Breaking the natural gas subsidy trap: Implications for Bolivia’s power system transition to 2040

Latin America faces a triple challenge: achieving economic growth to narrow the income gap with advanced economies, reducing inequality, and protecting the environment. Energy lies at the nexus of these objectives. Bolivia, a natural gas producer in the region, subsidizes gas prices for domestic consumption and power generation — policies that entail significant opportunity costs in the long term while seeking to mitigate short-term economic disruptions. This paper develops energy transition pathways to explore renewable energy adoption in Bolivia and its prospects for achieving net-zero emissions by 2050. A capacity expansion model (PyPSA-Earth) is greatly enhanced to accurately represent the Bolivian power system with high spatial and temporal resolution. The refined model evaluates a business-as-usual (BAU) scenario alongside five alternative pathways to 2040. The analysis focuses on the role of existing natural gas subsidies, exploring various reduction strategies and their implications for the optimal power system configuration in 2040. Scenario results indicate that Bolivia’s current BAU trajectory could be up to €2.5 billion more expensive than alternative transition pathways. With subsidies amounting to €5–7 billion, sufficient fiscal space exists to finance renewable deployment under these alternatives. The findings highlight multiple feasible pathways for achieving sustainability, a measured subsidy reform in line with social equity, and cost efficiency.