23 Jan Addicted to Oil? A Latin American Perspective
One of the most pressing challenges in energy policy today is the continued dependence on fossil fuels. This reliance poses significant environmental challenges due to the impacts of exploration and extraction. Additionally, it has substantial economic and political implications: in importing countries, rising international oil prices inflate the “oil bill,” while in producing nations, the resulting economic rents often disrupt political stability.
In Latin America and the Caribbean (LAC), particularly among net oil and gas importers, governments are making notable efforts in two key areas: (1) expanding the use of renewable energy sources and (2) implementing energy efficiency policies. Within the renewable energy landscape, biofuel production and the adoption of non-conventional energy sources, such as wind, solar, and geothermal, are pivotal components of the regional energy agenda. Simultaneously, investment in science and technology to harness new energy sources has experienced a resurgence, largely driven by persistently high oil prices.
Despite these advances, consumer behavior in the region appears to be moving in the opposite direction. Data from OLADE reveals that the share of oil, its derivatives, and natural gas in total energy consumption increased from 55% in 1970 to 60% in 2023. Per capita consumption nearly doubled during this period, rising from 2.4 equivalent barrels in 1970 to 4.2 barrels in 2023. This growth reflects not only population increases but also a significant rise in individual consumption of fossil fuels.
Source: SIEE – OLADE
What Lies Ahead?
In 2024, the Latin American Energy Organization (OLADE) conducted a prospective study projecting energy trends in the region through 2050. Under a business-as-usual scenario, fossil fuels (oil, derivatives, and natural gas) are expected to account for 52% of total energy consumption by mid-century. This marks only a slight decline compared to 2023 levels, underscoring the persistent challenge of reducing reliance on these energy sources.
What Can Be Done?
Although achieving a significant reduction in the consumption of oil, petroleum derivatives, and natural gas in the short term is difficult, several measures could help shift the region’s energy matrix. Below are two (from many) strategies:
– Promoting Mass Transit Systems Powered by Alternative Energy Sources
Developing efficient mass transit systems that utilize renewable energy sources is essential. However, this transition presents challenges, as public transportation in Latin America is a significant source of employment. To overcome this, governments and stakeholders in the transportation sector must collaborate to create solutions that are both consensual and sustainable. While employment in the sector may decline under the new model, strategic planning can help mitigate these impacts.
– Phasing Out Subsidies for Gasoline and Diesel
In many oil-producing countries, subsidizing gasoline and diesel prices is a common but problematic practice. These subsidies, coupled with lower vehicle acquisition costs, have fueled explosive growth in public and private road transportation. Setting fuel prices based on international crude oil benchmarks could curb this growth and encourage more efficient energy use.
Research consistently shows that energy price subsidies are regressive, benefiting middle- and high-income groups more than the poor, who often rely on traditional energy sources such as firewood or biomass. By aligning energy prices with true market costs, governments can promote energy efficiency and encourage behavioral changes at the consumer level.
The Way Forward
The data speaks clearly: fossil fuels have dominated energy consumption in LAC for decades and, under current trends, will continue to do so for at least the next two. The transportation sector remains a major contributor to this dependence. Addressing this challenge requires bold state interventions to reduce energy price subsidies and foster the development of efficient, sustainable mass transit systems.
S. Mauricio Medinaceli Monrroy
Bogotá
January 23, 2025
No Comments