltaics are not far behind, and at about the same cost levels (again unsubsidized) as combined cycle natural gas, which is the cheapest conventional generation option.
Global investments in power generation have reflected these shifts. In 2014, for the first time in history, the amount of new renewable generation capacity surpassed that of new fossil fuel-based systems on a global basis. This trend continued in 2015 with new renewable capacity outstripping fossil fuels by a factor of more than two. Investment volumes are correspondingly large with the amount of money committed to renewables (excluding large hydro-electric projects) reaching $286 billion in 2015. In 2016, investments volumes declined to $246 billion, but newly installed capacity increased by 9% compared to 2015, due to ongoing declines in costs.
This energy revolution holds the potential to extend four considerable new advantages to the world’s poor populations. First, the modular nature of renewable systems, notably solar, combined with substantial endowments of sun in the rural areas of many developing countries, opens unprecedented opportunities for rural electrification, allowing children to study after sundown, cold storage of medicines and produce, automated grain milling, and water pumping for drinking and irrigation (among many other items).
Second, especially if the battery performance to price ratio continues to rise dramatically and stimulate adoption of electric modes of transport, the intense local air pollution that has frequently afflicted poor urban dwellers since the dawn of the industrial revolution should finally begin to subside.
Third, as demand for fossil fuels wanes, the price of fossil fuels is likely to remain low or, in the case of oil, fall. Because the transition away from fossil fuels will take time, the price of fossil fuels will remain macroeconomically significant for many years. The large majority of poor people live in net fuel importing countries. For these people, low fossil fuel prices are an economic boon. At the same time, lower income inhabitants of fuel exporting countries have very often not benefitted from the resource revenues, leading many analysts to proclaim a ‘resource curse’ (think Venezuela). On this view, lower fossil fuel prices may improve long-run prospects for poor people in resource exporting countries.