Many countries across the world have taken several steps to limit reduce their reliance on fossil fuels by moving steadily to other sources of power, such as solar, wind, and hydro. Therefore, President David Granger’s plan to use Guyana’s looming oil wealth to invest in sources of renewable energy is not only one that reflects foresight but is emblematic of the changing times, says Chatham House Associate Fellow on Energy, Environment and Resources, Dr Valérie Marcel.
According to the Associate Fellow, it is not yet known when oil demand will peak, but the industry agrees that it will. In this regard, she said that Guyana was “fortunate” that Granger’s government came to power with a vision to guide the country’s development via its Green State Development Strategy (GSDS).
The Strategy seeks to transition to a diversified, green, and inclusive economy; become a leading example of a green state; and serve as an inspiration to other countries in the region and worldwide.
The Chatham House fellow said that the big question, however, is whether this vision sits well with the country becoming a leading oil exporter. Marcel noted that no other country with oil reserves as large has pursued such an ecological vision.
So far, Marcel said that the plan has held strong, most notably with the government’s decision not to bring the oil to shore for refining or other sorts of processing and to use the export revenues to support renewables development and the diversification of the economy, as well as saving for the future through a Natural Resource Fund.
Further, Marcel stated that investing revenues strategically is not as easy as it seems. She said that the revenues are huge in relation to the national economy. Setting Guyana’s oil in context, the Fellow said that Guyana’s one-barrel-per-person-per-day target is many times greater than other emerging producers, such as Ghana, where the resource flows are only three barrels per person per year. Additionally, the Consultant said that the economy’s capacity to absorb revenues of this scale will be limited.
Marcel asserted that the government can raise prosperity levels by investing in infrastructure, education, and health but will need to contend with inflation. Expenditure will also need to grow incrementally, in line with the state’s administrative capacity to manage the spending, the Chatham House Advisor articulated.
Further to this, Marcel commented that there will inevitably be temptations to pursue a different course.
She said, “Domestic pressure will mount to bring the oil ashore and to refine it in Guyana, making sure the country takes control of the industrial process and escapes the legacy of colonialism – British rule did little to develop the country. There will be calls for cheap oil and gas feed-stocks to support Guyana’s industry and for subsidised fuel and power for consumers. In other words, there will be political pressure to benefit from the oil itself, not just the oil revenues.”
Marcel stressed, however, that Guyana has the benefit of hindsight.
The Associate Fellow said, “It can see the experience of Gulf Arab producers who created oil-intensive industries and introduced subsidies on petrol, power, and water that created unsustainable patterns of domestic consumption. Subsidies and dependency on oil are very difficult to reverse and they lock the country into a high-carbon economic model.”
Marcel said that Guyana will indeed be a unique test case of a new, major oil producer country guided by an environmental vision. But the run-up to the elections she said will surely be the time to debate what kind of producer Guyana should become.