Panelists Discuss the Oil Peak, the IRA and CHIPS, and Decarbonization Strategies

Panelists speaking at the Seventh Annual Latin America Energy Conference

The past year in Latin America saw uneven trends in the region's energy landscape. Some countries moved to further decarbonize, investing in bioenergy and non-conventional renewables, while others like Brazil and Guyana bolstered fossil fuel development. In the face of these developments, the Seventh Annual Latin America Energy Conference convened experts to explore how tools like energy diplomacy, strategic investments, regulation, technology, and information could square these countries’ urgent need to decarbonize with their continued extraction of fossil fuel resources. Energy company executives, government officials, and international and nongovernmental organizations came together at the Dialogue to share their insights.

Principal Deputy Assistant Secretary Laura Lochman from the State Department’s Bureau of Energy Resources opened the conference by delivering a keynote address that underscored the Biden Administration’s commitment towards climate action through both securing the supply chains the Western Hemisphere needs to decarbonize and through bolstering US partnerships with countries to preserve and protect forests. First, Lochman noted that the coming energy transition in Latin America can be a tide that lifts all the regions’ boats. Latin America’s vast resources of critical minerals—like lithium, copper, and rare earth metals—are critical to building “low-carbon technologies at the speed and scale necessary to confront climate change.” Considering this, she cited Latin America’s historic opportunity to develop while developing and propel their economies by seizing upon the world’s hunger for commodities and critical minerals indispensable for the energy transition. Beyond critical minerals, Lochman envisioned clean hydrogen as an area Latin America could succeed in, taking advantage of their abundant renewable energy sources to make and export clean hydrogen energy to the world. Finally, Lochman explained the Biden Administration’s recognition of the cruciality of sustaining the world’s forests as carbon dioxide sinks, especially the Amazon. She highlighted the Biden Administration’s pledge of $500 million to the protective Amazon Fund and looked to the upcoming COP 28 as the keystone opportunity to secure concrete pledges of action from global partners to protect the Amazon and the world’s forests.

The first panel discussed the future of oil extraction in Latin America and the Caribbean, including perceptions of the looming oil peak. Panelists laid out how the strategies companies and national governments use towards oil are changing. On the corporate side, Aditya Ravi, senior vice president for upstream research at Rystad Energy, explained how oil extracting firms are re-thinking their investments. Oil majors’ investments are more conservative in an era of high interest rates and are motivated by staving off an oil peak or plateau. Considering this strategy, countries like Brazil and Guyana with both easy-to-access oil reserves and stable regulatory frameworks have received more investment attention. While global companies look to Brazil, Petrobras, the Brazilian national oil company, is re-envisioning itself as a ‘development company’ for the country. Petrobras seeks to finance Brazil’s own energy transition by expanding into renewables like offshore wind and is looking for international partners to boost Brazilian development—including China. As Mark Langevin, director of energy transition research at Horizon Engage, pointed out, the IRA and agreements like the USMCA have fenced off Brazil from the US and quashed the US’ ability to develop Brazilian manufacturing. Such action has alienated Brazil and prompted it to more closely align with China and other BRICS members to gain both investment and geopolitical allies.

Furthermore, according to Arthur Deakin, director of the energy practice at Americas Market Intelligence, in countries other than Brazil and Guyana with less-stable regulatory frameworks, conservatively acting oil companies have had a much harder time justifying investment and have looked to easier environments like the US. As almost no LAC countries could undertake Inflation Reducation Act-style legislation, they must come up with alternative incentives for oil companies. In closing, although steps towards the energy transition are underway, panelists agreed on Latin America’s continued extraction of oil and gas into the near future.

The second panel of the day centered on evaluating the Inflation Reduction Act (IRA) and the CHIPS and Science Acts’ profound impacts on both the US and the Western Hemisphere as a whole. The panelists all agreed on the idea that both the IRA and the CHIPS Act constitute some of the most significant recent American legislation. Politically, the process and compromises required to sign the acts into law represent “legislation at its best”, according to Rebecca Brocato, founder of Stony Run Advisory. Panelists then further agreed that the IRA set the standard for 21st century industrial and environmental American policy. The CHIPS Act has enormous potential to secure what Marino Auffant, a postdoctoral fellow at the Kissinger Center for Global Affairs at Johns Hopkins University called the “oil of the twenty-first century” —semiconductors—and re-orient their globe-spanning supply chains closer to the US, making them more resilient against geopolitical conflict or natural disaster. To achieve this, the CHIPS Act provides a framework for Latin American countries to develop semiconductor assembly and packaging plants that would complement emerging fabrication plants in the US. Mexico presently dominates this space, but Costa Rica, Panama, and the Dominican Republic form a regional nearshoring bloc interested in stimulating semiconductor production.

However, for all its present benefit, panelists also highlighted the legislations’ geopolitical drawbacks. The compromises that were necessary to ensure passage of the IRA and CHIPS hinged on stimulating domestic American industry. In turn, these same drawbacks have alienated European allies and Canada, who have seen firms relocate to the US. The situation is more pronounced in Latin America, where cash-strapped governments cannot enact counterincentives to keep their industry from moving to the US.

Panelists’ ideas for further development of IRA/CHIPS included further US involvement in critical minerals sourcing and deeper development of a North American supply chain. Lorena Montes de Oca, policy advisor at Covington & Burling LLP, underscored that while Bolivia, Chile, and Argentina have the lion’s share of minerals needed for the energy transition, the US only has a free trade agreement with Chile. Considering China’s tailor-made mineral trade agreements with Bolivia and Argentina, Diego Rivera Rivota of Columbia University's Center on Global Energy Policy pressed for deeper US engagement with those countries to secure much-needed minerals like lithium and copper. Similarly, panelists saw much promise utilizing the USMCA framework to spur on a regional North American semiconductor supply chain. They noted, however, that success hinges on US-Mexico agreement and the need to pivot companies away from the advanced Southeast Asian semiconductor producers towards the very new North American field.

The final panel of the day reflected on the role of green hydrogen and biofuels as complements to electrification in the path to decarbonize Latin America and the Caribbean. Lisa Viscidi, a non-resident senior fellow at Dialogue from Deloitte Consulting underscored how electrification is the best way for many to achieve net zero emissions but is not a one-size-fits-all strategy. She emphasized that in some sectors electrification infrastructure is lacking, and that electrification can also be difficult to scale up due to rising demand for clean electricity. Furthermore, it is hard to abate emissions in some sectors like heavy industry and transportation due to the centrality of oil combustion and the high cost or nonexistence of required technologies.

In consequence, green hydrogen represents a large opportunity for Latin America to decarbonize their energy mix. Green hydrogen has potential to act in sectors and regions where electrification cannot, and countries in the region like Chile and Colombia are already designing regulatory frameworks and action plans to spur on green hydrogen. Indeed, some regions of Latin America have the potential to become exporters of green hydrogen. However, Francisco Morandi, vice president of portfolio management and strategies in AES brought up that Latin American green hydrogen needs to align with global certification regimes to be exported successfully to third parties.

Likewise, Jamie Dorner, a senior biofuels analyst with S&P Global, explained that biofuels also have the potential to ‘pick up the slack’ and decarbonize sectors like aviation and shipping in Latin America. Biofuels can serve to effectively rectify transportation emissions, as they are already compatible with combustion engines and have a long presence in Latin America. Within the region, Brazil is the largest biofuels player, with a goal to reduce aviation emissions by 10% by 2027 with biofuels. Panelists then closed the panel with a discussion on policies to stimulate decarbonization and agreed on the importance of a strong regulatory framework, associations to link government to industry, and long-term national plans based around public private partnerships.





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