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).

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.

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.”

Energy spotlight: Guyana, Brazil and Trinidad and Tobago

Many Latin American and Caribbean nations could become major clean energy players — but may rely on fossil fuel revenues to do so.

While blessed with abundant critical minerals and renewable energy resources, this region also is overflowing with oil and gas reserves that governments hope to use to tackle high levels of poverty.

“We are living in an era of incoherences, almost a paradox,” André Guimarães, director of the Brazil-based Amazon Environmental Research Institute, told Cipher.

These countries are home to roughly 660 million people, compared to the roughly 370 million people in North America, according to 2022 World Bank data. Despite its large population, this region is responsible for just 5% of global carbon emissions. As the recent deadly floods in Brazil show, the region also remains highly vulnerable to the many impacts of climate change, like more intense hurricanes, flooding, coastal erosion and sea level rise.

Latin America and the Caribbean has one of the highest levels of income inequality, with 3% of the population, or about 17 million people, lacking access to electricity, according to the International Energy Agency (IEA).

Any efforts these governments make to usher in the energy transition must be accompanied by concrete steps to ensure clean energy is affordable and related jobs are available for its citizens, leaders tell Cipher.

Expecting low- and middle-income countries not to exploit their fossil fuel resources to develop their economies is unrealistic, said Stuart Young, energy minister for the island nation Trinidad and Tobago. “The developed world needs to be pragmatic about [the] energy transition.”

A look at how decarbonization is unfolding in three countries — Guyana, Brazil and Trinidad and Tobago — reveals how mixed the energy transition picture is in this part of the world.

Guyana

Guyana is racing ahead with plans to exploit the oil and gas reserves that have helped lift up its economy in recent years. It also plays a key role in supplying Europe with much-needed oil following the Russian invasion of Ukraine, according to the IEA.

At an open house at the Embassy of Guyana in Washington D.C. over the weekend, Ambassador Samuel Hinds took a minute out of greeting visitors to speak to Cipher about the country’s plans.

“We are going to be using our income from oil to develop life after oil: We will be using it to improve health and education, improve infrastructure, data and systems and so on,” said Hinds.

The nation already has invested in 10 MW of solar electricity and is looking to add hydroelectric power to its largely fossil fuel mix, Hinds said.

In fact, Guyana has long been an environmentally conscious state, with environmental protection legislation on the books for about 30 years.

But more recently, headlines have focused on how the country has emerged as a hotbed for offshore drilling since allowing an ExxonMobil-led coalition to exploit oil and gas fields. Oil production surged from about 100,000 barrels per day in 2020 to nearly 400,000 barrels per day in March 2023, and is expected to reach 1.2 million barrels per day by 2027.

Guyana leans heavily on oil to run its grid, according to the International Renewable Energy Agency, but it’s aiming to use natural gas drilled off its shores to provide more reliable and 50% cheaper electricity for its citizens, according to Reuters.

Recent news reports about the country’s oil ambitions illustrate the potential and drawbacks.

This includes questions about how Guyana plans to use the revenue gleaned from fossil fuels to forge its energy transition path. Concern persists regarding to what degree economic benefits from increased oil production will trickle down to indigenous communities there, as discussed in this recent, expansive New York Times article reported from the country.

Despite its aggressive oil and gas exploration, Guyanese President Irfaan Ali said in a recent BBC interview that Guyana’s net-carbon footprint remains zero and that its rainforest, which is the size of England and Scotland, remains intact.

Brazil

With the largest economy in Latin America, Brazil is in an exceptional position to benefit from climate action, according to a World Bank report. The country already gets nearly 90% of its electricity from renewable energy, mainly hydropower, and has managed to supply it to far-flung rural communities using billions in transmission investments.

However, Brazil also is ranked as the ninth largest oil producer globally and expects to remain a net producer of this fuel owing to low production costs.

“Our strength lies in our energy matrix diversity,” Brazil’s energy minister Alexandre Silveira told Cipher on the sidelines of the CERAWeek global energy conference by S&P Global in Houston in March.

Looking ahead, Brazil wants to position itself as a leading producer of sustainable aviation fuels as it already is the world’s second largest producer of biofuels, Luciana Aparecida da Costa, director of Brazil Development Bank’s (BNDES) infrastructure, energy transition and climate change division, said at an April BloombergNEF summit in New York City.

The country also wants to use its clean electricity to make hydrogen and holds significant reserves of minerals critical to clean energy technologies, like nickel, lithium, bauxite and graphite.

But concerns about mining’s environmental impacts persist, especially among indigenous communities living in the Amazon rainforest, where nickel reserves remain untapped.

“If we could find these reserves in a decent and responsible way that would be wonderful, but the way we do things south of the equator is we tear down the forest and build highways, and dump all the residues around and create a very big mess,” Shigueo Watanabe, a climate and energy expert with the Climainfo Institute, a Brazilian environmental information organization, told Cipher.

Trinidad and Tobago

Unlike Brazil with its nearly clean grid, the island nation of Trinidad and Tobago is almost exclusively dependent on natural gas as both a fuel source and a driver of the nation’s economy.

The country’s electricity grid runs almost entirely on natural gas, and it’s the region’s third largest producer of it behind Mexico and Argentina, according to the IEA.

Faced with declining reserves of natural gas, Trinidad and Tobago is now actively trying to diversify its electricity mix with wind and solar, according to the Oxford Business Group.

It’s studying the feasibility of wind energy and recently installed a 92-megawatt (MW) solar farm in partnership with Lightsource BP, the solar arm of the oil major BP, Shell and others.

Still, the nation’s energy minister, Stuart Young, expects Trinidad and Tobago’s production and use of natural gas to continue. Young told Cipher the country sees natural gas as the “cleanest fossil fuel” that will become even cleaner as carbon capture technology improves.

Going forward, Trinidad and Tobago could produce clean hydrogen made with natural gas paired with carbon capture and hydrogen-derived ammonia, a key ingredient in fertilizer and a potential fuel source itself, said Young.

Currently, the country is studying the potential use of abandoned oil wells to store captured CO2 and exploring the potential of making hydrogen using some of its new renewable energy resources.