The energy transition as a development challenge in Latin America and the Caribbean

The energy transition, understood here as the shift from fossil-fuel-based energy systems to clean energy ones, is fundamentally a development challenge. Countries face the transition with distinct domestic configurations of energy systems, productive structures and development models, which shape both the benefits they can derive from it and their ability to capture them. In Latin America and the Caribbean, a particular challenge is moving beyond the region’s limited and predominantly upstream participation in energy transition value chains towards higher-value clean energy activities.

This report develops a typology of four transition contexts to help explain how these differing country conditions shape the energy transition: low-friction frontrunners, fossil-locked economies, low-friction stragglers and dual-track transitioners. The typology considers countries’ structural dependence on fossil fuels alongside their progress in clean energy deployment and energy sector decarbonisation. These categories are not rigid classifications, but provide a practical lens for understanding the different challenges, opportunities and policy priorities countries face.

Key insights

• For Low-friction frontrunners, where clean energy largely aligns with existing development goals and encounters relatively little resistance, the challenge shifts towards deepening decarbonisation beyond the electricity sector and addressing emerging constraints. In Chile, for example, grid congestion is becoming a key constraint as the focus shifts from renewable deployment to system integration.
• Fossil-locked economies must manage the fiscal and macroeconomic consequences of reducing their dependence on hydrocarbons. Fossil fuel revenues can also create political resistance to reform. Ecuador, for example, illustrates the difficulties surrounding measures such as subsidy reform and the closure of profitable fossil fuel assets.
• For Low-friction stragglers, capability constraints rather than resistance from entrenched fossil fuel interests can hold back the transition. Haiti, for example, faces acute financing needs alongside high capital costs, a small and poorly connected market, weak grids and limited state capacity.
• Dual-track transitioners face the challenge of advancing clean energy while continuing to expand their fossil fuel economies. Brazil, for example, has the industrial base and policy capacity to link the transition to technological learning and domestic supply-chain development, but must continue advancing green sectors while avoiding fossil fuel lock-in.

A country’s transition context defines the nature of its challenge, but not its capacity to respond. The policies countries can successfully implement and sustain depend on the policy space available to them, shaped by domestic capabilities, political settlements and external constraints associated with their position in the global economy.

DOI: 10.21953/researchonline.lse.ac.uk.00141359