WHY LATIN AMERICA CAN`T QUIT OIL / THE FINANCIAL TIMES BIG READ

 Why Latin America can’t quit oil

As COP30 approaches, Brazil and Colombia offer competing visions of a ‘just energy transition’ for developing countries

Michael Stott in Rio de Janeiro, Michael Pooler in São Paulo and Joe Daniels in Bogotá

While Colombia’s Gustavo Petro, left, and Brazil’s Luiz Inácio Lula da Silva have touted their green credentials, Bogotá’s rejection of fossil fuels contrasts with Brasília’s oil ambitions © FT montage/Getty/Alamy

In the run-up to this year’s UN climate change summit, Brazil’s President Luiz Inácio Lula da Silva has touted himself as a global champion of the environment, pointing to big reductions in Amazon deforestation since taking office.

So environmentalists were dismayed when, just weeks before the COP30 meeting in the Amazonian port of Belém, Lula’s government approved a request from the national oil firm Petrobras to explore for crude off the mouth of the Amazon river.

“As long as the world needs it, Brazil is not going to throw away wealth which could improve the lives of the Brazilian people,” Lula told journalists after the decision.

As the world undergoes the multitrillion-dollar switch to clean energy, the notion that this once-in-a-lifetime shift should benefit everyone has rapidly gained currency. 

Of the national green energy plans submitted this year ahead of the COP summit starting November 10, nearly three-quarters reference a “just energy transition”.

While the phrase is popular, the interpretations are very different. 

Almost all countries accept that oil and gas production eventually needs to halt to save the planet, but many developing nations have no desire to lead the way, particularly at a time when the world’s biggest oil producer — the US — is a wealthy economy making no effort to cut back.

Nations such as Brazil face a dilemma, says Alfonso Blanco, who directs the energy transition programme at the Inter-American Dialogue, a think-tank in Washington: “If I commit to stop producing [oil and gas] voluntarily, I lose the chance to monetise my reserves while others are making use of their resources. 

I am losing my chance for development.”

Lula subscribes to this view. For him, a “just energy transition” involves maximising oil and gas production and sharing some of the proceeds with the poor.

But while this concept enjoys wide political support, both inside the country and across the developing world, it is not the only vision.

In neighbouring Colombia, President Gustavo Petro has sought to pioneer a new approach to environment policy, one he hopes will be copied by other countries. 

“We are willing to move to an economy without coal or oil,” he said in his inauguration speech in August 2022, nine months after the COP26 conference in Glasgow. 

“I will protect our soil and subsoil, our seas and rivers, our air and sky . . . Colombia will be a world power of life.”

Since then he has halted all new oil and gas exploration, raised taxes on fossil fuel companies and is developing an alternative economy based on tourism and eco-friendly agriculture.

Yet in the three years since Petro took office, enthusiasm for a rapid energy transition in some parts of the developing world appears to be waning. Emerging economies have become resistant to phasing out fossil fuels beyond coal.

Workers inspect solar panels in Bogotá. Colombia’s president, Gustavo Petro, has positioned himself as a global leader on the environment © Luisa Gonzalez/Reuters

With China by far the world’s biggest carbon emitter, and emissions in Europe and the US declining, actions by developing nations will largely decide the pace of climate change in the coming decades.

But some say that, in the model espoused by Brazil, there is a lack of incentives to follow through on proposals to decarbonise. 

“The argument that oil exploration will finance the energy transition lacks concrete mechanisms [to make it happen],” says Juliano Bueno de Araujo, technical director at Brazil’s Arayara International Institute. 

“Brazil does not have a national climate fund linked to oil revenues . . . Instead of strengthening the transition, this model increases dependence on fossil fuels.”

As things stand, Brazil is forging ahead with plans to pump more oil. 

Lula’s administration wants Brazil to become the world’s fourth-largest crude producer by 2030, ahead of Iraq and the UAE.

Environmentalists and indigenous rights defenders are appalled. 

“Lula has just buried his claim to be a climate leader at the bottom of the ocean,” says Suely Araújo, public policy co-ordinator at the Climate Observatory civil society group, referring to the decision to allow offshore drilling in the sea by the Amazon river estuary. 

Greenpeace and seven other NGOs are suing in an effort to cancel the licence granted for an exploratory well.

“This project is predatory, ignores the voice of indigenous peoples, the true guardians of the forest, and exposes the contradictions of the government in investing in fossil fuels, the main cause of the climate crisis, a few days before the COP30,” says Kleber Karipuna, co-ordinator of the Indigenous Peoples of Brazil alliance.

But Lula’s government argues that tapping Brazil’s abundant offshore crude deposits — mostly for export — will help finance green investment and fund social programmes in a society scarred by profound inequality. 

Mines and energy minister Alexandre Silveira says Brazil’s clean electricity generation — most of it from hydropower — and leadership in biofuels already marks it out as the “leader of the global energy transition”.

“Countries that have already industrialised, with per capita incomes well above the average of the global south and Brazil, should be a little more aware that we live in a single ecosystem,” he told the FT this year. 

“To save this [ecosystem] we need a fair and non-imposed energy transition. 

And for it to be fair, there has to be money on the table.”

Across the developing world, Silveira’s point of view finds plenty of supporters.

The priority for Africa’s largest oil producer, Nigeria, is to monetise oil and gas, while Saudi Arabia plans to decarbonise energy consumption at home but is investing to keep its position as the second biggest oil producer. 

In Latin America, Argentina is raising production as quickly as possible from its giant Vaca Muerta shale fields in Patagonia. 

Mexico’s state oil company, Pemex, plans to reopen old wells to squeeze out extra output.

By contrast Chile and Uruguay are leading on renewable energy, but both are relatively small economies.

Gas infrastructure in Lake Maracaibo in Venezuela. Expanding oil production in the country is one of the few goals shared by the incumbent president and his opponent © Science Photo Library/Reuters

In Venezuela, which has the world’s biggest known oil reserves, expanding oil production is one of the very few goals shared by revolutionary socialist President Nicolás Maduro and his sworn enemy, conservative opposition leader María Corina Machado.

Suriname, a tiny Caribbean coast nation that used to promote itself as a net negative emitter of carbon, plans to begin producing offshore oil for the first time in 2028. 

France’s TotalEnergies, the operator, says the project is “perfectly illustrative of our transition strategy”. 

Neighbouring Guyana, 85 per cent of which is forested, is expanding oil production even more aggressively, with its economy nearly quintupling from 2019 to 2024 as a result.

No Latin American oil producer is pursuing a net zero future as zealously as Colombia under its first leftwing president.

About six weeks after his inauguration, Petro, a former urban guerrilla, told the UN General Assembly in New York that coal and oil “can wipe out all of humanity”, a phenomenon he blamed on capitalism.

“The climate disaster that will kill hundreds of millions of people is not being caused by the planet, it is being caused by capital,” he said. 

“By the logic of consuming more and more.”

An admirer of the obscure Romanian ecological economist Nicholas Georgescu-Roegen — a leading influence on the “degrowth” school of thought, which advocates shrinking economies to relieve pressure on natural resources — Petro moved quickly to make his fossil-free vision a reality.

He raised taxes on oil, gas and mining companies, imposed a moratorium on new licences for oil and gas exploration and pushed for a ban on fracking. 

At climate talks in Dubai in December 2023, Petro announced that Colombia would join a small group of mostly tiny island nations seeking to negotiate a so-called “Fossil Fuel Non-Proliferation Treaty” to phase out oil, gas and coal.

Petro’s move was economically risky. 

Colombia produces about 750,000 barrels of oil equivalent a day. 

Oil and minerals, including coal, made up 44 per cent of Colombia’s export revenues in 2022, according to the OECD. 

A study the following year by Colombia’s finance ministry and the French Development Agency found that hydrocarbons generated roughly 10-15 per cent of total government income.

Big investments in oil and gas ground to a halt. 

Chevron, ExxonMobil, ConocoPhillips and Repsol have exited or scaled back projects in Colombia in recent years. 

Shell announced in April that it would pull out of three offshore gas projects that it owns with Colombia’s state-run oil company Ecopetrol, even as the country faces supply shortages.

As Colombia’s own gas production declines, it is now relying on imports. 

Mauricio Cárdenas, a senior research fellow at Columbia University and a conservative contender in next year’s Colombian election, says this makes no sense because imported gas is more expensive and generates more carbon emissions. 

“The only thing we Colombians achieve with this is to pay more and pollute more because of a bad energy policy.”

Petro’s anti-fossil fuel policies, coupled with a broader hostility to the private sector, have also hit Colombia’s economic growth.

The economy stalled in 2023, his first full year in power, with GDP increasing just 0.7 per cent and then 1.6 per cent in 2024, according to the IMF. 

This year, the IMF predicts growth of 2.5 per cent amid a government spending spree. 

Brazil has grown faster under Lula than Colombia under Petro.

Meanwhile, ambitious Colombian plans announced last year to raise $40bn in new investment to fund a “socio-ecological transition” from oil and gas to nature tourism, low-carbon industry and eco-friendly farming have moved slowly.

Luis Fernando Mejía, who heads economic think-tank Fedesarrollo, says Petro’s policies are hurting Colombia’s finances. 

“The government’s strategy gives up crucial sources of tax revenue that could be used to fund a smooth and sustainable energy transition,” he says.

Petro’s government has no plans to change course. 

“We must stop depending on a rentier economy based on commodities and move towards a productive economy centred on agriculture and tourism,” Edwin Palma, Colombia’s energy and mining minister, tells the FT. 

The minister says the government has sought to diversify Colombia’s grid, which relies on hydropower generation for about 68 per cent of supply, supported by gas and coal-fired power plants and a small but growing mix of solar, wind and biomass fuels.

But efforts to boost renewables have also hit problems. 

In May 2023, Italian utility Enel pulled out of a planned 205GW wind farm project in the northwestern coastal province of La Guajira. 

For two years, the project languished until Ecopetrol, Colombia’s state-controlled oil company, bought it in July.

André Corrêa do Lago, who is overseeing COP30, second from right, speaks at a press conference in Brasília. The country says it is already en route to a green economy © Ton Molina/Bloomberg

Ricardo Roa, Petro’s former campaign manager who now runs Ecopetrol, says the company wants to step up investment in renewables. 

“Our focus is on using the great potential of the Guajira,” he says.

Alexandra Hernández, president of Colombia’s renewables lobby group SER, thinks investment may finally be taking off. 

She says Colombia will generate 14 per cent of its electricity from wind and solar projects by the end of this year, up from 2.5 per cent two years ago.

But the radical nature of Petro’s ambitions made things harder. 

“He wanted to change oil and gas, he wanted to change health, education, the investment model, the economy, taxation,” she says. 

“He wanted to change absolutely everything. 

But there was a big lack of execution.”

Francisco Monaldi, director of the Latin America energy programme at Houston’s Rice University, says that if Petro had wanted to be a leader in decarbonisation, he should have focused on cutting fuel subsidies further than he did and reinvesting the savings in renewables. 

“I think that his policy is overall a mistake and it’s going to be a lasting mistake.”

Brazil, meanwhile, is burnishing its green credentials in other areas in the lead-up to the COP summit. 

The country has one of the world’s cleanest electricity grids, with about 90 per cent of power coming from renewable sources.

Latin America’s biggest nation is also a global leader in lower-carbon biofuels, principally ethanol derived from sugarcane, which absorbs CO₂ as it grows and typically emits less carbon dioxide than regular petrol. 

Most cars in Brazil are fitted with “flex” engines that can run on a mixture of both fuels and the regular blend of petrol contains 30 per cent ethanol.

Pro-environmental posters near the Petrobras headquarters in Rio de Janeiro. The oil company recently received permission to explore for crude © Fabio Teixeira/ZUMA/Reuters

Brazil, says Luisa Palacios of Columbia University, “thinks that sustainability is a competitive advantage”. 

“It’s a laboratory of trying to do low-carbon fuels or low-carbon things in high-emitting industries. 

This is not easy and obviously there are trade-offs. But I do think that both businesses and the government are trying to do [things] in the most responsible way.”

Brasília therefore says it is already well on the way towards a low-carbon economy. 

Almost half the country’s greenhouse gas emissions are from deforestation, followed by agriculture and livestock at 28 per cent, according to data compiled by the Climate Observatory. 

The burning of fossil fuels accounts for much less.

But that may change. 

Over the past couple of decades, Brazil has emerged as a global force in oil thanks to rising output from its deepwater reserves, known as the “pre-salt” because they are buried under a thick layer of sodium chloride.

With production from these fields forecast to peak by the end of the decade, the oil industry believes Brazil’s next great find lies in a 2,200km stretch of the Atlantic Ocean off the northern coastline, called the Equatorial Margin. 

The government estimates it could contain 10bn recoverable barrels. 

This push for new reserves was behind the controversial decision on October 20 by Brazil’s environmental regulator, Ibama, which granted Petrobras an exploratory drilling licence for a patch known as Block 59 lying 540km from the Amazon river’s mouth and 175km from the shores of Amapá state. 

A village near the mouth of the Amazon in Amapá state. Indigenous rights defenders have criticised a move to allow drilling in the sea by the Amazon river estuary © Adriano Machado/Reuters

Brazil and other countries have anticipated a gap in oil supplies later this decade and will be ready to fill it, says Jason Bordoff, founding director of the Center on Global Energy Policy at Columbia University.

“The most important and effective action to discourage Brazil and other countries to shift course on oil output plans is to change the economic incentives by dramatically accelerating the deployment of EVs and other technologies that would change the oil demand outlook,” he says.

In Colombia, Petro’s war on fossil fuels may be running out of steam. 

Contenders from left and right in next year’s Colombian presidential election are vowing to reverse the president’s energy policies. 

“If God gave us oil, coal and gas, we’ll use oil, coal and gas,” posted Claudia López, a centre-left former mayor of Bogotá and presidential contender.

“It’s actually remarkable how much Petro has generated a backlash . . . because there used to be a much more environmentally driven consensus in the Colombian elite,” says Monaldi of Rice University. 

“Now it’s more about: ‘We have to increase oil production to implement social policy and economic development.’ 

There has been a big shift in perspective.”

Additional reporting by Beatriz Langella