Energy projects can reduce poverty

Energy sector operations have been recognised as contributing to poverty reduction through their support to economic growth through the trickle down effect. But, their direct contribution to poverty reduction has been seldom acknowledged, mainly because of lack of a systemic approach to assess such impacts. Energy projects can contribute to poverty reduction at the macro and micro levels in many ways. At macro level, they contribute to resource savings on account of energy efficiency gains, forex savings/earnings and increase in tax revenues due to additional employment. These in turn can be invested in poverty alleviation programmes. Projects that promote efficiency in energy supply may also lower the price of energy making it more affordable. Backward linkages of energy development such as with sectors like iron and steel manufacturing, transport, etc, will also induce economic growth. However, for such benefits to flow to the poor, appropriate pro-poor policies and strategies need to be in place. Similarly, at the project site, the direct impact on poverty will be felt through employment created during the construction and operation stages of the project. Those in the vicinity of the project may, however, be affected by environmental pollution, and adverse social impact such as displacement of people from the project site. Projects that provide access to modern forms of energy, increase its reliability, and/or improve its affordability can result in poverty alleviation at a micro level. Energy consumption in various sectors can benignly impact on poverty in different ways. Take the case of households. In this sector, uses of energy include cooking, lighting, water heating, and space conditioning. Providing poor households with access to superior energy sources like electricity or LPG to replace traditional fuels such as fuel-wood, cow dung and agricultural residue for cooking/lighting/heating has important economic and social benefits. The combustion of traditional fuels is associated with high levels of indoor air pollution and consequent health hazards. In fact, nearly 10 per cent of premature deaths among women and children have been attributed to the use of biomass fuels. If these households were to gain access to alternative cooking fuels, health hazards could be considerably reduced. People, mainly women and children, would also be spared from the drudgery and discomfort in collecting firewood, leaving more time for productive activities such as education, craft, etc., as additional sources of income, and spending time with the family. Energy-poverty linkages also flow from other energy-consuming sectors. The provision of improved energy services to agriculture can contribute to poverty reduction indirectly through possible increase in farm income and directly by facilitating increase in the gross cropped area, which in turn increases farm employment. In the industrial sector, too, provision of energy in an energy deficit area can promote industrial growth by encouraging new industries or enhanced capacity utilisation in existing industries. Not only will this lead to the creation of employment opportunities in the area but would also set off a multiplier effect on output and employment throughout the economy. Recognising the positive impacts of access to modern forms of energy, many developing countries including India have attempted to promote the use of LPG and kerosene by providing these fuels at subsidised rates. Despite these moves, biomass fuels are the dominant cooking fuel in 90 per cent of rural households and 30 per cent of urban households in India. Evidently, these steps are not adequate. First, the use of fuels such as electricity and LPG entails high connection costs and unless these too are subsidised, the fuel subsidies could be quite pointless. Second, lower prices do not ensure consumption, availability is crucial, as is the willingness of people to accept the solutions thrust on them by others, sometimes in an unsolicited manner. Third, if consumption of these fuels is mainly by households that are reasonably well off (as is clearly the case with LPG), provision of the fuel at subsidised prices may result in ?leakage? of subsidies to non-deserving households. Essentially, if energy sector reforms were to make a dent on the quality of life of the poorest of the poor, such households must be unambiguously targeted.