An evaluation of the impact of biofuel production in Uganda on household welfare: The case of Briquettes

Abstract

For decades, Uganda’s energy challenges remain unresolved. Yet, a country’s growth is essentially hinged on not only, accessible but also affordable energy. How a developing country like Uganda can attain its growth targets amid unresolved energy constraints is an interesting and important research issue. Uganda’s case is unique because electricity is not only limited in supply and access, its prices have also consistently soared. Consequently, the consumption of environmentally-unfriendly biofuels has continued to dominate and constitute over 90% of the country’s total energy needs in face of a rapidly growing population, and increased urbanization. Huge investments in hydro-power generation have been committed albeit with foreign-sourced financing. Although the initiative had been projected to increase access and ultimately displace environmentally-unfriendly biofuels, it also ultimately resulted into persistent rise in electricity prices. The ensuing rural electrification efforts have not helped either partly due to high power tariffs and other supply related constraints. New innovative initiatives convert waste resources into environmentally-friendly biofuels and coupled with other renewable energy energy initiatives, they are projected to not only replace environmentally-unfriendly biofuels but would also raise employment incomes while augmenting overall energy needs. However, empirical evidence underpinning such claims is lacking despite its relevance for guiding biofuel-based policy formulation and investment decisions.

Using 2009/2010 Social Accounting Matrix, we aggregate charcoal and firewood sectors into biofuels sector. By shocking this sector with the introduction of briquettes, we examine and compare impacts with those of electricity expansion. Potential inefficiencies associated with increased electricity prices are also analyzed. These issues are approached from an economy-wide perspective through a computable general equilibrium framework. Simulation results reveal winners and losers in terms of employment, income and consumption. Increased investments in biofuels production raises employment in a few sectors of the economy. Overall, household income, consumption expenditure and agricultural output increase with larger investments in biofuels at a ceiling of 22 percent beyond which negative growths set in. These growths rates are more than doubled when the two policies of biofuels and electricity expansion are jointly implemented while electricity expansion alone causes employment in virtually all sectors of the economy but household welfare shrinks. Increasing electricity prices retards growths. Investments in biofuels production and promotion alongside electricity price regulation should be embraced.