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A Contribution to Reduce Oil Consumption

A Non-Conventional Cross-Sector Strategy towards Energy Efficiency and Sustainability for Developing Countries

©2006 Masterarbeit 107 Seiten


Unlike industrialized countries, the recent rise in oil prices has had a severe negative impact on the economies of oil importing developing countries. Conventional strategies and models to reduce oil dependence, which have been implemented in the powerful „northern” economies, are often not feasible for developing countries due to high technological costs or unsuitability. Furthermore, oil reserves will deplete and consequently world market prices will climb, rather than decline over the next decade. Therefore, I propose that cross-sector strategies have to consider socio-economic circumstances of developing countries. The strategies I suggest do not rely on conventional methods such as coal, gas, nuclear or renewable energy.
My research further identifies variables on which national policies can be implemented in order to contribute to a reduction of global oil consumption. To this end, I have followed a quantitative and qualitative approach:
Preliminary quantitative analysis: This demonstrates that some developing country economies are more vulnerable to oil price shocks than others. This can be measured by the ratio of the value of net oil imports to GDP.
Qualitative analysis of cross-sectoral strategy: This polarizes methods applicable to industrialized countries on one hand, and solutions that work in the socio-economic circumstances of developing countries on the other. Potentials to contribute to a reduction in the oil consumption are identified in the education, agriculture, urban planning and transportation sector. In the transportation sector, data for engine idling was considered scientifically for the first time.
The framework of policy analysis is used in the study to develop a general strategy to enter into a policy dialogue at the national level. Various examples are also used to this end.
Baken’s ESMAP study (2005) had concluded that in the near future there is little prospect for African countries to reduce their import dependence on oil. My research further finds that gains in fuel savings can be 10–15 % from eco-driving campaigns, 2–5 % from tire inflation policy, 2–5 % from idling campaigns. Further reduction can be brought about by changes in the mode of transport (autos instead of cars) as well as increased urban „walkability”. Education for private housing efficiency and boosting agricultural production in biomass and bio fuels are some other steps. The research also reveals substantial […]



Sebastian Veit
A Contribution to Reduce Oil Consumption
A Non-Conventional Cross-Sector Strategy towards Energy Efficiency and Sustainability
for Developing Countries
ISBN: 978-3-8366-0057-6
Druck Diplomica® GmbH, Hamburg, 2007
Zugl. University of Kwa Zulu Nathal, Durban, Deutschland, MA-Thesis / Master, 2006
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Sebastian Veit
P R EF ACE... 2
AB S TR ACT ... 3
1 I
... 5
1. 1 D e fi n i t i o n s...8
1. 2 O b j e c t i v e s o f t h e S t u d y ...9
1. 3 L i m i t a t i o n s...13
2 . D
... 15
2 . 1 P o l i c y Cy c l e ...16
2 . 2 Ex c u r s u s : Fr o m Cr u d e O i l t o Fu e l ...18
2 . 3 T h e b a l a n c e o f p o w e r p r i n c i p l e : a s h i ft fr o m c o a l t o p e t r o l e u m ...20
2 . 4 A n a l y s i s o f R e s u l t s ...24
2 . 5 P a r t i c u l a r i t i e s o f D e v e l o p i n g Co u n t r i e s : G o v e r n a n c e ...26
3 . A
... 29
3 . 1 Ex c u r s u s : P r e d i c t i n g t h e Fu t u r e : W h y O i l P r i c e s W i l l R i s e ...30
3 . 2 T r a n s p o r t a t i o n S e c t o r ...33
3 . 3 H e a t i n g S y s t e m s fo r P r i v a t e H o u s e h o l d s ...37
3 . 4 En e r g y a n d A g r i c u l t u r e ...40
4 . T
: I
... 43
4 . 1 Ed u c a t i o n S e c t o r : Er a d i c a t i n g w a s t e b y En v i r o n m e n t a l A w a r e n e s s ...45
4 . 2 T r a n s p o r t a t i o n S e c t o r a n d U r b a n P l a n n i n g ...52
4 . 3 P r i v a t e H o u s e h o l d s ...55
4 . 4 T h e A g r i c u l t u r a l S e c t o r a n d P o w e r P r o d u c t i o n ...58
4 .5 Ele c t r i c i t y R e l i a b i l i t y a n d Fu e l S a v i n g s ...59
V. CH AP TER : TH E D EB A TE ...64
5 . C
... 64

Sebastian Veit
This master's thesis attempts to provide `food for thought' in energy politics for
developing countries. It is an empirical work and combines my experiences of
studies and travels in developing countries as well as my professional exposure at
the World Bank in the Energy and Water Department. This thesis would not have
been what it is without the contribution of some very special people whom I would
like to take this opportunity to thank. My special thanks to Mr. Jamal Saghir
(Director of the World Bank Energy and Water Department), who hired me in the
summer 2005 in order to work on hydropower, renewable energy and the G8
climate change agenda. I also would like to express my thanks to Mrs. Dominique
Lallement (Director of the World Bank Energy Strategic Management Assistance
Program) and Mr. Pablo Rosenthal (GTZ secondman to the World Bank Energy
and Water department). They both guided the development of my proposal with
their extensive professional expertise. I am very thankful for their input, since my
goal was to produce a strong and innovative paper that could provide the basis of
an ongoing project beyond the peripheries of the Global Studies Program.
Please note that the author of this paper is visually challenged. I therefore had to
rely on books, studies and articles that were available in an accessible format.
However, this by no means limits the findings of the paper. Special emphasis is
given to the research of new energy strategies that are applicable in a developing
country context. It seemed to me that the potential for the reduction of oil
consumption is greater when taking different viewpoints into consideration. The
motivation for this approach was to develop partially new strategies whilst not
beating the old drum for renewable energies. However, I fully support the
utilization of renewable energy in both industrialized as well as developing
countries as an environmentally friendly source that fuels the growth of our

Sebastian Veit
This study aims to establish a general dialogue on strategies for developing
countries that contribute to reduce oil consumption. The innovative aspect is that
the proposed strategies will not rely on conventional methods such as coal, gas,
nuclear or renewable energy. Further, the strategy must take the socio-economic
circumstances of developing countries into consideration. Costly technologies are
thus not feasible. Hence, the research points to a cross-sector analysis, which takes
the focus beyond the energy sector. Potentials to contribute to a reduction in the
oil consumption are identified in the education, agriculture, urban planning and
transportation sector. In the case of the latter, data for engine idling was produced
for the purpose of this study. This significant component had apparently not been
taken into consideration before, as various experts confirmed.
The paper is guided by the framework of policy analysis, which allows the
development of a general strategy that can be utilized to enter into a policy
dialogue on the national level. Although various detailed examples are provided
through the course of this paper, the goal is to construct a generally applicable

Sebastian Veit
"To w aste, to destroy , our natural resources, to skin and exhaust the lan d
instead of using it so as to increase its usefulness, w ill result in
underm ining in the day s of our children the v ery prosperity
w hich w e ought by right to han d dow n to them ."
Franklin Roosevelt, (1932)

Sebastian Veit
1 I n tr o d u c ti o n
Unlike in industrialized countries, the recent rise in oil prices has had a severely
negative impact on the economies of oil-importing developing countries
. The
Economist reports that: "by the first half of 2005 the average price of oil had risen
by 72 % relative to the price in 2003-from US$28.8 to US$49.5 a barrel".
Conventional strategies and models to reduce oil dependence, which have been
implemented in the powerful `northern' economies, are often not feasible for
developing countries due to the high technological cost or are simply inapplicable
for other reasons. For example, only 16 % of Africa's roads are paved
, and, with
some exceptions, the gravel roads are not suitable for fast-moving vehicles. Thus,
speed limits designed to conserve gasoline are less effective than those in the
developed countries.
Furthermore, it is safe to assume that oil reserves will deplete and that world
market prices will consequently tend to climb rather than decline in the next
decade. This prediction will be given credence in Chapter III. The overall aim of
this paper is to demonstrate that cross-sector strategies to reduce oil consumption
in developing countries must take the socio-economic circumstances of these
countries into account if they are to be effective.
To this end, the variables and strategies that could contribute to a reduction of
overall oil consumption, if incorporated into national policies, will be identified.
The emphasis here will be on demand responses as important countermeasures to
supply constraints. However, some approaches, such as fuel-rationing with its
harmful economic impacts, and political and economic alliances that offer oil on
The World Bank reports slower growth forecast for developing countries. "The Bank's annual
Global Economic Prospects Report for 2006 forecasts that economic growth in developing
countries will slow to 5.9 % this year, and to 5.7 % in 2006, down from 6.8 % in 2004. Economic
growth in high-income economies is also expected to slow from 3.1 % growth in 2004 to around 2.5
% in 2005 and 2006. Burns says high oil prices were one factor in dampening the global
expansion". (World Bank Development News, 2005)
"Only 16 % of the roads are paved, transport costs are the highest in the world. Infrastructure
development in Africa is lagging behind the rest of the world in terms of quantity, quality, cost and
equality of access." (World Development Report 2006: Equity and Development)

Sebastian Veit
favorable conditions for strategic reasons to `friendly or willing' states, are not
recommended as effective strategies due to their negative repercussions. Resources
are often acquired by national oil companies, but where oil fields are placed on the
open-market, there can be fierce competition over access, as the Economist
reported in January (2006): "China National Offshore Oil Corporation announced
its biggest-ever overseas acquisition by agreeing to take a 45% stake in an oil and
gas field in the Nigerian delta for $2.3 billion. India's Oil & Natural Gas
Corporation last month won the bid to operate in the Akpo field, but the deal was
rejected by the Indian government despite fierce competition with the Chinese
over new energy sources."
Further excluded from consideration in this paper are the oil-exporting countries,
since they clearly benefit from higher oil prices (increased export revenues), and
thus have less incentive to reduce national oil consumption. With reference to the
situation of oil-producing countries, Gordon (1993) notes that: "Geography is an
important way in which nations' energy problems are differentiated. In worldwide
terms, whether a country has a field is of crucial importance. There is no energy
crisis in Saudi Arabia, Iran or Venezuela." However, even in oil-producing
countries shortages can occur in some cases. For instance, Iraq frequently runs out
of petroleum, which is highly subsidized. Gangs and mafia-like operations highjack
fuel transports, take them to neighboring countries and sell off the fuel. Thus, the
proposed strategy does not primarily address oil-producing countries due to the
lack of incentive for the reduction in consumption of the product they have in
abundance: natural oil.
Regulatory proposals
, such as those that have been put forward by the new
President of the African Development Bank (AFDB), Mr. Donald Kaberuka , will
also not be considered. They are of a regulatory nature, which is not a focus of this
In an interview with The Financial Times, the new president of AFDB indicated that his proposal
to urge oil companies to soften the import blow to Africa would be discussed when African and
donor-nation finance ministers meet at the bank's invitation in Tunis. His proposal is based on the
following idea: "Part of oil companies' windfall profits should be used to cushion the impact of high
oil import bills on African economies. Donald Kaberuka, who took over the post in September, said
the short-term effects of high oil prices could be mitigated through windfall taxes in donor
countries where companies were based, or a voluntary arrangement between oil majors" (Financial
Times, 2005).

Sebastian Veit
The concern is instead to contribute to the understanding of how to reduce the oil
intensity of selected African economies. The higher the oil intensity is, the more an
economy depends on oil to generate its GDP output. There is substantial data to
show a global decrease in oil intensity (GDP/oil consumption equals oil intensity)
from 1980 to 2003 by roughly 20 %
(see table 1.1). Meanwhile, Africa's oil
intensity during the same time period has almost doubled, an extremely alarming
statistic, especially when the increasing price of oil is taken into consideration.
This supports the strong need to develop strategies that will help these economies
balance oil consumption with GDP growth.
For Africa, in essence, the scenario looks similar to the first oil crisis of 1973.
Stokey (1978) notes that: "Crisis was originally a medical term, describing a
decisive climactic stage in the course of a disease, after which the patient either
recovered or died. ... if the crisis is not resolved, it will lead to stagnation and even
decay. Many voices have joined in giving rise to the alarm about the crisis, and
among those are the energy producers. Oil companies have warned that their wells
will run dry, national gas suppliers announce that their supplies will soon be
exhausted. The coal operators can no longer supply cheap coal. Electrical utilities
that burn oil, gas and coal to fire their boilers suffer from shortages and the high
prices of these fuels. ... Even nuclear reactors are proving to be so costly and
difficult to construct, that their promises, which seemed so bright a few years ago,
have now dimmed".
This repetition of history still holds true in the context of most developing
countries, in particular those countries that have to rely on fossil fuels. They can
neither afford nuclear energy, nor do they have the potential to develop a strong
basis for renewable energy.
The unit of analysis will be the countries listed in table 1.2, which are grouped into
best or worse performers in terms of oil intensity. This data is taken from the 2005
World Bank study, `Oil Price Vulnerability of African Countries', and it forms the
For example, Levet (2005), in his book, `Winning the Oil End Game', a vast potential in oil
efficiency for the US, explains that: "The US today rings twice as much work from each barrel of oil
as it did in 1975; with the latest proven efficiency technologies, it can double oil efficiency all over
again. The investments needed to save each barrel of oil will cost only $12 (in 2000), less than half
the officially forecast $26 price of that barrel in the world oil market".

Sebastian Veit
basis of the present paper. These economies are the most adversely affected when
the price of oil rises. Consequently, the worst performers are the most oil
inefficient ones and have the greatest need to improve their oil intensity. In the
present paper these economies were selected as an example. This does not imply
that other developing countries are better off, but the field has been narrowed,
because a global analysis of all countries would exceed the limits of this paper and
a regional analysis would be too imprecise. However, the discussion in this paper
will not be directly applied to the sample, since that requires a detailed country-
level analysis (see Chapter II). The sample in this context thus serves merely to
illustrate the urgent need for new energy policies.
1.1 D e fin itio n s
This section will define the terminology used throughout this paper. The
definitions given here may differ from other disciplines, but are commonly used in
several institutions. Thus, it is important to clearly define the terminology.
Ø Cross-sectoral refers to the method of integrating a key theme, for example
the reduction of oil consumption from the energy policy, with other sectors,
e.g. urban planning, education etc.
Ø Oil industry : is divided in three segments, referred to as upstream,
midstream and downstream. The upstream is sometimes known as the
Exploration and Production (E&P) sector. The midstream industry
processes, stores, markets and transports commodities such as crude oil,
natural gas, liquid natural gas (LNG's, mainly ethane, propane and butane)
and sulphur. The downstream industry includes oil refineries,
petrochemical plants, petroleum products distributors, retail outlets and
natural gas distribution companies. The downstream industry touches
consumers through thousands of products such as gasoline, diesel, jet fuel,
heating oil, asphalt, lubricants, synthetic rubber, plastics, fertilizers,
antifreeze, pesticides, pharmaceuticals, natural gas and propane.
Ø Oil consumption refers to the utilization of natural oil-based products
within a national economy or a specific industrial / private sector.
Ø Non-conventional is used in contrast to `conventional', which is further
elaborated on in Chapter III. For the purpose of this paper, natural gas,

Sebastian Veit
coal, nuclear, renewable energies and advanced technologies will be termed
as conventional approaches to reduce oil consumption.
Ø Policy analysis is an analytical process to make or plan policies.
Ø Sustainability is a systemic concept relating to the continuity of economic,
social, and environmental aspects of human society. "It is intended to be a
means of configuring the civilization and human activity, so that society, its
members and its economies are able to meet their needs and express their
greatest potential in the present, while preserving biodiversity, and natural
ecosystems, and planning and acting for the ability to maintain these ideals
indefinitely. Sustainability affects every level of organization, from the local
neighborhood to the entire planet" (United Nations Environmental
Program, 2005).
1. 2 Ob je c ti ve s o f th e S tu d y
The aim of this non-conventional solution is the development of a cross-sectoral
approach to reducing oil consumption in developing countries (see Chapter IV).
The key research questions are as follows:
Ø Which public sectors can contribute to the reduction of national oil
consumption to achieve higher energy efficiency?
Ø What are the alternatives to (often costly) renewable energy sources?
Ø Why are some concepts, which are applicable in industrialized countries,
not feasible for developing countries?
Within the theoretical framework of policy analysis and based on the concept of
`Barefoot Economics', the paper assesses what kind of macro-level energy
strategies are operating at the micro-level. This includes:
Ø the education sector in creating public awareness of energy conservation
(private households),
Ø the creation of more pedestrian-friendly urban environments to reduce
motorized transport in cities by the urban planning administration,
Ø the promotion of `eco-driving' and other fuel-saving measures, and

Sebastian Veit
Ø the encouragement of increased production of bio-fuels by the agricultural
In general, the study will demonstrate further potential for the reduction of fossil
fuel subsidies (if they exist) and how these eradicated subsidies can be used to
strengthen public transportation infrastructure. Also, the energy sector must be
evaluated. This will include the potential of controlling transmission and
distribution losses (both commercial and technical). This leads to a reduction in
fuel consumption by oil-based energy generating plants. Another option to be
considered will be the refurbishment or rehabilitation of existing power plants so
that these grid-connected plants might provide more electricity. Industrial and
commercial users will be less likely to rely on inefficiently dispersed oil-based
To measure the impact of the proposed conservation method, sample calculations
and estimations will quantify the savings, although too many undetermined
variables exist in reality to establish such an exact figure. This paper is by no
means advocating against the utilization of renewable energy for developing
countries. Renewable energy, including wind-power, micro-hydro, and Solar Photo
Voltaic (Solar PV), is a cost-efficient and sustainable solution for off-grid
connections with disproportional benefits for the poor.
For instance, renewable energy contributes to the diversity of primary energy
resource portfolios. Africa is rich in natural resources, in particular in hydropower
resources and other renewable energy sources such as wind, solar, and
geothermal; these are currently under-developed. Africa also has great potential
"Currently, 1.6 billion people still lack access to modern energy services today. By 2030,
1.4 billion people will still lack access to electricity if current policies are not changed.
2.6 billion people rely on traditional biomass for cooking. Indoor air pollution (from
cooking and heating with biomass over open stoves) is a leading cause of women, infant
and child mortality in developing countries, ahead of malaria and tuberculosis
combined. The poorest, the 1 billion who live on less than one dollar a day, spend up to
one third of their disposable cash income-US$10 a month ­ on poor quality energy
services for cooking and lighting"
Lallement et. al. (2005)
"Energy as a Linchpin for Poverty"

Sebastian Veit
for regional energy trade in power and hydrocarbons. With a more diverse energy
portfolio, Africa can improve its oil intensity and secure its longer-term energy
needs. In a recent publication regarding energy and poverty, the authors identify
the need to focus on energy efficiency, both for energy service suppliers and for
energy consumers: "Improved energy efficiency is the least cost opportunity to
increase the availability of energy resources as well as reduce energy expenditures.
This applies to electricity generation, transport and distribution, as well as to
energy use in large and small industries or at the household level" (Lallement et.
al., 2005).
It is also important to point out that Modern energy is a key input factor to
meeting most Millennium Development Goals (MDGs). Increasing access to
modern energy services will have a significant positive impact on poverty,
education, gender equality, health and environment­without access people are
condemned to a marginalized existence. Access to modern energy services reduces
poverty by increasing productivity, by enabling mechanization and by increasing
the productive hours per day by providing lighting after sunset; it encourages new
businesses, facilitates communication, and it saves on costs for backup equipment.
Modern energy services can help make health services more effective, and
facilitates potable water supply, thereby contributing to improved health and
associated increased productivity. It also improves education, because women and
children can study after dark. In addition, the availability of modern cooking fuels
saves women and children the time spent collecting fuel wood. This time can be
spent on education. In the case of women, this time can also be spent on income-
generating activities that encourage women's empowerment. To an extent, energy
efficiency and renewable energy investments displace fuels with high price
volatility; they also enhance energy security and can contribute to a lower risk-
adjusted cost of energy. Modern energy services also support greatly improved
communications; these in turn provide vital information to farmers, fishermen and
others, on prices for their products in markets available to them, and on the
weather forecasts.
Chapter II outlines the framework of the paper. The approach is based on policy
analysis; however, right at the onset the paper clarifies that the proposed strategy
to achieve oil reduction for the economies of developing countries in a non-

Sebastian Veit
conventional manner cannot be recommended as a policy. This is due to several
reasons, the most obvious being the fact that a general strategy is not a policy per
se. Policies have to be considered by the national decision-makers (polity) and
must be compared to other options and their consequences. Thus, in this paper an
options assessment is not performed, which considers the fiscal budgetary
constraints of national governments. Furthermore, a policy needs to be based on
solid data, drawn from statistics of each unit of analysis (i.e. the national
economies). Due to these realities, the strategy is suggested as a tool for the polity
of developing countries to realize a national policy on the reduction of oil
Policy models, according to Bardach (2005), are based on methods used in
statistics, in project evaluation and in operation research. The most common
methods are cost-benefit analysis, linear programming and decision analysis.
Bardach further notes, with regard to the dilemma of models and the constraints in
information content: "...models are used to, e.g. inform the federal government's
deliberation about the appropriate policy for energy research and development.
We must always come back to the same fundamental question: do the gains in
inside manageability outweigh the sacrifice in realism that we incur by stripping
away descriptive details?"
The term `proposed strategy' is interchangeable with `modeling', since the
approach of this paper is relatively technical. With regards to the nature of
modeling, Bardach asks the following probing questions: "What are the critical
features of the model that is being presented to you? Where may it diverge from
reality that may lead our reasoning astray? What about causality? Are you dealing
with a situation where it is essential to understand why the variables in a system
behave the way they do? Or is simply modeling the observed relationship sufficient
for your purposes?" As we shall see, the proposed strategy will answer and address
these relevant questions. This paper is an analysis of practices and is the basic
research for formulating an energy policy. Bardach calls this: "...the smartest
practice: research, understanding and making use of what looks like good ideas
from somewhere else".

Sebastian Veit
In short, the goal of this paper is to address and identify potential public and
private sector areas that can be stimulated by national policy-makers to contribute
to reducing the national oil consumption. One of the primary benefits of a more
oil-efficient economy is an increase in GDP due to the increased domestic
purchasing power. The out flux of financial resources, to cover the costs of oil
imports, is reduced.
Another beneficial effect of increased oil efficiency is the contribution to the G8
Climate Change Agenda. This is an action plan that was established in Glen Eagles
in July 2005. Furthermore, the proposed strategy to reduce oil consumption in
developing countries supports the goals of the Kyoto Protocol.
1. 3 Li m i ta ti o n s
In addition to pointing out that this empirical paper will create a roadmap rather
than a policy, another intrinsic limitation of the research has to be mentioned. In
developing countries it is primarily the higher-income strata of society that can
afford to own vehicles, electrical appliances, and other energy-consuming
equipment. Nevertheless, the dweller living in a `Favella' in Brazil for instance can
International cooperation is required for the successful reduction of greenhouse gases.
At the Earth Summit in Rio de Janeiro, Brazil, in 1992, 150 countries pledged to
confront the problem of greenhouse gases and agreed to meet again to translate these
good intentions into a binding treaty. In 1997 in Japan, 160 nations drafted a much
stronger agreement known as the Kyoto Protocol. This treaty, which has not yet been
implemented, calls for the 38 industrialized countries that now release the most
greenhouse gases to cut their emissions to levels 5 % below those of 1990. This
reduction is to be achieved no later than 2012. Initially, the United States voluntarily
accepted a more ambitious target, promising to reduce emissions to 7 % below the 1990
levels; the European Union, which had wanted a much tougher treaty, committed to 8
%; and Japan to 6 %. The remaining 122 nations, mostly developing nations, were not
asked to commit to a reduction in gas emissions. In 2001, however, newly elected US
president George W. Bush renounced the treaty saying that such carbon-dioxide
reductions in the United States would be too costly. He also objected that developing
nations would not be bound by similar carbon-dioxide reducing obligations. Despite the
decision of the United States not to ratify, the Kyoto Protocol became a legally binding
treaty on 16 February 2005 once nations accounting for 55 % of 1990 greenhouse gas
emissions had ratified it.
(Encarta, 2006)

Sebastian Veit
become a cab or bus driver. Thus, it would also make sense to educate him or her
about better energy efficiency. The strategy should apply to persons regardless of
their income level and not discriminate on the bases of poverty. This holds true,
especially since the industrialized world is committed to alleviate poverty. The idea
implies the hope that the children of currently poor parents will be better off
economically when they are adults. In the future, this generation will rely
increasingly on the availability of all energy sources. From this standpoint,
governments are obliged to educate this generation about energy efficiency, so that
they are not `wasting and destroying' resources for future generations.
Further, some of the cross-sectoral methods utilized in this paper imply behavioral
change. In particular, this applies to the section on education (see section 4.1).
Hence, an impact measurement with social science techniques would be
appropriate. This needs to be done on a country-by-country basis and could thus
not be undertaken in this paper. The country-wise applicability of the strategy is
subject to further research and will not be performed.

Sebastian Veit
2 . D e fi n i n g P o li c y a n d P o li c y An a lys i s
This section will establish the conceptual for guiding the study framework and deal
with the issue of policy analysis. In addition, an introduction to policy construction
will be provided. In particular, the mechanism and the uniqueness of energy
policies will be dealt with in the following sections. Some authors place emphasis
on the analytical components of policy analysis theory, as opposed to most North
American authors who focus more on the construction of policies. In this paper it
is imperative to follow the latter approach, since the aim is to develop a strategy
that should become a policy.
"Our increasingly complex society confronts us with more and more difficult policy
problems that are not easily solved".
(Patton et al, 1993)
Regarding the nature of the terms `policy, politics and polity', Schubert (2003)
provides a significant distinction. According to him, polity is the structural
framework on the institutional level, e.g. in a democracy parliaments (besides the
president) exist. Politics is referred to as the process of policy-making
(governance): "Der prozessuale Aspekt von Politik wird durch den Begriff
"Politics" erfasst. Politics bezeichnet den mehr oder weniger konflikthaften Prozess
des Politikgestaltens, bei dem auf die unterschiedlichen, teilweise gegensätzlichen,
teilweise gleichlaufenden, teilweise neutralen, teilweise koalierenden Interessen
und Parteien und deren politische Absichten, Forderungen etc. Rücksicht
genommen werden muss. In diesem Prozess werden politische Ideen im Rahmen
bestimmter politischer Ordnungen in konkrete politische und sozioökonomische
Forderungen, Vereinbarungen, Pläne und Entscheidungen gefasst". (Schubert,
Furthermore, Schubert provides an overview of the several attributes of the terms
polity, policy, and politics (see table 2.1). This paper will further explore the
relationship between polity and the outcome, namely the energy policy. The
underlying politics of this relationship are decisive and deserve special attention,

Sebastian Veit
since the politics of developing countries need to be distinguished from those of
industrialized regions. A section on governance and the influence of lobbyism is
therefore provided later in this paper.
In understanding why there is a need for the aforementioned distinction, Patton's
(1993) view of modern society is helpful. He is a defender of complexity theory and
establishes the need for a structured approach to policy-making. In essence, he
sees the problems of modern society as the dilemma, rather than the policy-
making itself. Regarding the attributes of the problems he writes that: " 1) They are
not well defined; 2) they are seldom purely technical or purely political; 3) their
solutions cannot be proven to be correct before application; 4) no problem solution
has ever guaranteed to achieve the intended results; 5) problem solutions are
seldom best and cheapest; 6) the adequacy of the solution is often difficult to
measure against the notion of the public good; and 7) the fairness of solutions is
impossible to measure".
Furthermore, Stokey (1978) broadly describes a decision-maker as someone who
"lays out goals and uses logical prosthesis to explore the best way to reach those
goals. He may perform the analysis himself ...situations with conflicting interests
of various groups or the coordination of shared decision-making, are not
considered". Bardach (2005) adopts a similar, but more far reaching, definition
regarding the nature of policy-makers: "Policy analysis is a social and political
activity goes beyond personal decision-making. 1) it concerns the livelihoods of
a large number of fellow citizens. 2) the process of policy analysis involves
professionals; it is often done in teams. ... The ultimate audience will include
diverse groups of supporters and opponents of your work".
2 .1 P o lic y Cyc le
The above definitions do not fully address the nature of the methodologies utilized
in policy creation. In this section several approaches to policy creation are
demonstrated, namely the policy cycle. We can thereby identify the steps that
represent the basic framework of this paper.

Sebastian Veit
To begin with, Stokey (1978) prepares the groundwork for the iterative process of
creating policies: "1) Establishing the context, what is the underlying problem that
must be dealt with? 2) Laying out the alternatives, what are the alternative courses
of action? 3) Predicting the consequences, what are the consequences for each of
the alternative actions? 4) Valuing the outcomes, with what criteria should we
measure success and pursue each objective? 5) Making a choice, drawing all
aspects of the analysis together, what is the preferred course of action?"
The policy cycle character is given more emphasis in Bardach's (2005) core
concept of eight steps. He takes these steps into consideration for policy-making:
"Step one: define the problem; step two: assemble some evidence; step three:
construct the alternative; step four: select the criteria; step five: project the
outcomes; step six: confront the trade-off; step seven: decide; step eight: tell your
The methods by both Stokey and Bardach represent a general, pragmatic guide to
effective policy-making. However, they both fall short of analyzing the potential
outside influence exerted by lobbyists
Davis' (1974) analysis of the complexity of energy politics is more specific on the
notion of policy influence (as will be discussed in section 2.5). His approach is as
follows: "Neither time nor geography differentiates energy politics as neatly as the
type of fuel: coal politics is independent of oil politics, which is independent of
nuclear politics. Politically each field is segmented from the others". This key
feature is often ignored. Even when the technical characteristics of two fuels
overlap, their politics are generally separate
. Thus, this is a key dilemma of the
cross-sectoral strategies within the energy sector that cross over into other political
Lobbying is a practice of attempting to influence legislation by agents/ lobbyists of a particular
interest group (for example the oil lobby). The lobbyist may request votes either for or against a
pending legislation. The term derives from the way in which these agents formerly confronted
legislators in the lobby or hallways directly outside a legislative chamber.
For example, although oil and natural gas flow from the same well, they part politically as soon as
they reach the surface. Both fuels are often managed by different companies, different laws and
different government agencies regulate them. More importantly, even though fossil fuels and
nuclear fuels both produce electricity, they are politically separated. Even after the identical
electricity leaves the generating station, the government may have two separate jurisdictions.

Sebastian Veit
Davis' conceptual scheme is described with `political style' (i.e. policy) as the
dependent variable, and upon which three independent variables operate. The
three independent variables are:
Ø Market forces (instability of supply, unstable demand),
Ø Physical characteristics of the fuel (production, transportation, refining,
distribution and utilization), and
Ø General political environment (policy process, spirit to reform,
environmental pressure or economic pressure). This is particularly critical
to the question of which type of energy will emerge.
These independent variables interact to produce a particular process or result: the
political style or energy policy. Following this, not only is each policy for each type
of fuel distinctive, but as consequence the energy policy is also characterized by its
own institutions and their behavior. In order to analyze the characteristics of such
energy policies, one could ask the following key questions: Who are the
protagonists of a proposed policy? How are decisions made? How is conflict
managed and how are resources controlled?
In conclusion, the policy cycle, as described above, is an ideal case of policy
planning. Davis' concept of the `variable system' is, in terms of realism, a much-
needed addition. We should not underestimate the influence of lobbyists on the
polity. Consequently, the issue of governance will be further examined in section
2 . 2 Ex c u r s u s : Fr o m Cr u d e Oi l to Fu e l
This excursus explores the basic nature of crude oil and its several refining
methods. The aim of this overview is to establish the basic background, from its
natural occurrence to the final product, for any debate on natural oil. It should be
noted that figure 2.1 illustrated the technical aspect of drilling methods and
utilization already. The second excursus will summarize the issue of proven
(confirmed) oil reserves and its significance for energy politics.

Sebastian Veit
The chemical composition of all crude oil or petroleum is principally hydrocarbons,
although a few sulphur-containing and oxygen-containing compounds are usually
present. The sulphur content varies from about 0.1 to 5 %. Petroleum contains
gaseous, liquid, and solid elements. The consistency of petroleum varies from
liquid as thin as gasoline, to liquid so thick that it will barely pour. Small quantities
of gaseous compounds are usually dissolved in the liquid; when larger quantities of
these compounds are present, the petroleum deposit is associated with a deposit of
natural gas.
Three broad classes of crude petroleum exist: the paraffin types, the asphalt types,
and the mixed-base types. Once oil has been produced from an oil field, it is
treated with chemicals and heat to remove water and solids, and the natural gas is
separated. The oil is then stored in a tank, or battery of tanks, and later
transported to a refinery by truck, railroad tank car, barge, or pipeline. All large oil
fields have direct outlets to major, common-carrier pipelines.
The distillation process of crude oil and the set up of a refinery is illustrated in
figure 2.2. Crude oil begins to vaporize at a temperature somewhat less than that
which is required to boil water. Hydrocarbons with the lowest molecular weight
vaporize at the lowest temperatures, whereas successively higher temperatures are
required to distill larger molecules. The first material to be distilled from crude oil
is the gasoline fraction, followed in turn by naphtha and then by kerosene. The
residue in the kettle, in the old still refineries, was then treated with caustic and
sulphuric acid and finally steam-distilled thereafter. Lubricants and distillate fuel
oils were obtained from the upper regions, and waxes and asphalt from the lower
regions of the distillation apparatus.
In an effort to increase the yield fraction from distillation, the thermal cracking
process was developed. In this process, the heavier portions of the crude oil were
heated under pressure and at higher temperatures. This resulted in the large
hydrocarbon molecules being split into smaller ones, so that the yield of gasoline
fraction from a barrel of crude oil was increased. The efficiency of the process was
limited, however, due to the high temperatures and pressures that were used. A
large amount of coke was deposited in the reactors. This in turn required the use of
yet higher temperatures and pressures to crack the crude oil. A coking process was

Sebastian Veit
then invented in which fluids were recalculated; the process ran for a much longer
time, with far less build-up of coke.
Two additional basic processes, alkylation and catalytic cracking, were introduced
in the 1930s and further increased the gasoline yield fraction from a barrel of crude
oil. In alkylation, small molecules produced by thermal cracking are recombined in
the presence of a catalyst. This produces branched molecules in the gasoline
boiling range that have superior properties -- for example, higher antiknock
ratings -- as a fuel for high-powered engines, such as those used in today's
commercial planes.
In the catalytic-cracking process, the crude oil is cracked in the presence of a finely
divided catalyst. This permits the refiner to produce many diverse hydrocarbons
that can then be recombined by alkylation, summarization, and catalytic reforming
to produce high antiknock engine fuels and specialty chemicals.
In 1920 a US barrel of crude oil, containing 42 gallons, yielded 11 gallons of
gasoline, 5.3 gallons of kerosene, 20.4 gallons of gas oil and distillates, and 5.3
gallons of heavier distillates. In recent years, by contrast, the yield of crude oil has
increased to approximately 21 gallons of gasoline, 3 gallons of jet fuel, 9 gallons of
gas oil and distillates, 4 gallons of lubricants and 3 gallons of heavier residues.
2 . 3 Th e b a la n c e o f p o w e r p r i n c i p le : a s h i ft fr o m c o a l to p e tr o l e u m
The focus of this section will be to explore the changing primary energy sources for
industries and private households. Moreover, it gives insights into the
government's traditional entanglements and involvement in energy politics.
Through this example we can explore the realist principle of `balance of power'
between government and energy corporations.
In the 19
century coal was the main source of energy. Its great abundance, and
the relatively easy method of acquiring it, had made it a key source of fueling the
emerging industrialization in both Europe and North America. Coal was
predominantly utilized to power steam engines, to produce steel, and for heating

Sebastian Veit
purposes. According to Davis (1974), coal accounted for 71 % of the total energy
consumed in the United States in 1900, as compared to 2 % for petroleum. By the
mid-century oil had jumped to 35 % while coal had dropped to 37 %. Recent
figures show oil at 44 % of the total energy consumption and coal at 22 % for the
United States. There has also been a steady increase in oil consumption from 1980
to 2003 (see table 1.1). This indicates the importance of oil in today's economy.
Nevertheless, it would be hasty to conclude that political leadership simply decided
to shift from coal to petrol. The reality is that physical and practical differences
account for most of the political differences: coal is labor-intensive, but relatively
easy to mine, whereas oil is more capital-intensive and requires advanced
technology to exploit. Hence, the policy towards coal was more influenced by labor
impacts than were the politics of oil. Moreover, the management of oil
corporations has had a `cozy familiarity' with government according to Davis. This
has not always been the case. In 1911, the US government won the `anti-trust trial'
case against the Standard Oil Company. The company was broken up into its
individual components, as a result of the trial and increasing public pressure.
The trend of governments backing the oil industry was fueled by the formation of
Organization of Petroleum Exporting Countries (OPEC), where the oil
corporations were faced with a strong and coordinated institution. The oil
management was therefore seeking protection and political backing. The close
relationship between oil companies and policy-makers can be explained by a
conservative and realist approach, based on the balance of power principle. For
further details on OPEC see figure 2.3. This figure illustrates the 10 oil producing
states as well as the 10 largest oil consumers. Moreover, it provides an overview of
the OPEC member states.
Undoubtedly, OPEC represents a strong block of power which left the individual
oil companies vulnerable to market distortion by political demands of the Arab
states. However, the protectionism by governments was also used to keep potential
competitors out of the home turf. Prohibitive quotas and regulations prevented
new oil firms from entering the market. This policy clearly favored the established
corporations. The underlying mechanism of import quotas and fees imposed by
governments was meant to keep the local price higher than the open-market rates.


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Institution / Hochschule
University of KwaZulu-Natal – Social Science
energy strategy developing entwicklung

Titel: A Contribution to Reduce Oil Consumption
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