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What the extractives sector can teach renewables on curbing corruption

What the extractives sector can teach renewables on curbing corruption

19 December 2018

Renewable energy policy has more to learn from extractives sector governance than you might think. Here are four lessons the extractives sector can share to improve the chances of a successful energy transition – the switch from a fossil-based energy system to a more sustainable infrastructure, fuelled by clean energy sources.

As COP24 draws to a close, more voices than ever are calling for the transition to a zero-carbon economy to be accelerated. Whatever its pace, the transition is likely to bring deep transformation, trade-offs and uncertainties, as outlined in The Extractives Hub’s recently-released topic material on The Energy Transition and Extractives. But when it comes to the transition to a lower carbon economy, resource-exporting countries may, in fact, be at an advantage. Their experience can offer clear governance lessons, not least on how to avoid a ‘renewable-resource curse’. By drawing on these lessons, resource-rich countries have a unique opportunity to influence global policies and contribute to a speedier and more equitable transition.

Lesson 1: Corruption isn’t just an extractives sector problem. The potential for corruption and rent-seeking applies to renewable energy projects as much as it does to the extractives sector. Like extractives sector development, renewable projects require substantial capital. Although the cost of renewable technologies is falling rapidly, high levels of political risk, particularly in Sub-Saharan Africa, mean that raising this capital may be challenging. Many renewable energy projects attract government support and may include the issuance of renewable energy certificates. There are already examples of linkages between these subsidies and corruption. Research has shown that policy makers should pay extra attention to the potential distortions of public policies implying large rent opportunities, in areas where weak institutions and bureaucratic complexities can encourage illegal behaviour.

Lesson 2: Consult, consult, consult. The extractives sector has gradually come to recognise the importance of stakeholder consultation and community development. This cooperation is equally essential in the renewable energy sector, to build trust in these new technologies. If these projects fail to build support and understanding, public acceptance may be more difficult to achieve.

Lesson 3: Integrate and localise to make projects sustainable. Like extractives sector projects, renewable energy initiatives can create big expectations – to power homes, hospitals and schools, for example. The successful adoption of renewable energy technologies therefore requires a deep understanding of the interconnections between stakeholders, and the ability to sustain and maintain these projects. This entails dedicated planning and transparent partnerships; there are too many examples of renewable energy projects that, once established, are left to deteriorate. Local content requirements are relevant for renewable energy projects too and are an important tool for localising spending and manufacturing, creating jobs and building economic clusters. However, if vulnerable to manipulation, the goals of local content policies may not be achieved at all and they can be hijacked as a means to enrich individuals or firms, or to fuel corruption.

Lesson 4: Transparency requirements can limit corruption in the award process. As with mining, oil and gas licenses, the award of renewable energy projects requires clear legal procedures to ensure a process that is objective and transparent, deters nepotism and favouritism, and promotes the selection of capable and qualified implementing partners. In large-scale infrastructure projects, the award of subsidies may result in political influence being exerted in the licensing process. Beneficial ownership disclosures, gradually becoming part of licensing requirements in extractives sector projects, could be extended to the renewable energy sector to limit the influence of politically exposed persons. In some countries, independent regulatory agencies and investment funds have been established. Governments may benefit from becoming a member of global transparency initiatives such as the Open Government Partnership and Open Contracting Partnership. Such measures are important to unlock the renewable energy potential of Sub-Saharan Africa, as large sums of overseas investments will be required.

Corruption risks remain a major barrier to a just global energy transformation, where no one is left behind, but by taking into account the lessons learned by the extractives sector over many decades, it is achievable.

Dr. Gokce Mete is the content lead of the Extractives Hub, a digital knowledge platform supporting governments in their management of the extractives sector. Joanne Jones is the team leader of the Extractives Hub, and has over 20 years of experience in the extractives sector.