Opinion: Argentina’s energy transition has come to a screeching halt
At an otherwise uninspiring time at home and abroad, a festive atmosphere was brewing in Argentina in the first week of June, with two events competing for the public’s attention. The first, the national football team’s 3-0 victory over Italy that saw them lift the Finalissima trophy, generated enthusiasm and celebration. The second, by contrast, drew attention for being something of a sham.
Social networks and television channels were filled with advertisements from state-controlled oil giant YPF marking the company’s 100th anniversary on 3 June. Government representatives and the company itself tried to imbue the date with the same joyful and nationalistic pride that an on-field victory usually provokes. But the message struggled to catch on, and received severe criticism in some spaces.
The reason is simple: there is no longer any way to disguise the fact that YPF and Argentina’s wider energy policy have been on a disastrous path for several successive governments – and have failed to meet the needs of the population. The country urgently needs a shift towards renewable, socially just and economically sensible energies.
Burning money and opportunity
Despite a momentary surge back towards oil and gas in the wake of Russia's invasion of Ukraine, the world’s need to get rid of fossil fuels remains desperate. The burning of these energy sources is the main driver of the climate crisis, which is already causing deaths, forced migrations and losses in quality of life for billions of people, especially those who are already vulnerable. Reducing greenhouse gas emissions has become a question of survival for our species.
In this context, where any fossil fuel is an existential threat, the space for smooth transitions over decades and ineffective substitutions, such as exchanging oil for gas, has run out. In the medium and long term, these sectors will decline rapidly – and for the good of all, they must decline.
The game, in fact, has already changed. Hundreds of funds, universities and governments all over the planet are withdrawing their investments or committing to never invest in fossil fuels. The representative value of divestment, as this movement is called, already exceeds US$40 trillion and includes players that could hardly be called “dreamers” or “owners of a hidden agenda”. The agenda of many of these institutions’ managers is profit, and they have realised that, even from a strictly financial point of view, betting on dirty energy is mismanagement of resources.
In the same way, the attitude of tying mountains of public money to oil, gas and coal, as the Argentine government and YPF have done, is completely insane. According to reports from the government itself, between 2017 and 2021, federal subsidies to fossil gas production reached at least 106 billion pesos (US$856 million). It should be remembered that this considerable sum comes from a heavily indebted government.
At the same time, the most conservative estimates indicate that around 1.5 million Argentine families still live in energy poverty – that is, they commit 10% or more of their income to energy payments, according to data from national gas regulator Enargas collected in 2020.
In other words, Argentina is economically in trouble, but still burns tens of billions of pesos in an attempt to sustain an inefficient energy model that excludes a significant portion of the population and aggravates the central problem of our era, the climate crisis.
Valuing lives at Vaca Muerta
The picture gets much worse if we consider the social and environmental damages caused by oil and gas extraction in Vaca Muerta, a reserve where most of Argentina’s fossil fuels come from. The extraction in this area requires the use of fracking, a technique involving the pumping of liquids into rock formations that is banned in about 30 countries, including the UK, France and Spain.
Studies in several places around the world show the connection of fracking with the potential contamination of water sources by toxic chemicals and the occurrence of earthquakes, among other problems. In fact, thousands of people in Neuquén, Río Negro and Mendoza provinces are already suffering damage to their health and serious economic losses because of oil and gas exploration in Vaca Muerta, an area where YPF is one of the most active companies in the use of fracking.
Even aware of all this, the government and YPF continue to double down. In April this year, President Fernández inaugurated, with great pomp, the works of a gas pipeline between the provinces of Neuquén and Buenos Aires, to be financed with public resources. He took the opportunity to highlight the central role of YPF in this expansion and pointed out that in Vaca Muerta “there is gas for 200 years”.
It is impossible not to wonder whether the president, like his predecessors of various political hues, has any idea what the world will be like in 200 years time if we continue burning oil and gas at the current rate. We should also ask ourselves why the government and YPF act as if life in the communities around Vaca Muerta had less value than in other places.
Getting out of the quagmire
To find a more promising path, Argentina needs to promote the energy transition – a perfectly feasible task. First of all, it is up to the government to make the courageous decision to admit that Vaca Muerta and the fossil fuel-based model have failed.
This will mean confronting the lobby of foreign oil companies and the few Argentinians who earn a lot from oil and gas extraction. The sooner the government does this, the greater the collective benefit will be. Moreover, the political cost of admitting this failure can be mitigated if the government is able to show the population the gains produced by the adoption of an economic model based on clean energies, which range from the massive generation of jobs to the achievement of a healthy environment for families.
It is up to the government to make the courageous decision to admit that Vaca Muerta and the fossil fuel-based model have failed
A second step is to transform the role of YPF. A national debate must begin to identify how the company’s valuable talents can serve the expansion of renewable energy and the development of various economic sectors in Argentina, in areas such as research, information technology and infrastructure. The goal would be to end the country’s toxic relationship with fossil fuels within a few years and open a chapter of prosperity, by redirecting company resources to socially and environmentally sustainable sectors.
It is also fundamental to allocate the public resources that today feed fossil fuels towards the energy transition. A recent study by researchers at the Universidad Nacional del Centro, Buenos Aires province, showed that redirecting the subsidies currently offered for oil and gas to renewable energies would be enough to put Argentina on course for carbon neutrality by 2050.
Furthermore, reports by organisations such as the NGO Fundación Ambiente y Recursos Naturales (FARN) have shown that switching to an energy mix composed of renewable sources would contribute to a reduction in energy poverty and the cost of energy in the long term.
Finally, a fourth action towards energy transformation would involve working with civil society organisations and the private sector to stop the private financial flows that encourage fossil fuels. Several major European and US banks and investment funds profit from environmental destruction by financing fossil fuel companies and their oil and gas extraction or transportation projects in Argentina. To show real commitment to sustainability, these institutions must also redirect their resources to clean and socially beneficial sectors.
A change in mindset and attitude towards the energy issue will be essential for Argentina to unlock its development potential. A more authentic celebration than the one YPF sponsored for its 100th anniversary could emerge, if the company and the government take comprehensive and swift action for energy inclusion and respect for the planet.