Davis IntegraCIER Presentation WEC LAC scenarios 2014.11.11 Davis.pdf · A world of change, risk and opportunities ... Climate change Cap-and-trade schemes with emphasis on predictability
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▶ Slow and variable recovery from recent financially-led economic global recession
▶ New geopolitics, global economics: rise of Asia, BRIICS ▶ Information age, and new technologies ▶ Demographic change and rapid urbanisation ▶ Globalisation of trade, flows of people, transmission of
ideas; new and more intense competition ▶ Demand for commodities (agricultural, mineral, energy)
Impact on Latin America ▶ Rising but variable Latin American commodity exports ▶ New global competition for Latin American industries ▶ Highly urbanised and onset of aging issues ▶ Mixed socio-economic results across the region,
especially management of ‘commodity windfalls’ ▶ Pressure on already high inequality across the region ▶ Some parts of the region economically successful, others
with capital flight, corruption, low/no growth, high inflation ▶ Mixed experience on integration in the region
Energy policies in the LAC region Across the region there are a range of policies, from government-led policies, with both direction and execution of energy policy, to some countries with a full understanding of how to use markets for achieving public policy objectives. These differing approaches to energy policy are broadly encompassed by the WEC’s recently published world energy scenarios: Jazz and Symphony.
The LAC scenarios explore the range of energy policies, assuming effective economic management across the region. The two scenarios, aligned with WEC’s world energy scenarios: Jazz and Symphony, are named: Samba and Tango respectively. However, given the range of difficult challenges to the region it is important to examine the possibility of ineffective economic management and this scenario is explored in Blues.
With Samba music the beat of the music can go from an average pace to a very fast pace. There is a set of dances, rather than a single dance. Dancers and musicians have freedom to take the lead and improvise; incorporate elaborate tricks, turns, and acrobatic feats into its basic set of figures.
▶ International trade: globalised economy with open-trade strategies lead to increased exports, particularly commodities.
▶ GDP development: an average of 4.5% GDP growth with benefits slowly trickling down resulting in less convergence; higher international competition, and modest environmental constraints.
▶ Consumer focus: on achieving energy access, affordability, and quality of supply with the use of best available energy sources.
▶ Carbon pricing: in the absence of international agreed commitments carbon market grows more slowly from bottom up based on regional, national and local initiatives.
▶ Technologies: innovative options, chosen in competitive markets, e.g. CCGT, decentralised power
▶ Energy markets: competition on basis of price and availability. ▶ Energy diversification: the energy mix across countries
become more diversified. Focus on smaller scale projects. Consumer focus and a competitive market encourages entrepreneurs and start-ups in renewables
▶ Oil, coal and natural gas: local companies take advantage of more open markets and there is an increase in coal, pre-salt oil and gas developments. MNC investment also focusses on the development of unconventional gas and oil.
▶ Hydro: projects are developed based on social acceptance and price competitiveness
▶ Other: renewables and low-carbon energy enter the market faster and on a bigger scale.
The Blues is a music form that grew from solo acoustic-based mus ic , t o more comp lex arrangements that implemented the use of full bands. The lyrics often consist of a single line repeated four times. Early blues frequently took the form of a loose narrative and the singer would voice his or her personal woes in a world of harsh reality.
▶ International trade: weak commodity markets even as export dependencies increase; trade is progressively subject to bilateral agreements.
▶ GDP development: GDP at an average of 3% growth due to weak and fluctuating commodity markets and declining investment. There is a large and increasing divide between the ‘connected elite’ and disempowered citizens; the middle class is almost stagnant, while the number of poor increase.
▶ Infrastructure and project selection: influenced by those with political and economic power with bias towards policies, and investments, that are self-serving; distorts the economic structure.
▶ Carbon pricing: absence and low priority for a carbon market. ▶ Technologies: choices based on quick fixes, opportunity and
▶ Energy markets: weak international markets; selected energy investments reflect potential self-serving financial gain.
▶ Energy diversification: a focus on short-term solutions and lack of co-ordinated long term planning; energy import dependencies emerge and leave some countries without adequate energy security.
▶ Oil, coal and natural gas: fossil fuel development is mainly focused on export opportunities where feasible.
▶ Hydro: development is limited, since it is capital intensive and return is over a very long-term period.
▶ Other: development of renewables substantial but from a low base and is haphazard, influenced by ‘private deals’ and varying country incentives.
▶ Influential players: public-private alliances are based on mutual benefit and historical ties.
Tango music is played by an ensemble, known as the ‘orquesta tipica’, and has a very particular structure. Tango dancers must strive to make a strong connection with the music as well as their audience. The tango is a power fu l dance, ear thy, dramatic and with complex footwork. 23
▶ International trade: more nationally-oriented strategies and regional arrangements result in reduced international exports/imports, particularly commodities.
▶ GDP development: moderate growth at an average of 4.5% with some economic convergence across countries; environmental constraints and capital-intensive pathway. Government programmes gradually improve general life conditions of the poor and the income disparity decreases.
▶ Public consensus: for environmental sustainability and energy security, through corresponding practices and policies.
▶ Carbon pricing: carbon market operates top-down based on an international agreements, with identified commitments and allocations.
▶ Technologies: directed by governments, who in some cases pick technology winners.
▶ Energy markets: selected domestic energy sources are subsidised and incentivised by governments.
▶ Energy diversification: policy emphasis on security of supply; more local content and solutions. Longer-term bilateral import/export agreements lead to a more stable energy environment.
▶ Oil, coal and natural gas: natural gas is the preferred choice over oil and coal where possible, reflecting a tighter environmental policy.
▶ Hydro: Hydro developments are considered, but are subject to strong regulation and public concerns.
▶ Other: some renewables and low-carbon energy options, such as biofuels are actively promoted by governments.
▶ Influential players: governments, public sector and private companies, NGOs, environmentally-minded voters and selected MNCs.
Energy security Feed-in tariffs support development of greener energy & diversity. Regional integration seen as a way of enabling energy security.
Energy access Subsidies, transfers and support Climate change Regional carbon tax / tight regulation and financial
support Air pollution International targets & tight regulation Energy affordability Subsidies & regional co-ordination of energy taxes Buildings efficiency Tax incentives offered, energy savings guidelines
set, with strong enforcement Transport efficiency Focus on integrated ‘greener’ city transport
infrastructure Appliance efficiency Mandated and consumers are incentivised Water use for energy Centrally managed increases in use
Samba Blues Tango Focus on projects that are particularly profitable and can lower overall costs of the energy system. May involve several countries in agreements. Interest in natural gas network expansion and electrical interconnections.
Not a focus of interest. If occurs is primarily bilateral on projects with quick payoffs.
Interest in multi-lateral arrangements that can increase collective security and the resilience of energy and environmental systems. Aided by broad commitment to addressing climate change. Arrangements affect all aspects of energy supply and demand.
Regional interconnections and eventually integration requires trust, and will be greatly dependent on public consensus and social acceptance.
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Integration can offer a more resilient regional energy system and a stronger foundation for economic growth.
To succeed will need leadership and competence—this cannot be done by ideology and politics alone.
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The region is entering a challenging period in which it has to get a handle on effective economic development—energy integration could make an important contribution to economic success.
Effective economic development is a precursor to effective energy policy, whether government or market led.