There are signs aplenty in rural Asia of the profligate use of energy - electrical and fossil fuel - but little evidence that such use is being assessed against its true costs. This is because supplying cheap power (and in some cases free power) is a valuable political lever.

In rural Asia, the value of such 'support' can be judged by the scale of popular opposition to its withdrawal. Although many consumption subsidies provided through artificially low prices are anathema to the power industry and to multilateral development agencies alike, their value in developing Asia (and particularly in large and fragmented power markets like India) is undiminished.

But the pressure for market (and subsidy) reform is mounting as the cost of energy rises and demand grows. In 2007, the Asian Development Bank approved loans in 2007 worth US$ 1.525 billion for power sector projects in India, Bangladesh and Nepal. This is but a tiny fraction of what both government and industry need. The International Energy Agency (IEA) estimates that India alone will need to spend approximately US$ 800 billion on its energy sector by 2030.

The South Asia Regional Initiative for Energy (a USAID programme) has made an estimate of needs and levels of subsidy in South Asia. Bangladesh is only 33% electrified and its 2006-07 subsidy losses in the electricity sector were US$ 125 million. Sri Lanka is 54% electrified and its electricity sector is directly subsidized to the tune of US$ 150 million. Pakistan bore a US$ 1,623 million subsidy in 2006-07 and is only 40% electrified. India, which is 56% electrified, incurs losses of US$ 7 billion per annum.

Discussions of power sector reform in the region tend to revolve around three policy areas: bringing prices closer to world market levels, freeing regional electricity boards of political controls so they can reach fiscal soundness, and making greater space for the private sector. What stays out of the reckoning are the waste products of energy use which are dumped into the biosphere, and result in health and environmental damage.

Why are these non-internalized external costs not counted? In part because they are obscured by the scale and urgency of the demand, and because they are hard to quantify - it is extremely difficult for a coal-fired thermal power plant to estimate its impact on a nearby rainfed agricultural land, for example. Yet these externalized costs are greater than the direct subsidies.

If these non-internalized externalities were to be taken into account in the energy field, the price per kWh of fuel of petroleum origin would likely double, derailing many of the assumptions about runaway Asian economic growth. Burning coal at a fossil-fuelled power station, for example, results in the emission of many substances into the atmosphere. These have various effects around the emission point, including an increase in respiratory diseases, deterioration of buildings and lower agricultural production. For the community these negative effects are costs which are not included in the energy bill.

In short, the required structural change in the accounting of Asian energy costs must be embedded in an economic, social and ecological framework in which a variety of technologies can be chosen to create a future power supply. These include nuclear power plants, coal-fired power plants, gas-fired power plants, and power plants which use regenerative energies like solar radiation, wind or biomass. The key is how the external costs of these options are defined and priced, since, for example, fossil-fired power plants tend to be economically attractive but ecologically destructive, whereas renewable energy systems tend to be ecologically attractive and economically difficult. The decision-making process will need all actors, and particularly user communities, to be on the same side.

Rahul Goswami is a policy researcher, journalist and editor who writes regularly for the Khaleej Times (Dubai), Today (Singapore) and the Gomantak Times (Goa, India). This essay is a summary of a briefing paper intended for journalists that Mr. Goswami is producing for the GSI, on energy subsidies in Asia, to be released in June. He is based in Goa, India.