Testimony: Increasing Funding for Energy Programs at USAID

Introduction

My name is David Nemtzow. I am the President of the Alliance to Save Energy, a bi-partisan, non-profit coalition of business, government, environmental, and consumer leaders dedicated to improving the efficiency with which our economy uses energy. Senators Charles Percy and Hubert Humphrey founded the Alliance in 1977. The leadership of the Alliance is also a partnership between the private sector and government chaired by Senator Byron Dorgan (D-ND) and co-chaired by Dean Langford the former CEO of Osram Sylvania. Over seventy companies currently participate in the Alliance's Associates program and with your permission Mr. Chairman, I would like to include for the record a complete list of the Alliance's Board of Directors and Associates. This list includes the nation's leading energy efficiency firms, electric and gas utilities, and other companies committed to promoting sound energy use.

The Alliance has a long history of designing and evaluating energy efficiency programs in the U.S. and abroad. We also have a history of supporting efforts to promote energy efficiency that rely not only on mandatory federal regulations, but on partnerships between government and business and between the federal and state governments. The Alliance to Save Energy strongly supports the energy efficiency programs at the US Agency for International Development (USAID) and appreciates the Committee's past support of these valuable activities. We believe that USAID plays a vital and unique role in supporting efforts to promote the development of sustainable energy policies in developing countries. USAID's funding for energy efficiency, renewable energy, and power sector reform not only helps to leverage millions of additional dollars in foundation, development bank, and other federal agency support, but also spurs the transfer of energy-efficient technologies and services overseas. By working with the private sector to design and implement policies that break down barriers to energy efficiency activities, USAID has been instrumental in helping the US energy efficiency industry enter new markets and further increase sales of their products.

The Alliance has had a great deal of success in replicating this unique blend of private-public partnerships on behalf of USAID in such countries as Brazil, India, Mexico, Ukraine, Serbia, and Ghana. Our work has clearly proven the USAID premise that a strong institutional framework for energy efficiency in developing countries creates jobs, reduces costs, and protects the environment. USAID's continued support is critical to the ability of the Alliance and other organizations to carry out their international mission and to leverage funding for these activities.

Domestic Energy Security Starts Abroad

September 11th reminded us all of the importance of energy reliability and security both domestically and among our allies and trading partners. Even as we work to try to ensure our economy has adequate, reliable energy supplies, we cannot forget that the energy use of other countries directly impacts both the supply and price of our energy resources here at home.

In fact, pondering strategies to guarantee adequate energy supplies in the US reminds us how the energy efficiency programs run by USAID help protect and enhance the economies and standard of living of developing nations around the world. It also reveals how - due to the reality of a single integrated global petroleum market - these efficiency programs directly benefit US consumers: by lessening demand for oil abroad, we are helping to loosen supply and hold down price pressures domestically. Quite simply, lowered oil demand in Madras helps truckers in Mobile. Lowered oil use in San Salvador helps drivers in San Francisco.

Consuming countries such as the US will only be able to protect our energy-related economic future if we can help lessen demand for oil both here and worldwide. USAID's energy efficiency programs do just that -- and in doing so they help Americans as they help developing and transitional nations.

Some of the most destitute countries, lacking many of the basic energy related services USAID can help provide, are the breeding grounds for terrorists. By enabling legitimate governments to meet the needs of their citizenry through basic energy service such as clean water, refrigeration, health care, and lighting, the ensuing economic develop can go a long way in keeping potential terrorists in real jobs with a hopeful future.

The Role of USAID In the Energy Sector

Although USAID's energy programs do not often receive the visibility of the Agency's more "traditional" development programs like child survival, they are crucial to the goal of sustainable development in the poorest regions of the world. While it is impossible to ignore the pressing physical needs of the communities USAID serves, reasonably priced, clean, and reliable energy supplies often play an equally important role in the lives of the world's poorest citizens by reducing respiratory illnesses and improving access to heating, lighting, refrigeration, and water. Whether it is clean fuel for cooking in India that helps prevent some of the approximately 550,000 deaths per year of women and children from atrocious indoor air quality, electricity for refrigeration in tropical climates that provides the vital link in the vaccination cold chain, affordable heat for Russia that keeps people from freezing to death, or the energy needed to pump and clean water to satisfy the basic subsistence needs of the over 2 billion currently unserved people, energy plays a very central role in the lives of all the world's inhabitants.

Unfortunately, energy supplies in most of the world's countries are not always reliable or safe. Power plant emissions from the combustion of poor-quality coal have fouled not only the skies but the lungs of millions of Chinese; radiation from the failed Chernobyl nuclear reactor in Ukraine has sickened a generation of children; and drought conditions in many parts of Africa have left hydropower turbines quiet and cities dark. In addition, explosive economic growth in most of the developing world, especially Asia, has precipitated a surge in demand for energy supplies. Over two billion of the world's people lack access to reliable supplies of fuel for cooking or electricity for rudimentary lighting and refrigeration, and face even tougher times with large fluctuations in oil prices. Residents in some of the developing world's largest cities continue to experience rolling electricity brownouts, blackouts, and inadequate access to the power grid. These electricity shortages lead to constraints on industry and the commercial sector, that stifle economic growth, limit the potential of US foreign trade, and lead to further hardships from unemployment and foregone export revenues.

Energy efficiency provides an attractive solution to these problems. Not only are energy conservation programs in developing countries a relatively low-cost alternative to the construction of new hydroelectric or fossil fuel plants, they can also reduce the risk of electricity shortages and increase the competitiveness of the industrial sector. While the Alliance to Save Energy supports numerous energy efficiency programs supported by USAID, the examples of successes we know the most about are those in which we participated.

One of the most successful examples of a national energy conservation program has been Ghana's Energy Foundation. With support from USAID, the Alliance to Save Energy has helped set up an organization in Ghana that has helped drastically reduce the inefficient use of energy in most sectors of the economy. The Energy Foundation has worked with the industrial sector to perform energy audits and implement efficiency projects that have saved Ghanaian companies thousands of dollars. In addition, the Energy Foundation helped energize the private sector to improve energy efficiency by setting up the Ghana Association of Energy Services Companies and Consultants (GHAESCO), which now has over 33 members actively pursing energy efficiency projects. The Energy Foundation has also worked to educate consumers through public awareness campaigns and its Green Schools program that teaches students how to use energy more efficiently. Most recently, the Energy Foundation played a critical role in Ghana enacting the first residential air conditioner efficiency standard in Africa that will save consumers an average of $64 million per year over the next 30 years.

In Ukraine, the Alliance has worked with USAID to empower municipalities and the private sector to save energy and provide basic service to members of society most in need. Working with the city of Lviv to develop an energy management strategy, the Alliance to Save Energy noticed that an orphanage and school housing many of the Chernobyl victims was wasting a tremendous amount of energy. The Alliance worked with US companies and local groups to weatherize the orphanage and install a high efficiency boiler. The immediate benefit to orphans no longer needing to wear winter coats in classrooms and to the school having enough money to buy books was significant. However, the more important outcome of the project was the hundreds of other schools that have been upgraded or are going to be upgraded based on this model and the new Ukrainian companies that participated in this project now weatherize buildings all over Ukraine. Simply put, USAID helps develop replicable models and the technical capacity to carry them out.

USAID's competitive advantage over other development vehicles in the energy efficiency sphere is twofold. USAID clearly understands the role of capacity building as the basis for any sustainable energy efficiency program and USAID also recognizes the overwhelming potential of the private sector to drive the energy efficiency development agenda.

In many cases investments in global energy efficiency that the US makes through organizations such as the World Bank would be underutilized without the ability of USAID to develop the capacity of governments, NGOs and other stakeholders to manage energy use and recognize the various benefits of energy efficiency. For example, the World Bank gave the first of its kind loan to the Brazilian Energy Efficiency Program, PROCEL, solely to promote energy efficiency. For approximately two years the money has sat idle in spite of a crippling energy and water shortage in Brazil. Recently, USAID in partnership with the Alliance to Save Energy has been working with PROCEL to develop a strategy for utilizing the loan and working with potential loan recipients such as municipal water utilities to develop worthy projects. In particular the Alliance and USAID developed and implemented an energy and water management model with the municipal water utility in the city of Fortaleza. In the first year of the program, five mega watts of energy were saved in Fortaleza while water service was expanded especially in poor areas. The water utility still registered a net cost savings, demonstrating that the energy savings offset the cost of improving water service to the poor. In April the Alliance is co-hosting an event with PROCEL and the World Bank that will hopefully announce the first $1.6 million loan to the water utility in Fortaleza to implement additional energy efficiency actions identified through this program. The audience at this event will include top executives and technical managers from all the other water utilities in Brazil to learn from the Fortaleza experience. In fact, with USAID support, the Alliance has used the lessons learned from Fortaleza, and its work with water utilities all over the world, including the US, to publish a ground breaking report documenting strategies to take advantage of the energy efficiency potential in municipal water utilities. With the Chairman' approval, I am submitting a copy of the report with my testimony. By working to build the capacity of key stakeholders, USAID and the Alliance to Save Energy have greatly increased the potential for success for this particular World Bank loan, but more importantly have created a model that can be successfully replicated around the world to improve energy efficiency and the critical energy-based service of water delivery.

In addition, USAID has developed critical ties with the US energy efficiency industry and built the potential of local energy efficiency private sector partners. The US Asian Environmental Partnership alone has been responsible for transferring over $1 billion worth of goods and services to developing countries since 1992. USAID has supported the development of Energy Efficiency Business Councils in India, Mexico, Ghana and Thailand. These councils combine the resources of many smaller companies to jointly promote the benefits of energy efficiency to end-users. In many cases energy efficiency companies from the US have lent their expertise to train end users on energy efficient technologies, expanding their markets in the process. These councils have begun to break down barriers to implementing energy efficiency including reducing tariffs on imported energy efficient goods.

These examples clearly demonstrate how USAID's programs serve a unique and valuable function in helping policymakers and other stakeholders in developing countries adopt sustainable energy practices and programs. The Agency's programs have been instrumental not only in replicating the broad energy lessons of the United States, such as the importance of integrated resource planning, competition, and proper pricing, but have also been useful in demonstrating more specific policy measures such as energy-efficient appliance standards and model building codes. In addition, USAID's activities play a role in leveraging the resources of others. USAID's FY 2001 estimates show the highly successful private and public leveraging of these programs. An internal USAID accounting shows that Clean Energy Programs have leveraged over $213.4 million for sustainable energy activities in such countries as Brazil, Ghana, Guatemala, India, the Philippines and Southern Africa. In our own programs, the Alliance's Sustainable Cities Initiative partnership with USAID has leveraged grants from foundations such as Rockefeller, W. Alton Jones, Honeywell, and the Merck Fund, as well as in-kind support from the private sector, the World Bank and the Department of Energy. The Alliance's USAID funded partnership programs with private industry with have recorded $15 worth of sales for every $1 spent - a better investment than most stocks these days.

Recommendations

The Alliance to Save Energy offers five suggestions to the Subcommittee to help USAID further promote development through energy efficiency.

1. We recommend a significant increase in funding for USAID's energy efficiency programs. We urge the Subcommittee to develop concrete funding requirements for energy efficiency programs, either through a specific line item or report language; these requirements should be integrated into the budget for the various bureaus and offices. Energy efficiency must not be an afterthought to other energy programs such as restructuring and privatization, but must be fully integrated with both the policy and the regulatory components of USAID's work.
2. Recently, President Bush pledged an additional $5 billion to promote international development. Energy efficiency can enhance international security through global governance programs and therefore deserves to garner a significant portion of these additional resources. As is clear from my testimony, part of good governance is found in advancing energy efficiency programs. Often, while national governments are frozen with corruption and inaction, state and local authorities are in a better position to be directly responsive to citizen energy needs.
3. We recommend targeted support to energy efficiency throughout USAID by ensuring that all missions have an energy efficiency goal that complements the current goals of the mission. The Bureau for Economic Growth, Agriculture and Trade; Europe and Eurasia Bureau; the US Asian Environmental Partnership; and the Asian Bureau all have the capacity to do more highly effective energy efficiency activities. In addition, more USAID missions have tremendous potential to take on more energy efficiency activities. Currently, only 13 of the more than 70 USAID missions have energy efficiency strategic objectives even though all missions could find clear advantages to incorporating energy efficiency into their development strategies.
4. We urge the Subcommittee to more aggressive fund African energy efficiency initiatives. We cite Africa in particular because of the great need and currently none of the African USAID missions has a strategic objective for energy efficiency and with the rapidly growing economies and energy needs of key countries like Nigeria and South Africa, energy efficiency needs to be included during the initial conception of national energy development strategies.
5. Key energy efficiency opportunities are being missed due to a lack of funds. We recommend an increased funding effort in the transportation, industrial, and water sectors. These sectors are not only pivotal in any true development model and energy efficiency strategy, but they also represent major areas of potential US investment and trade. In addition, funding is needed for the harmonization of standards and equipment labels and ensuring cohesion of these labels with such successful efforts in the US. USAID should also be encouraged to prepare investment grade projects to submit to multilateral development banks and other donors for work with the missions on energy efficiency.

Conclusion

USAID's energy programs assist policymakers, non-governmental organizations, and businesses in developing and transition countries use energy efficiently and economically, just as the Alliance has been doing in the United States for 25 years. The Alliance respectfully urges the Subcommittee to recognize and support the important work USAID is doing in the energy sector. In addition, we ask the Subcommittee to provide USAID with the full-time employees and funds to administer and manage their energy programs efficiently. Without an effective organization in Washington and in the field, programmatic resources will not be used to their full advantage.

In short, vigorous Congressional support for USAID's energy programs will help to ensure that countries such as Mexico, India, Brazil, and Ghana are not only able to develop their economies in a manner that is environmentally sustainable, but to take on additional responsibilities to curb greenhouse gas emissions and environmental degradation. Also, by reducing waste around the world, the US can more easily guarantee its domestic energy supply.

Thank you again, Mr. Chairman, for the providing the Alliance to Save Energy with the opportunity to testify.