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Introduction Energy is central to economic growth and social development. However, as more energy is consumed, additional pressure is put on the environment. “The provision of adequate and reliable energy services at an affordable cost, in a secure and environmentally benign manner, and in conformity with social and economic development needs is an essential element of sustainable development.”2 What energy to use is an essential policy question with far-reaching political, economic, and environmental consequences? Energy policy tries to address energy choices, but trade-offs are necessary. Focusing on a single priority could lead to solutions that are not viable in the long term. For example, if energy security is the priority, the government may opt for creation of state-owned hydrocarbon or electricity companies. The mandate of those companies would be to supply the local market at a low cost. However, lack of competition would result in economic inefficiencies, inefficient allocation of resources, and poor financial outcomes. On the other hand, if the government’s priority is to implement market solutions, the outcome could be a dynamic private sector focus on investments with short payout periods and lower upfront capital requirements. Preference would be given to low-cost sources, such as coal or simple cycle gas-power generation units. If the objective were to promote environmental sustainability and reduce Co2 emissions, the government would have to consider solutions, for example in electricity generation, that are currently costly, requiring government subsidies to level the playing field between renewable and conventional sources. Figure 1: Energy Policy Challenges and Trade Offs Source: Author’s own 2 “Energy Indicators for Sustainable Development: Country Studies on Brazil, Cuba, Lithuania, Mexico, Russian Federation, Slovakia and Thailand,” United Nations, 2007 1PDF Image | Infrastructure and Environment Department
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