Environment, energy, space and economy (4E)

By Fabio Grazi

In the medium term, the scarcity of energy and environmental resources and the global dynamics of change related to their (over)use (climate change, for example) could call into question the economic and social development of a number of countries where AFD operates, which is often based on the use of natural resources. It obliges us to rethink energy production and consumption methods to ensure they have major economic, social and environmental impacts. This concerns a wide range of sectors (energy, transport, buildings, industry, etc.) and actors (States, State-owned companies, local authorities, private companies, civil society, etc.).

The definition of development policies is difficult in two respects: indeed, firstly, it requires the programs/projects that are implemented in Southern countries to be viable, but there is also the need to ensure that these initiatives are integrated into a broader operational framework, allowing the interactions between the global level and national governance to be addressed, particularly in the case of emerging and developing countries. In this context, investment decisions must take into account both the return on investment of development projects and the long-term effects of investments that aim to promote growth, access to natural resources (water and energy), the reduction of poverty and inequalities, and the limitation of environmental externalities at the global level (climate change) and local level (air and water pollution, floods, etc.). It may be worthwhile addressing these aspects separately in the case of the appraisal of specific projects, but long-term development trajectories require simultaneously taking into account these two aspects and analyzing their interactions.

Beyond the national level, the effective formulation of development strategies requires focusing on more limited but decisive levels. More specifically, issues concerning the sustainable use of space are particularly relevant in the context of development, whether it be land use, the structure of cites, inter- and intra-regional trade, population migration or the (re)location of economic activities. This type of analytical framework is currently lacking, whereas it is essential in order to propose a comprehensive and complete vision of “sustainable cities” and “resilient cities” (to the consequences of climate change). Questions concerning dependence on fossil fuels, climate change and urban development require taking into account local economic development issues and those related to the spatial organization of economic activity in particular. The Environment, Energy, Space, Economy (4E) program is a multiannual program with a twofold objective:

  • Contribute, through scientific production, to promoting and orienting a development of AFD’s activities towards a strong and responsible participation in the fight against climate change;
  • Provide strong intellectual support to AFD’s activities in terms of, on the one hand, assisting the economic systems of partner countries on low-carbon development paths and, on the other hand, exploiting the potential of French aid by exploring niches offered by energy infrastructure in emerging markets.

This program has been designed on the basis of two main thematic areas: I. Energy transition, climate change and the green economy; II. The territorial economy and sustainable urban development.

► Energy transition, climate change, low-carbon economy [+]

In order to ensure that there is a transition towards a low-carbon economy and thereby avoid the potentially high costs of this transition, the new economies and emerging economies need to make informed investment choices and public policy decisions, which take into account energy constraints and uncertainties related to the future effects of climate change. This area, based on the extensive literature on the energy economy and climate change, aims to inform the design and effective implementation of these choices and policies by developing quantitative tools to evaluate the short-term costs and long-term impacts of a wide range of decision-making measures, either in place or proposed, on many aspects of the economy (sectoral, intersectoral, aggregated): energy demand, greenhouse gas (GHG) emissions leading to climate change, economic growth and the long-term wellbeing of individuals.

It more specifically involves initially extending and strengthening the instruments to analyze the pathways for the expansion of the energy economy of AFD’s partner countries and the related GHG emissions, and subsequently using these new instruments to analyze future alternative pathways for economic development, energy demand, and the mitigation of GHG emissions in the various countries.

Five multiannual research projects are included in this area: A) Transition towards a green economy in South Africa; B) Energy and climate in China; C) Quantification of the uncertainty over the key determinants of GHG emissions in Mexico; D) Low-carbon growth in Mexico; E) Low-carbon economy in Indonesia. A summary sheet is provided for each project, giving the main details. 

A. Transition towards a Green Economy in South Africa

  • Question: What are the long-term economic development opportunities associated with the green economy in South Africa and what are the short-term costs?
  • Objective: The study seeks to provide a quantitative answer to this question by aiming to address, in a quantitative manner, the issue of the interface between future growth trajectories and the environmental dynamics in South Africa and its linkage between the short and long term
  • Start and completion dates: January 2012-January 2015
  • Research partner:  CIRED (International Environment and Development Research Center)
  • Total financing: EUR 250 k

B.    Energy and climate in China

  • Question: What policies can be effectively established to reduce the contribution that the Chinese economy makes to climate change, while ensuring the stability of growth trajectories and energy security?
  • Objective: This research has a twofold objective: the initial aim is to extend and reinforce the instruments to analyze pathways for the expansion of China’s energy economy and the related greenhouse gas (GHG) emissions. It subsequently involves using these new instruments to analyze future alternative pathways for economic development, energy demand and the mitigation of GHG emissions in China
  • Start and completion dates: February 2012-February 2016
  • Research partner: Massachusetts Institute of Technology (MIT)
  • Local partner: Tsinghua University Beijing
  • Total financing: EUR 625 k
  • Co-financiers: Shell Global; ENI; ICF International

C.    Quantification of the uncertainty over the determinants of greenhouse gas emissions in Mexico

  • Question: How to provide climate/energy modeling tools with more robust input variables and ensure that the resulting projections are also robust?
  • Objective: The objective of this research is to provide reference trajectories of the determinants of greenhouse gas emissions in Mexico that are sound and with a reduced margin of uncertainty
  • Start and completion dates: December 2012-April 2014
  • Research partners: Riso Centre/United Nations Environment Programme (UNEP)
  • Local partner: National Institute of Ecology and Climate Change (INECC)
  • Total financing: EUR 75 k

D.    Low-carbon growth in Mexico

  • Question: How to quantify the growth potential associated with the energy transition in Mexico?
  • Objective: The objective of this project is to develop and transfer technical skills related to the modeling of trajectories of economic wellbeing in Mexico under climate and energy constraints
  • Start and completion dates: January 2013-December 2014
  • Research partners: French Economic Observatory (OFCE) & Netherlands Organization for Applied Scientific Research (TNO)
  • Local partner: National Institute of Ecology and Climate Change (INECC)
  • Total financing: EUR 180 k

E.    Low-carbon economy in Indonesia

  • Question: What are the short-term costs and opportunities for long-term growth associated with the energy transition in Indonesia?
  • Objective: The objective of this project is to develop and transfer technical skills related to the modeling of growth trajectories in Indonesia under climate and energy constraints
  • Start and completion dates: September 2013-April 2015
  • Research partners: French Economic Observatory (OFCE) & Netherlands Organization for Applied Scientific Research (TNO)
  • Local partner: Indonesian Ministry of National Development Planning (BAPPENAS)
  • Total financing: EUR 180 k

► Territorial economy and sustainable urban development [+]

Despite repeated calls concerning the need for international action for sustainable development, this action is slow in getting off the ground. One of the main reasons is the difficulty in translating the general and rather vague notion of sustainable development into concrete principles and actions at local, regional and national levels, where governance is operationally effective. Taking account of the spatial dimension of the economy, by allowing a more effective management of resources, in particular via a distinction between sustainable and unsustainable practices in terms of land use, transport and the environment, contributes to sustainable development. In addition, the analysis of this aspect offers an opportunity to link policy instruments and objectives with concrete strategies for the choice of locations for consumers and companies and sub-regional, and inter-regional interactions between them, which in turn enhance the attractiveness and sustainability of the local system.

Urban sustainability, urban economic development and urban attractiveness may be considered as being compatible with a range of local development trajectories, where environmental and socioeconomic aspects interact to contribute to this development. In this respect, the fundamental principles of sustainable development, which are broad and abstract by nature, can be defined in the form of concrete strategies and policies.

AFD has historically formulated strong ambitions in terms of strategies and positioning for urban development. In the context of its function to produce knowledge and mobilize expertise, the “4E” research program develops a second thematic area on the spatial and urban economy, which aims to support the consolidation of the operational and financial activities conducted by AFD Group in the field of local sustainable development. This thematic area aims to provide forward-looking assessment tools, which contribute to informing on the effectiveness of projects and public policies for urban economic development, in particular by developing analytical tools combining the dynamic, spatial (including environmental) and economic aspects of urban development.

The results of this type of analytical framework, which integrate economic development and the effectiveness of the management of the resources of these studies, are intended to feed into reflection and support AFD’s financial activity to assist in the definition of the public policies of cities and the territorial development strategies proposed by partner territorial authorities. Given the increasing fear that the management of global challenges (especially climate change and the depletion of natural resources) will prove costly and therefore prejudicial to economies that are already vulnerable, this area consequently aims to emphasize the role of local urban policies as measures that are complementary to “green” international strategies.

The outcomes related to this thematic research area take the form of scientific papers produced in-house, which are intended to be published in international academic journals, as well as in collections destined for a broader public, particularly sustainable urban development practitioners. A selection of the publications available today in this field is given below:

  • F. Grazi, H. Waisman, J.C.J.M. van den Bergh. 2014. ‘An Analytically Solvable Agglomeration Model with Environmental Externalities. Ecological Economics (en révision).
  • F. Grazi, H. Waisman, J.C.J.M. van den Bergh. 2014. ‘The Geography of a Sustainable Economy’. Environmental and Resource Economics (en révision).
  • J.C.J.M. van den Bergh, F. Grazi. 2014. ‘Footprint Policy? Land Use as an Environmental Indicator’. Journal of Industrial Ecology 18(1), 10–19
  • L. Lampin, F. Nadaud, F. Grazi, J.-C. Hourcade. 2013.‘Long-term Fuel Demand: Not Only a Matter of Fuel Price’. 2013. Energy Policy 62, 780–787.
  • H. Waisman, F. Grazi, C. Guivarch, J.-C. Hourcade. 2012. ‘The Imaclim-R Model: The Role of Infrastructures, Technical Inertia and Imperfect Foresight in the Transition Costs Towards Low Carbon Intensive Futures’. Climatic Change 114(1), 101–120.
  • J.C.J.M. van den Bergh, F. Grazi. ‘On the Policy Relevance of Ecological Footprints’. 2010. Environmental Science and Technology 44, 4843–4844.
  • F. Grazi, J.C.J.M. van den Bergh, J.N. van Ommeren. 2008. ‘An Empirical Analysis of Urban Form, Transport, and Global Warming’. 2008. The Energy Journal 29(4), 97–107.
  • F. Grazi, J.C.J.M. van den Bergh. 2008. ‘Spatial Organization, Urban Transport and Climate Policy: Comparing Instruments of Spatial Planning and Policy’. 2008. Ecological Economics 67, 630–639
  • F. Grazi, J.C.J.M. van den Bergh, P. Rietveld. 2007. ‘Spatial Welfare Economics versus Ecological Footprint: Modeling Agglomeration, Externalities, and Trade’. Environmental and Resource Economics 38, 135–153
Last update in December 2015

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