Central America and the Caribbean Can Reduce their Oil Dependency

A new World Bank report explains that Central American and Caribbean countries can reduce their oil dependency and shield themselves from high oil prices through a combination of renewable energy, energy efficiency programs and regional energy integration.

According to “Mitigating Vulnerability to High and Volatile Oil Prices: Power Sector Experience in Latin America and the Caribbean,” launched ahead of the II Latin American and Caribbean Oil and Gas Seminar in Montevideo, Uruguay, the region overall is a net exporter of crude oil and oil products. [. . .] In both sub-regions, oil provides more than 90 percent of primary energy needs—more than one-third higher than the average for the Latin America and Caribbean region and more than twice the global average. “We estimate that the implementation of a strategy that combines a more diversified power system, better energy efficiency in electricity production and use, and regional integration can significantly reduce Central America and the Caribbean’s vulnerability to high and volatile oil prices,” said Ede Ijjasz-Vasquez, World Bank Director for Sustainable Development in the Latin America and Caribbean region. “Because of their exposure to oil price fluctuations, less oil dependency can have a positive effect on these countries’ fiscal balance and ultimately benefit the poorest sectors of the population.

For countries in Central America and the Caribbean, the average improvement in the current account balance would amount to approximately 1.6 percent of gross domestic product (GDP). At the country level, Guyana and Nicaragua could witness reductions in their current account deficits of up to 5 percent of GDP, while Haiti and Honduras could see reductions of about 3 percent of GDP. [. . .] The report argues for structural measures designed to reduce oil consumption, including (i) using renewable energy sources, (ii) investing in energy efficiency, both in the demand and supply side, and (iii) increasing regional integration with countries endowed with more diversified supply.

Renewable energy directly reduces the need for oil as a source of power generation. Such substitution also reduces greenhouse gas (GHG) emissions. The Latin America and Caribbean region has a wide array of renewable resources and technologies available, including wind in Argentina, hydroelectricity and biomass in Brazil, and geothermal in Central America. In 2007, renewable energy represented about 59 percent of the region’s total power generation -higher than any other world region. For both Central America and the Caribbean, a 10 percent increase in renewable potential capacity could lead to savings of 14.2 million and 5.6 million barrels of diesel and heavy fuel oil, respectively, representing an average reduction of almost 1 percent of GDP. [. . .] Among countries in Central America and the Caribbean, Nicaragua and Jamaica would achieve the largest fuel savings by taking advantage of energy-efficiency strategies. For Honduras, supply-and demand-side efficiency gains would lead to savings of up to 1 percent of GDP, and nearly 1.5 percent of GDP for Nicaragua and Jamaica.

Due to economies of scale, regional energy integration can help countries to reduce their oil dependency by diversifying generation sources (more renewable energy and natural gas), improving efficiency, lowering generation costs, and reducing GHG emissions. [. . .] In the Caribbean, the geothermal potential of some island nations can serve as the basis for a more diversified power market. The Dominican Republic and Haiti, in particular, can benefit from stronger integration on both the power and natural gas fronts. [. . .]

For full article, see http://www.worldbank.org/en/news/2012/07/25/central-america-caribbean-can-reduce-oil-dependency-says-wb-report

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