Dependent on oil exports, the South American country is fraught with contradictions as it resists overhaul of fossil fuels
An old car painted in the Venezuelan colours drives through the capital of Caracas in 2006. Fossil fuel subsidies total $12 billion a year. (Flickr/ Ruurmo)
By Alex Pashley
Awash with the world’s cheapest gasoline, more oil not less is the way out of Venezuela’s economic ruin.
Basic goods shortages, runaway inflation and a debased currency are suffocating Nicolas Maduro’s two-year presidency.
As sliding oil prices halt drilling and deprive it of vital export earnings, fossil fuels for the OPEC member with the planet’s largest proven oil reserves are everything.
“The Orinoco Belt is the cash cow,” Russ Dallen, a Miami-based head bond trader at Caracas Capital Markets, said of the 513 million barrel basin of heavy crude deposits. “Aside oil, the government has no other means of income.”
Confronting climate change is decidedly low on the priority list for the country with Latin America’s second dirtiest energy sector.
Climate justice fighter
But it is has been a prominent voice throughout years of UN-backed negotiations to broker a global agreement.
Venezuela clamours for rich nations to assume “historic responsibility” in causing climate change, heaping scorn on the United States and the West in appeals for climate justice. Western observers, for their part, see it as a truculent saboteur of climate talks .
Its revered former leader Hugo Chavez said if the climate were a bank, the West would have bailed it out already.
Maduro accused wealthy countries of profiteering from pricing pollution, and slammed American fracking at a UN summit in 2014 as environmentally destructive.
“Venezuela’s pitching of capitalism versus socialism is a huge oversimplification of the problem of climate change,” said Amanda Maxwell, who heads the Latin America programme at the National Resources Defense Council in Washington.
“It’s an admirable thing their support for climate justice, but if you deem it and environmental justice to be related, the environmental issues at home really contradict the rhetoric.”
Thaw with UN partners
Relationships with Western partners have warmed since the acrimonious Copenhagen summit in 2009, according to chief negotiator, Claudia Salerno, who dramatically cut her palm trying to get attention.
Venezuela protested loudly among other developing nations that a select group of countries had cooked an agreement, embittering years of subsequent talks that are finally set to be signed off this December in Paris.
“The most beautiful thing about Paris is that it will be the end of an exhausting process of negotiation since Copenhagen to here,” Salerno told RTCC by phone from Caracas. “Now all the world is willing it.”
Venezuela’s lead climate negotiator Claudia Salerno embodies the country’s approach to the climate talks. (Source: Flickr/IISD Reporting)
But old tensions remain.
As up to 200 countries ready pledges to collectively slash greenhouse gas emissions, Venezuela won’t back a deal that bullies poorer countries for not cutting enough, Salerno said.
Market mechanisms, which allow pollution permits to be traded, are another red line for the socialist country.
Nor will it bow to the UN climate change organisation’s call for pledges by October. It wants to assess all countries’ climate plans ahead of the Paris summit, to see how close they get to holding temperature rise to 2C – an internationally agreed aim.
“There is no deadline for Venezuela. If it happens in December, great, but we welcome January also for all countries. You can’t remove anybody ex ante because the [UN] secretariat wants a webpage complete,” Salerno added.
Oil lifeblood
The country’s obduracy hinges on oil’s dominance in its economy, which provides 95% of export earnings and a quarter of national income.
Consuming 800,000 barrels a day of petrol and diesel, fossil fuel subsidies total US$12 billion a year. With a gallon of petrol costing about ten cents, people lavish it on gas-guzzling SUVs.
Oil minister Rafael Ramirez has said the cost of supplying refined gasoline for mass consumption is about US$70 a barrel. Oil prices plummeted 60% in the past year to a low of $40 a barrel, and now hover at $60.
The IMF sees Venezuela’s economy contracting 7% in 2015 as price inflation rises 96.8%.
Mapped out: Venezuela’s oil industry (Credit: BP)
“Venezuela sees the global climate regime as a threat to its national interests,” Guy Edwards at Brown University’s Climate and Development Lab told RTCC.
Beyond big hydropower it has little intention to shift to cleaner forms of energy or stem oil exports which fuels its economy, he added.
Frozen out of capital markets, Venezuela has snapped up a reported $56 billion of Chinese investment since 2005. For China, the draw is not bolivars – which have slid to 170 bolivars to the dollar from 10 in 2012 – but energy security, with payment in oil.
Decarbonisation
There are mounting calls for a long term goal to decarbonise the global economy this century, in line with the 2C warming goal – effectively spelling an end to fossil fuel use.
But Salerno batted away the issue, citing Venezuela’s vast rainforests that suck up carbon dioxide.
These carbon sinks together with “low” oil consumption “decarbonised” Venezuela, according to Salerno: its 0.5% share of global emissions is “practically insignificant”.
Cerro Autana in the Venezuelan Amazon. The country possesses 54 million hectares of primary rainforest (Flickr/ Fernando Flores)
Shipments to the top markets US and China for its oil absolved it of responsibility for the combustion of the dirty fuels, she said.
Almost three-quarters of the country’s electricity generation comes from hydropower, although neglect in the face of high running costs had seen diesel-fired plants imported to stem frequent blackouts, Dallen told RTCC.
No very large hydro plants are planned for the next ten years, according to the Hydropower & Dams World Atlas. And more frequent droughts as the planet overheats undercut the reliability of water flow as a source.
Clean energy
Edwards said Venezuela could work together with other Latin American countries to advance the climate agenda. Uruguay seeks to get 95% of its electricity from renewables this year, while Peru and Chile are targeting solar and wind power.
There is little sign of Venezuela joining that movement.
A graffiti artist working on a mural of late leader Hugo Chavez who took office in 1999 and died in 2013 (Flickr/ Antonio Marin Segovia)
Indeed, it has come under fire for demoting its environment ministry, the first of its kind in Latin America, to become part of the ministry of housing, habitat and “ecosocialism”.
Salerno insisted the move strengthened the green agenda; transformation of the country’s energy matrix going hand in hand with the “chavista project” to develop rural economies.
“This interconnectivity between economy and ecology doesn’t occur in any other country,” she said. “We are undergoing a revolution in how we manage nature.”
Oil or more oil
In the absence of clear plans for green growth, politicians across the spectrum continue to look to oil for economic salvation.
Chavez nationalised the assets of Exon Mobil, ConocoPhillips and other foreign oilers. Chevron, Repsol, Eni have pledged to tap the Orinoco basin, though companies are in no hurry to get there, given the weak investment environment.
Maduro’s popularity is waning, which could give an opening to the centrist opposition leader Henrique Capriles.
But a change at the top would be unlikely to diminish enthusiasm for oil, said Dallen. “The twist of irony is the return of a government that respects property rights and brings investment will lead to more oil production.”
Salerno is unapologetic.
“Oil is one of the most marvellous energies in the world. In 200 years it’s going to be used for medicine, science, going to the moon,” she said.
“It is precious and must be saved for glorious ends, not for making bags to carry back from the market.”