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The Policy Tightrope in Gas-Producing Countries: Stimulating Domestic Demand Without Discouraging Supply

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Executive Summary

Natural gas can offer substantial environmental, energy security, and convenience advantages over competing fuels such as coal and oil.   Gas is relatively abundant in the world, but the adoption and use of gas are hindered by its requirement for costly transport infrastructure. Because the pipelines or liquefied natural gas (LNG) facilities for moving gas are expensive to construct, investors depend on many years of reliable operation to recover their upfront capital outlays. Moreover, as gas cannot be stored as easily or cheaply as oil, governments must ensure that these expensive pipelines and LNG facilities will find consumers who are willing to pay prices for gas sufficient to enable long-term cost recovery. Bringing new gas to market thus means solving a high-stakes coordination problem that spans the upstream (development of the gas field itself), midstream (construction of transport infrastructure), and downstream (provision of gas to end use customers and ensuring consumer demand) parts of the gas value chain.

In their use of price subsidies to stimulate domestic gas demand, governments have in a number of cases deterred the development of gas supply and created shortages. At the same time, full price liberalization tends to face political resistance from domestic consumers of gas. Some governments have finessed this issue by creating markets with both planned and liberalized components.   Another challenge faced by gas-rich governments is how to mitigate risks faced by both prospective gas suppliers and prospective gas consumers in a nascent market, especially given the need to build and pay for costly gas transport infrastructure. In this paper, we discuss ways that governments can manage a delicate balancing act on gas, providing a predictable investment climate and regulatory framework to foreign investors while at the same time developing and serving a robust domestic market for gas. 

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Program on Energy and Sustainable Development
Authors
Mark C. Thurber
Mark Thurber
Joe Chang

Assisting the Escape from Persistent Ultra-Poverty in Rural Africa

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Christopher Barrett reviews the evidence on persistent poverty with a focus on rural Africa. He emphasizes the importance of asset accumulation, productivity growth, risk management and the sociopolitical institutions that govern economic activity. Barrett's talk synthesizes lessons learned about what works, what doesn't and why, and identifies key topics in need of further investigation.

William Masters, Professor of Food Policy in the Friedman School of Nutrition at Tufts University, will join the conversation as a discussant following Barrett's presentation. 

Biography

Christopher Barrett is the Stephen B. & Janice G. Ashley Professor of Applied Economics and Management and International Professor of Agriculture at Cornell University. He teaches and does research primarily in poverty and international development. His research program also has strong links to international, agricultural, environmental and micro economics as well as to applied econometrics. He is a Faculty Fellow and Associate Director, Economic Development Programs, at the new Cornell Center for a Sustainable Future. The Center is a major Cornell initiative aimed at promoting cutting-edge research on sustainable development in collaboration with key external partners to achieve significant real-world impact. He is also the Director of Cornell's Food Systems and Poverty Reduction IGERT program.

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Christopher Barrett Stephen B. & Janice G. Ashley Professor of Applied Economics and Management, International Professor of Agriculture Speaker Cornell University
William Masters Professor of Food Policy Commentator Friedman School of Nutrition, Tufts
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Global Food Policy and Food Security Symposium Series

The Future of South African Coal: Market, Investment, and Policy Challenges

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As the world's fifth largest coal exporter and a key swing supplier between the Atlantic and Pacific coal markets, South Africa is a crucial player in global markets.  While the country has long been Europe's major supplier of coal, South African exports have begun to shift east and are steadily becoming a major source of coal supply for the Asian coal boom.  This strategic positioning sets the stage for South Africa to become an even more important player in determining how the world trades and prices coal. 

In the coming decade South Africa will face a number of difficult decisions around how to meet increasing domestic coal demand while dealing with climate concerns, increasing exports, and building the infrastructure that would enable the country to significantly expand market share in the global coal trade.  In many ways, the fate of South Africa's coal sector now hangs in the balance.

This paper explores the interplay between South Africa's domestic and export thermal coal markets and what might shape their development in the future. The paper first examines the industrial organisation and political-economy of the coal sector in South Africa.  An overview is provided of coal mining companies, how the current market structure emerged historically, the development of rail and port facilities, and coal costs and prices. Policy and legislative developments are also described. Finally scenarios are developed for local and export coal markets.

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Program on Energy and Sustainable Development
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Anton Eberhard

Human Rights Education in India

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As human rights education (HRE) becomes a more common feature of international policy discussions, national textbook reforms, and grassroots educational strategies worldwide, greater clarity about what HRE is, does, and means is needed. This presentation reviews existing definitions and models of HRE and offers a case study of one non-governmental organization's (NGO) approach to school-based instruction in India.  Specifically, findings are presented on how household-, school-, and community-level factors mediated students' understandings of HRE.  Data suggest that a variety of factors at the three levels contribute to the HRE program's successful implementation in government schools serving marginalized students (where most NGO programs are in operation in India today).

Professor Monisha Bajaj has been a faculty member in the Department of International and Transcultural Studies at Teachers College, Columbia University since 2005. She teaches in the Programs in International and Comparative Education and advises students in the concentrations of peace education, international humanitarian issues in education, and African education. Her interests are in the areas of comparative and international education, peace and human rights education, the politics of education, social inequalities, critical pedagogy, and curriculum development in the U.S. and abroad. She has focused on research and programmatic work in sub-Saharan Africa, South Asia, Latin America & the Caribbean, and the United States.

Prof. Bajaj received her Ed.D. at Teachers College, Columbia University in International Educational Development, and her M.A. in Latin American Studies and B.A. in Sociology at Stanford University. She has previously worked in the field of human rights and developed a teacher training manual on human rights education for UNESCO while studying as a Fulbright scholar in the Dominican Republic.  She has also consulted on curriculum development issues, particularly related to the incorporation of peace education, human rights, and sustainable development, for non-profit educational service providers in New York City and inter-governmental organizations, such as UNICEF.  Her professional work focuses on examining possibilities for formal and non-formal education to influence social change.

Support for Prof. Bajaj's visit comes from the Charles F. Riddell Fund, administered by the Office of Residential Education, Stanford University.

Co-sponsors for this event are the Bechtel International Center; the Center for Ethics in Society; the Center for South Asia; the Education and Society Theme (EAST) House; the International Comparative Education Program of the Stanford University School of Education; and the Program on Human Rights at the Center on Democracy, Development, and the Rule of Law.

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CERAS 204

Monisha Bajaj Professor Speaker Department of International and Transcultural Studies, Columbia University
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Human Rights Education

On the State's Choice of Oil Company: Risk Management and the Frontier of the Petroleum Industry

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Conventional wisdom holds that oil sector nationalizations are rooted in political motives of the petroleum states, which perceive value in the direct control of resource development though a state enterprise.  State motives are inarguably important.  At the same time, we argue in this paper that constraints of risk significantly affect a state's choice of which agent to employ to extract its hydrocarbons.  Implicit in much current debate is the idea that private, international oil companies (IOCs) and the state-controlled, national oil companies (NOCs) are direct competitors, and that the former may face threats to their very existence in an era of increased state control. 

In fact, IOCs and NOCs characteristically supply very different functions to governments when it comes to managing risk.  For reasons we discuss, IOCs excel at managing risk while NOCs typically do not.  IOCs, NOCs, and a third type of player, the oil service company, will all continue to exist because their distinct talents are needed by states seeking to realize the value of their petroleum resources.  However, the relative positions of these different players have changed substantially over time, and will continue to do so, in response to the shifting needs of oil-rich states.

In the first part of this paper, we explore the nature and sources of risk in the petroleum industry, how these risks change over time, the task of managing petroleum risks, and the variable capacity of state and private companies to manage them.  In the second part, we apply qualitative and quantitative approaches to test the idea that risk significantly affects the state's choice of which agent to use for petroleum extraction.  First, we review the events leading to the cluster of nationalizations that occurred in the early 1970s and assess whether they were significantly affected by considerations of risk.  Second, we explore how well variation in risk and state capacity for risk can explain changing ownership over time within a particular oil province - the UK and Norwegian zones of the North Sea.  Third, we use data from energy research and consulting firm Wood Mackenzie to quantitatively test our hypothesis about the key role of risk, looking in particular at the case of oil and gas company exploration behavior.  

In all three cases, our observations are broadly consistent with the hypothesis that risk significantly affects the state's choice of hydrocarbon agent, although, as expected, other factors emerge as important drivers of outcomes as well.

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Program on Energy and Sustainable Development
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Peter A. Nolan
Mark C. Thurber
Mark C. Thurber

Remaking the World's Largest Coal Market: The Quest to Develop Large Coal-Power Bases in China

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China's coal market is now in the midst of a radical restructuring that has the potential to change how coal is produced, traded and consumed both in China and the rest of the world.  The restructuring aims to integrate the coal and power sectors at giant "coal-power bases" that combined would churn out more coal annually than all the coal produced in the entire United States. 

Coal-power integration is now a focal point of the Chinese government's energy policy, driven by the dramatic "coal-power conflict".  Coal prices are market-based, but power prices are tightly controlled by the government.  This has caused massive losses for Chinese power generators in 2008 and 2010 and triggered government intervention in the coal market with attempts to cap the price of coal.  The pervasive conflict between coal and power is now driving the Chinese government to remake these markets.

Coal-power base policy aims to establish upwards of 14 major coal-power bases, each producing over 100 mt of coal with consuming industries on-site.  The plan envisions that roughly half of China's coal production would be produced at a handful major coal-power base sites that are controlled by key state-owned enterprises (SOEs) and the central government.    

PESD's new research analyzes China's coal-power base reforms and how they will impact Chinese and global coal markets.  Several key findings are:

First, the implementation of coal-power bases would enhance central government's control over the coal sector and over coal prices.  The government could control coal pricing in a large share of the market and mitigate power sector losses by mandating lower coal transaction prices within integrated SOEs.  Using this kind of internal transfer pricing at below market prices for up to half of China's coal would represent a meaningful shift in how coal is priced in China.  If a large share of China's coal were transacted in this manner, it might create an unofficial two-tiered pricing structure in the coal market.

Second, coal-power base policy would bring about modernization and mechanization of a larger share of China's coal production, in theory bringing larger economies of scale to the sector.  While up-front capital investment per ton produced will certainly increase, the marginal cost of coal production should decrease, all other things equal. 

Third, the massive rebalancing of China's coal market implied by coal-power bases is poised to have important impacts on the globally traded coal market.  Since 2009, China's import behavior has become a dominant factor determining the price of globally traded coal.  In simple terms, when Chinese domestic prices are higher than global prices, the country imports.  The development of coal-power bases could radically alter coal price formation in China and directly impact China's appetite for imports, and therefore has the potential to alter coal price formation globally.

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Program on Energy and Sustainable Development
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Dr. Huaichuan Rui
Richard K. Morse
Gang He
Gang He

Agriculture in Brazil: Impacts, Costs, and Opportunities for a Sustainable Future

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Brazil has developed a large-scale commercial agricultural system, recognized worldwide for its role in domestic economic growth and expanding exports. However, the success of this sector has been associated with widespread destruction of Brazilian ecosystems, especially the Cerrado and the Brazilian Amazon rainforest, as well as environmental degradation. Brazil's agricultural development has also led to land consolidation, aggravating a historical land distribution inequality. This pattern of agricultural growth has reinforced Brazil's status as one of the world's most inequitable countries in terms of income distribution, making it difficult to assert that the nation is pursuing a sustainable development path. In order to achieve sustainable development Brazil must reconcile its increasingly productive, modern tropical agricultural system with environmental preservation, social equity, and poverty alleviation in rural and urban areas. Although a daunting task, Brazil has the opportunity to lead tropical countries in combining modernized agriculture with highly diverse and functional ecosystems. Continued improvement in socioeconomic conditions is equally important and will require stronger efforts to decrease inequalities in income and land distribution in the rural sector.

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Current Opinion in Environmental Sustainability
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Luiz Martinelli
Luiz Martinelli
Rosamond L. Naylor
Rosamond L. Naylor
Peter Vitousek
Peter Vitousek
Paulo Moutinho
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PESD receives smart grid research grant from Stanford's TomKat Center for Sustainable Energy

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The TomKat Center for Sustainable Energy has awarded four research grants totaling $1.2 million to Stanford University researchers for smart power grid related studies.  One of the four grants went to a PESD-led project that will help regulators overcome barriers to the development of electricity transmission lines needed to facilitate renewable energy deployment.  At present, the lack of adequate transmission infrastructure makes it difficult to connect generators in regions with rich wind or solar potential to major population centers.

One of the biggest challenges in the current transmission planning process is accurately characterizing the benefits of transmission lines to build a case for their development.  "Our research will develop key analytical tools to help regulators and policymakers assess the economic and environmental benefits of transmission expansions to support renewable generation," Wolak said. Such tools can ultimately be built in to grid planning, expansion, and pricing methodologies.

 

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Global Underdevelopment Action Fund awards six grants to projects addressing global underdevelopment

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Belinda Byrne
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The Freeman Spogli Institute for International Studies (FSI) at Stanford University has awarded six seed grants in the first round of funding from the Global Underdevelopment Action Fund. The grants are intended to jumpstart early-stage multidisciplinary research projects that tackle persistent problems of global underdevelopment. The Action Fund, which is supported by expendable gifts from FSI donors, matching funds from the Office of the President, and FSI, grew out of the Institute's spring 2010 conference on Technology, Governance, and Global Development, which featured keynote speaker Bill Gates, together with leaders from business, government, and nonprofit organizations, the media, and the academic community, to examine novel integrative approaches to poverty alleviation and human development around the world. The Action Fund projects range across disciplines, focusing primarily on problems in developing and transitioning societies. The majority of the projects have a health dimension, reflecting the degree to which poor health outcomes mirror a country's development status.

"Stanford is uniquely placed among American universities to bring cutting edge research to bear on practical problems of development.  No other institution has lower barriers to multidisciplinary work.  The Action Fund award recipients are drawn from many different parts of the university but united in their concern for promoting development," said Stephen D. Krasner,  the Graham H. Stuart Professor of International Relations, Senior Associate Dean of the Social Sciences at H&S, and deputy director of FSI.

Six multidisciplinary research teams led by Stanford faculty from across the university will receive a total of $236,000 in seed grants. The projects were selected by a faculty committee chaired by Stephen Krasner, with a focus on early-stage, multidisciplinary, policy-relevant research. All, projects are required to have a training component for Stanford undergraduate or graduate students.

The award-winning projects and their principal investigators are:

  • Explaining and Improving U.S. Global Health Financing
    Eran Bendavid, assistant professor of medicine and affiliate in FSI’s Center for Health Policy. Co-investigator: Rajaie Batniji, postdoctoral fellow, Department of Medicine. With a sharp divergence between justifications for global health funding and the countries and diseases to which funding is disbursed, this study will conduct a quantitative analysis of the determinants of U.S. financing for the 171 countries receiving development assistance for health in 2009. The project seeks to identify the key drivers for U.S. global health financing by country and facilitate research on how to make global health financing work better. 
  • Peasants into Democrats: Evaluating the Impact of Information on Local Governance in Mali
    James D. Fearon, professor of political science. Co-investigator and trainee: Jessica Gottlieb, PhD student in political science. Recent research suggests that enhancing voter information holds promise for increasing government accountability in new democracies. This project will undertake a field experiment in Mali, a model of an underperforming new democracy, to test the theory that information that sufficiently raises citizen voter expectations of government performance can have an important effect on governance. It will examine the impact of an intervention that provides citizens with a civics course on voter and government behavior.
  • Effects of “Best Buy Health and Nutrition Toolkit” for Improving Educational Outcomes in Rural China
    Scott Rozelle, FSI Senior Fellow. Co-investigator and trainee: Paul H. Wise, professor of pediatrics, FSI senior fellow, and Patricia Foo, MD/PhD student, economics. Studies show high levels of anemia, nearsightedness, intestinal worms, and poor health and sanitation among children in China’s rural boarding schools. This project will measure initial health and nutrition levels of students in a randomized control setting, and deploy a set of affordable and sustainable interventions in treatment schools that includes multivitamins, eyeglasses, deworming medication, and nutrition and sanitation training. The project will then assess what works and what does not by comparing improvements in academic performance in treatment and control groups. The results of this experiment are intended to inform education and nutrition policy in China at the central and provincial levels.
  • Controlling Drug-Resistant Tuberculosis: A Cooperative Agenda for China and North Korea
     Gary K. Schoolnik, professor of medicine and microbiology and immunology, and FSI senior fellow. Co-investigator: Sharon Perry, senior research scientist, Department of Medicine and FSI/CISAC. Rates of tuberculosis, a disease that thrives on poverty, malnutrition, and interrupted medical care, are now among the highest in the world in the Democratic People’s Republic of Korea (DPRK, North Korea), elevating the risk of an epidemic of drug-resistant strains and a spread into China. This project represents a unique historical opportunity to examine the relationship between food security, malnutrition, and the epidemiology of tuberculosis in a present-day famine.

  • Political Causes of Russia’s Public Health Crisis
    Kathryn Stoner, FSI senior fellow. Co-investigator: Rajaie Batniji, postdoctoral fellow, Department of Medicine. In spite of the economic advances and increases in GDP since the collapse of communism, Russia suffers from a range of dismal public health outcomes reminiscent of a much poorer country. This study seeks to understand what role political factors play in the country’s high adult mortality rate and declining life expectancy by mining World Bank and World Health Organization data and examining how Russians access healthcare services and information

  • Factors Affecting Adoption and Ongoing Use of Improved Biomass Stoves in Karnataka and Maharashtra, India
    Frank Wolak, professor of economics and FSI senior fellow. Co-investigator: Mark C. Thurber, research scholar, FSI/Program on Energy and Sustainable Development. Burning of biomass in traditional stoves is associated with a host of ills among an estimated 2.5 billion people around the world, even though cleaner and more efficient technologies exist that could mitigate the problems. This study will examine what factors affect cooking mode choice and utilization, with the objective of developing an econometric model that is useful for efforts that encourage the adoption of improved biomass stoves. The project also seeks to offer insights on poorly understood processes of technology adoption among poor populations and to understand the magnitude of health, development, and environmental benefits that might be achievable.
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