Politics, Business & Culture in the Americas

Ask the Experts: Energy

Reading Time: 4 minutesWhat prevents Latin America from moving forward with alternative energy programs?
Reading Time: 4 minutes

Pedro Joaquín Coldwell answers:

We should appreciate first the progress we have already achieved in the region. Mexico now has a legal framework—non-existent just six years ago—for promoting renewable energies, which establishes goals for cutting down on emissions and contemplates that 35 percent of all power used in the country will be produced through clean technologies by the year 2024. Costa Rica produces 70 percent of its electrical power through hydro plants, while progress made by Brazil in the production of ethanol is impressive.

Nevertheless, we must recognize there still are barriers to overcome.

First, greater effort should be devoted to developing new technologies while focusing on local production and accessibility. Second, there are no trustworthy inventories on the availability and the quality of renewable resources. The result is increased financial risk for investors and, with it, higher interest rates.

Third, the costs of generating power by using fossil fuels do not include the negative external factors associated with emissions. This impact must be taken into account for the purpose of adopting a broader view in selecting projects for
the generation of electrical power. And fourth, we need to address the lack of strong regulations that guarantee the long-term purchase price of energy generated through renewable sources, as well
as the lack of existing infrastructure for power transmission.

To move forward we must focus on solutions: incorporating those factors that are external to planning, improving the mapping of renewable energies, enlarging the transmission network infrastructure, revising regulatory barriers, and strengthening a social vision in developing new technologies. 

Ramiro Fernández answers:

While there is consensus with regard to Latin America’s alternative energy potential, it is also true that Latin America’s progress toward adopting alternative sources has been slower than other regions, due in large part to various sets of individual factors.

 One of the primary factors impeding faster progress is the market distortion created by public subsidies for energy consumption in countries such as Venezuela, Argentina, Ecuador, and Bolivia. These subsidies reduce profit margins in local energy markets, which, in turn, act as a disincentive for the type of capital investment required by renewables. In addition, several countries in the region, including Venezuela, Mexico, Ecuador, Peru, and Bolivia have—or until very recently had—significant oil and gas reserves, which lessened the need to diversify energy sources. Economic growth targets also play a role: Brazil, which has a strong base of hydroelectric power, world leadership in biofuels, and the fastest growth rate on the continent for both wind and solar energy, is planning to increase its use of fossil fuels—including new offshore reserves—over the coming decade to meet its growth projections. A final factor is the fact that in Latin America 70 percent of CO2 emissions are generated by the agricultural sector, deforestation and land use changes. The most important climate change mitigation efforts in the region have centered on the preservation of the Amazon and the reduction in deforestation rates, rather than on the adoption of alternative energy sources.

 Even in this challenging environment, in our work on sustainable energy at AVINA we find reasons for optimism about the growth of renewables. The cost of alternative energy technology has decreased and will continue to decrease in the coming years, while at the same time oil and gas markets are expected to become even more volatile than in the past. These contrasting trends provide a backdrop conducive to begin shifting the conversation toward more sustainable energy solutions for Latin America. 

Andrea Luecke answers:

One common theme across the diverse 40-some countries of Latin America and the Caribbean is the vast potential for more clean and locally produced energies, like wind and solar. In fact, there is no other region on earth with as much potential. Yet, time and again Latin American countries fail to act or fail to act enough.

Part of the problem is that the usual demand-side policies (like feed-in-tariffs or consumer rebates) will never help Latin America fully wean itself off fossil fuels. While these policies help reduce costs and serve as a welcome sign for companies and investors, the policies are not designed to be long term; nor can they move renewable energy beyond its current niche status. Establishing goals for the contribution of renewable energy is another mechanism that Latin American countries are adopting. But, unless the goal is clear and governments hold themselves accountable for achieving them, renewable markets will continue to stall.

I’m not saying that if we can’t implement clean energy policies perfectly that we shouldn’t implement them at all.  Rather, we need to stop haggling over today’s energy production costs and focus on tomorrow’s cleanup costs if nothing is done. There is no aspect of human activity that will not be acutely affected by climate change, yet we currently face a crisis of inaction. Despite the hydro and biofuel investments in Latin America, more can be done to dramatically reduce dependence on carbon-based fuels. Stringent renewable mandates (not goals) would help push state and private utilities—and their ratepayers—to make the necessary investments that will help them avoid future climate change adaptation costs. 

Bruce McKenzie Everett answers:

Despite some technical progress, alternative energy remains expensive compared to fossil fuels. Latin American energy policy should focus on eliminating poverty and improving human well-being through economic development. To that end, low-cost energy, in particular reliable and affordable electric power, is essential.

Latin America has abundant natural gas, a clean, efficient and economic source of electricity. Regional reserves of natural gas are estimated at over 250 trillion cubic feet—40 years’ supply at current consumption rates—and new discoveries continue to outpace consumption.

Wind power is at least twice as costly as natural gas–fueled electricity, while solar energy is eight to 10 times more expensive. Both wind and solar are intermittent and unpredictable, requiring back-up fossil fuel–generating stations to ensure system reliability.

Sugar-based ethanol is a significant industry in Brazil, but its viability depends on high excise taxes on conventional gasoline, which currently costs $5.50 to $6.00 per gallon. And biofuel programs offer few environmental benefits and divert crops from the food supply, increasing both fuel and food prices to the world’s poor.

Latin America clearly has environmental issues, including urban air pollution, deforestation, soil degradation, and lack of clean water. Carbon dioxide emissions are a global concern, but the real problem lies in Asia. Latin America accounts for less than 4 percent of world CO2 emissions, and it cannot make even a dent in the growing carbon emissions of China’s massive coal industry. Economic development can provide Latin America with the financial resources to overcome its environmental problems, but the substitution of solar, wind and biofuels for natural gas and gasoline can make only a minimal contribution at a high cost. 

Tags: alternative energy, energy, Latin America
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