Latin America Energy Outlook 2023

Key areas for policy action

Summary

  • In Latin America and the Caribbean (LAC), each country faces specific challenges and has particular opportunities to evolve its energy sector. Yet there are some energy issues that are relevant to many, if not all, LAC countries which are critical to the energy outlook for the region and to prospects for socioeconomic progress. Nine cross-cutting themes in this regard are examined in detail in this chapter.
  • Public transport and road infrastructure in LAC have not kept pace with rapid urbanisation, resulting in increased traffic congestion, CO2 emissions and air pollution. Promoting low-carbon urban mobility through investment in public transport systems, electrification of cars and buses and cleaner fuels such as biofuels, offers scope to improve the outlook: in 2030, the average specific CO2 emissions from road passenger transport is 17% lower than today’s levels in the Stated Policies Scenario (STEPS) and 25% lower in the Announced Pledges Scenario (APS). The percentage of the population breathing clean air is larger in both the APS and the Net Zero Emissions by 2050 (NZE) Scenario than in the STEPS.
  • Energy efficiency measures in buildings, industries and transport in the APS cut energy consumption growth by 20% in 2030 compared with the STEPS. In the transport sector, reaching the fuel economy levels of the European Union in all LAC countries would save around 0.5 million barrels per day of oil demand in 2030. In the buildings sector, analysis shows that the most efficient appliances and air conditioners are not necessarily the most expensive.
  • Its endowment of significant critical mineral resources offers LAC countries the opportunity to diversify and deliver economic growth while supporting global clean energy transitions. Estimated total revenue in LAC was around USD 100 billion in 2022 from the production of critical minerals. Revenue from critical minerals overtakes combined revenues from fossil fuel production in the APS and the NZE Scenario by 2050. Success depends on adhering to high environmental, social and governance standards and on bringing benefits to local communities. By moving up the supply chain to produce refined and processed materials, the region can boost its economy.
  • Abundant renewable resources in LAC offer excellent potential to produce low-emissions hydrogen. Announced low-emissions hydrogen projects in the region could produce up to 3.5 million tonnes of hydrogen (Mt H2) in 2030, mostly from water electrolysis, and up to 6 Mt H2 if projects currently at a conceptual stage materialise. This would account for 15% of announced projects worldwide. In the APS, hydrogen use in LAC in 2030 is mostly confined to traditional applications such as chemicals and refining, but it expands significantly by 2050, with most additional production exported in the form of hydrogen-based fuels.
  • The success of the energy transition hinges on improving outcomes for people. In LAC, around 3% of the population still lack electricity access, and 11% lack access to clean cooking options. The cost of inaction is huge in terms of energy poverty, health and development. Affordable energy remains a key concern: a faster transition to clean energy technologies reduces the costs of energy for households, making it easier to end fossil fuel subsidies, but lower income groups are likely to need support with the higher upfront costs of some clean technologies. The global energy transition also offers new employment opportunities. Energy jobs stand to expand by 1 million to 2030 in the APS, notably in the electricity sector and in critical mineral mining and processing, as well as in oil and gas sectors as the region increases its production.
  • Electricity systems in LAC are shifting towards high shares of variable renewables, which require increased system flexibility. Regional electricity integration offers benefits that include enhanced security of supply and lower costs. There has been progress with bilateral interconnections and jointly owned power plants, but cross-border electricity trade remains limited. Taking advantage of the opportunities provided by a broader scale requires sustained political will, infrastructure development, harmonisation of technical standards, effective market design and institutional co-ordination.
  • Some LAC countries host major fossil fuel producers, particularly of oil and natural gas, and there is much they can do to support the clean energy transition. They can make an important contribution to reducing greenhouse gas (GHG) emissions by tackling flaring and methane emissions from their operations. There are also opportunities for hydrocarbon producers to diversify into low-emissions technologies, such as offshore wind, carbon capture, utilisation and storage (CCUS), and geothermal. Collaboration between governments and companies is crucial to facilitate this.
  • Bioenergy, particularly biofuels, can help LAC countries to meet both energy security and emissions targets. Brazil is a prominent producer and consumer of biofuels, with bioethanol fuelling a significant portion of energy used in road transport. Advanced biofuels have considerable potential in LAC which could become a major global exporter of biojet kerosene, building on its current production capacity. Biogas and biomethane have untapped potential, but supportive policies are needed to spur their deployment in power generation and transport.
  • Energy investment in LAC as a share of GDP was 2.5% between 2015 and 2022. In the NZE Scenario, this rises to 4.1% by 2030, with a massive reallocation of capital towards clean energy assets, especially in the electricity and end-use sectors. Private sector participation is essential, and efforts are needed to attract more private capital. The challenges include high financing costs, political and regulatory instability, and limited domestic credit capacity. Better policies are necessary to accelerate investment and to tailor solutions, such as hedging instruments or more concessional financing especially for newer technologies and energy efficiency.
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