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Inter-American Cooperation at a Crossroads: Part II - Responding to Challenges; Chapter 5: Building on Sub-Regional Economic Integration Projects to Forge an Energy and Climate Partnership of the Americas; by Thomas Andrew O'Keefe

Introduction

By the time U.S. President Barack Hussein Obama appeared at the Fifth Summit of the Americas in Trinidad in April 2009, the ambitious initiative to economically integrate the Americas that had previously dominated the Summit of the Americas process lay in tatters. Accordingly, there was much speculation as to what Obama would say in Port-of-Spain, especially given that US relations with the Western Hemisphere had barely surfaced as a topic of debate during the presidential campaign. The only policy address Obama had given during the campaign on Latin America and the Caribbean was to the right-wing Cuban American National Foundation in Miami, in May 2008. That speech had focused almost exclusively on topics designed to attract votes from the influential Cuban-American community in South Florida.

Obama’s performance at the Summit of the Americas was masterful, in that he offered nothing of substance but still managed to charm his audience. By telling the other heads of state that he was there to listen and learn from them, he differentiated this summit from previous meetings of Western Hemisphere leaders---where the US usually proposed an action plan that everyone else was expected to implement with minimal debate.

At the margins of the 17-19 April 17-19 2009 Summit, a US proposal to create an Energy and Climate Partnership of the Americas was floated that coincided with two of the Summit’s three major themes (i.e., energy security and environmental sustainability).

Details as to what this partnership entailed were left for a June 2009 meeting of energy ministers in the Peruvian capital.

At the 15-16 June meeting in Lima, US Energy Secretary Steven Chu was noticeably absent. Perhaps not surprisingly, the meeting concluded without any firm commitments on energy security, alternative energy promotion, or even common goals for confronting climate change. Among the few concrete achievements was a bilateral agreement signed by US and Peruvian officials to establish a Regional Energy Efficiency Center. For its part, the Mexican government agreed to fund a Regional Wind Center. The US delegation also proposed a “Low Carbon Communities Program” by which the US Department of Energy would “partner with countries in the region to provide technical assistance and limited funding to develop building standards and adopt modern urban planning strategies including transit-oriented development to achieve low carbon communities.” (see, Department of Energy, 2009) Besides being presumptuous, given that many South American cities such as Bogotá in Colombia and Curitiba in Brazil are already well ahead of their US counterparts in substantially reducing carbon emissions, critics point out that this new effort appears remarkably similar to the Clean Cities partnership first proposed by the Clinton administration with Chile in 1999. That initiative was hampered by a lack of funding. “Low Carbon Communities” seems slated to meet the same fate.

Despite the pressing need to establish an Energy and Climate Partnership of the Americas, the US will be unable to exert a leadership role during much if not all of Obama’s first term in office. President Obama has spent a lot of time addressing primarily domestic concerns. Upon taking office, he inherited an economy that was in free fall with many major banks on the verge of bankruptcy. Internationally, the country is involved in two costly wars that are unlikely to result in a decisive military victory. Just over a third of Americans either lack health insurance or are underinsured and one catastrophic illness away from financial ruin. The country’s infrastructure and public education system suffer from decades of under-investment and threaten the ability of the US to remain globally competitive. As if these problems were not enough, the Republican Party is engaged in a scorched earth campaign to bring down the Obama presidency.

Given the poor track record of previous hemispheric efforts to promote energy and environmental cooperation as well as the current inability of the US to take a strong leadership role in constructing a meaningful Energy and Climate Partnership of the Americas, this chapter explores whether the different sub-regional economic integration projects throughout the Americas can serve as building blocks to subsequently buttress a hemisphere-wide initiative. Under such a scenario, countries like Brazil, Canada, Trinidad and Tobago, and Venezuela will have to assume a pro-active leadership role within their respective regions if there is to be a free flow of conventional fuels and alternative energy resources as well as meaningful reductions in greenhouse gas emissions.

The Andean Community

In 2000 the Andean Commission---one of the supranational bodies within the Andean Community that can issue new rules that are binding on all its member states (currently Bolivia, Colombia, Ecuador, and Peru)---issued Decision 536. Decision 536 seeks to establish a general framework for the interconnection of electrical grids and the exchange of electricity among the nations that make up the Andean Community.

Decision 536 rests on a number of fundamental principles that are currently applicable to Colombia, Ecuador, Peru and, as a result of Andean Commission Decision 639, to Bolivia (since 2006). These principles include:

1. a general prohibition on maintaining discriminatory prices for electricity destined for the domestic market and directed to foreign markets, as well as engaging in any other type of discriminatory practice related to the demand or offer of electricity;
2. guaranteeing free access to international interconnection lines;
3. ensuring that the physical use of interconnections is based on a coordinated, market oriented, and economically rationale approach;
4. ensuring competitive conditions in the electricity market, with prices and rates that reflect efficient economic costs, avoid discriminatory practices, and abuse of dominant market position;
5. allowing short-term international transactions for the sale or purchase of electricity;
6. promoting the participation of private investment in developing infrastructure for the transmission of electricity via international interconnections; and,
7. a prohibition on granting any type of subsidy for the export and import of electricity, as well as imposing any type of import tariff or specific restrictions on the import or export of electricity among the Andean Community countries.

Decision 536 (as modified by Decision 639) also requires that Bolivia, Colombia, Ecuador, and Peru coordinate efforts to build electrical interconnections between their respective national grids, establish a common methodology for calculating the cost for using these interconnections, and guarantee a fair price for access under short-term electricity contracts. The four countries are also expected to make the necessary changes to their domestic legal frameworks that will harmonize regulations related to the use of the interconnections and the drafting of commercial contracts for the purchase and sale of electricity. In order to facilitate the harmonization effort and oversee implementation of the other goals established under Decision 536, an Andean Committee of Regulatory and Legal Bodies for Electricity Services was established.

Decision 557 issued by the Council of Andean Ministers of Foreign Relations in June 2003, establishes a Council of Ministers of Energy, Electricity, Hydrocarbons, and Mines of the Andean Community in order to ensure adequate institutional support for all actions that may be required to assure the regional integration of the energy sector.

Despite the existence of Decision 536 and its progeny, cross-border trade in electricity within the Andean Community remains limited. In 2007, for example, Colombia---considered the electricity powerhouse for the Andean region---exported 877 gigawatt hours of electricity to Ecuador (out of a total production of 54,551 gigawatt hours), less than what Brazil exported to Argentina that year or what Argentina exported to Chile. Although Colombia has in previous years exported to Ecuador about double the amount of electricity it exported in 2007 (i.e., roughly 3% of the country’s total electricity generation), Colombian exports to other Andean destinations as well as electricity exported by other Andean Community nations within the subregion have always been negligible.

CARICOM

Although there was much talk at the start of the twenty-first century about developing a Common Caribbean Energy Policy, little substantive progress has been achieved to date. This can be partially explained by the Petrocaribe initiative launched by the Bolivarian Republic of Venezuela in 2005. Under Petrocaribe, Venezuela agrees to supply a participating country with a set volume of oil per day for domestic consumption. In return, the recipient country must create a national oil company (if one does not already exist). The amount of oil that Venezuela is willing to sell to the participating country on credit is based upon the international market price for a barrel of oil at the time of sale, which will also determine the number of years required for full payment (i.e., the higher the price, the greater the amount sold on credit, and the longer the payment period). In all cases, there is an initial grace period of at least two years. Afterwards the interest rate on all outstanding balances is either 1 or 2 percent per annum (the exact interest rate again dependent on the actual price of the barrel of oil). In addition, Venezuela is open to the possibility of accepting partial payment with goods or services in lieu of cash. To sweeten the attractiveness of participating in Petrocaribe, the Venezuelan government has often promised to provide participating countries with economic development grants that can be used to, among other things, build storage facilities for imported petroleum shipments.

The Petrocaribe Energy Cooperation Agreements that all CARICOM member states---with the notable exception of Barbados and Trinidad and Tobago---have signed with Caracas, have shifted their traditional reliance on petroleum imports away from Trinidad and towards Venezuela.

Facilitating this move has been the fact that Trinidad and Tobago eventually acquiesced in waiving CARICOM’s 20 percent Common External Tariff (CET) for oil imported from Venezuela. The government in Port-of-Spain did so when Venezuela’s President Hugo Chavez promised to utilize Trinidadian facilities to refine Venezuelan crude oil bound for CARICOM countries that lack their own refineries. At present only the Bahamas, Jamaica, and Suriname have refining capacity (see, Bryan 2007, p. 381). Despite this promise, the loss in market share once enjoyed by Trinidadian petroleum exports within the Caribbean market has created internal CARICOM frictions.

Petrocaribe has also undermined the economic viability of constructing a 600-mile undersea natural gas pipeline from Tobago to Barbados and then on to St. Lucia, Martinique, Dominica, and Guadalupe.

Just as Petrocaribe has undermined efforts at energy integration within CARICOM, it also threatens to do the same with respect to weaning the Caribbean away from its traditional heavy reliance on imported oil to generate electricity and power vehicles. Some 93 percent of CARICOM’s energy consumption is currently fossil fuel- based, while only 4 percent comes from renewable energy. In addition to the negative environmental impact, this heavy reliance on fossil fuels also strains fiscal accounts. While Petrocaribe provides temporary relief, it does nothing to free most CARICOM countries---already among the most heavily indebted nations in the world on a debt –to-GDP basis---from incurring yet more debt (Bryan, 2007, p. 381)

Among the specific initiatives that Petrocaribe has the potential to undermine is the Caribbean Renewable Energy Development Project (CREDP) launched in 1998. CREDP aims to assist Caribbean countries (including Cuba but currently excluding Antigua and Barbuda, Montserrat, and Haiti) to remove policy, financial, and technical barriers to the increased use of renewable energy resources, thereby helping to reduce implementation costs, dependency on fossil fuels, and greenhouse gas emissions. Linked to CREDP is a US$ 1.6 million Caribbean Renewable Energy Technical Assistance Facility designed to provide early-stage, high risk financing for qualified projects, as well as a Caribbean Renewable Energy Fund that (once capitalized) will provide equity and debt financing for renewable energy projects.

Another at risk initiative is the Caribbean Sustainable Energy Project (CSEP) that is being implemented by the Organization of American States with input from, inter alia, the Caribbean Energy Utility Services Corporation (CARILEC) and CREDEP. CSEP is designed to accelerate the transition to cleaner, more sustainable energy use (both in terms of renewable energy resources and enhanced energy efficiency) in seven of the smallest CARICOM countries (i.e., Antigua and Barbuda, the Bahamas, Dominica, Grenada, St. Kitts and Nevis, St. Lucia, and St. Vincent and the Grenadines). CSEP provides the funding necessary to meet the mandate established by the CARICOM Secretariat’s Energy Programme: by 2010 at least 10 percent of the energy matrix in all CARICOM countries must consist of renewable energy. In particular, CSEP seeks to implement energy-sector policy and regulatory reforms that will: favour sustainable energy; provide training to public officials, electric utility personnel, and large consumers; establish national sustainable energy offices in the appropriate energy ministries as well as a regional coordination office; and facilitate efforts to obtain required project financing.

The Central American Integration System (SICA)

During the 1990s the Inter-American Development Bank financed the interconnection of the national energy grids of Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua, and Panama at a cost of half a billion dollars. The completion of this interconnection effort improved the reliability of service and reduced consumer rates throughout the isthmus. The country that most benefited was Honduras, which had previously been plagued by constant power outages that disrupted industrial production and reduced the country’s attractiveness as a locale for foreign investors to set up manufacturing facilities.

As a result of the interconnection of all the Central American electricity grids, a Regional Electricity Market or Mercado Eléctrico Regional (MER) was established following the entry into force of the Framework Treaty on the Electricity Market of Central America in January 1999. The Framework Treaty (and two subsequent protocols) opens the domestic markets of the six Central American countries to regional operators with respect to the generation, transmission, as well as the sale and purchase of electricity. The second protocol to the Framework Treaty establishes general regulations for the regional electricity market. Two institutions with supranational authority were also established to oversee this regional electricity market: the Regional Commission on Electricity Interconnection or Comisión Regional de Interconexión Eléctrica (CRIE), and the Regional Operating Authority or Ente Operador Regional (EOR). The CRIE is tasked with ensuring that the governments fulfil the commitments made in the 1999 Framework Treaty and subsequent regulations, while the EOR oversees actual operations of the electrical interconnections and directs surplus energy flows to where they are most needed.

The Framework Treaty on the Electricity Market of Central America also authorized the establishment of a new company that could either be a wholly state-owned entity or a mixed public-private sector enterprise to build and operate a single 1800-km transmission line stretching from Guatemala to Panama. This single transmission line is called the Electrical Interconnection System for the Countries of Central America or Sistema de Interconexión Eléctrica para los Países de América Central (SIEPAC). The new company that is supposed to operate SIEPAC is the Empresa Propietaria de la Red (EPR). The basic idea behind SIEPAC is that a seamless transmission line operating at the same electrical current will enhance the reliability of electrical flows and be less prone to bottlenecks then the system operating since 1999, which relies on bilateral interconnections at border crossings. There are already discussions about linking SIEPAC to the Colombian electricity grid, which predominantly relies on hydropower. Construction of SIEPAC began in April 2007 and should be fully operational by 2010.

The existence of two supranational institutions in Central America to oversee the smooth functioning of the regional electrical grid and electricity market has not, by itself, resulted in one seamless regional electricity market. To date, cross-border trade of electricity remains minimal as national governments appear reluctant to encourage supply contracts that involve international sales of electrical power if it requires waiving the right to adequately ensure that domestic needs are first met.

This apprehension could change once SIEPAC’s single transmission line becomes fully operational.

Another deficiency of the current Central American system is its high dependency on fossil fuels to generate electricity and the detrimental impact this has on global efforts to redress climate change. Ironically this phenomenon responds to the widespread privatization of electricity generation in individual Central American countries throughout the 1990s. Private sector firms tend to opt for projects that have shorter gestation periods in order to more quickly recoup profits on the initial investment. Accordingly, electricity generation based on fossil fuels has been favoured in Central America because the initial capital investment cost is anywhere from half to two-thirds less than for most hydropower equivalents (see, Center for International Governance Innovation, 2009, p. 11).

MERCOSUR

In 1998 MERCOSUR’s highest institutional body, the Common Market Council, issued Decision 10/98, which contains a Memorandum of Understanding (MOU) Related to the Exchange and Integration of Electricity in the MERCOSUR. Under the MOU, the Argentine, Brazilian, Paraguayan, and Uruguayan governments committed themselves to ensuring the existence of a competitive, transparent, and non-discriminatory environment for the generation and intra-MERCOSUR trade of electricity. In particular, the four countries agreed to: not provide subsidies or set rates that do not reflect true economic costs; permit distributors, wholesalers, or large end-users to freely enter into contracts to meet their electricity needs within any of their territories and not impose restrictions on the fulfilment of legally sound contracts; establish a fully transparent on-line system that permits the rapid flow of real-time data and other information on the availability of electricity so as to facilitate cross-border sales; and, ensure free access, at pre-established rates and without regard to nationality or final destination, to any spare capacity for the transmission and distribution of electricity both domestically and through international interconnections.

In 1999 the Common Market Council (CMC) issued Decision 10/99 which contains a MOU with respect to the Exchange of Natural Gas and Integration of the Natural Gas Sector among the MERCOSUR Member States. This second MOU on the natural gas sector prohibits the use of discriminatory policies that may favour buyers over sellers or vice versa, and practices such as subsidies that distort market prices for the transport, distribution, or the warehousing of natural gas. There are also requirements that domestic regulations must be drafted so as to guarantee the free import of natural gas; as well, distributors, wholesalers, and large end-users must be allowed to purchase the amount of natural gas they need. In addition, governments should respect executed cross-border sales contracts that comply with local law and should not impose additional terms that are not required for transactions involving purely domestic parties. Furthermore, governments should not discriminate on the basis of nationality, public or private-sector status of the firm, or the final destination of natural gas in granting access to excess pipeline capacity or in what is charged for use of those pipelines. Governments should also promote transparent methods for communicating data and information on the natural gas markets, pipeline capacity, and past transaction history. Finally, there is an obligation to protect consumers from monopolies, oligopolies, or other abusive practices that may arise when a company dominates the local market, as well as from bad service.

Unfortunately CMC Decisions 10/98 and 10/99 have joined the huge backlog of Decisions, Resolutions, and Directives issued by MERCOSUR’s institutional bodies over the years that have never been ratified by all four member states. Accordingly, neither of these two Decisions are enforceable legal obligations. In any event, Argentina may already have been in violation of Decision 10/99 when it was signed, as a single company (i.e., the formerly state-owned Yacimientos Petrolíferos Fiscales or YPF) already controlled at least 60 percent of Argentine natural gas production and 80 percent of the country’s natural gas sales. A high level of reserves in the hands of one company can act as a barrier to the entry of potential competitors and prevents existing producers from increasing their share of sales by lowering prices because the dominant company can agree with large customers to meet the competition’s lower prices, a practice that YPF engaged in throughout the 1990s (see, Bonderovsky and Petrecolla, 2002, pp. 110, 114).

The policies that successive Argentine governments have followed since the economic implosion of 2001-2 are clearly incompatible with the provisions contained in both MERCOSUR Decisions on electricity and natural gas. For example, since 2004 the Argentine government has severely disrupted natural gas exports to Brazil, Chile, and Uruguay in favour of domestic users. In March 2005, the Argentine government even balked at a Brazilian request to purchase Argentine electricity that would be funnelled through the conversion plants in Garabí (just over the border in the Brazilian State of Rio Grande do Sul). It was only after Brasilia reminded its counterparts in Buenos Aires that it might adopt a similarly truculent attitude if Argentina ever needed electricity later in the year, during its peak-demand winter season, that Argentina backed down.

The North American Energy Working Group (NAEWG)/Security and Prosperity Partnership (SPP)

The North America Free Trade Agreement (NAFTA) has had a direct impact on the energy sector in Canada, Mexico, and the US. The countries are prohibited from levying export taxes on energy goods (including oil and natural gas) or charging a higher price for them than they are sold for in the domestic market. Furthermore, Canada and the US are also required to maintain energy shipments to each other at the same proportion vis-à-vis domestic sales as during the preceding three years regardless of any global energy crisis that might otherwise serve as an excuse to interrupt supplies (see, Johnson, 1994, pp. 114-5, 206).

NAFTA Section 606(2) also obligates the Federal governments in Canada, Mexico, and the US to “seek to ensure” that regulatory bodies within their national territory avoid disrupting contractual relationships when applying energy measures.

Mexico specifically exempted itself from NAFTA provisions, otherwise applicable to Canada and the US, that allow private or foreign participation in the exploration, production, and refining of oil and natural gas. However, Mexico permits limited participation in the transport and distribution of natural gas as well as in the generation, cross-border transmission, and sale of electricity by investors from Canada or the US (ibid., pp. 312-13).

In doing so, investors from Canada and the US are protected by NAFTA’s investment provisions (including its separate dispute resolution mechanism). Similarly, the Multi-Service Contracts---used by PEMEX since the late 1990’s to attract private participation in its hydrocarbon industry by paying private firms a set fee for defined exploration and drilling work---are subject to NAFTA’s government procurement provisions when the firms are from Canada or the US.

Building on the precedent for trilateral energy cooperation established by the NAFTA, a North American Energy Working Group (NAEWG) was established in 2001 with mid-level officials (as opposed to cabinet level representatives) from Canada, Mexico, and the United States. An ad hoc subgroup of experts was also established to advise the NAEWG on matters directly related to electricity, energy efficiency, and hydrocarbons in general, natural gas trade and interconnections, nuclear power, oil sands, energy regulation, and science and technology. The primary goal of the NAEWG was to enhance the sharing of information among the three governments so as to improve cross- border trade in energy. Although the NAEWG established agreements on conservation programs and efficiency targets for a variety of equipment and appliances, some observers feel that its effectiveness was undermined by excessive secrecy and a generalized failure to include private sector input (see, Dukert, 2007, pp. 134, 152).

In 2005 the heads of state of Canada, Mexico and the US met in Waco, Texas and launched the Security and Prosperity Partnership (SPP). The NAEWG was folded into the SPP as its working group on energy issues.

In addition, senior level officials with direct responsibility for their country’s energy portfolio would now represent each government on NAEWG. In response to the criticism levelled at the old NAEWG, the working groups under the SPP are required to regularly consult “stakeholders” that include state and provincial government officials, the private sector, and non-governmental organizations. Since it was folded into the SPP, the biggest success story of the NAEWG has been in developing an adequate system of receiving facilities for Liquefied Natural Gas (LNG) and supporting infrastructure for LNG distribution in re-gasified form, as well as the harmonization of rules for the licensing, issuing of permits, and oversight of the energy sector (ibid., pp. 152-3) The more important SPP mandate for designing a common policy framework for energy issues in North America, however, remains hamstrung by internal Mexican political constraints that prevent that country’s federal government from opening its hydrocarbons sector to private enterprise or eliminating price controls that subsidize consumer petroleum purchases.

At the North American Leaders Summit in Guadalajara on August 9-10, 2009, Presidents Obama of the United States and Felipe Calderón of Mexico along with Prime Minister Stephen Harper of Canada announced a number of energy and climate change related initiatives, including a North American Carbon Capture and Storage Partnership, trilateral efforts to reduce unnecessary natural gas flaring, enhanced collaboration in devising a harmonized framework on energy efficiency standards, and cooperation in the research and development of clean energies (including devising smart grid inter-operability standards). By far the most interesting development, however, was the decision by the three governments to continue working on energy related issues within the SPP framework given previous criticism in Canada and the US about its alleged democratic oversight deficiencies.

In addition to the initiatives arising under the NAEWG/SPP, Canada and the US are also engaged in a Clean Energy Dialogue launched when President Obama visited Ottawa in February 2009.

This bilateral initiative produced an Action Plan in September 2009 which calls for a number of joint efforts related to carbon capture and storage, expanding and modernizing the cross-border electricity grid through, inter alia, use of smart grid technologies and greening the electricity supply, and clean energy research and development. Among the specific collaborative projects proposed for immediate launching are those related to sustainable bioenergy, lifecycle analysis, production of biofuels using algae and mountain-pine-beetle-killed trees, development of lightweight materials for vehicles, and tools optimizing energy efficiency.

Overcoming Brazilian and Venezuelan Reticence to an Energy and Climate Partnership of the Americas

Focusing initial efforts to enhance energy cooperation and confront climate change at the regional rather than the hemispheric level increases the likelihood that concrete results can be achieved given the smaller number of governments involved. It also gets around some of the political limitations that currently make doing anything at the hemispheric level extremely difficult if not impossible. The most obvious examples of potential bottlenecks to a hemispheric accord are Venezuela, with respect to energy, and Brazil, in terms of climate change.

Venezuelan participation in an Energy and Climate Partnership of the Americas is crucial. Not only is it among the world’s most important sources of crude oil, but Venezuela’s creation of Petrocaribe has disrupted traditional energy supply patterns within CARICOM and threatens to undermine efforts to move the Caribbean away from its heavy reliance on fossil fuels in favour of alternative energy. By building the Energy and Climate Partnership of the Americas at the regional level first, this increases the possibility that Venezuela will participate. Otherwise, pushing for a hemisphere-wide initiative at the outset will be attacked as an effort by the US to further its own hegemonic interests.

An Energy and Climate Partnership of the Americas that includes a Clean Development Mechanism (CDM) similar to the current multilateral version that arises from the Kyoto Protocol would be an important means for addressing global climate change. Under the CDM, credits can be issued to a developed country and its companies in exchange for financing projects in the developing world (e.g., building a more expensive thermal plant fuelled by natural gas or a hydroelectric dam instead of a cheaper coal powered plant) that ultimately reduces global greenhouse gas emissions. The credits received through the CDM are then used to offset mandated emission reduction targets at home.

Unlike the multilateral CDM, a hemispheric version would be less susceptible to the type of fraud that plagues the current UN-administered system.

This is not only because of the smaller number of countries involved, but also because of the plethora of potential institutions in the Western Hemisphere that can more effectively oversee and/or administer a hemispheric cap-and-trade programme. For example, the Andean Development Corporation (CAF) has already developed a Latin American carbon market through the registration and issuance of certified reductions in the transport sector. The CAF has also signed contracts for carbon emission sales with public and private agencies (including Spain’s Ibero-American Carbon Initiative) and investment funds resulting in new energy generation facilities using renewable resources, forestry related activities, and an expansion of biofuels production.

A CDM limited to the Western Hemisphere provides a way to move the Caribbean and Central America away from their traditional heavy reliance on fossil fuels. It also provides a way to sharply diminish Brazil’s role as a top source of global carbon emissions and preserve the Amazon as a natural carbon sequestration mechanism.

In contrast to the situation in China or the developed world, the bulk of Brazil’s greenhouse gas emissions come from the burning of its tropical rain forests. The continued burning of trees in Brazil, home to the 65 percent of the Amazon rain forest, also exacerbates global climate change given the important role the Amazon plays in sequestering greenhouse gases and its impact on regional rainfall patterns. While forest conservation or reforestation projects can be used to obtain carbon offsets under the multilateral CDM, Brazil has so far refused to permit any type of Amazonian conservation or sustainable use initiative to generate carbon credits. Brazil will likely resist any effort to utilize projects in the Amazon to gain carbon offsets under a CDM limited to the Western Hemisphere as well. On the other hand, Brazil is less likely to resist a carbon offset programme that is regional in scope and is administered by an entity Brasilia feels it has more ability to influence.

If a regional CDM process proves successful, a Brazilian government may then be more amenable to its expansion to encompass the rest of the Americas. The chances for Brazilian acceptance of a hemispheric mechanism will be further enhanced if---as part of a grand bargain leading to the establishment of an Energy and Climate Partnership of the Americas---the US agrees to eliminate its current arsenal of tariffs, hefty surcharges, quota restrictions, and subsidies that effectively keep out Brazilian sugar-based ethanol.
Using Regional Projects as Building Blocks for an Eventual Energy and Climate Partnership of the Americas

While it should be clear by now why developing a framework for enhancing energy cooperation and controlling greenhouse gas emissions is more likely to initially succeed at the regional level rather than any effort that immediately tries to encompass the entire Western Hemisphere, less obvious is which existing regional projects can be utilized to establish this framework.

The high level of energy integration already achieved within North America, as well as the emphasis given in both the NAEWG/SPP and the bilateral Clean Energy Dialogue to addressing climate change, offers an existing regional structure that can be used as a building block for a hemispheric initiative.

Because of the pressing foreign policy and domestic problems confronting the Obama administration, however, Canada will have to take a leading role in developing a framework for ensuring the free flow of traditional and alternative energy resources and establishing a workable North American CDM. Ideally, Mexico should also be taking a leadership role, but this is impossible so long as the Mexican government is unable to move away from anachronistic, counter-productive policies that are contributing to a sharp reduction in Mexican reserves.

CARICOM and SICA also offer two existing regional groupings within which to develop a framework that can later be incorporated into a hemispheric energy cooperation and climate change initiative. The fact that Trinidad and Tobago has large oil and natural gas reserves and major refining facilities makes it the most credible country to take on a leadership mantle within CARICOM. While there is no energy powerhouse within SICA that can assume a similar leadership role, the Central American governments have shown an ability to work together to resolve energy bottlenecks, particularly when prodded by generous foreign donors. In addition, the Central American Bank for Economic Integration has a number of credit programmes in place that work with micro as well as small and medium-sized enterprises to enhance energy efficiency and encourage greater use of renewable energy resources.

Using the Andean Community to serve as a regional stepping stone in the construction of an Energy and Climate Change Partnership of the Americas is unlikely to bear much fruit. For one thing, the trade bloc is riddled with serious internal cleavages (between Bolivia and Ecuador on the one hand, and Colombia and Peru on the other) regarding the most appropriate policies for achieving economic development and interacting with the global marketplace. The withdrawal of Venezuela from the Andean Community in 2006 also diminishes the usefulness of working through this economic integration project. Furthermore, the Andean Community’s impact on integrating the energy sector regionally has been minimal. For its part, MERCOSUR has shown itself incapable of providing a minimum of energy security within the Southern Cone. Accordingly, in the case of South America, it makes better sense to use the Unión de Naciones Suramericanas (UNASUR) as the regional grouping around which to build an energy cooperation and climate change framework that can later be incorporated into a hemispheric effort.

Officially launched in May 2008, UNASUR seeks to integrate South American energy markets and address climate change issues. UNASUR also supports initiatives to develop alternative and renewable sources of energy and promote the efficient use of all types of fuels. A big advantage of working through UNASUR is that Brazil and Venezuela are both active members. Another advantage is that UNASUR includes two CARICOM member states: Guyana and Suriname. This link can be used to coordinate efforts at energy and environmental cooperation among both regional groupings.

Conclusion

The golden era of inter-American cooperation was the 1990s. An important explanation lay in the fact that most governments in the Western Hemisphere had already adopted or were rushing to implement market-friendly economic reforms that included dismantling high import barriers. This was encouraged by the collapse of the Soviet Union and a widespread feeling throughout Latin America that it stood to lose out to competition with the old Soviet bloc in the race to secure foreign investment capital if it did carry out these reforms. Under such a scenario, the creation of a Free Trade Area of the Americas complemented what many governments were attempting to achieve at the domestic level.

By the start of the twenty-first century, the inter-American consensus on economic and trade policy began to collapse. The failure of some governments to continue the economic reform process beyond the narrow Washington Consensus mandates focused on fiscal discipline exacerbated wealth concentration in societies with already high levels of income inequality. New leaders like Hugo Chavez in Venezuela, Evo Morales in Bolivia, and Rafael Correa in Ecuador emerged to challenge purely market oriented models as incompatible with sustainable economic development. Further poisoning the atmosphere was a Bush White House that continuously disregarded international law and even invaded a sovereign nation, reviving memories of an imperialistic US plaguing its southern neighbours with frequent interventions under the guise of promoting “freedom”.

Developing and subsequently facilitating trade in renewable energy resources, ensuring reliable access to conventional fuels, and reducing the harmful impact of greenhouse gas emissions is probably one of the few areas where a consensus can be achieved among the governments in the Western Hemisphere today. For reasons previously explained in more detail, however, the Obama administration is beset by pressing foreign and domestic crises that prevent it from taking the lead in forging a hemispheric initiative that would ensure all three objectives. Further complicating matters is the fact that governments in the Americas are no longer united around a single economic vision as may have been the case in the 1990s. Hence actual or potential energy houses like Brazil, Canada, Trinidad and Tobago, and Venezuela are going to have to take up the leadership mantle within their own respective regions if the concept of an Energy and Climate Partnership of the Americas is ever to prosper.