Latin America: Building on Climate Advantages

14 May 2021

Latin America accounts annually for only 5% of global carbon dioxide emissions. And, Mexico and Brazil alone are responsible for over 50% of the region’s pollution. Moreover, while Latam’s GHGs have risen 25% since 2005, emissions in many key countries have been declining since 2014. Likewise, CO2 per capita levels are comparatively low (next Chart).

Regardless of these many advantages, Latam must continue to act to mitigate climate risks. In particular, despite accounting for less than 1% of the world’s annual emissions, the region’s poorest nations are most vulnerable, e.g. Central America, Bolivia, Ecuador, Venezula, Haiti (and some other Caribbean islands). Meanwhile, more prosperous Chile, Uruguay, and Costa Rica are more prepared (see my model “Climate Change: Who’s Preparing, Who’s Not” for individual country rankings). Inadequate preparations, therefore, could contribute to greater inequality both within the region and globally. High Latam Gini coefficients indicate incomes are already more skewed than in other regions (next Chart). Additionally, neglecting climate risks could contribute to Latin America’s chronic economic underperformance, complicate its recovery from the Covid crisis, and add to the region’s already high levels of poverty.

Energy System: Geography Creates Advantages

Latin America’s key advantage is that is blessed with a beautiful landscape, filled with dammable rivers. Indeed, hydo-electric power generates roughly 50% of the region’s electricity (next Chart). Indeed, all of Paraguay’s electricity comes from this source. The Andean nations, Costa Rica, and Brazil are also richly endowed. In addition, many countries have successfully adopted other renewable energy sources, especially Uruguay, Costa Rica, Chile, Nicaragua, and Brazil. Overall, however, non-hydro renewables account for only 15% of the region’s power generation, far below the EU’s 25%. And, not all nations are so fortunate. Mexico and the Caribbean islands (where sun and wind are plentiful) still rely heavily on fossil fuels. And, Argentina and Bolivia are large consumers of natural gas.

As a result of this favourable energy mix, Latam’s carbon intensity is low. That is, the amount of CO2 released per unit of energy consumed is lower than most of the world, especially compared to coal-guzzling Asian emerging markets. In addition, several Latam countries have experienced dramatic reductions in CO2 intensity, Uruguay in particular (next Chart).

Economic Transition Will Boost Future Energy Demand

If Latin America is to enjoy future prosperity, the region’s economy will need to transition from agriculture into industry (and services). As manufacturing is considerably more energy-intensive, Latam’s energy demand is likely to grow significantly in coming decades. Therefore, the recent slowdown in emissions growth (which may simply have reflected weak economic activity) is likely to revert back to the underlying upward trend (next Chart).

In order to minimise GHG growth during industrialisation, Latin America must strive to improve energy efficiency (as well as to continue to deploy renewable energy sources). Latam’s presently low energy/GDP ratio (the key efficiency metric) largely reflects agriculture’s comparatively limited energy requirements (relative to industry). The following Chart, however, illustrates that in the region’s more advanced countries, e.g. Chile, Brazil, and Mexico, energy efficiency lags Europe by up to 25% (represented by the UK). Thus, there’s lots of room for improvement, and much of the region has sharply lowered energy/GDP ratios recently. Energy-saving technologies exists in Europe and elsewhere, and Latam should make use of them.

Agriculture: “Precision” Farming Technology Would Help

Reflecting Latin America’s heavy reliance on agriculture, the rural sector is by far the region’s largest GHG emitter. Indeed, farming emissions dwarf those from industry, in sharp contrast to the rest of the world and other emerging market economies (next Chart). Technology can play an important role in mitigating climate risks in this key area. So-called “precision farming” technologies, including the use of sensors for improved water conservation, better land and waste management, advancements in fertilisation, etc., can be utilised to boost farming productivity and lower emissions. Brazil is at the vanguard of such initiatives.

In assessing climate risks in individual countries, a large agricultural sector is a double-edged sword. More volatile weather patterns will increase risks for the rural population (ususally the poorest citizens). Likewise, farming can emit high levels of ultra-toxic methane. Indeed, Brazil (#5), Argentina, Mexico, and Venezuela are amongst the top 15 methane emitters in the world. On the other hand, local food production would be vital during a climate emergency. Brazil, Argentina, Uruguay, Paraguay, and Bolivia are net food exporters. Others are less fortunate, especially the Caribbean nations.

Geography: Draining the Sink?

Latin is blessed with the immense Amazon rain forest. This “carbon sink” absorbs over 1 billion tonnes of GHG annually: 2% of annual global emissions and 80% of Brazil’s yearly pollution. However, as a result of deforestation, fires, and agricultural encroachment, recent reports suggest that Amazonia will soon become a net emitter of carbon dioxide!

In climate accounting terms, changes in land use (LUCF) — e.g. deforestation for agricultural, industrial, or residential usage — is a source of CO2 emissions. The Chart above illustrates Brazil is the world’s third largest LUCF emitter — after Indonesia and DR Congo the plunderers of the Asian and African rainforests. Following a sharp decline in 2012 (as deforestation eased temporarily), Brazil’s LUCF emissions have risen over 50% since President Bolsonaro took office. LUCF now accounts for 30% of Brazil’s overall GHG emissions, compared to the global average of 6%.

Within Latin America, however, Brazil is not alone. LUCF’s share of national GHG emissions is 75% in Paraguay, Bolivia 62%, Peru 41%, Venzuela 27%, and Argentina 21%. Brazil has commited to ending illegal deforestation by 2030. However, LUCF is likely to remain a source of Latam emissions as industrialisation takes place.

Meanwhile, the Caribbean islands and coastal nations (e.g. Guyana), are highly vulnerable to increased storms and floods (Chart above). The Covid experience highlights the economic vulnerability to health and climate emergencies in these tourism-dependent regions (see the Chart below on the sector’s share of employment).

Governance: Public Sector Let’s Down the Population

An assessment of a nation’s climate vulnerability not only depends on its current capabilities, but also its ability to adapt and respond prior to and during emergencies. In large part, the latter depends on the strength and flexibility of each nation’s institutions. The World Economic Forum (WEF) rates the quality of institutional arrangements in 141 countries. Within Latin America, only Chile, Uruguay, and Costa Rica rank in the top half of the countries assessed. And, Venezuela is dead last, rightly so.

Weak institutions limit the public sector’s ability to deliver key ingredients in mitigating climate risks, in particular health care and infrastructure. For example, Johns Hopkins ranks 195 national health care systems’ level of preparedness for emergencies. The following Chart illustrates only Argentina, Brazil, Chile, and Mexico are considered more than 50% prepared. Again, special attention for #176 Venezuela.

Likewise, only six Latam countries score in the top half of the WEF’s Infrastructure Quality list.

Strategic Considerations

  • Latin America must build upon its many climate advantages to prevent weaker long-term GDP growth and rising inequality. In smaller Latam countries, where CO2 emissions are low, government policy should focus on reducing the very high levels of poverty (see next Chart).
  • Latam has considerable scope to improve energy efficiency, to make greater use of non-hydro renewable energy sources, and to deploy “precision farming” technolgies to cut GHGs. However, emissions are likely to grow in coming decades, as the transition from agricuture to industry occurs.
  • International diplomatic efforts are required to curb Amazonian deforestation, and to mobilise resources to mitigate climate risks in poor Caribbean and coastal nations.
  • Disappointingly, Brazil has not established a long-term climate goal. And, President Bolsonaro’s pledge to end illegal deforestation in 2030 lacks credibility. Nevertheless, Brazil’s emissions are low, and it enjoys an enviable energy system: fossil fuels account for only 15% of electricity generation. And, its transport sector makes extensive use of bio-fuels. While CO2 emissions have been declining since 2014, I expect GHGs to grow in coming decades, as agriculture’s role in the economy declines.
  • As the region’s largest emitter, Mexico’s pledge to cut CO2 levels by 50% by 2050 should be more ambitious. While the planned transition from oil to natural gas is helpful, fossil fuels still account for 80% of electricity generation. There is considerable scope to deploy renewable sources, lower carbon intensity, and improve energy efficiency.
  • Chile’s net-zero pledge by 2050 will continue to provide regional leadership.
  • Both Peru and Argentina (who has not established a long-term climate goal) plan to reduce their reliance on oil in favour of natural gas.