Energy transitions are urgent, but they must also be just

The need for an energy transition in Latin America and the Caribbean must take into account the socioeconomic and development differences in the region. Realism, pragmatism, and cooperation are necessary to achieve the required transformation.

Eng. Carlos A. Garibaldi, executive secretary of Arpel
Eng. Irene Alfaro, managing director of Arpel

We are all aware that a prompt transition to a world with lower greenhouse gas (GHG) emissions is necessary, which is achieved through a massive and radical transformation of the method by which energy is generated, supplied, and used. Now, energy transitions, by affecting multidimensional systems, do not withstand unique or simplistic solutions. Reliable and affordable energy supply must continue to be provided, enabling sustainable development.

Therefore, a single global transition model is not applicable. Not even a regional one. Latin America and the Caribbean (LAC) is a heterogeneous region regarding its levels of development, energy matrices, hydrocarbon resources, and exposure to the effects of climate change. It also has significant social liabilities in infrastructure and poverty (33% and 13% in extreme poverty, according to ECLAC). About 3% lack access to electricity and 15% to clean cooking means.

In Latin America and the Caribbean, we have significant social liabilities in infrastructure and poverty (33% and 13% in extreme poverty, according to ECLAC). About 3% lack access
to electricity and 15% to clean cooking means.

Additionally, our region has the cleanest primary energy matrix on the planet. According to OLADE data, compared to the world average, we use one-fifth of coal, double the renewable energies, and in addition to what is used, we generate double the electricity from renewable sources. With 8% of the world's population, we emit 7% of GHG emissions and 5% of global CO2 emissions.

Only 43% of the GHG emissions from Latin America and the Caribbean are due to energy, compared to 75% of this type in the world average. Our emissions are dominated by land use, mainly agriculture, livestock, and the very regrettable gradual deforestation of the Amazon basin, which acts as a magnificent natural carbon sink and still contains approximately half of the tropical forests that remain on the planet. Therefore, preserving it must be a priority.

With 8% of the world's population, we emit 7% of GHG emissions and 5% of global CO₂ emissions.

The contributions of the hydrocarbon sector to the global energy transition must then be adapted to the situation and starting point of each country, outlining its own roadmap and harmonizing its development, security, and energy sovereignty objectives with global climate goals.

In the region, we have, on one hand, countries like Uruguay, Chile, and Costa Rica, with large middle classes, lower poverty than the average, and dependent on hydrocarbon imports. For these countries, it makes a lot of sense to become independent from the price volatility of our commodities and move towards national renewable energies.

But in countries like Mexico, Trinidad and Tobago, Guyana, Suriname, Venezuela, Colombia, Ecuador, Brazil, Peru, Bolivia, and Argentina, hydrocarbons play a fundamental role in socioeconomic development, as they affect fiscal revenues, foreign direct investment, exports, and GDP (Gross Domestic Product). These countries have the right to develop their natural resources sustainably and to monetize them to bolster their development and alleviate their structural and energy poverty.

The oil and gas sector is a key player in energy transitions.

Many hydrocarbon sector companies in LAC have committed to net-zero GHG emissions by 2050 (or earlier), and all are interested in decarbonizing their operations and processes, improving their operational and energy efficiencies, leveraging their digital transformation, and even implementing emission offset measures.

Several companies have begun to emphasize natural gas to face the transition. This guarantees a quick win, as it emits fewer harmful emissions for the environment and is affordable, in terms of proven technology, infrastructure, and cost. The same non-interruptible base that it provides to hydroelectric energy can do so with solar and wind. Furthermore, there are still undeveloped gas resources in our region, particularly in Argentina, Venezuela, and Colombia. These would further improve our primary energy matrix, but also to export surpluses and decarbonize other sectors of the economy that are very dependent on coal.

Additionally, some companies are diversifying their energy product portfolios by venturing into solar and wind energy, biofuels, geothermal energy, hydrogen, lithium mining, and chargers for electric mobility at their service stations. We understand that the traditional technical competencies of the sector (for example, drilling wells, refining, working with flammable gases, offshore, etc.) are widely extrapolable to various renewable energy sources (Figure 1).

We have an outstanding issue: methane.

Methane is 82 times more harmful than CO2 over 20 years and 28 times over 100 years. Mitigating those emissions would have a notable effect in the short term for the environment.

According to the Development Bank of Latin America and the Caribbean (CAF), methane emissions from the sector in the region are minor (13% of anthropogenic and 8% if we include natural), but they are more easily controllable. We must redouble efforts to reduce them, eliminating leaks and drastically reducing venting and flaring to only what is strictly necessary for safety. Moreover, many methane emission reduction initiatives would pay for themselves simply by taking advantage of the wasted resource, and are feasible with existing technologies.

Here, it will be crucial to optimize the management of those emissions: detect, correct, eliminate, measure, inventory, and communicate transparently. The implementation of LDAR programs (Leak Detection and Repair) and having inventories based on direct and continuous measurements are key aspects for their effective reduction.

The traditional technical competencies of the sector (for example, drilling wells, refining, working with flammable gases, offshore, etc.) are widely extrapolable to various renewable energy sources.

Capital must support the sector's efforts.

Initiatives that attempt to force the acceleration of energy transitions based on the suffocation of debt and equity capital to the oil and gas sector lack logic and are counterproductive. Due to their unforeseen consequences, simplistic solutions to problems in complex systems are dangerous.

Low-carbon alternatives are not fully mature for immediate and ubiquitous deployment, due to technological, infrastructure, regulatory limitations, and their high costs and bottlenecks in the value chain. Hydrocarbons remain essential to ensure the region's energy security.

Failing to continue investing in hydrocarbon exploration and development to ensure it may increase energy prices, a key component of overall price inflation, causing economic losses for populations and fiscal losses for governments. Inflicting such wounds on oneself, threatening energy security, may force spot imports at high prices or even encourage more polluting alternatives. We are talking about a transition, not an abrupt replacement, and the question should not be whether we should stop exploring immediately, but whether we are exploring enough.

To manage such a complex system while transitioning towards the required transformation, realism, pragmatism, and cooperation are necessary. This also implies better public-private articulation and alignment.

The State must chart the course and regulate the pace.

It is essential to attract investments for the growth of renewable energies, mining, decarbonization, and energy diversification; and to ensure the necessary infrastructure. To achieve this, the State must provide an appropriate institutional and regulatory framework that offers legal security and transparency.

Long-term state policies, not just government ones, are necessary so that they are not subject to electoral cycles and ideological fluctuations. Regulations consistent with these policies are also needed, and permits for all forms of energy should be expedited. A system of fiscal or market incentives and penalties should be implemented or enabled. And to achieve or improve energy integration, even in sub-regional blocks, better coordination among our governments is also necessary, harmonizing infrastructures, planning, regulations, and tax and customs policies.

We can be sustainable and continue to provide energy.

As leaders in the energy sector, we recognize the urgency of addressing global challenges related to the energy transition and the fight against climate change. And that is why we are committed to playing a proactive and constructive role in this journey, which in turn promotes the sustainable development of the region.

Consequently, we evolve and transform. Managing the sector sustainably so that it preserves its social and operational licenses, is financeable, and attracts new generations of human talent. To achieve this, it is essential that we accelerate decarbonization and diversification towards new energy products, continue mitigating socio-environmental impacts, and communicate transparently and clearly with all external stakeholders; and ensure that our governance emphasizes compliance and capital discipline.

With the capacity for strategic vision, agility in tactical adaptation, proven technological innovation capabilities, resilience to uncertainties and disruptive economic and geopolitical events, and with better articulation between companies, governments, funding sources, and society, this sector will continue to be the engine of socioeconomic development, the “industry of industries” that it has been for over a century in Latin America and the Caribbean.