One Region, Different Paths: Understanding the Multifaceted Energy Transition in Latin America
Latin America’s energy shift isn’t a monolithic movement, it’s a complex web of risks and opportunities. Diverse national strategies are leading the regions unique path towards a sustainable economic development.
Global Commitments, Regional Nuances
From COP 28 in Dubai last year to the recent WEF in Davos, energy transition has been at the top of the agenda in 2023 and will continue. The challenge is clear: rapid, sustained action to keep global emissions down 43% by 2030 and 60% by 2035 (compared to 2019 levels) to reach net-zero commitments by 2050.[1]
Get our 2024 Latin America Insights in your inbox – Subscribe Now
In this context, many have argued that Latin America is destined to shine. According to the International Energy Agency, 30% of its energy comes from renewables, compared to just 12% globally.[2] Moreover, Latin America’s leadership potential transcends its resource wealth, and there is a growing demand for sustainable alternatives and clean energy, and with that comes geopolitical and economic opportunities. For most of the region’s current governments, energy transition has become a priority and a catalyst for change, making Latin America a key player for meeting the global agenda for sustainable development. According to IEA, Colombia’s energy transition policy-making is an inspiring example of a fossil fuel producing country committed to climate action.[3]
For most of the region’s current governments, energy transition has become a priority and a catalyst for change. However, the approaches for garnering international support are different.
However, national pronouncements and regional potential don’t paint the full picture. Renewable adoption across Latin America varies greatly. Mexico, for example, lags behind and Argentina is about to face considerable transformation under President Javier Milei’s administration. [4], [5] The region houses over one third of the global silver, copper and lithium reserves and offers a multitude of low-carbon nature-based solutions.[6] Nonetheless, it holds 15% of global oil and gas resources, and while state-controlled oil and gas companies like Ecopetrol (Colombia) ranked third in the hydrocarbon production sector for sustainability by the Dow Jones Sustainability Index World (“DJSI”) and Petrobras is looking into building a robust renewables portfolio, Pemex, for instance, is recognized as a laggard. [7], [8], [9], [10]
Lula and Petro: Divergent Paths Emerge
The differences in approach to the energy transition is best illustrated by the two countries whose presidents have made some of the boldest commitments to the green agenda, often angling to be recognized as a regional champion. Brazil’s President Luiz Inácio Lula da Silva and Colombia’s Head of State Gustavo Petro have contrasting views on energy transition, both prioritizing environmental protection and fighting climate change.[11] However, the difference is how they are leveraging those commitments and gather international support to rise as regional leaders of the global green transition led by Latin America.[12], [13]
Since Petro took office in 2022, he has made energy transition his mission and has been vocal in international stages about the need to phase-out fossil fuels to achieve rapid decarbonization.[14] In Davos, he announced no new hydrocarbon exploration contracts will be accepted during his administration, despite criticism.[15], [16], [17]
In Brazil, energy transition also dominates political discourse. As G20 president, Lula aims to showcase recent legislative changes, clean energy programs, and the Brazilian Development Bank’s (“BNDES”) BRL57.4 billion investment in energy transition projects (the highest in five years). While Lula claims to firmly believe in energy transition, he takes a more pragmatic approach, seeking compromise. At COP28, Brazil joined OPEC+ “as an observer” as a way to encourage oil-producing countries to participate in the transition, in Lula’s words .[18], [19], [20]
But Lula is criticized for his “old” mentality on oil, which can potentially lead to ambiguous environmental policies.[21] The government views oil revenue as key to financing transition plans and argues co-existence of hydrocarbon extraction and renewable energy sources is possible.[22] An argument repeated ad nauseam by government representatives and echoed by Petrobras’s current CEO as he announced a five-year investment of over $100 billion to expand oil production and exploration.[23] By comparison, while Petro’s anti-oil policy resonates internationally, it faces internal criticism from affected groups.[24]
Opportunities and Challenges for All
The global shift towards clean energy presents new trade and investment opportunities for Latin America. Opportunities vary from green ammonia to green hydrogen projects and the region’s untapped potential in critical minerals to other renewable energy sources like wind and solar.[25], [26] Longstanding industries reliant on fossil fuels in the region must innovate and adapt to guarantee the longevity of their business and green finance mechanisms will be crucial to drive this change.
The global shift towards clean energy presents new trade and investment opportunities for Latin America.
The IEA estimates doubling capital injections into clean projects by 2030 (to $150 billion) and quintupling it by 2050 is needed to meet climate and transition goals.[27] Bridging the technological gap between Latin America and developed economies hinges on attracting this “massive reallocation of capital,” expected this year.[28] Additionally, management capabilities and navigating political pressure and shareholder demands are crucial to a successful transition to the green economy.[29], [30] The energy transition is viewed a catalyst for broader sustainable development.
State-owned oil producers seem to have realized that rebranding fossil fuel companies as “energy companies” depends heavily on financing. Even if that financing comes from the fossil fuel business. Petrobras is exploring opportunities in the ‘green economy’ and has recently announced a $5.2 billion-dollar investment in wind and solar by 2028.[31] Ecopetrol’s revised 2040 plan emphasizes a just transition and increased efficiency, albeit without abandoning its traditional business.[32]
Navigating the Course: Our Takeaway
Latin American countries share similarities but viewing them as a single block is misleading. Each nation has unique characteristics that should guide investment strategies. With rich biodiversity, plentiful lithium, abundant wind and sun, Latin America has enormous potential to drive decarbonization solutions, paving the way for the global energy transition. Unlike developed nations, the sustainability agenda often unites diverse political factions and drives public policies in some countries. Understanding stakeholders, building Public-Private partnerships, promoting sustainable finance mechanisms, deploying de-risking strategies and aiming for an inclusive and just transition will help companies aligning business strategies with country-specific priorities.[33]
[1] “Climate Change 2023 Synthesis Report,” Intergovernmental Panel on Climate Change (last accessed February 19, 2023), https://www.ipcc.ch/report/ar6/syr/downloads/report/IPCC_AR6_SYR_SPM.pdf.
[2] “Latin America Energy Profile,” IEA50 (November 2023), https://www.iea.org/reports/latin-america-energy-profile-2
[3] “Colombia 2023,” IEA50 (September 2023), https://www.iea.org/reports/latin-america-energy-profile-2
[4] Nick Ferris, “How Mexico came to have the weakest climate policy in the G20,” Energy Monitor (September 6, 2023), https://www.energymonitor.ai/policy/how-mexico-came-to-have-the-weakest-climate-policy-in-the-g20/?cf-view
[5] Gonzalo Santamaria, “Argentina’s energy sector on the cuspo f transformation following President Milei’s inauguration,” Latin Lawyer (January 26, 2024), https://latinlawyer.com/insight/renewables-and-energy-transition-hub/2023/article/argentinas-energy-sector-the-cusp-of-transformation-following-president-mileis-inauguration
[6] See supra note 2.
[7] “Ecopetrol among the three oil and gas companies in the world with the best sustainability practices,” Ecopetrol (December 29, 2023), https://www.ecopetrol.com.co/wps/portal/Home/es/noticias/detalle/djsi-2023
[8] “The Sustainability Yearbook – 2023 Rankings,” S&P Global (last accessed February 24, 2024), https://www.spglobal.com/esg/csa/yearbook/2023/ranking/
[9] Thais Julia, “Petrobras expands investments in renewable energy with wind and solar acquisitions,” Click Petroleo (January 22, 2024), https://clickpetroleo.com.br/petrobras-amplia-investimentos-em-energia-renovavel-com-aquisicoes-eolicas-e-solares/
[10] Christopher Lenton, “Mexico’s Pemex Looks to Join Latin American Peers with Decarbonization Strategy,” Natural Gas Intelligence (September 12, 2023), https://www.naturalgasintel.com/mexicos-pemex-looks-to-join-latin-american-peers-with-decarbonization-strategy/
[11] María Mónica Monsalve S., “Brazil’s Lula da Silva and Colombia’s Gustavo Petro: United on preserving the Amazon rainforest, divided on oil,” El País (January 9, 2024), https://english.elpais.com/international/2024-01-09/brazils-lula-da-silva-and-colombias-gustavo-petro-united-on-preserving-the-amazon-rainforest-divided-on-oil.html
[12] Gabriel Boric, “The 100 Most Influential People of 2023, Gustavo Petro,” Time (April 13, 2023), https://time.com/collection/100-most-influential-people-2023/6269847/gustavo-petro/
[13] Al Gore, “The 100 Most Influential People of 2023, Luiz Inácio Lula da Silva,” Time (April 13, 2023), https://time.com/collection/100-most-influential-people-2023/6269853/luiz-inacio-lula-da-silva/
[14] Justin Worland, “Why Colombia’s President is Determined to Ditch the Country’s Oil Wealth,” Time (December 12, 2023), https://time.com/6344611/gustavo-petro-interview-cop28/
[15] Natalie Alcoba, “Can oil-rich Colombia lead the green revolution?” Corporate Knights (January 22, 2024), https://www.corporateknights.com/issues/2024-01-global-100-issue/can-oil-rich-colombia-lead-the-green-revolution/
[16] See supra note 14.
[17] Juan Felipe Sacristán, “Petro gave a speech at Colombia’s house in Davos and reiterated that he will not contract more hydrocarbon exploration,” Infobae (January 19, 2024), https://www.infobae.com/colombia/2024/01/16/petro-llego-a-davos-con-mensaje-colombia-ha-decidido-no-contratar-mas-exploraciones-de-petroleo-carbon-y-gas/
[18] “Six projects on the green agenda that will move Congress in 2024,” Dinheiro Rural (January 31, 2024), https://dinheirorural.com.br/seis-projetos-da-pauta-verde-que-vao-movimentar-o-congresso-em-2024/
[19] Meghie Rodrigues, “Politics and the environment collide in Brazil: Lula’s first year back in office,” Nature (December 21, 2023), https://www.nature.com/articles/d41586-023-04042-x
[20] “Lula says Brazil’s participation in OPEC+ is to stop oil producers using fossil fuels,” Reuters (December 2, 2023), https://www.reuters.com/world/americas/lula-says-brazils-participation-opec-is-stop-oil-producers-using-fossil-fuels-2023-12-02/
[21] Jonathan Watts, “For Lula to be a climate leader, he must phase out oil,” Sumauma (December 7, 2023), https://sumauma.com/en/para-ser-um-lider-climatico-lula-tem-de-dizer-adeus-ao-petroleo/
[22] Rafaela Gonçalves, “Minister defends oil exploration to finance energy transition,” Correio Braziliense (September 14, 2023), https://www.correiobraziliense.com.br/economia/2023/09/5125427-ministro-defende-exploracao-de-petroleo-para-financiar-transicao-energetica.html
[23] Samantha Pearson, Luciana Magalhaes, “Brazil Charts $100 Billion Path to Be Global Oil Power,” The Wall Street Journal (November 24, 2023), https://www.wsj.com/world/americas/brazil-charts-100-billion-path-to-be-global-oil-power-4f5c31bd
[24] Santiago Triana Sánchez, “Marches, differential rates and the gasoline subsidy: the Government clashes with transporters over increases,” El País (August 28, 2023), https://elpais.com/america-colombia/2023-08-28/marchas-tarifas-diferenciales-y-el-subsidio-a-la-gasolina-el-gobierno-choca-con-los-transportadores-por-las-alzas.html
[25] “Latin America’s top 8 green hydrogen projects,” Bnamercias (December 27, 2023), https://www.bnamericas.com/en/news/latin-americas-top-8-green-hydrogen-projects
[26] Alex Blair, “Critical Mineral Geopolitics: Latin America’s untapped potential,” Mining Technology (September 13, 2023), https://www.mining-technology.com/features/critical-mineral-geopolitics-latin-americas-untapped-potential/
[27] “Latin America to play an essential role in the global transition to a more secure and sustainable energy system,” IEA (November 8, 2023), https://www.iea.org/news/latin-america-to-play-an-essential-role-in-the-global-transition-to-a-more-secure-and-sustainable-energy-system
[28] Mark Segal, “BlackRock Predicts Low Carbon Transition “Mega Force” will Drive Major Investment Opportunities in 2024,” ESG Today (December 12, 2023), https://www.esgtoday.com/blackrock-predicts-low-carbon-transition-mega-force-will-drive-investment-opportunities-in-2024/
[29] Joshua Collins, “New Ecopetrol president criticizes proposed Colombian ban on oil exploration,” S&P Global (May 11, 2023), https://www.spglobal.com/commodityinsights/en/market-insights/latest-news/oil/051123-new-ecopetrol-president-criticizes-proposed-colombian-ban-on-oil-exploration
[30] Karina Souza, “EXCLUSIVE: At Petrobras, energy transition is at an impasse in a US$100 billion plan,” Exame (January 10, 2024), https://exame.com/insight/petrobras-transicao-energetica-e-impasse-em-plano-estrategico/p
[31] “Green Economy,” UN environment programme (last accessed April 8, 2024), https://www.unep.org/regions/asia-and-pacific/regional-initiatives/supporting-resource-efficiency/green-economy
[32] Rate Analitik, “Ecopetrol changes focus on Strategy 2040 and once again rules out fracking in Colombia,” Yahoo Finance (September 11, 2023), https://es-us.finanzas.yahoo.com/noticias/ecopetrol-cambia-enfoque-estrategia-2040-125900856.html?guccounter=1
[33] Francisco Parra Galaz, “Could ‘just transition partnerships’ drive change in Latin America?” Diálogo Chino (December 11, 2023), https://dialogochino.net/en/climate-energy/386109-could-just-transition-partnerships-drive-change-in-latin-america/
Juliana Gomez
Senior Director, Colombia Public Affairs
Juliana Gomez is a Senior Director within FTI Consulting’s Strategic Communications segment, based in Bogotá. She specializes in the development and implementation of corporate affairs, public policy, stakeholders’ engagement, crisis management and corporate communication strategies. She helps multinational companies and local conglomerates with operations in Colombia and the rest of the Americas, in sectors such as food and beverage, healthcare and pharmaceuticals, technology and infrastructure, anticipate and mitigate risks to maintain their license to operate.
Kelly Souza
Senior Director, Brazil Public Affairs
Kelly Souza is a Director within FTI Consulting’s Strategic Communications segment, based in São Paulo. She specializes in strategic and crisis communications, cybersecurity incident response and preparedness, reputation management, and ESG strategy and positioning for national and multinational companies in diverse industries, such as financial services, technology and consumer products, among others.
Related Insights
About Our Latin America Practice
FTI Consulting advises companies doing business across Latin America to navigate the stakeholder dynamics around high profile corporate events, from transactions and market entry to crisis, disputes and litigation. We help clients anticipate critical political, policy and reputational risks and effectively overcome them, unlocking long term opportunity. Our Latin America practice works in a coordinated manner through our offices in Mexico City, Bogotá, and São Paulo, as well as with our teams in Washington D.C., Brussels, Madrid, Houston, Miami, and other important hubs. Through our vast network of strategic partners, we have coverage on all Latin American countries.
Washington D.C. | Houston | Mexico City | Bogotá | São Paulo
The views expressed in this article are those of the author(s) and not necessarily the views of FTI Consulting, its management, its subsidiaries, its affiliates, or its other professionals. ©2024 FTI Consulting, Inc. All rights reserved. www.fticonsulting.com |
