Central America and the Caribbean are potentially great beneficiaries of the energy revolution in the Americas and rapid progress in energy technology. Nevertheless, Central America and the Caribbean have the highest electricity costs within the Western Hemisphere along with the highest dependency on oil as an energy source. These are also the regions with the lowest average GDP per capita in the Americas.
Many countries in the region depend on subsidized financing from Venezuela to pay for oil products through the regional mechanism known as Petrocaribe. Continued Central American and Caribbean dependence on Petrocaribe is not beneficial in the long run as it creates disincentives for the adoption of new technologies and investment in new sources of energy. Additionally, it makes Central American and Caribbean states politically dependent on Venezuela for their energy security and therefore vulnerable to political pressure.
Energy alternatives for Central America and the Caribbean
- New sources of petroleum and petroleum products
- New regional supply arrangement
- Liquefied and compressed natural gas
- Further electric grid integration
- Improved energy efficiency
- Renewable energy sources
In the long run, it makes sense for Central American and the Caribbean states to transition to an energy infrastructure that combines improved efficiency, use of renewable energy sources, and natural gas power generation to reduce demand for oil.
Political and financial obstacles to an energy transition
- Regional disputes
- Regulatory asymmetry
- Meager state regulatory capacity
- Financial disincentives for change
This brief explores the options available for Central American states to begin to break the region’s dependence on oil imports, reduce their vulnerability to external financial and political pressure and transition to a more efficient, sustainable and competitive energy matrix.
The market access negotiations [of the Trans-Pacific Partnership] have been conducted bilaterally, so there is a fair amount of bilateralism embedded in the [TPP] agreement, but then you had all the benefits of multilateralism added to that in terms of rules that apply across the board. The problem with the bilaterals is we actually have tried that approach and we found that it is extremely time-consuming. So, none of these new bilaterals being discussed in the Trump administration are going to materialize overnight. They take a lot of time to negotiate—years, probably—and they tend to generate rules that are idiosyncratic.
If we [the United States] have less access to these [international] markets, we're going to have fewer opportunities to create jobs in the export sector. Also, if we decide to tax imports, there are a lot of people in this country dependent on imports and we're also going to see people lose their jobs.
Will the American business community sit idly by and watch Trump undertake a trade war with China? They have a lot at stake in this. [Trump's stream of anti-Chinese Tweets poses risks of being misunderstood.] China would regard a potential challenge as more dangerous than it actually might be.