Worldwide, the energy transition has been posited as a main development goal in the 21st century, driven by climate change and the finite availability of fossil fuels. As the century has progressed, development has increasingly ceased to be conceived as simply growth and material welfare, but instead as a sustainable path to environmental welfare, where the latter can only exist if environmental conditions remain adequate to human life and for the preservation of most life forms on the planet. In general terms, energy transition accounts for ceasing the use of fossil fuels for energy production, such as oil, gas and coal, and adopting renewable or ‘clean’ sources like water, sun, wind and biofuels for producing energy.
As most regions in the world, Latin America and the Caribbean (LAC) possesses huge potential for producing renewable energies based on wind and sun, but particularly also on water, though it must be noted that being renewable as it is, hydropower can only be considered ‘clean’ as long as it does not cause significant deforestation or the flooding of vital ecosystems. That said, thanks to hydropower the region stands indeed as the leading one regarding renewable energy, for 61% of its electricity generation by 2020 relied on this and other renewable sources like sun and wind power (being 30% the world’s average).
Hydropower alone accounts for 45% of the electricity supply in the region (IEA 2023, p. 15). Yet, it will be argued here that what crucially characterizes LAC’s potential for energy transition is not just its capacity to access those forces of nature, but particularly its regional integration and cooperation schemes that should help LAC countries work together as a regional institutional force.
To be sure, LAC counts at present with at least six regional schemes that have the potential to offer normative frameworks, and to develop technical advances, infrastructure projects, and financial tools that could help member countries benefit from their natural advantages and cover costs in a more efficient fashion in order to bring energy transition forward. The Central American System of Integration (SICA), the Andean Community (CAN), the Common Market of the South (MERCOSUR), the Caribbean Community (CARICOM), the Pacific Alliance (AP) and the Community of Latin American and Caribbean States (CELAC) stand as regional integration projects (former four) and regional cooperation schemes (latter two) with institutional structures that allow adopting collective goals and strategies regarding energy transition, since all of them presently show collective concern and sometimes action regarding energy production and environmental issues.
This research report thus aims to assess the possibilities for LAC countries to advance efforts related to energy transition on a regional (LAC at large) or subregional (different LAC subregions) scale. It is argued that despite the fact that none of the existing regional projects currently develop efforts on energy transition –with the salient exception of SICA and to a much lesser extent CARICOM–, all of them (surely with different scale and scope) have the potential to provide effective frameworks for member countries to collectively advance on the matter, as they may offer the possibility of covering costs and profiting technical and natural resources in more efficient fashion.
The report starts by outlining the main challenges that LAC countries must face in the short term to advance energy transition, including financial and material challenges, as well as those of a more political nature, based on a thorough literature review carried out for this purpose. From the start, the benefits pointed out by the literature of addressing such challenges will be underscored, so they can be summarised in section three. A second section argues for the relevance of building regional electricity markets, something that a good portion of the literature points out as highly convenient to foster energy transition. Here, an econometric exercise will be presented to show that the advantages of expanding electricity markets are not primarily related to the potential to reduce investment and operational costs for renewable energy, but rather to the stability and security that regional normative frameworks may offer investors. Lastly, a third section analyzes the possibilities of building such markets and addressing the challenges assessed in the first section, considering the existing institutional settings of each of the six regional integration and cooperation schemes of interest in this paper, focusing on their aim, scope and developments regarding energy transition issues.