Exploring the elements of an optimal hydrocarbon fiscal regime

The study analyzes the process for the awarding of blocks among select countries within the western hemisphere, namely Brazil, Guyana, Mexico, Suriname and Trinidad and Tobago. The findings allow for the determination of key elements of what can be considered an optimal hydrocarbon fiscal regime for Caribbean economies that would allow governments to get their fair share of hydrocarbon rents, while ensuring sufficient exploration and production activity. The study therefore suggests that for the Caribbean, the optimal fiscal regime should include a reservation price, royalties, and a windfall tax. Mindful of the sunk costs which may be incurred by the multinationals in exploration and production activities, invariably, fiscal incentives would be necessary. The study, however, argues in favor of collusion among oil and gas endowed regional countries in pursuit of hydrocarbon sector FDI. This would simultaneously avoid the proverbial race-to-the-bottom and go a long way in optimizing each country’s hydrocarbon rents.