Overview

The North American continent includes two of the largest economies globally, Canada and the United States, where the average per capita GDP in 2012 was US$ 51,000. It also includes Central American and Caribbean nations, where the average per capita GDP stood at just over US$ 10,000.³⁶ The region’s energy landscape also shows great variation. While Canada, Trinidad and Tobago, Mexico and the US hold vast domestic natural resources, the rest of the continent is highly dependent on imports to meet energy demands. The energy landscape is expected to undergo a transformation in the future, with US shale development set to make the country self-sufficient in net terms by 2035,³⁷ and the Mexican energy reform process of 2013 potentially creating investment opportunities for further development of the country’s resources. A perspective from the chief executive officer of Petróleos Mexicanos (Pemex) on the Mexican reform process is included later in this section. 

Although scores across the North American continent vary significantly – especially between the economies of Canada and the United States and the Caribbean and Central American states – Figure 8 below provides an overview of some of the key performance challenges faced by the region:

• Scores across the North American continent vary widely. The US, Canada, Mexico and Costa Rica appear in the upper quartile, evidencing the impact of natural resource endowment, economic development and strong energy policy on the scores. The wide variance in scores highlights the diverse nature of the challenges North American countries face in their transitions.
• Costa Rica is the continent’s top performer and the only North American country to rank, at 9th place, among the global top 10. Costa’s Rica’s success is driven by its ambition to achieve 100% renewable energy for electricity production by 2021, maximizing the environmental sustainability of its energy system and reducing energy security challenges by limiting import-dependence expenditure and risk.
• The region’s lowest performer is Haiti, which ranks in the lower quartile of the index with a score of 0.38/1, narrowly preceded by Jamaica, the only other Caribbean nation included in the index.³⁸ For both countries, their geography and lack of economic development create significant challenges – challenges that in Haiti’s case were further compounded by the 2010 earthquake that destroyed the already limited existing power infrastructure.
• While the economically developed and resource-rich United States and Canada perform well across indicators for energy security, they face increasing pressure to improve the environmental sustainability of their energy systems. This issue is explored in greater depth in the article on North America, which looks at the environmental impact of unconventional developments in the US and Canada.

Figure 8: North America Overview of Average Performance per Indicator

*Spider chart represents average performance of region/cluster for individual EAPI indicators. Low scores close to the centre of the chart; high scores close to the outer circle.

The following sections explore in more detail the core challenges confronting the North American continent across each dimension of the energy triangle.

Table 6: North America EAPI Performance

Economic Growth and Development

North America’s average score across economic growth and development indicators is above the global average of 0.45/1. However, the disparity in scores across this dimension draws attention to the level of import dependence of the lowest performers, compared with the ambitious energy policies that have been implemented by Costa Rica, the highest performer. Classified as a middle-income country by the IMF,³⁹ Costa Rica achieves a score of 0.68/1, the highest in the region. This is comparable to the scores achieved by high-income OECD economies such as Australia, Norway and Spain. Although Costa Rica’s economy expanded by an average annual 4% between 2000 and 2012,⁴⁰ the economy remains relatively low in energy intensity, with US$ 12 GDP per unit of energy use compared with the regional average of US$ 7.6.

The economic impact of import dependence
Honduras and Jamaica are the lowest performers in North America for the economic growth and development dimension, largely due to the economic impact of import dependence and the lack of domestic energy supply – the countries spent, respectively, 12% and 16% on imports relative to GDP in 2012. While relative import expenditure has remained largely stable in Honduras since 2008, Jamaica’s has decreased from 25% to 16% over the same period. Initiatives such as the World Watch Institute’s for sustainable development are supporting the implementation of energy efficiency and renewable capacity in energy-dependent Caribbean states, with the long-term goal of achieving sustainability targets while reducing import costs and improving the affordability of energy. Jamaica has pursued policies to improve the affordability of solar technologies and is piloting net metering to allow independent power producers to sell excess electricity production back to the grid. However, the scalability of these initiatives is one of a number of challenges that need to be overcome before further reduction of import dependence is achieved. 

Figure 9: North America – Energy Triangle Performance: Average against High/Low Performer

Environmental Sustainability

Environmental sustainability receives the lowest average score for North America across the three dimensions of the energy triangle. Notwithstanding the success story of Costa Rica’s transition to renewables, countries across North America face a range of environmental challenges, including low diversification of the fuel mix across the Caribbean and Central America (which occupy the lower quartile of the indicator), the emission intensity of Canada, and the high level of emissions from the transportation and power generation sectors in most countries in the continent.

Costa Rica’s energy system is defined by the large contribution of renewables – mainly hydro, geothermal and wind – to its power generation mix. Renewables contributed over 90% of total electricity production in 2012,⁴¹ and the government is targeting 100% renewable power generation by 2021. Costa Rica has implemented policies such as feed-in-tariffs and a number of investment incentives for sustainable development projects across all sectors, including energy. Over 70% of Costa Rica’s renewable capacity is locked in hydro-power generation, sparking concerns over the dependence of this source on annual rainfall. To address this risk, the country has launched, among other renewable energy initiatives, a net metering pilot to test the effect of distributed generation on the grid and promote diversification of renewable technologies beyond hydro.

Transportation sector
Canada, the United States and Mexico are the highest performers for fuel economy of passenger vehicles. The disparity reflects the improved living standards and access to better vehicle fuel technologies in the larger economies of these countries. Nevertheless, the environmental sustainability of transportation remains a key issue, especially in the United States where the sector contributed 28% of GHG emissions in 2011.⁴² The US is the lowest OECD performer for this indicator. Although the index only accounts for passenger cars, roads continue to be the primary mode of transport for goods in the US, further compounding the emissions challenge. While a number of states, such as California, are rolling out infrastructure for the electrification of passenger vehicles, the transition to improved fuel economies in the medium- and heavy-duty sectors is more challenging and slower to implement.

Environmental sustainability of the high-income OECD North American countries
The US and Canada receive their lowest scores across the energy triangle in environmental sustainability. The low performance of both countries is dictated by different drivers. Although the US is undergoing a shift from coal to gas in power generation, the score is still negatively impacted by the predominance of coal in power generation and emissions from the transportation sector; conversely, Canada’s score is impacted by the high per capita emission intensity.

Notwithstanding the boom in gas supply, the US is still dominated by coal, which contributed to 42% of power generation in 2011.⁴³ As a result, the US performs in the lower quartile for CO2 emissions from power generation, scoring 0.45/1 compared to the regional average of 0.57/1. The US is aggressively pursuing wind power, with an expected 19% increase in capacity in 2013 (representing 4% of total installed capacity). The game changer in the US is the increasing availability and price competitiveness of natural gas over coal, which is shifting reliance away from coal and onto natural gas. This trend contributed to the US lowering its contribution to GHG emissions by -3.8% in 2012, half of which the IEA attributes to the coal-to-gas switch.⁴⁴ However, without effective regulation in this sector, a reversal of the trend is possible if there were to be a shift in the current coal/gas price differential.

Conversely, Canada scores in the top quartile for the carbon-intensity of its power generation, receiving the best score in the region after Costa Rica. The country’s power sector is dominated by hydro, which contributes over 60% of electricity, and due in part to supportive policies, Canada is also a large and growing producer of wind energy. However, performance on methane and nitrous oxide emissions are among the lowest in the region, and sit within the lower quartile of global scores – bringing into focus the environmental impact of Canada’s upstream operations. A perspective from Alison Redford, Premier of Alberta, closes the section on North America. The article highlights the policy measures which are set to drive improvements on environmental performance and reduce energy intensity.

Energy Security and Access 

Scores on energy access and security vary widely across the continent; the US and Canada, with abundant natural resources and 100% electrification rates, score within the top 10 globally for this indicator, while the Caribbean islands and some Central American countries are highly dependent on imports of fossil fuels.

Top performers – US and Canada
Canada is one of the world’s five largest energy producers, ranking second after Norway across the energy security and access indicator, and ranking 28th globally for net energy exports. The country exports over 60% of its domestic energy consumption. Oil sands developments, as well as recent discoveries of unconventional gas resources, have extended the country’s export potential. Canada’s extensive hydroelectric capacity also drives its high performance, providing a 0.91/1 score for diversification of total primary energy supply, against the regional average of 0.59/1.

The US is the second highest-ranking North American country in this dimension. This results from the high electrification rates and a diversified fuel mix, as well as low import dependence compared with other net importers on the continent (the US scores 0.42/1 for this indicator, against an average of 0.21/1 for other net importers in North America). Recent developments in unconventionals in the US, and the expected increased production from these plays, are projected to transform the US to energy independence in net terms by 2035.⁴⁵

Energy security and access in the Caribbean and Central America
Energy security is a key challenge for countries in the Caribbean and Central America. Jamaica and the Dominican Republic are the lowest performers in the indicator for net energy imports, with an average score of 0.06/1, compared with the average of 0.21/1 for other net importers in the region. Reducing import dependence and exposure to fluctuating fossil fuel prices is an important issue for these countries, which should look to the example of Costa Rica’s long-term strategy to mitigate the risks of energy dependence.

Haiti is the lowest performer in the energy security and access dimension, as well as being the only country in the region facing significant energy access challenges. In 2010, only 34% of the population had access to electricity and over 90% relied on solid cooking fuels. Before the earthquake of 2010, the country’s power, transmission and distribution infrastructure was already inadequate to meet demand. And with almost half the population illegally connected to the power grid,⁴⁶ utilities faced additional challenges from power theft. The earthquake further exacerbated the situation by causing significant damage to the existing infrastructure. USAID is currently supporting a number of initiatives to redevelop and extend the power infrastructure, including feasibility studies for wind energy to supplement oil generation, which has to date dominated the country’s power mix.

External Perspective: Update on the Mexican Energy Reform

Emilio Lozoya Austin

Chief Executive Officer,
Petróleos Mexicanos,
Mexico

Emilio Lozoya Austin

Chief Executive Officer,
Petróleos Mexicanos,
Mexico

The main factor behind Mexico’s disappointing economic growth record over the past 30 years is stagnant productivity. Hence, the new administration is emphasizing reforms that will, directly or indirectly, have a positive impact on productivity growth. This is the case in labour market reform, the reform of competition legislation, reform in the telecoms industry and recent constitutional changes in education.

Mexico’s energy sector faces a big challenge: while the country has vast hydrocarbon resources, the cost of energy to the economy is relatively high, affecting investment opportunities and productivity growth. Energy reform can, and I am sure will, play a major role in creating the conditions for sustained economic growth.

Over the past decade, North America’s oil and gas industry has experienced a veritable revolution. Deep-water production and shale gas and oil have drastically reduced US dependence on imported oil, and we have witnessed the decoupling of the price of gas in the region from that of oil. With prices for natural gas at a fraction of what they are in other regions, and given Mexico’s resources, joining North America’s energy revolution is an opportunity the country cannot afford to miss.

Access to cheap gas would allow Mexico to lower energy costs for industry and for power generation, with the additional benefit of increasing energy efficiency and reducing emissions of CO₂ and other greenhouse gases.

To make the most of this opportunity, both Petróleos Mexicanos (Pemex) and the oil industry must ramp up investment to increase production of oil and gas, and to improve productivity throughout the industry’s value chain, from exploration and production to refining, petrochemicals and distribution and logistics. This is what the constitutional changes proposed by President Enrique Peña Nieto, currently being discussed by Congress, seek to accomplish.

While ownership of resources will remain in the hands of the nation and Pemex will remain a public sector enterprise, the reforms will allow Pemex and the Mexican State to share risks with private firms and tap their investment resources and technology.

In the new scenario, Pemex will have to transform itself substantially. Corporate governance, corporate structure, internal control, management practices and human capital policies will have to be brought in line with best practice if Pemex is to compete successfully.

Competition is good news for Pemex. Given a standard fiscal regime and the freedom to make strategic alliances and to define our policies, we have the potential to become an even more relevant international player in oil and gas. Yet, our largest opportunity remains at home: we estimate that Mexico’s oil and gas industry has a US$ 60 billion a year potential for profitable investment.

Technological development, Mexico’s natural resource endowment and a growing consciousness of the need to harness these resources towards the goal of generating sustainable economic growth have converged to create a unique opportunity in Mexico. I am confident that energy reform will effectively turn Mexico into one of the most promising and exciting areas for expansion in the oil and gas industry worldwide.