President Alberto Fernández took to a makeshift stage in Argentina’s Vaca Muerta shale deposit in October to announce the nation was doubling down on fossil fuels. “Today we are relaunching the oil and gas economy,” he declared, starting with US$5 billion of government subsidies.
Two months later, he had a different message for global leaders at the United Nations’ Climate Ambition Summit. Argentina had “true conviction” about wiping out its net emissions of greenhouse gases by mid-century, he said. To get there, it will have to get a fifth of its energy from renewables by 2025, up from about 10 percent now.
The juxtaposition highlights Argentina’s conundrum. Fracking in Vaca Muerta — the rock formation in the Patagonian desert that’s home to the world’s second-biggest shale gas reserves — could be its ticket out of a years-long economic crisis. But taking that route will make it much harder to cut emissions 19 percent from 2007 levels by the end of the decade, its target under the Paris Agreement.
“Vaca Muerta fits Argentina like a glove, it’s very beneficial,” said Enrique Maurtua, a climate adviser at the Environment and Natural Resources Foundation in Buenos Aires. The area helped push shale oil production to a record 124,000 barrels a day in December, and has the potential to become as important as the country’s dominant farm industry. But continuing to dig up its resources "does not go in line with carbon neutrality,” Maurtua said.
Fernández’s administration hasn’t fully explained how it plans to reach the net-zero goal. After his UN speech, it submitted an 87-page document outlining its updated Paris commitments that was scant on new details. The government is set to release another report later in the year that may provide more clarity.
Climate Action Tracker, a non-profit that analyses countries’ policies, labels Argentina’s roadmap “critically insufficient.” It cited the government’s efforts to protect carbon-intensive industries and the lack of green measures in its Covid-19 recovery plan.
Other top gas producers that have made net-zero pledges face a similar dilemma. Canada’s plan to reach neutrality by 2050 is rated “insufficient” by CAT, which criticised its proposal to phase out coal by 2030 by replacing it with a surge in natural gas. Fracking has also been hotly debated in the United States, as President Joe Biden pursues an ambitious green agenda.
It’s possible for Argentina to meet its 2050 goal, Maurtua and other researchers concluded in a report, though it would require big changes to many of the government’s policies. The paths they outlined included spurring renewable power, using energy more efficiently, transforming the country’s giant agriculture sector (cattle farming accounts for about 22 percent of emissions), and promoting forestry.
The government should change gears and stop supporting the fossil fuel industry, said Maurtua. “Otherwise it’s as if we’re investing in video cassettes while the whole world is watching Netflix.”
Argentina boasts some of the best wind power in the world in its southern coastal regions. To the north, solar resources are nearly a match for the Atacama Desert in neighbouring Chile, which has the planet’s highest solar radiation.
The country was working to leverage these resources under former president Mauricio Macri, who left power 15 months ago. He created conditions for a flood of renewables investments, in part by opening up clean power auctions to foreign investors.
State-run energy giant YPF SA, the lead developer of Vaca Muerta, even began to change tack. It created a unit that built wind farms and a small fund that bought a stake in an electric-scooter company. Its emissions fell for a third straight year in 2020. Over the same period, Argentina installed a record 1.5 gigawatts of renewable energy, according to research group BloombergNEF.
Going forward the clean power pipeline is empty, with no new auctions organized. Since coming to office, Fernández’s administration has rarely mentioned wind and solar as it’s focused instead on policies to boost fossil fuels — including its big bet on Vaca Muerta.
“Argentina had remarkable progress in a short space of time,” said BNEF analyst Natalia Castilhos Rypl. “The problem is that 2020 is not likely to happen again soon, and things look very bad after next year.”
Several nations, mostly developed ones, have used their post-coronavirus rescue packages as an opportunity to accelerate their transitions to low-carbon industries. That’s not always a viable option for poorer countries such as Argentina, who might find fossil fuels provide an easier path to growth.
Just under half of post-Covid stimulus funds approved globally are considered green, according to BNEF. Latin America allocated the smallest share among regions around the world, with only about two percent of its recovery money going to industries that can help mitigate climate change.
In Argentina, Fernández’s government is preoccupied with alleviating a chronic shortage of hard-currency reserves, which has fuelled devaluations and instability, and could help push inflation to 46 percent this year. More than 40 percent of the country is in poverty.
The government ramped up capital controls to alleviate the cash shortage, which ended up curbing the foreign investments that have driven its green energy push. A credit famine, driven by Argentina’s third sovereign default this century and the controls, has dried up funding for wind and solar developers who’ve relied on international finance to build projects. Transition bottlenecks and suppressed power demand due to the economic slowdown are also hurting the renewables industry.
Madrid-based Grenergy Renovables SA won an auction to run a small, 24-megawatt wind farm in Patagonia under Macri, but prospects going forward are bleak. “Conditions in Argentina as a country are very complicated right now,” said Chief Executive Officer David Ruiz de Andrés. “It still doesn't fulfill the requirements and market conditions for us to invest and develop projects there.”
The government’s Department for Energy Planning, which is in charge of the energy transition, did not immediately respond to a request for comment.
Vaca Muerta is probably Argentina's quickest path to the export dollars it desperately needs to secure a brighter future. And time is running out to tap its potential profits.
Macri began warning in 2019 that Argentina needed to hurry if it wanted to cash in on its shale prize before buyers started to shun fossil fuels altogether. Until then, natural gas had been seen as a transition fuel that would help the global economy shift away from more polluting oil and coal. That role is becoming less important as costs of wind and solar energy plummet.
Argentina's contribution to climate change is relatively low. In 2019, it sent 98 percent less planet-warming carbon dioxide into the atmosphere than China, the world’s top emitter.
But under the 2015 Paris Agreement, every country — no matter its size or stage of economic development — must do as much as it can to cut emissions in order to keep global warming below 2ºC and preferably close to 1.5ºC above pre-industrial times. As global consensus grows over the need to prioritise fighting climate change, countries that are slow to embrace renewables risk being left behind.
Argentina is not only jeopardising its emissions targets, but perhaps even its geopolitical relevance, according to Ben Backwell, head of Brussels-based lobby group Global Wind Energy Council.
“If Argentina wants to exert soft power in global politics, it has to gather around renewables — there is no long-term future in fossil fuels,” Backwell said. “Argentina is a renewables paradise, but they do need to create conditions to invest.”
by Jonathan Gilbert & Laura Millan Lombrana, Bloomberg