The oil price decline creates an opportunity to dismantle energy subsidies, which escalated with high oil prices. This paper assesses energy subsidies in Latin America and the Caribbean—about 1.8 percent of GDP in 2011–13 (approximately evenly split between fuel and electricity), and about 3.8 percent of GDP including negative externalities. Countries with poorer institutions subsidize more. Energy-rich countries subsidize fuel more, but low-income countries are more likely to subsidize electricity, as are Central America and the Caribbean. Energy subsidies impose fiscal costs, hurting SOEs, competitiveness, and distribution. The paper overviews country experience with subsidy reform, drawing lessons.

Government strategies for setting energy prices are not uniform across the Latin America and the Caribbean (LAC) region—or even across fuels. Instead, they cover a full spectrum, ranging from discretionary price-fixing at one end to pure market-based approaches at the other. In between is a wide variety of other schemes such as price stabilization funds, import or export parity pricing, price smoothing through tax levels, and targeted direct price subsidies or vouchers. Governments in the LAC region, however, tend to be small as measured by government revenues as a percentage of GDP. So their limited government resources have to be used wisely and be better targeted to the poor and vulnerable. Although energy subsidies are an inefficient policy tool for protecting the welfare of the poor, energy price increases can have a big impact on these households. Energy Pricing Policies for Inclusive Growth in Latin America and the Caribbean finds that energy subsidies are highly regressive in an absolute sense—that is, the lion’s share of every dollar spent on keeping energy prices low benefits wealthier households. However, subsidies for fuels that are widely used for cooking and heating—liquefied petroleum gas (LPG), natural gas, and kerosene—as well as for electricity, can be relatively neutral or progressive, implying that lower-income households capture benefits that are proportionate to their expenditures. In other words, although poorer households receive very little from every dollar spent on energy subsidies, that small amount may represent an important share of their expenditures. It is important, then, that governments expand the coverage and depth of their social safety nets to provide relief for poor households if energy prices rise. This report also finds that aggregate price impacts and the competitiveness effects of energy price increases are moderate to small and can be smoothed out through macropolicy responses.

Due to the lack of systematic policy evaluations, identifying successful policies in the Latin American and the Caribbean (LAC) region is a hunting task. Nevertheless, this type of analysis is crucial to inform policymakers in their decision-making process. Herein we contribute to filling this gap by assessing the progress in terms of energy services since the year 2000 and reviewing the policies that have led us to where we are.We focus on three fundamental dimensions in the definition of energy services: access to electricity and clean fuels for cooking, affordability of those energy services and quality considering both service’s interruptions and energy losses. We find that countries that have improved in all these dimensions simultaneously, catching up with the best performers in the region, are the ones that have implemented integrated policies that are part of a pluriannual plan, implemented in a strong institutional environment.Aside from macroeconomic differences, successful energy policies have in common the following characteristics: (i) important institutional reforms already in place by the end of the century; (ii) state-led plans that measure performance accounting for most dimensions simultaneously and including mechanisms to enforce preestablished objectives in targeted population; (iii) appropriate financing mechanisms to ensure affordability; and (iv) partnership with private stakeholders when their participation increases efficiency, adoption of innovation and ensure maintenance, either directly or through the involvement of local communities.Even if the discussion is presented dimension by dimension, two countries appear like having implemented successful integrated policies: Peru and Ecuador. Despite their institutional differences, they have succeeded in increasing access to affordable electricity that is more reliable (with less frequency and duration of interruptions). Additionally, Ecuador has also enhanced efficiency through electricity loss reduction thanks to enforceable performance-based regulation.Aside from these two countries, other countries have also implemented successful policies that have greatly improved one or two of the dimensions mentioned but fail to tackle all the issues simultaneously. This is the case of El Salvador with access to clean cooking and fuel subsidy reform, for example. Similarly, Nicaragua appears as an example in bridging the gap in access and Brazil, Colombia and more recently Argentina are implementing a mechanism to target demand-side subsidies based on family economic means.

With rapid energy growth in the past 40 years, the Latin American and Caribbean (LAC) region has maintained a steady increase in electricity needs above the global level. While there is no question that demand will remain strong over the next two decades, what remains to be seen is what kind of energy matrix will be used to meet that appetite and what will be the investments going into the industry. This report makes an attempt to answer these critical questions by taking a deep look into the demand and supply side of the industry. To this end, it will seek to (i) identify the amount of demand growth until 2040, (ii) project the electricity generation matrix by each energy source, and (iii) determine the investment requirements by source, based on cost efficiency criteria, for regulators and utilities’ consideration.

Energy access is an essential prerequisite for economic, social, and human development. The 2015 United Nations Sustainable Development Goals (SDGs) explicitly recognized affordable and clean energy as a key factor in development, alongside education and poverty alleviation. The UN Sustainable Energy for All initiative (SEforALL) mobilizes international donors, countries, and the private sector to help people in developing countries gain access to modern energy services.To assist in support of SEgorALL goals, this joint study of the Inter-American Development Bank (IDB) and the United Nations Development Programme (UNDP) provides a comprehensive review of energy poverty policies and programs in Latin America and the Caribbean (LAC). This report measures the progress and impact of energy-access programs and also documents the experience of successful projects. This study reviews cutting-edge methodologies to assist in program design, shares of experiences of successful programs and develops a vision for reaching sustainable energy for all in the LAC region. With electricity coverage at more than 96 percent, LAC is close to becoming the world’s first developing region to achieve universal access to electricity. Despite recent progress, within LAC there are still substantial pockets of energy poverty. Approximately 21.8 million people are without electricity access. More than 80 million people rely on firewood and charcoal for cooking that is burned in fuel-inefficient, primitive stoves. These traditional cooking technologies emit a significant amount of indoor air pollution (IAP), which has been linked to respiratory illnesses and adverse environmental impacts. Thus, in addition to promoting electricity, energy access programs also might give priority to the promotion of cleaner methods cooking by making available better stoves and cleaner burning fuels at reasonable costs. The report also explores ways to measure energy poverty and monitor energy access in developing countries. The accuracy and effectiveness of tools such as the IEA’s household energy data efforts and the Global Tracking Framework depend on collecting information through standardized national surveys. Approaches to measure energy poverty and monitor energy access have increasingly focused on the provision of energy services such as lighting, space conditioning and cooking. The transition from low-quality energy services to more modern forms can be accomplished in different ways. As households in developing countries adopt electricity and clean methods of cooking, they benefit from higher quality, lower cost and convenient to use appliances. However, measuring the societal and developmental benefits of energy investments--though difficult--is important. Two basic approaches have evolved over the years to measure the benefits of energy access: (i) consumer surplus and (ii) regression-based techniques. The consumer surplus approach evaluates the economic benefits of energy services through measuring increased demand resulting from lower costs of such energy end uses such as lighting, radio and television. When possible, rigorous impact evaluation techniques based on multivariate models can be used to more directly measure the socioeconomic benefits associated with energy access and modern energy services including higher income and improved education. In recent years, new approaches for meeting the requirements of modern and sustainable energy services have emerged. Due to technical and market changes, new types of equipment have become available for providing energy services to rural areas. In LAC, three basic models have been developed to provide rural populations with electricity service: (i) main grid extension, (ii) community networks, and (iii) individual home-based systems (including clean cookstoves).