The contribution of energy to the global economy

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One of the basic needs of humanity to survive is the use of energy, and all organisms need it. The world make use of energy in all human activities, from thinking to working.

The world employs energy to lighting the environment, aid human movement, and feed the tools that produces food for human consumption.

The major source of energy is the sun. The earth receives energy from the sun, making it available to the planet both directly or indirectly in either the form of water, wind, chemical, waves, biomass or tidal energy.

Other primary sources of energy appears in the natural environment like coal, crude oil, natural gas, wood, nuclear fuels, earth heat in the form of geothermal energy.

Secondary energy sources are the energies derived from the transformation of the primary energy sources.

For instance, the transformation of crude oil into the likes of diesel and petrol for diverse use, the electric energy also gotten from the conversion of mechanical energy et cetera.

Whiles talking about the sources of energy, we need to know that some of the sources are renewable and others are not.

The renewable sources are those that provide energy that is constantly regenerated by means of chemical transformation (biomass) or physical transformation (water, solar, wind power etc.).

Sources like the sun, wind, water cycle, tides, heat from the earth are non-exhaustible, meaning that they will forever be available for use. The biomass is available for use and can regenerate, as far as human life exist.

Non-renewable energy sources instead are characterized by long regeneration times. So long (millions of years) that after they have been exploited, they are considered depleted. They are those energy sources that took millions of years to form, like fossil fuels (oil, coal, natural gas) or when our planet was formed, such as uranium.

Energy-Development Nexus

Numerous studies have established a close positive relationship between energy utilization and economic development. Energy is very important for human development such that the Sustainable Development Goal 7 (SDG-7) talk about “ensuring access to affordable, reliable and modern energy for all by 2030” including universal access to electricity and clean cooking, a greater share of renewables in the energy mix, and a doubling of the rate of improvement of energy efficiency. In spite of the key role to development, the International Energy Agency (IEA) concludes that close to 1.3 billion people globally, which is equivalent to 10 percent of the world’s population, lack access to electricity. From this percentage, 22 percent are those living in developing countries with almost 97 percent of this percentage without access to electricity living in sub-Saharan Africa and the developing part of Asia.

Energy contributes enormously to the development of an economy, as it has become the critical backbone of most economies from job creation to economic growth. The following are some of the influence of energy on the world economy.

  • Job Creation: In the energy sector, there are many employment opportunities available for people. The jobs created are either directly or indirectly. For instance, the Renewable Energy and Jobs Annual Review 2019 estimates that there were approximately 11,000,000 direct and indirect jobs in the renewable energy sector across the world in 2018. This is an increase from 10.3 million jobs in the sector in 2017.

There also exist many job creation opportunities in the other sectors of the economy like agriculture, health, education, transport and others that make use of energy.  Increase job creation/employment leads to poverty reduction. Thus, poverty indicators like illiteracy, rapid urban migration, high maternal mortality, inadequate access to good health and water are reduced/eliminated. 

  • Increased Productivity: The energy sector serves as the pillar on which other sectors of the economy thrive. Other sectors of the economy like agriculture, manufacturing, transport, Health, Education et cetera, thrive when the energy sector is functioning very well. Agriculture production and expansion for instance make use of energy in various form from the fertilizer application to mechanization, harvesting and storage. Without the proper functioning of the energy sector, the manufacturing sector will also suffer. A typical case is the power crisis witness in Ghana between 2007, and 2013-2016, which led to massive collapse of businesses and an increase in the cost of production. The health sector is no exception as most of the tools used in the health sector are made of technology and electrical components that require electrical energy input. Energy also plays an enormous role in the transport sector be it land, sea or air, for purposes of mobility. 
  • Revenue Generation: This refers to the income generated from either producing energy or consuming one. The revenues from the energy sector comes in the form of taxes, levies, margins, royalties et cetera. As humans make use of energy on daily basis, it is expected that income can be generated from it because of various investments that are made in that sector. For instance, a report by Smart Energy International (SEI) showed that revenue generation within the renewable market is expected to increase from US$85.3 billion in 2019 to US$165.7 billion in 2028, based on the increased investments in the renewable energy sector.

In terms of energy production, an oil producing country can generate revenue from avenues such as taxes on profits, ground rents, royalties, carried and participating interests. For instance, in Ghana, total petroleum receipts (i.e. proceeds from liftings and other petroleum receipts) as at September 2019, was US$668.41 million.

  • Investment: Another major contribution of the energy sector to the world economy or country specific economy is that, it aids investment especially, capital investments. For instance, investments in Ghana’s energy sector thus the petroleum sub sector and the power sub sector has helped Ghana to achieve a lot when it comes to energy production and consumption. The investment in the Jubilee field for instance, produces hundred-thousands barrels of oil per day (bopd), and the revamping of the Tema Oil Refinery (TOR) helps Ghana when it comes to petroleum supplies. Investments in the power sector with independent power producers have increased Ghana’s installed energy capacity.

Energy therefore plays an important role when it comes to its contribution to the world’s economy and countries economy specifically. It is the basic unit for human survival and its contribution cannot be underestimated.

The writer is  Institute for Energy Security (IES) ©2020

Email: [email protected]

The writer is a Research Analyst at the IES, and holds a Masters in Economics

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