The conflict in Ukraine has taught countries that they have to reduce their dependence on fossil fuels and accelerate the transition to clean sources of energy, experts said during a panel discussion on March 30.
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However, the shortfall of Russian crude will require more production elsewhere in the near term and Latin America could be among the biggest beneficiaries, the panelists said during a webinar organized by Columbia University's Center on Global Energy Policy.
The increased need for crude globally in the short term will probably allow Latin American countries to keep their production, as the world will need sources that are "reliable", the panelists said.
"Latin America was the region of the world expected to have the sharpest output reduction to meet international commitments for climate change," Mauricio Cardenas, former finance minister of Colombia said during the webinar.
The region, which roughly produced 10 million b/d of crude in 2019, would reduce its output to 4 million b/d by 2035, he said. Under current circumstances, it is unlikely that Latin America will have to do so, and might actually increase production, he said.
Before the conflict, it did not matter who was producing the crude that was being used while the world began making the transition to clean energy, Cardenas said.
"Today, what matters is not only that the production is low in cost, but also that is complies with the best environmental, social and governance standards," he said.
This need for more production in the region might trigger additional investments in the sector in the short term. However, this could have a negative impact for energy transition goals, as it could lock countries into fossil fuels for longer, said Juan Carlos Jobet, Chile's former energy and mining minister.
Countries should be investing the revenues of the increased crude prices in accelerating the energy transition, Jobet noted. Instead, countries are feeling pressure from consumers to keep fuel prices low. In the context of higher inflation, governments have had to do so, either through direct subsidies or by giving up tax revenues.
"That makes sense in the short term, but we know that in the long term, we need to increase taxes to fossil fuels, and we know that once a subsidy is in place it becomes very tricky to remove it," Jobet said.
This pressure becomes particularly sensitive as Brazil and Colombia are having elections; Chile has recently elected a new president and a government is about to be ousted in Peru, said Cardenas.
"Energy subsidies are likely to increase in the region in the short term and that will make it more difficult for countries to make the energy transition," he said.
Panelists agreed that every country should be using the excess revenues created by the current circumstances to accelerate the transition and that includes not only crude exporters like Venezuela and Colombia, but also mineral exporters like Chile, as well as food producers like Argentina or Paraguay who have also seen net gains in their gross domestic product as a result of the global increase in commodity prices.