In Short : The International Energy Agency’s (IEA) Latin America Energy Outlook highlights the significant potential of the region in the clean energy transition. Latin America is rich in renewable energy resources, including solar, wind, hydroelectric, and geothermal power.
In Detail : The International Energy Agency (IEA) has recently unveiled its Latin America Energy Outlook, offering insights into the energy landscape of all 33 countries in the region. The report emphasizes the significant role that Latin America and the Caribbean could play in global energy security and clean energy transitions with the right mix of policies.
Latin America and the Caribbean are already leading the way in clean energy, with one of the cleanest electricity sectors globally. Sixty percent of the region’s electricity comes from renewables, primarily hydropower, which is twice the global average. Countries such as Brazil, Mexico, Chile, and Argentina boast some of the world’s best wind and solar resources. Bioenergy is also widely used, and the region is a major exporter of biofuels.
Furthermore, Latin America and the Caribbean hold approximately 15 percent of the world’s oil and natural gas resources. The region is essential for the production of critical minerals, including about half of global lithium reserves and over a third of copper and silver reserves. This clean electricity supply serves as the foundation for sustainable mining and processing of these materials.
IEA Executive Director Fatih Birol emphasized, “With incredible natural resources and a longstanding commitment to renewables, countries in the region already have a head start on secure and sustainable transitions to clean energy. Leaning into these transitions would ignite growth in local economies – and put the world’s energy system on a surer footing.”
However, the report points out a gap in policy implementation. While 16 out of 33 countries have committed to achieving net-zero emissions by mid-century or earlier, the current policy settings suggest continued reliance on fossil fuels for a significant portion of energy needs, especially in road transport, with limited progress toward clean energy transitions.
In contrast, the IEA’s report suggests that if countries fulfill their announced pledges, Latin America and the Caribbean could witness renewables meeting all new energy demand within this decade. This could lead to a rise in oil exports by nearly 2 million barrels per day by 2030, diversifying global supply and increasing revenues.
Competitive renewable resources would also drive the production of low-cost and low-emissions hydrogen, helping decarbonize heavy industry and freight transport both domestically and internationally. The production of biofuels would increase, and long-term revenues from critical minerals would double to nearly USD 200 billion, surpassing those from fossil fuels.
To reduce energy-related carbon dioxide (CO2) emissions, the report suggests four key actions: scaling up the adoption of renewable energy, advancing the electrification of industry and transport, promoting energy efficiency to moderate demand growth, and enhancing access to clean cooking solutions.
INVESTMENT
The region must also witness substantial investment growth. Clean energy project financing needs to double by 2030 to USD 150 billion and rise fivefold by 2050 to fulfill the pledges. In this scenario, the investment ratio in clean sources compared to unabated fossil fuels would shift from around 1:1 today to 4:1 in the 2030s.
Between 2014 and 2022, Latin America and the Caribbean (LAC)’s energy investment stood at below 3 percent, a stark contrast to 5 percent in Eurasia, the Middle East, and North Africa, and nearly 4 percent in sub-Saharan Africa. This discrepancy points to a substantial energy investment gap in the region.
LAC faces numerous energy infrastructure challenges, including outdated and inefficient electricity grids and limited deployment of modern energy storage and distribution systems. These shortcomings hamper the region’s ability to transition to cleaner and more sustainable energy sources.
The governments in LAC have taken some measures to address these challenges by investing approximately USD 14 billion in clean energy transition since 2020. This represents around 15 percent of the total clean energy investment in emerging market and developing economies. These investments have primarily focused on clean cooking technologies, low-emission electricity generation, and network improvements.
In light of the energy crisis of 2022, the primary emphasis has been on maintaining affordable energy services, with a particular focus on transport fuels. As of June 2023, approximately USD 33 billion had been mobilized to support these efforts. Refining the scope of the support provided is crucial for enabling governments to promote the adoption of clean energy technologies in the region.
Apart from limited fiscal resources, the reduced global investment in oil and gas supply has also played a significant role in the region’s energy challenges. Capital spending on oil and gas supply substantially decreased after the commodities boom ended around 2014. In the years between 2010 and 2014, the region witnessed an average annual investment of about USD 110 billion in energy supply, which fell to an average of USD 65 billion in the seven years following 2014, before a slight increase to USD 80 billion in 2022.
Nevertheless, there is a glimmer of hope for the region’s energy future, as investment in the electricity sector has been on the rise in recent years, increasing from an average of USD 45 billion in the first five years of the 2010s to USD 50 billion in the three years leading up to 2022. While this increase is positive, it has not been substantial enough to offset the decline in oil and gas supply investment.
One promising development is the growing interest in clean energy sources, particularly solar and wind. Capital investment in renewables has far surpassed that in fossil fuel generation over the past decade, with nearly ten times more investment in 2022. Solar photovoltaics (PV) have played a significant role in this increased spending, reflecting the growing trend towards cleaner and more sustainable energy sources in the region.
The report highlights the need for people-centered transitions to ensure universal access to modern energy at affordable prices. Currently, 17 million people in the region lack access to electricity, and 74 million lack access to clean cooking supplies.
Beyond addressing CO2 emissions, the report suggests that major producers in the region can reduce methane emissions from oil and gas operations significantly and support the Global Methane Pledge. Additionally, emissions from land use and agriculture, responsible for half of greenhouse gas emissions in the region, could be cut by the end of the decade and reach net zero. The region’s commitment to the Glasgow Pledge, which aims to stop deforestation by 2030, covers about 85 percent of the region’s forests.
The IEA continues to work closely with Latin American and Caribbean countries, with five countries – Argentina, Brazil, Chile, Colombia, and Mexico – now part of the IEA family. The IEA is ready to support governments across the region as they advance their clean energy transitions, working toward a more secure and equitable global energy system.