Latin America: End of “Supercycle” Threatens Reversal of Institutional Reforms

By Carlos Monge*

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By Eduardo Ballón and Raúl Molina (consultores) and Claudia Viale and Carlos Monge (National Resource Governance Institute, América Latina), from Minería y marcos institucionales en la región andina. El superciclo y su legado, o las difíciles relaciones entre políticas de promoción de la inversión minero-hidrocarburífera y las reformas institucionales, Reporte de Investigación preparado por NRGI con colaboración de la GIZ, Lima, Marzo del 2017. See blog text for high-resolution graphic

Policies adopted in response to the end of the “supercycle” have slowed and, in some cases, reversed the reforms that moved the region toward greater decentralization, citizen participation, and environmental protection over the past decade.  Latin American governments of the left and right used the commodities supercycle to drive growth and poverty reduction at an unprecedented pace.  They also undertook institutional reforms aimed at improving governance at large.

  • Even before demand and prices for Latin American energy and minerals began to rise in the early 2000s, some Latin American countries launched processes of decentralization (Colombia and Bolivia); started to institutionalize mechanisms for citizens’ participation in decision making (Colombia and Bolivia); and built progressively stronger environmental management frameworks (Colombia and Ecuador). Peru pressed ahead with decentralization and participation at the start of the supercycle, and when it was in full swing, created a Ministry of the Environment.
  • Implementation of the reforms was subordinated by governments’ overarching goal of fostering investments in the extractive sector. Indigenous consultation rights in Peru, for example, were approved in the second half of 2011, but implementation was delayed a year and limited only to indigenous peoples in the Amazon Basin.  President Ollanta Humala, giving in to the mining lobby, claimed there were no indigenous peoples in the Andes and that no consultations were needed around mining projects.  Local pressure forced a reversal, and by early 2015 four consultation projects on mid-size mining projects were launched.

These reformist policies have suffered setbacks since the decrease in Asia’s and particularly China’s appetite for Latin American energy and minerals has caused prices to fall – and the value of exports, taxes, and royalties, and public incomes along with them.  The latest ECLAC data show a decline in economic growth and a rebound of poverty both in absolute and relative figures.  The gradual fall in the price of minerals starting in 2013 and the abrupt collapse in oil prices by the end of 2015 reversed this generally favorable trend.

The response of the governments of resource-dependent countries has been “race to the bottom” policies, which included steps backward in fiscal, social, and environmental policies.  Governments’ bigger concern has been to foster investments in the new and more adverse circumstances.  In this new scenario, the processes of decentralization, participation, and environmental management have been negatively impacted as local authorities and citizens’ participation – as well as environmental standards and protocols – are perceived by companies and rent-seeking public officials as obstacles to investments.

  • Peru’s Law 30230 in 2014, for example, reduced income tax rates, weakened the oversight capacity of the Ministry of the Environment, and weakened indigenous peoples’ claim public lands.

The correlation between the supercycle years and the progress and regressions in reforms is clear. (click here for high-resolution graphic).  During the supercycle – when huge amounts of money were to be made – companies and government were willing to incorporate the cost of citizen participation, decentralization and environmental standards and protocols.  But now, governments are desperate for new investments to overcome the fall in economic growth and extractive rents, and extractive companies are not willing any more to assume these additional costs.  Those who oppose the “race to the bottom strategy” are fighting hard to restore the reforms and to move ahead with decentralization, increased participation, and enhanced environmental management, to achieve a new democratic governance of the territories and the natural resources they contain.

April 7, 2017

* Carlos Monge is Latin America Director at the Natural Resource Governance Institute in Lima.

Challenging Assumptions about Supercycles in Peru and Latin America

By Claudia Viale and Carlos Monge*

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A Southern Copper Corporation train heading towards the Peruvian mines of Toquepala and Cuajone. / David Gubler / Wikimedia Commons / Creative Commons

The commodity-fueled “supercycle” that has propelled Latin American economies for the past decade and a half is ending, but careful analysis of other ongoing cycles will help countries cushion the blow.  ECLAC economist Jean Acquatella has identified four significant global cycles in which Latin America has actively participated as a raw materials exporter through the 20th and 21st centuries: U.S. industrialization; post-war European reconstruction and Japan’s industrialization; the post-1973 OPEC-driven oil boom; and, most recently, urbanization and industrialization in Asia, especially China.  During this fourth cycle – considered a supercycle because of sustained record levels of commodity prices and demand – resource-rich countries in Latin America experienced high growth rates, fiscal abundance, and a decrease in poverty rates as well as an increase in social conflict over the extraction of natural resources.  Slower Chinese growth has since reduced global demand and prices for the region’s minerals and energy, but the impact has been less severe than at the end of previous cycles.

  • José de Echave, of CooperAcción, has emphasized the need to differentiate the recent supercycle from what he terms the “extractive boom,” which started in the early 1990s as a result of the privatization of state mining and hydrocarbons assets and pro-market legislative reforms. His analysis indicates that the extractive boom will outlast the supercycle as long as large-scale projects mature and pro-investment policies continue in place.

The concessions, investments, production and fiscal rent during the past decade and a half in Peru and other countries indeed point to other cycles, some of which have enduring momentum.  Peru has experienced a “concessions cycle” for exploration activities; “investment cycles” as a result of privatization of state assets in the ‘90s and as a result of successful explorations and increased demand and prices starting in 2002; “productive and export cycles” as a result of investments; and a “fiscal cycle” of abundant public revenue.  Several cycles will obviously decline, but the country’s pro-investment policies remain in effect.  The new government of President Pedro Pablo Kuczynski is deepening policies started under former President Humala: reducing corporate income taxes, making environment compliance less onerous, and curtailing the oversight capacities of the Ministry of the Environment.  Investments made in the last five to ten years are, in many cases, only now beginning production.  Thus, as contradictory as it might sound, Peru is poised to double its copper production in the next five years.

The complex differences between “extractive booms” and “supercycles” have deep political implications.  The end of a supercycle could mean a substantial reduction in social conflict between local populations and extractive enterprises and government, but the current “race to the bottom” driven by pro-investment policies could fuel new tensions.  The Las Bambas project in the South Andean region of Apurimac, Peru, illustrates the point.  New legal procedures adopted in 2014 easing approval of environmental impact assessments (EIA) have allowed the Ministry of Energy and Mines to approve substantial changes in the project’s design and EIA without informing the local population and authorities, generating a violent local social reaction.  Available data shows analogous phenomena underway in Bolivia, Colombia, and Ecuador.  The implications will vary for each country, of course, but careful analysis is needed if state policies and civil society activism are to be on solid ground.

October 11, 2016

Claudia Viale and Carlos Monge are Program Associate and Latin America Director at the Natural Resource Governance Institute in Lima.

 

What does “Canada is back” mean in the Americas?

By Stephen Baranyi*

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Mexican President Enrique Peña Nieto and Canadian Prime Minister Justin Trudeau during the “Tres Amigos Summit” in Ottawa, June 2016. / Presidencia de la República Mexicana / Flickr / Creative Commons

Canadian Prime Minster Justin Trudeau and his cabinet ministers’ statements following their election in October 2015 that “Canada is back” reflect a global strategy that is likely to give a boost to Canada-Latin America relations.  Canada never “left” the Americas during the decade of Conservative governments led by Prime Minister Harper, but the new administration is patching up its predecessors’ mixed record.  Building on the Americas Strategy launched in 2007, Ottawa signed new bilateral free trade agreements with Colombia, Peru and others; broadened its engagement in regional security affairs; and greatly increased its whole-of-government engagement in Haiti.  Canada played a major role at the Summit of the Americas in Panama (April 2015) and hosted the Pan American Games (July 2015).  Yet the revelation of Canada’s espionage in Brazil, visa restrictions on Mexicans, the poor reputation of some Canadian mining firms in the region, and its inability to reach a trade agreement with the Caribbean Community fed a growing desencanto in Canada’s relations with the region.

Through mandate letters issued to ministers in late 2015, the Trudeau government made clear that the Americas would remain an important priority, despite renewed emphasis on Asia and Africa, and that inclusive growth, the responsible governance of Canadian extractive activities abroad, and women’s and indigenous peoples’ rights would get emphasis in the region.  In June, Canada hosted the “Tres Amigos Summit” with NAFTA partners United States and Mexico.  Ottawa also announced that by December, Mexican citizens would no longer need visas to enter Canada, removing a big irritant in Canada-Mexico relations.  The government reaffirmed its partnership with Colombia by indicating its desire to make bilateral free trade more inclusive and announcing projects to support the implementation of peace accords.

  • Ottawa has opportunities for deeper involvement in these countries. In Mexico, Canadian interests will be served through a better balance between pursuing economic opportunities in sectors like petroleum and supporting Mexicans struggling to strengthen rule of law in a system compromised by corruption.  Colombia also requires a sophisticated whole-of-Canada engagement strategy, particularly since the failure of its referendum on the peace accords on Sunday.  Ottawa has signaled interest in continuing to support the rule of law and broader development in Haiti, but Trudeau’s ability to justify large expenditures there will depend on the completion of legitimate elections by February 2017.

Ottawa’s appointment of a new Ambassador to the Organization of American States (OAS) and commitment to revitalizing it as “the premier multilateral organization of the Americas” points to broader engagement on a regional level.  The Trudeau administration could join the Latin American and Caribbean trend on drug policy by decriminalizing the sale of marijuana at home and supporting reforms to OAS and UN counterdrug programs.  Assisting the implementation of the UN Small Arms Treaty, which Ottawa is poised to ratify, could also contribute to rule of law and security in the Americas.  Canada will also find many partners (from Chile to Costa Rica) to promote gender equality.  With regard to First Nations, Ottawa may be tempted to focus on funding new aid projects; yet Canada’s credibility will remain suspect until it ratifies the American Convention on Human Rights and ensures that all Canadian mining firms respect the rights of indigenous communities to free and prior informed consent in large-scale extractive activities.  The Trudeau government will probably monitor the multi-dimensional crisis in Venezuela, the situation in Brazil, and other challenges in the region – over which it probably lacks the leverage to make a significant difference but can lend moral authority to solutions.  Given its clear commitment to a global, rather than regional, strategy, the current administration is wise to carefully select entry points on which its thematic priorities align with opportunities in particular countries.

October 5, 2016

* Stephen Baranyi is an Associate Professor at the University of Ottawa’s School of International Development and Global Studies.  He also chairs the Latin America and Caribbean Group (LACG) of the Canadian International Council.  The author acknowledges his LACG colleagues’ input into this blog, while taking responsibility for its limitations.

Mexico: Environmental Initiatives Likely to Stir Things Up

By Daniela Stevens*

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Mexico City’s Reforma axis under a blanket of smog / Lars Plougmann / Flickr / Creative Commons

Mexico has made a big push on climate issues over the past month that could have far-reaching consequences internally and in the hemisphere.  On August 16, it announced a pilot Emission Trading System (ETS), also known as “cap-and-trade,” that will begin a simulation in November and officially initiate trading carbon permits in 2018.  Two weeks later, at the second Climate Summit of the Americas (CSA), the Mexican federal government signed a joint declaration with the Canadian provinces of Ontario and Québec to advance “cooperation activities on carbon markets.”  Mexico’s motives are not immediately clear.  For a middle-income nation, with annual growth (around 2 percent) compromised by the crash in oil prices, an ETS represents a potentially significant economic burden.  Mexican officials have not explained, moreover, how they might link their cap-and-trade to the Canadian provinces’ systems and to the Western Climate Initiative (WCI), North America’s largest carbon market and the second largest in the world.

The moves may be driven by increasing Mexican belief that more assertive, market-oriented approaches are necessary to meet its international commitments.

  • Mexico is dependent on fossil fuels for over a third of its total energy production, wreaking havoc with the country’s air quality. Over the last few months, Mexico City decreed several “environmental contingencies,” situations of abnormally high concentrations of ozone in the atmosphere.
  • Moreover, Mexico may be seeking the advantage that increased regional cooperation represents. Its international commitments on emission reductions are very ambitious, and a linkage to its North American partners lends itself almost as a natural solution to help in the advancement of its pledges.  Mexico could export sectoral offsets that American and Canadian partners need – contributing to Mexican revenues and to market stability.  Mexico would also benefit from the resulting transfer of information expertise, technology, training, and methodologies.
  • An important first step for the Mexican authorities would be to commit the resources to establish the robust institutional mechanisms and capacities to launch, monitor, enforce and sustain a system as intricate as a national ETS, and only after that, lend itself as a reliable partner in an internationally linked market.

The details of the pilot ETS have not been publicized, and the agreement with Québec and Ontario does not establish commitments beyond “identifying opportunities for linking systems as much as possible.”  Mexican companies already voluntarily buy and sell carbon bonds on a small national market – a system complemented by a carbon tax in place since 2013 – but an enforced and internationally linked market would highlight the disparities among the North American nations – and represent a challenge to Mexico.  Unlike its partners, Mexico is still an industrializing nation, with a thriving motor vehicle industry, and industrializing nations have traditionally been reluctant to pricing emissions.  Industrialized countries are the highest historical emitters and reached that status of development by polluting without paying the price.  Although the need to prioritize economic growth does not exempt Mexico from fulfilling its commitments as the eleventh highest global emitter, it does signal that besides opportunities, Mexico faces challenges with trading partners at different stages of development.  The Climate Summit of the Americas showed, however, that regional fora and of subnational partnerships can further environmental commitments beyond the global and national summits.  The CSA signaled an opportunity for the region to develop North American or, more ambitiously, hemispheric solutions to climate change.

September 15, 2016

* Daniela Stevens is a PhD candidate in the American University School of Public Affairs.  Her research focuses on national and subnational policies that put a price on carbon emissions.

Latin America (Overall) Embraces Paris Climate Accord

By Fulton Armstrong

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Heads of delegations at the 2015 United Nations Climate Change Conference in Paris. Photo Credit: Presidencia de la República Mexicana / Flickr / Creative Commons

Latin American support for the landmark climate agreement signed at the United Nations last week may not have been enthusiastic during the negotiations, but all but Nicaragua seem eager for early ratification and implementation of measures to mitigate the harm of global warming.  A record-breaking 175 countries signed the accord in one day, including a number from Latin America, committing them to take concrete steps to keep the increase in global temperatures from rising 2 degrees Celsius (or, ideally, 1.5 degrees) over preindustrial levels.  To take effect, at least 55 countries producing 55 percent of global emissions must ratify the agreement.  Fifteen small island nations, including several in the Caribbean, already presented their ratification papers last Friday.  China and the United States, the two greatest emitters of greenhouse gasses, have said they’ll ratify this year – as have France and other EU countries.

The region’s leaders have made significant contributions to the accord over the years.  Mexico and Peru, which were hosts of crucial international conclaves leading up to it, have given it a Latin American imprint, and others supported the final round of talks in Paris last December.  Brazilian President Dilma Rousseff’s reference in her speech to her political troubles back home overshadowed Brazil’s leadership, including its commitment to reduce its greenhouse gas emissions by 43 percent of 2005 levels by 2030.  In the past, ALBA countries complained loudly that the wealthy, developed nations, which produce the vast majority of climate-harming gasses, should shoulder the burden of reducing them and should compensate poorer countries for harm that environmental measures cause them.  All but Nicaragua, however, have submitted national plans (called an Intended Nationally Determined Contribution, INDC) required for full participation in international efforts under the Paris Accord.  Nicaraguan Representative Paul Oquist told the media that “voluntary responsibilities is a path to failure” and that wealthy countries should compensate Nicaragua for the $2 billion cost the measures would entail.

Latin America has clear incentives to support the accord.  Various scientific studies underscore the impact of global warming on the region, with potentially dire consequences.  The World Bank and Intergovernmental Panel on Climate Change have reported that failure to act would cause further extreme weather threatening agriculture; rapid melting of Andean glaciers that provide much-needed fresh water; erosion of coastal areas; catastrophic damage to Caribbean coral reefs; and dieback of Amazon forests.  ALBA demands for compensation may be overstated but contain a grain of truth – they aren’t prodigious producers of greenhouse gasses – and skepticism that the big guys will meet their targets isn’t entirely unwarranted.  President Obama has repeatedly demonstrated his personal commitment to addressing the problem, but obstacles posed by the U.S. Senate (which must ratify the agreement), Supreme Court (which in February stalled implementation of his Clean Power Plan), and politicians seeking the Republican Presidential nomination (who have sworn opposition to deals like the Paris Accord) have all but shut down U.S. movement toward ratification.  The ALBA outliers, on the other hand, have made their complaints heard and appear likely to join the rest of Latin America and the Caribbean in pushing for ratification and quick implementation – and probably will soon renew the push for even tougher measures by industrialized nations.

April 25, 2016

Nicaragua: Where’s the Canal?

By Fulton Armstrong

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Coming soon to Nicaragua? Photo Credit: tryangulation / Flickr / Creative Commons

The Nicaraguan government and Chinese investment group leading the Nicaragua Grand Canal project continue to claim enthusiasm for their dream, but enough fundamental problems remain unresolved to suggest that prospects for its eventual construction are dimming – and the principals are maneuvering to avoid picking up the tab for the expenditures made so far.  In a year-end statement last December, President Ortega’s office said the canal project would be one of his government’s top 25 priorities this year and emphasized its benefits to the Nicaraguan people.  Hong Kong-based HKND Group had announced in November that it was “fine-tuning” the canal design to address problems raised in an environmental impact study, which would delay the beginning of major excavations and lock-building until the end of 2016.  Company officials have since said, however, that construction of a fuel terminal and wharf on the Pacific coast –necessary to bring in the massive equipment the project requires – could start as early as this August.  The company still claims that it will complete the canal in 2020 – a prediction that few, if any, outside experts see as feasible.

The project faces massive obstacles, with no solutions in sight.

  • The estimated US$50 billion in financing is nowhere to be seen. Chinese investor Wang Jing, who has already spent US$500 million of his own money on the project, lost some 85 percent of his US$10 billion personal fortune in last year’s Chinese stock market correction.  (Bloomberg named him the worst performing billionaire of 2015.)  Observers believe his losses as well as the problematic environmental impact study have cooled his and other private investors’ support.  An initial public offering of shares has been postponed indefinitely.
  • Project managers have yet to demonstrate the need for the canal and propose solutions to significant engineering challenges, such the need for construction able to withstand earthquakes made likely because of seismic faults along the route. HKND says the canal will handle 3,500 cargo ships a year, including ones bigger than those transiting the Panama Canal, but industry experts say there’s no demand for more than will be accommodated by the expansion of the existing canal – and that the United States has no ports capable of receiving the larger vessels.  Global warming, moreover, could soon open a faster and cheaper route north of Canada.
  • Public protests have diminished during the hiatus in canal-related news and activities, but opponents remain strident and are gaining international support. Detractors’ resolve to fight has been strengthened by the environmental report, by a credible UK firm, determining that the project will “have significant environmental and social impacts,” including dislocation of at least 30,000 Nicaraguans.  Indigenous and Afro-Nicaraguan groups on the Atlantic Coast are upset about disruptions to traditional territories, including cemeteries and holy places.  Amnesty International has condemned the treatment of affected persons as “outrageous” and “reckless.”

The “biggest earth-moving project in history” is still looking like one of the biggest boondoggles in history – yet another in a long series of chimera canals in Nicaragua since early last century.  The government says that popular support for the project remains about 81 percent, but a survey by Cid Gallup, published in the Nicaraguan newspaper Confidencial in January, showed that 34 percent of 1,000-plus respondents consider the canal to be “pure propaganda.”  One quarter believe technical studies have been inadequate and that funding will not materialize.  Those sentiments could be reversed somewhat by the appearance of massive excavation equipment and creation of related construction jobs, but support will still be tempered by concerns about persons whose lives are disrupted by the project – and by perennial and profound suspicions that corruption will take the lion’s share of benefits.  Some opposition leaders believe HKND’s big push to appear optimistic is to build a case for collapse of the project to be Nicaragua’s fault, so that the company can demand that Managua repay the $500 million that Wang has reportedly spent.  The lack of transparency surrounding the project only fuels such speculation. 

April 4, 2016

Nicaragua’s “Great Canal” Draws Opposition

By Fulton Armstrong

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Protestors opposing the Chinese-Nicaraguan canal confront police / Jorge Mejía Peralta / Flickr / Creative Commons

Although questions continue to swirl around whether the Chinese-Nicaraguan canal – which its main investor called the “most important [project] in the history of humanity” – will be built or not, its opponents are taking it all very seriously.  A CID-Gallup poll in January showed that 41 percent of Nicaraguans interviewed strongly support the project, while another 21 percent and 17 percent back it somewhat and a little, respectively.  But another poll by the same firm suggested ambivalence:  asked if they supported the National Assembly vote giving the Chinese firm leading the project, HKND, a concession for the 278-km right of way for up to 100 years, some 39 percent of respondents said no.  Some political voices are growing more sharply opposed as well.  The powerful business group COSEP, for example, has gone from agnosticism about the project to a position of open disapproval.

Groups concerned about the project’s impact on the environment and rural residents have already held protests involving up to several thousand participants, and – despite the government’s promise that the canal will bring prosperity throughout the country – organizing efforts appear unlikely to fade.  Skepticism about HKND and the government’s commitment to protecting the environment, fueled by their off-the-cuff dismissal of concerns, is so deep that even a balanced comprehensive impact study by the British Environmental Resources Management, due next month, may fail to calm nerves.  Environmentalists cite studies warning that dredging Lake Nicaragua from its current depth of nine meters to the 27 meters necessary for cargo ships will stir up many layers of toxic materials, with catastrophic consequences for marine life and surrounding agricultural areas.  Other groups are rallying behind the 29,000 residents who are to be evicted from properties along the canal route.  Demonstrations have turned violent, with protestors injured by tear gas and rubber bullets.  Graffiti and banners demanding “fuera chinos” are common.

In the hemisphere’s second poorest country, the promise of growth spurred by the $40-50 billion project is still a powerful card in the government’s hand.  Many skeptics still wonder, however, if the whole scheme is a ruse to fleece the Chinese investors, who’ll bring in a couple billion dollars before realizing that the project will get bogged down in Nicaraguan political quicksand.  But opposition to the canal goes far beyond the usual Managua political game of fighting over corruption dollars and obstructing each other’s priorities.  President Ortega’s endorsement of the canal contradicts his own statements years ago that he wouldn’t compromise the lake’s eco-system “for all the gold in the world.”  According to The Guardian newspaper, the dredging will move enough silt to bury the entire island of Manhattan up to the 21st floor of the Empire State Building – which no one is prepared to deny will have serious environmental implications.  China’s Three Gorges Dam, completed five years ago, displaced 1.2 million inhabitants – proportionally twice as many Nicaraguans displaced by the canal – but Nicaragua’s ability to resettle them, give them jobs, and suppress their dissent is small compared to China’s.  The project may not be the greatest in the history of mankind as HKND claims, but it may provoke a crisis as great as any in Nicaragua.  For starters, if COSEP’s opposition persists, it threatens to unravel the modus vivendi under which Daniel Ortega has stayed in power, and could portend much deeper tensions.

March 5, 2015

Click here to see our previous article about the canal.

The Impact of Falling Oil Prices on the Western Hemisphere

By Thomas Andrew O’Keefe*

L.C. Nøttaasen / Flickr / CC BY-NC 2.0

L.C. Nøttaasen / Flickr / CC BY-NC 2.0

The sharp drop in the benchmark Brent crude price of oil from just under US$115 per barrel in June 2014 to its current perch around US$50 has important ramifications for the Western Hemisphere.  For Venezuela, which earns some 95 percent of its foreign exchange from petroleum exports, it is a potential disaster.  Underlying political tensions will be exacerbated if there is no money to continue funding social welfare programs or heavily subsidizing gasoline.  It probably also spells the end of PetroCaribe’s generous repayment holidays and what are in essence below-market interest loans for Caribbean and Central American nations.  Sharply lower oil prices also put at risk major energy projects such as the development of Brazil’s pre-salt reserves, which require a minimum price of $50 to $55 to be economically viable.  Equally tenuous are Argentine efforts to regain energy self-sufficiency by exploiting its vast shale oil and gas reserves and Mexican plans to attract foreign investors to participate in deep-water oil exploration and drilling.  The minimum price for a barrel of oil below which new investment projects in Canada’s oil sands are no longer attractive is around $65.  Shale oil producers in the United States are also being squeezed by low petroleum prices.

On the other hand, net energy importers such as Chile, Paraguay and Uruguay benefit from sharply lower oil prices.  Although being weaned off  PetroCaribe will be painful for the Caribbean and Central America in the short term, they will be able to seek oil at the lower prices elsewhere.  The pressure on the Obama administration to lift the ban on U.S. crude oil exports, in response to a glut of domestic shale oil production, could also redound in favor of the Caribbean and Central America by lowering international oil prices further through increased global supply.  Already, 2015 began with U.S. companies authorized to export an ultralight crude called condensate.

In hopes of rallying OPEC to stabilize oil prices, Venezuelan President Maduro last weekend rushed off to lobby Saudi Arabia, which just two months ago refused to decrease production in order to raise prices, but oil industry sources say there’s little chance of a policy change.  Meanwhile, the environment may turn out to be among the biggest beneficiaries of lower oil prices.  Less investment in shale oil production reduces the risk of leaks of methane, a potent greenhouse gas, as well as decreases flaring.  Similarly, slowing down oil sands production in Alberta and Saskatchewan means that the very high levels of greenhouse gas emissions associated with extracting crude oil from bitumen (not to mention the negative impact on water resources) is diminished.  Although lower fossil fuel prices traditionally have undermined incentives to move to greater reliance on renewable and non-traditional energy resources, this may no longer be true.  For one thing many governments around the world are now embarked on ambitious efforts to reduce carbon emissions by, among other things, raising the costs associated with petroleum usage through cap and trade regimes that force companies to buy government-issued pollution permits.  Still others have enacted outright carbon taxes on utilities and large factories per metric ton of carbon dioxide emissions.  In addition, the heavy initial capital investment that was previously associated with things like wind, solar and geothermal power are falling.  For example, a combination of technological advances and Chinese overproduction have resulted in much lower prices for solar panels so that the cost of generation from a large photovoltaic solar plant is now almost 80 percent less than five years ago.  Geothermal energy may be the renewable that most benefits as drilling rigs idled by lower oil prices are now available at a lower cost for geothermal projects.  

*Thomas Andrew O’Keefe is President of San Francisco-based Mercosur Consulting Group, Ltd. and teaches at the Villanova University School of Law.

January 13, 2015