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5. Sectoral integrated energy development

Energy and transportation
Energy and food production
Energy and natural resource management
General suggestions for sectoral integrated energy development programs

Sectoral Integrated Energy Development is an approach to resolving specific development problems through the analysis of the relation between energy and one or more other economic sectors. The sectors that the OAS has evaluated in this manner are energy and transportation in Colombia, Uruguay and most recently El Salvador; energy and food in Panama and Costa Rica; and energy and natural resource management in the English-speaking Caribbean. Each of these programs has examined the role of energy within an extremely important component of the countries' respective economies. While these projects are sectoral by nature, they focus on interconnections between components of development in a similar fashion as the energy regionalization projects.

Energy and transportation

The importance of energy in the transportation sector is evident from a few statistics:

· Transportation accounts for one-third of all energy consumed in Latin America.

· Petroleum derivatives account for nearly all energy used in transportation.

· Nearly 80% of the Latin American's energy is consumed in urban areas.

· Despite congestion problems throughout the region, private automobile ownership is growing between 10 and 20% annually.

However, comprehensive programs of energy rationalization in the sector have been uncommon in Latin America. Many reasons explain this absence. On the whole, improving transportation is not a supply issue. With some exceptions, major technological breakthroughs are unlikely. Furthermore, transportation is so intrinsically linked with the economies of the region that large-scale alterations are difficult.

With the exception of Brazil's innovative substitution efforts, the technologies and resources duplicate those utilized in the developed world with little or no modification. In addition, benefits from fuel use rationalization in the transportation sector accrue disproportionally to the less than 10% of the population that owns private vehicles.

The OAS first was asked to address this problematic sector by the government of Colombia in 1982. Colombia faced a critical situation. The transportation sector consumed 65% of the total petroleum liquids in the country. Despite rapidly increasing petroleum production, the country's refineries could not keep up with the growing demand for gasoline. Gasoline imports were expected to reach 17, 000 barrels per day by 1987.

The available options did not seem attractive. Continued imports of high-cost gasoline would require hard currency and constrain the government's development options. Alternatively, adding refinery capacity to meet gasoline demand would be very costly and result in excess production of heavy products. Potential export markets for excess fuel oil were distant, so transportation costs would lower already small profit margins on heavy products.

A third option certainly existed: conservation and fuel substitution. Yet the potential contributions from such programs were unknown, as very little disaggregated data or analysis existed on the sector.

In Uruguay, the situation was distinct from Colombia. Almost all transportation energy was based on imported petroleum fuels and the design of the national refinery strongly affected the product slate for liquid fuels. A tariff system on high-priced fuels was designed to generate national income, to encourage rational use of other fuels, and to place the heaviest burden on private vehicle owners. Because of the high prices of liquid fuels in Uruguay, potential benefits for conservation initiatives appeared to be significant. In January of 1984, the Uruguayan government requested an OAS technical assistance program in energy and transportation to investigate conservation options.

In Colombia, as in Uruguay, the first step was to collect thorough information on the sector in order to develop a data base for evaluating new policies and fuel substitution options. Due to the complex nature of the sectors and the lack of reliable information, both studies considered the creation of information systems as a prerequisite for other activities.

Data base organization was a difficult undertaking in both countries. The existing data on the transportation sector were spread among many different sectors, agencies and ministries. Other information had to be generated. Instead of designing open-ended surveys to meet data needs, surveys were structured to test specific issues, such as "What relative prices of gasoline and diesel best meet the needs of the country?," and "What effect does the age of the transport fleet have on energy consumption? Do high import duties on vehicles actually provide a net loss to the country?" Because of the immense quantities of data and the interrelationships between information, statisticians were essential.

As discussed in Case Highlight 2, coordination between agencies plays a critical role in energy and transportation studies. The structure and needs of the transportation sectors differ greatly in the two countries.

Colombia, a large country with a growing production of natural resources, had opportunities for gasoline substitution not available to Uruguay, which is completely dependent on imported fuels. As Case Highlights 6 and 7 show, the study of potential gasoline substitutes in Colombia yielded some surprising results, while in Uruguay possibilities were great for conservation programs, especially in greater Montevideo.

Energy and food production

Like the critical relationship between energy and transportation, the interconnections between energy and the food system in agricultural, oil-importing countries have been a focus of OAS studies. In Costa Rica and Panama, agroindustry accounts for a significant portion of Gross Domestic Product and is seen as the key to future economic growth and development. A significant portion of each country's high imported petroleum bill can be traced to the sector, including petroleum products for production, transportation and processing, but also for fertilizers, chemicals and animal feeds.

Case Highlight 6

CNG as a Gasoline Substitute: Energy and Transportation in Colombia

Options for gasoline displacement in Colombia included dieselization of additional vehicles, increased use of electric transport, and the utilization of compressed natural gas (CNG) as a fuel. These substitutes were compared with gasoline and weighed against each other on the basis of:

· cost and availability
· pollution and safety
· short-term implementation and savings potential
· relations to the country's overall energy strategy

Increased use of diesel and electricity, especially for public transportation in urban areas, showed promise nationwide, although with a relatively high cost and little gasoline displacement. The real surprise was that the use of CNG on a regional basis demonstrated economic viability.

Most of the country's natural gas reserves are located in the Ballena-Chuchupa offshore fields at the northeastern tip of the country. These fields, containing 84% of Colombia's 4000 billion cubic feet of proven reserves, are linked by pipeline to the main ports and cities of the northeast. Additional utilization of the region's abundant gas has stagnated because of the high costs of additional inland infrastructure, a depressed international market for liquid natural gas and other exportable natural gas products, and the recent concentration on oil and coal development.

The project focused on a disaggregated analysis of CNG potential for the northern region of the country. Freight transportation is extremely important in the region, which has major ports and industrial centers and produces meat, milk, oilseeds, cotton and fruits.

CNG use requires a conversion system added to each vehicle. In addition, CNG service stations must be constructed at well-placed intervals to compress and dispense the gas. The project proposes a phased implementation, beginning with the construction of 18 CNG stations for light vehicles and buses in urban areas and for inter-urban passenger and freight transport. This network will service up to 4800 vehicles per day, and will allow CNG-fitted vehicles to operate in all major cities and along major highways, including the major north-south highway to the inland city of Bucaramanga, connected to the nearby El Centro gas fields.

Project costs for this phase are estimated at US$13 million plus about $4.7 million for vehicle conversions. Subsequent phases to meet the total demand in the region would require three times as many service stations, at a cost of $39 million over six years. The completed project would fuel 80% of the urban public transport and 50% of the interurban freight and passenger service. This would displace 3200 barrels of gasoline per day, or about 25% of the national gasoline deficit.

Increasing oil prices throughout the late 1970s and early 1980s, combined with decreasing prices for the primary agricultural commodities on which both countries rely, resulted in an imbalance in trade efficiencies between the two sets of commodities. This imbalance has been compounded by export food sectors characterized by simple post harvest systems-crude commodity exports with little value added through packaging or processing.

The volume of coffee, banana and sugar exports (the primary agricultural exports of both Costa Rica and Panama) required to meet imports of crude oil has increased significantly with rising oil prices. Even with the current decline in oil prices, imported fuels and chemicals still represent up to half of total food production costs.

Case Highlight 7

Energy Conservation in Transportation Montevideo, Uruguay

A comprehensive study of the transportation system in Uruguay revealed important opportunities for energy savings throughout the country. Fifteen opportunities of energy rationalization were identified.

Because data on energy use in the transportation sector were incomplete and disorganized, one of the fundamental steps in the project was the collection of data and the design of a data base on the Use of Energy in Transport (UET). A new system, including the data base and the expansion of an existing energy planning model to include the transportation sector, was constructed as a means for ongoing planning and analysis for the program's counterpart agency, the National Energy Bureau (DNE).

Among the recommendations resulting from the analysis of options for rational energy use in transportation were:

· Renovating the urban bus and trolleybus system in Montevideo. The program recommended that the Municipal Government of Montevideo (IMM), in collaboration with the DNE, restructure the entire public transport system of Montevideo, including redesigning the bus routes, investigating the use of smaller buses and extending the trolleybus system.

· Establishing a "piggyback" system for transporting empty trucks returning to the countryside from Montevideo. The program recommended that the Ministry of Transportation and Public Works concentrate on implementing this "piggyback" system to bring energy savings in the short term. Medium- and long-term savings to promote rational energy use in highway cargo transport include reforming the railroad system and central freight terminals.

· Implementing a wide range of policies to improve the efficiency of the transportation system, including import taxes, pricing, and administration.

On the basis of the results of this initial energy and transportation program, the OAS and the municipal government of Montevideo are now developing a new urban transportation system and plans through the year 2000.

Studies carried out in Costa Rica and Panama examined the interconnections between the two sectors, aiming to help both national governments make integrated policy decisions to maximize economic benefits derived from these two sectors. Structurally, the projects had to integrate the efforts of many agencies and sectors, including energy, planning, agriculture, transportation, agribusiness, etc. A vertical analysis of the food sector, from production to final distribution, revealed opportunities for savings.

At the production level, the possibility of substituting unused agricultural wastes - coffee and rice hulls, banana starches and fish byproducts-for fertilizers and animal feeds were examined. Also, opportunities to reduce losses during processing and transportation were identified.

Food transportation accounts for a significant portion of fuel use in agriculture. Opportunities for fuel conservation in transportation were outlined. For example, in Costa Rica, unhulled rice was transported to mills in San Jose, resulting in the transportation of hulls and water. Processing goods at the production site could eliminate the transportation of wastes.

In addition, it was recommended that priority on the identification of value-added products for export, be placed bringing greater economic return to the country.

Energy and natural resource management

Natural resource management played an important part in the OAS Human Settlements Energy Program, carried out in the English-speaking Caribbean. The countries involved in the program face energy problems unique to small island states, with no known hydrocarbon resources and small and isolated energy demands. While certain activities in these countries (such as transportation) depend on imported oil, biomass resources form the basis of energy supply for the majority of rural and low-income urban residents. Neither situation is likely to change in the foreseeable future. Energy development activities in the region must focus on management of forest resources in order to secure future energy supplies.

Yet the issue includes more than the energy sector alone. Inadequate management of forest resources can result in deforestation, soil erosion, sedimentation problems, and overall environmental degradation, severely affecting other economic sectors. Therefore, while protecting future energy supplies, biomass management efforts can reduce other economy-wide threats.

General suggestions for sectoral integrated energy development programs

Sectoral integrated energy development is much less amenable to methodological development than regional integrated energy development because of the wide differences between sectors and countries. Specific methodologies will have to be developed on a case-by-case basis. However, some general suggestions can be made for projects of this category based on the experiences gained in the technical assistance programs just described.

1. Make a preliminary analysis of the importance of energy in the sector in question.

Before undertaking a major program in the integration of energy within a given sector, it is recommended that the office initiating the activity make a preliminary analysis of the extent of the linkages between energy and the activities in that sector, with specific focus on the likelihood of significant benefits if integrated energy actions were to be undertaken. In other words, it is essential to determine if there is a problem and if reasonable actions are available to effect significant change.

2. Guarantee Intel-institutional support and participation at the highest levels before initiating a sectoral integrated energy program.

To ensure the support needed during and, more important, after a sectoral integrated energy development program, the decision to initiate such a program must be made at the highest levels of authority within the participating institutions. As part of this decision, an inter-institutional technical team should be appointed to work together on the program, providing the direct day-by-day technical liaison between the program and the represented institutions.

3. Identify and prepare integrated energy information for the sector.

The technical team should make an initial identification of the major energy issues in the sector in question. Using these guidelines, the team should identify the data required to assess these issues, and then seek this data from the databanks of the participating institutions. It has been confirmed repeatedly by experience that the desired data often will not be available and a variety of surveys and statistical analyses will be required to attain an adequate level of information. Creativity and innovation are required at this step to generate this information within the time and resources available. The generated database and its methodologies must be carefully organized, documented, and set in a framework that is easily replicable in the future. This will provide a meaningful measurement of changes occurring automatically with time or resulting from policy initiatives.

4. Identify and select lines of action for integrated energy development within the given sector.

From analyses of the database that has been developed, structured interviews with experts within the sector, and the judgment of the technical team, this same team should identify potential lines of action to resolve energy problems in that sector (improve its productivity, reduce its energy consumption, etc.). These lines of action should be evaluated in sufficient detail to allow decision makers within the represented institutions to assign meaningful priorities and to select the lines of action to be analyzed in detail.

Case Highlight 8

Energy and Natural Resource Management: Saint Lucia

The critical role of biomass in the energy supply of the Eastern Caribbean states, especially for lower-income groups, was confirmed early in the Human Settlements Energy Project. While firewood and charcoal account for less than one-third of total energy consumption, it is estimated that 70-80% of all households in the region are at least partially dependent on biomass. The commercial energy supply, virtually all based on imported products, serves mainly the small upper and middle classes.

In Saint Lucia, over 70% of all households rely on biomass for energy; in low income, rural areas an estimated 85% of all households use charcoal or firewood. These traditional fuel supplies are likely to remain predominant in the future due to a combination of cultural preferences, high prices and limited availability of electricity and petroleum-based fuels, and the financial inaccessibility of modem LPG, kerosene or electric appliances.

Due to the extreme dependence of most human settlements in Saint Lucia on biomass, the Human Settlements Energy Project first focused on an assessment of the resource base. While present forest reserves appeared adequate, a computerized analysis discovered alarming trends.

Under the present utilization rate, some 3000 hectares, or 12%, of the total suitable forest reserves were being consumed annually. At that rate, serious biomass shortages could be expected within 8-14 years. The decline in biomass availability was seen to be more than solely an energy supply problem:

· As easily accessible, primary forest is depleted, other forest species with a higher economic or ecological value would be exploited.

· As firewood and charcoal became more scarce, imports of petroleum products would increase, requiring additional foreign exchange and constraining other development programs.

· Environmental degradation resulting from diminished forest stands would cause numerous ecological and economic problems. Soil erosion could jeopardize agricultural projects; hydropower potentials would decline.

The serious and far-reaching nature of the potential problem led to the recognition that policy initiatives were essential. A joint study group, composed of government officials from the Energy Desk of the Central Planning Unit and the OAS, formed to recommend potential policies to reverse the problems.

A computer model adapted for the case study allowed planners to test various supply and demand cases and government policies. Three options were developed to improve the situation:

· A ten-year, 20 hectare per year Leucaena plantation program with an expected sustainable harvest beginning in 1992.

· The introduction of metal kilns capable of achieving an average charcoal conversion efficiency increase of 15% by 1988 and 20% by 1992.

· The reduction of import duties on kerosene stoves in 1988, generating a one-time, 30% shift from charcoal to kerosene.

The model demonstrated that, if implemented simultaneously, the three policies would conserve over 14, 000 hectares of forest by the year 2000, bringing a gradual and sustainable increase in biomass supply.

5. Analyze high-priority lines of action and prepare, analyze, and recommend sectoral integrated energy development policy and projects.

It has been seen in virtually all technical assistance programs that there is a natural tendency for data generation and problem analysis to be self-justifying. As in the case of regional integrated energy development, the activities of sectoral integrated energy development programs are justified only if they result in actions. Policy and decision makers must not be left with just information. They need specific recommendations for policy and/or investment actions that are shown to have desired effects and returns.

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