Nivela: Is climate change a top priority for Latin America and the Caribbean countries?
Amal-Lee Amin: Climate change is certainly a top priority for Latin America and the Caribbean. It presents a host of threats such as the potential increase in the number and intensity of floods, droughts and hurricanes, but also substantial opportunities.
According to the Pew Research Center, climate change is seen as a top threat in our region. Several countries this year have been rocked by extreme weather events, which are set to become more frequent and intense due to global warming. Climate change impacts carry a huge price tag. Our research shows that damages in the region caused by climate impacts, such as sea level rise, will likely approach US$100 billion a year by 2050 if global action on climate change fails to deliver. It is worth reiterating one of the key messages from the Stern Review on the Economics of Climate Change that it is far cheaper to reduce emissions now then deal with the exorbitant costs later.
On a more positive note, tackling climate change offers huge opportunities to usher in a more sustainable and inclusive form of development, which is more resilient to a worsening climate.
Nivela: How are Latin American and Caribbean countries responding?
ALA: More and more governments, investors and civil society groups support the idea that low-carbon and climate-resilient development makes economic sense. Recent research by the OECD says that the combination of economic policies and climate policies, such as carbon pricing, to boost investment in sustainable infrastructure, could increase GDP in 2050 by up to 2.8 percent on average across G20 countries, which includes Mexico, Brazil and Argentina.
Most countries in the region have ratified the Paris Agreement and are looking at ways of integrating climate and sustainability goals into national development planning. As part of the agreement, Latin American and Caribbean countries put together Nationally Determined Contributions (NDCs) which include information on how they will reduce their emissions and adapt to climate impacts.
These plans can set countries on a path towards low-carbon resilient development by pushing forward the necessary transformation of the energy, transport, agriculture, and disaster risk management sectors. Overcoming barriers including vested interests, weak institutions and insufficient levels of low carbon investments is needed to successfully implement the NDCs.
Encouragingly, the global low carbon transition is arguably happening faster than expected, which could be a boon for our region. Research from Carbon Tracker and Imperial College London’s Grantham Institute says solar photovoltaics (with associated energy storage costs included) could supply 23% of global power generation in 2040 and 29% by 2050, entirely phasing out coal and leaving natural gas with just a 1% market share.
Latin America and the Caribbean is well placed to take advantage of this global transition given its progress on renewable energy. In 2015, the number of countries with renewable energy targets nearly doubled compared to the previous year. Argentina, which will host the G20 presidency next year, has declared 2017 as the “year of renewable energy” and it aims to have 8 percent of its electric generation derive from renewables by 2018. The future prospects for renewables look good. Bloomberg New Energy Finance says that in 2018, the region will see 13.3 GW of wind and solar come online, which is triple the total for this year. While the region has made impressive progress on clean energy, substantial work remains on improving energy access to all citizens, energy efficiency and modernizing power grids.
Given fossil fuels make up a big chunk of the region’s energy mix, countries must also prepare to manage the transition risks associated with the shift to a low carbon economy, characterized by policies to reduce emissions and the tumbling costs of renewables. Early planning for a just transition that invests in environmentally and socially sustainable jobs and sectors is critical.
N: What is the Inter-American Development Bank Group doing to support Latin American and Caribbean countries in confronting climate change?
ALA: Our aim is to achieve development in a sustainable and climate-friendly way. The IDB Group is committed to supporting the region in reducing the risks it faces from climate change and reaping the benefits from building low-carbon and climate-resilient economies.
We are working to mainstream climate change across the Bank and our private-sector affiliate the Inter-American Investment Corporation (IIC) and are working with countries to increase their access to climate finance. A key priority for the IDB is to mainstream climate risk into investment decision-making processes, especially for infrastructure investments. In effect, climate risks need to be treated like any other investment risk.
Last year, we launched the NDC Invest platform, which is helping countries to transform their NDCs into achievable investment plans and mobilizing resources for their implementation. NDC Invest can play a major role in convening governments, investors and civil society to accelerate the development of transparent pipelines of sustainable infrastructure projects for electric public transport systems and the protection of natural capital.
The IDB Group is also a leading source of climate finance in the region. Last year, the Bank’s Governors agreed a goal of doubling our volume of climate-related operations to 30 percent of loan approvals by 2020. We are making progress: In 2016, we financed US$2.66 billion in climate-related activities such as loans, grants and technical cooperation, which represented 22 percent of total approvals.
For instance, in Panama, a US$150 million loan was approved in 2016 for a program aiming to improve sanitary conditions and reduce pollution of the urban rivers and streams to the west of Panama City. In Nicaragua, we are financing the exploration phase of the Cosigüina Volcano Geothermal Project through a US$76 million loan. And finally, in Mexico, the IIC just signed a US$75 million loan to finance the Solem PV project, which will be the largest solar power plant in Latin America.
N: Why is the IDB Group ramping up its work on sustainable infrastructure?
ALA: Latin America’s demand for infrastructure is rising fast as citizens call for improved sanitation, energy and transport systems. Our estimates suggest that up to 5 percent of the region’s GDP, roughly US$250 billion per year, will be required to meet this demand.
The Global Commission on the Economy and Climate says that investing in sustainable infrastructure is critical to boost global growth and deliver on the Sustainable Development Goals (SDGs) and the Paris Agreement. Investments in sustainable infrastructure and landscapes should be prioritized given their role in providing vital public goods across the energy, transport, water and ecosystem services.
While these types of investments could marginally increase up-front capital costs, they are justified given sustainable infrastructure could generate short and long-term gains to the economy, productivity and well-being while reducing climate risks and emissions.
Given the urgent task of reducing emissions, the window for making the right choices is fast closing due to the risk of locking in capital and technology. With 70 percent of the forecast increase in emissions from developing countries set to come from infrastructure that is not even built yet, decisions made today will determine whether the Paris Agreement and SDGs remain viable.
Despite the commitments to sustainable development made by policymakers and other decision makers, there is still a lack of engagement by many infrastructure investors. That’s why we have partnered with Mercer Investments, with the aim of boosting investment in sustainable infrastructure.
This work has yielded some crucial recommendations for the multilateral development banks (MDBs), investors, infrastructure initiatives and governments. The MDBs should increase support to countries with better upstream planning to encourage the integration of sustainability criteria, in particular climate-related objectives as set out within the NDCs, into planning and regulatory frameworks.
The MDBs can also facilitate inter-ministry dialogue and strengthen relationships with finance ministers to reflect budget allocations to sustainable infrastructure. We also need to crowd-in more private sector financing and develop sustainable infrastructure into an attractive asset class. Institutional investors look for predictable, long-term returns. Well-prepared projects along with consistent, predictable regulatory frameworks are needed.
N: How can Latin America build cleaner cities and promote low-emission forms of transport?
ALA: Urban areas form a central part of our work. The IDB promotes the vision of a smart city which puts people at the center of development and integrates information and communications technologies into urban management. By promoting integrated and sustainable development, smart cities can be more innovative, competitive and resilient.
Latin America’s urban population is expected to reach 567 million by 2025. If the expected growth continues, roughly 90 percent of the region’s population will reside in urban areas by 2050. This expansion brings major challenges for providing adequate and quality services in housing, sanitation and transport while generating prosperity and building resilience to climate impacts.
Transportation should be an important focus given it accounts for 8 percent of the region’s total emissions and also represents the fastest growing source of energy-related emissions.
An excellent option for low-carbon transport that brings numerous benefits not least for health and improving air quality is cycling. One of the Bank’s goals is to create an environment where people of every age and income level can cycle in a safe and enjoyable way. The IDB developed ¡A todo pedal!, a practical tool that promotes better conditions for bicycle mobility.
To decarbonize the transport sector, public and private transport needs to be electrified. This shift also brings many benefits, including lower emissions, less air pollution and a reduced need for fossil fuel imports. In countries with abundant hydropower, such as Costa Rica, demand for transport fuels constitutes their key dependence on fossil fuels. If transport could be electrified, a major part of the demand for fossil fuels would be eliminated.
While Latin America’s electric transport market is still incipient there is excellent potential for growth. Fortunately, the large investments already made in bus rapid transit systems can accommodate electric vehicles. In 2015, mayors from 20 Latin American cities signed the C40 Clean Bus Declaration in Buenos Aires, which aims to improve air quality and reduce emissions by incorporating low- and zero-emission buses in their fleets.
Chile also recently launched a new draft Electro-mobility Strategy which focuses on the development of market information, regulation and standardization, dissemination of efficient vehicle technologies, and temporary incentives to deploy electro-mobility.
The IDB recommends that Latin American countries implement policies such as requiring a minimum percentage of parking spaces in new homes and offices to have charging points. The promotion of initiatives to increase the awareness of electric vehicles, including public procurement of electric fleets and labeling schemes, could also help.
The outlook for the growth in electric vehicles is staggering. Bloomberg New Energy Finance’s Electric Vehicle Outlook 2017 says by 2040, 33 percent of the global car fleet will be electric. The demand for lithium-ion batteries is set to grow. With more than half of the world’s lithium reserves in Argentina, Bolivia and Chile, these countries could become major players in the emerging market for batteries and their use in electric vehicles and energy storage.
The transformation to low-carbon, climate-resilient cities requires close collaboration among stakeholders including civil society. Many non-governmental organizations are embracing the climate challenge with urgency and creativity, making a vital contribution towards solving the problem. Young people in Latin America are becoming increasingly active in fighting climate change and promoting inspiring ideas for a more sustainable future on issues such as air quality and public transport.
We are working with civil society groups including the Fundación AVINA, Peru’s Derecho, Ambiente y Recursos Naturales (DAR) and Grupo de Financiamiento Climático para América Latina y el Caribe (GFLAC) on a series of virtual workshops in Peru, Mexico, Colombia, Costa Rica, Chile and Jamaica. The IDB is also supporting a series of dialogues organized by the Brazilian Forum on Climate Change to look at how Brazil’s NDC can be successfully implemented.
N: Thanks very much Amal-Lee!