How climate change may impact Latin America's energy sector

“Society’s combustion of fossil fuels and industrial processes like steelmaking and agriculture have released greenhouse gases at rates much faster than at any other time in the geological past…the evidence is abundant: global warming is indisputable.”

BHP chief executive Andrew Mackenzie made the comment during a recent speech where he announced a five-year, US$400m climate investment program to develop technologies to reduce emissions from the group’s operations and those generated from the use of its resources.

Such initiatives are gaining acceptance across a more diverse stakeholder base amid growing scrutiny and more stringent policy, in particular that targeting the power and hydrocarbon sectors.

With less than four months to go before Chile hosts the 25th session of the Conference of the Parties (COP25) to the UN Framework Convention on Climate Change, BNamericas provides takeaways from new studies released by the IDB that look at the impact of efforts to curb greenhouse gas emissions on Latin America and the Caribbean’s (LAC) energy industry.

“Achieving the Paris Agreement’s near-term goals (Nationally Determined Contributions, NDCs) and long-term temperature targets could result in pre-mature retirement, or stranding, of carbon-intensive assets before the end of their useful lifetime,” according to discussion paper Stranded Asset Implications of the Paris Agreement in Latin America and the Caribbean.

The authors forecast that 60-128GW of fossil-fuel power plants could be prematurely retired in 2021-50.

Depending on NDC scenario, the research pegs stranded capacity costs at US$13bn-90bn and investment costs at US$1.9tn-2.6tn.

Natural gas and oil-fired generation without carbon capture and sequestration represent the largest amount of the prematurely retired capacity, highlights the study, available here.

UPSTREAM IMPACT

In discussion paper Implications of Climate Targets on Oil Production and Fiscal Revenues in Latin America and the Caribbean, another group of experts estimates that “stringent global climate action could reduce fiscal revenues in LAC to $1.3-2.6 trillion compared to $2.7-6.8 trillion if reserves were strongly exploited.”

The research concludes that 66-81% of 3P oil reserves in the region will remain unused by 2035.

“After 2035, with oil demand dropping to very low levels by the middle of the century under the most ambitious climate scenarios, unused reserves will be more difficult to exploit, as the global price of oil continues to fall,” adds the study, available at this link.

BNamericas’ Project Profiles Database features over 2,500 power, and oil and gas projects in the early works phase.

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