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Support for developing countries: pathway to a greener future

Welcome to the thirteenth series of the DNV Talks Energy podcast, hosted by Mathias Steck. In this series we explore the key insights from DNV’s latest Energy Transition Outlook and what they mean for the future of our planet. We explore the geopolitical developments affecting the energy transition, and what’s needed from technology, finance and policy in delivering net zero. Crucially, we explore: how do we move from ambition, to urgent action over climate change?

In this eighth episode, we explore how policy can be used to support developing countries as they move away from fossil fuels to a greener future powered by renewables.

Host Mathias Steck is joined by Jie Tang, Practice Manager for the Energy and Extractive Global Practice of The World Bank. Together we hear real-world examples from the energy projects supported by The World Bank.

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MATHIAS STECK    Hello and welcome to the 13th series of the DNV Talks Energy Podcast. I'm your host, Mathias Steck. During this series, we'll be exploring some of the key insights from DNV's Energy Transition Outlook, our annual independent model of the world's energy system, and what they mean for the future of our planet. Across the series, with the help of leading industry guests, we'll shed light on what's happening right now and the forecast as we move forwards. We'll explore topics from the geopolitical developments affecting the energy transition to what's needed from technology, finance and policy in delivering net zero. Crucially, we ask - how do we move from ambition to urgent action over climate change?

I'm delighted to be joined by Jie Tang, Practice Manager for the Energy and Extractive Global Practice at the World Bank. Today we'll be looking at examples of where ambitions have been turned into action, discussing real world examples from the energy projects supported by the World Bank and why these projects are so important in driving the energy transition forward. We hope you enjoy the episode.

Welcome to the DNV Talks Energy podcast, Jie. It's a pleasure having you with us here today.

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JIE TANG    Hi, Mathias. Thank you very much for your invitation. It's a great pleasure to be here.

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MATHIAS STECK    Jie, for the benefit of our listeners, before we start, could you give us some background about yourself and your role at the World Bank?

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JIE TANG    Okay. Thank you. My name is Jie Tang and I joined the World Bank at 2001, about 21 years ago. Before joining the bank, I worked about 15 years in the Chinese government on hydropower development, particularly the Three Gorges Dam - you, maybe you have heard, right? I've worked there 15 years on the Three Gorges Dam in China. After joining the World Bank, I've been working on the energy program of the World Bank and I am currently the Practice manager for Energy and the Extractive Global Practice of the World Bank, covering the East Asia and Pacific countries. Basically, I'm covering the World Bank energy business in 26 East Asian and Pacific Island countries, and I'm based here in Singapore.

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MATHIAS STECK    So Jie, I want to come back to this great experience you shared: working at the Three Gorges Dam and the importance of hydropower for the energy transition. But before we go there, in your opinion, why are renewable energy projects in low income regions, regions the World Bank predominantly focuses on, so important in enabling us to drive forward the energy transition?

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JIE TANG    Yes, you see, particularly low income countries, right? Their energy is pretty much dependent on a lot of imports of fossil fuels for support of the energy demand. This is a case in low income countries in East Asia and particularly in the Pacific island countries, you know, all the power generation, as well as transport energy, depending on fossil fuel import. Scale up renewable energy is really good solution, where those countries can go to their indigenous resources available within their country. And then even the development in the international market, right, the price is much more affordable. So, from both energy security perspective and supply and demand awareness, as well as cost management and logistics management, renewable energy plays a critical role for energy transition and also for the sustainable growth of their economy and social lives, in those low income countries.

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MATHIAS STECK    What about the available financing to drive innovation in renewables for these countries? Is there enough or do we need improvement there?

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JIE TANG    Financing is a huge challenge. So I would go a little bit beyond the low income front and talk about East Asia countries. Basically, you see, if you talk about climate change, right, about 56% of the CO2 greenhouse gas emissions is coming from Asian countries. And then, for coal consumption, around 71% of the world coal consumption is happening in Asian countries, particularly in 6 major countries: China, India, Vietnam, Philippines, Indonesia and Pakistan. These 6 countries consume 71% of the world coal consumption. So when you come to energy transition, first, all these countries have their national determined commitment, right, toward the climate change. Even to allow them to achieve those and easy targets, our estimation shows that around USD 9 trillion will be needed in the next 20 years, just for these 6 countries. Then if you take the other countries in the Asia, right, so there is a huge financial risk. And to be Paris Agreement aligned, right, those countries even need to step up their commitment, the renewable energy and the energy efficiency than what they have committed for the NDC, to be Paris Agreement aligned.

So the investment on renewable energy and energy efficiency will go up to USD 13 trillion in the next 20 years. Then where the financing is coming from? Certainly, the public resources are very scarce, right? Then there is huge money available from the private sector. And then, the critical issue is - where do you have the enabling environment to mobilize those critical funds, right, both domestically and also internationally? Then, international financial organizations like World Bank, we see, play a critical role, also in helping governments to create the enabling environment, the investment in de-risking and also mobilize targeted private sector investment. Our estimation also show that among this USD 9 to USD 13 trillion between NDC or more aggressive climate change action by different countries, at least two-thirds of the money has to come from the private sector.

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MATHIAS STECK    Yeah, on that. So World Bank is of course playing a crucial role here, but how can more organizations support the World Bank's energy projects, either financially or through provision of technical or education assistance?

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JIE TANG    Yeah, so this an important part. Not only World Bank, but together with multilateral international financial institutions, like regional banks, like ADB, and also the European donors, right, we are working towards a collaborative approach, advising governments on key policies and reform needed to create the enabling environment in each of the individual countries, particularly in those 6 countries where the World Bank is focusing on because that's where the greenhouse gas is coming from, right. Without success in those 6 countries, we won't win the battle against climate change. So World Bank, together with other international financial institutions and development partners, including bilateral partners, are working on a coordinated approach, advising governments on policy and institutional reforms to enable renewable energy, energy efficiency and energy transition and phasing out coal.

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MATHIAS STECK    In this series, we talked about the need for strong policy intervention to drive the energy transition forward. In your opinion, what should this look like and how might it differ in the low income regions the World Bank typically supports?

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JIE TANG    Yeah, I think for - from policy side, right, you need to really sit in the seat of the policy decision makers' seat, right, you need to look from their perspective. So for each country, their priority is energy security, right. And then second is cost and the competitiveness of their economy. And the third is international commitment like NDC, right. So how the policy will drive that energy transition, I think is driven by these three factors. As policymakers, right, you need to think about how to drive the energy transition, but make sure that there is a sufficient supply of energy. So that will be translated into government policies. What technology, right, what kind of project should we invest in? So we call that system planning. So that will be translated into planning side - what investment and what project need to come in line over the next 5, 10, 20 years, right, to - will ensure energy security. At the same time, you know, you drive the least cost of energy supply to meet the economical growth demand. At the same time, meet your international commitment on greenhouse gas emission reduction. So those policies are linked to those three underlying objectives, right, the government is looking for.

But when it comes to low income countries, right, is slightly different. They are not a major emitter of the climate change, right. So those countries are - basically are very vulnerable to climate change. So from policy perspective, then I have to focus more on resilience, right? When we talk with a low income country and smaller country where the emission is less than perhaps 1% or 0.1%, then how this country can be adaptive to the climate change and to be prepared for the vulnerability, right, of their economy and the infrastructure to climate change. So these are the key area for policy, mainly on adaptation side rather than mitigation side. That's how I see it.

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MATHIAS STECK    So now I'm really curious to learn more about the time you spent on the Three Gorges Dam. And as I understand, that's the world's largest power station in terms of installed capacity since 2012. Could you tell us a bit more about the work on this project and the impact that has in terms of power generation in China? And should this project somehow serve as a role model for deployment of hydropower generation also in other countries?

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JIE TANG    Yeah, from my side, this is really a good role model from both Chinese perspective as well as international perspective, right. So I started working after graduation from college in 1985. Then I started my career at the Three Gorges, starting from a technician eventually to the assistant to the president, and also as assistant to the deputy to the Prime Minister in the State Council for managing this project. So I went through the entire process of knowing about the - the preparation, implementation, decision-making.

Three Gorges for me, yeah, it is one of the largest projects. For first stage, it have 18,200 MW generation capacity installed and later expanded to 22,000 GW. So this one project, right, I remember when we do the justification at the feasibility study stage, right, the power generation would equal to, at that time, right, 1/9th of the total power generation in China, one project. And it would replace 6000 tons of standard coal of energy, right, every year, so based on the annual production. So, from both international perspective as well from country energy security cost perspective, right, it brings cheap and reliable electricity to sustain the huge and fast growing economy. But on the other side, it replaced the fossil fuel coal, right, because the alternative is coal power. And it reduced greenhouse gas emission reductions, replacing 6000 tons of coal consumption per year.

On the other side that you took, really, even from the World Bank perspective, when I look back about this Three Gorges, right, take more or less like a international standard impact assessment on the environmental social side and also there is a huge cost to invest to mitigate the social and environmental impacts. The cost of the - on the environmental social side almost equal to the cost invested on the infrastructure itself. That's how I see the project right now that I'm really proud of - will be part of the program; and again, the huge experience from Three Gorges Hydropower.

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MATHIAS STECK    So, in DNV's Energy Transition Outlook, we forecast that the share of hydropower in the electricity mix is slightly going back from 16% by 2020 to about 13% by 2050. But that's actually only because all the other renewables are growing so strong. Well, do you see that hydropower could actually play a larger role if we would have more of these projects, like, for example, Three Gorges?

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JIE TANG    I think hydropower need to play a critical role, but perhaps not a larger role, right. The reason why the share is going down is also because of the fast growing of other renewables tech like solar and wind. And solar and wind has its unique advantage. It can be developed in relatively very quick time schedule. It can be distributed across to the load center, right. So it will - from the power system point of view, as long as you have the sufficient power system capacity and the flexibility to cope with the variability or intermittence of those renewable energy, then it can play a very - you know, it can be a low hanging fruit right, you know, in resolving your energy demand or power demand. That's why the solar and the wind is going so fast in those countries.

Compare large hydropower or hydropower, right. It has its unique advantage. It can provide both baseload or peaking capacity for the power system. It can be developed in large scale and provide a stable source of generation from the power from technical perspective, right. But it's huge and complex, and particularly its environmental social impacts, right. You see internationally there are so many NGOs and they defend the community against the hydropower development, right, because you - you will have impacts on environmental social side where you need a full study and also mitigation measures in place and also implementation process, right. You will also have huge challenges on how you bring the local community together with the development, how you manage the benefit sharing with the local community. So hydropower is a much more complex, you know, projects, even it has a great advantage on clean energy, on energy transition. But the development side, it need huge capacity and financing and also engagement with the various stakeholders to make that happen. Compared with solar and wind it's relatively simple, can be put in place very quickly close to the load center.

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MATHIAS STECK    So coming back to the World Bank, the World Bank is working for sustainable solutions that reduce poverty and build shared prosperity in developing countries. Could you give us some examples of the World Bank's energy programs and how they actually differ from region to region?

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JIE TANG    I work in two regions, perhaps we can compare these two regions. I work in South Asia region and East Asia region for the World Bank and slightly touch the Africa region. I think in East Asia region, right, there is a - you know, if you look at the energy program, our key focus is renewable energy transition. I talk about the 6 countries in Asia countries, right. Now from World Bank's side is East Asia countries, which is including China, Vietnam, Indonesia and Philippines. These are the 4 countries under my program and my coverage. And they are consuming around 60% of the coal consumption in the world. So how to slow down the coal? And then, at the same time, help the governments secure the energy supply and manage the cost of their electricity, as well as help them to achieve their NDC target and commitment, right, is a critical part of the World Bank energy program in East Asia.

The second part is really still access, right? There are more than 100 million people in East Asia which still do not have access to electricity. So this is pretty much similar to Africa region. The key area where you are still talking about the access agenda is really Myanmar. Only maybe 50% of the population still do not have access to grid electricity. And also in Pacific Island country, if you look at all the 12 countries I'm looking care of, right, only around 20% of the people have access to grid electricity. So the second major part, which is the same as other regions, it is the access agenda.

I think a third is really the innovation side, right. We see many of the technology - we're talking about the disruptive technology which can help energy transition. Many of the technology in East Asia side is driven by Korea, Japan and China, particularly for battery storage, hydrogen, carbon capture and the utilization. So from World Bank's side, we are watching how these countries evolve and technology innovation that can benefit not only this region but also the other regions. So this may not be the same case like in Africa region, right. So these are the difference I see: the different focus, and given the different status of development and the role that region is playing from the global perspective.

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MATHIAS STECK    So, Jie, what are the World Bank's main objectives for its clean energy programs and what would success look like in your view?

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JIE TANG    Okay. So both our objective and success I have to take a - kind of maybe two steps of approach. Firstly, you know, this World Bank operate at the international community, right. We are encouraging governments, every country to come up with a national determined commitment for climate change, combined with their own development agenda. So the first step is, for World Bank, is really help all the client countries develop its renewable energy and energy efficiency to achieve their commitment of NDC target. At the same time, there are sector development objectives, right. So this varies from country to country. The commitments are different. And also the sector developments from their own perspective, right, are also different. That's our first step. So our success is really working with the governments on 5-year, 10-year planning on how to achieve those targets, then measuring on a yearly basis on how the renewable energy, energy efficiency is evolving - with World Bank support, but of course in partnership with other development partners, right, from financing point of view.

And then the second step is really encouraging governments to go beyond this, right. So this is also depending on the political will of different governments, from their own perspective, on how they want to play in the international community. So, so far, we find that even we do our detail modeling and we find out, right, from the power sector perspective, if governments try to achieve their NDC target, still, this will not allow greenhouse gas emission reduction in the pace that is needed to be Paris Agreement aligned. So the World Bank has done a detailed analytical work on additional work that needs to be done to accelerate the decarbonization, going beyond even the NDC target that the government has. So these are the second steps of the objective of World Bank energy program is to continue policy dialogue, work with development partners and the governments, right, to accelerate the decarbonization. But of course, that will be additional cost to the country, to the economy. Then on the other side, we're working with the development partners to mobilize concession financing, to support government to go next step of decarbonization, so that it achieve not only its own development objective, but also contributing to the climate change mitigation.

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MATHIAS STECK    So the detail you just mentioned about the World Bank having annual targets for the implementation, that reminds me very much of a discussion we had with Ditlev Engel, our CEO in DNV, for how we drive action. And he was so particular about - that it's not enough to define targets for 2030 or 2050. We need to define tangible targets on a shorter term. So that's very much in sync there. So what do you think needs to be achieved in order for all nations to turn their ambitions into actions in order to achieve net zero?

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JIE TANG    Yeah, I think then, for - to improve the ambition, right, it's need the combination of medium-, long- term target versus earlier action and target, right. If you have only one part, then, if you only have annual target, you won't have the big picture, you don't know - how about 5 years, 10 years, 20 years later, where you are going to. But if you do not have a long term target, then your annual target will - justification of the annual target will also be a question, right. So we work on both.

Then, the work on the ambitions side, is what I just said, talked about, right. In all countries, we do continuously analytical work on what is needed for each country to play their role to collectively contribute to achieving the Paris Agreement target. Then that is converted into our daily policy dialogue with key decision makers in the country. What should be the policy and target and the planning down the road for the long term as well as an annual target? Then of course, governments, I see increased political will in, you know, advancing decarbonization, both for the benefit of the country as well as for the climate change - from the different governments, right, we're dealing with. But the challenge for them is really the incremental cost, right, which may go beyond their capacity. So you can see some of the country has a conditional commitment to NDC, which is much more aggressive, without international support, right. Then if you have international support, they have much more aggressive targets than without international support. So from World Bank side, is on one side, raising the ambitions together with the government, but on the other side, mobilize support to allow the government being able to achieve those increased ambition on climate change.

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MATHIAS STECK    Jie, how about the alignment of commitments of the countries towards 1.5 degrees? How optimistic are you there?

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JIE TANG    Yeah, maybe - mainly from - based on World Bank analytical work, right, based on also the last nationally determined commitment from different countries, we see there is still a gap towards a 1.5 degree target of the Paris Agreement. Countries will need to step up their decarbonization process, raise their ambition in order to be aligned with 1.5 degree. So for this gap, this is also part of the key operations of the World Bank, you know, energy program in this region. We are working with the governments on revise the targets, on how to be aligned with the 1.5 degree. And we also see there is a strong political will from the governments in trying to achieve not only the national development objective but also climate change target, to be Paris Agreement aligned. But the challenge for the countries is really the incremental cost, right, in order to step up the decarbonization.

As I mentioned earlier, the investment in the power sector per se would go from $9 trillion to $13 trillion to meet - versus meeting NDC target and then 1.5 degree aligned. So there is $4 trillion just on the investment side. This will result in the cost of electricity increase between 10 to 10% among the key East Asia economies, right, like India and China, Vietnam and Philippines, Indonesia. So how do you manage the incremental cost, this challenge faced by the policymakers? Then the World Bank say - the future would be a close collaboration between international community as well as country government, right. On one side they raise the ambition, but on the other side provide additional support, particularly concessional finance, to help the government to mitigate, you know, macroeconomic as well as social impacts, right, because of the increased cost of decarbonization. At the same time help them to achieve what they have committed and even raise their ambition.

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MATHIAS STECK    Thank you very much, Jie, for this really interesting overview of this important work the World Bank's doing and on the regional differences. It was a real pleasure having you with us today.

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JIE TANG    Okay. My pleasure. Thank you for this opportunity.

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MATHIAS STECK    Thanks for listening to this week's episode. Jie's fascinating explanation of how the World Bank supports renewable energy projects all over the world shows just how far some countries have come on their path towards net zero. He also explained how finance and policy can be used to support developing countries as they move away from fossil fuels toward a greener future powered by renewables. Jie reminded us that despite some excellent progress, the world is still on course to miss the targets set by the Paris Agreement and that holistic, coordinated action is needed now, if we are to reverse this trend.

To hear more podcasts in the series, please visit dnv.com/talksenergy.

 

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