Sustainable energy transition in developing countries: the role of energy aid donors

Abstract

Dialogues on global climate policy are increasingly discussing the sustainable energy transition, with Goal 7 of the UN’s Sustainable Development Goals highlighting the importance of affordable and clean energy. This study looks at foreign aid as a carrier of global climate policy and examines donor behaviour in the energy sector. By examining donor behaviour when giving energy aid, one can grasp how the donor community helps recipients achieve a sustainable energy transition. A panel of donor–recipient pairs, covering 29 donors and 99 recipients, was constructed for the period between 1996 and 2013, using data from Organisation for Economic Co-operation and Development Creditor Reporting System (OECD CRS), International Energy Agency (IEA) and World Development Indicators (WDI). The pair-year panel data were empirically analysed using a two-part model to test whether energy aid donors respond to recipients’ needs with regard to renewable energy and residential electricity. The findings demonstrate that donors respond to recipients’ sustainable energy needs, both renewable and residential, when selecting recipients. Moreover, donors tend to increase the amount of aid based on renewable energy needs. The findings also highlight the significant role of international climate policy, as donors have changed their energy aid-giving patterns since the start of the Kyoto Protocol. Contrary to the common belief in the aid-giving literature, this study shows that, with regard to energy aid, donor interests are more weakly related to recipient selection than are recipient needs.Key policy insights Donors are influenced by the residential energy needs of recipients when giving energy aid, which aligns with the Sustainable Development Goals.Donors’ energy aid-giving patterns changed between the periods before and after entry into force of the Kyoto Protocol, highlighting the significant role of international climate change policy.Policy makers and aid practitioners can steer donors to continue to allocate resources to the development of recipients’ energy policy and to help recipients prepare institutional structures to attract private investment in sustainable energy.

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