New Articles

Cuba is Potential Fruitful Market for U.S. Energy Sector

Opening of trade with Cuba means US energy sector could ship shipments of export cargo and import cargo in international trade to the island.

Cuba is Potential Fruitful Market for U.S. Energy Sector

As business between the United States and Cuba grows following President Obama’s historic Havana trip, forging ties in the energy sector would benefit both countries.

Cuba’s energy infrastructure is an odd mix of old and new. On the one hand, Cuba still burns crude oil for most of its electricity, one of very few countries to do that. Its antiquated electric grid includes decaying, half century-old equipment. Its vehicle stock is famous for Buicks and Pontiacs dating to the 1950s.

At the same time, an energy revolution launched a decade ago transformed the island’s lighting, eliminating the use of old-fashioned incandescent light bulbs. Millions of inefficient consumer appliances were replaced with modern energy-saving versions as well. A local factory sells photovoltaic panels to solar power projects, which provide a small but growing percentage of the island’s electricity.

For years, Cuba has relied on Venezuela to supply deeply discounted oil as part of a bargain that includes Cuban doctors and teachers working in Venezuela. Venezuelan President Nicolas Maduro visited Cuba last Friday to reaffirm the longstanding ties between the two countries. But discounted oil for Cuba is deeply controversial in Venezuela, which is reeling economically from the government’s economic policies and the recent oil price collapse. Cuba cannot count on the same favorable terms it has enjoyed for Venezuelan oil continuing for the indefinite future.

Cuba’s domestic oil and gas resources are substantial. Many billions of barrels are believed to lie beneath deep water off Cuban’s north coast, although exploratory wells drilled by Spanish and Malaysian companies in 2012 came up dry. Current low oil prices make additional offshore exploration unlikely in the short- and perhaps medium-term. Onshore, Cuba produces roughly 50,000 barrels per day of heavy crude oil, which supplies roughly a third of Cuba’s oil demand.

Cuba’s renewable energy resources are also substantial. The tropical sun beats down on the island almost year round. Strong winds blow much of the year. Scores of rivers offer considerable potential for hydroelectricity. Cuba’s fertile soils produce many kinds of biomass that can be used in energy production, including sugar that can be converted to ethanol and waste products from sugar plantations and sawmills that can be burned for electricity.

Recognizing the island’s renewable energy potential, the Cuban government aims to expand renewable energy from roughly five percent of electricity generation today to 24 percent by 2030. New wind farms, solar plants and bioelectric stations are all under construction.

With its antiquated electric grid and substantial energy resources, Cuba offers an important potential market for U.S. businesses. With its capital, technical know-how and export potential, the United States has much to offer the Cuban energy sector as well.

Start with renewable energy. U.S. vendors could supply equipment, U.S. engineers could offer expertise and U.S. banks could offer capital to help Cuba’s renewable energy industry grow quickly. U.S. utilities and national laboratories could offer technical assistance on integrating variable renewable energy into power grids. A U.S.-Cuba clean energy partnership could build bridges between the two countries and help modernize Cuba’s electric grid. U.S. hotel chains exploring the Cuba market, including Marriott and Starwood, could become charter members by committing to run their Cuban properties on renewable energy to the extent possible.

Cuba could also be a destination for natural gas from the U.S, which exported its first liquefied natural gas in February. Converting Cuba’s oil-fired power plants to natural gas would cut air pollution and diversify the island’s fuel sources. Although the conversions would be expensive, fuel costs would likely to be lower over the long-term.

U.S. oil service firms could bring enormous expertise to the Cuban market, helping increase recovery from existing wells. Strong working relationships between the U.S. and Cuban oil industries may be especially important as part of a strategy to minimize the risk of spills off Cuba’s north coast, which could have devastating effects on the U.S. coastline. With offshore exploration unlikely in the short-term due to the global oil price outlook, now is the time to start building those ties.

But while the opportunities for the U.S. and Cuba to work together in the energy sector are big, so are the barriers.

Relations between the U.S. and Cuba are only starting to warm after more than a half century of deep freeze. The two governments continue to have profound disagreements on a range of issues. They are more used to acting as adversaries than partners, which will continue to affect the relationship for years to come.

In addition, significant legal barriers to normal business relations remain in both countries. Fully realizing the potential for the U.S. and Cuba to work together in the energy sector will require the U.S. Congress to lift embargo legislation and the Cuban government to revise trade laws and reorganize its electricity sector. That will take years and require steady progress in difficult aspects of the relationship.

President Obama’s recent trip to Cuba is an important step forward in the relationship between the U.S. and Cuba. Building ties between our energy sectors would pay dividends for both countries.

David Sandalow, Inaugural Fellow at Columbia University’s School of International and Public Affairs Center on Global Energy Policy, has served in senior positions at the White House, State Department, and the U.S. Department of Energy.

Paris climate agreement aims to control emissions, including those coming from shipments of export cargo and import cargo in international trade.

The Power of Optimism: The Paris Agreement and Road Ahead

Pessimism and defeatism come easily when considering climate change. Yet two diplomatic triumphs in the past year highlight the power of optimism and determination.

US-China Climate Agreement

Consider first the US-China climate agreement announced by President Barack Obama and

President Xi Jinping in Beijing in November 2014. In the run-up to their summit, odds were poor that the world’s two largest producers of heat-trapping gases could reach a deal to limit emissions. The two countries view each other with deep mutual suspicion. They disagree sharply on many issues, including cyber-security, currency values and the South China Sea. They bring starkly different perspectives to the issue of climate change, with US officials emphasizing the importance of limiting China’s emissions growth and Chinese officials emphasizing the United States’ historic responsibility for the problem.

Yet officials from both countries identified a potential strategic convergence. They persevered through months of challenging negotiations. In the end, these officials and their leaders produced an agreement with the most ambitious commitments either country had ever taken to limit emissions.

Both countries followed up, in the months after, with important policies to implement their commitments.

An agreement of this kind can be explained in several ways. Such a deal would not be possible without a strong alignment of interests between the two countries. Yet that alignment alone is not sufficient for a diplomatic breakthrough. Such a deal also requires individuals within each government who believe an unlikely outcome is possible and are willing to take risks to achieve it. The optimism and determination that reflects are essential for the deal.

Paris Agreement

Next consider the agreement adopted last weekend at the 21st Conference of Parties to the UN

Framework Convention on Climate Change (UNFCCC). An agreement of the UNFCCC requires unanimous or nearly unanimous approval by more than 190 countries – an absurdly difficult task. Every nation – rich and poor, fossil fuel importers and fossil fuel exporters, big polluters and small island nations at threat of extinction – must agree on a text. In the U.S. Senate frustrations often run high because 60 out of 100 Senators must agree before an action is taken. The challenge in the UNFCCC is an order of magnitude greater.

Officials from around the world saw a strong common interest in reaching agreement, despite their widely varying backgrounds. They persevered through years of difficult negotiations. Thanks to their belief a deal was possible and tireless efforts, the Paris Agreement was adopted.

The Paris Agreement will not save the world, but it provides an important foundation for the global response to climate change. The fact an agreement was reached – that more than 190 nations put aside differences in the face of a common threat – sends an important signal to businesses and capital markets around the world.

At the core of the Paris Agreement is a system of national climate action plans to be submitted by all nations on a regular basis. The first round of these plans were submitted this year by more than 180 nations. Those plans focused leaders in capitals around the world on policies to limit emissions and respond to climate change. In many capitals, the plans were the most ambitious ever developed.

Now those plans will be revised on a regular basis, with each plan more ambitious in reducing emissions than the one before it. Procedures for transparent review of those plans will be developed. The parties will meet regularly to take stock of their progress.

The fact that all countries will submit plans is significant. The Paris Agreement calls on developed countries to “continue to take the lead” in cutting emissions, but does not include the rigid distinctions between developed and developing countries that helped doom the Kyoto Protocol.

While recognizing the principle of “common but differentiated responsibilities” set forth in the UNFCCC, the Paris Agreement (in the words of legal scholar Dan Bodansky) “completes the paradigm shift” to a common global framework for addressing climate change.

On the crucial issue of finance, the Paris Agreement calls on developed countries to “continue to take the lead in mobilizing climate finance from a wide variety of sources, instruments and channels.” It encourages developing countries to do the same. The text states that amounts mobilized by developed countries should grow in the years ahead. Neither specific amounts nor specific countries are named. These provisions are a sensible compromise that allowed negotiators to resolve one of the most challenging issues in the talks.

The Paris Agreement establishes – for the first time — a global goal of “enhancing adaptive capacity, strengthening resilience and reducing vulnerability to climate change.” This reflects a recognition that some impacts of climate change are unavoidable and international cooperation can play a central role in helping countries adapt to climate change.

The Road Ahead

The road ahead on climate change is fraught with challenges that can seem insurmountable. New coal plants are being built across Asia. Transitioning the world’s vehicle fleets to low carbon energy will take decades. Forest fires are pouring huge amounts of carbon dioxide into the atmosphere each year.

Furthermore, climate change is a super wicked policy and political problem. It’s caused by invisible, odorless gases. It proceeds at a pace that scientists find alarming but can be difficult to perceive in day-to-day life. Many of its impacts — including heat waves, severe storms, droughts, floods and forest fires – also occur naturally, making attribution seem difficult. The benefits of cutting emissions are global while the short-term costs are often local.

David Sandalow is the Inaugural Fellow at the Columbia School of International and Public Affairs Center on Global Energy Policy.