The relationships between energy, the environment, and development are deep and complex. The International Energy Agency has noted that energy is deeply implicated in each of the economic, social and environmental dimensions of human development. Energy services provide an essential input to economic activity, contribute to social development, and help meet basic human needs. But energy production and use also has significant environmental implications that must be managed if countries are to meet their long term sustainable development goals. The purpose of this paper is to highlight the importance of environmental management and governance in the energy sector; to present environmental goals, requirements, entry points, and strategies/approaches to capacity development for the environment (CDE) in this sector; and to discuss implications for donors. The focus is on CDE in a developing country context. The paper recognises that CDE must be seen as part of an endogenous process of change, and that it must operate at multiple levels: the enabling environment, the organisation, and the individual. The paper argues that capacity development is not an end in itself; instead, defined environmental goals should be the basis for determining capacity requirements, which in turn should be the basis for defining capacity development priorities. Based on this, the paper further argues that CDE should focus on sustainable energy sources of relevance to the majority of the population, and on increased efficiency of energy use. The paper links these concepts to the country systems approach to development assistance advocated in the Paris Declaration on Aid Effectiveness, and discusses some of the challenges donors face in providing CDE assistance that responds to these concepts and principles.