On January 26, the Council of the Americas and the Atlantic Council co-hosted the Caribbean Energy Security Summit. The summit, convened by Vice President Joseph Biden, brought together Caribbean leaders, multilateral banks, private sector representatives, and U.S. government officials in order to address the critical issue of energy security in the Caribbean basin.
The summit demonstrated that there is high-level attention being given to the Caribbean in the U.S. government, which is willing to work with the region in order to take on the fiscal, energy, and environmental challenges currently present.
Caribbean nations are suffering from high energy costs and a dependence on fuel oil. They are indebted to countries such as Venezuela, through the Petrocaribe program. Because countries are receiving oil from Venezuela on preferential financing terms, there is very little incentive to diversify the energy matrix towards cleaner sources of energy such as natural gas and renewables. In a sense, the Caribbean is addicted to cheap oil—but this is not sustainable, given the declining state of the Venezuelan economy.
Furthermore, energy costs are affecting the region’s economic growth. According to the IDB, electricity rates in the Caribbean are up to four times more expensive than in Florida. The Caribbean’s economy is primarily driven by tourism, and electricity represents up to 50 percent of operating costs in hotels.
Moreover, the high dependency on imported fossil fuels is exacerbated by governance systems that are outdated. The obstacles to energy reform include high upfront costs, fiscally constrained governments, weak regulations, and lack of regional coordination.
Most Caribbean nations are consumers of hydrocarbons, and are thus benefiting from lower oil prices. The time is now to take advantage of this moment, when cheaper oil could represent a savings of about 4 percent of GDP, according to the IDB. These savings could be directed towards a diversification of the energy matrix. As Vice President Biden stated during the summit, “the best time to fix a roof is when the sun is shining.”
Biden delivered remarks during the summit that demonstrated a continued commitment to energy issues in the Caribbean. He stated that this is a “propitious moment” due to high growth rates in the United States, declining oil prices, and falling costs of renewable energy. He pointed to the challenge of financing for energy infrastructure, an area that has been long overlooked in the Caribbean basin. Biden also pointed to the technologies in place for natural gas, which have led to regional markets for liquefied natural gas (LNG), including from the United States.
As stated by Biden, “It’s profoundly in the self-interest of the United States to see the Caribbean countries succeed as prosperous, secure, energy-independent neighbors-—not a world apart, but an integral part of the hemisphere, where every nation is middle class, democratic and secure.“
Fundamentally, the purpose of the summit is to attract private sector investment to the Caribbean. Leadership of public sector financial institutions—such as the Inter-American Development Bank, the World Bank, the Overseas Investment Corporation, and others—participated in the meeting to demonstrate their continued commitment to the Caribbean.
Yet it is likely that the real change in the Caribbean basin will be through private-public partnerships, and setting up the regulatory and rule of law conditions that will attract investment in energy infrastructure. Through donor coordination and the support of governments of the Western Hemisphere, the private sector may indeed be able to invest to tackle the Caribbean’s energy challenges.