16 – Energy, Economy and Environment

Bhutan is in a very unique and interesting stage in its development at this moment in time.  It is one of the 48 “Least Developed Countries” in the world as defined by the UN, but with a goal to graduate to a “Middle Income Country” by 2020.  A large part of its economic growth strategy hinges on its ability to exploit the pristine fast flowing rivers running through the country in the form of hydropower and export the electricity to neighbouring India.

A couple of weeks ago I had the privilege of attending a conference here in Thimphu entitled “E3, Ideas at the confluence of Energy, Economy and Environment”.  It was an exceptionally well run and very interesting 3 day event held at the fabulous Taj Tashi hotel.  Local delegates (from the hydropower corporations, various government ministries, academia, the private sector and environmental groups) as well as delegates from all over the world came together to explore this E3 nexus in the context of Bhutan.  Not only did I glean some invaluable information for my final Masters project, I also made some new friends and met some truly inspiring people.  This post is based on my thoughts and learnings coming out of that conference.  (p.s. that’s me with the green folder in the 3rd row!)


In 2006 the Royal Government of Bhutan signed an agreement with the Government of India to develop 5,000 Mega Watts (MW) capacity of hydropower which was then upgraded in 2009 to a commitment of 10,000 MW by 2020.  There are currently 4 large hydropower plants in operation in Bhutan, another 4 under construction and a further 12 planned in order to reach this target.

Even with only the first 4 being online, hydropower is already the single biggest contributor to Bhutan’s GDP (14%) and contributes 29% of the government’s revenue (tourism is the next largest contributor).  In comparison with its Himalayan neighbours, Bhutan is now the best economically performing state per capita.

However, despite this progress, Bhutan’s current account deficit is 23.5% of GDP due to the large financing loans the Royal Government of Bhutan incurs from the Government of India to fund the capital cost of constructing the hydropower plants.  And this will only get worse before it gets better.  The 4 plants currently under construction are costing US$3.2 Billion and the 12 proposed projects are estimated to cost in the order of US$11.2 Billion.  Even though they are financed on a part grant/part loan basis (on a ratio of 30:70 for the latest ones), many people have raised concerns about this level of foreign debt. Others argue it is self-sustaining and by 2020, Bhutan will be raking it in.

Thanks to a huge nation building effort over the past few decades, almost all households across Bhutan are now connected to the electricity grid – a mean feat given the topography.  As a result, power is widespread and it’s also fairly consistent and reliable by comparison to its Asian neighbours.  The country is currently meeting its domestic demand except for periods in winter when electricity has to be imported. Most of the year Bhutan generates surplus power which is sold to India where there is a huge and ever growing energy demand.

Yet, while Bhutan is exporting what most people consider to be ‘green’ hydropower, it is still a net importer of energy: in the form of the more greenhouse gas (GHG) emitting energy sources of gas (for cooking) and fuel (for cars).

As I’ve mentioned in previous posts, Bhutan is the only country in the world to be carbon neutral and it has made a commitment to remain so.  This is easily achieved currently due to the fact that there are hardly any polluting industries and there is a large expanse of forest cover (with a constitutional commitment that it never drop below 60% coverage).  However, as the population becomes more affluent and starts using more energy, domestic demand is forecast to rise.  In fact, one study suggests that in a business as usual scenario, emissions are forecast to exceed Bhutan’s carbon sequestration capacity in around 2035.  To combat this, Bhutan will need to overcome its domestic dependence on fossil fuels.

One of the challenges to reducing domestic GHG emissions is that the main source of energy in Bhutan is still biomass (burning wood for cooking/heating).  This not only depletes the forests but is also a significant contributor to the country’s GHG emissions.  Efforts are being made to improve the efficiency of wood burning stoves but also to wean people off using wood in preference for electricity for cooking and heating. In an attempt to facilitate this, the government provides a certain quota of electricity free to rural people.  However, there is a huge cultural barrier to overcome here, and hence this strategy has had little to no success to date.  Further, there is little incentive to invest in alternative renewable energy options even though Bhutan has proven potential in wind power, solar hot water heating and biogas. This is because electricity is already reliable and plentiful; hydropower is already considered to be ‘green’; and alternatives can’t yet compete with hydro on price.  [Just to give an idea, our monthly electricity bill for the two of us living in a 1 bedroom apartment in the capital city is the equivalent of about AU$6.  In Australia, for the equivalent time period and similar energy usage we’d pay about AU$100 per month].

The other main source of GHG emissions is transport. The only form of ‘public transport’ in Bhutan is the 20 seater Coaster buses that ply a handful of city circuits and the long distance routes between Thimphu and distant towns and villages.  The idea of building a train line between Bhutan and India was recently scrapped.  As the road network expands and affluence increases, more of the population can afford vehicles. In response, the government is encouraging people to buy electric cars though tax incentives and high import tariffs on petrol cars. In theory, electric cars would be recharged from the ‘green’ hydropower, but until the infrastructure for recharging is established, nobody wants to be stuck in the middle of nowhere in the Himalayan mountains with a flat battery!

You’ve probably noticed by now the inverted commas each time I mention ‘green’ hydropower.  Here’s where I come to the question, how ‘green’ is hydropower really?  The Royal Government of Bhutan’s seemingly single minded focus on hydropower and its big push to develop this quickly is being questioned by several onlookers in terms of how it stacks up against Gross National Happiness (GNH), the cornerstone of Bhutan’s development philosophy.  Does it satisfy economic, environmental, social and good governance goals (the 4 pillars of GNH)?  And is this fast pace out of step with the more considered ‘middle path’ approach Bhutan has taken to date?

Environmentally, the negative impacts caused by these hydropower plants appear to be being played down somewhat.  The common argument is that most of the impacts occur during the construction phase (dust, noise, downstream pollution) so they are temporary and the Environmental Management Plans (EMP) includes mitigation measures to combat these impacts.  How effectively those EMP measures are implemented, monitored and evaluated however, is another question.  Similarly, what about the impact of the transmission lines which cut a swathe through the forests.  Further, with the impacts of climate change already being felt (glaciers retreating, monsoon season becoming less predictable and extreme weather events becoming more prevalent), what risks does this pose on the hydro schemes from upstream activities (e.g. increased sedimentation and Glacial Lake Outburst Floods).  Conversely, are the projects going to exacerbate climate change impacts for more vulnerable downstream communities in terms of the quality and quantity of water for drinking and irrigation?

Likewise, the social impacts (displacement, health issues, etc) also seem to be being played down with the argument that families displaced as a result of these projects are well compensated, are offered jobs on the project and financial shares in its operation.

On the plus side, the revenue from the sale of power across the border is used to develop Bhutan’s hospitals, education system and other national infrastructure to the benefit of all Bhutanese.  In fact, this is a significant argument used in favour of retaining state ownership of these plants as opposed to opening it up to private development. To date there is no policy structure for private sector development of hydro in Bhutan.

It will certainly be interesting to see what happens in the next 6 years and beyond.  There is this idea that Bhutan could become “the Saudi Arabia of hydropower” for the South Asian market, but at what cost and what risk to this little Himalayan Kingdom and its GNH?  Will there be any river in Bhutan that will remain un-dammed?


Thank you to the QED group for organising a fantastic conference and I acknowledge QED as the source of the 2 images used in this post.



One thought on “16 – Energy, Economy and Environment

  1. Great piece Jen. Thanks for sharing. Very interesting to read in light of the recent exposure the TED talk about Bhutan being Carbon Neutral has had.

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