Latin America is highly vulnerable to the negative effects of climate change, but these challenges also present opportunities.
BY LUIS ALBERTO MORENO
The countries of Latin America and the Caribbean confront a twin dilemma. On the one hand, they must boost their energy consumption to fuel economic and social development. But on the other, energy use is largely responsible for an increase in greenhouse gas emissions and growing energy tabs can stifle growth, particularly in oil-importing countries.
It is expected that energy demand in Latin America and the Caribbean will increase 75 percent by 2030. Estimates suggest that the required investments to satisfy such demand will be around $1.6 trillion. In the next decade alone, the region will require a 50 percent increase in its installed capacity, more than 90 Gigawatts. In Mexico, for example, electricity demand will expand at an estimated 5.6 percent per year between now and 2013 requiring an investment of $5.5 billion per year in new energy production capacity.
Additionally, for the 16 countries which are net importers of oil, the price increase of hydrocarbons poses an increasing challenge. The increase of fuel costs, not only hurts their finances, but also increases the costs of the production and weakens the region’s economic competitiveness. In Jamaica, the costs of imported fuel increased almost 30 percent in 2006.
At the same time, some of the region’s major exporters are experiencing a reduction of their hydrocarbons deposits’ productivity. The rate of exploration and exploitation of new fields not rising sufficiently, could mean that some of these countries may become net importers of energy in the next 10 years.
Apart from higher costs, rising energy consumption also poses greater risks. Our region is highly vulnerable to the negative effects of climate change. Its potential impacts on infrastructure, water, human health, agriculture, tourism, and other sectors are substantial, particularly for the poorest segments of the population.
REASONS FOR OPTIMISM
These challenges also create opportunities. Given its vast natural wealth, there are ample possibilities to increase energy efficiency and reduce harmful pollution in the region while also promoting economic development. Today, renewable sources of energy generate 24.8 percent of the region’s electricity. Studies indicate they could generate up to 47 percent of the electric demand estimated for 2030. It is estimated that Central America and the Caribbean, for instance, could replace between 10 percent and 50 percent of their gasoline consumption through the production of ethanol produced from sugar cane.
New developments in technology and the economic impacts resulting from high oil prices and climate change are providing an important incentive for the promotion of renewable energy sources and energy efficiency programs. According to the International Energy Agency, energy efficiency programs can reduce energy demand by more than 10 percent. It is estimated that around $400 billion dollars will be invested in these areas by 2030.
Brazil is usually seen as an example on biofuels production, but its experience in energy efficiency should also be highlighted. During the 2001 drought that affected the hydroelectric facilities supplying 87 percent of Brazil’s electricity, the government implemented an innovative energy efficiency plan that offered financial rewards to consumers who cut back on electricity consumption and penalties to those who didn’t.
The result was a 20 percent reduction of electricity consumption in a little more than a month, a result accomplished without causing serious disruptions to the economy. Brazil proved that the right incentives, combined with modest investments, can produce large savings without compromising human welfare or economic growth.
In addition to energy efficiency, technology development in renewable energies has significantly reduced costs. In the case of solar energy, for example, the cost per installed watt has gone from $200 dollars to $3.
As we look to new sources of energy, it is imperative to prioritize the support of biofuels that present optimal energy balances and contribute to the mitigation of climate change, that do not conflict with food security, and that avoid negative impacts to land use, biodiversity and water resources. Second generation technologies, such as cellulosic ethanol, offer great promise in these regards. Those nations capable of innovating on the production of sustainable biofuels will enjoy considerable advantages as the world adopts strict environmental standards. (...)
Luis Alberto Moreno is president of the Inter-American Development Bank and a former Colombian ambassador to the United States. This column is based on a speech he made at the bank's annual meeting in Miami last week.