Global cleantech competition threatens Latin American and Caribbean ambitions

Washington D.C. Correspondent
Located along the Brazil-Paraguay border on the Parana River, Itaipu Dam is the world's third largest hydroelectric dam.
Perched atop the Paraná River along the Brazil-Paraguay border, Itaipu Dam is one of the largest hydroelectric dams in the world. Photo credit: tifonimages via iStock.

Latin American and Caribbean nations are poised to embrace cleaner energy but stiff competition from the United States and Europe could hamper that ambition.

New U.S. laws pouring billions in clean-energy subsidies and a forthcoming border tax from the European Union on carbon-intensive goods (layered on top of China’s decades-long dominance in this space) are impeding this region from developing its own cleantech industries and competing in the global marketplace, two leaders from the region told Cipher in exclusive interviews.

“What happens to the rest of us who are now competing to try and get the limited, literally limited, supply of renewable infrastructure?” Trinidad and Tobago’s minister of energy and energy industries Stuart Young told Cipher on the sidelines of the global energy conference CERAWeek by S&P Global in Houston in March.

Latin America and the Caribbean stand at the crossroads of the global energy transition and economic growth.

The region is home to at least one-fifth of the world’s rainforests and has one of the lowest-emitting electricity systems in the world. It has immense potential to generate even more clean energy and develop more technologies, like hydrogen, from its abundant wind and solar resources. The region also holds a third of the world’s copper and lithium reserves, materials key to the energy transition.

At the same time, the region’s reliance on fossil fuels to bolster its economies and meet energy needs in its transportation and industrial sectors in particular persists, according to the International Energy Agency (IEA).

Trinidad and Tobago Energy Minister Stuart Young describes his nation's energy transition push to Cipher at CERAWeek meeting in Houston in March.

Stuart Young, Trinidad and Tobago’s minister for energy and energy industries, discusses the challenges of the energy transition at the CERAWeek by S&P Global energy conference in Houston in March. Photo credit: Amena H. Saiyid.

Despite the region’s clean energy advantages, the countries there are finding it hard to develop their industries and market their clean products because they are grappling with other socioeconomic priorities like education and inequality, high debt levels, elevated interest rates and poor credit ratings.

Those economic hurdles make it harder for local businesses to borrow money from financial institutions, which is necessary to build out clean energy projects in the region especially when stacked up against the global competition, which can count on vast subsidies and incentives, Clarissa Lins, founding partner of Catavento, a Brazil-based energy transition consultancy, told Cipher.

At this year’s Group of 20 countries (G20) meeting in July, which Brazil is hosting, Brazil’s president Luiz Inácio Lula da Silva intends to call out the EU and the U.S. to make it clear that “excessive protectionism and trade barriers” are not conducive to a global energy transition, Brazil’s energy minister Alexandre Silveira told Cipher at CERAWeek.

While Brazil gets most of its electricity from hydropower, its industrial steel manufacturing depends on fossil fuels. As a result, the country, one of the top exporting countries of energy-intensive goods to the EU, is concerned its businesses could be shut out of the EU market by the bloc’s upcoming border carbon tax on carbon-intensive imports, even though Brazilian steel is less emissions-intensive than that made in Germany, Japan, South Korea, India and China, according to the World Economic Forum.

Likewise, Young said Trinidad & Tobago would be similarly affected by the EU’s tariff on fertilizers.

The EU must respect the various approaches taken by each country to meet the energy needs of its people and should not use that as a reason to exclude or penalize that country, said Silveira.

Pietro Mendes, Brazil’s secretary of oil, gas and biofuels and chairman of the board of directors at Petrobas, the country’s state-run oil firm, said he was concerned U.S. subsidies “are distorting the market,” at a CERAWeek discussion on Latin America’s energy transition challenges.

“Green hydrogen can be made [at] a lower cost than the rest of the world in Brazil, but lower cost doesn’t mean it will attract investments because we’re competing with subsidies from other countries,” Mendes said.

Instead of exporting finished products like fertilizers made from clean hydrogen-derived ammonia, Mendes said Brazil could be forced to export raw materials to the U.S. and the EU and undermine efforts to build out local industries that could provide jobs and economic growth.

Such comments are echoed by environmentalists representing the region.

“If the EU or the U.S. want to solve the problem of climate change, then they have to look at it from the perspective of smaller countries and try to help them, stimulate and incentivize them to adapt,” said André Guimarães, director of the Brazil-based Amazon Environmental Research Institute, a research nonprofit focused on the sustainable development of the Amazon rainforest.

Brazil Energy Minister Alexandre Silveira talks about the promise of energy transition for the region.

Brazil’s energy minister Alexandre Silveira discusses Brazil’s embrace of the global energy transition at the CERAWeek by S&P Global energy summit in Houston in March. Photo credit: Amena H. Saiyid.

Advanced economies, including the U.S. and the EU, accounted for 52% of the $1.6 trillion in spending on clean energy in 2022, according to the IEA. China alone was responsible for 32% of clean energy spending that year while emerging economies, including many countries in Latin America and the Caribbean, accounted for just 16%, the IEA said.

Thanks to its resources, Latin America is seen as “a bright spot” for foreign investment in lithium mining, hydrogen and biofuels by executives in a range of industries — oil and gas, mining, utilities, chemical and agribusiness — according to a recent survey about the energy transition by global consultancy Bain & Company. Even still, these officials noted economic headwinds posed by political instability and high interest rates make them reluctant to finance projects in the region.

Some experts argue the region isn’t actually disadvantaged by the EU’s border carbon taxes or by U.S. subsidies.

The region’s ample renewable energy supply “positions it well” to compete with coal-intensive Asian exports in the face of potential carbon taxes from the EU, wrote William Maloney, The World Bank’s chief economist for Latin America, in an April 1 blog.

Brazil, for example, could produce clean hydrogen competitively based on its vast hydroelectric, wind and solar resources because 70% of the cost of making clean hydrogen is tied to electricity, Lins said. “But challenges arise when you add up the high capital costs of electrolyzers, the machines used to make hydrogen using electricity, which are then exacerbated by Brazil’s transmission fees and elevated borrowing costs due to high debt levels and lack of investment-grade rating,” she added.

What’s more, numerous Latin American countries like Argentina, Bolivia, Brazil, Chile, Peru and Mexico have ample resources of lithium, copper and nickel — all minerals critical to clean technologies — and could benefit economically from the global scramble for these materials.

Silveira of Brazil said the energy transition, particularly in emerging economies grappling with issues like health care, education and population growth, won’t happen overnight. He stressed the need for “a fair and inclusive transition.”