As the world is committed to shifting from traditional power sources to cleaner and more sustainable energy, Latin America, home to some of the most abundant resources, has a great opportunity to become the next big player on the international stage.
However, despite its rich solar, wind and hydropower resources, turning into a truly heavyweight player will not be an easy task for the fourth-largest continent due to political instability as well as resistance to transitioning from fossil fuels to renewables.
Energy paradox: fossil fuels and renewables
The Latin American region is a significant producer of fossil fuels, and countries like Brazil, Mexico, and Venezuela have long been exporters of oil and natural gas. The continent produces 7.5 million barrels of oil per day, with Venezuela alone being home to 18% of the world’s oil reserves, thus exceeding even Saudi Arabia.
In fact, recent discoveries in Guyana, along with the expansion of Brazil’s oil sector, even suggest that the area will continue to take on an ever-expanding role in the global fossil fuel markets perhaps even well into the next decade.
Conversely, Latin America is also emerging as a renewable energy leader, with 60% of its electricity having been generated from renewables in 2023. This not only means that Latin America has far outstripped the global average, but it also allows the area to develop multiple avenues of energy resources, both for domestic use and for exports.
Nevertheless, although there may be certain benefits to having two streams of energy resources to leverage instead of one, the International Energy Agency (IEA) has projected that Latin America will account for almost 10% of the global reduction in oil demand by 2050 under its Announced Pledges Scenario (APS) while, at the same time, positioning itself to push forth its renewable energy initiatives and production for export, particularly in solar, wind, and bioenergy.
The rise of renewables
Latin America’s potential as a renewable energy superpower is a result of the extraordinary natural resources it boasts.
Chile, for example, generates over 35% of its total energy needs from solar and wind. The country’s Atacama Desert has some of the highest solar radiation levels on the planet. In addition, Brazil has also become a world leader (G20) in bioenergy, producing almost 43 billion liters, with the agricultural sector working in tandem with the biofuels sector to produce energy from sugarcane and other crops.
Moreover, the region has a high supply of minerals that are essential for creating and upgrading clean energy technologies. It holds around half of the world’s lithium reserves, which is used in batteries, electric vehicles, and energy storage. Latin America also holds 40% of the world’s copper, which is necessary for building wind turbines, solar panels, and other renewable technologies.
These two minerals are therefore largely viewed as “irreplaceable” in the global energy transition process. According to a report by the Roland Berger think tank, Latin America is now able to position itself as a global energy powerhouse on the international stage with these global energy shifts becoming so much more prominent.
Reindustrialisation as key
By pressing ahead with the development of renewable energy, Latin America can take the opportunity to re-industrialize its economies and attract foreign investment which will push forward not only the renewable energy sector but also the economy. According to the IEA, long-term revenues from mineral exports could reach US$200 billion by 2050, which far surpasses fossil fuel revenues.
This means that countries like Chile, Argentina, and Bolivia, sitting atop the “lithium triangle”, are poised to take advantage of global demand. But this also means that geopolitical implications and global competition will run rampant, especially for the United States, China, and the European Union. China, for example, has recently been investing heavily in the region’s mining sector.
Balancing growth and sustainability
Economic growth is its own reward, but the implications for social and environmental sustainability must also be taken into account. Forests are essential for carbon storage and biodiversity preservation but have often been degraded because of mining, agriculture, and energy projects, which is problematic for the sustainability of renewable energy production.
In response, however, the IEA has indicated that pledges made during the transitional process will result in an 80% reduction in deforestation globally by 2030 as well as afforestation even leading to a net forest growth of 100 million hectares by 2050.
The Inter-American Development Bank (IDB) highlighted in a report that successfully navigating this massive transition will require international cooperation and investment. IDB and the International Finance Corporation are already playing a role in financing projects across the region, the results of which have been truly impressive with countries like Chile and Uruguay making great strides in green hydrogen. Such projects even allow countries to aim to become major exporters of this low-emission fuel.
