Can Colombia's green energy plan succeed without fossil fuel cash?

Workers are seen at Ecopetrol's Castilla oil rig platform, in Castilla La Nueva, Colombia June 26, 2018. REUTERS/Luisa Gonzalez

Workers are seen at Ecopetrol's Castilla oil rig platform, in Castilla La Nueva, Colombia June 26, 2018. REUTERS/Luisa Gonzalez

What’s the context?

Colombia has stopped issuing new oil exploration contracts - but will it last in an economy heavily dependent on fossil fuels?

  • Clean energy transition may take decades, analysts say
  • Lack of consensus so far under President Gustavo Petro
  • Agriculture, tourism unlikely to replace fossil fuel cash

BOGOTA - Colombia's bold plan to phase out the country's reliance on oil and coal revenue as part of its clean energy transition will likely take decades due to a lack of consensus and uncertainty over how to replace that cash, economists and analysts said.

Gustavo Petro, Colombia's first leftist president, who took office in August, has pledged to prioritize fighting climate change and promoting renewable energy over fossil fuels.

As part of the new government's push towards a low-carbon economy and to meet its climate commitments under the Paris Agreement - including reducing greenhouse gas emissions by 51% by 2030 - it recently announced it would not award any new oil exploration contracts or build new large-scale open pit coal mines.

"The Petro government has a good chance to create an energy transition policy so that change can happen and be consolidated in the next 15 to 20 years," said Giovanni Pabón, energy director at Transforma, a think-tank on climate action.

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Pabón said he hoped fossil fuels would make up less than 20% of Colombia's exports within two decades, down from 60% now.

However, six months into Petro's presidency, there is concern among some economists about what will make up for the lost oil and mining windfall as they wait for the government to launch its plans detailing how Colombia will promote renewable energy, create new green jobs, and how this will be funded.

Petro also cannot stand for re-election, which means future governments could abandon the push, analysts warned.

Colombia's economy is heavily dependent on oil and mining revenue, accounting for up to 8% of gross domestic product (GDP), government data shows.

Across the country, municipalities and provinces rely on royalties they receive from oil and mining projects to finance infrastructure and health and education services.

President Petro has said the agriculture and tourism industries can make up for the loss of oil and mining revenue in the short term. However, economist Luis Fernando Mejía said this would be a "huge challenge" and is unlikely to happen.

According to the Colombian Mining Association (ACM), Colombia would have to grow its agricultural sector six-fold to match the economic contribution of mining. Tourism currently accounts for less than 4% of its GDP, government data shows.

"It's just unimaginable that you would be able to replace 60% of exports with tourism and agriculture," said Mejía, head of the Bogota-based think-tank Fedesarrollo and a former director of the government's national planning department.

Lack of consensus

Mixed messages from and a lack of consensus among Colombian ministers about whether new oil exploration contracts will be awarded have led to cabinet wrangling, with the vice-minister of mines and energy quitting her post earlier this year.

Existing projects have been allowed to continue, but it is unclear if Petro's administration will stick with having approved no new oil and gas licensing rounds or oil exploration contracts since August.

"That's where the uncertainty is right now," Mejía said, referring to whether or not the door has been left open for new exploration contracts to be granted in the future.

"The minister of finance has said they are evaluating inside the government different scenarios to actually make a decision about whether these new contracts are needed or not," he added.

Mines and Energy Minister Irene Veléz, a self-described environmentalist, has said the country has sufficient oil and gas reserves to meet its own energy needs until at least 2037.

At the World Economic Forum in Davos in January, Veléz said Colombia would not award new oil exploration contracts, calling it a "very controversial" decision but a "clear sign" of the government's commitment in the fight against climate change.

However, Finance Minister José Ocampo has said Colombia remains open to new oil and gas projects given its huge dependence on fossil fuel income.

Energy expert Pabón noted that the government has not put a ban on new oil exploration contracts into writing, or in its four-year development plan, unveiled in February.

"Unless it's in writing, we can't be certain," said Pabón.

The 321-page plan says the government will use financial surpluses from oil and coal towards a gradual transition to clean energy, but there is little detail beyond that.

It also said the government will boost the use of electric public transport and cars by providing financial incentives and tax breaks, and speed up the production of renewable energy including technologies such as wind, solar, geothermal and biomass.

While the government develops its roadmap for an energy transition, a recent tax reform has already hit the oil sector, boosting the taxes the industry must pay when oil prices rise.

The Colombian Petroleum Association (ACP) forecasts private-sector investment in oil and gas exploration will fall by around a third this year due to higher levies of up to 15% on crude oil.

Global challenge

Maria Cecilia Roa, an associate professor at Colombia's Los Andes University, said the key question should not be what will replace oil and mining cash, but how the green energy transition and decarbonizing economies can be financed on a global scale.

Many low carbon dioxide (CO2) emitting nations, including Colombia, say the main responsibility of paying for an energy transition and to help countries decarbonize their economies should fall on the biggest polluters.

China is now the world's biggest CO2 producer, followed by the United States and India, though the United States is the biggest historical emitter.

"The energy transition goes far beyond saying Colombia won't exploit its oil reserves," said Roa, an environment and sustainable development expert.

"The energy transition is not about what one country does, it's a massive global challenge to the global climate crisis."

Colombia is the only oil-producing country in Latin America, in a region dominated by fossils fuels, that has so far decided to say no to new crude oil exploration.

Only a few other nations worldwide have taken similar steps. Belize, a tiny English-speaking Central American country, prohibits exploration and drilling in its territorial waters.

In Costa Rica - which has never explored for or extracted fossil fuels - lawmakers have been discussing a bill to permanently ban such activities.

Coal to wind?

About 60% of Colombia's electricity comes from renewable sources, mainly hydropower, while roughly 2% of the country's energy needs are generated from wind and solar power.

"There's a big appetite among investors for renewable energy," said Pabón.

Colombia's labor ministry is developing a strategy for employment opportunities in a "just energy transition," which is expected to be ready by December, that seeks to move towards sustainable production and a greener, climate-smarter economy that is fair and does not leave anyone behind.

New green jobs, for instance, could be created in Colombia's northern desert La Guajira province, home to one of the world's largest open-pit coal mines but also wind power facilities.

Coal mining there provides about 100,000 jobs, according to Pabón, and he estimated that about 10% of them could be replaced by green roles in the electric transport and hydrogen sector as well as in work installing and maintaining wind turbines.

"The decision to replace fossil fuel exports is a responsible one .... no one said it would be easy," Pabón said.

(Reporting by Anastasia Moloney; Editing by Kieran Guilbert and Laurie Goering.)

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