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p. 22 of 30 BACK | NEXT Introduction Regional Energy Context Energy Policy Issues Structural Reform Energy Efficiency Energy Pricing Energy and Environment Rural Energy Development Regional Cooperation and Energy Development Conclusions and Recommendations

Bank Policy Initiatives for the Energy Sector : Energy Policy Issues

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Energy and Environment

56. Most energy production, conversion, transportation and utilization activities have significant adverse environmental impact. However, driven by the imperatives of population growth and economic growth and the present low levels of per capita energy consumption, most DMCs cannot avoid continuing growth in energy consumption. Further, because adequate quantities of alternative sources are not readily available, many DMCs (notably PRC and India) cannot substantially reduce their large dependence on coal to meet their commercial energy needs. It has therefore become urgent to mitigate the environmental consequences of such growth (see Box 4).¹

57. The emphasis, so far, has been to adopt suitable measures to mitigate the adverse environmental impact of each project on a case-by-case basis, mainly through carrying out comprehensive environmental impact assessments and designing mitigating measures, which are appropriately covenanted. The Bank has produced a manual for the selection of cost-effective emission control systems for coal-fired power plants.² The Bank has also developed comprehensive environmental guidelines related to hydropower, thermal power, power transmission, oil and gas transmission and distribution as well as mining. Increasingly, the Bank will emphasize the need for DMCs to incorporate systematically environmental considerations as well as social considerations (such as resettlement and rehabilitation) and the associated costs and constraints in their energy planning models so that project costs adequately reflect the environmental and social costs.³ While an ideal method of internalizing the external environment cost has not been found, several practical methods are in use. Among these, use of pollution control costs as a proxy for actual damage costs or actually carrying out surveys to estimate damage costs are relatively well known. The Bank plans to use its TA resources to assist DMCs by undertaking studies to develop typical damage cost estimates. In this context, the Bank brought out a publication in August 1986 titled Economic Analysis of the Environment Impacts of Development Projects. Further, work is being carried out under a recent TA⁴ .

58. Increasing attention will be paid to ensure the participation of beneficiaries in the development of energy sector projects and avoid or minimize involuntary resettlement, wherever feasible. If population displacement is unavoidable, the Bank’s strategy would be to ensure that the project-affected persons are at least as well-off after resetttlement with the project as without it. Favourable resettlement will be beneficial from social and environmental considerations and will promote more equitable development. The Bank will encourage the efforts of governments to promote consultation with beneficiaries on proposed energy sector development plans and projects and their implications to the beneficiaries.

59. Adverse environmental impacts can be local, regional/national, transborder and global. Global concerns have to do with the accumulation in the atmosphere of carbon dioxide (CO2) and other greenhouse gases, and the climate change that these gases are believed to cause. They also relate to the depletion of the high altitude ozone layer because of excessive release of chlorofluorocarbons (CFCs) from refrigeration devices. Most DMCs are signatories to the Climate Change Convention of 1992 at Rio de Janeiro, and the Bank will generally assist DMCs in abiding by the Convention. However, some DMCs (such as PRC and India) will have to continue using large quantities of coal. To avoid transborder problems such as emissions from a DMC causing acid rain in adjoining countries, the Bank could undertake regional studies within the framework of its regional cooperation mandate to encourage governments to cooperate in abatement measures and facilitate inspection of power utilities to ensure that they meet regionally agreed standards. In collaboration with the World Bank, the Bank is already developing a computer model Rains Asia⁵ to analyze the acid rain problem and to arrive at optimal policy responses. Promoting the export of power from a DMC to another country could be considered if it clearly leads to a reduction in the relative levels of local and transborder environmental impacts. Export of hydropower from Myanmar and Lao PDR to Thailand and from Nepal to India could fall under this category.

60. In dealing with local and regional impacts, the Bank will continue to play an active role. The requirement to carry out comprehensive environment impact assessment (EIA) studies will be used to evaluate national environmental standards and to stipulate project specific norms, taking into account the current and projected background and incremental pollution levels. Emphasis will be given to incorporating mitigating measures such as flue gas desulphurization, denitrification,³ etc. or making suitable provisions for adding them when background pollution levels increase, as well as to encouraging a strong monitoring and enforcement program for this purpose. The Bank will also encourage DMCs to stipulate emission level standards rather than solely rely on ambient air quality standards. The Bank will insist on provision for automatic shutdown of plant when O&M of the environment protection measures (e.g., electrostatic precipitators) fail, or when the monitoring program indicates an unacceptable level of pollution. Appropriate control and monitoring equipment will be procured as part of the capital equipment and, wherever possible and necessary, third-party monitoring of O&M of the environment protection arrangements will be encouraged.

61. The Bank will encourage washing and benefication of coal and blending of coal to minimize problems relating to the emission of particulates and SOx . Through its TA and loan instruments, the Bank will promote the use of clean coal technologies, such as fluidized bed boilers, integrated gasification and combined cycle plant and coal gasification, as and when they become economically viable options for use in medium to large-size units. Finally, whenever the Bank funds a large coal-fired power project in a DMC, it will also encourage the DMC to invest simultaneously in a large reforestation program, or support major forest or biodiversity conservation programs since forests act as CO2 sinks.⁶ These considerations will be taken into account when country operational programs are prepared.

62. The Bank will actively promote and support cost-effective options that result in the lowest production of CO2 per unit of electricity generated. Options of this kind include (i) retrofitting and rehabilitating existing thermal power stations to improve their heat rates; (ii) using combined cycle technology with natural gas or oil as fuel leading to high efficiencies, of the order of 50 per cent; (iii) using cogeneration units, which utilize the spent low pressure steam from the power plant for production processes and hot water for district heating; and (iv) implementing load management, better plant utilization and higher levels of efficiency of generation. Reduction of system losses, and more efficient O&M of power systems are other major options the Bank has emphasized. The emphasis needs to be continued in many DMCs (such as Bangladesh, India, Indonesia, Pakistan and the Philippines) as there is considerable scope for reducing transmission and distribution losses.

63. The Bank will continue to extend its support for technically and economically feasible hydropower projects, which form part of a country’s least cost energy development plan, provided their environmental effects (including those on fisheries) and social effects, if any, can be satisfactorily managed in accordance with established Bank policies. Potential hydropower projects will be evaluated in the context of integrated water resource management of the entire watershed and take into consideration, to the extent possible, the cumulative impacts of possible future reservoir developments. Projects exploiting steep rivers, which offer relatively high water heads (drops), are generally more economically feasible than those with low heads, since the lengths and sizes of waterways required to generate a given amount of power generation are reduced. High priority has been given by the DMCs and by the Bank to this type of project particularly when coupled with limited water storage and proximity to a power transmission grid. However, projects with such attractive topological features are limited, and many of the available sites have already been developed. As a result, it has become necessary for the DMCs to consider utilization of water heads available over longer lengths of river flow with storage facilities in most cases to provide additional head as well as regulation of water flow. Since rainfall, and consequent river flow, varies from season to season and from year to year in most DMCs, a certain extent of reservoir storage is necessary in typical hydropower projects to ensure the reliability of energy supplied and maintain economic feasibility. Measures to mitigate environmental impact of such reservoirs and compensation for social disruption that might arise as a result of their construction (after exploring alternative approaches to avoid or minimize involuntary population displacement), need to be fully reflected in the project design and costs, and balanced decisions taken between implementing run-of-river type projects involving limited storage and large-scale storage based hydropower developments.

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