Bio-Based Energy, Rural Livelihoods and Energy Security in Ethiopia

Energy consumption in Ethiopia is based mainly (90%) on the traditional use of biomass for domestic needs, typically using rudimentary cooking stoves. Against this background this study examined the importance of biomass energy use among rural households and evaluated long-term energy security at the national level. To this end, a farm household model was developed to investigate the association between biomass energy use and food security. The study explored the effects of fuelwood scarcity on rural livelihoods through an examination of household decisions regarding the allocation of family labour and expenditures on food and energy. For this purpose the study relied on a panel dataset derived from Ethiopian households. Due to the endogeneity of shadow wages and prices, and to selectivity biases, a Fixed Effect Two-Stage Least Squares model was used with inverse Mills ratios to determine wages and food and energy expenditures. In addition, Seemingly Unrelated Regression and Almost Ideal Demand System analyses were used to estimate the allocation of labour to agriculture, fuelwood collection, and off-farm activities jointly. Discrete household energy decisions were estimated using a multinomial logit model with predicted wages and other determinants. Shadow prices of fuelwood and agricultural fuels were estimated based on their respective shadow wages and per unit labour hours expended in order to procure the respec tive energy sources. Ordinary Least Squares and Tobit models were used to estimate household demand for fuelwood, and for charcoal and agricultural fuels, respectively. A dynamic long-term model of the energy sector in Ethiopia was used to investigate the development of renewable energy for cost-effective energy diversification. Finally, the suitability of institutional arrangements and collective action for increased decentralized energy generation among remote communities were also evaluated. The regression results show that fuelwood scarcity or a decrease in the shadow wage of fuelwood collection labour was negatively associated with the allocation of labour to agriculture, and per capita energy and food expenditures. Greater shadow wages for agricultural activities had negative relationships with the allocation of labour to fuelwood collection. Fuelwood scarcity was positively associated with labour allocation to fuelwood collection. The allocation of labour to fuelwood collection had a negative self-reward effect with an increase in shortage of fuelwood. Increases in the opportunity cost of fuelwood collection were associated negatively with the use of this fuel type, with an own-price elasticity value of –0.38. These results suggest that fuelwood scarcity has negative effects on household welfare. Agricultural fuels and kerosene were not substitutes for fuelwood, which conforms to the results of previous studies. The relationships between biomass use and household wealth, access to electricity, and population density were consistent with theoretical expectations. Household energy use in Ethiopia appears to conform to the 'energy stacking' or ‘multiple fuel utilization' concept. However, access to modern forms of energy and economic growth played central roles in such a transition. Concerted policies are needed to help improve living standards and entrepreneurial skills among rural households. Furthermore, the model results indicate that hydroelectric power will dominate the country’s energy mix without intervention with respect to technological progress and efficiency innovations. Over the long term, however, it is predicted that droughts will adversely affect the reliability of this energy source and the cost of energy will increase as a result. To cope with the expected effects of drought on hydroelectric power generation, the country needs to invest more in alternative renewable energy resources. In terms of energy security this would improve both sustainability and resilience, but also increase production costs. Innovations that improve the technology and efficiency of alternative energy sources, especially solar energy, would increase energy resource diversity and reduce production costs, shadow prices, and resource scarcity. Such innovations are therefore key for mitigating the expected effects of drought and improving energy security, and thus would likely serve as an engine of economic growth. The results of a cost-benefit analysis for the development of biogas in Ethiopia suggest that subsidies for large decentralized biogas plants could achieve greater profits than smaller household biogas plants. Specific policy measures should improve energy efficiency, substitution, and technical performance; provide tangible incentives such as capital subsidies and feed-in tariffs; and ensure the availability of microcredit for the development of renewable energy and include rural households in local ‘smart grid’ power generation projects.