WORLD BANK L ATIN AMERICAN AND CARIBBEAN STUDIES 51281 Low-Carbon Development Latin American Responses to Climate Change Augusto de la Torre Pablo Fajnzylber John Nash LOW-CARBON DEVELOPMENT: LATIN AMERICAN RESPONSES TO CLIMATE CHANGE LOW-CARBON DEVELOPMENT: LATIN AMERICAN RESPONSES TO CLIMATE CHANGE Augusto de la Torre Pablo Fajnzylber John Nash © 2010 The International Bank for Reconstruction and Development / The World Bank 1818 H Street NW Washington DC 20433 Telephone: 202-473-1000 Internet: www.worldbank.org E-mail: feedback@worldbank.org All rights reserved 1 2 3 4 13 12 11 10 This volume is a product of the staff of the International Bank for Reconstruction and Development / The World Bank. The findings, interpretations, and conclusions expressed in this volume do not necessarily reflect the views of the Executive Directors of The World Bank or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. 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All other queries on rights and licenses, including subsidiary rights, should be addressed to the Office of the Publisher, The World Bank, 1818 H Street NW, Washington, DC 20433, USA; fax: 202-522-2422; e-mail: pubrights@worldbank.org. ISBN: 978-0-8213-8054-3 eISBN: 978-0-8213-8081-9 DOI: 10.1596/978-0-8213-8054-3 Library of Congress Cataloging-in-Publication Data Low-carbon development : Latin American responses to climate change / Augusto de la Torre, Pablo Fajnzylber, and John Nash, editors. p. cm. ­­ (World Bank Latin American and Caribbean studies) Includes bibliographical references and index. ISBN 978-0-8213-8054-3 ­­ ISBN 978-0-8213-8081-9 (electronic) 1. Energy policy­­Latin America. 2. Carbon dioxide mitigation­­Latin America. 3. Climatic changes­­Latin America. I. Torre, Augusto de la. II. Fajnzylber, Pablo. III. Nash, John. HD9502.L32L69 2009 363.738'746098­­dc22 2009035877 Cover design: Naylor Design. Contents Acknowledgments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ix Preface . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xi Abbreviations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xiii 1. Confronting the Global Challenge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 2. Climate Change Impacts in Latin America and the Caribbean . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 3. Adapting to a Changing Climate in the Latin America and the Caribbean Region . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 4. Mitigation Efforts: Moving Beyond the First Generation of Emission Reductions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77 5. Latin America and the Caribbean Region's GHG Emissions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103 6. Climate Change Mitigation in the Latin America and the Caribbean Region: No Regrets and Beyond . . . . . . . . . . . . 127 Appendix: Authors of Background Papers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 177 Bibliography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 179 Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 191 Boxes 3.1 Local Coping Strategies: Learning from Long Experience . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 3.2 Efficiencies and Costs of Water Adaptation Strategies: The Case of Rio Bravo . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 3.3 ENSO and the LCR: Use of Climate Predictions to Respond to Weather Variations . . . . . . . . . . . . . . . . . . . . . . . . . 60 3.4 The Insurance Role of Safety Nets: Experiences from Nicaragua and Honduras . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61 3.5 Weather Insurance Mechanisms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63 3.6 Nonfacilitative Adaptation: In Some Areas, Direct Government Action Will Be Required. . . . . . . . . . . . . . . . . . . . 66 3.7 Coping with Drought in Northeast Brazil: The Role of Government . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67 3.8 Monitoring Is the First Step in Designing Assistance for Ecosystems' Adaptation . . . . . . . . . . . . . . . . . . . . . . . . . . 68 3.9 Managing Ecosystems in the LCR: Ongoing Projects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69 3.10 Bridging the Gap between Climate Change and Agricultural Technology: Embrapa . . . . . . . . . . . . . . . . . . . . . . . . 70 3.11 Developing Response Strategies to Reduce Vulnerability of Agriculture to Climate Change. . . . . . . . . . . . . . . . . . . 71 3.12 Real Options Methodologies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72 3.13 Private and Public Agricultural Research for Climate Change: It Takes Time. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74 3.14 The Caribbean Catastrophe Risk Insurance Facility (CCRIF) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74 6.1 Supporting Policies Have Different Effects on Incentives, Investment Certainty, and Costs . . . . . . . . . . . . . . . . . . 132 v CONTENTS 6.2 More Effective and Efficient Environmental Licensing Is Needed to Unleash the Region's Potential for Hydropower. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133 6.3 Unintended Consequences of Combining Biofuel Mandates with Tax Credits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 141 6.4 Conserving Electricity in Brazil . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 144 6.5 Energy Efficiency in Mexico . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 146 6.6 Examples of Transport and Land-Use Planning in Bogotá, Colombia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 151 6.7 Cost-Benefit Analysis of Mitigation Measures in Mexico's Transport Sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 153 6.8 Severe Soil Erosion Precipitates the Adoption of Zero Tillage in Brazil. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 159 6.9 Supporting Customized Solutions through the FCPF . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 164 6.10 Paying to Protect Forests through ProÁrbol in Mexico. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 165 6.11 Conservation Banking to Reduce Deforestation and Protect Biodiversity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 165 Figures 1.1 Retreat of the Chacaltaya Glacier in Bolivia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 1.2 Sector Composition of Global Greenhouse Gas Emissions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 1.3 Actual versus Projected Global Greenhouse Gas Emissions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 1.4 Impact of Climate Change on the Frequency of Extreme Weather Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 1.5 Marginal Mitigation Cost and Avoided Damage (Benefit) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 1.6 Impact on Optimal Policies of Unexpected Changes in Marginal Mitigation Costs. . . . . . . . . . . . . . . . . . . . . . . . . . 14 1.7 McKinsey's Global Greenhouse Gas Abatement Cost Curve Beyond Business-as-Usual, 2030 . . . . . . . . . . . . . . . . . 19 1.8 Damage Costs of Different Levels of Global Warming . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 2.1 Time Series of North Atlantic Tropical Cyclones and Sea Surface Temperature . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 2.2 Climate-Related Disasters in Latin America and the Caribbean Region versus the Rest of the World Index. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 2.3 Effects of Climate Change on Poverty, Brazilian Municipalities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 2.4 Retreat of the Chacaltaya Glacier in Bolivia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 2.5 Projected Sea Level Rise and Its Impact on GDP in Latin America and the Caribbean Region . . . . . . . . . . . . . . . . . 44 3.1 Estimates of the Long-Term Effects of Droughts on Wages in Brazil . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 4.1 Climate Stabilization Paths . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78 4.2 Historic Trends in Per Capita GDP and Per Capita CO2 Energy Emissions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79 4.3 Historic Trends in Per Capita GDP and CO2 Energy Emissions over GDP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79 4.4 A Possible Scheme for Gradual Incorporation of Developing Countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82 4.5 Cumulative Number of Projects in the Clean Development Mechanism Pipeline, by Country/Region of Origin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85 4.6 Primary Clean Development Mechanism Transactions for Compliance, by Country/Region of Origin . . . . . . . . . . . 85 4.7 Cumulative 2012 Certified Emission Reductions from the Clean Development Mechanism Pipeline, by Country/Region of Origin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86 4.8 Shares of 2012 Clean Development Mechanism's Certified Emission Reductions and Non-LULUCF Emissions (Non-Annex I Countries) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86 4.9 Clean Development Mechanism Portfolio in Latin America and the Caribbean Region, by Country, 2012 Certified Emission Reductions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87 4.10 Clean Development Mechanism Portfolio in Latin America and the Caribbean Region and Asia, by Sector, 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88 5.1 Latin America and the Caribbean Region's Share of Global Greenhouse Gas Emissions, 2000 . . . . . . . . . . . . . . . . 104 5.2 Greenhouse Gas Emissions by Latin America and the Caribbean Region and Other Developing Regions, versus GDP and Population, 2000. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104 5.3 Greenhouse Gas Emissions Per Capita and Per GDP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105 5.4 Greenhouse Gas Emissions by G-8 and Major Developing Countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105 5.5 Sector Composition of Greenhouse Gas Emissions, 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106 5.6 Composition of Total Primary Energy Supply for Latin America and the Caribbean Region and the World, 1990 and 2004. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107 5.7 Composition of Fossil Fuel CO2 Emissions for Latin America and the Caribbean Region and the World, 1980 and 2004. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108 5.8 Latin America and the Caribbean Region's Electricity Generation Mix, 1981­2006. . . . . . . . . . . . . . . . . . . . . . . . 109 vi CONTENTS 5.9 Latin America and the Caribbean Region's Carbon Intensity of Electricity and Share of Thermal Generation, 1980­2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109 5.10 Composition of Latin America and the Caribbean Region's Greenhouse Gas Emissions, 2000 . . . . . . . . . . . . . . . . 110 5.11 Composition and Share of Latin America and the Caribbean Region's Emissions from Land Use Change, 2000. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110 5.12 Greenhouse Gas Emissions from Non­Land Use/Land Use Change and Forestry, 2000. . . . . . . . . . . . . . . . . . . . . . 111 5.13 Fossil Fuel CO2 Emissions for Selected Latin America and the Caribbean Region Countries, 2000 . . . . . . . . . . . . . 111 5.14 Greenhouse Gas Emissions Per Capita for Selected Latin America and the Caribbean Region Countries, 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112 5.15 Greenhouse Gas Emissions per GDP for Selected Latin America and the Caribbean Region Countries, 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112 5.16 Per Capita Fossil Fuel CO2 Emissions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113 5.17 Intensities of Energy Use and Fossil Fuel CO2 Emissions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114 5.18 Indexes of Carbon, Energy, and Emission Intensity, and Per Capita GDP, 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . 116 5.19 Summary Kaya Decomposition of Changes in Fossil Fuel CO2 Emissions, 1980­2005 . . . . . . . . . . . . . . . . . . . . . . 116 5.20 Kaya Decomposition of Changes in Fossil Fuel CO2 Emissions, by Subperiods, 1980­2005 . . . . . . . . . . . . . . . . . . 117 5.21 Energy Intensity and Primary Energy Use, 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 118 5.22 Oil Intensities of Selected Latin America and the Caribbean Region and OECD Countries. . . . . . . . . . . . . . . . . . . 119 5.23 Trends in Per Capita Fossil Fuel CO2 Emissions for Selected Latin America and the Caribbean Region Countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121 5.24 Intensity of Fossil Fuel CO2 Emissions Per Capita GDP, Selected Latin America and the Caribbean Region Countries, 1980­2005. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122 5.25 Intensity of Energy Use and Carbon Intensity of Energy, Selected Latin America and the Caribbean Region Countries, 1980­2005. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122 5.26 Kaya Decomposition of Projected Changes in Fossil Fuel CO2 Emissions, by Subperiods, Selected Latin America and the Caribbean Region Countries, 1980­2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123 5.27 Projected Increases in Fossil Fuel CO2 Emissions, Baseline, and Optimistic IEA Scenarios for Latin America and the Caribbean Region, OECD, and Other Developing Countries, 2004­30 . . . . . . . . . . . . . . . 124 5.28 Kaya Decomposition of Projected Changes in Fossil Fuel CO2 Emissions, Baseline, and Optimistic International Energy Agency Scenarios for Latin America and the Caribbean Region, OECD, and Other Developing Countries, 2004­30 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125 5.29 Projected Total Primary Energy Supply under Baseline and Optimistic IEA Scenarios for Latin America and the Caribbean Region, OECD, and Other Developing Countries, 2004­30 . . . . . . . . . . . . . . . 125 6.1 Low Reliance on Coal and High Reliance on Hydro-Electric, Oil, and Biomass in Latin America and the Caribbean Region, 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 129 6.2 Hydroelectric Potential in Latin America and the Caribbean Region . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133 6.3 Wind Power Potential in Mexico . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 134 6.4 Conversion of Natural Forest to Second-Generation Biofuels in Latin America and the Caribbean Region . . . . . . . 138 6.5 Generation Costs of Hydro Are Often Lower than for Gas and Coal-Based Power . . . . . . . . . . . . . . . . . . . . . . . . . . 142 6.6 Average Electricity Tariff in Brazil, 1974­2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 144 6.7 Mexico's Tariff Structure and Electricity Consumption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 145 6.8 Mexico--Improvements in Thermal Generation Efficiency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 146 6.9 Transport Sector Emissions in Latin America and the Caribbean Region. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 148 6.10 Emission Levels Can Be Determined by Three Variables. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 148 6.11 Six Scenarios Estimating Technical Potential to Reduce Latin America and the Caribbean Region's Emissions through Landfill Gas Projects in the CDM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 155 6.12 Agricultural Non-CO2 Emissions by Region and Source, 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 157 6.13 Projected Cumulative Emissions from Agriculture, by Region, 1990­2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 158 6.14a Marginal Abatement Cost of Reducing Latin America and the Caribbean Region's Livestock Sector Emissions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 160 6.14b Marginal Abatement Cost of Reducing Latin America and the Caribbean Region's Emissions through Soil Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 160 6.15a Carbon Emissions from Deforestation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 161 6.15b Annual Deforestation in the Amazon, 1990­2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 161 vii CONTENTS 6.16 Falling Emissions Because of Strong Conservation in the Amazon . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 163 6.17 Potential Area (in hectares) for CDM-A/R by Country (Without Considering Protected Areas) . . . . . . . . . . . . . . . 167 Maps 1.1 Latin America and the Caribbean Region's Exposure to Natural Disasters under Current Climate Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 1.2 Expected Changes in Latin America and the Caribbean Region Climate Risks from 1981­2000 to 2031­50 Based on Eight Global Circulation Models and Levels of Model Concordance . . . . . . . . . . . . . . . . . . . . 10 2.1 Expected Changes in Latin America and the Caribbean Region Climate Risks from 1981­2000 to 2031­50 Based on Eight Global Circulation Models and Levels of Model Concordance . . . . . . . . . . . . . . . . . . . . 30 2.2 Current Agricultural Productivity and Expected Changes by 2080 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 2.3 Major Regional Vulnerabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 2.4 Modelled Natural Vegetation in the Amazon Basin under Current and Future Climate Conditions . . . . . . . . . . . . . 43 2.5 Areas of High Concentration of Amphibians according to Levels of Threat and Climate Change Susceptibility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 6.1 High Mitigation Potential of Latin American Agriculture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 157 Tables 1.1 Fraction of the Latin America and the Caribbean Region Countries' Territory with Increased Climate Risks in 2030 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 2.1 Fraction of National Territory of Latin America and the Caribbean Region Countries with Current High Risks of Drought, Floods, or High Expected Increase (by 2030) in Dry Days, Heat Waves, or Rainfall Intensity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 2.2 Cumulative Losses for Each Country, 1979­2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 2.3 Projected Damage for Five-Year Period Circa 2020­25 for the Four Scenarios . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 2.4 Ecosystem Hotspots . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 2.5 Potential Value of Lost Economic Services of Coral Reefs circa 2040­60 Based on the Results of the COMBO Model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 2.6 Additional Numbers of Cases of Malaria and Dengue for 50- and 100-Year Future Scenarios . . . . . . . . . . . . . . . . . . 45 2.7 Climate Change Costs Relative to the 2000­05 Period in Colombia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 2.8 Potential Annual Economic Impact of Climate Change in CARICOM Countries circa 2080 . . . . . . . . . . . . . . . . . . 47 3.1 Projected Future Changes in Runoff. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 3.2 Current and Projected Future Changes in Runoff in Latin America and the Caribbean Region . . . . . . . . . . . . . . . . . 75 4.1 Potential, Responsibility, and Capability to Reduce Greenhouse Gas Emissions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84 5.1 Pass-Through Estimations of Previous Studies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120 5.2 Average Gasoline and Diesel Prices in Latin America and the Caribbean Region, 2005­07 . . . . . . . . . . . . . . . . . . 120 5.3 A Taxonomy of Pass-Through by Country . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121 6.1 Lower Carbon Intensity but Higher Energy Demand Growth in Latin America and the Caribbean Region than Globally . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 129 6.2 CO2 Emissions from Electricity Generation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 130 6.3 Latin America and the Caribbean Region-Generation Expansion 2005­30: Reference Case Generation Mix and CO2 Emissions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 131 6.4 Levelized Generation Costs of Wind Power . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 135 6.5 Shares of Energy Consumption in Latin America and the Caribbean Region by Energy Source . . . . . . . . . . . . . . . . 136 6.6 Switching Costs from More to Less Carbon Intensive Energy Sources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 142 6.7 Energy Efficiency Opportunities and Measures in Key Consuming Sectors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 143 6.8 Economic Potential of Avoided Deforestation in Latin America and the Caribbean Region. . . . . . . . . . . . . . . . . . . 168 6.9 Mitigation Options in Latin America and the Caribbean Region: Potential, Costs, and Technological and Institutional Barriers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 172 viii Acknowledgments L OW-CARBON DEVELOPMENT: Latin R. Guerrero Rojas, David R. Just, Erika Kliauga, American Responses to Climate Change is the Donald F. Larson, Humberto Lopez, Carla della Mag- product of a collaborative effort of two units giora, Andrew Mason, Robert Mendelsohn, Paul Procee, of the Latin America and the Caribbean Claudio Raddatz, Jose Jorge Mora Rivera, Pedro Region of the World Bank: the Office of the Rivera Izam, Pasquale L. Scandizzo, Sebastian Scholz, Chief Economist and the Sustainable Development Shaikh Mahfuzur Rahman, Yacov Tsur, Dominique Department. The report was prepared by a core team led Van Der Mensbrugghe, Denis Medvedev, Natsuka by Augusto de la Torre, Pablo Fajnzylber, and John Toba, Felix Vardy, Antonio Yunez Naude, and Steven Nash and comprising Veronica Alaimo, Javier Baez, Zanhiser. A complete list of background papers is Svetlana Edmeades, Christiana Figueres, Todd Johnson, provided in the appendix. Irina I. Klytchnikova, Andrew Mason, and Walter Volume I of this report was prepared by Augusto Vergara. Ana F. Ramirez and Carlos Felipe Prada Lombo de la Torre, Pablo Fajnzylber, and John Nash. The provided valuable research assistance. authors of the chapters in Volume II are as follows: The team greatly benefited from background papers chapter 1, de la Torre, Fajnzylber, and Nash; chapter 2, prepared for this report by the following individuals: Nash and Vergara; chapter 3, Nash, Edmeades, Baez, Veronica Alaimo, Carlos E. Arce, Jesus Arellan-Gonzalez, and Mason; chapter 4, Fajnzylber and Figueres; chap- Juliano J. Assunçao, Javier Baez, Brian Blankespoor, ter 5, Fajnzylber and Alaimo; and chapter 6, Johnson Eduardo Bitran Colodro, Benoit Bosquet, Flavia and Klytchnikova. Fein Cheres, Shun Chonabayashi, Peter Christensen, Excellent advice was received from Laura Tuck, Alejandro Deeb, Uwe Deichmann, Ariel Dinar, Makhtar Diop, Mac Callaway, Marianne Fay, Jocelyne Manuel Dussan, Vladimir Gil, Harry de Gorter, Hilda Albert, and Carlos Nobre. ix Preface A GLOBAL FINANCIAL AND ECO- climate-friendly investment. The latter may tend to NOMIC CRISIS of unprecedented suffer disproportionately in the current context, given dimensions was unfolding at the time that the price of fossil fuels has fallen dramatically of the writing of this book. The relative to alternative, clean sources of energy. Not urgency, immediacy, and staggering surprisingly, utilities already seem to be making sig- magnitude of the challenges posed by such a crisis nificant reductions in their investments in alternative have the potential to crowd out efforts aimed at energy, and there is already a reduction in the flow of addressing the challenges of global warming that are project finance devoted to low-carbon energy projects. discussed in detail in this book. The capacity of The expectation that a low relative price of fossil fuels political leaders and of national and supranational is here to stay might not only deter investment in institutions to deal with major global threats is, after low-carbon technology, it could also induce substitu- all, not unlimited. It would be, therefore, naive to tion in consumption in favor of cheaper but dirtier think that the world's ability to tackle simultaneously energy. For example, low gasoline prices could deflate the breakdown of financial markets and the threats the momentum toward hybrid vehicles, particularly posed by global warming is free of tensions and trade- in North America. With lower economic growth offs. These two global menaces have such far-reaching worldwide, furthermore, greenhouse gas (GHG) implications for mankind, however, that it would be emissions could experience a cyclical decline; this imprudent to allow the shorter-term emergency of the might create political incentives to postpone policy global financial crisis and economic downturn to efforts to bring down the emissions trend. In all, the unduly deflect policy attention away from the longer- global financial and economic crisis could lead to a term dangers of climate change. The challenge clearly shortening of policy horizons that might induce a is to find common ground and to identify and pursue shift toward a more carbon-intensive growth path. as many policies as feasible that can deliver progress This shift would only increase the difficulty and raise on both fronts simultaneously. This is possible in the costs of reducing GHG emissions down the line. principle, but not easy to achieve in practice. Experience with previous financial crises in emerging In effect, the world economic slump will be asso- economies suggests that trade-offs often arise between ciated with a fall in private investment, including long-term environmental concerns and short-term xi P R E FA C E macroeconomic policy responses.1 In particular, as com- political compromises and sound judgment on the peting claims rise on shrinking budgetary resources part of policy makers to ensure that long-term consid- during a crisis, budget cuts tend to affect, to a larger erations are not neglected for political expediency. extent, the provision of public services that are consid- Greater scope for synergies is likely to be found in ered to be a "luxury"--that is, services whose immedi- the area of public investment. Massive public invest- ate impact on the people or sectors affected by the ment programs will have to be part of the fiscal emergency is perceived to be low and only indirect. In stimulus required to deal with the global economic developing countries, these often include items such as crisis, especially in developed countries and high- forest conservation or the protection of ecosystems. saving emerging economies. Appropriately designed According to an International Monetary Fund paper and implemented, these programs can generate win- (Giambiagi and Ronci 2004), for example, in the after- win dynamics and outcomes, simultaneously advanc- math of the Asian and Russian crises, Brazil reduced ing the causes of supporting economic recovery while public expenditures (excluding wages, social security helping to encourage growth in areas that minimize or benefits, and interest payments) for 1999 by 11 percent mitigate the impact on climate change. Moreover, in nominal terms with respect to 1998. However, some countries that manage to effect the transition from a key Amazon environmental programs were reduced by high-carbon to a low-carbon economy during the eco- much more than the average. The Brazilian Institute for nomic slump can enjoy "first-mover advantages," that the Environment and Natural Renewable Resources, for is, a greater competitive ability to promote long-term instance, experienced a budget cut of 71 percent with growth beyond the cyclical downturn. As a result, the respect to originally approved funding, and of 46 per- current financial crisis can actually create a unique cent compared with 1998. There are also indications opportunity for a new deal for the twenty-first century, that this phenomenon went beyond the federal level. focused on low-carbon growth. The declared vision of Brazilian states and municipalities, faced with the need the recently elected government in the United States to produce "primary surpluses," were not able to com- for environmental sustainability and energy security pensate for the cuts in federally funded environmental adds hope in this regard. A "green recovery"--that is, programs in the Amazon (Kasa and Naess 2005). a virtuous interaction among job creation, growth If leaders at the national and international levels are resumption, and low-carbon-oriented public invest- visionary, they can avoid falling into the trap of sacri- ments and policy actions--is a worthy option and ficing environmental sustainability to short-term arguably the only sensible option for the world com- macroeconomic necessities and can take advantage of munity at this juncture. Such an option can be turned opportunities to address climate change concerns. In into reality if leaders and political systems rise to particular, policies and programs to address today's the occasion. pressing problems can be designed and implemented with a long-term horizon. Sometimes, these decisions Laura Tuck can be win-win. But sometimes, there will be trade- Director, Sustainable Development Department offs. For example, private investment in, and con- Latin America and the Caribbean Region sumption of, clean energy will be stimulated by a The World Bank relative increase in the price of fossil fuels; this can be encouraged through a combination of regulations, Augusto de la Torre taxes, carbon-trading schemes, and subsidies. But Chief Economist making firms pay to pollute and forcing households to Latin America and the Caribbean Region consume more expensive, if cleaner, energy are not The World Bank popular in times of economic recession. Tilting pri- vate sector activity in a sustainable fashion toward Note low-carbon choices thus calls for carefully managed 1. See for example, Ruta and Hamilton (2008). xii Abbreviations A/R afforestation/reforestation EPA U.S. Environmental Protection Agency BPDPMD barrels per day per million dollar EPC Energy Performance Contracts produced ERPA Emission Reduction Purchase Agreement °C degrees celsius EU European Union CAIT Climate Analysis Indicators Tool FCPF Forest Carbon Partnership Facility CARICOM Caribbean Community FHIS Honduras Social Investment Fund CCGT combined cycle gas turbine FIDE Fideicomiso para el Ahorro de Energía CCRIF The Caribbean Catastrophe Risk Eléctrica (energy savings trust fund) Insurance Facility G-8 Group of Eight CCT conditional cash transfer GDP gross domestic product CDIAC Carbon Dioxide Information GHG greenhouse gas Analysis Center GMO genetically modified organism CDM Clean Development Mechanism GTC/y gigatons of carbon per year CER certified emission reduction GW gigawatt CFE Federal Electricity Company IBRD International Bank for Reconstruction of Mexico and Development CFU carbon finance unit IEA International Energy Agency CH4 methane IPCC Intergovernmental Panel on Climate CO2 carbon dioxide Change CO2e carbon dioxide equivalent KWh kilowatt hour COMBO Coral Mortality and Bleaching Output LCR Latin America and the Caribbean Region DALY disability adjusted life year LFG landfill gas DSM demand-side management LNG liquefied natural gas EB Executive Board (of the CDM) LUC land-use change EIA environmental impact assessment LULUCF land use, land-use change and forestry ENSO El Niño-Southern Oscillation MM millimeter xiii A B B R E V I AT I O N S MW megawatt STP social time preference MWh megawatt hour TAR Third Assessment Report N2O nitrous oxide tCO2e tons of CO2 equivalent OECD Organisation for Economic TOE tons of oil equivalent Co-operation and Development UK FRP United Kingdom Forestry Research PLAC Programa Latino Americano del Carbono Program PPM parts per million UN United Nations R&D research and development UNFCCC United Nations Framework REDD reducing emissions from Convention on Climate Change deforestation and forest degradation WB World Bank SCC social cost of carbon WBCSD World Bank Committee on Sustainable SD-PAM Sustainable Development Policies and Development Measures WS&S water sanitation and safety SNLT Sectoral No-Lose Target WTO World Trade Organization xiv CHAPTER 1 Confronting the Global Challenge Introduction change, which creates serious coordination challenges. Climate change is already a reality. This is evidenced Despite these problems and uncertainties, there is by the acceleration of global temperature increases, increasing evidence suggesting that urgent action is the melting of ice and snow covers, and rising sea levels. needed in order to alter current emission trends so as Latin America and the Caribbean Region (LCR) are to avoid reaching GHG concentration levels that not exempt from these trends, as illustrated by the could trigger large and irreversible damages. Negotia- changes in precipitation patterns that are already tions are under way and are scheduled to be concluded being reported in the region, as well as by observa- in 2012 with a new agreement on a way forward. At tions of rising temperatures, the rapid melting of the same time, individual countries are also consider- Andean tropical glaciers, and an increasing number of ing how to respond in their own domestic policy to extreme weather events. The most important force the challenges of climate change. LCR governments behind climate change is the rising concentration of and civil society should be well informed about the greenhouse gases (GHGs) in the Earth's atmosphere potential costs and benefits of climate change and driven mainly by manmade emissions of carbon dioxide their options for decisions that will need to be made (CO2) and other greenhouse gases. Because of inertia over the next decades as well as the global context in in the climate system, the planet is likely to continue which these decisions must be taken. At the same warming over the twenty-first century, and unless emis- time, the global community needs to be better informed sions are significantly reduced, this process could accel- about the unique perspective of the LCR--problems erate, with potentially very serious consequences for the region will face, potential contributions the region nature and mankind. There is still, however, a high can make to combat global warming, and how to degree of uncertainty regarding the specific drivers, unlock the region's full potential so as to enable it to timing, and impact of global climate change, as well maximize its contribution while continuing to grow as about the costs and efficacy of actions aimed at and reduce poverty. This report seeks to help fill both either mitigating it or dealing with its physical and these needs. economic impacts. As a result, it is very hard, at this point, to unambiguously determine economically effi- The Evidence on Climate Change cient emission pathways for which the benefits of Inhabitants of Latin America and the Caribbean are well actions to mitigate climate change would exceed the aware of the high costs associated with extreme weather costs of those actions. events and climate-related natural disasters. Between Apart from the question of the optimal path, the 2000 and 2005, Latin American countries experi- difficulty of agreeing on a mechanism to resolve the enced 309 climate-related natural disasters, including problem is compounded by the fact that individual 166 floods, 113 windstorms, and 30 droughts. Informa- countries can only capture a fraction of the global ben- tion on the damages caused by these natural disasters is efits arising from their efforts to mitigate climate available only for about 20 percent of the events but still 1 L O W- C A R B O N D E V E L O P M E N T : L A T I N A M E R I C A N R E S P O N S E S T O C L I M A T E C H A N G E amounts to more than US$17.5 billion.1 Central Amer- many years. However, the increasing number of extreme icans, for instance, have fresh memories of Hurricane weather events observed during recent years raises the Mitch, which killed more than 10,000 people in 1998. question of whether we are dealing with a series of Similarly, as a result of the heavy rainfall, floods, and unrelated random occurrences or whether we are con- landslides that hit Peru during the 1997­98 El Niño fronted with a long-run increasing trend. In the first episode, the country experienced monetary losses of case, the high number of climate-related natural dis- US$3.5 billion, or about 5 percent of gross domestic asters that have recently hit LCR countries could just product (GDP).2 While the concerns about the negative be the result of bad luck. There would be no reason to impact of climate-related disasters are not new, during expect the annual number of those events to be sus- the past three decades the region has experienced a wor- tained or to continue rising in the future. We would risome increase in the annual frequency of those events. be dealing with the normal weather variability that Between 1970­99 and 2000­05, for instance, their exists within any given climate. number increased 2.4 times.3 There is, however, a worrisome alternative hypoth- Adding to these concerns, a number of highly esis to explain the recent increase in the number of unusual extreme weather events have taken place dur- unusual weather events. If, as is increasingly believed ing recent years. In December 1999, for example, two by the scientific community, the climate of the whole months after the end of República Bolivariana de planet is warming, the probability distribution of Venezuela's rainy season, a record amount of rainfall many weather variables would also be shifting. As a led to severe floods and landslides that took the lives result, events that were previously infrequent, being of 30,000 people. More recently, in March 2004, located in the tails of the corresponding probability Brazil was hit by Hurricane Catarina, the first ever distributions, could now become more ordinary. Were observed in the South Atlantic. Catarina caused severe these changes to be sustained, households, companies, flooding in the eastern Amazon and displaced thou- and governments would have to reassess a large num- sands of families in southern Brazil. Other recent ber of key decisions, including, for instance, where to unusual events include flooding in the Argentinean locate their homes, factories, and public infrastruc- Pampas (2000­02), severe droughts in the Amazon ture; what goods and services to produce; and what (2005), hailstorms in Plurinational State of Bolivia prices to charge for them. (2002) and Buenos Aires (2006), and the record 2005 To some extent this is already happening. As an Caribbean hurricane season, which included Wilma and example, shortly after Katrina, U.S. risk-modeling Katrina among other major hurricanes. The damages companies raised their estimation of the probability of caused by Wilma in the Yucatan Peninsula amounted a similar event from once every 40 years to once every to almost US$1.9 billion, whereas those of Katrina in 20 years.5 Indeed, analysts speculated that the increas- the U.S. Gulf Coast reached more than US$81 billion. ing number and intensity of tropical cyclones in the In the case of Katrina, at least 1,836 people were North Atlantic Basin was related to a simultaneous killed, including during the subsequent floods, mak- increasing trend in sea surface temperatures in that ing it the deadliest U.S. hurricane since the 1928 area, with both trends being the result of global warm- Okeechobee Hurricane.4 ing. The reassessment of the likelihood and severity of climatic disasters is not, however, particular to the Extreme weather events and climate change United States. It has taken place all over the world as a Extreme weather events are by definition unlikely: result of the increasing scientific evidence suggesting they belong to the tails of the probability distributions that the world's climate system is indeed changing. of the corresponding variables (for example, tempera- ture, rainfall, wind, and so forth). Thus, for a given The evidence of ongoing global climate change climate and in a given time and location, those events Based on the analysis of recent data on the evolution tend to occur with a very small probability, once in of global temperatures, snow and ice covers, and rising 2 CONFRONTING THE GLOBAL CHALLENGE sea levels, the Intergovernmental Panel on Climate changes that are already visible include more frequent Change (IPCC) has recently asserted that "warming of heavy rains over northeast Brazil and central Mexico, the climate system is unequivocal." This is one of the an increase in flood frequency in some parts of the main conclusions of the IPCC's Fourth Assessment Amazon, and a 50 percent rise in streamflow in the Report, released in September 2007, produced by Parana, Paraguay, and Uruguay--Rivers. more than 150 lead authors from more than 30 coun- Some of the changes in climate observed so far have tries, with more than 600 expert reviewers. had positive economic impacts. Examples include rising Among the new evidence reported by the IPCC is crop yields as a result of increased precipitation in the the acceleration in the rate of growth of global surface Argentinean Pampas--ranging from 12 percent in the temperatures, which increased by 0.13 degrees Celsius case of sunflowers to 38 percent for soybeans--and a (°C) per decade between 1956 and 2005, or about 7 percent increase in pasture productivity in Argentina twice the decadal increase observed between 1906 and and Uruguay. Other visible impacts, however, are defi- 2005. Moreover, the mass of Arctic sea ice has shrunk nitely negative. For instance, higher mortality and mor- by 2.7 percent per decade since 1978. Related to this bidity rates have been recorded in Bolivia as a result of trend, the rate of rising sea levels has recently accelerated, increased flooding, landslides, and storms.8 Another from an average of 1.8 mm per year from 1961­2003 to worrisome consequence of the changes in climate that 3.1 mm per year from 1993­2003. As shown by the have already been observed in the region is the rapid IPCC, the above changes in the global climate have retreat of the tropical glaciers that has been documented already had noticeable impacts on precipitation pat- in the Andes.9 One striking illustration of this trend is terns, the frequency of extreme weather events, and the the photographic record of the Chacaltaya Glacier in intensity of North Atlantic tropical cyclones. More- Bolivia, shown in figure 1.1. Projections suggest that over, the IPCC expresses a high level of confidence many of the glaciers at lower altitudes could completely that various human activities (for example, agricul- disappear over the next 10 to 20 years, with far-reaching ture and health) and natural systems (for example, impacts on the economies and human welfare of these plants and animal species, marine ecosystems, and regions (chapter 2).10 hydrological systems) have already been affected by global warming.6 What is behind climate change? The Earth's global mean climate is determined by the Ongoing climate change in Latin America balance of incoming and outgoing energy in the atmos- Latin America has not been exempt from the global phere. The Earth receives energy from the sun. Most of trends documented by the IPCC. Important changes it is absorbed by the planet but a fraction is reflected in precipitation and increases in temperatures have been back into space. The amount of energy that is bounced observed in many countries of the region.7 In particu- back depends on the concentration of GHGs in the lar, increases in mean temperatures of approximately Earth's atmosphere. These gases trap some of the radia- 0.1°C per decade have occurred in South America dur- tion received from the sun and allow the planet's tem- ing the twentieth century. Precipitation has increased perature to be about 30°C above what it would be in some areas--northeast Argentina, southern Brazil, otherwise (Stern 2007). While the greenhouse effect is Paraguay, northwest Peru, and Uruguay--and decreased a natural process, without which the planet would in others--southwest Argentina, southern Chile, and probably be too cold to support life, the concentration of southern Peru. The rate of rising sea levels has also greenhouse gases in the atmosphere has been accelerat- increased, reaching 2­3 mm per year during the past ing over the past 250 years, leading to a significant two decades in southeastern South America. The evi- increase in average global temperatures. dence collected by the IPCC suggests that the above A number of GHGs occur naturally. Water vapor, for changes in the region's climate are already affecting instance, is a strong greenhouse gas and its concentration the frequency of extreme weather events. Examples of in the Earth's atmosphere can only be indirectly related 3 L O W- C A R B O N D E V E L O P M E N T : L A T I N A M E R I C A N R E S P O N S E S T O C L I M A T E C H A N G E FIGURE 1.1 Retreat of the Chacaltaya Glacier in Bolivia Source: Photographs by B. Francou, E. Ramirez, and W. Vergara. to human activities. However, most of the increase in tively, during the same period. Most of the observed the overall concentration of GHGs observed since the increases in atmospheric concentrations of GHGs have industrial revolution can only be explained by taking been driven by fossil fuel burning, which leads to CO2 into account human activities. In fact, the IPCC has and CH4 emissions, followed by CO2 emissions from recently concluded with 95 percent certainty that the land-use change--for example, the conversion of forests main drivers of the observed global changes in climate into agricultural land--and N2O and CH4 emissions have been anthropogenic--that is, manmade--increases from agriculture.11 Taking into account the different in GHG concentrations. warming effects of various GHGs, the current stock of The most important anthropogenic GHG is carbon all GHGs in the Earth's atmosphere is estimated to be dioxide which in 2004 represented 77 percent of total equivalent to about 430 ppm (parts per million) CO2.12 GHG emissions. Other important GHGs are methane The sectors in which CO2 emissions have grown at (CH4) and nitrous oxide (N2O). Global atmospheric faster rates since 1970 are power (145%) and trans- concentrations of CO2 have increased by 35 percent port (120%), which in 2004 represented 26 and 13 between 1750 and 2005, while those of CH4 and N2O percent, respectively, of global GHG emissions (figure have increased by 148 percent and 18 percent, respec- 1.2). Large increases in CO2 emissions have also been 4 CONFRONTING THE GLOBAL CHALLENGE FIGURE 1.2 from 2005­30, compared to increases of 32 percent by Sector Composition of Global Greenhouse Gas Emissions 2015 and 59 percent by 2030 in the developing world Waste and (IEA 2007). wastewater The LCR is also unique in the composition of its 2.8% GHG emissions (chapter 5). First, emissions originat- Forestry Energy supply ing from land-use change and agriculture account for 17.4% 25.9% about two-thirds of LCR's emissions, compared to one-third at the global level and 44 percent among other developing countries. Second, emissions from energy supply and industrial activities each account Agriculture 13.5% for about 10 percent of LCR emissions, compared to shares of 45 percent and 37 percent, respectively, in Transport 13.1% the rest of the developing world. Finally, emissions related to the transport sector represent almost 10 percent of LCR's GHG emissions, compared to shares Industry Residential and 19.4% commercial buildings of 20 percent in high income countries but just 6 per- 7.9% cent in other developing countries. Source: Adapted from IPCC (2007), figure 2.1 (c). Share of different sectors in total anthropogenic GHG emissions in 2004 in terms of The predominance of land-use change in the LCR's CO2 equivalent. GHG emission profile suggests that policies and pro- jects aimed at reducing emissions from deforestation and forest degradation (REDD), as well as promoting observed in industry (65% since 1970) and as a result afforestation and reforestation (A/R), should be fea- of deforestation (40%). In 2004 those two sectors tured prominently in any future significant contribu- accounted for, respectively, 19 and 17 percent of total tion of the region to global climate change mitigation emissions. Other human activities that contribute to efforts. The good news is that there are considerable GHG emissions include agriculture, the operation of synergies between reducing emissions from land-use residential and commercial buildings, and the disposal change and other sustainable development objectives, of waste and wastewater. including a positive impact on water resources, biodi- versity, and the long-term vulnerability of the corre- LCR's contribution to global GHG emissions sponding natural and socioeconomic systems. Despite having almost 9 percent of the world's popula- As for LCR's relatively low share of energy-related tion and about 6 percent of global gross domestic emissions, this results mainly from its cleaner energy product, the LCR accounts for less than 6 percent of mix, driven by a higher reliance on renewable energy global energy related CO2 emissions. The LCR's share (mainly hydroelectricity), and a much lower use of of global emissions is higher, reaching 12.5 percent, coal among other fossil fuels. The relatively high when all GHG emissions, including those coming amount of emissions from the transportation sector, from land-use change are considered. In addition to however, should probably be a source of concern. The being a relatively low emitter from energy-related IEA predicts that between 2000 and 2050, CO2 vehi- sources, LCR is also not one of the regions of highest cle emissions will increase by 140 percent worldwide. projected growth in emissions derived from the burn- The vast majority of this increase will take place in ing of fossil fuels. According to the International Energy developing regions, especially Latin America and Agency (IEA), energy-related CO2 emissions in Latin Asia, as a result of increased motorization and vehicle America are expected to grow, in per capita terms, by use. These trends are not only worrisome from a cli- 10 percent between 2005 and 2015 and by 33 percent mate change perspective, they also pose daunting 5 L O W- C A R B O N D E V E L O P M E N T : L A T I N A M E R I C A N R E S P O N S E S T O C L I M A T E C H A N G E local challenges, including the need to deal with FIGURE 1.3 increasing levels of pollution and vehicle congestion. Actual versus Projected Global Greenhouse Gas Emissions 10 What Climate Impacts Can be Expected in the Future? 9 The global climate system has a long response time CO2 emissions (GtC/y) to changes in the concentration of greenhouse gases 8 in the atmosphere. As a result, global warming is expected to continue in the near term even in an 7 unrealistic scenario in which immediate measures were to be taken to maintain those GHG concentra- 6 tions constant. In particular, the IPCC predicts that even with constant GHG concentrations global tem- 5 1990 1995 2000 2005 2010 peratures would increase by 0.1°C per decade over a A1F1 Actual emissions the next two decades. Actual emissionsb A1B GHG emissions, however, are as of yet not showing 450 ppm stabilization A1T 6 IPCC scenarios 650 ppm stabilization A2 any clear signs of slowing down. Depending on the B1 B2 specific assumptions adopted with regard to global Sources: Raupach et al. (2007) and World Bank staff calculations. demographic, economic, and technological trends, the Emission trajectories corresponding to the main scenarios studied by IPCC predicts that global GHG emissions will the IPCC's Special Report on Emission Scenarios (2001). Note: The future emissions continuum is contained in four scenario increase by 25 percent to 90 percent between 2000 families: A1, A2, B1, and B2. A1F1 (intense dependence on fossil fuel); A1B (balance energy supply between fossil fuels and alterna- and 2030 if no additional climate change mitigation tives); and A1T (alternative energies largely replace fossil fuels) are part of A1. GtC/y = gigatons per year; ppm = parts per million; policies are implemented. As a result, under most of IPCC = Intergovernmental Panel on Climate Change. Details on each scenario are in endnote 13. the "business-as-usual" scenarios considered by the a. according to Carbon Dioxide Information Analysis Center IPCC, global temperatures would increase at a rate of b. according to Environmental Impact Assessment about 0.2°C per decade until 2025. By 2050, the planet would be 1.3°C to 1.7°C warmer than at the end of the twentieth century. By 2100, global temper- Global impacts atures would reach between 1.8°C and 4.0°C above The intensity and effects of global warming are that baseline. expected to vary considerably across regions of the The above projections, however, are probably on world. Generally, more warming is expected in higher the conservative side. Indeed, recent observations of latitudes and continental regions. For instance, Stern actual emissions are proving to be higher than those (2007) predicts that if global warming were to attain predicted by the IPCC, even in its most pessimistic 4°C, oceans and coasts would warm by 3°C, mid lati- scenarios (figure 1.3). Stern (2008), for instance, pre- tudes by more than 5°C, and poles by 8°C. Moreover, dicts that the current rate of increase in the stock of while the IPCC expects heat waves all over the world GHGs in the atmosphere, of about 2.5 ppm CO2e to become more intense, longer lasting, and more fre- (carbon dioxide equivalent) per year, could increase to quent, the probability of extreme warm seasons is pro- between 3 ppm and 4 ppm per year over the current jected to rise above 90 percent in many tropical areas, century. As a result, under current emission trends the compared to about 40 percent elsewhere. Expected stock of GHGs in the Earth's atmosphere could reach global changes in rainfall patterns are also differenti- 750 ppm by 2100, which would imply that global ated across regions. For instance, more rain is expected warming would exceed 4°C with an 82 percent prob- in higher latitudes and less in the tropics, with the lat- ability and it would rise above 5°C with a 47 percent ter prediction being more uncertain. Tropical cyclones probability. are likely to become more intense, for instance in the 6 CONFRONTING THE GLOBAL CHALLENGE Caribbean, with higher peak winds and heavier pre- Current climate risks in the LCR cipitation. More generally, to the extent that global Before reviewing the expected future changes in the warming leads to shifts in the distribution of weather LCR's climate, it is useful to identify the extent and variables, previously "extreme" events located in one of location of current climate related risks. As shown their "tails" could become more frequent--for example, in map 1.1, even under current climate conditions an increased number of record hot weather--while the relatively large portions of the LCR are exposed to frequency of extreme events at the other end of the various types of climate-related hazards. In Mexico distribution would fall--for example, fewer extremely and Brazil, for instance, severe droughts are common cold days (figure 1.4). in northern regions, while in the South there is a high Depending upon the rate and magnitude of climate exposure to extreme floods, landslides, and, in the case change, some of its impacts have the potential to be of Mexico, also cyclones. Similarly, Central American very large, abrupt, and/or irreversible. In particular, the and Caribbean countries have a high exposure to IPCC estimates that there is 50 percent chance-- both floods and cyclones, with the former group also "medium confidence"--that for global average tem- being prone to droughts (notably El Salvador and perature increases of 1°C to 4 °C (1990­2000 to Guatemala). Andean countries have a high exposure relative), a widespread deglaciation of West Antarctic to droughts (especially central Chile and Ecuador), and Greenland ice sheets could take place. This, in floods, and landslides, while floods are the most turn, would imply that sea levels could rise by several important hazard in northeastern Argentina, Paraguay, meters, leading to major changes in coastlines and and Uruguay. ecosystems and the inundation of low lying areas, espe- It is important to note that the risks of death and cially in river deltas. While this process is expected to economic losses associated with natural disasters occur over very long time scales (millennia), the IPCC depend not only on a given country's exposure to those does not exclude the possibility that it could take place hazards, but also to the country's level of fragility or over shorter time periods (for example, centuries), with social vulnerability, which in turn are a very complex very serious consequences on the relocation of popula- function of social, economic, political, and cultural tions, economic activity, and infrastructure. In addition, variables.14 Thus, for instance, mortality rates associ- for temperature increases of 1.5°C to 2.5°C (relative to ated with cyclones are about 10 times higher in the 1980­99), a large number of species--20 to 30 percent low and lower-middle-income countries of the region of those assessed--would be at increased risk of extinc- than in their upper-middle-income neighbors. How- tion. For higher rates of warming, above 3.5°C, as much ever, mortality rates from floods and landslides are as 40 to 70 percent of species would be at risk. highest, respectively, among upper-middle-income and lower-middle-income LCR countries. Similarly, while the economic losses associated with cyclones and FIGURE 1.4 droughts tend to decrease with income per capita, Impact of Climate Change on the Frequency of Extreme Weather Events those from floods and landslides are lowest among low income countries, probably because those affected have Increase in mean fewer assets at risk. Probability of occurrence Previous Identifying the areas that are at a higher risk of nat- climate More hot ural disasters, either because of a high probability of weather Less More hazard events or due to the high losses associated with cold record hot weather New weather a given hazard, is important for developing govern- climate ment policies in the area of disaster prevention and preparedness. In particular, an accurate mapping of Cold Average Hot current and future risks could help improve the prior- Source: Intergovernmental Panel on Climate Change. itization and targeting of the resources allocated to 7 L O W- C A R B O N D E V E L O P M E N T : L A T I N A M E R I C A N R E S P O N S E S T O C L I M A T E C H A N G E MAP 1.1 Latin America and the Caribbean Region's Exposure to Natural Disasters under Current Climate Conditions Droughts (1980­2000) Floods (1985­2003) Landslides (2005) Cyclones (1980­2000) Source: Constructed by World Bank Staff using data from Dilley et al. (2005). risk-reduction efforts, including for actions aimed at disaster management should ideally be an integral reducing the vulnerability and exposure of infrastruc- part of development strategies. ture and improving the ability of countries to manage disaster risks.15 Especially in high-risks areas in which Impacts of climate change in the LCR recurrent natural disasters create formidable obstacles As mentioned above, the disaster risks faced by the for growth and poverty reduction, the improvement LCR under current climate conditions are likely to of countries' policy and institutional frameworks for be amplified if current trends in GHG emissions are 8 CONFRONTING THE GLOBAL CHALLENGE maintained. The IPCC's Fourth Assessment Report in detail in chapter 2 of this book, including an predicts that under business-as-usual scenarios temper- analysis of the changes in agricultural and livestock ature increases in the LCR with respect to 1961­90 productivity that are projected to occur in most coun- could range from 0.4°C to 1.8°C by 2020 and from tries of the region. 1°C to 4°C by 2050 (Magrín et al. 2007). Even though LCR's share in global GHG emissions is relatively Costs and Benefits of Mitigating Climate Change small, in most of the region the expected annual mean We have reviewed the large array of potentially nega- warming is likely to be higher than the global mean, tive impacts associated with the global and regional the exception being the southern part of South America changes in climate that are predicted under current (Christensen et al. 2007). These projections, derived trends in global GHG emissions. Reversing those from global circulation models, also point to chang- trends in order to mitigate the negative impacts of cli- ing precipitation patterns across the region, with mate change would have nonsignificant costs associ- increased winter rainfall in Tierra del Fuego, higher ated with reducing the amount of GHG emissions summer precipitation in southeastern South America, derived from the production and consumption of a and drier conditions in Central America and the large array of goods and services. In order to deter- southern Andes. mine how much mitigation should ideally be under- Despite the high uncertainty regarding future rain- taken at the global level, those costs need to be fall patterns in some parts of the region, especially in compared to the corresponding benefits that would be northern South America, including the Amazon region, derived by means of avoiding climate damages and there are strong indications that climate change may reducing the expenditures needed for adapting to magnify extremes already observed across the region. changing climate conditions. Thus, under current climate trends, some of the cur- rent climate "hot spots" could become even hotter. This What is the optimal amount of mitigation? A can be seen through a comparison of map 1.1 with the simple conceptual framework panels of map 1.2. (on p. 10). Indeed, it appears that Both the marginal costs and the marginal benefits of many areas with a current high exposure to drought or mitigating climate change depend on the scale of the flood risks would have to deal with respectively even emission reductions to be undertaken. The costs of drier conditions and more intense rainfall in the future. additional mitigation efforts tend to increase with the As shown in table 1.1, this would the case of all the level of emission reductions that is envisaged. While high-risk drought areas of Chile, El Salvador, some inexpensive options for reducing GHG emissions Guatemala, and Mexico, for which the predictions of are available in some sectors--for example, some at least five out of eight global climate models are that improvements in energy efficiency can actually save by 2030 the number of consecutive dry days will money while reducing GHG emissions--ambitious increase and heat waves will become longer. Similarly, climate mitigation goals are likely to require the adop- between 47 and 100 percent of the high-risk flood tion of energy technologies that are less carbon inten- areas of Argentina, Peru, and Uruguay are expected to sive but also relatively more expensive than those become even more exposed to intense rainfall. True, currently in use. Similarly, in some isolated areas of the there are still considerable differences in the specific Amazon, the opportunity costs of avoiding deforesta- regional projections derived from various global cli- tion and forest degradation is probably very small mate models. However, for most of the previous and so would be the costs of creating monetary incen- examples the level of model concordance is quite high, tives for forest conservation. However, in order to as can be seen in the panels of map 1.2. (on p. 11). achieve more ambitious goals in terms of reduced emis- The changes in temperature and precipitation sions from deforestation, the corresponding programs patterns that are currently projected for the LCR would be forced to also cover areas with much higher should have wide-ranging impacts on natural systems land productivity, which would increase the costs of and human activities.16 These impacts are examined additional forest conservation efforts. 9 L O W- C A R B O N D E V E L O P M E N T : L A T I N A M E R I C A N R E S P O N S E S T O C L I M A T E C H A N G E MAP 1.2 Expected Changes in Latin America and the Caribbean Region Climate Risks from 1981­2000 to 2031­50 Based on Eight Global Circulation Models (p. 10) and Levels of Model Concordance (p. 11) More dry days Longer heat waves Higher rain intensity Higher maximum rainfall (Map continues on next page.) 10 CONFRONTING THE GLOBAL CHALLENGE MAP 1.2 (continued) Dry days: concordance Heat waves: concordance Rain intensity: concordance Maximum rainfall: concordance Source: World Bank staff calculations using eight global circulation models (see table 1.1). Note: SDI = Simple daily intensity. 11 L O W- C A R B O N D E V E L O P M E N T : L A T I N A M E R I C A N R E S P O N S E S T O C L I M A T E C H A N G E TABLE 1.1 Fraction of the Latin America and the Caribbean Region Countries' Territory with Increased Climate Risks in 2030 percent Share of areas Share of areas Increase in maxi- with high current Increase in simple Increase in maxi- with high current mum consecutive Increase in heat- drought probabil- daily rainfall mum amount of drought probabil- dry days (CCR): at wave duration ity that also have intensity index rainfall in 5-day ity that also have least 2 more days (HWD): at least 8 high CCR or high (SDI): at least 4% period (R5D): at high SDI or high (2030) more days (2030) HWD in 2030 (%) (2030) least 10% (2030) R5D in 2030 (%) Argentina 52 38 77 28 2 47 Belize 100 87 n.a. 0 0 0 Bolivia 93 100 100 16 16 28 Brazil 71 79 100 39 3 22 Chile 59 26 100 25 19 0 Colombia 2 4 56 26 19 21 Costa Rica 0 0 0 0 0 0 Cuba 100 0 n.a. 0 0 0 Dominican Republic 98 0 n.a. 0 0 0 Ecuador 0 0 0 12 0 14 El Salvador 100 17 100 0 0 0 Guatemala 100 96 100 0 0 0 Guyana 76 96 n.a. 0 0 n.a. Guyane 6 6 n.a. 6 49 n.a. Haiti 100 0 n.a. 0 0 0 Honduras 97 56 n.a. 0 0 0 Jamaica 100 0 n.a. 0 0 0 Mexico 97 87 100 0 0 0 Nicaragua 66 0 73 0 0 0 Panama 0 0 n.a. 0 0 0 Paraguay 100 100 100 0 1 2 Peru 21 10 0 62 36 68 Puerto Rico 100 0 n.a. 0 0 0 Suriname 69 80 n.a. 48 17 n.a. Trinidad and Tobago 0 0 n.a. 0 0 0 Uruguay 0 0 n.a. 100 0 100 Venezuela, R. B. de 10 81 100 9 0 0 Source: World Bank staff calculations using the following models: cnrm: cnrm-cm3, Meteo France; gfdl: gfdl-cm2.0, Geophysical Fluid Dynamics Lab/NOAA; inmc: inm-cm3.0, Institute Numerical Math, Russia; ipsl: ipsl-cm4, Institute Pierre Simon Laplace, France; mirh: miroc3.2(hires), University of Tokyo, JAMSTEC, Japan; mirm: miroc3.2(medres), University of Tokyo, JAMSTEC, Japan; mri: mri-cgcm2.3.2, Meteorological Research Institute, Japan; ccsm: ccsm3, National Center for Atmospheric Research USA. Drought and flood frequency indexes from Dilley et al. (2005). Note: CCR, HWD, SDI, R5D report percent of territory where climate events are predicted by 5 or more global circulation models. A high probability of drought is defined on the basis of a drought frequency index of 8 or more; a high probability of floods is defined as a flood frequency index of at least 3. n.a. = not applicable. The marginal benefits of mitigating climate change, could eventually face a 50 percent chance of global on the other hand, tend to fall with the scale of emission warming in excess of 5°C, which in turn would imply a reduction efforts. Compare for instance a business-as- large probability of catastrophic damages. The payoff of usual scenario in which very limited emission reduction reducing emissions in this scenario would be large. In are implemented, with an alternative hypothetical situ- contrast, in the alternative scenario, in which the stock ation in which emissions are drastically reduced so as to of GHGs is stabilized at current levels, global warming maintain constant the current concentration of GHGs in the near term would be in the order of only 0.1°C per in the Earth's atmosphere. As mentioned previously, in decade. As a result, the marginal benefit of additional the first scenario using Stern's (2008) predictions we emission reductions would probably be smaller. 12 CONFRONTING THE GLOBAL CHALLENGE Assuming that we know the curves representing the level OP*. The objective of this tax--or that of the marginal costs and benefits (avoided damages) of the auctioning of emission reduction permits in a cap mitigating climate change for different levels of emis- and trade system--would not be to increase govern- sion reductions--which, as argued above and illus- ment revenues, but rather to internalize the external- trated in figure 1.5, are respectively upward and ity created by GHG emissions. In particular, the goal downward sloping--implementing an optimal level would be that of making emitters pay a price equal to of mitigation effort would appear to be quite straight- the marginal damage caused to others. Indeed, imple- forward. It would amount to finding the intersection menting mitigation efforts above and beyond the between those curves and then using one of two policy point given by the intersection of the marginal miti- alternatives to get there. The first would be a "cap- gation and damage cost curves (E*)--either by setting and-trade" system in which governments would dis- a quantity control above OQ* or a carbon tax above tribute--or auction--permits to emit, thus putting a OP*--would cost more than the value of the addi- ceiling on total GHG emissions consistent with the tional damages that would be avoided. Similarly, set- optimal amount of emission reductions OQ* depicted ting a carbon tax below OP* or a cap on emissions in figure 1.5. The entities covered by the scheme--for below OQ* would amount to wasting the opportu- example, firms, individuals, or countries--would be nity of avoiding negative impacts of climate change free to either reduce their own emissions up to their at a cost that would have been lower than that of the corresponding caps or to buy or sell permits to emit corresponding climate damages. from other participants. As a result, emissions reduc- tions would be implemented by those who face the Carbon taxes versus "cap and trade" lowest mitigation costs and trading would lead the In theory, in a world of perfect information well- price of carbon to converge to the level of the marginal designed carbon taxes or cap-and-trade schemes could mitigation cost OP*. achieve the optimal level of climate mitigation. In A second alternative to achieve the efficient level of practice, however, policy makers need to deal with the mitigation OQ* would be to directly establish a price fact that the position and slope of the marginal costs on GHG emissions by creating a "carbon tax" set at and benefits of climate mitigation are likely to vary over time, both with the level of GHG emissions and with the evolving set of available mitigation technolo- gies. Moreover, even at a given point in time, the pre- FIGURE 1.5 cise estimation of marginal mitigation and damage Marginal Mitigation Cost and Avoided Damage (Benefit) costs is hampered by the large degree of uncertainty associated with the drivers, timing, and impact of global climate change, as well as with the cost and Marginal mitigation costs efficacy of various mitigation and adaptation alterna- tives. For example, estimates of the so-called climate Costs ($/tCO2e) sensitivity parameter, defined as the change in average global temperatures resulting from a doubling of the stock of GHGs in the atmosphere, vary from 2°C E* to 4.5°C (Solomon et al. 2007). In addition, while we P* Marginal avoided damage costs (including adaptation) have a good idea of the types of climate impacts that would be associated with different levels of warming, O damage estimates at the regional level are still quite Q* Emission reduction (tCO2e) imprecise as is our knowledge of the timing of some of the global impacts of warming. For instance, in the Source: Authors. case of the catastrophic events associated with high 13 L O W- C A R B O N D E V E L O P M E N T : L A T I N A M E R I C A N R E S P O N S E S T O C L I M A T E C H A N G E rates of global warming, we know that they could FIGURE 1.6 occur within a time scale of centuries or millennia. Impact on Optimal Policies of Unexpected Changes in Marginal Finally, there is still considerable uncertainty regard- Mitigation Costs ing the costs of some of the energy technologies that MM2 would need to be deployed in order to achieve large- P1' E1' MM1 scale emission reductions. Marginal mitigation The presence of imperfect information has impor- costs Marginal Costs ($/tCO2e) tant implications on the choice of carbon taxes versus mitigation E2 costs cap-and-trade schemes. Indeed, policy makers need to P2 E1 P1 E1'' choose whether they prefer to deal with surprises in Marginal damage costs the levels of GHG emission reductions when using a (including adaptation) carbon tax or with volatile carbon prices when opting for using quantity controls on emissions rather than a carbon tax. Indeed, in a cap-and-trade (carbon tax) O Q1' Q2 Q1 scheme, policy makers control the quantity (price) of Emission reduction (tCO2e) emissions reductions, but the market determines the corresponding price (quantity). As suggested by Marginal Weitzman (1974), carbon taxes are preferable to quan- mitigation MM2 tity controls when the slope of the marginal costs costs P1' E1' curve is larger than that of the marginal damage curve Costs ($/tCO2e) P2 E2 because in this situation the cost of incorrectly esti- Marginal MM1 E1'' mating the position of the mitigation cost curve is P1 E1 mitigation costs lower using a tax than when using a cap. This is illus- Marginal damage costs trated in figure 1.6, in which policy makers believe (including adaptation) the cost curve to be MM1 and the optimal mitigation level to be at point E1, but they later find out that the true mitigation cost curve is MM2 instead of MM1, so O Q1' Q2 Q1 that efficient mitigation would occur at point E2. Emission reduction (tCO2e) Had they chosen to fix a cap OQ1, they would actu- Source: World Bank staff. ally end up at point E1. If instead they had chosen a carbon tax OP1, they would end up at point E1. In the upper panel, the slope of the damage cost curve is quickly as larger emission reductions are envisioned. relatively smaller and the carbon tax is preferable, as These restrictions, however, are relaxed in the long run, shown by the fact that E2 is much closer to E1 than which would make the corresponding curves flatter. In to E1. The reverse occurs in the lower panel, where contrast, while in the long-term policy makers can the cost of the mistake is much higher when using a envision altering the stock of GHGs in the atmosphere, tax than a cap-and-trade scheme, which is illustrated their short-run policy lever is only the flow of GHG by the fact that E1 is now much farther away from emissions, which has only a limited and indirect influ- E2 than is E1.17 ence on marginal damages. As a result, changes in long- Marginal mitigation cost curves are likely to be run policy targets for emission reductions can have a steeper when decisions are made with a shorter time much larger impact on expected marginal damages, horizon, whereas the opposite is true for the marginal thus making the corresponding curve steeper when damage cost curve (Stern 2007). Indeed, because in longer time horizons are considered. the short term capital stocks and the set of available In this context, as argued by Stern (2007), policy technologies are fixed, mitigation costs can increase makers should ideally consider combining long-term 14 CONFRONTING THE GLOBAL CHALLENGE quantity controls--for example, GHG stabilization creation of a "Climate Fed," which would intervene in targets--with short-term flexible policy instruments. the allowances market in order to stabilize their price The latter should ideally not be rigid with respect to (Aldy et al. 2008). Automatic price ceilings and floors short-term emission reductions, but they should gen- could also be introduced, respectively, by increasing erate a carbon price that is consistent with long-term quota allocations when carbon prices surpass a certain policy goals. In our simplified conceptual framework, predetermined level and by means of a hybrid mecha- the main option in this respect would be the use of a nism in which a carbon tax would kick in if prices fall carbon tax. As discussed later, however, other possible below a certain floor. It is worth noting, however, that alternatives include flexible cap-and-trade schemes several of these schemes would also create additional and, to a lesser extent, regulations that implicitly difficulties for achieving international policy synchro- price carbon at the desired level. As suggested by nization (Stern 2007). Stern (2007), an analogy can be made in this respect Third, depending on how each system is imple- with inflation targeting frameworks, in which short- mented, carbon taxes may generate fewer economic dis- term adjustments are made in short-term policy tortions than cap-and-trade schemes. In particular, if levers, namely interest rates, in order to ensure con- emission permits are distributed freely--as opposed to vergence with long-term inflation goals. being auctioned--they can generate the same level of Several caveats need to be mentioned, however, pricing on carbon without generating any revenues for which may nuance the aformentioned conclusions. governments. Thus, while in both cases carbon prices First, in a hypothetical situation in which the scien- are likely to be passed on to consumers, with a negative tific evidence suggested that the world is close to a economic impact derived from lower returns to labor "tipping point"--that is, a critical concentration of and capital, that effect can be partially compensated in GHGs in the atmosphere that sets in motion sudden the case of carbon taxes. For that to happen carbon taxes and catastrophic climate change--policy makers need to be revenue-neutral and their proceeds need to be would have good reasons to prioritize quantity con- recycled into the economy in a way that reduces other trols over taxes, even in the short run. In that case, the tax distortions--for example, by lowering tax rates on bottom panel of figure 1.6 could in fact be a better personal or capital income (Aldy et al. 2008). This dis- representation of the short than of the long term. advantage of cap-and-trade schemes can, of course, be Second, as mentioned previously, a flexible cap- reduced if auctions of emission permits are imple- and-trade system could in theory be used instead of a mented and the revenues are also used "judiciously." carbon tax in order to generate a common carbon price Fourth, it is important to note that taxes--or for across sectors and/or countries without abdication of that matter any other mechanism that gives rise to a the necessary short-term flexibility with respect to the price on carbon--can only lead to efficient levels of quantity of emission reductions and to minimize the emission reductions when the same price on carbon extent of price volatility naturally associated with a applies to all emitters. This is the only way to ensure policy that focuses on generating certainty on quanti- that the least expensive mitigation alternatives, with ties rather than prices. Allowing for intertemporal marginal costs below the common carbon price, are trade in allowances, for example, could help smooth implemented. Achieving a common carbon price carbon prices. Allowing caps to be adjusted periodi- within national boundaries implies harmonizing vari- cally as new information arises on the level of mitiga- ous domestic government policies across sectors, so that tion costs could also help provide the necessary policy the combined impact of emission caps, carbon taxes, flexibility and reduce price volatility, although revi- and regulations are the same for all emitters. While this sions should not be too frequent because this could is certainly not trivial, achieving the same goal at the also discourage investment. Alternatively, it would be global level is much more challenging, especially if one possible to deal with the inevitable price volatility expects the agreement to both generate efficient emis- associated with cap-and-trade systems through the sion reductions and satisfy equity considerations. 15 L O W- C A R B O N D E V E L O P M E N T : L A T I N A M E R I C A N R E S P O N S E S T O C L I M A T E C H A N G E In this context, carbon taxes and cap-and-trade sys- by private firms to invest in the development of low- tems both have advantages and disadvantages. If car- carbon technologies. This process can be further bon taxes are widely adopted, for example, efficiency accelerated if current fossil fuel­based technologies would call for a common tax rate (adjusted for are made increasingly costly as a result of rising oil implicit effects of other policies) across countries. prices and/or the reduction of energy subsidies. There Simulations using computable general equilibrium are, however, a number of motivations for using com- models can be used to evaluate the global costs of plementary technology policy instruments and regula- achieving a given emission reduction under two sce- tory measures to promote the development and, perhaps narios, one in which a uniform tax is levied in all more important in the case of developing countries, countries, and another in which a tax in each country the widespread deployment of new or improved low- is levied at a rate that would achieve the same percent- emission technologies. age reduction in each. The global costs of the former First, it may take some time for carbon pricing policy would be only a fraction of the cost of the latter policies to gain the credibility needed for having an policy. However, in order to be seen as equitable, the impact on the strategic technology decisions of pri- agreement would also have to include a set of resource vate investors. In other words, given the high uncer- transfers across countries--for example, from indus- tainty surrounding long-run expectations on carbon trialized to developing countries--if the former agree prices, private firms may not as of yet use them as the to a higher contribution to global climate change mit- basis for significant increases in their investments in igation efforts, at least in the short term. In contrast, the research and development (R&D) of new low- if an international cap-and-trade scheme is adopted, a carbon technologies. To the extent that these tech- common price on carbon would emerge even if coun- nologies are needed with urgency in order to effectively tries agree on different levels of contributions to ramp up global climate mitigation efforts, additional global efforts--that is, different caps on emissions. In monetary incentives for R&D could be warranted. this context, resources would flow automatically to These R&D subsidies could thus be motivated, in a countries that offer the lowest cost-mitigation oppor- risk-management perspective, by the need to mini- tunities, thus potentially funding mitigation efforts mize the potentially catastrophic downside risks asso- that could go above and beyond the commitments of ciated with uncontrolled climate change. the corresponding countries. As argued by Aldy et al. Second, to the extent that R&D investments in new (2008), however, the flip side of the coin is that it may low-carbon technologies generate positive externali- be more difficult to negotiate country-level emission ties--for example, through knowledge spillovers to reduction targets and baselines than to focus simply other firms and sectors--their returns could be higher on negotiating tax rates.18 Moreover, most developing from a social rather than from a private perspective. countries may find it easier to implement carbon taxes This would strengthen the case for public support, through their finance ministries--for example, using especially at the initial phases of the R&D process-- the experience accumulated with energy taxes--than for example, to a larger extent in basic than in applied to put in place the infrastructure needed for imple- research--where knowledge spillovers are more likely menting a cap-and-trade scheme, including building to be found. In the case of new types of low-carbon the capacity of their environment ministries to estab- energy technologies, however, there could also be an lish, monitor, and enforce emission reduction targets. economic rationale for government subsidies during the stage of commercial deployment, provided that Complementary approaches to mitigation: there are significant dynamic economies to scale. In technology policy and regulations19 particular, even if the new technologies are initially By pricing the negative externalities generated by not competitive, production costs may tend to dimin- GHG emissions, carbon taxes and cap-and-trade ish over time with cumulative production. It may schemes can create the monetary incentives needed thus be socially desirable to invest in the deployment 16 CONFRONTING THE GLOBAL CHALLENGE of these new technologies even if the private sector Estimates of the global cost of would not by itself do so. reducing emissions It is important to note that governments should Global climate models can be used to estimate the ideally strike a balance between the risk of "picking macroeconomic costs of mitigating climate change. winners"--which would call for technology-neutral Estimates are generally produced for different GHG policy instruments--and the need to maintain a suffi- stabilization scenarios, which are, in turn, associated ciently diversified portfolio of low-carbon technology with different emission reduction trajectories and options. Indeed, technology-neutral subsidies run the with a range of probable levels of associated warming. risk of failing to support some of the most promising For example, the most stringent targets considered by technologies if they are still too far from being com- the IPCC call for stabilization of GHG concentrations mercially competitive. Moreover, special support may within a range of 445 ppm to 535 ppm CO2e. These be targeted at transformational technologies that can targets would imply that emissions would have to be considered critical for achieving sizable emission peak by at most 2015­20. By 2050 they would have reductions in strategic sectors. One important example to drop to between 30 percent and 85 percent of the is the development and deployment of carbon capture 2000 level, which would imply massive reductions in and storage technologies, which is generally seen as the the rate of emissions per unit of GDP. Thus, for main alternative for reconciling large reductions in instance, following Stern's assumption of a tripling of emission reductions in the power sector, with the con- world GDP by 2050, a 50 percent reduction in global tinued use of fossil fuels in the medium to long term. emissions would imply that emissions per unit of out- Third, the presence, in the area of energy efficiency, put would have to be reduced by about 85 percent. of a large number of untapped opportunities for The likely equilibrium temperature increases that reducing emissions at very low or even negative costs would correspond to these targets would be between suggests that a number of market failures may limit 2°C and 2.8°C with respect to preindustrial levels.20 the diffusion of the corresponding low-carbon tech- The average cost of achieving these mitigation goals, nologies. These market failures include lack of infor- based on 15 climate models considered by the IPCC, mation among consumers about some of the benefits would be a reduction of up to 3 percent of global of energy conservation, credit constraints, or the pres- GDP in 2030 and up to 5.5 percent by 2050. ence of "split incentives" when those who would have A slightly less stringent target of 535 ppm to 590 to pay for the cost of increased energy efficiency (for ppm CO2e would require emissions to peak by at example, home builders) are not able to fully capture most 2030 and to fall, by 2050, to between 5 percent the returns of their investments (for example, from above their 2000 level and a 30 percent reduction tenants). Options for dealing with these problems below 2000. In this scenario, temperature increases include the issuance of mandatory energy efficiency would be between 2.8°C and 3.2°C.21 This target standards for buildings, appliances, or vehicles; infor- would imply a median estimate of aggregate mitiga- mation campaigns or other policies aimed at raising tion costs of 1.3 percent of global GDP in 2050, with awareness about best practices in energy conservation; maximum costs of 4 percent of global GDP in that monetary incentives to facilitate selected investments year and 2.5 percent in 2030. A similar stabilization in energy efficiency by firms or individuals; and target of 550 ppm CO2e has been proposed by Stern improvements in energy conservation within public (2007), who calculates that the corresponding climate sector agencies. Ideally, governments should assess the mitigation costs would be of about 1 percent of world price of carbon that is implicit in the aforementioned GDP, which is very close to the median estimate policies, calculated as the additional costs associated reported by IPCC for the 535ppm to 590 ppm CO2e with complying with each new regulation divided target. Stern warns that even if this target is met there by the expected reduction in GHG emissions that it would still be a 7 percent probability of temperature should generate. increases above 5°C. While this is a relatively unlikely 17 L O W- C A R B O N D E V E L O P M E N T : L A T I N A M E R I C A N R E S P O N S E S T O C L I M A T E C H A N G E event, it is worth recalling that this level of global As illustrated in figure 1.7, in order to attain ambi- warming could possibly lead to the melting of most of tious stabilization targets--for example, 550 ppm, the world's ice and snow, as well as to rising sea levels CO2e--mitigation efforts should be spread across a of 10 meters or more, and losses of more than 50 per- large number of sectors. Increases in energy efficiency cent of current species. in buildings offer some of the largest mitigation poten- tial at lower costs. According to the IPCC, those mea- What carbon prices would be needed to stabilize sures account for between one-fifth and one-third of GHG emissions? global mitigation potentials at carbon prices below Carbon prices associated with different levels of emis- US$100/tCO2e. In addition, energy supply, industry, sion reductions can be calculated using either "top- and agriculture would each account for between 15 per- down" or "bottom-up" approaches. Within the first cent and 20 percent of the total potential, while forestry approach, a number of carbon price estimates have would contribute 8 percent to 14 percent depending on been generated using global climate models, so as to the scenario. Emission reductions in the transport sec- achieve different GHG stabilization targets. In this tor would account for less than 10 percent and waste for approach, as reported by the IPCC, the carbon prices about 3 percent of the total global mitigation poten- that would be needed in 2030 in order to stabilize tial.22 In almost all sectors, the only exception being GHG concentrations in the range of 445 ppm to 535 transport, more than 50 percent of global mitigation ppm CO2e would be close to 100 US$/tCO2e. For the potentials would be located in developing countries. In less stringent target of stabilization at 535 ppm to particular, these countries would account for almost 70 590 ppm CO2e, the IPCC reports a median carbon percent of the potential for reducing emissions in price of 45 US$/tCO2e in 2030, with model estimates industry, agriculture, and forestry. ranging from 18 to 79 US$/tCO2e in that year, and Figure 1.7 also illustrates the fact that a sizable from 30 to 155 US$/tCO2e in 2050. amount of emission reductions--about 7 Gt CO2e or Bottom-up studies generate estimates of the about 25 percent of the total mitigation potential for aggregate mitigation potential associated with differ- carbon prices of up to US$100/tCO2e--could be ent carbon prices that are very similar to those achieved at negative costs, that is, saving money. This obtained using the top-down approach. For example, estimate is shared with other bottom-up studies as both types of studies predict that carbon prices of up to well as with the top-down studies reviewed by the 100 US$/tCO2e would yield reductions of about 30 IPCC. About 80 percent of these no-regrets mitiga- percent to 50 percent of 2030 emissions. However, tion alternatives would be associated with increases bottom-up studies produce relatively more detailed in energy efficiency in commercial and residential estimates of the mitigation opportunities that could buildings. However, if oil prices were to continue ris- be economically feasible at different carbon prices. ing above what is envisaged in most IPCC scenarios, Indeed, those studies start from the analysis of the large mitigation opportunities at negative costs could various alternative technologies for reducing GHG also arise in the transport sector. Indeed, fuel savings emissions that are available in each sector and region could more than compensate for the cost of imple- of the world and compute the respective mitigation menting a wider array of low-carbon transportation potential and costs per ton of avoided GHG emis- technologies. As previosly discussed, taking advantage sions. The results can conveniently be presented of these "low hanging fruits" may require dealing through a curve that ranks the various mitigation with market failures that retard the development and alternatives ordered by their average mitigation costs, deployment of many energy-efficient technologies. thus approximating the world's marginal mitigation This, in turn, calls for combining carbon pricing cost curve. An example of such a GHG emissions policies--for example, carbon taxes or cap-and-trade cost-abatement curve, produced by the McKinsey schemes--with the use of regulatory standards and Quarterly, is reported in figure 1.7. various technology policy instruments. 18 CONFRONTING THE GLOBAL CHALLENGE FIGURE 1.7 McKinsey's Global Greenhouse Gas Abatement Cost Curve Beyond Business-as-Usual, 2030 Gas plant CCS retrofit Coal CCS retrofit Iron and steel CCS new build 60 Low penetration wind Coal CCS new build Cars plug-in hybrid Power plant biomass 50 Residential electronics Degraded forest reforestation co-firing Residential appliances Nuclear Reduced intensive 40 agriculture conversion Retrofit residential HVAC Pastureland afforestation High penetration wind 30 Degraded land restoration Tillage and residue mgmt. Solar PV Second generation biofuels 20 Solar CSP Insulation retrofit (residential) Building efficiency Cars full hybrid new build 10 Abatement cost ( per tCO2e) Waste recycling 0 5 10 15 20 25 30 35 38 ­10 Organic soil restoration Abatement potential Geothermal (GtCO2e per year) ­20 Grassland management ­30 Reduced pastureland conversion Reduced slash and burn agriculture conversion ­40 Small hydro First generation biofuels ­50 Rice management ­60 Efficiency improvements (other industry) Electricity from landfill gas ­70 Clinker substitution by fly ash ­80 Cropland nutrient management Motor systems efficiency ­90 Insulation retrofit (commercial) Lighting--switch from incandescent to LED (residential) ­100 Source: Reprinted with permission from McKinsey Quarterly (2007). Note: The curve presents an estimate of the maximum potential of all technical GHG abatement measures below 60 per tCO2e if each lever was pursued aggressively. It is not a forecast of what role different abatement measures and technologies will play. CCS = carbon capture and storage. Current estimates of the damage costs of and 3.5 percent of world GDP. Similarly, using the climate change latest scientific evidence, the IPCC's Fourth Assess- Estimates of the damage costs of climate change need ment Report predicts that the global mean losses asso- to take into account the large differences existing ciated with warming of 4°C could be of 1 percent to 5 across regions, both in the level of warming expected percent of world GDP but losses in some regions for given increases in GHG concentration and in the could be substantially higher. vulnerability of different natural and human systems Higher global damage costs have been obtained by to given levels of climate change. For instance, the Stern (2007) who estimates that warming of 4°C above IPCC predicts that for warming of 1°C to 3°C some preindustrial levels could imply costs of up to 3 per- regions and sectors may suffer while others may bene- cent of world GDP, while warming of 5°C would cost fit from. The IPCC Third Assessment report (2001) about 5 percent of global output. Stern estimates that estimated that the likely damage that would be over the next two centuries the costs of unmitigated caused by a doubling of GHG concentrations--which climate change would reach between 5 percent and 11 could lead to warming in the range of 2°C to 4.5°C percent of global GDP now and forever (including the above preindustrial levels--could reach 1 percent of cost of catastrophic climate events). The higher esti- GDP in developed countries but a much larger per- mates of damage costs result from incorporating the centage in developing countries. As a result, it esti- computation of nonmarket impacts on human health mated that global costs would be between 1.5 percent and the environment. Even larger estimates of up to 19 L O W- C A R B O N D E V E L O P M E N T : L A T I N A M E R I C A N R E S P O N S E S T O C L I M A T E C H A N G E FIGURE 1.8 Damage Costs of Different Levels of Global Warming a. Global mean temperature (°C) b. Global mean temperature (°C) (above preindustrial levels) 3 3 2 2 1 1 2 3 4 5 6 7 8 9 1 1 2 3 4 5 6 7 8 9 0 0 ­1 ­1 % loss in GDP per capita ­2 ­2 % of world GDP ­3 ­3 ­4 ­4 ­5 ­5 7.4°C, 5.3% ­6 ­6 ­7 ­7 ­8 ­8 8.6°C, 7.3% ­9 ­9 ­10 ­10 8.6°C, 13.8% ­11 ­11 7.4°C, 11.3% ­12 ­12 ­13 ­13 ­14 ­14 ­15 ­15 Baseline climate, market impacts, High climate, market impacts, Mendelsohn, output Tol, output and risk of catastrophe and risk of catastrophe Nordhaus, population Tol, equity Baseline climate, market impacts, High climate, market impacts, Nordhaus, output and risk of catastrophe and and risk of catastrophe and non-market impacts non-impacts Source: Adapted from "Climate Change 2007: Synthesis Report. Source: Stern (2007). Contribution of Working Groups I, II, and III to the Fourth Assessment Report of the Intergovernmental Panel on Climate Change," figure SPM.4. Intergovernmental Panel on Climate Change, Geneva, Switzerland. 20 percent of global consumption are obtained by Stern as well as on the types of damages that are taken into when using alternative assumptions on the sensitivity account--for example, nonmarket impacts and cata- of climate to GHG, as well as equity weights to account strophes--and the treatment that is given to risk and for the fact that poor countries and people are likely to equity. Tol (2005) has reviewed more than 100 SCC be disproportionately affected by climate change. As estimates and found a median value of US$11.80 per illustrated in figure 1.8, Stern's estimates are slightly ton of CO2 among peer-reviewed studies. He argues lower than those of Nordhaus and Boyer (2000), respec- that the social cost of carbon is unlikely to exceed tively, about 5 and 7 percent of GDP for warming of US$14/tCO2 using standard assumptions on dis- 5°C, for example. Stern's estimates, however, are much counting and aggregation. Similarly, Nordhaus higher than those reported by Mendelsohn et al. (2007) estimates that the optimal global price of car- (1998) and Tol (2002), who predict damages of up to bon--which should ideally be equal to the SCC--will 2.5 percent of global GDP for temperature increases as be at US$9.50/tCO2 in 2015, rising to $23 in 2050, high as 6°C, even when using population-based equity and $56 by 2100. In contrast, Stern (2007) reports a weights to compute damages. These lower estimates, SCC estimate of US$85/tCO2. This is above the 95th however, do not incorporate the cost of catastrophes percentile of the estimates reviewed by Tol and almost nor do they compute the cost of nonmarket impacts. 10 times the value of Nordhaus's estimate. An alternative approach to the costing of the impacts of climate change is the calculation of the social cost of The debate about discount rates carbon (SCC), defined as the change in the discounted The relatively high estimates obtained by Stern for value of the utility of future consumption caused by the potential damages of climate change have been an additional ton of GHG emissions. SCC estimates, criticized as being driven by his use of very low social however, vary widely across studies, depending on the discount rates to value future monetary flows. Stern treatment of uncertainties, the discount rates that are uses a standard conceptual framework for calculating used to calculate the present value of future damages, rates of Social Time Preference (STP). Nordhaus 20 CONFRONTING THE GLOBAL CHALLENGE (2007) and Weitzman (2007), however, argue that ple tend to pay high premiums for safe stores of Stern makes nonstandard assumptions to derive that value--would justify a middle course policy approach rate and that a reasonable STP should be between 5.5 in which increasingly stringent targets for emission and 6.23 Using this higher social discount rate drasti- reductions would be combined with devoting addi- cally weakens Stern's case for the need to sharply and tional resources to improving our understanding of immediately reduce GHG emissions. In particular, the nature, likelihood and consequences of "runaway- Nordhaus shows that Stern's very high estimate of climate disasters." $310/tC for the social cost of carbon is entirely driven by his assumptions regarding a low STP. Indeed, Can optimal mitigation pathways be established? using Nordhaus's Dynamic Integrated Model of Cli- The evidence presented so far suggests that the cli- mate and the Economy (DICE-2007) to calculate the mate mitigation costs of implementing the GHG sta- social cost of carbon under Stern's, and under alterna- bilization target of 550 ppm CO2e recently proposed tive more standard assumptions for the STP rate, yields by Stern (2008) could be well below the cost of the estimates of the social cost of carbon of respectively corresponding avoided damages. In particular, miti- US$99/tCO2e and $10/tCO2e. The second estimate is gation costs for that target are of about 1.3 percent of much closer to the average of the estimates reported global GDP according to the IPCC's median estimate. by Tol (2005). In contrast, achieving that target could allow for a siz- Weitzman (2007), on the other hand, has argued able decline in the amount of expected global warm- that Stern may have "gotten it right for the wrong ing, arguably from more than 4°C--for example, if reasons." Weitzman coincides with Nordhaus in his GHG concentrations reach 750 ppm CO2e under critique of Stern's nonconventional parameter assump- business-as-usual trends--to about 3°C above prein- tions for calculating the STP rate. But he argues that dustrial levels. As shown in the right panel of figure the expected growth rate () is a random variable with 1.8, this could reduce damage costs from 4 percent to a distribution that has a thick left tail (that is, rela- less than 2 percent of global GDP, according to esti- tively high probability of extremely low growth) mates by Stern (2007), and from about 5 percent to because of some of the possible catastrophic events 3 percent of world output, according to estimates by that could be triggered by climate change. This cre- Nordhaus and Boyer (2000). ates structural uncertainty, of the sort described by Nevertheless, as previously illustrated, estimates of Knight (1921) or Keynes, in the sense that the scale both climate change mitigation and damage costs are and probability of the corresponding rare events can- still quite imprecise due to the various types of uncer- not be calculated on the basis of past observations or tainties involved. As a result, whereas it appears that computer simulations, especially since the underlying some degree of climate mitigation is certainly war- distribution tends to evolve with climate. ranted, the IPCC argues that it is probably not yet pos- In Weitzman's approach, the uncertainty associated sible to unambiguously determine economically with climate change, combined with the very serious efficient emission pathways, or stabilization levels, for consequences associated with some of its possible cat- which marginal mitigation benefits would always astrophic impacts, implies that the use of relatively exceed the corresponding marginal costs. Thus, in prac- low discount rates for assessing the future costs of tice, decision making regarding the optimal trajectory GHG emissions could be justified on the basis of risk- of emission reductions is likely to require an iterative aversion assumptions, and the idea that one tends to process of risk management, driven by the evolving sci- be disproportionately afraid of rare disasters on which entific evidence regarding climate sensitivity to GHG existing time series are unable to shed light. In partic- concentrations, damage costs from climate change, and ular, Weitzman proposes that the fear of "thick tail technological options for mitigation. In any case, as events"--which he argues would also explain the argued by Aldy et al. (2008), given the current evi- "equity-premium puzzle," namely, the fact that peo- dence, from the perspective of the industrialized world, 21 L O W- C A R B O N D E V E L O P M E N T : L A T I N A M E R I C A N R E S P O N S E S T O C L I M A T E C H A N G E at least a moderately scaled emissions program appears the perspective of individual countries, this creates an to be warranted in the short term. option value of waiting. By the time countries come to the realization that it really is up to them to act, it Strategic aspects of mitigating climate change may already be too late or, at the very least, precious Many economic analyses treat climate change as a time has been lost. Finally, the reason that mitigation single-agent problem. Implicitly or explicitly, these effort, if any, tends to be undertaken by the wrong studies take the perspective of a global social planner country is the following: in the absence of coordina- and try to determine what, ideally, should be done to tion and cooperation, it is the country with the lowest mitigate climate change and its consequences. Such a "cost-to-vulnerability" ratio that ends up taking action. single-agent approach is useful to find a "first-best" But, generally, this is not the country with the lowest reference point against which actual policies can be cost per se, as the countries' vulnerabilities to climate compared. However, by construction, a single-agent change may differ quite a bit. Hence, resources end up model has nothing to say about what is realistically not being expended in the most cost-effective way. feasible and probably will happen (as opposed to what should happen) in the fight against global warming. Is a global deal feasible? To address this question, one must explicitly take into Taken together, these dynamics will lead to a signifi- account that the world comprises many independent cant under supply of mitigation effort. Clearly, what is and heterogeneous countries, whose interests do not needed to escape from this inefficient and rather dis- coincide--neither with each other nor with those of mal outcome is a joint, coordinated strategy. This an imaginary global social planner. raises the question of whether such a joint strategy can Naturally, the outcome of the global climate be agreed upon, and if so, what it would look like. In change "game" crucially depends on whether coun- this respect, as suggested by Stern (2007), there are tries cooperate to find and implement a joint mitiga- several conditions that need to be met in order to suc- tion strategy. But even if all countries are sincerely cessfully implement a coordinated international committed to reaching a negotiated settlement, it approach to mitigating climate change. remains essential to understand what would happen in First, it is critical that countries share a common its absence. The reason is that the noncooperative out- understanding of long-term goals. The extent to which come, describing what happens if the negotiations this condition is met in the case of climate change mit- fail, very much determines what a joint strategy is igation has arguably increased significantly over the actually going to look like. In particular, in the past two decades. This is illustrated by the results of absence of a joint strategy, countries have to unilater- the successive IPCC reports which, starting in 1990, ally decide how much to spend on mitigation. In that have produced an increasing amount of evidence on the case, the total mitigation effort will be (1) too little, (2) gravity of the climate change challenge as well as on too late, and (3) undertaken by the wrong countries.24 the potential for addressing it through drastic reduc- The intuition for the first effect, that is, insufficient tions in manmade GHG emissions. Moreover, the effort, is straightforward: GHG reductions are a pub- 1992 agreement on the United Nations Framework lic good and, hence, countries face a classic free-rider Convention on Climate Change (UNFCCC), which has problem. This inaction is reinforced and complemented been ratified by 189 countries, explicitly recognized as by a second effect, namely, inefficient delay. That is, its overarching objective the stabilization of GHG even if a country recognizes that it should act to miti- concentrations at a level that avoids dangerous anthro- gate climate change, it has a strong incentive to wait. If pogenic climate change. In addition, the Kyoto Proto- countries are unsure about each other's vulnerabilities col, agreed to in 1997 under the UNFCCC and and costs of mitigation, they may, sometimes falsely, subsequently ratified by 162 countries, established a believe that another country will "step up to the binding commitment by industrialized countries, to plate," and they may avoid doing so themselves. From reduce GHG emissions during the 2008­2012 period 22 CONFRONTING THE GLOBAL CHALLENGE by 5 percent with respect to their 1990 level. Stern expected to come from developing countries. In this (2008) suggests that the UNFCCC objective of avoid- context, in order to uphold the principle of common ing dangerous climate change could be given further but differentiated responsibilities while at the same specificity by setting a more ambitious quantitative time fostering a smooth transition toward increasing target for the stabilization of GHG concentrations in responsibility by the developing world, a gradual incor- the atmosphere. In particular, he suggests a target of at poration approach could be applied. most 550 ppm CO2e, which would require cuts in In particular, some developing countries could emissions of at least 30 percent and perhaps 50 percent gradually move over time, based on demonstrated by 2050, with respect to 2000. capability, from having no mitigation commitments, A second condition for a coordinated approach to be to the adoption of climate-friendly policies, to limit- successfully implemented is that participants should ing emission growth, and, finally, to some of them view the agreement as equitable. This requirement adopting emission reduction or at least emission needs to be assessed in the context of the incontrovert- intensity targets. In the meantime, developing coun- ible fact that industrialized countries carry a larger his- tries could benefit from international financial flows torical responsibility for the accelerated increase in to support the adoption of low-carbon technologies GHG concentrations, while developing countries are (see chapter 4). To that end, as discussed below, the the most vulnerable to the adverse effects of climate current international climate framework could be change, and the least able to cope with the necessary allowed to incorporate mechanisms to support a wider adaptation. This asymmetry is the source of the princi- set of emission reductions, including for instance ple of common but differentiated responsibilities estab- those associated with reduced deforestation and those lished by the UNFCCC. The principle includes two derived from the implementation of climate-friendly elements: first the common responsibility of states for government policies and measures--as opposed to a the protection of the global environment, and, second, focus on emission reductions from individual projects, the need to take into account the different circum- as in the current version of the Clean Development stances, particularly each state's contribution to the Mechanism (CDM) of the Kyoto Protocol. evolution of the problem and its ability to prevent, Third, for a cooperative approach to be effective, reduce, or control the threat. From the perspective of broad-based country participation is required, which, in global equity, industrialized countries would have not turn, implies that the arrangement must be compatible only to attain radical emission reductions within their with the underlying incentives of participants. This is own boundaries, but also to provide technological and probably the most challenging aspect of reaching a financial resources that could enable developing coun- global deal on climate change. Incentives for countries tries to reduce the carbon intensity of their economies. to participate in a given agreement include the medium- It is clear, however, that industrialized countries can- and long-term benefits derived from efficiently mitigat- not stabilize the climate system exclusively through ing the damages associated with climate change, as well their own emission reductions. Developing countries as potential short-term co-benefits derived from partici- are expected to surpass the high-income countries in pation in the agreement. The latter are particularly the Organisation for Economic Co-operation and important, given the potential for free-riding on the for- Development as the leading contributor to global CO2 mer. Co-benefits may include access to financial support fossil fuel emissions by the beginning of the next and technology transfer from other participating coun- decade (IPCC 2007).25 Moreover, while under a busi- tries, as well as some by-products of countries' own mit- ness-as-usual scenario, per capita CO2 emissions in igation measures, including enhanced environmental developing countries are expected to continue to be protection and energy security and increased levels of about three times lower than in the developed world competitiveness associated with increasing energy effi- by 2030; between two-thirds and three-quarters of the ciency and transitioning out of increasingly obsolete increase in CO2 emissions with respect to 2000 are carbon intensive technologies. 23 L O W- C A R B O N D E V E L O P M E N T : L A T I N A M E R I C A N R E S P O N S E S T O C L I M A T E C H A N G E A credible global agreement would also have to be corresponding projects can be described as "no-regrets" flexible with respect to the different sets of domestic opportunities, in the sense that they would be socially policy instruments that countries are likely to employ-- profitable based on their development co-benefits for example, including carbon taxes, emission caps, alone, without taking into account their impact on the technology programs, and regulations--and that reduction of GHG emissions. In Brazil, for example, should ideally be compared and benchmarked across tax incentives to increase employment in the produc- countries in order to assess their contributions to tion of small and inexpensive automobiles (fewer than global goals. As mentioned above, efficiency in cli- 1,000 cubic centimeters), together with improvements mate change mitigation calls for a framework in in the management of electricity supply and demand which emitters from all over the world face the same aimed at energy savings, were responsible in 2000 for price for carbon. This goal could be achieved even if an 11 percent reduction in the country's energy-related the domestic policies that lead to the pricing of car- CO2 emissions (Szklo et al. 2005). Similarly, while the bon take different forms in different countries--for creation of 23 million hectares of public forest reserves example, explicit carbon taxes, emission caps and in the Amazon between 2004 and 2006 was motivated trade, or implicit carbon prices related to the cost of mainly by sustainable development objectives, it regulatory compliance--and if cross-country resource greatly contributed to the 50 percent reduction in transfers are agreed upon in order to allow for an equi- deforestation rates that was observed during that period table distribution of the burden of climate mitigation. (Nepstad et al. 2007). Incorporating climate change Finally, flexibility would also be required in terms of considerations when assessing the costs and benefits of the need to accommodate evolving country circum- alternative development patterns in such sectors as stances in cases of noncompliance with previously energy, industry, transportation, and agriculture can agreed country targets, as opposed to employing harsh help take advantage of these type of opportunities, but noncredible punishment threats. which involve relatively small trade-offs between development and climate change mitigation objectives. Minimizing trade-offs between climate change Candidates include all the technologies with negative mitigation and development marginal mitigation costs (figure 1.7). Economic growth has historically been accompanied by Beyond "no-regret" cases, however, low-carbon increasing GHG emissions driven by growing fossil fuel technologies are not likely to become dominant in energy consumption and the conversion of forest land developing countries unless they are either (1) subsi- into agriculture and other productive activities. While dized or made more competitive through (2) the economic growth in developing countries must continue reduction of subsidies for fossil fuels or (3) the estab- and, in fact, accelerate in order to eradicate poverty in lishment of explicit or implicit carbon prices (for the world, the risks associated with climate change example, through taxes, emission caps, or regulations). introduce an additional development challenge, namely, Due to equity considerations in global climate nego- that of increasingly decoupling growth from GHG tiations, alternative 3 is less likely to be implemented emissions. To the extent that low-carbon technologies in a large-scale in the developing world, at least in are relatively more expensive--for example, renewable the near term. In contrast, the second alternative is sources of energy tend to cost more than their fossil fuel akin to a no-regret opportunity which should be seri- counterparts--there are clear trade-offs between pursu- ously considered by most countries. Indeed, reducing ing higher rates of economic growth and contributing to the large subsidies that currently favor the consump- climate change mitigation. tion of fossil fuels in developing countries could These trade-offs, however, can to some extent be alle- produce considerable fiscal savings and have a positive viated by focusing, at least initially, on climate mitiga- impact on reducing local pollution and congestion tion opportunities that involve sizable development problems while at the same time encouraging the co-benefits (chapter 6). In fact, in a number of cases the deployment of low-carbon energy sources. As for the 24 CONFRONTING THE GLOBAL CHALLENGE first alternative, it could be implemented without cre- and or compensations in a post-2012 regime. In par- ating an additional burden on developing economies ticular, the Bali Action Plan adopted in December through the sale of emission reduction credits in the 2007 by the parties of the Kyoto Protocol explicitly context of the CDM. In this respect, an expanded CDM calls for addressing "policy approaches and positive could play an important role in ensuring that global incentives on issues relating to reducing emissions mitigation efforts are both efficient and equitable. from deforestation and forest degradation in develop- ing countries." Several types of proposals have emerged Expanding the Clean Development Mechanism in this regard during recent years, and it is critically As discussed in chapter 4, there are a number of con- important for the LCR that a workable plan be cerns with the current functioning of the CDM, which adopted for fully incorporating REDD in the CDM. focuses on project-level emission reductions, relative to On the one hand, Costa Rica and Papua New baseline scenarios. First, as argued by Figueres, Haites, Guinea have proposed to incorporate REDD into the and Hoyt (2005), the CDM's single project approach climate change architecture, thus allowing for the makes it unlikely to "catalyze the profound and lasting possibility of issuing credits to projects or programs changes that are necessary in the overall GHG intensi- that reduce deforestation with respect to some estab- ties of developing countries' economies." A more effec- lished baseline. Brazil, on the other hand, has pro- tive approach would entail transforming the baselines posed establishing a specific "nonmarket" fund themselves so as to make development pathways more dedicated to REDD. This "Tropical Forest Fund" carbon friendly (Heller and Shukla 2003). In this con- would potentially receive contributions from industri- text, rather than focusing on actions at the project alized countries but the contributions would not level, mitigation efforts in developing countries would count toward the mitigation commitments of those have to shift toward promoting reforms across entire countries. The fund would award financial incentives sectors--for example, energy, transport, agriculture, for reductions in deforestation rates below established and forestry. Some initial steps in this direction were baselines. There would be no penalties for not meet- taken in the agreement in December 2005 in Montreal ing the corresponding targets, although failing to do to include "programs of activities" in the CDM. But so could count against future reductions below the this approach could be explored further. baseline (Sawyer et al. 2008). Other proposals have As noted, the LCR is particularly intensive in combined aspects of both market-oriented and fund- emissions from deforestation and forest degradation. based alternatives, while also establishing financial Reductions in these emissions were not included in incentives per avoided ton of CO2. As noted by Strass- the first commitment period of the Kyoto Protocol burg et al. (2008), however, in order for those finan- due in part to concerns over technical issues, includ- cial incentives to be effective in addressing the local ing baseline setting and monitoring--that is, to drivers of deforestation, and because of sovereignty ensure the additionality and permanence of emission issues, the intranational distribution of the resources reductions--and with respect to leakages--that is, to be allocated to reducing deforestation may need to the risk that avoided deforestation in some places be decided at the country level and is unlikely to be could be compensated by increases in others (Schla- included in international REDD mechanisms. madinger et al. (2007). There were also concerns with a possible trade-off between the use of this poten- Adapting to Climate Change tially low-cost mitigation option and the implemen- Just as they have adapted to past climatic shifts, tation of domestic emission reductions in humans and ecosystems will autonomously respond to industrialized countries (Sawyer et al. 2008). More the forthcoming changes in ways that will mitigate recent international negotiations, however, have the negative effects and enhance the positive, to the moved toward recognizing decreases in deforestation extent they are able to do so. In contrast to measures from a pre-established baseline as generating credits to reduce emissions of GHGs, for most actions to 25 L O W- C A R B O N D E V E L O P M E N T : L A T I N A M E R I C A N R E S P O N S E S T O C L I M A T E C H A N G E adapt to climate change the individual taking the kind of trade-off is not so stark, since many--if not action incurs the bulk of the costs and receives the most--of the things that governments can do to help bulk of the benefits. That is, these measures generate their citizens adapt to climate change are first and few externalities. For this reason, adaptation is much foremost good development policy. For these kinds of less vulnerable than is mitigation to collective action actions, the specter of climate change may not be the problems that would cause a suboptimal response. most important motivation, but may nonetheless This does not mean that public policy is not needed in change the political calculus. Yet, there are clearly this area, but rather implies that the kinds of neces- some areas in which urgent action is warranted to pre- sary policies, institutions, and investments will have vent irreversible damages, especially to ecosystems much in common with those that are needed to pro- that are currently under climate-related stress. As vide the kinds of "public goods" that government argued in chapter 3, what is needed is a kind of triage should normally provide. Good adaptation policy is in or prioritization of actions to identify what has to be general good development policy. done in the short term and what should be postponed. The timing of adaptation policy and investments is important. While some harbingers of major climate Outline of the Report change are already having an impact, the bulk of the Chapter 2 of this report will explore the nature of the change will occur over long time horizons--decades physical impacts that climate change is likely to have and centuries. Climate change may manifest itself as in the LCR and quantify some of the economic effects. changes in long-term trends in average temperatures Both human and natural systems will need to adapt to and precipitation, increased variability in these and/or the new climatic conditions. Chapter 3 will consider more extreme events. There is much uncertainty the evidence regarding how this is likely to occur regarding exactly how climate in particular locations autonomously in the LCR, and how international will change, and therefore what kind of adaptation policies and institutions, as well as those in the LCR will be needed. There is more agreement among mod- countries, can facilitate this process so as to reduce the els regarding the degree of warming than regarding pain and optimize any possible gains. We will then the changes in precipitation patterns, but the latter revisit the challenges associated with mitigating are at least as important in planning for adaptation. global climate change, focusing on the kinds of Here, Latin America and the Caribbean stands out, domestic and international government policies that along with Africa, as the region with the greatest could help achieve that goal (chapter 4). The report uncertainties, as measured by consistency of predic- will then review the pattern of Latin America's GHG tions by different models. The long planning horizons emissions and discuss the underlying economic factors and uncertainty may lead one to question whether that have produced this pattern (chapter 5). Finally, policy makers in developing countries should consider we will attempt to identify concrete options that LCR undertaking adaptation policy at all in the short term countries have to reduce emissions in the most cost- given their other development priorities. effective ways, while in a number of cases enjoying This intuition is correct to a point. Undertaking various ancillary benefits from doing so (chapter 6). major investments or policy responses in anticipation of specific climatic impacts runs a high risk of wasting Notes resources or even increasing adverse impacts if the 1. Nagy et al. (2006). changes do not materialize as expected, or if future 2. Mata and Nobre (2006). 3. Nagy et al. (2006). technological advances allow a more cost-effective 4. Magrín et al. (2007). response. Weighed against that is the risk that failure 5. Raddatz (2008). to take timely actions may incur preventable dam- 6. In the terminology of the IPCC, a high level of confi- ages, and some investments and policies may take a dence in a given statement amounts to a belief, based on expert long time to bear fruit. As noted above, however, this judgment of the underlying evidence (data, models, or analyses) 26 CONFRONTING THE GLOBAL CHALLENGE that the chance of the corresponding finding being correct is at the wrong tax versus the wrong cap. Given new information on least 8 out of 10. marginal mitigation costs, larger losses would occur when 7. Parry et al. (2007). using a cap and trade scheme in the left panel and from a car- 8. Magrín et al. (2007). bon tax in the right panel. Note also that if abatement costs are 9. Francou et al. (2005). known with certainty, uncertainty over marginal mitigation 10. Bradley et al. (2006) and Ramírez et al. (2001). benefits does not matter in the choice of policy instruments--it 11. In 2004, CO2 emissions from fossil fuel use represented would only affect the level of taxes or quotas--unless of course 56.6 percent of total GHG emissions, while CO2 emissions that uncertainty also affects the slope of the marginal benefit from land-use change were 17.3 percent. Agriculture was curve. See Philibert (2006). responsible for 13.5 percent of total GHG emissions, account- 18. As argued by Aldy et al. (2008), however, once interna- ing for almost 90 percent of N2O emissions (which, in turn, tional agreements on carbon taxes are reached, an adequate were 8 percent of total GHG emissions) and for more than 40 monitoring system would have to be estabished so as to make percent of CH4 emissions (which were 14 percent of total sure that countries do not adopt compensating fiscal measures-- GHG emissions). Other sources of CH4 include emissions from for example, additional energy subsidies--to cushion or reduce landfill waste, wastewater, and the production and use of bio the burden of the carbon tax. energy. IPCC (2007). 19. This section relies heavily on Stern (2007). 12. Hereafter this is referred to as CO2 equivalent or CO2e. 20. This is based on the best estimate (the mode) reported 13. See Raupach et al. (2007). The figure depicts observed by the IPCC for the aforementioned climate sensitivity para- global CO2 emissions including all terms in Equation (1), from meter. However, if the more pessimistic estimates for this both the EIA (1980-2004) and global Carbon Dioxide Informa- parameter are used instead, the temperature increases for a sta- tion Analysis Center (CDIAC) (1751­2005) data, compared bilization target of 445 ppm to 535 ppm CO2e could be as with emissions scenarios (8) and stabilization trajectories (10, 11, high as 4.2°C. 12). See Marland et al. (2007). EIA emissions data are normal- 21. The increase could be of up to 4.9°C; high estimates for ized to same mean as CDIAC data for 1990­1999, to account for the climate sensitivity parameter are used instead of the mode. omission of FCement in EIA data. The 2004 and 2005 points in the 22. It is worth noting, however, that these estimates rely on CDIAC dataset are provisional. The six IPCC scenarios (8) are the allocation of electricity savings to the corresponding end- spline fits to projections (initialized with observations for 1990) use sectors. If instead the corresponding emissions reductions of possible future emissions for four scenario families, A1, A2, were to be allocated to the energy supply sector, its share in the B1, and B2, which emphasize globalized versus regionalized total mitigation potential would increase to about 35 percent development on the A, B axis and economic growth versus envi- and that of energy efficiency in buildings would fall to about ronmental stewardship on the 1, 2 axis. Three variants of the A1 12 percent. Moreover, the mitigation potential of the trans- (globalized, economically oriented) scenario lead to different portation sector is underestimated as freight transport and emissions trajectories: A1FI (intensive dependence on fossil public transport are excluded from the analysis. fuels), A1T (alternative technologies largely replace fossil fuels), 23. The framework can be summarized using the Ramsey and A1B (balanced energy supply between fossil fuels and alter- formula: STP = + * where is the pure time discount natives). The curves shown for scenarios are averages over avail- rate, is the expected rate of long run growth in per capita out- able individual scenarios in each of the six scenario families, and put, and is the elasticity of marginal utility of consumption. differ slightly from "marker" scenarios. The stabilization trajec- Stern assumes that is 0.1, on the basis of the philosophical tories are spline fits approximating the average from two models principle that all generations should be treated equally, that is (11, 12), which give similar results. They include uncertainty 1.3, and is equal to 1, which implies an STP of 1.4. As argued because the emissions pathway to a given stabilization target is by Nordhaus and Weitzman the pure time discount rate () is not unique. generally believed to be between 1.5 and 2; growth () could be 14. Dilley et al. (2005). safely assumed to be 2 percent per year based on past experience; 15. As argued by Dilley et al. (2005), improvements in the and the elasticity of marginal utility of consumption () is usu- management of disaster risks may require a wide range of ally thought to be close to 2. policy and institutional reforms, capacity building activities, 24. See Vardy (2008) for details. and advance planning for postdisaster emergency financing. 25. It must be noted, however, that the historical accumu- 16. Vergara (2005) and Magrín et al. (2007). lated emissions of developing countries will continue to be 17. See Stern (2007) or Philibert (2006) for a more detailed below those of the industrialized countries until the end of the computation of the deadweight losses associated with choosing century (Figueres 2007). 27 CHAPTER 2 Climate Change Impacts in Latin America and the Caribbean How Is the Climate in the LCR Changing? As the warming accelerates in the years ahead, much The Fourth Assessment Report of the Intergovernmen- more widespread and serious consequences are forecast tal Panel on Climate Change--released in September for the LCR. Recent UNFCCC studies and future cli- 2007--states that "warming of the climate system mate change scenarios derived from global climate is unequivocal." The IPCC expresses a "high level of models predict that warming in most areas of LCR will confidence" that various human activities (for example, be greater than the global mean, the exception being agriculture and health) and natural systems (for exam- the southern part of South America (Christensen et al. ple, plants and animal species, marine ecosystems, and 2007).3 The IPCC's Fourth Assessment Report predicts hydrological systems) have already been affected by that under business-as-usual scenarios temperature global warming.1 increases in the LCR with respect to 1961­90 could Latin America has not been exempt from the global range from 0.4°C to 1.8°C by 2020 and from 1°C to trend.2 In particular, increases in mean temperatures of 4°C by 2050 (Magrín et al. 2007). More recent data approximately 0.1°C per decade have occurred in South indicate that the current rate of emissions is faster than America during the twentieth century, with higher rates that in the most extreme scenario considered in Magrín of warming in the Andean region, consistent with pre- et al. (2007), implying that the anticipated warming dictions of models of climate change. Precipitation has may exceed current forecasts. Work undertaken using increased in some areas--northeast Argentina, southern the Earth Simulator in Japan generally confirms these Brazil, Paraguay, northwest Peru, and Uruguay--and projections and indicate a likelihood of fast warming in decreased in others--southwest Argentina, southern the Andes cordillera.4 Chile, and southern Peru. The rate of of rising sea levels These projections also point to changing precipita- has also increased, reaching 2 to 3 millimeters per year tion patterns across the region, with increased rainfall during the past two decades in southeastern South in Tierra del Fuego and southeastern South America America. The evidence collected by the IPCC suggests and drier conditions in Central America and the south- that these climatic changes are already affecting the fre- ern Andes (map 2.1). Despite considerable uncertainty quency of extreme weather events. Prominent examples about rainfall patterns in particular countries, there are include more frequent heavy rains over northeast Brazil indications that climate change may lead to more fre- and central Mexico, an increase in flood frequency in quent extreme events, with some areas receiving less some parts of the Amazon, and a 50 percent rise in precipitation, and, as such, arid and semi-arid areas streamflow in the Parana, Paraguay, and Uruguay may be more vulnerable (UNFCCC 2006a). Rivers. Recent years have also seen increased hurricane An accurate mapping of both current and future activity in the Caribbean region. hazards is important for informing disaster prevention 29 L O W- C A R B O N D E V E L O P M E N T : L A T I N A M E R I C A N R E S P O N S E S T O C L I M A T E C H A N G E MAP 2.1 Expected Changes in Latin America and the Caribbean Region Climate Risks from 1981­2000 to 2031­50 Based on Eight Global Circulation Models (p. 30) and Levels of Model Concordance (p. 31) More dry days Longer heat waves Higher rain intensity Higher maximum rainfall (Map continues on next page.) 30 C L I M AT E C H A N G E I M PA C T S I N L AT I N A M E R I C A A N D T H E C A R I B B E A N MAP 2.1 (continued) Dry days: concordance Heat waves: concordance Rain intensity: concordance Maximum rainfall: concordance Source: World Bank staff calculations using eight global circulation models (see table 2.1). Note: SDI = Simple daily intensity. 31 L O W- C A R B O N D E V E L O P M E N T : L A T I N A M E R I C A N R E S P O N S E S T O C L I M A T E C H A N G E and preparedness. As shown in table 2.1, under current be greater than expected (e.g., due to a possible climate conditions, some regions of Central America, increase in frequency). In fact, following hurricane the Andean countries, Brazil, and Mexico are at high- Katrina, U.S. risk-modeling companies raised their est risk for being hit by droughts. Similarly, large areas estimation of the probability of a similar event from with high risk of floods can be found in the Andean once every 40 years to once every 20 years as a result of countries, Argentina, Brazil, the Caribbean, Central the warming of water temperatures in the North America, Paraguay, and Uruguay. Indeed, as illustrated Atlantic Basin. Similarly, historical data are very sug- in the top four panels of map 2.1, it appears that a gestive of a trend toward intensification in the number of areas with a current high exposure risk for strength of hurricanes with landfalls in the North droughts or floods would, in the future, have to deal Atlantic, including the Caribbean Basin. with even drier conditions and more intense rainfall, Correlation between the frequency of tropical respectively. In particular, this would be the case for all cyclones and sea surface temperatures can be seen in of the high-risk drought areas of Chile, El Salvador, figure 2.1. The evidence seems to imply that these Guatemala, and Mexico, for which the predictions of at storms are likely to become more common as the least five out of eight global climate models indicate Earth heats up. A recent study (Curry et al. 2009) that by 2030 the number of consecutive dry days will estimates that each increase in sea surface tempera- increase and heat waves will become longer. Similarly, tures of 1 degree Fahrenheit (0.6 degree Celsius) between 47 and 100 percent of the high-risk flood could increase the frequency of tropical storm activ- areas of Argentina, Peru, and Uruguay are expected to ity in the North Atlantic by up to five storms per become even more exposed to intense rainfall. The bot- year. However, there is still not a scientific consensus tom panels of map 2.1 indicate that there is consider- on this, partially because of the difficulties in isolat- able disagreement with respect to specific regional ing the effects of temperature from those of other projections derived from various global climate mod- natural cycles. On the other hand, there is greater els. However, for most of the previous examples, the consensus that global warming is likely to cause their level of model concordance is relatively high. intensification. Certainly, recent reviews of major Damage from tropical storms is a major economic risk hurricane activity over time (Hoyos et al. 2006; Curry for many countries in the Caribbean Basin. Table 2.2 et al. 2009) point to trends in the intensification of indicates the cumulative economic cost and loss of life hurricanes in the Caribbean Basin. In fact, Curry et al. for countries in this region from 1979 to 2006. The (2009) indicate that it is likely that this is indeed estimated costs of hurricane impacts in the region are attributable to increasing sea surface temperatures estimated to have increased by two orders of magni- caused by anthropogenic global warming. They find tude since the 1970s, although this is partially a result that for each 1 degree Fahrenheit (0.6 degree Celsius) of increased development, rather than changes in warming of the sea, hurricane intensity increases by weather patterns. The year 2005 saw the number of somewhere between 2 and 5 percent. This corresponds hurricanes in the North Atlantic hit 14, a historic to an increase in the range of 10 to 26 percent in high. And in 2004, for the first time ever, a hurricane damages. Even with no increase in frequency, this formed in the South Atlantic and hit Brazil. Of partic- intensification could have major implications for ular significance is the recent increase in Mesoameri- regional ecosystems and human activities. can landfalls since 1995 after an extended quiet Taking all kinds of climate-related disasters (includ- regime of nearly 40 years. Four of the 10 most active ing droughts, extreme temperatures, windstorms, and years for hurricane landfalls have occurred in the past floods) together, there appears to be a positive trend 10 years. In 2008 Cuba, Haiti, and other islands were over the past few decades, although less marked in the particularly affected by multiple hurricanes. This LCR than in the rest of the world (figure 2.2). Raddatz raises the question of whether we are already seeing (2008) likewise confirms statistically that the inci- the impacts of climate change and if the damages will dence of climatic disasters has increased worldwide 32 TABLE 2.1 Fraction of National Territory of Latin America and the Caribbean Region Countries with Current High Risks of Drought, Floods, or High Expected Increase (by 2030) in Dry Days, Heat Waves, or Rainfall Intensity Increase in Area with high cur- Increase in Area with high maximum consecu- Increase in rent drought risk Increase in simple maximum amount current flood risk High probability of tive dry days (CCR): heatwave duration and high CCR or High probability of daily rainfall inten- of rainfall in 5-day and high SDI droughts (current at least 2 more days (HWD): at least 8 high HWD in 2030 floods (current sity index (SDI): at period (R5D): at or high R5D in climate) (2030) more days (2030) (%) climate) least 4% (2030) least 10% (2030) 2030 (%) Argentina 12 52 38 77 25 28 2 47 Belice 100 87 14 0 0 0 Bolivia 1 93 100 100 30 16 16 28 Brasil 27 71 79 100 13 39 3 22 Chile 62 59 26 100 9 25 19 0 Colombia 8 2 4 56 75 26 19 21 Costa Rica 20 0 0 0 63 0 0 0 Cuba 0 100 0 79 0 0 0 Ecuador 65 0 0 0 85 12 0 14 El Salvador 100 100 17 100 99 0 0 0 Guatemala 100 100 96 100 73 0 0 0 Guyana 0 76 96 0 0 0 Guyane 6 6 0 6 49 33 Haiti 0 100 0 94 0 0 0 Honduras 0 97 56 100 0 0 0 Jamaica 0 100 0 100 0 0 0 Mexico 43 97 87 100 33 0 0 0 Nicaragua 17 66 0 73 81 0 0 0 Panama 0 0 0 30 0 0 0 Paraguay 23 100 100 100 63 0 1 2 Peru 4 21 10 0 82 62 36 68 Puerto Rico 100 0 66 0 0 0 Republica Dominicana 0 98 0 89 0 0 0 Suriname 0 69 80 0 48 17 Trinidad Y Tobago 0 0 97 0 0 0 Uruguay 0 0 0 68 100 0 100 Venezuela 19 10 81 100 26 9 0 0 Source: World Bank staff calculations using the following models: cnrm: cnrm-cm3, Meteo France; gfdl: gfdl-cm2.0, Geophysical Fluid Dynamics Lab/NOAA; inmc: inm-cm3.0, Inst. Numerical Math, Russia; ipsl: ipsl-cm4, Inst Pierre Simon Laplace, France; mirh: miroc3.2(hires), University of Tokyo, JAMSTEC, Japan; mirm: miroc3.2(medres), University of Tokyo, JAMSTEC, Japan; mri: mri-cgcm2.3.2, Meteorological Research Institute, Japan; ccsm: ccsm3, National Center for Atmospheric Research USA. Note: CCR, HWD, SDI, R5D report % of territory where climate events are predicted by 5 or more Global Circulation Models. L O W- C A R B O N D E V E L O P M E N T : L A T I N A M E R I C A N R E S P O N S E S T O C L I M A T E C H A N G E TABLE 2.2 Cumulative Losses for Each Country, 1979­2006 Damage Avg. damage % of Avg. lives lost per Country Total cyclones (2007 US$M) GDP Total lives lost 100,000 pop. Mexico Gulf Coast 16 47,315 5.29 380 2.39 Central America Belize 3 469 11.71 69 9.81 Costa Rica 4 168 0.37 42 0.33 El Salvador 2 370 2.00 253 2.21 Guatemala 1 1,159 3.86 68 0.60 Honduras 3 5,196 32.69 7,042 39.84 Nicaragua 6 5,176 25.29 3,957 16.22 Greater Antilles Cuba 14 8,042 2.35 38 0.03 Dominican Republic 7 9,439 5.30 2,418 5.58 Haiti 7 2,495 22.87 4,721 8.46 Jamaica 7 4,675 12.17 72 0.45 Puerto Rico 12 11,365 0.94 48 0.14 Lesser Antilles Antigua and Barbuda 6 1,753 55.53 4 2.88 Barbados 5 11 0.09 1 0.35 British Virgin Islands 6 607 179.34 6 37.55 Dominica 3 71 21.46 1 1.45 Grenada 4 1,040 105.37 40 12.39 St. Kitts and Nevis 3 1,436 110.05 6 7.19 St. Lucia 5 14 0.52 22 5.81 St. Vincent and Grenadines 4 64 6.96 5 1.43 Bahamas 11 2,648 7.60 6 0.42 Source: Curry et al. (2009). Note: Estimated normalized damage is given in millions of 2007-equivalent U.S. dollars. The lives lost in the storms are expressed by 100,000 individuals. FIGURE 2.1 countries, Central America, and the Southern Cone; Time Series of North Atlantic Tropical Cyclones (blue) and Sea while droughts hit some Andean countries, Central Surface Temperature (red) America, and Brazil. 16 28.5 Number of tropical temperatures (°C) 14 12 28.0 What Are the Consequences of Climate Change Sea surface cyclones 10 8 27.5 for Economies and Ecosystems in the LCR? 6 The changes in temperature and precipitation pat- 4 27.0 2 terns that are currently projected for the LCR would 0 26.5 1920 1945 1970 1995 2020 have diverse impacts on natural systems and human Year activities. But the economic sector likely to suffer the Source: Adapted from Curry et al. (2009). most direct and largest impact is agriculture, and the impact on this sector dominates the overall picture of quantifiable economic effects in all current models. over the past four decades. Disaggregating by type Studies that have quantified sector-by-sector damages of disaster and by subregion, it appears that wind- for the LCR estimate agricultural losses ranging from storms disproportionately affect the Caribbean, Central US$35.1 billion per year (out of US$49 billion total, America, Chile, and Mexico; floods hit Andean 0.23 percent of GDP),5 to US$120 billion per year 34 C L I M AT E C H A N G E I M PA C T S I N L AT I N A M E R I C A A N D T H E C A R I B B E A N FIGURE 2.2 Rosenzweig and Iglesias (2006). His results project Climate-Related Disasters in Latin America and the Caribbean that yields in the LCR (averaged across the four differ- Region versus the Rest of the World Index (1970 = 100) ent climate models) will decline 19 percent for higher 900 income "calorie exporting" countries, 13.5 percent 800 in higher income "calorie importing" countries, and 700 600 17 percent in middle- and low-income countries. 500 Cline also reports his own estimates, based mostly on 400 existing studies adjusted to make them more realistic 300 in his view, for example, by allowing for the yield- 200 100 augmenting effects of carbon fertilization. Even under 0 this optimistic carbon-fertilizer scenario, yields are 19 0 19 2 19 4 76 19 8 19 0 19 2 19 4 86 19 8 19 0 19 2 19 4 19 6 20 8 00 20 2 20 4 06 projected to increase in only two countries: Argentina 7 7 7 7 8 8 8 8 9 9 9 9 9 0 0 19 19 19 20 Year (by 2 percent) and Brazil (by 7 percent, but with con- Latin America and the Caribbean Rest of the world siderable regional variation). In all other countries Source: World Bank staff calculations (based on EM-DAT: The OFDA/CRED International Disaster Database, Catholic University yields are projected to decline: by 12­13 percent in of Louvain). Note: Countries represented: Anguilla; Antigua and Barbuda; Central America, Chile, and Colombia; 18­25 percent Argentina; The Bahamas; Barbados; Belize; Bolivia; Brazil; Cayman Islands; Chile; Colombia; Costa Rica; Cuba; Dominica; the Dominican in Ecuador, Mexico, and Peru; 30 percent in Cuba; Republic; Ecuador; El Salvador; French Guiana; Grenada; and 34 percent elsewhere in South America. This Guadeloupe; Guatemala; Guyana; Haiti; Honduras; Jamaica; Martinique; Mexico; Montserrat; Netherlands Antilles; Nicaragua; compares to a median global decline of 4 percent Panama; Paraguay; Peru; Puerto Rico; St. Kitts and Nevis; St. Lucia; St. Vincent and the Grenadines; Suriname; Trinidad and Tobago; (see map 2.2). Turks and Caicos; Uruguay; República Bolivariana de Venezuela, Virgin Islands. The disasters charted meet at least one of the follow- Applying a Ricardian methodology to a sample of ing criteria: (1) 10 or more people reported dead, (2) 100 people reported affected, (3) declaration of a state of emergency, (4) call for farm households in seven South American countries, international assistance. average potential revenue losses from climate change in 2100 were estimated to range from 12 percent for a mild climate change scenario to 50 percent in a more severe scenario, even after farmers undertake adaptive (out of US$122 billion total, 0.56 percent of GDP)6 reactions to minimize the damage (Seo and Mendel- by 2100. A recent study based on a global general sohn 2008). In a country feeling sever impacts, like equilibrium model with endogenously determined Mexico, the forecast fall in value of the land (as a mea- emissions levels projects total losses in the LCR of sure of the decline in productivity) is larger than the about $111 billion (1 percent of GDP) by 2050 if actual value of the land itself for 30­85 percent of all warming reaches about 1.79°C relative to 1900. farms, depending on the model and the severity of Except for studies by Toba (2008). on Caribbean warming (Mendelsohn et al. 2008). Yet it is worth regions, discussed later, none of these studies include noting that across countries and even within the same damages to noneconomic sectors, for example, to country, the impacts are likely to vary substantially ecosystems, nor do they take into account the effects from one region to the next. Even in hard-hit Mexico, of natural disasters or the possibility of catastrophic some regions are forecast to benefit. Across the conti- events, such the collapse of major ice sheets or melting nent of South America, losses are generally forecast to permafrost. But because the loss estimates are based be higher nearer the equator, with some areas on the on observations of how farmers behave in different cli- Pacific and in the south of the continent showing pos- mates, they do implicitly take into account private sible gains. These studies also find that small farms do adaptive responses. not feel more severe impacts than large, perhaps because Cline (2007) applied a consistent methodology to the larger farms tend to be more specialized in tem- recalculate the data in a crop model-based study of the perate (heat-intolerant) crops and livestock, and there- effects of climate change on world food supply by fore less adaptable. 35 L O W- C A R B O N D E V E L O P M E N T : L A T I N A M E R I C A N R E S P O N S E S T O C L I M A T E C H A N G E MAP 2.2 Current Agricultural Productivity and Expected Changes by 2080 Source: Constructed on the basis of estimates by Cline (2007). Note: Cline (2007) estimates one value for Central American countries and one value for "Other South American countries." We applied the value of Central American countries to Belize, Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua, and Panama, and the value of "Other South American countries" to Bolivia, French Guiana, Guyana, Paraguay, Suriname, and Uruguay. What would be the impact of these kinds of changes FIGURE 2.3 in productivity on rural poverty? Answering this ques- Effects of Climate Change on Poverty, Brazilian Municipalities tion requires both good household data and good model- ing of the way in which households would respond. One recent study of this issue in Brazil (Assuncao and Feres 2008) concludes that there would be big differences in impact, depending on the degree of households' eco- nomic mobility. If labor mobility is constrained, overall rural poverty would increase by 3.2 percentage points. If households are allowed to migrate, the impact falls to 2 percentage points. In either case, the effect of climate change is highly region-specific, depending on the regional changes in the climate per se, as well as the vari- Source: Assunçao and Feres (2008). ation in productivity responses and off-farm economic opportunities (figure 2.3). The full economic and social costs of climate change go beyond the kinds of costs included in these events already take a high toll in the region. In 1999, estimates. One type of incremental cost is the damage for example, 45,000 people were killed in floods and potentially caused by increasing frequency or inten- mudslides in República Bolivariana de Venezuela, while sity of extreme events (climatic disasters) that may 10,000 people lost their lives due to the devastating result from global warming. Certainly, extreme weather impact of hurricane Mitch in 1998 (UNFCCC 2007b). 36 C L I M AT E C H A N G E I M PA C T S I N L AT I N A M E R I C A A N D T H E C A R I B B E A N A series of four storms and hurricanes--Fay, Gustav, covered event," a measure of the greatest damage Hanna, and Ike--swept across parts of Haiti during expected from a single storm. Toba (2008) estimated August­September 2008, and hit other islands as well, that annual GDP loss of Caribbean Community with devastating impact. Already the poorest place in countries due to climate change­related disasters the Western Hemisphere, Haiti, has become even more would be US$5 billion circa 2080 in 2007 prices in destitute. These events also displace large populations, more conservative estimates (see table 2.8). as demonstrated by the large numbers of "environmen- tal refugees" in Central America from Hurricane Mitch Ecosystem impacts (Glantz and Jamieson 2000). There is, as we noted, The effects of significant warming and consequent cli- some uncertainty as to whether warming will make matic changes would, however, extend far beyond agri- these kinds of disasters more frequent--though recent culture and far beyond the macroeconomic impacts. trends seem to indicate it will--but it is likely to at Some of the LCR's most unique features and subregions least make them more intense. are threatened by climate change, including Andean Worldwide, Raddatz (2008) quantifies the impacts glaciers, other high mountain habitats, the coral reef from different types of disasters, finding that climatic biome in the Caribbean, the Amazon, and regions that disasters reduce per capita GDP by 0.6 percent on are particularly vulnerable to extreme climatic events, average. Droughts and extreme temperatures show the such as the El Niño Southern Oscillation phenomenon only significant effects in his analysis7 (and the latter (UNFCCC 2007a; Vergara 2005). Some of the major based on a small sample), suggesting again that agri- regional vulnerabilities are summarized by the IPCC culture is a major channel through which the effects (Magrín et al. 2007) in map 2.3. are transmitted to the economy at large. He concludes Based on their irreversibility, their importance to that if the trend continues, the increased incidence of the ecosystem, and their economic cost, four impacts disasters found in the data over the past four decades related to ecosystems stand out as being of special could reduce per capita GDP by 2 percent over a concern (see table 2.4). These are (a) the warming and decade. This would represent a permanent drop in the eventual disabling of mountain ecosystems in the level (not the growth rate) of GDP. Andes; (b) the bleaching of coral reefs leading to an LCR-specific research quantifying the economic anticipated total collapse of the coral biome in the impacts of increasing frequency and virulence of cli- Caribbean Basin; (c) the subsidence of vast stretches of matic disasters is relatively scarce. One of the few wetlands and associated coastal systems in the Gulf of forecasts of this kind indicates that if climate change Mexico; and (d) the risk of forest dieback in the Amazon goes unabated, climate-related disasters could cost Basin. The first three of these are ongoing processes, the LCR US$300 billion per year in the next decades whereas the fourth is a future threat. (CEPAL 2002; Swiss Re 2002). In another more recent study, Curry et al. (2009), estimate the eco- Andean glacier retreat nomic losses from tropical storms in the Caribbean Global circulation models project that the Andes will Basin for four scenarios. These range from a "low" experience much greater temperature increases than scenario (A1) corresponding to no increase in fre- neighboring lowlands and a rate of warming at least quency and a 2 percent increase in intensity of storms two times greater than the average. The most immedi- to a "high" scenario (B2) with an increase in fre- ate impacts of this warming will be on tropical glaciers quency of 35 percent and an increase in intensity of and high mountain ecosystems. Field observations and 5 percent. The cumulative damages for the five-year historical records already document rapid glacier retreat period of 2020­25 are shown in table 2.3. Losses to in the Andes (Francou et al. 2005). One striking illus- the Gulf Coast of Mexico, for example, range from tration of this trend is the photographic record of the US$80 billion to US$103 billion in 2007. The col- Chacaltaya Glacier in Bolivia, shown in figure 2.4. Pro- umn MCE indicates the damages of the "maximum jections suggest that many of the glaciers at lower 37 L O W- C A R B O N D E V E L O P M E N T : L A T I N A M E R I C A N R E S P O N S E S T O C L I M A T E C H A N G E TABLE 2.3 Projected Damage for Five-Year Period Circa 2020­25 for the Four Scenarios (in millions of 2007 US$) A1 A2 B1 B2 Country HDI ELP MCE CL MCE CL MCE CL MCE CL Mexico (1.10) (1.24) (1.26) (1.42) (1.10) (1.60) (1.26) (1.84) Gulf Coast 0.792 1.49 15316 79665 15767 79665 15316 102930 15767 102930 Central America (1.10) (1.07) (1.26) (1.22) (1.10) (1.39) (1.26) (1.58) Belize 0.737 1.67 665 209 762 239 665 272 762 309 Costa Rica 0.834 1.39 228 63 261 71 228 81 261 92 El Salvador 0.720 1.33 541 132 620 150 541 171 620 194 Guatemala 0.649 1.33 1696 412 1942 470 1696 535 1942 609 Honduras 0.672 1.25 7123 1737 8159 1981 7123 2257 8159 2566 Nicaragua 0.667 1.86 6015 2575 6890 2936 6015 3345 6890 3803 Greater Antilles (1.10) (1.74) (1.26) (1.99) (1.10) (2.26) (1.26) (2.58) Cuba 0.809 1.35 3845 4723 4404 5401 3845 6134 4404 7003 Dominican Republic 0.738 1.65 13153 6775 15067 7748 13153 8799 15067 10046 Haiti 0.463 1.23 1936 1335 2218 1527 1936 1734 2218 1979 Jamaica 0.764 1.24 5747 2522 6582 2884 5747 3275 6582 3739 Puerto Rico 0.942 1.50 9083 7416 10405 8481 9083 9632 10405 10996 Lesser Antilles (1.10) (1.19) (1.26) (1.36) (1.10) (1.53) (1.26) (1.75) Antigua and Barbuda 0.800 1.33 2003 694 2294 793 2003 892 2294 1020 Barbados 0.888 1.34 16 4 19 5 16 6 19 7 Dominica 0.743 1.19 93 25 107 29 93 33 107 37 Grenada 0.745 1.39 1407 430 1611 492 1407 554 1611 632 St. Kitts and Nevis 0.844 1.46 1036 624 1187 713 1036 802 1187 917 St. Lucia 0.777 1.56 15 7 18 8 15 9 18 10 St. Vincent and Grenadines 0.751 1.54 78 29 89 33 78 37 89 43 Bahamas (1.10) (1.31) (1.26) (1.50) (1.10) (1.68) (1.26) (1.93) Bahamas 0.815 1.25 923 985 1057 1241 923 1263 1056 1597 Source: Curry et al. (2009). Note: Parenthetical values for each region are the projected hurricane risk factors. MCE = maximum covered event; CL = cumulative loss; ELP = economic loss potential; HDI = human development index. altitudes could completely disappear over the next 10 LCR's clean energy profile. However, much of this to 20 years (Bradley et al. 2006; Ramírez et al. 2001). hydropower is dependent on water from glacial runoff. The disappearance of important glaciers in Bolivia,8 In Peru there are 15 power plants, with a total installed Colombia, Ecuador, Peru, and República Bolivariana de capacity of 2,480 megawatts, located in glacier-fed Venezuela could seriously affect seasonal water flows water basins. Although the disappearance of the glaciers and the availability of water for human consumption, might not affect total water supply, seasonal flow pat- hydropower, agriculture, sanitation, and ecosystem terns would certainly change. This, in turn, would integrity, possibly resulting in severe economic require significant investments to maintain generation impacts and environmental degradation. Reduced capacity. Vergara et al. (2007) estimate annual incre- glacial runoff in the Andes is likely to cause severe mental costs to Peru's power sector from US$212 mil- water stress for up to 77 million people by 2020 lion if gradual adaptation is used, up to US$1.5 (Magrín et al. 2007). Andean countries are highly billion under rationing. This is in addition to the dependent on hydropower (more than 50 percent of impacts on water supply for urban areas, agriculture, electricity supply in Ecuador, 70 percent in Bolivia, and and ecosystem integrity. Watersheds in arid and semi- 80 percent in Peru), which is a major reason for the arid areas are particularly vulnerable (UNFCCC 2007b). 38 C L I M AT E C H A N G E I M PA C T S I N L AT I N A M E R I C A A N D T H E C A R I B B E A N MAP 2.3 ecosystems have unique endemic flora and provide Major Regional Vulnerabilities numerous and valuable environmental goods and ser- vices. Prospects of damage to these ecosystems are all the more alarming because major population centers, including the cities of Bogotá and Quito, depend on páramos for their water supply. Loss of coral reefs Under conditions anticipated by the IPCC (IPCC 2007), temperatures in the Caribbean may reach, dur- ing the current century, threshold values that would lead to collapse of the coral biome (Christensen et al. 2007). These economic losses are inherently difficult to monetize, but based on the most recent available data on various direct use, indirect use, and nonuse values, attempts have been made to illustrate indica- tive values of coral reefs that may be lost (Toba 2008).9 Table 2.5 present such estimates, based on the Coral Mortality and Bleaching Output model.10 The A1B with the 2°C temperature sensitivity scenario suggests that, under the assumptions made, the effects of both warm seas and severe high-temperature episodes could likely lead to the mortality of all corals in the area between 2060 and 2070. Although these estimate are based on available data from the Caribbean region, due to the current limitations of scientific knowledge of complicated direct and indi- rect linkages of coral reefs vis-á-vis other species and the integrity of ecosystems and of economic evalua- tion of coral reefs, the estimated results should be regarded as only an illustrative purpose. Loss of wetlands around the Gulf of Mexico and elsewhere Wetlands provide many environmental services, including regulation of the hydrological regime; human settlement protection through flood control, protection of the coastal region, and help in mitigat- Source: IPCC (2007). ing storm impacts; control of erosion; conservation and replenishing of coastal groundwater tables; reduc- Damage to the environment in the Andes may also tion of pollutants; regulation and protection of water be significant. High mountain ecosystems, including quality; retention of nutrients, sediments, and pollut- páramos (a unique type of wetland found in the north- ing agents; providing sustenance for many human ern Andes) and snowcapped terrain, are among the communities settled along the coast; and habitats for environments most sensitive to climate change. These waterfowl and wildlife. 39 TABLE 2.4 Ecosystem Hotspots Climate hotspot Direct effect Immediacy Irreversibility Magnitude of physical impacts Economic consequence Mountain ecosystems in Warming Now The thermal momentum Disappearance of glaciers, Impact on water and the Andes in mountain habitats will drying up of mountain power supply, dislocation result in significant wetlands, extinction of of current agriculture increases in temperature cold-climate endemic leading to major uni- species directional changes in mountain ecology Coral biome in the Bleaching and mass Now Once temperatures pass the Total collapse of ecosystem Impacts on fisheries, Caribbean mortality of corals threshold for thermal and wide-ranging extinc- tourism, increased vulnera- tolerance, corals will be tion of associated species bility of coastal areas 40 gone Wetlands in the Gulf of Subsidence and Ongoing; this century Irreversible rises in sea Disappearance of coastal Impacts on coastal Mexico salinization; increased levels will submerge coastal wetlands, dislocation and infrastructure, fisheries, exposure to extreme wetlands affecting their extinction of local and and agriculture weather ecology migratory species Amazon Basin Forest dieback Ongoing; this century If rainfall decreases in the Drastic change to the Impacts on the global basin, biomass densities ecosystem leading to water circulation patterns; would also decrease potential savannah impacts on agriculture, water, and power supply on a continental scale Source: Vergara (2009). C L I M AT E C H A N G E I M PA C T S I N L AT I N A M E R I C A A N D T H E C A R I B B E A N FIGURE 2.4 Retreat of the Chacaltaya Glacier in Bolivia Source: Photographs by B. Francou, E. Ramirez, and W.Vergara. Wetlands in many countries of the region would documented ongoing changes in the wetlands of the be severely affected by rising sea levels, with 1.35 Gulf and have raised urgent concerns about their percent of the total wetland area feeling an impact on integrity. Other studies have indicated that the wet- average by a 1-meter rise and 6.57 percent by a lands in this region are particularly vulnerable to 5-meter rise (Dasgupta et al. 2007). For some coun- subsidence and saline intrusion, both forced by cli- tries, the overall impact of a 5-meter rise would be mate change. The threat is particularly worrisome as catastrophic. The problem in some areas could be the Gulf of Mexico possesses one of the richest ecosys- exacerbated by reduced rainfall. Data published as tems on Earth and the most productive ecosystem in part of IPCC assessments (Milly et al. 2005) indicate the country (Caso et al. 2004). that Mexico may experience significant decreases in runoffs, of the order of ­10 to ­20 percent nationally, Amazon dieback and up to ­40 percent over the Gulf Coast wetlands, One of the most disastrous ecosystem impacts, if it as a result of global climate change. Mexico's third occurs, will be a dramatic dieback of the Amazon rainfor- national communication11 and other studies have est, with large areas converted to savannah. Most Dynamic 41 L O W- C A R B O N D E V E L O P M E N T : L A T I N A M E R I C A N R E S P O N S E S T O C L I M A T E C H A N G E TABLE 2.5 (petagrams of carbon or Pg C) in their biomass. Annu- Potential Value of Lost Economic Services of Coral Reefs circa ally, tropical forests process approximately 18 Pg C 2040­60 Based on the Results of the COMBO Model through respiration and photosynthesis. Despite the (in millions of 2008 US$) large CO2 efflux from recent deforestation, the Ama- zon rainforest is still considered to be a net carbon 50 percent of corals in the Caribbean are lost sink of 0.8­1.1 Pg C per year, because growth on aver- Low estimates High estimates age exceeds mortality. Coastal protection 438 1,376 The basin is the home of about 20 million people, Tourism 541 1,313 Fisheries 195 319 including several unique indigenous cultures, and is Biodiversity 14 19 the largest repository of global biodiversity. In size it Pharmaceutical uses 3,651 3,651 is larger than the European Union or the continental Total 4,838 6,678 United States (about 8 million square kilometers) and 90 percent of corals in the Caribbean are lost produces about 20 percent of the world's flow of fresh- Low estimates High estimates water into the ocean. Coastal protection 788 2,476 Current climate trends may be unbalancing this Tourism 973 2,363 Fisheries 351 574 well-regulated system and, in association with land- Biodiversity 24 35 use changes, may be shifting the region from a carbon Pharmaceutical uses 6,571 6,571 sink to a carbon source. Changing forest structure and Total 8,708 12,020 behavior would have significant implications for the Source: Vergara et al. (2009). local, regional, and global carbon and water cycles. Increasing temperatures may accelerate respiration Global Vegetation Models based on the IPCC emission rates and, consequently, carbon emissions from soils. scenarios show a significant risk of climate-induced Decreasing precipitation and prolonged drought forest dieback toward the end of the twenty first stress may lead to reductions in biomass density. century in tropical, boreal, and mountain areas, and Resulting changes in evapo-transpiration and, conse- some General Circulation Models predict a drastic quently, convective precipitation would further accel- reduction in rainfall in the western Amazon.12 There erate drought conditions and destabilize the tropical is as yet no consensus in the scientific community ecosystem as a whole, causing a reduction in both regarding the possibility of Amazon dieback because standing biomass and carbon carrying capacity. modeling results differ due to different assumptions Changes in the structure of Amazon land cover and and uncertainties. Nonetheless, the Technical Sum- its associated water cycle would adversely impact mary of the Fourth Assessment Report of the UNFCC many endemic species as well as critical economic and indicates a potential Amazon loss of between 20 per- environmental services. Amazonian forest dieback cent to 80 percent as a result of climate impacts would be a massive high-impact event, affecting all life induced by a temperature increase in the basin of forms that rely on this diverse ecosystem, including between 2° and 3°C. The credibility of these predic- humans, and producing ramifications for the entire tions was reinforced in 2005, when large sections of planet's climate and carbon cycle (map 2.4). southwestern Amazonia experienced one of the most intense droughts of the past 100 years. The drought Other indirect impacts of climate change severely affected humans along the main channel of In addition to the direct effects of changes in temper- the Amazon River and its western and southwestern atures and precipitation patterns on the economic sec- tributaries. tors and specific ecosystems, a number of other indirect The Amazon Basin is a key component of the impacts are also important for the LCR, including ris- global carbon cycle. The old-growth rainforests in the ing sea levels, general loss of biodiversity, water short- basin store about 120 billion metric tons of carbon ages, and health-related damages. 42 C L I M AT E C H A N G E I M PA C T S I N L AT I N A M E R I C A A N D T H E C A R I B B E A N MAP 2.4 Modelled Natural Vegetation in the Amazon Basin under Current and Future Climate Conditions Source: Special Report on Emission Scenarios (SRES)-A2 scenario as simulated by the Lund-Potsdam-Jena Dynamic Global Vegetation Model for managed land (LPJmL) from the outputs of three Global Circulation Models. Note: Land-use patterns are not included. Effects of rising sea levels change in terrestrial storage. However, new data on Large populations in Latin America live in coastal rates of deglaciation in Greenland and Antarctica sug- zones, although some live in locations that are more gest greater significance for glacial melt, and a possible vulnerable than others due to land conditions, hous- revision of the upper-bound estimate for rising sea lev- ing structures, and in particular, elevation. Examples els in this century (Dasgupta et al. 2007). Since the of countries with more than 50 percent of the popula- Greenland and Antarctic ice sheets contain enough tion living at elevations of 50 meters or less include: water to raise the sea level by about 68 meters (of which Argentina (50 percent), Uruguay (52 percent), and 7 meters is due to the Greenland sheet), small changes Guyana (about 70 percent) (CIESIN 2007). In addi- in their volume would have a significant effect. tion, in most Caribbean islands more than 50 percent Rising sea levels would damage coastal areas in of the population live within 2 km of the coast (IPCC numerous ways. Erosion or submersion of arable land, 2001). These populations are vulnerable to the along with increased soil salinity, could lead to losses effects of rising sea levels on coastal flooding and in agriculture, forest products, and perennial crops, fresh water supplies, as well as possible intensifica- such as bananas, with lasting consequences for the tion of tropical storms and their impacts. income-generating ability of communities throughout Research on rising sea levels has typically predicted the region's coastal zones (UNFCCC 2007b). The a 0­1 meter rise over the next century (Church and long-term health and survival of the area's mangrove Gregory 2001; IPCC 2001). The rise is mainly due to forests could also be threatened by rising temperatures ocean thermal expansion (the most important contribu- and acidification of the sea and increased hurricane tor); melting of ice sheets in Greenland and Antarctica intensity (Magrín et al. 2007; UNFCCC 2007b). Loss (plus a smaller contribution from other ice sheets); and of forests and perennial crops, such as banana trees, 43 L O W- C A R B O N D E V E L O P M E N T : L A T I N A M E R I C A N R E S P O N S E S T O C L I M A T E C H A N G E caused by the washing out of arable land and increased FIGURE 2.5 soil salinity, is likely to have lasting consequences for Projected Sea Level Rise and Its Impact on GDP in Latin America the income-generating ability of communities across and the Caribbean Region the region's coastal zones (UNFCCC 2007b). Suriname The only study to quantify total economic damages The Bahamas from rising sea levels in the LCR as a whole estimates Guyana these would range from 0.54 percent of GDP for French Guiana a 1-meter rise to 2.38 percent for a 5-meter rise Belize (Dasgupta et al. 2007), with the magnitude of losses differing greatly among the region's countries Puerto Rico (figure 2.5). For CARICOM, based on the A1B Ecuador scenario for the Caribbean, an increase in sea levels of Cuba 0.35 meters circa 2080 is estimated to cost an annual Uruguay US$1.8 billion in 2007 prices (Toba 2008). A recent Panama analysis completed under the Mainstreaming Adap- Brazil tation to Climate Impacts in the Caribbean project, Jamaica indicate that in Guyana more than 80 percent of the population and two-thirds of economic activity Argentina would be displaced by 1 meter in rising sea levels.13 Mexico Venezuela, R.B. de Reductions in rainfall in some regions Dominican Republic will create water shortages, with Peru wide-ranging effects Honduras Even without accounting for climate change, the num- Colombia ber of persons in Latin America living in water-stressed watersheds is forecast to increase from 22 million in Haiti 1995 to between 36 and 56 million by 2025 and El Salvador between 60 and 150 million by 2055 (Arnell 2004). Nicaragua Using four Special Report on Emission Scenarios, by Costa Rica 2055, climate change would increase the number of Chile people living in water-stressed areas under three of the Guatemala four scenarios, by between 6 and 20 million persons. 0 5 10 15 20 25 30 35 40 Particularly in arid and semiarid regions of Argentina, % impact on GDP northeast Brazil, Chile, and northern Mexico, climate 1-meter rise 2-meter rise 3-meter rise change would exacerbate water shortages. Some coastal 4-meter rise 5-meter rise areas would experience adverse effects on water supply, Source: Dasgupta et al. (2007). not because of a reduction in rainfall but from saltwater intrusion into aquifers as a result of rising sea levels. mortality and morbidity from extreme events in second Health impacts place. Other impacts identified include increases in car- Climate change is also likely to have multiple impacts diorespiratory diseases from reduction in air quality, on health, but the relationship is complex. Worldwide, changes in temperature-related health impacts (increas- the single most significant impact identified by the ing heat stress, but reduction in cold-related illness, IPCC is an increase in malnutrition, particularly in depending on the region), and changes in prevalence of low-income countries (Confalonieri et al. 2007), with various infectious diseases, including malaria. 44 C L I M AT E C H A N G E I M PA C T S I N L AT I N A M E R I C A A N D T H E C A R I B B E A N Of special concern in the LCR will be the effects costs do not seem large, although an important caveat on malaria--mainly in rural areas--and dengue in in interpreting these results is that the additional urban areas. Vectors and parasites have optimal tem- cases were calculated only in the municipalities in perature ranges, and because mosquitoes require which the corresponding disease was present in the standing water to breed, changes in precipitation are 2000­05 period; the estimate of the costs does not also expected to have an effect on the prevalence of consider the potential spread to new municipalities. the two diseases. In areas that are now too cool, Yet areas receiving less rainfall may experience a higher temperatures could allow expansion of both reduction in malaria risk, as forecast for Central Amer- the range and the seasonal window of transmission. ica and the Amazon.15 But--underscoring the com- In areas where temperatures are now close to the plexities in forecasting the net health impact of drier upper threshold of tolerance, the range could con- weather--the seasonal pattern of cholera outbreaks in tract. Areas with higher precipitation will have an the Amazon Basin has been associated with lower river increased risk. In Colombia, there is evidence that flow in the drier season.16 No overall assessment has temperature is important for dengue transmission, been carried out of the net health effects for the LCR while increased precipitation is a significant variable as a whole, but recent national health impact assess- contributing to malaria transmission. Using statisti- ments in both Bolivia and Panama, for example, have cal models of the incidence of both diseases, and fore- concluded that on balance there is likely to be an casts of change in precipitation and temperatures increased risk of infectious disease in those countries. (derived from eight global circulation models of the Toba (2008) estimated the annual costs of malaria Fourth Assessment of the IPCC), the total number of due to climate change based on the Disability- victims is forecast to increase by about 76,641 by Adjusted Life Year circa 2080 in 2007 prices for mid-century and 228,553 by the end of the century CARICOM at US$2.6 thousand, and the increased (table 2.6), at an economic cost of US$2.5 million for cost to health due to climate change, including acute the period 2055­60, and US$7.5 million for a five- respiratory infections, acute diarrheal diseases, viral year period beginning in 2105.14 These economic hepatitis, varicella and meningococcal meningitis at TABLE 2.6 Additional Numbers of Cases of Malaria and Dengue for 50- and 100-Year Future Scenarios Historic total number during the Additional number of cases for a Additional number of cases for a Vector-borne disease 2000­05 period six-year period: 50-year scenario six-year period: 100-year scenario p.falciparum malaria 184,350 19,098 56,901 p. vivax malaria 274,513 16,247 48,207 Dengue 194,330 41,296 123,445 Total 653,193 76,641 228,553 Source: Blanco and Hernández (2009). TABLE 2.7 Climate Change Costs Relative to the 2000­05 Period in Colombia (in millions of US$) Indirect costs of Direct cost of Direct cost of p. vivax Total costs for both Scenarios malaria and dengue p. falciparum malaria malaria Direct cost of dengue diseases 50 years (2055­60) 1.1 0.2 0.05 1.1 2.5 100 years (2105­10) 3.3 0.7 0.1 3.3 7.5 Source: Blanco and Hernández (2009). 45 L O W- C A R B O N D E V E L O P M E N T : L A T I N A M E R I C A N R E S P O N S E S T O C L I M A T E C H A N G E US$7.1 million per year circa 2080 (in 2007 prices), MAP 2.5 under an assumption of a 2°C increase in temperature Areas of High Concentration of Amphibians according to Levels of from 1999­2080 of A1B scenario for the Caribbean Threat and Climate Change Susceptibility region. Species extinction and biodiversity loss Even apart from the huge loss of biodiversity from such cataclysmic changes as Amazon dieback, climate change will threaten the rich biodiversity of the LCR more generally. Some of the major impacts on ecosys- tems have been mentioned already: loss of coral reefs, subsidence of wetlands, and the likelihood of major extinctions as a consequence of Amazon dieback. All of these would have important implications for provision of environmental services for society. Other rainforests outside of Amazonia would also be made more vulner- able to forest fires. Scholze (2005) estimates that an increase of 3°C would increase the frequency of forest fires by 60 percent in much of South America, with a somewhat smaller increased risk in Central America. and All of these impacts are likely to drastically affect the survival of species, as breeding times and distri- and butions of some species shift.17 Arid regions of Argentina, Bolivia, and Chile, along with central Brazil and Mexico, are likely to experience severe Source: Foden et al. (2009). species loss by 2050 using mid-range climate fore- casts (Thomas et al. 2004). Mexico, for example, could lose 8­26 percent of its mammal species, 5­8 percent of its birds, and 7­19 percent of its butter- flies. Species living in cloud forests will become are classified as highly susceptible), Thamnophilidae vulnerable, as the warming causes the cloud base to (antbirds, 69 percent highly susceptible), Scolopaci- rise in altitude. In the cloud forest of Montverde in dae (sandpipers and allies, 70 percent highly sucep- Costa Rica, this kind of change is already being tible), Formicariidae (antbirds, 78 percent highly observed, as reductions in the number of mist days susceptible), and Pipridae (manakins, 81 percent has been associated with a decrease in populations highly susceptible).18 of amphibians, and probably also birds and reptiles Although economic techniques to value biodiver- (Pounds et al. 1999). Amphibians are especially sity are currently underdeveloped, one approach uses susceptible to climate change. Species that are both "willingness to pay," thereby including only nonuse threatened (according to the Red List of the IUCN) values of biodiversity (for example, eliminating potential and climate change­susceptible inhabit areas of fishery and/or tourism income). Using this approach, southeastern Brazil, various Caribbean Islands, Toba (2008) estimated the loss of biodiversity value of Mesoamerica, and northwestern South America coral reefs in the Caribbean at US$14­$19 million if (map 2.5). Among birds, the families that are 50 percent of corals are lost, and at US$24­$35 million highly susceptible and are endemic to Latin if 90 percent of coral reefs are lost, in 2007 prices (see America are Turdidae (thrushes, 60 percent of which table 2.8). 46 C L I M AT E C H A N G E I M PA C T S I N L AT I N A M E R I C A A N D T H E C A R I B B E A N TABLE 2.8 Potential Annual Economic Impact of Climate Change in CARICOM Countries circa 20801 (in millions of 2007 US$) Presubtotal2 Subtotal Total Total GDP loss due to climate change­related disasters 4,939.9 Tourist expenditure 447.0 Employment loss 58.1 Government loss due to hurricane 81.3 Flood damage 363.2 of which is agricultural damage 1.7 Drought damage 3.8 of which is agricultural damage 0.5 Wind storm damage 2,612.2 of which is agricultural damage 1.9 Death (GDP/capita) due to increased hurricane-related disasters (wind storm, 0.1 flood, and slides) Floods DALY (GDP/capita) 0.8 Sea level rise Loss of land 20.2 Loss of fish export (rising temperatures, hurricanes, and sea level) 93.8 Loss of coral reefs (rising temperatures, hurricanes, and sea level) 941.6 Hotel room replacement cost 46.1 Loss of tourists and sea-related tourism entertainment expenditures 88.2 Housing replacement 567.0 Electricity infrastructure loss 33.1 Telephone line infrastructure loss 3.9 Water connection infrastructure loss 6.7 Sanitation connection infrastructure loss 9.0 Road infrastructure loss 76.1 Rail infrastructure loss 2.7 Temperature rise Loss of tourist expenditures 4,027.4 General climate changes Agricultural loss 220.5 Loss of maize production 2.7 Agricultural export loss 74.4 Water stress and cost of additional water supply 104.0 Health Malaria DALY (GDP/capita) 0.003 Other disease costs 7.1 Source: Toba (2008). Note: 1. A total of 20 CARICOM countries are included. 2. Of which is agricultural damage. Impacts on the Caribbean is, arising from synthesis of various climate change Small islands in the Caribbean region are particularly impacts).19 Table 2.8 presents the aggregated esti- vulnerable to climate change. Toba (2008) estimated mates for 15 CARICOM member countries and 5 potential annual economic impacts of climate change associate member countries. Secondary data are on Caribbean community member countries, includ- adjusted to be consistent under the A1B scenario for ing climate change related disasters, rising sea levels, the Caribbean region. The economic impacts are temperature rise, and general climate change (that adjusted and expressed as impacts on the 2007 economy 47 L O W- C A R B O N D E V E L O P M E N T : L A T I N A M E R I C A N R E S P O N S E S T O C L I M A T E C H A N G E even though the climate change will not reach its full 7. Windstorms (hurricanes and cyclones) and floods did potential for some decades, as is the standard practice not show a statistically significant impact in the whole sample, in the literature. Conservative values are chosen in although windstorms did show a high impact on small states, such as the Caribbean Islands. making estimates. The estimated total annual impacts 8. The Chacaltaya Glacier is expected to completely disap- of potential climate change on CARICOM countries pear within the next 15 years. Yet, according to observations, circa 2080 are US$11.2 billion. For all 20 CARICOM the accelerating rate of glacier retreat is even larger for small countries, the total GDP (in 2007 prices) is US$99.3 glaciers (Francou and Coundrain 2005). billion. Therefore, the estimated total annual impacts 9. These values are much larger than those illustrated in are about 11.3 percent of all 20 CARICOM countries' table 2.8, which used different data sources and assumptions to avoid double counting. total annual GDP. Sensitivity analyses are conducted 10. The Coral Mortality and Bleaching Output (COMBO) applying the lowest and the highest under the A1B model developed by Buddemeier and coworkers (Buddemeier scenario for the Caribbean region projected by IPPC et al. 2008) models the response of coral growth to changes in Fourth Assessment Report. This results in estimated sea surface temperature, atmospheric CO2 concentrations, and annual impacts of about US$7.2 billion (7.3 percent high-temperature­related bleaching events. COMBO esti- of the 20 CARICOM countries' total annual GDP) mates the growth and mortality of the coral over time based on future climate predictions and on the probability and effects of and the highest estimate of about US$18 billion short-timed, high-temperature­related bleaching events tak- (18 percent of the 20 CARICOM countries' total ing place in the area. annual GDP). Although these estimates are based on 11. National Communications to the UNFCCC (2001, the use of secondary data, they still provide an indica- 2004, 2007). tion of the magnitude of climate change damages to 12. There are estimates of up to a 90 percent reduction in CARICOM countries, which is useful for decision rainfall by the end of the century (Cox et al. 2004, 2008). However, some estimates suggest that 40 percent reductions in makers in addressing climate change impacts. rainfall would suffice to initiate a dieback process. 13. Theo Velloza and Mark Bynoe, National Adaptation Notes Strategy for the Agricultural Sector of Guyana to Address Cli- 1. In the terminology of the IPCC, a high level of confi- mate Change. dence in a given statement amounts to a belief, based on expert 14. Blanco and Hernández (forthcoming). judgment of the underlying evidence (data, models, or analy- 15. Van Lieshout et al. (2004). ses) that the chance of the corresponding finding being correct 16. Gerolomo and Penna (1999). is at least 8 out of 10. 17. IPCC (2007), Thomas et al. (2004). 2. Parry et al. (2007). 18. The antbirds are a large family of passerine birds found 3. The Third Assessment Report of the Intergovernmental across subtropical and tropical Central and South America, from Panel on Climate Change predicts that global mean surface Mexico to Argentina. The formicariids, or ground antbirds, are temperature will rise by as much as 6oC by 2100 (UNFCCC small passerine birds of subtropical and tropical Central and 2007b). South America. Manakins are found in southern Mexico to 4. World Bank. 2007b. "Visualizing Future Climate in northern Argentina, Paraguay, southern Brazil, and on Latin America: Results from the Application of the Earth Sim- Trinidad and Tobago. Most species live in humid tropical low- ulator." Sustainable Development Working Paper 30. lands, with a few in dry forests, river forests, and the subtropi- 5. Mendelsohn and Williams (2004). cal Andes. 6. Tol (2002). 19. Toba (2008). 48 CHAPTER 3 Adapting to a Changing Climate in the LCR Introduction Efforts to plan for adaptation on both the individ- Because humans as well as the Earth's ecosystems have ual and governmental levels are further bedeviled by evolved characteristics and behaviors that optimize their the tremendous uncertainties involved in climate pro- well-being under current climate conditions, significant jections. There is more agreement among models changes will inevitably cause stress. Even in areas where regarding the degree of warming than regarding the warming will eventually produce some beneficial changes in precipitation patterns, but the latter are at effects, there will be adjustment costs. Humans and least as important in planning for adaptation. Here, ecosystems will respond on their own in ways that will Latin America and the Caribbean stands out, along reduce the costs and enhance the benefits, to the extent with Africa, as the regions with the greatest uncer- they are able to do so. But a major challenge for govern- tainties, as measured by consistency of predictions by ments and the international community will be to pro- different models (table 3.1). vide the policies, institutional infrastructure, and public Comparing the forecasts from different models for goods that will facilitate this process of adaptation. the "cells" (areas) in the LCR, there are 15 percent of Adaptation theory defines climate adaptation as the the cells where less than half the models agree on the changes in behavior in response to or in anticipation direction of change of precipitation and only 18 per- of climate change (IPCC 1996, IPCC 2001). Although cent where there is a fairly high degree of consensus. the idea that people will adapt is simple, adaptation Within the LCR, the subregions that show the least itself is complex. It is an endogenous response to cli- consistency in predictions of precipitation changes are mate change. As climate changes, adaptive responses the arid areas of Brazil and the southern equatorial must change with it. Further, adaptation is not uni- region (see table 3.2). Planning for adaptation must form. The best response for one farmer, for example, take into account this high degree of uncertainty as will depend not only on his external environment, but well as the "average" forecast. on his own situation--his constraints and assets-- financial, physical, and human--and so is not neces- Adaptive Responses to Climate Change sarily the best response for another farmer even in the For the most part, changes in climate will occur grad- same region. Adaptation is likely to be a quilt across ually over decades and even centuries, although there the landscape, with very different responses in each remains the possibility that certain tipping points location. Efforts to directly assist adaptation need to could be reached, triggering sudden and catastrophic be sensitive to these dynamic and local qualities, with changes. The gradual nature of the changes combined the implication that they should be aimed mainly at with the normal variations and uncertainties in weather increasing options, rather than imposing a one-size- patterns means that people will be required to adjust fits-all solution. their behavior based on very unclear signals as to what 49 L O W- C A R B O N D E V E L O P M E N T : L A T I N A M E R I C A N R E S P O N S E S T O C L I M A T E C H A N G E TABLE 3.1 Projected Future Changes in Runoff Projecteda change in average runoff (mid-twenty-first century) Model agreementc Mean change % of cells % of cells Portionbof region for which change is projected to: (% of current where 50% where 80% average Decrease by Remain within Increase more or fewer of or more of Region annual runoff) more than 10% +/­ 10% than 10% models agree models agree LCR ­3% 27% 56% 17% 15% 18% AFR ­1% 25% 60% 14% 15% 16% MNA ­30% 58% 40% 2% 8% 37% ECA 14% 11% 25% 64% 3% 79% SAR 11% 18% 22% 60% 4% 31% EAP 9% 0% 47% 53% 9% 33% Source: Adapted from World Bank Water Anchor "Water and Climate Change: Hydrologic Drivers and Potential Impacts," December 17, 2007. a. Estimates of projected change in runoff were determined by averaging the results of Milly et al. 2005 (an analysis of the runoff output of 12 climate models run under the IPCC's SRESA1B emissions scenario, provided as gridded output at the 2.5° longitude x 2.0° latitude scale) over the grid cells that comprise each region. b. The projected changes in runoff were divided into three categories. The percent of grid cells within a particular region that fall into each category is reported. c. Model agreement refers to whether or not multiple models project a change in the same direction (that is, increase or decrease in runoff). Twelve different climate models were included in the analysis by Milly et al. (2005). For each grid cell, as few as 6 models may agree on the direction of change (that is, half the models project an increase and half project a decrease), and as many as 12 models may agree (that is, all models show an increase or all models show a decrease). Presented here is the per- cent of grid cells within a region that have poor model agreement (6 out of 12 agree) and that have moderate to good agreement (10 or more models agree). the future may hold. One implication of this is that others (Adams et al. 1998). Such adaptation practices adjustment costs could be much reduced if there were involve actual adjustments or changes in decision some way of reducing the uncertainty. Another is that environments to reduce vulnerability to observed or there will be a very high premium on flexibility. expected changes in climate (Adger et al. 2002). They can be autonomous, driven by self-interest, or facili- Adaptation through changes in agricultural tated by governments through the development of new practices crop varieties that can withstand biotic stresses, invest- Agriculture not only is the sector of the economy ments in water management and irrigation infrastruc- that will experience the most direct and largest ture, and incentive mechanisms to spread risk and impacts of climate change, it is also the source of improve knowledge. livelihood for about 75 percent of the world's poor Four complementary approaches have been applied and a source of food for all. In the LCR about 21 per- to study agricultural adaptation: (1) crop models; (2) cent of the rural population is poor. To support Ricardian analysis; (3) stakeholder consultation/expert objectives of poverty reduction, development, and opinion; and (4) case studies of behavior in response to maintenance of the world's food supply, it is critical weather-related events. Crop simulation models have that the agricultural sector adapt as well as possible been used to assess crop responses to environmental and to climate change. management factors. They also indicate the potential Over time, farm-level adaptations have been made in for adapting to different climates through the use of planting and harvesting dates, crop rotations, selection different varieties. Crop models in Latin America have of crops and crop varieties, use of different management been developed for a few important agricultural regions practices, and adoption of new technologies, among within selected countries (Argentina, Brazil, Mexico, 50 A D A P T I N G T O A C H A N G I N G C L I M AT E I N T H E L C R and Uruguay) focusing primarily on grains. The studies precipitation ranges. As temperatures warm, farmers generally point to reductions in yields and increased tend to choose maize and wheat less often, while they variability in crop productivity in the region with ris- choose potatoes, rice, soybeans, and fruits and vegeta- ing temperatures (Adams et al. 1998). The magnitude bles more often. If precipitation increases, farmers move of these changes depends on the biophysical simulation away from maize, wheat, and fruits and vegetables to parameters used in the models but generally high- potatoes, rice, and squash. Symmetrically, if precipita- lights the adverse productivity implications of warm- tion falls, farmers move away from potatoes, rice, and ing climate. squash to maize, wheat, and fruits and vegetables. The Another commonly used approach focuses on esti- models attempt to draw inferences on spatial adapta- mating the effects of climate change on agriculture tion as an initial response to climate change, that is, based on observed differences in agricultural produc- how cooler regions might adopt practices of warmer tion and among regions with different climates regions if the climate warmed (Adams et al. 1998). (Adams et al. 1998). Although they are limited to This kind of information can guide governments in consideration of adaptation through changes in pro- deciding how to direct long-term research or technol- duction strategies, Ricardian studies in South America ogy transfer to give farmers appropriate options. (with focus on land values) have more systematically Many adaptations can be implemented at low cost, examined how farmers adapt to climate in a number and in fact many have high co-benefits, but compre- of dimensions. One adaptation decision is the choice hensive estimates of adaptation costs and benefits are of farm type. Mendelsohn and Seo (2007) considered currently lacking (Adger et al. 2002). Top-down five farm types--a crop-only rainfed farm, a crop-only modeling approaches (crop models or Ricardian analy- irrigated farm, a mixed (livestock and crop) rainfed ses) adopt a narrow perspective that underestimates farm, a mixed irrigated farm, and a livestock only adjustment costs. Under bottom-up approaches (such farm--and found significant and predictable effects of as the National Adaptation Plans of Action, or NAPAs), climate. Higher temperatures encourage farmers to costs of adaptation are estimated through a stake- move away from crop-only farms to mixed farms and holder approach, where priority adaptation activities livestock farms. This is consistent with the findings of are identified by communities (OECD 2008). The Wehbe et al. (2006) in Cordoba, Argentina. Higher total national cost of all priority projects identified precipitation pushes farmers to adopt rainfed farming by Haiti, for example, is US$24.5 million, where the and avoid expensive irrigation investments. The sec- agricultural sector represents the highest adaptation ond adaptation decision explored is the choice of cost of almost 50 percent of the total cost of adapta- livestock species. While considering the effects of tion. Prioritization approaches, based on stakeholder nonclimate factors, Seo and Mendelsohn (2007) find and expert consultations, for identifying responses to that there is a significant climate variable explaining reducing vulnerability of agricultural systems have every choice. A third adaptation decision is the choice been undertaken in several production environments of crop species for farmers who have chosen to grow in Latin America (the dry region of Yaqui Valley crops (Seo and Mendelsohn 2008). The study focuses in Sonora, Mexico; the high altitude production on the seven major crops grown in South America: region of Mantaro Valley in Peru; and the Western fruits and vegetables, maize, wheat, squash, rice, pota- region of Uruguay). toes, and soybeans. Maize did not appear to be as sen- Case studies illustrate specific strategies used by sitive to climate as other crops, given its many Latin American agricultural producers to adapt to varieties that can effectively grow in diverse climate changes in weather, some of which have their origins zones in South America. The crop seems to be a in time-honored practices (box 3.1). Among them are "generalist" in the sense that it is grown throughout changing sowing dates; changing varieties or crops; South America. In contrast, the other crops are more relying on irrigation or changing patterns of water specialized and grow in narrower temperature or application as Vasquez-Leon et al. (2003) and Conde 51 L O W- C A R B O N D E V E L O P M E N T : L A T I N A M E R I C A N R E S P O N S E S T O C L I M A T E C H A N G E BOX 3.1 Local Coping Strategies: Learning from Long Experience In Latin America, local coping strategies include a vari- often occurs in sudden downpours. Sloping terraces feed ety of agricultural practices, ecosystem protection, and excess water into tanks (cajetes). The water, which would methods to adapt to extreme events. otherwise not be absorbed into the soil, is collected inside Farmers in Peru have been using an ancient irrigation the cajetes and slowly percolates into the surrounding and drainage system, "waru waru," or raised field agricul- soil after the rain has ended. Eroded soil also trapped ture, which makes it possible to bring into production the inside the cajetes, preventing soil loss down the slope. low-lying, flood-prone, poorly drained lands found all Nutrient rich soil inside the cajetes is later gathered and over the Altiplano. The shallow canals provide moisture distributed into the fields. during droughts and drainage during the rainy season. The Aymaran indigenous people of Bolivia have been When filled with water they also create a microclimate coping with droughts through the construction of small that acts as a buffer against nighttime frosts. The waru dams called "qhuthañas." These dams collect and store waru system provides farmers with greater harvest secu- from 50 to 10,000 cubic meters of rainwater. Predictions rity and reduces the risks associated with frosts and on the intensity of the droughts are based on the knowledge drought. and observations of the "yatiris" (wise men or advisers). In Mexico, the Cajete Terrace agro-ecosystems have In El Salvador communities employ a number of soil been in place for 3,000 years in hillside regions in Tlax- conservation measures to cope with recurrent droughts, cala. In these rain-fed, corn-bean-squash agro-ecosys- for example, building barriers consisting of stone and tems, food is grown on steep, erosion-prone slopes. pine suckers, which provide edible fruits and additional Rainfall is concentrated between May and September and income. Source: UNFCCC 2007. and Eakin (2003) found in Mexico: changing input and Guyana to diminish the impacts of the continued use; changing production technology (for example, change in climate (IPCC 2007). low- or no-tillage production and different grain dry- Spatial distribution of risk is another strategy used ing techniques); increasing reliance on livestock; or by farmers in the region, with mixed results. Geo- improving forestry and other natural resource man- graphic separation of plots for cropping and grazing agement (Reilly and Schimmelpfenning 1999; FAO has proven to be effective for diversifying exposure of 2005). Through changes in the use of irrigation tech- farmers in parts of Argentina and Bolivia. Yet spatial nology, farmers located on the U.S.-Mexico border adaptation strategies can have limitations. In southern have been able to cope with more persistent droughts Peru, field scattering, a common risk-buffering strat- and continue with their activities. Similarly, small egy of having small and dispersed plots, has con- rural households in Nicaragua have adopted different tributed to the net reduction of average yields by 7 approaches to land management (for example, contour percent (Goland 1993). barriers, crop rotation, and diversification) that have Relatively modest (low-cost) adaptation measures, allowed them to better deal with the effects of Hurri- such as farm-level adjustments, can significantly offset cane Mitch in Nicaragua in 1998 and possibly cope declines in projected yield as a result of climate change with future structural changes in rainfall patterns. (OECD 2008). However, the adaptation benefits of The introductions of higher-yielding crop varieties, farm-level adjustments do not translate equally to all adequate use of fertilizers, and recycling of rainwater regions or crops. For many countries located in tropical and wastewater have also helped farmers in Ecuador regions, the potential benefits of low-cost adaptation 52 A D A P T I N G T O A C H A N G I N G C L I M AT E I N T H E L C R measures, such as changes in planting dates, crop northeast Brazil, a region impacted by the El Niño- mixes, and cultivars, are not expected to be sufficient Southern Oscillation (ENSO)2 phenomenon, has seen to offset the significant climate change damages reductions of agricultural GDP of up to 25 percent for (Adger et al. 2002). According to IPCC projections, years of severe drought, which resulted in displace- the low latitude regions in the LCR would be among ments of up to several million low-income rural people those most affected by climate change. Yields are (Mata and Nobre 2006). expected to decline in low latitudes for any increase in temperature--even moderate warming, for example, Adapting to shocks versus trends 1ºC for wheat and maize and 2°C for rice, can signifi- Many of the adaptations farmers use are more or less cantly reduce yields (Easterling et al. 1993; Schneider responses that minimize the risk in yields of year- et al. 2007). The impact will be strongly felt consider- to-year variance in weather. Learning to cope with ing that a quarter of the LCR's population (138 mil- interannual variations in weather makes sense. Some lion people) lives in these regions. Many among them changes one would make to cope with annual weather are poor (about 24 million) (that is, living on less than may also resemble changes one would make in US$1 a day) and a large number (about 13 million) response to climate shifts. Some authors have sug- derive their income from agriculture. gested that the best way to prepare for climate change is simply to adapt to climate variance, that is, the Migration as an adaptation strategy changes in weather from year to year (Burton 1997; Migration or other means of reducing reliance on agri- Leary et al. 2007; Smit et al. 1996). They argue that cultural income may also help some families adapt to adaptation is a stock. Building up that stock to climate change. Eakin (2005) found this to be an address changes in weather prepares the system to important strategy in Central Mexico. Many rural fam- address changes in climate. For example, if farmers ilies already encourage some of their children to can choose crops and livestock that are productive in migrate to cities, who then send back remittances years that are abnormally hot and dry now, they will (Adger et al. 2002). As most urban activities are less be prepared to make these choices to protect them- climate sensitive, this provides important sources of selves against hot and dry climates. independent income.1 Studies carried out for this report However, there is not a perfect parallel between comparing migration flows in different localities in adapting to weather and climate. Some adaptations Brazil and Mexico find that migratory behavior is influ- that make sense for a year do not make sense if the enced by climate conditions. However, though migra- change is permanent. For example, selling off live- tion is sensitive to climate factors, the effect is generally stock in a bad year is not a good long-run strategy small. The role of climate characteristics, such as moti- for climate change although it may work well to vating factors appears to be much more important for smooth consumption against weather shocks. Formal long-distance migration (for example, across munici- insurance is a good policy for coping with variance in palities, in the case of Brazil, and international, in the weather and may be considered an adaptation to case of Mexico), though effects are localized and differ higher volatility produced by global warming. But across regions. Because the data for these studies were it cannot help in coping with long-term trends collected in a long-term equilibrium, the results do not produced by climate change. It can even interfere tell us much about the transition from one equilibrium with adaptation; if subsidized insurance compensates to another, nor about the impact of sudden changes. farmers for a bad crop year after year, they have no Observations of movements of refugees after hurricanes incentive to adapt. Changing capital and long-run in Central America and the Caribbean indicate the investments makes sense for climate change but not potential for extreme events to trigger large-scale for short-run weather shocks. Clearly, learning how migrations. Their repetitive occurrence can also lead to to adapt to climate variance that is part of the cur- permanent displacement of populations. For example, rent climate will provide immediate benefits. These 53 L O W- C A R B O N D E V E L O P M E N T : L A T I N A M E R I C A N R E S P O N S E S T O C L I M A T E C H A N G E adaptations can begin today and need not wait for cli- mid-1980s and mid-1990s. Mueller and Osgood mate change to occur. (2007a) use cross-sectional variation together with But autonomous adaptation alone is unlikely to off- detailed records of past precipitation to detect a long- set the adverse household impacts of climate change. term climate-related worsening in the incomes of In coping with increased weather variability, vulnera- credit-constrained households that were forced by the ble households can follow adaptation strategies that severity of multiple rainfall shocks to move from have negative--and sometimes irreversible--conse- mostly rural states to cities. In a related paper, quences on their current and future living standards. Mueller and Osgood (2007b) examine the long-term The available evidence suggests that these suboptimal consequences of intense droughts on Brazilian labor actions are prevalent in rural parts of the LCR. Baez markets. The study finds that an increase in the aver- and Mason (2008) examined the major strategies age number of standard deviations below the mean of adopted by rural households in four countries in Cen- rainfall reduces rural earnings by 17.7 percent in the tral America that were negatively affected by the cof- following five years and by 26.3 percent between the fee crisis of the late 1990s. Indeed, households fifth and tenth year (figure 3.1).3 In fact, the report engaged in various coping responses to the shock, shows that it took more than a decade for affected some of which appear to be especially harmful from a workers to catch up with the wages of their counter- socioeconomic perspective. For instance, food and parts.4 There are also harmful interactions between nonfood consumption fell and the labor supply of climate risk, short-term risk coping, and asset recov- children increased at the expense of reduced school ery strategies. For instance, microlevel evidence for enrollment. In Nicaragua, in particular, child labor Honduras suggests that households at the bottom of among coffee-growing households increased by 24 the capital distribution were less able to rebuild their percent between 1998 and 2001 (World Bank 2005a). few assets in the middle- and long run after being hit Households are likely to respond in similar ways to by weather shocks (Carter et al. 2004). climate-related shocks. Recent findings for Nicaragua In addition to dealing with more variable weather, suggest that household consumption, school retention farmers will certainly need to respond to longer-term and progression, and child labor were all negatively climate trends. In general, and taking into account affected in areas hit by Hurricane Mitch in 1998 what has been learned from the existing evidence, (Ureta 2005; Baez and Santos 2007). In addition, human health will be at risk in some areas due to increased weather variability and shocks. Increases in FIGURE 3.1 the prevalence of malnutrition and infectious diseases, Estimates of the Long-Term Effects of Droughts on Wages in Brazil such as malaria and dengue, have been reported in areas of Bolivia, Colombia, Ecuador, Nicaragua, and 0.20 0.164 Percentage change in wages 0.15 Peru exposed to extreme rainfall and subsequent 0.10 0.059 floods (Bouma et al. 1997b; WHO 1999; Vos et al. 0.05 1­5 years 5­10 years 0.012 0.00 1999; Baez 2007). 10­15 years ­0.05 There is a danger that short-term responses can, in ­0.10 ­0.103 ­0.095 -0.15 ­0.101 fact, lock the victims into long-term poverty. 15­20 years ­0.20 ­0.177* Although all of the long-term effects of climate haz- ­0.25 ­0.30 ­0.263** ards are not yet known, there are some studies that Urban Rural reveal serious degrees of persistence of the negative Sources: Mueller and Osgood (2007b), with data from Pesquisa Nacional de Amostra Domicilios (1992, 1995). impacts. Two recent papers look into the impacts of Note: (*) and (**) stand for 0.10 and 0.05 significance levels. Number weather variability on the long-term earnings of of observations: 155,310 (urban), 64,263 (rural). Estimates include controls for age, education, experience, gender, and state-fixed households that permanently migrated out of agricul- effects. Average effect of the shock is shown. Errors clustered at the state level. ture in Brazil driven by climate shocks between the 54 A D A P T I N G T O A C H A N G I N G C L I M AT E I N T H E L C R long-run adaptation and economic transitions to new Mesoamerica and South America in water-stressed agroeconomic environments is hardest for poor, low- areas is projected to be 35.7 million (for 2025) and 54 skilled, low-educated, and credit-constrained house- million (for 2050) (Mata and Nobre 2006), but the holds. To the extent that such farmers lack the means to patterns of rainfall change will be far from uniform, undertake the necessary economic adjustments--for with some areas receiving much more and some much example, increasing their productivity in existing less than they do at present. Even in a relatively small activities, switching to more profitable crops, or mov- landmass like Chile changes in precipitation patterns ing off-farm--they may find themselves with declining may vary greatly, meaning that each watershed will income trajectories. What is more, such longer-term need highly specialized modeling and adaptation economic transitions can be further hindered by the design (Bitran 2008). negative and often persistent effects of suboptimal risk Adaptation strategies on the individual and insti- management and coping strategies that are commonly tutional levels will reflect both the physical and eco- adopted by poor households in the short run. As dis- nomic feasibility of available options (IPCC 2007). cussed further in the next section, one of the main goals On an individual level, farmers respond to water of devising policies to support successful adaptation is scarcity with multiple strategies, some of which were to help people avoid having to adapt in these counter- described previously in the section on agriculture. On productive ways, either in the short or the long term. an institutional level, as precipitation patterns change, it will be critically important to implement Adapting to changing water resource availability policies that ensure that water is used optimally in the Water plays a key role in both human and ecological areas and activities in which it has the highest value systems. Many of the adverse impacts of global warm- (box 3.2). In virtually every water system thus far ana- ing will take place because of changes in patterns of lyzed around the world, extensive amounts of water water availability. Historically, water management has are used on relatively low valued activities, such as been based on the assumption of regular hydrological growing low-valued crops (see, for example, Howitt patterns. The predictability of rainfall has therefore and Pienaar 2006; Hurd et al. 1999; Lund et al. 2006; played a central role in agricultural planning in terms Strzepek et al. 1996). By shifting the water to urban of crop and soil choices (IPCC 2007). Unfortunately, and industrial uses and to high-valued crops, water there is greater uncertainty regarding changes in rain- systems can adapt to large reductions in flow with fall than for changes in temperature, and this uncer- only minimal losses in welfare. Efficiencies in water tainty is greater in the LCR than in most other use can be achieved through adequate property rights regions of the world. The number of people living in and pricing regimes. BOX 3.2 Efficiencies and Costs of Water Adaptation Strategies: The Case of Rio Bravo The effects of reductions in water runoff have been across-the-board proportional reduction for agriculture, evaluated in the Rio Bravo Basin in Mexico (Mendel- industry, and residential water uses. In another sce- sohn 2008). The relative costs of efficient and ineffi- nario, water is allocated to the highest value uses, as cient adaptation strategies are illustrated by a simple would occur if it were efficiently priced. The economic simulation exercise quantifying the economic cost of costs under the former scenario were hundreds of times water shortages forecasted by 2100. Water users include their size under the latter, underscoring the ability of farmers, residences, and industries. In one "maladapta- efficient adaptation policy to reduce the costs of cli- tion" scenario, water shortage is accommodated by mate change (Mendelsohn 2008). 55 L O W- C A R B O N D E V E L O P M E N T : L A T I N A M E R I C A N R E S P O N S E S T O C L I M A T E C H A N G E Institutional innovations are used in a number of Climate change is already leading to substantial countries to improve efficiency in water use. These stress on forest ecosystems (Fischlin et al. 2007; East- include water users' organizations, legal institutions erling et al. 1993). For instance, the availability of to allow trade in water rights, and charges for water moisture has been reduced, thereby drying out the use that reflect its scarcity value. These can be viewed vegetation that provides the fuel for fire outbreaks. as adaptive institutional behavior, which can be built Rising temperatures can also lead to increasing insect upon in areas where water shortages become more outbreaks in a number of ways. First, in many areas acute. In some cases, transbasin transfers may be use- warmer minimum daily temperatures allow larger ful in dealing with regional scarcity. In the LCR populations of insects to survive the cold season that potential for this kind of option exists in the Yacambu normally limits their numbers. Second, the longer Basin (República Bolivariana de Venezuela), Cata- warm season allows them to develop faster. Third, mayo and Chira Basins (Ecuador and Peru), Alto Piura warmer conditions help expand their ranges into and Mantaro Basins (Peru), and the Sao Francisco higher latitudes and altitudes. And fourth, drought Basin (Brazil) (Magrín et al. 2007). stress reduces trees' ability to resist insect attacks. Water management problems will arise not only One effective strategy for reducing the incidence in drought-prone areas, but also along coasts where and damages of forest fires is to give more control rising sea levels may cause salt water intrusion in over these resources to local communities that are in a aquifers (this issue is further discussed in chapter 2). position to monitor them. Adaptation strategies to An ongoing regional initiative by the Caribbean control insect damage may include prescribed burn- Community Climate Change Center for implement- ing to reduce forest vulnerability to increased insect ing adaptation measures in coastal zones in the West outbreaks, nonchemical insect control, and adjusting Indies is assisting countries (Dominica, St. Lucia, harvesting schedules so that those stands most vul- and St. Vincent and the Grenadines) in designing nerable to insect defoliation can be harvested prefer- specific (integrated) pilot adaptation measures. This entially. These proactive measures may potentially includes the development and installation of a reduce the negative economic consequences of cli- reverse osmosis plant powered by wind energy to mate change. However, lengthy time lags between desalinize water on the Island of Bequia and the tree planting and harvesting complicate decisions, as design and revamping of key infrastructure in St. adaptation may take place at multiple times during a Lucia to withstand high intensity hurricanes. The forestry rotation. project also involves the conservation and supply of In contrast with the limited set of adaptation fresh water in the small islands in St. Vincent and options available for forests, human populations shar- the Grenadines. The project seeks to adapt the ing the habitat with the forest and/or exploiting the islands to a scenario of reduced rainfall and increased forest have a wide menu of coping options to confront threat of saline intrusion in local aquifers. The adap- climate change. A large number of adaptation strate- tation measures would consist of improving gies that require minimal government intervention demand-side management in water supply and effec- have been suggested for planted forests, including tive collection of rain water. changes in management intensity, hardwood-softwood species mix, timber growth and harvesting patterns Forestry within and between regions, rotation periods, salvaging Forests make up a large part of the LCR's total land dead timber, shifting to species or areas more produc- area--48 percent of South America, 44 percent of Cen- tive under new climate conditions, landscape plan- tral America, and 26 percent of the Caribbean is under ning to minimize fire and insect damage, adjusting forest cover (FAO 2005)--and they are an important to altered wood size and quality, and adjusting fire- source of livelihoods for many in the region. management systems (Fischlin et al. 2007). 56 A D A P T I N G T O A C H A N G I N G C L I M AT E I N T H E L C R Adaptation can also be reinforced by mitigation mortality reduce the capacity of poor farmers to adapt strategies aimed at reducing deforestation and forest to weather risks at the same time as they increase health degradation. Forest conservation involves both biodi- inequalities, these trends will have additional indirect versity preservation and climate benefits, which can effects that negatively affect farm household welfare. enhance the adaptive capacity of ecosystems and in Global warming will inevitably produce increased turn reduce their vulnerability to climate change. stress from heat, as extreme heat waves become more Reducing emissions from REDD and A/R can con- common (Stott et al. 2004). Rising temperatures and tribute to short-term adaptation to climate change increases in precipitation will have an impact on and foster climate-resilient sustainable development, human and natural systems that goes beyond the eco- for example, by retaining moisture, regulating hydro- nomically valuable services they provide. This will be logical flows, stabilizing soils and protecting them most serious in areas where humans are already closest against erosion, restoring soil fertility, protecting or to their biological maximum tolerance levels, but will increasing the supply of timber and nontimber wood be problematic even in temperate climates, as illus- products and fuelwood, and so forth. Findings of the trated by the reported 30,000 heat-related deaths in U.K. Forestry Research Program show that A/R activ- Europe during the 2003 heat wave (UN Foundation ities have numerous co-benefits, such as soil conserva- 2007). In the aftermath of this heat wave, early warn- tion and flood control in regions with sufficient water ing systems and preparedness programs were imple- resources. Furthermore, forests increase average water mented in France. Indeed, reviews of the existing availability in regions with fewer water resources, evidence show that extreme heat can have negative intense rainfalls, and long spells of dry weather (UK effects on health. Data--mostly from OECD coun- FRP 2005). tries--show strong conditional correlations between This is not to say that trade-offs between mitiga- heat waves and cardiovascular and respiratory diseases tion and adaptation do not arise in REDD and A/R and mortality (Martens 1998). One challenge in activities. With regard to water resources, the adapta- adapting to increased heat will be to ensure that the tion effects of A/R mitigation projects depend on the response does not exacerbate the underlying problem climate characteristics of the region in which the pro- by, for example, increasing the demand for electricity jects are implemented as well as on the careful selec- for cooling. tion and composition of the tree species used. There The other major health problem foreseen to be are, for example, documented cases of competition exacerbated by climate change is the increase in areas between tree plantations and agriculture in terms of at risk for vector-borne diseases, like malaria and the land and water that are needed. In arid and semi- dengue fever in the LCR, and water-borne diseases arid regions, A/R activities can reduce water yields. (Githeko and Woodward 2003). Data from Brazil This is an important finding in the effort to align show that warmer and wetter winters are associated positive mitigation and adaptation effects that has to with an increased prevalence of malaria and dengue, be considered when planning A/R activities (UK whereas infant mortality is very sensitive to the direct FRP 2005). effects of higher summer temperatures, in particular in northeastern regions of the country (Timmins Health risks 2003). This is particularly critical for previously unaf- Although models are still at an early stage of develop- fected poor populations that are at the margin of cur- ment, many of them agree that the greatest burden rent distributions of infectious diseases. Typically, of disease related to climate factors will fall dispropor- these groups lack relevant immunity and have weak tionately on low-income countries in the form of public health systems. While there has been little increases in infectious diseases and malnutrition. research to date aimed at documenting or analyzing Unfortunately, because higher rates of morbidity and current adaptive behavior on an individual level, some 57 L O W- C A R B O N D E V E L O P M E N T : L A T I N A M E R I C A N R E S P O N S E S T O C L I M A T E C H A N G E isolated governmental initiatives have begun in would be the case, for example, for organisms already Bolivia (Aparicio 2000) and Colombia (Arjona 2005) living high in the mountains, with no possibilities to with pilot programs in research, vector control, and move to a higher altitude; those inhabiting the polar community education and participation in efforts to regions; or those inhabiting enclaves surrounded by control the spread of these diseases. It is clear that key large areas unsuitable for colonization (for example, components of a future strategy will involve coordi- coral reefs, or habitats that have become isolated by nated medical research, better community-level infor- human development surrounding them). For these, mation, and improved communication through a the threat of extinction is high. regional organization, such as the Pan-American Health Organization (Magrín et al. 2007). As part of a Adaptation Policies and Priorities health sector strategy, it will also be important to Research suggests that adaptation does matter, in ensure that countries' health systems are adequately the sense that losses can be substantially reduced prepared (or re-oriented as necessary) to address emerg- (Mendelsohn and Dinar, 1999; Winters et al. 1998). ing public health needs and climate-induced changes But while most households undertake strategies to of the burden of disease. adapt and manage risks, empirical evidence indicates that households, particularly poor, rural households, Ecosystems are only partially able to "insure" themselves against As climate changes in each region, the plants and ani- shocks. In addition, poor rural households often lack mals native to that region may become increasingly the human capital and physical assets to adapt and/or stressed. At the same time, however, other contiguous facilitate economic mobility across production types regions may become more hospitable. In such cases, and/or sectors. Moreover, in risky environments, in the adaptation can occur through changes in the geo- absence of insurance mechanisms, risk-averse produc- graphic range in which the organisms live. As temper- ers may choose less risky, but less productive produc- atures rise, these ranges will generally move away tion mixes, affecting both income levels and growth from the equator and/or to higher elevations. Some trajectories. Hence private adaptation with existing larger mammals and flying animals (birds and insects) mechanisms of support will not be enough to elimi- can change ranges relatively quickly through migra- nate the expected harmful effects of climate change on tion. For other animal species and all plants, the Latin American agriculture. Using the Ricardian process will be slower, as those in the warmer part of method, researchers have found that net revenues per the range become stressed and die out due to warm- hectare in Latin America will likely fall by 10 percent ing, while others prosper in the contiguous areas to 50 percent depending on the climate scenario even which were formerly too cold, but have become more after farmers undertake autonomous adaptive behav- hospitable. Responses to warming are already being iors (Seo and Mendelsohn 2008). Action by national observed in the shifting ranges of butterflies and the governments and the international community should changing nesting and migration patterns of birds aim at minimizing these damages in a cost effective (Parmesan 1996; Bradley et al. 1999; Brown et al. manner. Policies to support adaptation, like those 1999; Dunn and Winkler 1999). aimed at mitigating emissions, need to be designed But for many organisms, this kind of automatic keeping in mind the need to promote both efficiency adaptation process will not work well. Some are highly and equity. specialized to live in a particular location for reasons Markets will play a critical role in mitigating other than or in addition to its temperature, and adjustment costs--for individuals and for the world at warming may exceed their threshold of physiological large--in several ways. First, prices convey informa- tolerance in that location. For others, the changes in tion that will help individuals make the appropriate climate may not produce a hospitable environment in adjustments. If climate change reduces the supply of a an area contiguous to their current habitat. This crop, the price of that crop will rise, inducing farmers 58 A D A P T I N G T O A C H A N G I N G C L I M AT E I N T H E L C R to plant more, which in turn will moderate the initial Higher incomes and human capital increase resilience reduction in supply. Similarly, international trade to shocks of all kinds and give households the capacity helps moderate fluctuations in prices and quantities of to deal better with change, and the major threats from available crops in specific places (Reilly et al. 1999). climate change will manifest themselves over time To the extent that climate change produces different periods that we think about in terms of development patterns of global production--with some countries horizons (Callaway 2004b). Important examples of the increasing and some decreasing production of differ- kinds of policies that meet these criteria would ent products--the patterns of trade will need to shift include: as well. Of course, there will still be losses but trade can make those losses smaller, and even if there are a) Strengthening weather monitoring reductions in aggregate global supply, trade will help and forecasting tools diffuse the risks. Ex-ante risk-identification, such as weather and crop Functioning markets and ownership rights also yield forecasting, can play a key role in restraining the provide the appropriate incentives for investments negative effects of weather variability on the well- needed to minimize the costs involved in adapting to being of rural households. Yet communities in agricul- shocks, which will often require that resources be tural areas of the LCR in general do not have access to moved from one activity to another. Improvements in climate forecasts that have reasonable margins of error the functioning of land and water markets are espe- and, thus, lack the means to be aware of regional and cially important. Individuals farming on common local weather hazards well in advance and develop their property or on government lands lack long-term own warning systems. Resources devoted to generate incentives to invest in either natural capital or physi- and disseminate this type of information and empower cal capital, and are consequently unlikely to make communities will assist localities in assessing the level efficient adaptation choices. Farmers with no access to of hazard associated with specific events and execute capital markets also face constraints that may prevent local risk-reduction strategies and will induce adaptive them from adapting fully. Finally, the near absence of behavior at the individual level as well. water markets in many countries means that water is Some of the types of information most valuable to frequently poorly allocated. All of these institutional reduce uncertainty are an historical climate database, failures will impede efficient adaptation. weather monitoring tools, systems for analyzing cli- mate data to determine patterns of intra-annual and Designing policies to facilitate adaptation inter-seasonal variability and extremes, data on system On a most fundamental level, the idiosyncratic nature vulnerability and adaptation effectiveness (for exam- of individual adaptation needs--and the fact that most ple, resilience, critical thresholds) (FAO 2007). Such measures taken by individuals in this sphere have min- interventions are important for the LCR where imal external impacts on others--argues that most weather uncertainties are high and where past experi- good policies by governments to support human ence with ENSO events and weather variability has efforts to adapt in an efficient manner are "facilitative" underscored the value of preparedness (box 3.3). But in nature (Tol 2005). That is, they are nonprescriptive even basic meteorological infrastructure is missing in measures that establish a framework for individuals to many countries and current underinvestment is mak- adjust, but do not direct them how to change behavior, ing matters worse (box 3.5). nor subsidize private investments. The high degree of uncertainty involved argues that policy should be flex- b) Strengthening households' economic mobility ible over time, easily allowing updating as new infor- and social protection programs mation becomes available. The main objective should Enhancing the ability of households to make welfare- be to increase options. The point is often made that enhancing economic transitions in the face of longer- good development policy is good adaptation policy. term changes in the external environment can be 59 L O W- C A R B O N D E V E L O P M E N T : L A T I N A M E R I C A N R E S P O N S E S T O C L I M A T E C H A N G E BOX 3.3 ENSO and the LCR: Use of Climate Predictions to Respond to Weather Variations El Niño-Southern Oscillation (ENSO) is the dominant varying their crop mix for a given reliable seasonal forecast. mode of climate variability in Latin America, responsible Maize, soybean, and sorghum yields tend to be lower than for considerable variation in both temperature and pre- normal during La Niña events, while maize is most cipitation, and is the natural phenomenon with the responsive to increases in rainfall during El Niño events largest socioeconomic impacts. Two extremely intense (Hammer et al. 2001). episodes of the El Niño phenomenon have occurred in the Recent studies have quantified the potential economic past three decades in Latin America--1982­83 and value of ENSO-based climate forecasts and concluded 1997­98--contributing greatly to the heightened vul- that increases in net return could reach 10 percent in nerability of human systems to the increased occurrence potato and winter cereals in Chile; 6 percent in maize and of extreme events (for example, floods, droughts, land- 5 percent in soybeans in Argentina; and between 20 slides, and so on) (Magrín et al. 2007). percent and 30 percent in maize in Mexico when crop The effect of the 1982­83 El Niño demonstrated the management practices are optimized (for example, plant- need for reliable seasonal climate forecasts in the LCR. Cli- ing date, fertilization, irrigation, crop varieties). Adjust- mate forecasts have been in use in a number of sectors: ing crop mix could produce potential benefits close to 9 starting in the 1980s for fisheries in the Eastern Pacific and percent in Argentina. (Magrín et al. 2007) crops in Peru, and subsistence agriculture in Northeast There are several networks that predict seasonal cli- Brazil since the early 1990s (Magrín et al. 2007). The pro- mate and climate extremes in the LCR. However, there is vision of reliable forecasts jointly with agronomic research still limited scope within which they operate as the has been attributed to a drop in the damage of crops in knowledge requirement for interpreting forecasts in the drought times in areas of Brazil and Peru (Charvériat agricultural sector is limited. Social inequities in access 2000). A case study in Argentina on the application of to climate information and the lack of resources to seasonal climate predictions to land allocation on farms respond can severely constrain anticipatory adaptation in found that farmers optimize their planting decisions by the LCR (Adger et al. 2002). critical. Strengthening labor mobility and people's stantially lower (2 percentage points) when the ability to make economic transitions through invest- analysis accounts for adjustments, including migra- ments in human capital, training, and health and tion (Assuncao and Feres 2008). information systems to provide economic opportuni- Well-targeted, scalable, and flexible public safety ties will help households to adjust to the structural nets, such as conditional and unconditional transfers, changes expected in climate in the long-term. Such workfare programs (for example, food- or cash-for- measures should help ensure that farmers are pre- work), social funds (community-level programs in pared to invest in weather-risk management capital, infrastructure, social services, training, microenter- adopt climate-resistant agricultural techniques and prises, and so on), or facility-based interventions (for inputs, optimally diversify their incomes, and take example, fee waivers for school and health) are an advantage of emerging farm and off-farm opportuni- important tool to protect households' consumption ties. Indeed, a recent study found that without labor and investments in education, health, and nutrition, mobility (that is, without adaptation) changes in cli- as well as to maintain mobility in the medium- and mate are expected to reduce agricultural productiv- long run. They comprise much of the equity pillar of a ity by 18 percent and increase poverty by 3.2 policy response to climate change. Safety nets can help percentage points in Brazil for the period 2030­49. keep the poor from falling into a "permanent poverty The impacts of climate change on poverty are sub- trap," from being forced into "low-risk, low-reward," 60 A D A P T I N G T O A C H A N G I N G C L I M AT E I N T H E L C R production strategies, or liquidation of productive c) Strengthening ability to manage risk assets in response to a weather shock. Several countries Strengthening households' and governments' abilities in the LCR have been on the forefront in developing to manage risks, especially weather shocks, is condi- conditional cash transfers as a safety net tool. These tioned on the existence of mechanisms for risk shar- include Bolsa Familia in Brazil, Familias in Acción in ing. This would include efforts to strengthen both Colombia, Red Solidaria in El Salvador, and Oportu- private insurance markets and governments' ability to nidades in Mexico. The Atencion a Crisis Pilot, a pro- address specific weather shocks. Globally, the market gram in Nicaragua, was specifically designed to for agricultural insurance of all types is small, with respond to weather shocks. Studies indicate that these the LCR second to Asia among developing regions in programs can be effective means of helping buffer the terms of premiums (Swiss Re 2003). Governments in poor in the face of shocks and introduce the incen- the LCR can support the development of the index- tives to promote changes in behavior toward opti- based weather insurance market by addressing regula- mal risk management prior to a shock and in coping tory barriers and making appropriate investments in behavior afterward. Social funds have also proven to infrastructure and institutions. One study (EU 2006) be a good instrument to respond to climate shocks, to assist the Mexican government in developing its particularly when there is damage to physical capi- disaster risk management and adaptation strategy tal or infrastructure as a result of hurricanes or emphasized the need to focus more on managing risks flooding. These kinds of mechanisms may in the by asset protection and prevention, rather than on future be adapted for the new needs of climate responding ex post. This has implications for the gov- change (box 3.4). ernment budget. The international community can BOX 3.4 The Insurance Role of Safety Nets: Experiences from Nicaragua and Honduras Most safety nets are interventions with the specific goal income shocks. An example is the protection offered by the of encouraging low-income households to invest in program in the period 2000­03, which marked a sharp human capital, health, and productive enterprises. In economic downturn in Nicaragua, especially for coffee- some cases, these programs are also formulated as expost growing households. Consumption declined by 2 percent responses to shocks aimed at protecting the well-being of for coffee-growing beneficiaries while it fell by more than poor households during emergencies. 30 percent for their counterparts who were not participat- However, conditional cash transfers (CCTs) rarely intro- ing in the program (Vakis et al. 2004). duce specific incentives aimed at encouraging households More recently, a pilot (built upon Red de Protección to engage in efficient preshock risk management and post- Social) was designed and implemented in a drought-prone shock coping (for example, workshops to promote income region in northern Nicaragua. The main goal of the pilot diversification and prevent child labor) as a way to isolate was to reduce rural income vulnerability to uninsured their standards of living from risks that remain uninsured. risks related to weather. In addition to this, the Atencion a The experience of Nicaragua provides evidence of a Crisis Pilot was intended to reduce the use of inefficient flexible CCT program that directly or indirectly offers exante risk management and expost coping strategies, insurance to deal with transitory shocks to rural income, and to improve households' upward economic mobility. including natural disasters. Red de Protecction Social is a As for the impact of the program on short-term vulnera- CCT that started in 2000 to supplement the income of bility to shocks, evaluation evidence indicates that the Nicaraguan households. The program has also produced a income and consumption of beneficiaries was signifi- sizable decrease in the vulnerability of households to cantly more resilient to droughts and other natural (Box continues on next page.) 61 L O W- C A R B O N D E V E L O P M E N T : L A T I N A M E R I C A N R E S P O N S E S T O C L I M A T E C H A N G E BOX 3.4 (continued) shocks, price increases, and health shocks. In addition, the This remarkable reality is attributable largely to the program appears to have improved the use of savings, efficacy of the Honduras Social Investment Fund (FHIS), reduced the use of adverse coping strategies (for example, a public program created in 1990 to finance small-scale child labor, sale of physical assets, and reductions in investments in poor communities. Originally conceived consumption), and promoted more efficient exante risk as a response to the adverse socioeconomic effects of management through diversification away from agricul- structural adjustment policies, FHIS nimbly became an ture and changes in individual behaviors and attitudes emergency-response program of sorts after Mitch devas- (for example, aspirations and discount factors) that favor tated the country in 1998. investments in human and physical capital. FHIS successfully prevented the disaster from aggra- The pilot program also included a response to a mud- vating poverty by rejuvenating economic activity and slide event in Eastern Nicaragua. This included the intro- restoring basic social services. Within 100 days of the duction of--after humanitarian work--quick transfers to hurricane, the program approved US$40 million for all affected households (approximately three months after 2,100 community projects; by the end of 1999, FHIS the natural event) and the eventual integration of those had financed 3,400 projects, four times the number affected in the traditional CCT (by the sixth month). financed in a comparable prehurricane period. Projects The Atencion a Crisis Pilot offers operational lessons on included clearing debris and repairing or rebuilding how to formulate and implement a CCT that incorpo- water lines, sanitation systems, roads, bridges, health rates a specific package to protect households against centers, and schools, thus hastening national recovery shocks. To build on accessible resources, they can be inte- and generating about 100,000 person-months of employ- grated with existing CCT systems, which makes it scal- ment in the three months following the crisis. able and improves targeting and flexibility to trigger The decentralized structure and institutional flexibility eligibility and waive conditionalities. From a sustainabil- of the FHIS enabled its quick and effective response. ity perspective, such integration can increase the speed of Building on strong preexisting partnerships with munic- funding and adjustments on the amounts of transfers ipalities and communities, FHIS directors established during shocks. Finally, the program provides insights 11 temporary regional offices and quickly delegated into solving operational challenges, such as ensuring resources and responsibilities. Directors reduced the institutional coordination and capacity among the multi- number of steps in the subproject cycle from 50 to 8, ple agents involved in the program that are especially established safeguards to ensure accountability and important in the event of shocks (www.worldbank.org/ transparency, and effectively accessed International atencionacrisisevaluation and Macours and Vakis 2008). Development Association financing. As an article In Honduras, despite the fact that Hurricane Mitch reviewing program outcomes concluded several years killed thousands of Hondurans, left a million homeless, later, "FHIS demonstrates that a social fund can play a and inflicted damage equivalent to two-thirds of GDP, vital role as part of the social safety net in times of nat- poverty rose only moderately in its wake. ural disaster." provide technical assistance and where needed, finan- But it has to be recognized that while insurance cial support. Investments in collecting weather data can help cope with short-term weather shocks-- will lay the foundation for development of the insur- which may become more severe in the future--it ance market and will also improve capacity to forecast cannot compensate for long-term climate trends. On weather for planning interventions and over the its own, of course, the insurance market will send the longer term to monitor climate change (box 3.5). appropriate signals--buildings in high-risk areas 62 A D A P T I N G T O A C H A N G I N G C L I M AT E I N T H E L C R BOX 3.5 Weather Insurance Mechanisms The international donor community has been active in is the lack of a regulatory framework conducive to this type providing technical assistance in a number of countries in of insurance in most LCR countries. A vacuum in weather the region to help develop the markets for index-based data is also a problem, which has in some cases become weather insurance. Index-based has many advantages over worse over time as weather data collection infrastructure traditional insurance, including lower transaction costs deteriorates. The density of weather stations has been and lower vulnerability to moral hazard. For these rea- diminishing for most countries in the region, due in part sons, international companies are more willing to rein- to fiscal constraints in the maintenance of equipment and sure these policies. Still, development of these markets trained personnel. In Bolivia for example, there are cur- has not been rapid, as a number of obstacles need to be rently about 300 working weather stations out of 1,000 resolved. One is that insurance markets as a whole are stations a few years ago. Likewise, Jamaica is currently underdeveloped in the LCR. Measured by premiums as operating about 200 weather stations from a total of percent of GDP, the LCR lags the developing regions of 400 in 2004, and similar situations can be found in Asia, Africa, and Eastern Europe (Swiss Re 2003). Another Guatemala and Honduras. Source: Arce (2008). will be charged higher premiums, and this will cre- years. While important today, it will become increas- ate incentives not to build in those areas. As climate ingly critical to make sure that water is used in the changes over time, the premium structure will areas and activities in which it has the highest value. adjust accordingly. But governments must allow this Yet water rights are currently ill-defined and water mechanism to function, which may require adjust- grossly undervalued in most countries. In virtually ment of their policies. Government subsidies for every water system around the world,5 extensive insurance to high-risk areas (coastal zones, for exam- amounts of water are currently used to grow low value ple) or activities will reduce the incentives for indi- crops. In the LCR, Chile and Mexico have made con- viduals to exit, as will ad hoc compensation for siderable advances, yet even in these countries, the damages in these areas. markets are far from being adequately designed to allocate water to its highest valued use. One back- d) Strengthening markets ground study for this report used a simple illustrative One of the most critical roles of governments and simulation exercise to quantify the economic cost of the international governance architecture will be to water shortages forecast for the Rio Bravo Basin in ensure that markets continue to transmit appropriate Mexico by 2100.6 In one "mal adaptation" scenario, price signals. On a national level, two kinds of mar- the shortage was accommodated by across-the-board kets deserve particular priority because they are cur- proportional reductions in all types of uses (agricul- rently poorly developed in most developing countries ture, industry, and residential). In another scenario, and because they will be especially important in mak- the water was allocated to the highest value uses, as ing an adjustment to climate change. would occur if it were efficiently priced. The eco- (1) Water markets. Many of the most important nomic costs under the former scenario were hundreds impacts of climate change will be intermediated of times their size under the latter, underscoring the through water availability. As we saw in chapter 2, ability of efficient adaptation policy to reduce the several regions in the LCR that are currently dry will costs of climate change, while not foreclosing comple- become even drier, and some that are not considered mentary measures to address adjustment costs and water-short now may become so over the next 50­100 distributional implications. As noted above, in some 63 L O W- C A R B O N D E V E L O P M E N T : L A T I N A M E R I C A N R E S P O N S E S T O C L I M A T E C H A N G E cases, transbasin transfers may be useful in dealing ments to protect against losses, and in some countries, with regional scarcity, as they have been in California. insurance has been packaged with microcredit. But organizing such transfers will require considerable In connection with the consumption-smoothing planning, investments, and in some cases international role of credit markets, the nature of weather-related coordination. Effective international institutions will shocks has an important policy implication. Weather be necessary not only to facilitate transboundary water shocks tend to be highly correlated across fairly large trade, but also to improve mechanisms for mediating areas. This means that a financial institution with a conflicts provoked by changes in water availability client base concentrated in one area--particularly a (UN Foundation 2007). rural area, where many clients rely directly or indi- (2) Financial markets. Financial markets play two rectly on agriculture--is likely to be poorly equipped roles with respect to adapting to climate change. In to deal with a shock, since all of its depositors would the short term, they allow individuals to adjust effi- need to withdraw savings at the same time. One way ciently to shocks through saving and dissaving to to deal with this is to insure the loans against weather smooth consumption. In the longer term, financial risk. The other strategy is to rely on geographic diver- institutions are sources of investment capital that will sification. Regulatory policy can encourage reliance be needed to finance adaptation expenses. While on insurance by, for example, putting a premium on urban areas in many LCR countries are reasonably insured loans when calculating capital adequacy well served by financial institutions, rural areas-- ratios. Alternatively (or in addition), it can promote especially small farmers--are generally not, for rea- the development of financial institutions with clien- sons related to high transaction costs and low ability tele that are not exclusively rural and that are not of such clients to offer reliable collateral. Yet there are heavily exposed to weather risks. In small countries good examples of how these barriers can be overcome. especially, foreign banks may be best placed to fill this Social capital and peer monitoring can be used to role, but in any case, regulatory policy could be good advantage. Using a value-chain approach, for designed to encourage development of extensive link- example, FUNDEA in Guatemala finances inputs and ages outside of a rural client base. outputs for small farmers, accepting standing crops as (3) International trade markets. On an interna- collateral. Furthermore, public policy can support tional level, it will be important to ensure that the pilot testing of technological innovations that reduce trade system remains open to allow global markets to costs and risks of offering financial instruments to play a role in reducing the impact of climate change in rural small-scale producers. Just as cellular phones can many ways. While all the countries that are members speed market and price information to producers, of the World Trade Organization (WTO) will play a so-called "mobile or m-banking" now being piloted in role, leadership by the high-income countries will be Brazil, can also dramatically reduce transaction costs critical in reaching agreement on some of the issues in for rural financial transactions.7 Where necessary, the WTO that are particularly relevant for helping the financial regulations may need to be reformed to world deal with challenges created by climate change. remove interest rate ceilings and permit institutions First, all kinds of barriers to food trade will need to to mobilize savings deposits, perhaps via branchless be effectively disciplined. This would facilitate chang- banking, taking advantage of existing post offices, gas ing patterns of food trade as climate change alters pro- stations, and other retail outlets as conduits for rural duction patterns over the long term, as well as spread financial transactions. Stimulating data collection via the effects of short-term supply shocks and ensure that credit-reporting bureaus can also reduce the current risk consumers and producers respond appropriately. With a premium associated with rural lending, due to informa- share of close to 11 percent of world agriculture and food tion deficits to gauge behavioral risk of potential bor- exports, the LCR is currently a major food-exporting rowers. Rural finance for smallholders could also benefit region. But some countries may suffer large losses in from the creation and expansion of insurance instru- productivity, leading to dramatic shifts in food trade 64 A D A P T I N G T O A C H A N G I N G C L I M AT E I N T H E L C R patterns inside and outside the region. This issue is producing country's emission reduction commitments therefore of vital concern to the LCR. One of the lessons or environmental regulations--are not discriminatory of the recent precipitous increases in food prices is that and do not unnecessarily restrict trade. when shortages arise, there is a tendency for countries to react with "beggar thy neighbor" trade policies that Nonfacilitative adaptation policies insulate domestic consumers and producers from inter- Not all adaptation policies are merely facilitative in national price movements, and in doing so, shift the nature. Some more direct government interventions adjustment costs onto others. This has included ad hoc will be necessary in dealing with public goods,8 reductions in import barriers and increases in export including ecosystems, where the benefits are shared barriers, neither of which is effectively disciplined under by all and individual payments would be infeasible to current WTO rules. Many governments have also organize. Investments to "climate proof " public infra- responded to the food crisis by focusing on measures to structure, control floods, protect coastal areas in the increase their degree of self-sufficiency in food produc- face of rising sea levels, or combat public health tion. In the future, as climate change makes food pro- threats from epidemics fall in this category (box 3.6). duction increasingly high-cost in some countries, trying Some regulatory measures may also fall in this cat- to maintain levels of self-sufficiency will likewise egory, including land-use restrictions in areas subject become increasingly costly. This underscores the impor- to natural disasters, although in some cases, there are tance of keeping the trade system open in order to give more efficient responses than direct regulation (for all countries confidence that they can rely on it to supply example, removing subsidies for insurance premiums their food requirements. for flood damage, or subsidies for agricultural produc- Second, barriers to trade in goods and services that tion in these areas). Two of the spheres in which these help reduce emissions would ideally be eliminated. kinds of policies are most relevant for adapting to cli- These are currently being addressed in the Doha mate change are natural resource management and Round negotiations, but progress has been limited. technology development and dissemination. Of particular interest to the LCR is the reduction of barriers to trade in ethanol. This is of greatest interest a) Strengthening natural resource management to Brazil, which is the lowest cost producer in the While individuals will have to make many of the world, but may be important for other countries in investments to manage changed patterns of water the region where ethanol can be efficiently produced flows, some involvement by government in public from sugarcane. From the dual perspectives of effi- aspects of water management will be critical. Since ciency and effectiveness in reducing emissions, it is in climate change may increase or decrease water flows in the world's interest to ensure that ethanol is produced specific areas, governments must begin planning for where this can be done most efficiently, rather than in both possibilities. New dams may be required to hold countries where it requires large subsidies and high back floodwaters or increasing snow melt. Yet some trade barriers. Current trade policies and subsidies in dams may need to be decommissioned as they may no high-income countries have generated huge distor- longer be needed if water flows fall sufficiently. This is tions in agricultural markets, with adverse impacts on one area in which the mitigation and adaptation agen- poor food consumers worldwide, and at best minimal das may intersect--in countries where multiuse dams reductions in carbon emissions. could help manage flood control while also generating Finally, the WTO's Committee on Technical Barriers clean electricity. Most important, as noted above, gov- to Trade is already involved in reviewing the increasing ernments need to make institutional changes to facili- number of standards and labeling requirements tar- tate development of internal water markets, and geted at energy efficiency or emissions control. It could international institutions need to improve mecha- also play an important role in ensuring that other trade nisms for mediating transboundary conflicts provoked policies--including tariffs levied on the basis of the by changes in water availability (UN Foundation 65 L O W- C A R B O N D E V E L O P M E N T : L A T I N A M E R I C A N R E S P O N S E S T O C L I M A T E C H A N G E BOX 3.6 Nonfacilitative Adaptation: In Some Areas, Direct Government Action Will Be Required Some governments in the LCR have become increasingly vulnerable regions of Alto Mezquital and north Mixteca aware of the necessity to adapt key networks (road, rail- have included different social actors in the design of water way, bridge) and production (agriculture and fisheries) management strategies in the area. Water capture and infrastructures to both the observed climate and pre- control systems have helped regulate flows and optimize dicted changes. Since 2003, Argentina's Federal Flood water storage in urban areas. Adaptation projects in Her- Control Plan has been applied to the development of mosillo, Sonora have taken the first steps in including key infrastructure projects including the hydrological recov- actors in the water sector when designing potential adap- ery of productive lands, flood mitigation in rural areas, as tation measures. well as road and railway network protection in rural and Uruguay's eastern wetlands are covered by new regula- periurban zones, with a budget of 800 million pesos in tions since they have been designated as Natural Pro- the provinces of Buenos Aires, Cordoba, La Pampa, and tected Areas. Urban planning legislation and practices Santa Fe. In the case of Argentina's Del Plata region, have adopted setback requirements for development to responses to increases in sea and river levels have involved 350 meters from the coastline. To preserve coastal ecosys- both adaptive and infrastructure measures since the 1980s. tems, Uruguay has demolished illegal constructions Expectations of reduced flows were also incorporated into (Department of Rocha), built an integrated adaptation the design of deeper transport waterways along the Parana strategy (Punta del Diablo), and set good practices and River in order to compensate for the possibility of insuffi- guidelines for land planning projects (Atlantic coast). cient water levels. Argentina's consecutive flood programs The Eco-Plata program includes pilot adaptation mea- have mainly responded to urban protection and rehabilita- sures for coastal zone management in two regions of tion priorities. Infrastructure measures have involved flood Uruguay. The program also served to create an institu- prevention through re-conduction and retention of precipi- tional framework for coastal zone adaptation to climate tation excesses. However, programs in the rural provinces of change as the principal six coastal departments signed a El Chaco and Santa Fe, as well as the Plan of Hydrologic "Coastal Declaration" illustrating their efforts to act Protection in the Islas del Delta, have contributed to miti- jointly. A Global Environment Facility (GRF)-funded gating the impacts of flooding on agriculture. program has also developed an integrated management The Mexican government has also implemented public strategy, specifically targeted at the Atlantic coastal zone. strategies in order to adapt water management to climate Argentina and Uruguay are undertaking a joint environ- changes. In rural areas, water saving systems have been mental, social, and legal assessment of the Rio de la Plata developed especially for the agricultural and fisheries estuary zone in order to facilitate the implementation of a sectors. Adaptation strategy assessments in the highly common strategy and management plan. 2007). Investments in preventive measures or reactive change." A key first step in any kind of effort to help measures would depend on country circumstances and ecosystems adapt is to adequately monitor their cur- priorities (box 3.7), but water resource management rent condition and trend. Recent projects to preserve will often require planning in entire river basins, the coral reefs in the Caribbean and protect the requiring government involvement at this level. integrity of the Mesoamerican Biological Corridor are Investments will also be needed to preserve ecosys- examples of this kind of effort, which will have to be tem services in the face of climate change impacts. scaled up in the future (box 3.8). Magrín et al. (2007) suggest that "biological reserves Helping existing ecosystems adapt to climate and ecological corridors can serve as adaptation mea- change over the next few decades will generally sures to help protect ecosystems in the face of climate involve reducing other stresses on those systems and 66 A D A P T I N G T O A C H A N G I N G C L I M AT E I N T H E L C R BOX 3.7 Coping with Drought in Northeast Brazil: The Role of Government The Brazilian semiarid northeast region extends over 18 with communities. The state created a new integrated percent of the national territory and it houses one-third drought relief management that attempts to address of the country's population (Lemos 2007). The recurrent corruption and inefficiency through the inclusion of droughts in the region have challenged the ability of the stakeholders in decision making, the implementation of local and national governments to design effective and institutional arrangements that hold both organizations efficient policies to mitigate the effects of local climate and public actors more accountable, and the systematic shocks. Moreover, the repeated occurrence of droughts, use of knowledge to support response to drought. with their recessionary effects, has also been found to Among other approaches to respond to drought, the worsen regional inequalities (Chimeli et al. 2008). state is trying new initiatives, such as small farm crop The State of Ceara is representative of the Brazilian semi- insurance for those who lose 50 percent or more of their arid region--95 percent of the state territory is classified as crops to drought, access of small farmers to rural extension semiarid and a large portion of its population, consisting services, and more lucrative crops targeting export mar- mainly of subsistence farming families, is highly vulnerable kets. Another initiative is related to the use of weather to the effects of drought. The State of Ceara provides a good forecasting. During 1992, based on the forecast of dry example of innovative drought-related policy making and conditions in Ceara, it was recommended that crops better improvement in governance, which is essential for the suc- suited to drought conditions be planted and this led to cessful use of climate information in the implementation of reduced grain losses (67 percent of the losses recorded for welfare-improving policies (Chimeli et al. 2008). 1987, a year with similar rainfall but without climate For more than a century, local and federal governments forecasting). The production of vegetable oils from native have attempted to alleviate the negative effects of drought plants (for example, castor bean) to supply the biodiesel in the region mostly by managing risk rather than address- industry has been proposed as another adaptation measure ing deeper causes of vulnerability to drought. Because early (Magrín et al. 2007). on public officials equated drought to water scarcity, most Recently, the Brazilian government launched the of the emphasis to respond was concentrated around two Action Plan for Adapting to Drought in the State of actions: (1) increase the region's capacity to store water by Ceara, targeting 152 of the 177 municipalities in the construction of waterworks, such as reservoirs and dams, as state. These municipalities were chosen by the National well as by investing in climate-related data collection and Civil Defense, based on the Municipal Alert Indicator science; and (2) invest in post-disaster emergence relief by (MAI). The MAI takes into account harvest losses, pro- funding food and water distribution programs, as well as ductivity, climate, distribution of precipitation, water state-financed work programs for drought victims. The two storage, soil aridity, and families targeted by social pro- approaches were not effective in decreasing long-term vul- grams as its main indicators for prioritizing action. The nerability to drought and contributed to a vicious cycle of action plan includes immediate responses to drought as clientelistic politics related to drought response in the state well as more medium-term responses--it guarantees food (Lemos 2007). and hydrological security and it dedicates funds to the By 1987, rather than emergency actions, the state gov- construction, enlargement, or renovation of dams, wells, ernment decided to focus on long-term projects associated cisterns, and canalizations across the 152 municipalities. attempting to optimize their resilience. Reducing collaborate more on larger regional strategies than existing stresses is a reasonable strategy for the pre- they currently do. sent, and other potential strategies can be identified As demonstrated by the approach of the Nariva for the future (box 3.9). It will be critical for the insti- project (box 3.9), in some cases it will be possible to tutions responsible for managing these ecosystems to address two issues at once through projects that both 67 L O W- C A R B O N D E V E L O P M E N T : L A T I N A M E R I C A N R E S P O N S E S T O C L I M A T E C H A N G E BOX 3.8 Monitoring Is the First Step in Designing Assistance for Ecosystems' Adaptation In the case of coral bleaching, Strong and Causey (2007) Bolivia, Ecuador, and Peru. A network of nine glacier have argued that integration of remote and in situ sensors monitoring stations, complemented by satellite images is essential to coral reef observations. Yet very few in situ using the ALOS (Advanced Land Observation Satellite), is sensing stations are providing near real-time data. As being implemented to aid in the analysis of glacier dynam- part of an ongoing project, the Caribbean Community ics. The field stations will continuously monitor weather Climate Change Center (CCCCC), with cooperation from and hydrology. The ALOS will use its sensors (PRISM, NOAA and the World Bank, has installed a CREWS sta- ALVNAR, and PALSAR) to photograph and radiograph tion9 and several sites are being observed using standard the same glacier areas. The network will target glaciers that protocols. The CREWS station is installed in Jamaica provide water regulation to major cities or are of major rel- and is now operated by the CCCCC and the Center for evance for agriculture or energy supply. The system will Marine Resources of Jamaica. These observations and complement existing regional efforts made by the Interna- those by others are providing solid data on the extent of tional Bank for Reconstruction and Development (IBRD) the crisis for the coral ecosystem in the Caribbean Basin. of the World Bank and others. This and other informa- An analysis of the economic and ecological consequences tion will then be integrated and used in the detailed of coral bleaching is under way. design of selected adaptation measures; implementing Another adaptation assistance initiative to improve regional and strategic adaptation pilots to address key monitoring capabilities, funded by the Global Environ- impacts from rapid glacier retreat on selected basins; and ment Facility, focuses on the issue of glacial melt in the supporting continuing observation and assessment of glac- Andes and on countries most affected by it, including ier retreat and the associated impacts on the region. help ecosystems adapt and sequester carbon. The better manage natural resources, both of which are importance of looking for these kinds of synergies, necessary for long-term adaptation, their adoption especially in forest conservation, is underscored by a and sustained use has generally been limited to loca- case study of adaptation needs in Chile (Bitran 2008). tions with favorable production environments, strong Here, some of the heavily forested areas in certain supporting rural institutions, and good governance. regions of the country are likely to suffer from a sig- In more environmentally or economically marginal nificant reduction in rainfall. More than 300,000 areas, which generally coincide with dryland areas, the hectares of forests (mainly used for forestry) are vul- uptake of agricultural innovations that could support nerable. Bitran (2008) finds that a wholesale dieoff of better climate risk management and adaptation has this much forest would release carbon equivalent to been limited (World Bank 2008). five years of losses of native forests in all of the LCR, at Farmers in temperate regions should be able to current rates. It is therefore critical to find ways to adapt to warmer temperatures using existing varieties maintain a viable forestry industry here, perhaps that are currently grown in more tropical zones. That through the introduction of drought-tolerant trans- is, varieties grown in warmer climates can be adapted genic varieties. to warming environments, moving from low to high latitudes. This assumes that trade and regulatory b) Strengthening technological linkages and regimes are open to such technology transfer. One knowledge flows issue that governments need to consider is whether While technologies and knowledge systems are avail- their regulations governing introduction of new vari- able to achieve higher and more stable yields and to eties (both genetically modified organisms [GMOs] 68 A D A P T I N G T O A C H A N G I N G C L I M AT E I N T H E L C R BOX 3.9 Managing Ecosystems in the LCR: Ongoing Projects To help the region's countries be better prepared to measures in order to meet the anticipated impacts of respond to the ecosystem and livelihood threats posed by climate change on high mountain ecosystems and insular climate change, several adaptive projects are currently areas. This has become a standard for adaptation work in under way, funded by the UNFCCC through the Global the region and has influenced the design of adaptation Environmental Facility, as well as by national and multi- measures under other initiatives. Data generated by the lateral agencies. In the Latin America and the Caribbean project are assisting in the development of adaptation Region, a currently ongoing Capacity Building Project, measures for water supply to mountain cities dependant supported by the UK Hadley Centre, aims to help on highland water supplies and the development of increase the adaptive capacity of Cuba, Mexico, and coun- options to strengthen the resilience of power sectors in tries in Central America. the region. An example of the potential combination of the miti- Adaptation to climate impacts in the Gulf of Mexico gation and adaptation objectives in the LCR is illustrated wetlands has been formulated to reduce vulnerability to by a project aimed at triggering carbon sequestration the anticipated impacts of climate change on Mexico's through the reforestation and restoration of the Nariva water resources, with a primary focus on coastal wetlands wetlands ecosystem. This will be achieved by restoring and associated inland basins. More specifically, the pro- the natural drainage regime as well as natural and forced ject seeks to identify national policies to address the recovery of original vegetation cover. The water manage- impacts of climate change on water resources at the ment aspect of the project is designed to identify the land national level, to evaluate current and anticipated effects form composition of the Nariva swamp area, develop cri- of climate change on the integrity and stability of the teria to select high priority restoration areas, and pursue Gulf of Mexico wetlands, and to implement pilot adapta- natural and engineered drainage options to accelerate the tion measures to protect their environmental services restoration of the area's ecological functions. The refor- from the impacts of climate change. estation program would entail reforesting between 1,000 Adaptation measures aimed at protecting the environ- and 1,500 hectares using species strictly native to Nariva. mental services offered by the Las Hermosas Massif in the The appropriate use of swamp forest or rainforest species moorlands of the central region of the Andes in Colombia will be determined by the water level and extent of the have focused on increasing the buffer zone of Las Her- flooding once the surveys provide soil elevation informa- mosas National Park, strengthening the protection of tion and the hydrologic conditions have been rehabili- riparian vegetation, changing agricultural practices to tated (Vergara 2005). reduce other stresses into surface waters, providing incen- Through its Integrated National Adaptation Program, tives for restoration of natural habitat, and strengthening Colombia is implementing specific pilot adaptation protection for megafauna in the area. and non-GMOs) should be revised in light of the But addressing the productivity limitations for increased value of technological "spill-ins" from crops that are currently being grown in areas close abroad.10 The cost-benefit calculus on which these to their thresholds of temperature tolerance is a regulations are based could be profoundly affected by challenge (box 3.10). Many crops in the LCR are climate change. But to the extent that existing vari- grown in very thin temperature and rainfall ranges eties can in general satisfy the needs of farmers in areas and may be susceptible to these threshold effects that are not at the extreme ranges of crop tolerances, (Baez and Mason 2008). In such cases, research these conditions should not be the major focus of should focus on the threshold. However, technolog- research and development of new varieties. ical improvements take time to materialize and are 69 L O W- C A R B O N D E V E L O P M E N T : L A T I N A M E R I C A N R E S P O N S E S T O C L I M A T E C H A N G E BOX 3.10 Bridging the Gap between Climate Change and Agricultural Technology: Embrapa The Brazilian Corporation for Research in Agriculture livestock breeding for the renewal of grazing lands with (Embrapa) is developing genetic varieties of crops that the objective of reducing climate-related harvest losses. are more tolerant to high temperatures and water deficit Furthermore, Embrapa is helping the Roraima region (soybean, maize, cowpea bean, coffee, cassava, tropical adapt its agricultural irrigation systems to increasing fruits) as well as to diseases and pests (cassava and banana drought and fire outbreaks. The Acre region's research hybrids). Efforts have been concentrated on crops, such as unit has developed a methodology for the sustainable cassava, that are naturally more resistant to environment resettlement of agriculture in the Amazon region by stresses, cultivable all year, and present ample adaptation developing alternative production systems in agriculture capacities. Biotechnology can help crops deal with climate and livestock farming, agroindustries, and forest harvest- stresses and increases in temperatures up to 2°C. Above ing activities. The Rondonia regional research unit is that temperature, the efficiency of genetic improvements generating, adapting, and diffusing technologies for the will be limited as it will hinder photosynthesis (Assad development of agroforestal systems and the recovery of and Pinto 2008). It has also identified five plants typical degraded areas. It has introduced numerous annual and of the Cerrado region's biome in order to isolate the perennial fodder cultivars; developed sustainable manage- genes which contribute to their adaptive capacity for the ment techniques for agriculture and livestock breeding; preservation of the region's biodiversity (Assad and and provided the regional demands for soil, plant, and Pinto 2008). The unit has also integrated agricultural and seed analysis. costly. Changes in technology imply R&D costs, A broad basket of technologies is available in many along with the costs of farm-level adoption, includ- countries in the region, though often they only par- ing possible human and capital investments. It can tially satisfy market demand or user needs. Public take between 5 and 10 years for new varieties to be expenditure and private investment in research and developed and released, and perhaps even longer for development must increase, and partnerships with the them to be adapted to specific agroecological condi- private sector, farmers, and civil society must be tions (see box 3.10). strengthened in order to stimulate user demand for Climate change also poses a threat to the sustain- R&D, increase market responsiveness and competi- ability of agricultural markets and the underlying tiveness, and ensure that the rural poor benefit from investments, especially in high-value products. Some technological interventions. Greater and diversified of the best high quality coffee areas in Colombia will investment in agricultural R&D is essential for an effec- become unsuitable shortly after 2020, with fundamen- tive transformation of traditional, low productivity tal changes in the principle coffee growing regions by agriculture into a modern commercial sector (World 2050. Models predict that quality is the first to be Bank 2006). compromised as the climate changes, followed by asso- ciated losses in productivity (Lane and Jarvis 2007). Prioritizing adaptation policy measures Hence, marketing channels will need to adapt to Many of these policies and investments--both facilita- changing production patterns, unless technology can tive and nonfacilitative--are "no regrets" in the sense preserve the existing patterns. that they are supportive of broader development goals, The World Development Report 2008 emphasizes even in the absence of considerations of climate change. the need for sustainable technologies in LCR countries This is certainly true of policies and investments that to increase productivity, stability, and resilience of make markets work better, increase the capacity of their production systems and confront climate change. individuals to respond to shocks and efficiently manage 70 A D A P T I N G T O A C H A N G I N G C L I M AT E I N T H E L C R risks, or improve the management of natural resources A sensible first step in development of an adaptation (box 3.11). The possibility that a changed global cli- strategy for governments could be to sort policies and mate may magnify the payoffs from such measures required investments into three categories: simply moves them up in the ranking of priorities, 1. "No regrets" options: undertake immediately. Of but they would be good policy in any case. Other course, the fact that these "no regrets" measures kinds of measures, the benefits of which depend pri- have not been undertaken already may mean marily on predicted changes, may be approached more that they run afoul of vested interests and will be cautiously. In their evaluation it will be useful to politically sensitive. But the specter of climate account explicitly for the uncertainty and the value of change raises the profile of these issues and may waiting through the use of such instruments as real facilitate politically difficult decisions. options analysis. This will automatically result in 2. Those that require decisions soon because they more built-in flexibility and modularity. have long-term or irreversible consequences or BOX 3.11 Developing Response Strategies to Reduce Vulnerability of Agriculture to Climate Change The linkages between predicted climate impacts on agri- change in the area, expert opinion elicited in a series of culture and planned policy interventions are not well locally held workshops, systematically ranking the identi- defined. They are, however, critical for development and fied response options, and designing action plans that the alleviation of poverty in rural populations that are reflect the specific characteristics of a given agricultural dependent on agriculture for their well being, as well as production environment and the demands of local actors in for the design of investment strategies and their effective the context of climate change. implementation. In order to formulate adaptation strate- Many of the response options that emerge across the gies or design mitigation approaches, a careful assessment three diverse production environments are similar. of the linkages between climate factors, and changes in Among other things, they point toward investments in agricultural systems and public responses is required, (1) water management technologies (for example, water har- focusing on specific agricultural production environments vest, drainage, distribution, and so on); (2) climate infor- within which climate changes and preferred policy mation technologies (for example, systems for climate responses may vary. predictability, such as early-warning systems, developing In collaboration with local agricultural institutions, capacity for longer term projections, and agroclimatolog- ongoing analytical work is emphasizing the development of ical information and its accessibility by producers); (3) a methodology for assessing the scope of agricultural vul- technological innovations (for example, use of conventional nerability to climate change and for formulating the least- breeding and biotechnology for drought and pest and cost response strategies across three diverse agricultural disease resistance) and designing production systems that min- production systems representative of Latin America, each imize climate risk (for example, conservation agriculture, having different response capacities to weather variations-- crop and pasture rotations, adjustment of planting dates, drought prone areas (for example, Yaqui Valley in the State and so on); and (4) agricultural weather insurance, that is, of Sonora in Northern Mexico), high mountainous systems design of different insurance mechanisms that address (for example, Mantaro Valley in the Peruvian Andes), and both weather variability and catastrophic events that favorable high-potential areas (for example, southwestern affect agricultural production. While the categories are provinces of Uruguay). This "bottom-up" methodology is similar, the specific interventions within each area vary based on review of the best available information on climate depending on the characteristics of the area. Source: World Bank. 2009. "Building Response Strategies to Climate Change in Agricultural Systems in Latin America." World Bank, Washington, DC. 71 L O W- C A R B O N D E V E L O P M E N T : L A T I N A M E R I C A N R E S P O N S E S T O C L I M A T E C H A N G E have long gestation periods (for example, begin- to take into account the pace and direction of climate ning long-term institution building, discouraging change. If investments are made too early, they are continued construction in areas that are likely to more costly (that is, money is spent before needed) or be vulnerable, undertaking basic research, biodi- ineffective (adapting to impact that does not occur). versity projects)11: begin to study options immedi- Callaway (2004a) refers to this as the "cost of precau- ately if adequate information is not currently tion." If they are made too late, there will be (avoidable) available, with the objective of making decisions damages from climate change, Callaway's "cost of in the near future. caution." Since more information becomes available 3. Others that do not fall into the categories above: over time, "precautionary" mistakes are less likely the decisions can be deferred. Given that the worst longer decisions are deferred, but the trade-off is that impacts of climate change will occur gradually the "cautionary" mistakes become more likely. The over a long period of time, the planning horizon fact that there is great uncertainty over very long time for many investments in adaptation can likewise horizons, with even more uncertainty in the LCR than be long. in other regions, underscores again the value of main- taining flexibility. "Real options methodologies" or Designing payment mechanisms to other nontraditional ways of evaluating costs and ben- facilitate adaptation efits of investments and policies, which take explicit Adaptation is not costless. Tol (1998), reviewing vari- account of the implications of uncertainty, can become ous studies, estimates that the share of adaptation more useful in the future (box 3.12). costs in the total costs imposed by climate change It will, of course, be necessary to ensure that pro- may range between 7 and 25 percent. Timing is criti- jects are well chosen and transfer mechanisms are cal for some adaptation policies and investments to designed to get the maximum economic impact. ensure that funds are spent efficiently. Adaptation has As noted previously, most private investments in BOX 3.12 Real Options Methodologies Real options analysis is a recently developing field of would require different circumstances in terms of water inquiry at the frontier between economics, operational costs and output prices to warrant project adoption under research, and statistics. The real option methodology is the ordinary cost benefit tests. based on the idea that, because an investment commits The use of the real options methodology allows us to scarce resources in an irreversible way under uncertainty, consider the contingent value of the project as an instru- the project can be evaluated as a set of compound options. ment of adaptation to climate changes. These changes will The methodology has recently been applied to evalu- indeed warrant the undertaking of the project, if the aridity ate adaptation to climate change in agriculture and irri- of local climate, the scarcity of water, and the increasing gation water management practices in the Rio Conchos danger of water contamination reach critical threshold lev- Basin in Northern Mexico, a large trans-boundary river els. By using the traditional test, this conclusion would be in an arid region facing high growth. The project consists reached only on an ex-post basis. Real options analysis of the substitution of a more efficient irrigation system allows us to consider the problem from an ex-ante point of for the current expensive one and the move to higher view through the use of extended cost-benefit tests, incor- value horticultural crops. Both changes, however, are not porating the contingent assets and liabilities associated currently justified from an economic point of view and with the situation with and without the project. Source: Scandizzo (2008). 72 A D A P T I N G T O A C H A N G I N G C L I M AT E I N T H E L C R adaptive responses have relatively few externalities drought-resistant seeds) or "soft" technologies (insur- and so private incentives for many investments in ance schemes of crop rotation patterns), or they can adaptation are broadly aligned with those for society involve a combination of both (early warning systems as a whole. This conclusion could be changed when that combine hard measuring devices with soft individuals have imperfect information or liquidity knowledge and skills that can raise awareness and constraints, or when governments implement policy stimulate appropriate action). Mexico is combining measures that alter the incentives. (For example, if the soft and hard technologies in the development of risk government gives compensation for flood damage, the atlases and early warning systems, which have incentive to invest in protection is correspondingly resulted in greater attention and resource allocation to reduced.) But the basic principle remains valid that, risk prevention (UNFCCC 2006a). across a broad range of private adaptation activities, International funding may also need to be directed the need for subsidies in order to match individual at generating international public goods (for example, incentives to those of society is much less than for research) or at resolving international problems created mitigation activities. This, in turn, implies that by climate change. Support for international research investments for adaptation should not be subsidized, will be important in many areas, including climate at the risk of encouraging "overadaptation" beyond change itself and responses to maintain agricultural the economically efficient level. productivity. In the latter sphere, private seed compa- nies are investing significantly in developing vari- International transfers to support adaptation eties, including GMOs, with characteristics needed to The same principle applies at the international level. cope with changing climate conditions, but cannot be Most adaptation actions undertaken by national govern- expected to focus on open-pollinated varieties that ments have few, if any, external impacts on other coun- would be most useful for small-scale producers in tries or the world at large. It does not follow, however, developing countries. For this, the Consultative that individual adaptation measures in developing Group on International Agricultural Research (CGIAR) countries should not benefit from external funding, but centers will be required (box 3.13). the reasoning above has implications regarding both the Effective international institutions will also be rationale for doing so and the mechanisms for adminis- needed to mediate disputes over riparian rights, tering it. There are powerful arguments grounded in which are likely to increase in number and intensity as equity considerations that developed countries--which water availability is reduced in some areas. Whether bear primary responsibility for the greenhouse gases that existing institutions are adequate for the task will are causing global warming--should subsidize the con- need to be considered by the international commu- sequent adaptation costs in developing countries. But nity. Climate change also has the potential to create economic logic dictates that these transfers should not large numbers of external "environmental refugees," be used to lower the price of private investments. as did Hurricane Mitch in Central America (Glantz Rather, funding for human adaptation efforts would be and Jamieson 2000), which will need to be dealt with more efficiently used to underwrite investments in pub- on an international level. lic goods and in safety nets, preferably through some The international community can play a role in the kind of lump-sum transfers to those most vulnerable to development of mechanisms to strengthen govern- the effects of climate change. Transfers will also be ments' resilience to shocks by intermediating risk needed to support biodiversity preservation and ecosys- transfer to global insurance markets. This is already tem adaptation of global significance. being done by the recently created Caribbean Cata- Technology transfer can play an important role in strophe Risk Insurance Facility (see box 3.14), and the resource allocation. Technology transfer can include feasibility of a similar institution serving Central "hard" forms of technology (new irrigation systems, America is being explored. 73 L O W- C A R B O N D E V E L O P M E N T : L A T I N A M E R I C A N R E S P O N S E S T O C L I M A T E C H A N G E BOX 3.13 Private and Public Agricultural Research for Climate Change: It Takes Time Predictions of the impacts of climate change paint a A similar effort focused on Latin America could have a picture of both increasing and decreasing suitability substantial payoff in maize yields of smallholder farmers for agricultural production across Latin America. New (100 kilograms per hectare per year of investment). agricultural technologies can also contribute by either However, this would require that similar breeding mitigating the negative impacts or by optimizing new approaches, like the ones developed for Africa, need to be opportunities provided by a changing climate. Develop- implemented for Latin America. Investments have to be ment and cultivation of new crop varieties is one example made in Latin American-adapted maize varieties and can- of agriculture's adaptation to climate change. The private not be transferred from other regions. Such investments and public sectors (including international research can take a long time to materialize--from 5 to 10 years organizations) play an important role in delivering cli- from development to launching of a new maize variety. mate-resilient varieties. Private companies (for example, For example, it has taken the International Center for Monsanto, BASF, Pioneer) are developing transgenic and Tropical Agriculture more than 20 years to develop and conventional drought tolerant varieties of maize that release drought tolerant bean varieties in Central America. achieve yield improvements of 8­10 percent in water- Hence, to successfully adapt to future climate changes, stressed environments. The Drought Tolerant Maize for investors in agricultural research need to consider the large Africa Project is a strategic public-private alliance led time lag between investment and impact in the field. by the International Maize and Wheat Improvement Effective breeding programs must be carefully planned to Center that has seen yield improvements of 20 percent to ensure that the varieties are still useful in 10 to 15 years 50 percent in low-yielding areas of Sub-Saharan Africa. when they are released. Sources: Zahniser (2008); Baenziger et al. (2004); Lane and Jarvis (2007). BOX 3.14 The Caribbean Catastrophe Risk Insurance Facility (CCRIF) Insurance coverage relies on parametric techniques; payouts specialized firms, with general operating expenditures are calculated based on the estimated impact of an adverse (other than reinsurance activities) expected to remain natural event on each government's budget. The estimated below 5 percent of premium volume. impact is derived from probabilistic catastrophic risk mod- Donor support to the CCRIF is essential to ensure its els developed specifically for the CCRIF. Participating financial viability and long-term sustainability; contribu- countries will receive compensation proportional to the tions are to finance the initial capital and its operating losses from the predefined events depending on the level of expenditures during the first few years of operation. To coverage agreed upon in the insurance contract. facilitate the channeling of funds from donor agencies to The CCRIF is an independent legal entity acting as the CCRIF, the World Bank established a multidonor trust intermediary between the participating countries and the fund. The World Bank, as administrator of this multidonor international financial markets. The CCRIF is registered trust fund entered into a grant agreement with the CCRIF. in the region and is under the supervision of the partici- CCRIF was able to secure US$110 million of claims pating donor and client countries. All functions in the paying capacity on the international reinsurance and day-to-day operation of the CCRIF are subcontracted to capital markets. The reinsurance structure consists of (Box continues on next page.) 74 A D A P T I N G T O A C H A N G I N G C L I M AT E I N T H E L C R BOX 3.14 (continued) four layers: CCRIF retains the first layer of US$10 mil- ing market countries' catastrophe risk is placed in the lion; reinsurers underwrite the second (US$15 million) capital markets. and third layers (US$25 million); the top layer (US$70 As of June 1, 2007, a total of 15 Caribbean countries million) is financed with reinsurance (US$50 million) had purchased catastrophic insurance for a total pre- plus US$20 million coverage through a catastrophe mium of US$17 million and total coverage of US$444 swap between the World Bank (IBRD) and CCRIF. The million. This high level of enrollment allows the CCRIF IBRD hedged its risk through a companion catastrophe to efficiently diversify its portfolio and thus access rein- swap with Munich Re. The US$20 million swap surance on better terms. Reinsurance capacity of between the IBRD and CCRIF is the first transaction to US$110 million has been purchased on the reinsurance enable emerging countries to use a derivative transaction market which, with the initial US$10 million retention, to access the capital market to insure against natural dis- ensures that the CCRIF could sustain a 1-in-1,000-year asters. It is also the first time a diversified pool of emerg- event. Source: http://www.ccrif.org/. Annex TABLE 3.2 Current and Projected Future Changes in Runoff in Latin America and the Caribbean Region Projecteda change in average runoff (mid-twenty-first century) Model Agreementc Mean change Portionbof region for which change is projected to: (% of current % of cells % of cells average Decrease by Remain within Increase more where 50% of where 80% of Region annual runoff) more than 10% +/­ 10% than 10% models agree models agree Northern Warm Temperate 381 1.63 ­6% 51% 49% 0% Northern Equatorial 1224 0.70 ­9% 83% 16% 1% Brazil--Arid 13 2.23 ­9% 4% 96% 0% Arid 6 6.42 ­1% 52% 34% 14% Polar 183 1.19 ­2% 35% 60% 4% Southern Equatorial 1003 0.62 ­1% 16% 80% 4% Southern Warm Temperate 311 1.14 7% 21% 46% 33% Entire Regiond 729 1.00 ­3% 27% 56% 17% Source: Table adapted from the World Bank Water Anchor "Water and Climate Change: Hydrologic Drivers and Potential Impacts," December 17, 2007. Note: a. Estimates of projected change in runoff were determined by averaging the results of Milly et al. (2005) (an analysis of the runoff output of 12 climate models run under the IPCC's SRESA1B emissions scenario, provided as gridded output at the 2.5o longi- tude x 2.0o latitude scale) over the grid cells that comprise each region. b. The projected changes in runoff were divided into three categories. The percent of grid cells within a particular region that fall into each category is reported. c. Model agreement refers to whether or not multiple models project a change in the same direction (that is, increase or decrease in runoff). Twelve different climate models were included in the analysis by Milly et al. (2005). For each grid cell, as few as 6 models may agree on the direction of change (that is, half the models project an increase and half project a decrease), and as many as 12 models may agree (that is, all models show an increase or all models show a decrease). Presented here is the percent of grid cells within a region that have poor model agreement (6 out of 12 agree) and that have moderate to good agreement (10 or more models agree). d. Mean values for entire region were calculated for all grid cells in the region; note that this is not the same as the average of the 7 subregions table adapted from World Bank Water Anchor "Water and Climate Change: Hydrologic Drivers and Potential Impacts," December 17, 2007. 75 L O W- C A R B O N D E V E L O P M E N T : L A T I N A M E R I C A N R E S P O N S E S T O C L I M A T E C H A N G E Notes 8. "Public goods" is used here in its economic sense to mean 1. A Mexican farmer once told an interviewer that the goods or services that by their nature provide broadly shared product that generated the most reliable, climate-invariant benefits, for which the provider is unable to charge individual stream of income was the son he had "planted" north of the beneficiaries. Many goods which are commonly financed from border. the public budget are not in this sense "public goods." 2. http://en.wikipedia.org/wiki/El_Ni%C3%B1o-Southern_ 9. NOAA developed the Coral Reef Early Warning System Oscillation. (CREWS), an integration of meteorological and in situ oceano- 3. Regressions accounting for endogenous migration, capital- graphic instrumented arrays (buoys and dynamic pylons) intensity in the agricultural sector, assets, and access to credit employing artificial intelligence software to monitor corals for yield similar parameter estimates. conditions theoretically conducive to coral reef bleaching 4. Interestingly, the paper shows that these marginal (Hendee et al. 2001). impacts are less severe in rural areas that use capital more 10. Gisselquist et al. (2002) find that overly restrictive seed intensively, indicating that there is scope for some agricultural regulations interfere with technology flow, particularly in some technologies to lessen the impacts of weather risk. developing countries. 5. See, for example, Howett and Pienaar (2006); Hurd et al. 11. A similar point is made by Smith, J. 1997. "Setting Pri- (1999); Lund et al. (2006); and Strzepek et al. (1996). orities for Adapting to Climate Change," Global Environmental 6. Mendelsohn (2008b). Change. http://www.sciencedirect.com/science/article/B6VFV-3S 7. Bresnyan and Werbrouck (n.d.). X4MFH-4/1/dd1ab9c8cc98880fc248b4348af1ec58. 76 CHAPTER 4 Mitigation Efforts: Moving Beyond the First Generation of Emission Reductions Despite the various uncertainties involved in estimat- and level degradation, and incentives for the transfor- ing the costs and benefits of mitigating climate mation of the energy and transportation sectors as change, the available scientific evidence underscores being crucial to fully realize the mitigation potential the urgent need for stepping up current climate miti- of the LCR. gation efforts. Indeed, if current emission trends are maintained, there is a significant downside risk of high The Need for a Truly Global Agreement rates of global warming during the present century, Because of the scale of the emission reductions that are which could in turn lead to potentially catastrophic required, an effective global agreement to mitigate impacts on human and natural systems. As argued in climate change will necessarily have to involve both chapter 1, in order for climate change mitigation industrialized and developing countries. This is the efforts to be both effective and efficient, they would result of the simple arithmetic of the situation. To necessarily have to encompass reductions in GHG illustrate this, consider, for example, an aggressive emissions in industrialized and developing countries. emission reduction scenario that allows for maintain- In addition, a global deal on climate change would ing a low likelihood of global temperature increases have to explicitly incorporate equity considerations above the 2°C threshold. The Stockholm Environment both with respect to the territorial origin of emission Institute (SEI 2007) calls this scenario the "2° emer- reductions, as well as their payment. gency pathway." The expected emission reductions This chapter reviews these various challenges. In that would be needed in order to stay within this sce- particular, we first discuss the equity and efficiency nario are illustrated in figure 4.1, for the world as a challenges of the climate regime and highlight the whole as well as for industrialized (Annex I) and role of climate finance in facing these challenges. We developing countries (non-Annex I). then examine the possibility of employing a gradual The red line shows the trajectory for global CO2 approach to developing countries' participation in emissions, which would peak by 2015 and then drop global mitigation commitments. We review the LCR's by 80 percent below 1990 levels by 2050. This would participation in the CDM over the past nine years and allow for CO2 concentrations to peak at about 470 argue that a second generation of mitigation efforts CO2e ppm. The blue line in figure 4.1 shows a possible that is policy based and sectorwide may require addi- emission trajectory for industrialized countries in tional financial instruments. Finally we point to the which their emissions would peak by 2010 and then inclusion of reduction of emissions from deforestation decrease by 6 percent annually, thus dropping to 77 L O W- C A R B O N D E V E L O P M E N T : L A T I N A M E R I C A N R E S P O N S E S T O C L I M A T E C H A N G E FIGURE 4.1 about 3°C with respect to preindustrial levels.3 What Climate Stabilization Paths would it take to meet this kind of stabilization target? 12 The IPCC estimates that by 2050 global emissions would have to fall to a range from 30 percent below to 10 5 percent above their 2000 level. On a per capita CO2 emissions GtC /y 8 basis, and for the world as a whole, emissions would 6 have to be reduced from about 6.9 tCO2e in 2000 to between 3.2 and 4.8 tCO2e in 2050. For developing 4 countries, which in 2000 emitted 5 tCO2e p/c, con- 2 verging to the average global level of per capita emis- sions required to meet this target would imply 0 2000 2010 2020 2030 2040 2050 stabilizing at about their current level of emissions 2°C emergency pathway per capita or, in a worst case scenario, reducing their Non-Annex 1 physical emissions emissions by about 36 percent by 2050. Moreover, to Annex 1 physical emissions the extent that the developing world's share in the Source: Reprinted with permission from the Stockholm Environment world's population would increase from about 80 to Institute (2007). 90 percent during this period, the emissions reduc- tions that would be required in developing countries would be largely independent of the stringency of the 90 percent below 1990 levels by 2050. The trajectory is emission reduction targets taken on by industrialized much more stringent than the mitigation proposals countries. Thus, for example, even if rich countries that are currently being considered by several industri- were to reduce their emissions to zero--from their alized countries--for example, in June 2007, the current 14.3 tCO2e p/c--developing countries would Group of 8 (G-8) countries agreed to reduce their GHG still need to reduce their own emissions by as much as emissions by 50 percent by 2050--so it is deemed "just 28 percent by 2050.4 barely" politically plausible by the Stockholm Insti- tute.1 The green line is the arithmetical difference The Equity Challenge between the global maximum emissions that would be Would a self-funded substantial contribution of devel- needed to meet this target (red line) and the emissions oping countries to global efforts to mitigate climate that would be generated by industrialized countries change be compatible with equity considerations? (blue line). That is to say, it would be the remaining Clearly not, for three reasons. First, industrialized emission "budget" faced by developing countries. countries carry a much larger historical responsibility Thus, in addition to current development challenges-- for the existing atmospheric stocks of GHGs that are for example, 1.5 billion people without electricity, causing climate change. Second, developing countries, 1 billion without access to fresh water, and 800 million which must first face the challenge of poverty reduc- chronically undernourished--poor countries would tion, are the most vulnerable and the least able to face the additional daunting task of having their GHG adapt to the adverse effects of climate change. They can emissions peak before 2020 and to drastically reduce hardly be expected to shoulder the additional burden them thereafter, not only in per capita but also in of reducing their GHG emissions. Third, developing absolute terms.2 countries have the right to develop without restraint, One could argue that the above scenario is perhaps just as the current developed nations have done over too stringent. Consider, then, the more conservative the past 100 years. hypothetical target of stabilizing GHG concentra- The lower level of responsibility of developing tions between 535 ppm and 590 CO2e ppm, which countries can be illustrated by the fact that the cumu- would be associated with temperature increases of lative energy related emissions of rich countries from 78 M I T I G AT I O N E F F O RT S : M O V I N G B E Y O N D T H E F I R S T G E N E R AT I O N O F E M I S S I O N R E D U C T I O N S 1850 to 2004 are, on a per capita basis, more than 12 FIGURE 4.2 times higher than those of developing countries-- Historic Trends in Per Capita GDP and Per Capita CO2 Energy respectively 664 and 52 tCO2 p/c.5 Thus, even though Emissions their share of the world's population is only about 20 7 Greenhouse gas emissions percent, industrialized countries are responsible for 75 6 5 percent of the world's cumulative energy related CO2 per capita 4 emissions since 1850. The difference between both 3 groups of countries is smaller but still significant when 2 not only emissions from energy but also from land-use 1 change are considered for the shorter 1950­2000 0 0 5,000 10,000 15,000 20,000 25,000 30,000 period--land-use change emissions are not available ­1 GDP per capita (US$) for previous periods. In this case the cumulative emis- United States (1850­2002) China (1950­2002) sions of industrialized countries would be 457 tCO2 United Kingdom (1850­2002) India (1891­2002) France (1851­2002) Brazil (1904­2002) p/c compared to 103 tCO2 p/c for developing coun- Japan (1870­2001) Mexico (1895­2000) tries. It is thus natural to expect rich countries to Source: World Bank staff calculations using data from Angus assume a much larger share of the cost that will be Madison and World Resource Institute. associated with reducing global GHG emissions. In addition, developing countries face the overar- FIGURE 4.3 ching challenge of achieving and maintaining the Historic Trends in Per Capita GDP and CO2 Energy Emissions over GDP high rates of economic growth that are needed to 900 Greenhouse gas emissions per GDP eradicate poverty and converge to the levels of income 800 of the industrialized world. In this context, climate 700 600 change introduces two additional complications. On 500 the one hand, additional resources will be needed for 400 adapting to the various impacts of climate change, so 300 200 as to avoid negative and persistent damages, which 100 could compromise development achievements. On 0 0 5,000 10,000 15,000 20,000 25,000 30,000 the other hand, the above described arithmetic of the ­100 GDP per capita (US$) emission reductions needed to stabilize GHG con- United States (1850­2002) China (1950­2002) centrations suggests that developing countries will United Kingdom (1850­2002) Brazil (1904­2002) France (1851­2002) India (1891­2002) have to find a way of rapidly decoupling their pat- Japan (1870­2001) Mexico (1895­2000) terns of income and GHG emissions growth, in a way Source: World Bank staff calculations using data from Angus that is unprecedented. Madison and World Resource Institute. High-income countries were not constrained by requirements to reduce their emissions during their China, India, and Mexico during the twentieth cen- development process. Indeed, as shown in figures 4.2 tury. In order words, when industrialized countries and 4.3, at least since the industrial revolution, GHG had levels of income per capita comparable to those of emissions have been closely linked to economic today's developing countries, both the level and the growth. In particular, the first figure shows that in rate of growth of their per capita CO2 emissions were today's industrialized countries emissions per capita much higher than in today's developing countries. grew almost continuously with income per capita A similar pattern applies to the evolution of the between the 1850s and the 1970s. Moreover, the rates ratio of emissions to GDP (figure 4.3), which grew at of growth of their per capita emissions were much much faster rates in today's industrialized countries, higher during that period than what has been when their levels of income were comparable to those observed, for similar levels of income, in Brazil, of today's largest developing countries. Thus, even 79 L O W- C A R B O N D E V E L O P M E N T : L A T I N A M E R I C A N R E S P O N S E S T O C L I M A T E C H A N G E though in France, Japan, the United Kingdom, and that for which the cost of abating an additional ton of the United States emissions per unit of GDP peaked GHG is equal to the value of the marginal climate during the early twentieth century and have been damages avoided. To reach that optimal level of abate- declining ever since, they only reached levels that ment at the lowest cost, in an ideal world, policy mak- were comparable to those of today's developing coun- ers would use economic instruments--namely, global tries when their levels of income per capita had "cap-and-trade" or "carbon tax" systems6--that result reached between two and four times those exhibited in the emergence of a price on carbon emissions that is in the present decade by Brazil, China, and Mexico. equal to the marginal damages of additional emissions This suggests that patterns of development have (the so-called "social cost of carbon"). already become relatively "cleaner" at least in com- In practice, however, there are considerable degrees parison to the historical experience of today's rich of uncertainty on both the costs and the benefits of countries. This is probably a result of several factors. mitigating climate change. This, coupled to the pres- First, thanks to technological change, during the past ence of irreversibilities associated both with mitiga- 150 years the world has shifted to relatively cleaner tion investments (for example, in fixed assets to energy sources--for example, with gas and oil substi- produce clean energy) and with increases in the stock tuting for coal. Second, energy consumption has been of GHG (for example, the difficulty of reducing them reduced significantly, at least in industrialized coun- if "bad news" arises on their actual size or negative tries, as a result of increasing oil prices, particularly impacts), may tilt the balance in favor of one or the after the oil shocks of the 1970s (see chapter 5). other policy instrument, as well as lead to lower or Finally, the growth in global trade has caused many higher levels of optimal abatement than the above energy and carbon intensive industries to move from simple framework would suggest (Pindyck 2008). industrialized to developing countries, with the for- Moreover, the relative virtues of both instruments mer specializing in the production of cleaner knowl- would also depend on how governments use the rev- edge intensive goods and services. enues generated respectively through carbon taxes or In this context the challenge that the developing the auctioning of allowances (Aldy et al. 2008). In world will face is that of further decoupling GHG summary, there are differing views on how to weigh emissions from economic growth during a relatively the pros and cons of these two approaches, with no short period of time without compromising their eco- consensus having emerged as yet. In the end, which is nomic development goals. Indeed, while there are a more likely to be adopted will probably be decided by number of opportunities for reducing emissions in what is politically feasible to negotiate. ways that have concomitant development benefits and But regardless of the level of abatement envisaged relatively low costs, a theme we will explore later, the and of the specific mechanism used to generate a rapid deployment of low-carbon energy technologies price on GHG emissions, mitigation efforts will only will likely come at a significant cost. How to maxi- be efficient when the same "carbon price" applies to mize efficiency in order to minimize this cost and how all emitters. Indeed, this would ensure first that all to share the corresponding "bill" across countries with possible mitigation opportunities are considered different levels of development and responsibility for when deciding--in most cases implicitly, through GHG emissions are the questions that we address next. market mechanisms--which ones to pursue at each level of abatement. Second, a common price on car- The Efficiency Challenge bon would also ensure that only the least expensive Setting equity aside, and as shown in chapter 1, in an mitigation alternatives, with marginal costs below ideal situation in which the marginal costs and benefits the common carbon price, are implemented. of mitigating climate change are known with certainty A recent study found, for example, that reducing for different alternative levels of emission reductions, global emissions by 55 percent in 2050 (relative to a the optimal level of mitigation expenditures would be baseline scenario) using a uniform carbon tax would 80 M I T I G AT I O N E F F O RT S : M O V I N G B E Y O N D T H E F I R S T G E N E R AT I O N O F E M I S S I O N R E D U C T I O N S have a cost equivalent to 1.7 percent of global GDP. Flows study of the UNFCCC estimates that 68 percent In contrast, the cost of achieving the same global of the mitigation needed for a total reduction of 31 emission reduction without a common price on car- GTCO2 by 2030 is located in developing countries and bon would be about 50 percent higher. In particular, can be achieved for 46 percent of the global mitigation if country-specific taxes were to be used, setting their cost (UNFCCC 2007).7 rates so as to deliver the same 55 percent emission Is it possible to build a "global deal" that could sat- reduction in each and all countries, the cost would isfy both equity and efficiency considerations? The reach 2.6 percent of global GDP (Medvedev and van answer is a clear yes. As argued by Spence et al. (2008), der Mensbrugghe 2008). The lower mitigation costs the key is to decouple the cost of mitigation from the site achieved in the first case would result from a different of mitigation. The traditional interpretation of the allocation of emission reductions across countries, principle of "common but different noted responsibili- with larger efforts being implemented in those that ties and respective capabilities" would have us conclude offer cheaper mitigation opportunities, as opposed to that the only way of addressing the extreme inequality the second alternative in which all countries would in both capability (wealth) and responsibility for the reduce their emissions in the same proportion, regard- problem is to defer aggressive action on climate change less of their different mitigation costs. in the poorer countries. As long as we assume that every Achieving a common carbon price within national country has to pay for the emission reductions achieved boundaries implies harmonizing various domestic on its territory, developing countries will understand- government policies across sectors, so that the com- ably argue that they cannot act on climate in a signifi- bined impact of emission caps, carbon taxes, and other cant way because of inequity and their other priorities government policies and regulations--that is, the that have to take precedence. However, we have seen shadow price of GHG emissions--is the same for all that in order to stabilize the climate, we need urgent emitters. While this is not trivial, achieving the same action everywhere. The only solution to this dilemma is goal at the global level is certainly much more chal- to share the global burden according to transparent lenging, especially if one expects the corresponding principles of equity and capability, independently of global agreement to also satisfy equity considerations. the territorial origin of the emission reductions. The delinking of the site of emission reductions Combining Equity and Efficiency: A Critical Role from their payment can be achieved in several ways. for Climate Finance One option is to adopt an international cap and trade The discussion above implies two desirable character- scheme, through which a common price on carbon istics for a global agreement to address climate change would emerge even if countries agree on different lev- mitigation: First, equity considerations would call for els of contributions to global efforts--that is, different developing countries to carry a very small share of the caps on emissions. Resources would flow automatically burden. Second, efficiency would require a mechanism to pay for emission reductions in countries that offer to establish some kind of uniform price for carbon, the lowest cost-mitigation opportunities, thus poten- which would mean that the reductions would be car- tially funding an important level of mitigation efforts. ried out in the ways and places that it could be done A similar outcome could be achieved with a carbon tax most cheaply. So if developing countries have a com- mechanism--and some authors argue that such a parative advantage in activities that could reduce mechanism might even be easier to negotiate and eas- GHG emissions--for example, relatively low produc- ier for developing countries to administer (Aldy et al. tion costs for renewable energy, or a potential for 2008). But with a carbon tax, equity would require a reducing deforestation at a relatively low opportunity parallel agreement on a set of international resource cost--cost-efficiency considerations would call for a rel- transfers aimed at ensuring that the share of the global atively large share of global mitigation efforts to be allo- "bill" of climate change mitigation that is paid by each cated to them. In fact, the Investment and Financial county is proportional to its responsibility for generating 81 L O W- C A R B O N D E V E L O P M E N T : L A T I N A M E R I C A N R E S P O N S E S T O C L I M A T E C H A N G E the problem and not necessarily to the country's actual FIGURE 4.4 contribution to its solution. A Possible Scheme for Gradual Incorporation of Developing Considering the challenges associated with negotiat- Countries ing a global cap-and-trade scheme or a global carbon tax, however, it is worth considering other possible Emission reduction targets alternatives for decoupling the site of mitigation from its payment. While some of these alternatives may be Capability Limiting emission growth more cumbersome, some of them may constitute more acceptable avenues from a political point of view. First, Adoption of climate- friendly policies assuming that industrialized countries (including the United States) could be expected to take deeper emis- No mitigation commitments sion reduction commitments, expanded market-based Time instruments may play an important role. These could Source: Figueres (2008). include an improved and potentially expanded CDM. Second, complementary nonmarket financial instru- ments could help defray some of the costs of mitigation in developing countries, even if not serving to transfer In order to uphold the integrity of the system, all emission rights to those who provide the funds. Find- mitigation efforts, whether based on climate friendly ing the appropriate combination of these different types policies or eventually on targets, would have to be of instruments will be complex, both from a technical measured and reported, and internationally verified. point of view, and in terms of the challenges associated In order to ensure fairness and equity, the gradual with negotiating the corresponding agreements. In par- incorporation of developing countries could be linked ticular, such an agreement will have to not only ade- to--that is, conditional upon--industrialized countries' quately balance supply and demand within the market verified performance (for example, in terms of both mechanism(s), but also to balance, within the nonmar- the provision of financing for developing countries ket mechanism(s), willingness to pay on the part of the mitigation efforts and emission reductions achieved at industrialized countries and effectiveness to promote home). Moreover, an agreement would have to be reductions in the south. reached on possible objective criteria for defining the If negotiated, this palette of climate finance instru- thresholds that would trigger an increasing degree of ments could provide the framework for a global agree- incorporation of developing countries. In this respect, ment that would confirm most (small) developing it is important to recognize the wide variety of coun- countries as continued hosts of market-based mitigation try circumstances that are found not only across rich efforts, but would at the same time provide the necessary and poor countries, but also within the group of incentives for the larger developing countries to gradu- developing countries. ally move toward the adoption of their own climate mit- In particular, as argued by Yamin et al. (2006), it is igation commitments. In order to alleviate the trade-offs important to take into account countries' different between economic development and climate change degrees of responsibility for the climate challenge, as mitigation objectives, some developing countries could well as their capability for addressing it, and their start with a focus on "climate-friendly" development potential to implement mitigation activities. In the policies without explicit mitigation commitments, and context of the North-South Dialogue, Ott et al. (2004) transit over time, based on demonstrated capability (for have proposed a specific framework in which (1) miti- example, as measured by per capita income) to limiting gation efforts would be concentrated in countries with emission growth and, finally at some point in time, to medium or high potential; (2) the amount that each some of them adopting emission reduction or at least country would contribute to the funding of global emission intensity targets (figure 4.4). efforts would depend on its levels of responsibility and 82 M I T I G AT I O N E F F O RT S : M O V I N G B E Y O N D T H E F I R S T G E N E R AT I O N O F E M I S S I O N R E D U C T I O N S capability; (3) the contributions by countries with low fossil fuel energy) or were submitted to a "carbon responsibility would be voluntary; and (4) those of upgrade" (for example, capture of methane in land- countries with medium responsibility or with low to fills, increasing efficiency in energy generation, and so medium capability would be conditional on financial on). And yet, in the face of the shortcomings that we and technical transfers from high capability countries. discuss below, and the concurrent need to scale up In order to make such a framework operational, an mitigation, the calls to expand/reform the CDM are agreement also would have to be reached on how to well documented. As we approach the end of the first measure the relevant variables. Responsibility could be commitment period, countries may create other proxied by cumulative GHG emissions, starting for avenues (market and/or nonmarket based) to catalyze a example in the mid-nineteenth, when global man- second generation of mitigation efforts that are made emissions experienced their first significant broader in scope and higher in volume, and that are trend break or starting much more recently, when a discussed at the end of this chapter. However, the sizable scientific consensus was reached on the climate CDM, with its strengths and weaknesses, has impact of GHG emissions--for example, in 1990, undoubtedly been successful in creating a class of when the first IPCC report was launched.8 The level of market-based mitigation activities in the LCR and capability of different countries, in terms of their abil- elsewhere in the developing world. ity to fund adaptation and mitigation activities, could We first review the LCR's participation in the be proxied by levels of GDP per capita or with the CDM and identify the barriers that have been encoun- UN's Human Development Index. As for countries' tered, before exploring options to further promote mitigation potential, it could be proxied by the level mitigation by stimulating a second generation of and rate of growth of their GHG emissions, either rel- emission reductions in developing countries. ative to population or GDP, or in absolute terms. The CDM has evolved rapidly since the adoption of Indeed, as argued by Ellis and Kamel (2007), there is the Kyoto Protocol in December 1997, growing from less room for domestic mitigation actions where emis- 20 MtCO2e in emission reductions traded in 1998, to sion levels or growth rates are already low. 100 MtCO2e traded in 2004 and 537 MtCO2e in As shown in table 4.1, in comparison with industri- 2007. In that year the value of primary CDM Certi- alized countries and the rest of the developing world, fied Emission Reductions (CERs) reached US$7.4 bil- LCR countries can be described as having intermediate lion. Moreover, 2007 also saw the emergence of levels of potential, responsibility, and capability to miti- secondary markets, which traded 240 MtCO2e in gate climate change. The region's standing on the first emission reductions for an amount of US$5.4 billion. two criteria, however, critically depends on whether By mid 2008 the LCR accounted for about 20 per- emissions from land-use change are considered in the cent of the 3,498 active projects in the CDM pipeline. analysis. If not, the region can be described as having, If all the expected CERs from these projects were to be at most, medium levels of responsibility and potential delivered, they would generate 2,640 MtCO2e in emis- for implementing mitigation activities. sion reductions, of which about 15 percent would be sourced from LCR projects. Assuming an average price LCR's Performance in the CDM of US$15 per ton, the investment in emission reduc- For the time being the CDM is the only financial tions in the region would be US$5.8 billion by 2012. It vehicle for developing country mitigation efforts that is worth noting, however, that after accounting for var- are recognized and quantified under the UNFCCC. ious risks--for example, of issuance failure, negative The CDM represents the first generation of mitiga- validation by Designated Operating Entities (DOEs), tion efforts in developing countries: it promoted a first the auditors of CDM projects, or rejection by the CDM wave of emission reductions achieved by single site Executive Board (EB)--and taking into account regis- projects that either displaced more carbon intensive tration delays and the expected future stream of new alternatives (for example, renewable energy displacing projects, most market participants expect a smaller 83 TABLE 4.1 Potential, Responsibility, and Capability to Reduce Greenhouse Gas Emissions Other developing Criteria for differentiating countries Annex I (*) LCR Brazil Mexico countries China India Potential to mitigate GHG/GDP, 2000 (in tons CO2/Mill. US$-PPP) Group Range 239­2,446 203­16,486 352­35,632 Group Average 759 2,477 1,876 752 3,619 975 655 Group Total 643 1,425 1,395 CO2 (excluding LUC)/GDP, 2000 (in tons CO2/Mill. US$-PPP) Group Range 208­1,583 117­2,166 0.1­3,310 Group Average 561.5 460 280 436 511 686 434 Group Total 535 377 630 GHG/capita, 2000 (tons CO2e Per Person) Group Range 5.5­26.6 1.3­93.7 0.7­53.8 Group Average 12.3 12.2 13.4 10.0 7.7 3.8 1.5 Group Total 14.3 10.0 4.4 CO2 emissions growth, 1990­2000 (in %) Group Range ­6.8­4.3 ­5.5­8.1 ­11.3­17.4 Group Average ­0.44 0.30 ­2.3 0.8 2.35 2.2 5.2 Group Total 0.07 ­1.60 2.51 84 Responsibility to mitigate Cumulative CO2/capita, 1990­2000 (in tons CO2 ) Group Range 32.5­241.8 ­75.1­1,099.3 ­12.4­373.4 Group Average 100.9 107.5 117.0 51.5 53.3 27.2 8.6 Group Total 121.1 82.4 33.5 Capability to mitigate GDP/capita, 2000 (in US$-PPP) Group Range 4,037­50,564 1,499­16,958 226­42,166 Group Average 20,446 6,442 7,142 9,262 4,994 2,371 1,517 Group Total 22,170 7,026 2,399 HDI, 2000 Group Range 0.75­0.96 0.67­0.86 0.92­0.32 Group Average 0.89 0.76 0.79 0.81 0.61 0.732 0.578 Total GHG emissions, 2000 (in MtCO2 equiv.) Sum (of each group of countries) 17,583 5,166 2,333 682 18,777 4,850 1,574 Top five United States 6,611 Brazil 2,333 China 4,850 Russia 1,991 Mexico 682 Indonesia 3,068 Japan 1,406 Venezuela 384 India 1,574 Germany 1,044 Argentina 353 Malaysia 861 Canada 751 Colombia 274 Korea (South) 547 Sources: For GDP - PPP in constant intl $ 2000 and Population 2000 is WDI; Emissions: Climate Analysis Indicators Tool Version 5.0., (Washington, DC: World Resources Institute, 2008, Human Development Index UNPD. Note: (*) Defined as Annex 1 countries in the UN Framework Convention on Climate Change including all the developed countries in the OECD and economies in transition. GHG = CO2, CH4, N2O, PFCs, HFCs, SF6 (includes land use change and international bunkers), CO2 emissions growth (CO2, including land use change and international bunkers), cumulative CO2, CO2 (energy), CO2 (land use change). M I T I G AT I O N E F F O RT S : M O V I N G B E Y O N D T H E F I R S T G E N E R AT I O N O F E M I S S I O N R E D U C T I O N S number of CERs to be delivered by 2012. Thus, for FIGURE 4.5 instance, UNEP Risoe Centre on Energy, Climate and Cumulative Number of Projects in the Clean Development Sustainable Development (URC) estimates that only Mechanism Pipeline, by Country/Region of Origin 1,568 MtCO2e will be issued before the end of 2012. 61 534 1,387 2,843 3,498 11 17 14 16 17 18 A declining market share % of total 35 28 28 39 The LCR was clearly the early mover in the CDM. 38 5 18 33 36 The region began experimenting with Activities 19 19 Implemented Jointly (precursor to the CDM) in the 30 19 13 12 13 9 8 early 1990s. The Programa Latino Americano del Car- 04 05 06 07 08 bono (PLAC), the first carbon finance program to be 20 20 20 20 20 established by a regional development bank, was cre- Brazil Latin America except Brazil China India Other ated by the Andean Development Corporation in Source: World Bank staff calculations using data from the Clean Development Mechanism Pipeline database published by UNEP Riso, 1999, even before the Marrakesh Accords established June 2008. the modalities and procedures for CDM. From 1999 to 2002, the region had more Designated National Authorities (DNAs)--the entities that handle the FIGURE 4.6 Primary Clean Development Mechanism Transactions for Compliance, host country CDM project approval process--than by Country/Region of Origin any other region in the world, and received a total of 4 MtCO2e 31 MtCO2e 86 MtCO2e 341 MtCO2e 537 MtCO2e 551 MtCO2e US$18 million in CDM-related capacity building.9 8 12 5 15 10 3 6 The investment in technical training bore immediate 19 15 2 % of total 60 fruits--from 2001 to 2004 the region had submitted 36 51 74 74 62 percent of all CDM projects to the EB, and had 54 6 prepared 68 percent of all approved CDM methodolo- 40 36 20 8 6 gies. The first project to be registered by the EB was 11 11 5 10 6 the landfill methane capture project of NovaGerar in 02 03 04 05 06 07 20 20 20 20 20 20 Brazil in 2004, and the first certifications of emission Brazil Latin America except Brazil China India Other reductions were issued to Rio Blanco and La Esper- Source: World Bank staff calculations using data provided by anza hydro projects in Honduras in 2005. Philippe Ambrosi of the World Bank. Note: MtCO2e = million tons of CO2 equivalent. By the middle of 2006, however, the region had lost its dominant position in the market, as India and China had entered with much higher volumes. As shown in warming potential of HFC-23 as compared to CO2, figure 4.5, the LCR went from accounting for 68 per- achieved extremely large volumes of certified emission cent of all active projects in the CDM portfolio in reductions.10 However, this type of project has been 2004--there were just 61 active projects at the time-- nearly exhausted worldwide and over the past few years to 32 percent of the 1,387 projects in the pipeline in China and India have been able to diversify their supply, 2006 and just 20 percent of the 3,498 projects that were expanding their CDM portfolio to other sectors (renew- active by early June of 2008. Similarly, the share of the able energy, energy efficiency improvements in the LCR in the total volume of transacted CERs fell from industrial sector, and methane recovery and utilization) 72 percent in 2003 to 11 percent in 2007--6 percent while managing to maintain their hold on the market. of which were from Brazil--compared to 74 percent In contrast, the projects from the LCR have been, for China and 6 percent for India (figure 4.6). since the early years of the CDM, smaller than those The rapidly growing market shares of China and from other regions. For instance, the region's share India were originally due to a few "end of pipe" HFC-23 in the 2012 CERs expected from the active CDM destruction projects that, given the very high global pipeline--assuming no risks--was always smaller than 85 L O W- C A R B O N D E V E L O P M E N T : L A T I N A M E R I C A N R E S P O N S E S T O C L I M A T E C H A N G E its share in terms of number of projects. For example, FIGURE 4.8 while in 2004 the LCR had 68 percent of all active Shares of 2012 Clean Development Mechanism's Certified Emission projects, it had just 50 percent of the corresponding Reductions and Non-LULUCF Emissions (Non-Annex I Countries) 2012 CERs (figure 4.7). By 2007, when the region's 55 54 50 share of the pipeline had fallen to 22 percent, its frac- 45 40 tion of the expected 2012 CERs was only 15 percent. 35 Percent 31 In contrast, with 33 percent of the active projects in 30 29 25 2007, China was able to capture 53 percent of the 20 15 15 13 2012 expected CERs. 10 8 10 11 7 6 6 5 3 4 3 0 LCR's Supply er in o a a a sia l in ic zi di ic m at a fA fr ex a Ch In ic While LCR countries have been outperformed by A fL Br A M to to s s Re Re China and India as CER suppliers, one could hypothe- 2012 CERs 2000 CO2 emissions (% of Non-Annex 1) size that this is a result of their higher GHG emission Sources: CO2 emissions (without LULUCF): CAIT; 2012 CER: World levels. In particular, it should not be a surprise if coun- Bank staff calculations using data from the Clean Development tries with high emission levels were also among those Mechanism Pipeline database published by UNEP Riso, June 2008. Note: LULUCF = Land use, land-use change and forestry. with a high supply of emission reductions. We thus compare the fraction of 2012 CERs from projects in the CDM pipeline held by selected countries, to and the rest of the region is slightly undersupplying their respective share in GHG emissions from non- CDM projects. However, India and particularly China Annex I countries--the only ones that can supply the are clearly overperforming, and the rest of Asia and CDM. Land-use change and forestry emissions are not Africa are underperforming in the carbon market. included as most of these emission reductions cannot be The pattern of the highest emitters being the largest included in the CDM. Using this approach, figure 4.8 suppliers can also be observed at the regional level. reveals that if emission levels can be interpreted as an Within the LCR the market is clearly dominated by indication of potential supply to the CDM, Brazil, Brazil and Mexico, both in terms of absolute numbers of Mexico, and the rest of the LCR are almost "on tar- CDM projects, as well as in volume of CERs. From get"--if anything, Brazil is slightly oversupplying either perspective the two countries represent more than 60 percent of the supply from the LCR (figure 4.9), compared to a share of 55 percent in the region's emis- FIGURE 4.7 sions, excluding land-use change. This over performance Cumulative 2012 Certified Emission Reductions from the Clean of Brazil and Mexico could be attributed primarily to Development Mechanism Pipeline, by Country/Region of Origin their size, which allows them to support industries that 45 MtCO e 2 87 MtCO e 719 MtCO e 1,520 MtCO e 2,367 MtCO e 2,640 MtCO e 2 2 2 2 2 have the potential for projects entailing sufficiently 31 18 20 16 17 16 large emission reductions to justify the transaction costs involved in the CDM. This category of projects was ini- % of total 18 15 15 31 21 1 tially made up mainly of projects to reduce HFC-23 54 18 32 47 53 54 emissions. However, more recently, renewable energy, 11 methane capture from landfills, and agroindustries have 32 10 15 16 8 8 9 7 7 also become attractive project types for taking advan- 03 04 05 06 07 08 tage of the CDM in the LCR (see figure 4.9). 20 20 20 20 20 20 Brazil Latin America except Brazil China India Other In summary, patterns of over- or undersupply in car- Source: World Bank staff calculations using data from the Clean bon markets (with respect to countries' shares in GHG Development Mechanism Pipeline database published by UNEP Riso, June 2008. emissions) are likely to reflect the relative availability of Note: MtCO2e = million tons of CO2 equivalent. large-scale, low-cost, and low-risk mitigation projects. 86 M I T I G AT I O N E F F O RT S : M O V I N G B E Y O N D T H E F I R S T G E N E R AT I O N O F E M I S S I O N R E D U C T I O N S FIGURE 4.9 Clean Development Mechanism Portfolio in Latin America and the Caribbean Region, by Country, 2012 Certified Emission Reductions Number of CDM projects in Latin America Volume of CERs until 2012 in Latin America by country by country Ecuador Guatemala Ecuador 2% Others 1% Guatemala 3% Honduras 2% Others 7% 3% Honduras 7% 1% Peru 3% Brazil Peru 40% 3% Argentina Brazil 4% Argentina 45% Colombia 8% 4% Colombia 6% Chile Chile Mexico 10% 8% Mexico 26% 17% Source: Clean Development Mechanism Pipeline database published by UNEP Riso, June 2008. For example, China's larger share of the carbon market whose share in 2012 CERs is 34 percent. The share of compared to its share of developing countries' emissions renewable energy in the LCR's portfolio is comparable would be a reflection of the large number of projects in to that found in Asia and probably commensurate with that country that meet the aforementioned profile. In the mitigation potential of this sector in the region, fact, as argued below, the limited participation of small at least if large hydroelectric projects are excluded.11 and medium countries in the CDM, to a large extent the Besides hydros, the sugarcane industry's use of bagasse result of the small scale of their mitigation projects (rel- comprises most of the remainder of the CDM renew- ative to CDM transaction costs), has been one of the rea- able energy projects in the region and will likely con- sons for introducing the option of registering programs tinue to do so. of activities--as opposed to single projects--in the con- Other major categories of emission reduction projects text of the so-called programmatic CDM. in the region are methane capture from landfills, agricul- ture, and the emerging field of sewage treatment.While LCR's CDM portfolio by sector projects aimed at capturing landfill gases represent only An analysis of the LCR's current CDM portfolio by sec- 14 percent of the LCR portfolio, they are responsible for tor indicates some issues of concern. Industrial gases 31 percent of the region's 2012 CERs. The average size (HFC-23 and N20) continue to have a 17 percent share of these projects is larger than in Asia, where the share of in 2012 CERs despite representing only 2 percent of this project type is similar in terms of both number of the region's CDM projects. These shares are even higher projects and volume of 2012 CERs. As for CDM projects in Asia, where industrial gases account for 31 percent of in the agricultural sector, they represent less than 1 per- 2012 CERs (figure 4.10). The potential of this type of cent of Asia's portfolio but 22 percent of LCR's portfolio. project, however, will decline in the future, as most Looking forward, there are still many undeveloped major industrial gas projects have now been tapped and landfills and agroindustry opportunities in the region. are being gradually balanced out by other types of pro- However, sites that may seem ripe for development jects. Today's portfolio also shows that 54 percent of the may yield fewer reductions than expected for a variety LCR's projects are in the area of renewable energy, of technical reasons. Unlined and unsorted landfills 87 L O W- C A R B O N D E V E L O P M E N T : L A T I N A M E R I C A N R E S P O N S E S T O C L I M A T E C H A N G E FIGURE 4.10 Clean Development Mechanism Portfolio in Latin America and the Caribbean Region and Asia, by Sector, 2012 Number of projects in Latin America by type Volume of CERs until 2012 in Latin America by type Demand- HFC & N2O HFC & N2O side EE reduction reduction 2% 2% Demand- 17% Supply- side EE side EE 2% 3% Fuel switch Fuel switch 1% Renewables 3% 34% Renewables Landfill, etc. 54% 14% Landfill, etc. 31% Agriculture Agriculture 11% 22% Number of projects in Asia by type Volume of CERs until 2012 in Asia by type Fuel switch HFC & N2O 3% reduction Agriculture HFC & N2O Fuel switch 2% 1% reduction 8% 31% Demand- side EE 6% Renewables Landfill, etc. Demand- Renewables 33% 9% side EE 66% 1% Supply-side EE Landfill, etc. Supply- 13% 13% side EE 13% Source: Clean Development Mechanism Pipeline database published by UNEP Riso, June 2008. Note: EE = energy efficiency. are susceptible to leakage of methane and low organic region's main contributions to global mitigation efforts content to produce methane (Zeller 2008). Agroin- would be a decrease in deforestation rates. However, dustry methane capture success depends on the pH, activities that reduce emissions from deforestation are temperature, and antibiotic and water content of the not eligible under the current modalities of the CDM. excrement, which is determined by the relationship of Land-use change and forestry assets are currently lim- the farmer, the veterinarian with the project developer ited in the CDM to afforestation and reforestation (Lokey 2009). For these reasons, despite the high activities. Discussions are underway about the role that global warming potential of methane, the CDM has emissions from deforestation may have in a post-2012 not provided a sustainable solution to the burgeoning regime, but until then that mitigation potential-- urban waste management problem. perhaps the largest of all sectors for the region-- However, the aspect that stands out most clearly in remains unleveraged by carbon finance. the analysis of the LCR portfolio is the absence of two The second sector that is clearly underrepresented asset classes that represent high emission levels in the in the region's CDM portfolio is transportation. As region. The first of them is the reduction of emissions discussed below, transportation is the sector with from deforestation. There is no doubt that one of the the largest share of LCR's energy-related emissions. 88 M I T I G AT I O N E F F O RT S : M O V I N G B E Y O N D T H E F I R S T G E N E R AT I O N O F E M I S S I O N R E D U C T I O N S However, the potential of this asset class in the CDM is industrialized countries are necessary to sustain carbon curtailed by the lack of methodologies. Currently there markets. The recent proposal of the European Union is only one approved CDM methodology in the trans- for the Third Phase of the European Trading Scheme portation sector (rapid transit lanes as implemented by (ETS) severely limits the use of the CDM for the pur- the Transmilenio project in Bogotá, Colombia). Several pose of compliance with European regulations unless other types of transportation methodologies are under an acceptable multilateral agreement is reached. More- preparation (construction of underground transporta- over, even if such an agreement materializes, the tion systems, use of biofuels, and so on) but until they Third Phase of the ETS would only marginally expand are approved, transportation will remain underrepre- the use of the CDM. The proposal has not been rati- sented in the CDM portfolio of the region, despite the fied by the European Commission, but the potential fact that it is one of the major emitting sectors. ceiling on demand for CERs has already had a stifling Finally, the aforementioned problem of relatively effect on market optimism. Should it be carried high transaction costs limiting the participation in the through, the ceiling could result in an increased CDM of projects with few emission reductions, particu- emphasis on projects with short lead times and pro- larly in small and medium countries, has a particularly jects where the financial closure does not strictly dampening effect on projects in the area of energy effi- depend on the forward sale of emission reductions. ciency. Indeed, by their own nature these projects tend This means that until the uncertainty regarding the to be dispersed among many small sites, although this future of the CDM is significantly reduced, carbon could be less of problem in large countries (where each finance will have limited influence on investment site could be of a large scale). Thus, energy efficiency decisions for large-scale infrastructure projects with projects represent almost 20 percent of Asia's CDM long gestation periods that have the potential to pipeline, compared to less than 5 percent in the LCR. deliver a large quantity of emission reductions. In the LCR, where many CDM projects require high and Barriers to the expansion of the CDM in the LCR long-term investments, the absence of a long-term The decreasing participation of the LCR in the carbon market signal is already being reflected in the CDM can be traced to several factors. An early 2006 dwindling of CDM transactions. survey of market participants12 identified the follow- A third key barrier to the development of CDM ing strengths in the LCR, as compared to other regions projects in the LCR is the lack of concerted CDM of the world: better understanding of the CDM pro- strategies. Only a very few countries in the region (for ject cycle, more solid project design documents example, Brazil underway, Mexico) have a concerted (PDDs), higher participation of the private sector, mitigation strategy, and in most cases this strategy more knowledgeable local consultants to prepare PDDs, does not involve any specific measure to boost CDM and clear mandates from respective governments to utilization. During the past decade, however, in the actively engage in the CDM. However, the same sur- context of the National Strategy Study Program sup- vey pointed to the fact that the region was losing its ported by the World Bank, several LCR countries first mover advantage in the market, and identified took advantage of external technical assistance to the following policy and regulatory weaknesses in the identify the best way to implement CDM projects. LCR: major differences in procedures among DNAs in Many of the initial CDM portfolios were drafted the region, more host country requirements than through this initiative but further follow-up and com- other regions, and slower national approval processes. mitment from usually divorced public and private In addition, the survey mentioned the region's lower sectors prevented them from going much further. A emission reduction potential as compared to Asia. remarkable exception to this was Chile, where an Another critical factor driving LCR's declining unusual synergy between the private sector and the market share in the CDM is the uncertainty regarding government served as a framework for the promotion the post-2012 regime. Long-term commitments by of CDM projects by business organizations, such as 89 L O W- C A R B O N D E V E L O P M E N T : L A T I N A M E R I C A N R E S P O N S E S T O C L I M A T E C H A N G E the Manufacturers Society and the Chilean investment are heavily discounting the carbon revenue stream, in promotion agency. part due to lack of knowledge or uncertainties regard- A fourth issue is the lack of appropriate CDM ing the carbon market, and will not consider Emission methodologies. As discussed previously, several asset Reduction Purchase Agreements (ERPAs) as part of classes that are critical to the region's abatement collateral or guarantees to finance a project with cli- potential have not been incorporated into the CDM. mate-friendly technologies. Thus the majority of CDM Land-use change and forestry assets in the CDM are projects are either financed on the balance sheet or limited to afforestation and reforestation activities, financed without taking into account potential carbon and even those are restricted in size and type. The finance revenues, which directly restrict the size of the issue is compounded by the fact that there is a lack of projects that can be brought to the carbon market. demand since the European Union ruled out forestry Finally, a barrier to CDM development in the LCR projects from the sectors eligible as offsets in the ETS. that has already been mentioned is the lack of aggrega- As also mentioned previously, in the transport sector tion possibilities, which prevents taking advantage of there is only one approved methodology. Broader and emission reduction projects that are individually small less onerous methodologies have to be developed for in size and are dispersed among many sites. The CDM mass public transit, as well as to support the switch modalities and procedures have been implemented from fossil fuels to liquid biofuels for vehicles. mostly on the basis of single mitigation sites that offer A fifth problem is that public enterprises remain, at a relatively high volume of emission reductions per site. least in the LCR, for the most part unaware or unwill- This practice benefits larger countries and the highest- ing to participate in carbon markets. In this respect, emitting sectors, and disfavors smaller economies with some of the limitations faced by these companies have lower mitigation potential as well as those sectors in to do with issues related to data disclosure and other which the mitigation potential is dispersed, such as procedural constraints. State-owned utilities, for exam- energy efficiency, distributed rural energy, and trans- ple, are usually not allowed to consider CDM revenues portation. As discussed in the following section, how- in their least-cost planning process. As a result, CDM ever, the newly introduced programmatic CDM offers projects that hope to make the financial additionality the possibility of aggregating and structuring many argument cannot be pursued (Mayorga 2007). Further- small mitigation efforts. This could allow smaller coun- more, state utilities must declare all major capacity tries without large emitting facilities to take advantage additions in their future expansion plans, which makes of the CDM by aggregating in a single program a large the additionality argument complex, as expansion plans number of small projects which, together and over a are the basis for business-as-usual scenarios (Mayorga period of time, could have the potential to achieve sig- 2007). Finally, state-run utilities have little incentive to nificant emission reductions. engage in the complex CDM process since the regulator determines the tariff calculation that will dictate the The role of development banks in LCR's carbon state utility's profits. In fact, the Public Utility of markets: the World Bank Medellín, Colombia, was audited for participating in Mulitilateral development banks have had an active the CDM: the regulator questioned why the prices the role in fostering the participation of LCR in the CDM. utility received for the sale of CERs were so low and The World Bank initiated its activities in carbon why the process took so long (Vélez 2007). finance in 1999 with one initial Prototype Carbon There has also been a relative absence of the domestic Fund and has since expanded its fund management to financial sector in the market for CDM credits. In addi- nine funds and facilities. These funds are public or tion to the well-known reluctance of banks to lend for public-private partnerships managed by the Carbon renewable energy or energy efficiency projects, com- Finance Unit (CFU) of the World Bank. Unlike other mercial banks in the region have not recognized CER Bank development products, the CFU does not lend revenues as a bankable income stream. At best, banks or grant resources to projects, but rather contracts to 90 M I T I G AT I O N E F F O RT S : M O V I N G B E Y O N D T H E F I R S T G E N E R AT I O N O F E M I S S I O N R E D U C T I O N S purchase emission reductions. These purchases are In addition, PLAC has an emissions reduction purchas- akin to commercial transactions with the fund paying ing contract from the government of Spain for a total for emission reductions annually or periodically once of 9 million tons, 3 million of which have been com- they have been verified by a third-party auditor. mitted to LCR projects. PLAC has invested US$1.5 These carbon funds and facilities are capitalized by million in technical cooperation and capacity building government and private sector investors from industri- in the region. alized nations that are under emission reduction com- mitments and are interested in the expansion of the The Inter-American Development Bank carbon market. The funds under World Bank manage- The Inter-American Development Bank created a Sus- ment have a total capitalization of US$2 billion, most tainable Energy and Climate Change Initiative of which has been channeled through the CDM. Of this (SECCI) in March of 2007, with an initial capitaliza- total, approximately US$96 million or 5 percent has tion of US$10 million. The goal of this initiative is to been invested in emission reductions sourced by pro- support the LCR in finding economically and environ- jects in LCR countries. Table 5.1 provides the break- mentally sound energy solutions. SECCI focuses on down by fund. Other than the obvious attractiveness of financial solutions and will complete its task by help- higher volume markets, there is no specific reason why ing renewable energy and energy efficiency projects the LCR share is so low. However, it is interesting to achieve financing, removing institutional barriers and remember that the LCR represents 5 percent of the promoting novel policy ideas, making sustainable world's energy-related emissions (and land-use reduc- energy investment and financing tools more main- tions are virtually excluded from the CDM), emphasiz- stream and accessible, utilizing the carbon finance ing the previously discussed relationship between market, addressing adaptation needs, and forming new emission levels and mitigation potential. partnerships with both the public and private sectors. In the face of the IPCC Fourth Assessment Report's call for global mitigation scale-up, the World Bank Moving Beyond the First Generation of has recently launched a series of new financial instru- Mitigation Efforts ments that intend to jumpstart a second generation of For LCR, as for any of the other developing countries, mitigation activities in the developing world. These the architecture of the post-2012 climate regime is instruments have the participation of other multilat- going to be critical. As currently designed, the CDM eral banks and are discussed below. cannot deliver LCR's potential to reduce its GHG emissions in a cost-effective way. Appropriate design The Andean Development Corporation of the new incentives to mitigate could help resolve In 1999 the Andean Development Corporation estab- this. There are two prominent issues for LCR. First, lished the Programa Latino Americano del Carbono from the perspective of high-volume, cost-effective (PLAC) to support the development of potential CDM mitigation and critical biodiversity protection, the projects in the LCR region, as well as to offer capacity new chapter of the regime must incorporate REDD. building and strengthen climate change institutions in Second, from the perspective of long-term low-carbon all shareholder countries. The program has recently (sustainable) economic growth, the region needs also begun to develop innovative financial instruments incentives to significantly shift the carbon intensity of focused on renewable energy and energy efficiency. investments that will be made over the next decades PLAC managed an emissions reduction contract for and that will have direct implications on energy- the government of the Netherlands for a total of 77 related emissions (for example, from power and trans- million euros, and has successfully delivered the corre- port). Many of those investments are long lived, and sponding 8.7 million tons of certified emission reduc- as discussed, they will lead to significant increases tions. These stem from 19 mitigation projects in Latin in the LCR's energy-related emissions, at least in a America and have been channeled through the CDM. business-as-usual scenario. Avoiding the lock-in of 91 L O W- C A R B O N D E V E L O P M E N T : L A T I N A M E R I C A N R E S P O N S E S T O C L I M A T E C H A N G E such technology-related emission growth is critical needs will be almost 60 percent higher in 2030 than for LCR. they are now," (IEA 2007) with well more than two- It is as yet unknown whether the post-2012 climate thirds of the projected increase in emissions coming regime will continue to rely exclusively on market- from developing countries. However, under an alterna- based financial instruments to mobilize emission tive policy scenario, global energy trends could reductions in developing countries, or if nonmarket- markedly improve "if countries around the world were based mechanisms, for example, abatement fund(s) to implement a set of policies and measures that they (discussed further on), will be added. There are, how- are currently considering or might reasonably be ever, two elements that are clear: mitigation cannot expected to adopt" (IEA 2007). While it is clear that continue to be pursued only on a project-by-project policies are critical for the success of the post-2012 basis, and climate friendly policies need to be incorpo- regime, they have had an evolving treatment within rated into future financial mechanisms. the CDM. First, the CDM was created as a project-based instru- ment, and we must go beyond that now. Restricting the Additionality and the issue of perverse incentives CDM to emission reductions from single-point sources in the CDM has curtailed its potential to promote the needed sector- In order to have a substantial impact on the GHG wide transformation, attained by cost effectively chan- emissions of developing countries, mechanisms, such neling capital and know-how to decarbonize carbon as the CDM, would have to be able to help transform intensive sectors, such as energy, transport, and infra- overall development policies and make them more cli- structure. The project-by-project approach cannot stim- mate friendly. One important obstacle for achieving ulate technology development and underwrite the risk this objective through the CDM has been the ambigu- of major scale-ups in R&D in low-carbon/zero carbon ity on how to treat policies with respect to the project technologies. From a financial perspective, project- baseline. If climate-friendly policies that had already based CDM cannot stimulate an adequate and reliable been announced by developing countries at the time of new source of risk capital to finance technology shifts project submission are considered part of the baseline and required policies/incentives on the scale of whole or business-as-usual scenario, the emission reductions economies. It has yet to provide the essential investment to be achieved by the potential project can be dimin- climate of regulatory certainty and manageable business ished to the point of making the project nonviable. risk to ensure that a stream of anticipated CERs is bank- While environmental integrity must be main- able collateral for financing specific projects. Without tained, this is problematic for several reasons. First, that assurance, it is also unable to finance rapid expan- as argued by Heller and Shukla (2003), baseline sion of already commercially proven, leading-edge scenarios are often difficult to determine because they lower carbon power and infrastructure technologies hinge on a range of policy decisions that are not yet (Figueres and Newcombe 2007).13 The transaction costs sufficiently settled. As a result, the execution of the associated with a project approach also make it difficult corresponding policies is in many cases uncertain and to take advantage of small-scale reduction opportuni- one could argue that including them in baseline ties, even when they are significant in the aggregate. scenarios--and thus failing to support them through Second, decarbonization of the key sectors will not such mechanisms as the CDM--would amount to occur without the necessary regulatory framework, and missing an opportunity for providing critical further thus future financial mechanisms need to explicitly incentives for the implementation of climate-friendly encourage climate-friendly policies. The importance of policies. More generally, whereas many climate-smart policies is not a recent discovery. The 2004 World development policies could be justified solely on the Energy Outlook published by the International Energy basis of their domestic benefits, explicitly recogniz- Agency warned that "if governments stick with the ing their contribution to climate change mitigation policies in force as of mid-2004, the world's energy could be useful for gathering additional political and 92 M I T I G AT I O N E F F O RT S : M O V I N G B E Y O N D T H E F I R S T G E N E R AT I O N O F E M I S S I O N R E D U C T I O N S financial support, and ultimately for reinforcing their standards), provided that they were enacted after the chances of success. adoption of the CDM Modalities and Procedures in At least until 2005, the additionality requirements November 2001. The issue, however, is far from being of the CDM created perverse incentives for govern- settled, as the application of the new guidance for the ments in host countries, in some cases leading them definition of baseline scenarios may be hampered by to delay the issuance of climate-friendly policies (Ellis methodological challenges associated with disentan- 2006). In other words, countries with the least climate- gling the effects of various policies. Moreover, as argued friendly policies were implicitly rewarded, while those by Ellis (2006), the new guidance explicitly allows for that were more proactive ran the risk of having most of either exclusion or inclusion of recent policies and their mitigation projects excluded from the CDM regulations in baseline scenarios. In summary, while (Figueres 2004). As a result, countries had an incentive progress has been made in addressing the trade-offs to keep their climate-friendly policies in the realm of raised by the additionality requirement of the CDM, plans and programs and to not take the additional step LCR countries need to closely monitor developments in of embedding them into their official regulatory this area so as to make sure that the mechanism does framework. This was reportedly the decision made by play its intended role of supporting more climate- Colombia during 2003­04, following countrywide friendly development policies in the region. consultations aimed at identifying potential CDM projects and low-carbon policy options in the sectors Climate mitigation and sustainable development of transport, energy, and forestry (Hinostroza et al. under the CDM 2007). Another example, in this regard, is Costa Rica's Despite the considerable resources channeled through 1995 requirement that privately generated power stem the CDM toward climate-friendly projects in develop- from renewable sources: while this measure has con- ing countries, there are some concerns about the abil- tributed to decarbonizing the country's energy matrix, ity of the mechanism, under its current governance the CDM Methodology Panel has questioned the structure, to contribute to its sustainable develop- additionality of private hydroelectric plants and ment objective. The CDM modalities and procedures thereby severely limited Costa Rica's participation in defined in the 2000 Marrakech Accords are silent the CDM.14 with respect to the criteria for assessing the contribu- Fortunately, in November 2005 the Executive tion of CDM projects to sustainable development Board of the CDM issued new guidance on how to objectives, which are to be defined by each of the take into account national policies when calculating a DNAs to be set up by developing countries in order to CDM project's baseline, which to a large extent elimi- evaluate CDM projects and issue national approval nated the perverse incentives for host countries to letters. From the point of view of developing coun- adopt carbon-friendly policies. The new guidance tries, the lack of standardization of the sustainable excludes from baseline scenarios climate-harmful development criteria may have the advantage of mak- policies and regulations issued after the adoption of ing explicit their sovereign right to determine their the Kyoto Protocol in December 1997, thus eliminat- development priorities and strategies. However, this ing the incentive for host countries to inflate their aspect of the Accords has also implied a lack of inter- claims for emission reductions by means of enacting national guidance on how to achieve and monitor the policies that favor more emission-intensive technolo- sustainable development objective of the CDM. In gies or fuels. practice, not all host countries have made explicit In addition, the new guidance allows for the exclu- their sustainable development criteria for assessing sion from baseline scenarios of policies or regulations CDM projects, and among those who have established that give a comparative advantage to lower-emission those criteria there is considerable heterogeneity with intensive technologies (for example, through subsidies regard to their level of stringency. Moreover, DNAs to renewable energy or more stringent energy efficiency tend to interpret the requirement that CDM projects 93 L O W- C A R B O N D E V E L O P M E N T : L A T I N A M E R I C A N R E S P O N S E S T O C L I M A T E C H A N G E should help achieve sustainable development in terms reforms across entire sectors--for example, energy, of the project's congruency with the existing legal transport, agriculture, and forestry. framework and sectoral guidelines, most of which are One way of implementing such sectorwide not carbon friendly (Figueres 2004). approaches is to broaden the market mechanism to A second fundamental weakness of the CDM, in include reductions obtained by developing countries terms of its ability to promote sustainable develop- while pursuing climate-friendly "development-first" ment, is related, somewhat ironically, to its main policies--not unlike the way in which domestic emis- strength as a mechanism to support reductions in sion reductions of industrialized countries are counted GHG emissions, namely, the fact that it uses market toward their commitments under the Kyoto Protocol forces to allocate resources to projects that offer the regardless of their source. One first important step in lowest mitigation costs. Indeed, as shown by Ellis and this direction was the decision to include programs of Corfee-Morlot (2004) and Ellis and Kamel (2007), activities in the CDM, taken in December 2005 at the there is a great variety of project types to reduce GHG first session of the Conference of the Parties serving as emissions, and market forces naturally direct resources the meeting of the Parties to the Kyoto Protocol to those that offer lowest costs and capital require- (COP/MOP 1) in Montreal. The inclusion in the ments, as well as the lowest payback periods and risk. CDM of so-called programmatic CDM project activi- The problem is that those projects that are most ties, along the lines of a proposal made by Figueres attractive under these criteria--for example, brown- et al. (2005),15 has increased the ability of the CDM field "end-of-pipe" projects for HFC, N2O, or CH4- mechanism to support lower carbon-development reductions--are not necessarily those that offer larger pathways, without requiring a renegotiation of the local development benefits. In contrast, projects that basic architecture of the Kyoto Protocol. do have more important co-benefits--including in The decision made in Montreal states that while terms of potential for technology transfer and replica- government policies, regulations, or standards them- bility, such as those in renewable energy, energy effi- selves cannot be submitted as CDM projects, "project ciency, and transport--tend to be more risky and activities under a programme of activities" that imple- involve higher costs and upfront investments, which ment a policy/measure or stated goal can be registered makes them less attractive for CDM investors. as a single clean development mechanism project activ- ity. As argued by Figueres et al. (2005), the decision not From project to sectorwide approaches: to incorporate into the CDM the adoption of a policy programmatic CDM itself is justified within the constraints of the Mar- We recall that a fundamental concern with the cur- rakech Accords that define the CDM as a project-based rent functioning of the CDM is whether its focus on mechanism. Furthermore, even after being officially project-level emission reductions is sufficient for adopted, government policies oftentimes fail to be achieving an adequate engagement of developing coun- implemented, either because of financial or technologi- tries in global mitigation efforts. As argued by Figueres, cal barriers or the government's failure to enforce its Haites, and Hoyt (2005), the CDM's single project laws and regulations. approach makes it unlikely to "catalyze the profound However, the COP/MOP 1 decision does open a and lasting changes that are necessary in the overall door--albeit a small one--to policies. It states that if GHG intensities of developing countries' economies." a policy is implemented through a group or program A more effective approach would entail transforming of concrete activities whose emission reductions can the baselines themselves so as to make development be measured and verified under the rules of the CDM, pathways more carbon-friendly (Heller and Shukla the whole program of activities (POA), then, can be 2003). In this context, rather than focusing on actions submitted as a single project. As defined in the spe- at the project level, mitigation efforts in developing cific guidance issued by the CDM EB in June 2007, a countries have to shift toward promoting policy-based CDM program of activities can be coordinated by a 94 M I T I G AT I O N E F F O RT S : M O V I N G B E Y O N D T H E F I R S T G E N E R AT I O N O F E M I S S I O N R E D U C T I O N S private or public entity, and it may involve the imple- associated with CDM submissions, coupled with the mentation of an unlimited number of voluntary relatively low volume of emission reductions gener- actions. The latter must result in emission reductions, ated by each individual activity or project, would or removal of GHG by sinks, as compared to what often eliminate the possibility of incorporating the would have occurred in the absence of the POA. Pro- small individual stand-alone projects into the CDM. grams stemming from mandatory government poli- However, programmatic submissions could allow for cies are eligible, provided that the POA increases its diluting those transaction costs across many projects level of enforcement (Hinostroza et al. 2007). and, even in less developed small and medium countries, take advantage of the potential for emission reductions Pros and cons of programmatic CDM associated with the implementation of national or Traditional CDM modalities already allowed for the sectorwide programs. bundling of stand-alone projects for registration pur- As of September 2008, only four POAs were in val- poses and the December 2005 CDM guidance incorpo- idation: a solar home systems program in Bangladesh, rated the possibility of bundling large-scale projects methane capture in swine farms in Brazil, compact flu- (Ellis 2006). However, when using "bundling" as a orescent lights in Mexico, and solar water heaters in registration option, the sites of all projects have to be South Africa. The slow uptake of this new registration specified ex-ante and all projects need to take place at opportunity is probably due to the fact that the modal- the same point in time (Figueres and Philips 2007). ities and procedures are still not well understood and The bundling approach is thus not well suited to dis- to the reticence of DOEs to engage in POAs because of persed activities that are the result of a large number a perception of undue liability--for example, a fear of decisions made over a period of time, for instance, that they would be held responsible for the "erroneous by households, offices, or factories in the context of inclusion" of project activities that do not comply with energy efficiency incentives. In particular, it may not the inclusion criteria stipulated in the project design be possible to accurately predict at the outset the level document. Faster deployment of the pCDM approach of GHG emission reductions that will be achieved may also point to the need to better address compli- through a particular public sector incentive scheme or cated methodological issues in the context of pCDM private initiative. While this would not have been pos- projects--for example, leakage, baseline, double- sible under traditional CDM, programmatic CDM counting, and monitoring (Ellis 2006). However, once allows for open-ended registration whereby the entity the initial hurdles are overcome, pCDM will continue coordinating the program can add subsequent emis- to be limited in its scope as long as the current restric- sion reductions during the duration of the POA, for a tion to one single methodology remains. Indeed, this period of up to 28 years in the case of energy-related requirement limits the potential for supporting large- programs and 60 years in the case of afforestation and scale initiatives that involve system wide improve- reforestation programs. In other words, when using ments that may require the combination of several programmatic CDM (pCDM), one does not need to CDM methodologies. specify ex-ante all the constituent activities of a POA. As argued by Figueres et al. (2005), the program- Potential for implementing programmatic CDM matic approach is especially relevant in the areas of in the LCR energy efficiency and fossil fuel switching. Indeed, in Despite these difficulties, studies undertaken by the these areas the deployment of carbon-friendly tech- World Bank show that there is a significant potential nologies usually does not occur on an individual basis for deploying pCDM projects in Latin America. In but rather by multiple coordinated actions executed Peru, for instance, Hinostroza et al. (2007) show that over time, often by a large number of households the most promising options are in energy efficiency in or firms as the result of a government measure or a the public sector, small landfill programs, solar energy voluntary program. Moreover, the transaction costs in the highlands, and industrial boilers. The latter 95 L O W- C A R B O N D E V E L O P M E N T : L A T I N A M E R I C A N R E S P O N S E S T O C L I M A T E C H A N G E project, for instance, is estimated to have the potential developing countries. By assigning a CER value to for generating a yearly GHG emission reduction of reductions achieved under a program of activities, the more than 600,000 tCO2e. More generally, the pCDM regime is providing the first necessary albeit insuffi- approach allows for dealing with several of the obstacles cient incentive for developing countries to adopt and that limit the deployment of energy efficiency pro- implement climate-friendly policies and measures. grams, which are considered the single largest source of However, in the context of an urgent need to scale up low-cost potential reductions in GHG emission reduc- mitigation, a financial instrument that operates with tions over the next decades (IPCC 2007). In particular, modalities and procedures that were designed with a end-use energy efficiency improvements account for project by project logic may not be able to leverage two-thirds of energy-related abatement potentials (EIA the sectorwide transformation that is necessary. It is 2006). One example is the conversion of the inefficient possible that the market mechanism will have to and contaminating public transportation systems in the evolve further in the direction of actively promoting megacities of many developing countries, which could enabling policies that will influence private invest- be accompanied by a reduction in the excessive and ment and shift investment patterns. inefficient use of private vehicles (Figueres 2007). Among the advantages of using pCDM for sup- Post-2012 climate finance porting energy efficiency programs is the possibility Over the past few years a number of proposals have of offering guaranteed financial revenue to households emerged on potential market and nonmarket mecha- or businesses that invest in appliances or equipment nisms for the post-2012 period that would share with that reduce GHG emissions. This approach can thus the CDM the dual objective of supporting sustain- help overcome the "split incentive" barrier to energy able low-carbon development and achieving climate efficiency programs, which is derived from the fact change mitigation in developing countries. These that those who pay for the costs of the corresponding proposals have emerged both in the context of formal technologies--for example, landlords who want to negotiation processes and as a result of the large keep building costs as low as possible--are often not amount of research, analysis, and informal discus- the same as those who benefit from them--for exam- sions on future regimes that have taken place during ple, tenants who pay the energy bills (Figueres and recent years.16 Two particularly promising groups of Philips 2007). By using the expected revenues from proposals encompass the so-called policy-based and the sale of CERs to be generated by the program to sectoral approaches. compensate those who pay for the more efficient tech- nologies--for example, landlords or developers--the The policy-based approach pCDM approach could help align their incentives This approach centers around providing abatement with those of the users who benefit from the energy funding to countries that adopt binding or nonbind- savings. As a by-product, the use of pCDM in energy ing policies, voluntary or mandatory standards that efficiency programs can contribute to the standardiza- reduce GHG emissions, even if they are primarily tion of national procedures for reporting GHG emis- aimed at sustainable development objectives. On the sions to DNAs--standardization is a must given the one hand, developing countries would be expected to large number of participants in those programs--thus make nonbinding commitments in the form of vol- contributing to the strengthening of the environmental untary pledges of either emission growth controls-- governance of host countries (Hinostroza et al. 2007). for example, as in a proposal by the South-North dialogue (Ott et al. 2004)--or in the form of policies From programmatic CDM to broader sectoral and that they would pledge to implement--such as in policy-based mitigation the Sustainable Development Policies and Measures Programmatic CDM is the first opening toward (SD-PAM) proposal originally suggested by Baumert policy-based and sectorwide emission reductions in and Winkler (2005). 96 M I T I G AT I O N E F F O RT S : M O V I N G B E Y O N D T H E F I R S T G E N E R AT I O N O F E M I S S I O N R E D U C T I O N S The purpose of SD-PAMs is to capture the poten- country-specific mitigation commitments (Sawyer tial co-benefits of local sustainable development and 2008). Motivated by the first type of concerns, one promote them via the multilateral climate frame- version of the sectoral approach focuses on unilateral work. SD-PAMs backcast from the desired future country-specific emission reductions commitments. state of development and define more sustainable An evaluation of this proposal focuses on Sectoral (that is, lower emission) pathways to meet those devel- No-Lose Targets (SNLTs). SNLTs are a form of non- opment objectives. The focus is on large-scale policies binding emission targets, according to which develop- and measures, not individual projects. Although cred- ing countries would voluntarily propose some form of iting could be incorporated, typically the SD-PAMs national emission intensity target for the sector in ques- are a nonmarket approach based on international tion, over a commitment or "management" period of funding made available specifically for this purpose. time. The target would be below the business-as-usual Developed countries would support the voluntary projection and it would be negotiated internationally. efforts of developing countries, both financially and The country would reach the crediting baseline through technology transfers. SD-PAMs are well through domestic efforts and would then be allowed to suited for sectors that are important for sustainable sell any surplus emission reductions achieved beyond development (energy efficiency, transport) and those the crediting baseline, but there would be no penalty that have many small emissions sources (for example, for not achieving that baseline.18 households, buildings, and so forth). Countries would typically opt for sectoral approaches Several issues remain open for discussion under SD- where there was a high degree of alignment between PAMs: would countries be allowed to propose the poli- domestic development priorities and climate change cies they choose, or would there be an eligible list of management. In principle, countries could be attracted policies that are supported internationally? How to consider SNLTs in those sectors for which they closely would emission reductions have to be tracked seek significantly scaled-up private sector investment and reported, particularly if it is not used as a market and where the current carbon finance tools could be mechanism? As argued by Cosbey et al. (2007), one of inadequate. Some likely candidates are electricity gen- the main concerns with policy-based approaches is the eration (measured in tons CO2e per MWh generated); difficulty to prove additionality. To deal with this cement, aluminum, or steel production (measured in issue, specific criteria would have to be agreed upon to tons CO2e per ton produced); and "upstream" emis- distinguish between policies that would have probably sions of oil and gas production--for example, gas vent- not been implemented had it not been for the support ing and flaring--(measured in tons CO2e per barrel of of carbon finance. Alternatively, the corresponding oil delivered to refineries or export facilities, or volume emission reductions could be discounted to account for of gas delivered).19 the difficulty in proving their additionality. A second version of the sectoral approach, moti- vated by international competitiveness concerns, would The sectoral approach involve international agreements aimed at leveling Originally proposed by Samaniego and Figueres the playing field for specific industries in order to (2002), the sectoral approach can be seen as an exten- avoid competitiveness gains being obtained through sion of the market mechanism in the sense that it would regulatory arbitrage. This is a special concern for trade- award CERs to developing countries that overachieve exposed energy intensive industries, such as cement, on emission reduction or intensity targets adopted vol- aluminum, and steel. Crediting could be considered untarily for specific sectors.17 The origins of the sec- between companies within the same industry in both toral approach are related either to the previously developed and developing countries. This type of ini- described limitations of the project-based traditional tiative would normally be industry-led and would aim CDM, or to concerns over leakages and negative at engaging a sector on a broad international basis. It is competitiveness effects associated with regional or aimed at industrial sectors that are concentrated in few 97 L O W- C A R B O N D E V E L O P M E N T : L A T I N A M E R I C A N R E S P O N S E S T O C L I M A T E C H A N G E companies worldwide and that are so energy intensive Some considerations about the climate that they alone represent a significant share of emis- finance options sions (Egenhofer et al. 2007).20 A current example is It is still too early to know how the various 2012 climate the Cement Sustainability Initiative (CSI) formed finance options will be designed, how they will relate to under the auspices of the World Business Council for each other, and whether there will be decisions on differ- Sustainable Development. The CSI intends to propose entiated access to them. At present, most of the political industry baselines to be negotiated on a country level. support for the consideration of how to structure miti- A host of other concepts involving mitigation at gation efforts is coming from industrialized countries, the sectoral level have been explored (Bodansky while developing countries are more concerned with the 2004; Baron and Ellis 2006; De Coninck et al. 2007; need for reassurance that appropriate and predictable Fischer et al. 2008). The common focus is to use the climate finance revenues will be on the table. international regime to accelerate the decarbonization Not all the options under consideration would be of a sector by moving from nonregulation to regula- relevant for a market-based mechanism, but those that tion or at least to agreements across the sector. There are could only be effective if there is a demand. Given are, however, a number of practical issues that could the supply of credits already prospectively in the greatly complicate the implementation of the sectoral pipeline from existing CDM projects, demand from the approaches. Egenhofer and Fujiwara (2008) empha- EU-ETS Phase III (2013­20) provides limited extra sizes the fact that benchmarking is very data inten- demand, even if the European Union takes on the 30 sive and may not be realistic in some countries or percent emission reduction target it has proposed for some sectors. Cosbey et al. (2007) point to the chal- 2020 if a comprehensive multilateral agreement is lenge of negotiating adequate international baselines reached. In order to strengthen demand, ambitious that take into account national circumstances and reduction targets of all industrialized countries are balance the risk of free-riding with the need to avoid needed, which is only consistent with the science-based perverse incentives that reward carbon-harmful poli- calls for significant global emission reductions by 2020. cies. Moreover, the negotiating parties would have to On the supply side, the CDM process needs to be agree on whether developed countries could or could cautious about the automatic renewal of projects that not use their contributions to the implementation of have already produced large volumes of credits, such as sectoral programs in developing countries toward the hydroflourocarbon (HFC) destruction projects. their own mitigation commitments, and on whether With the bulk of industrial gases now eliminated by large developing emitters would be able to use their technically sound and cost-effective means, developing sectoral achievements toward their own possible countries could be expected to require their continued future mitigation commitments. elimination as a production standard.21 Continued eli- Sectoral approaches may only make sense for gibility for industrial gases as a compliance asset would larger middle-income countries with world-scale exacerbate existing biases in carbon finance flows to carbon intensive industries where aggregation of middle income industrializing-countries and divert revenue potential provides financial leverage suffi- capital away from decarbonizing their energy supply cient to transform the sector over a 10 to 20-year and infrastructure. period (such as the iron and steel industry and Finally, even if successfully negotiated, it is highly cement industries in China and India, and pulp and unlikely that any of the climate finance approaches paper industry in Brazil). However, while the sec- described previously will deliver, on their own, the toral approach is explicitly mentioned as an option needed mitigation volumes in developing countries, in the Bali Action Plan, some developing countries given the different national circumstances and the have expressed concern that it could be used as a variety of sectors that could achieve emission reduc- "backdoor" strategy to push them into binding tions. It is more probable that countries will have to reduction commitments. use some combination of these, targeting each to the 98 M I T I G AT I O N E F F O RT S : M O V I N G B E Y O N D T H E F I R S T G E N E R AT I O N O F E M I S S I O N R E D U C T I O N S more appropriate national realities and types of miti- would be 490,000 km2 smaller and avoided emissions gation activities, thereby achieving a mutually rein- would be 6.3 billion tons of carbon lower than in a forcing effect. business-as-usual scenario estimated by Soares-Filho et al. (2006).22 The overall cost of such a program Specific challenges associated with reducing would be about US$8.2 billion, or about US$1.3 per deforestation ton of avoided carbon emissions. Reducing deforestation may be one of those types of How does this compare to the opportunity cost of mitigation activities that require special considera- maintaining the Amazon forest instead of switching to tion. The first commitment period of the Kyoto Pro- other possible land uses, such as agriculture and cattle tocol did not include reduced emissions achieved by ranching? Nepstad et al. (2007) estimate that preserv- means of avoided deforestation. This was due in part ing the remaining forests of the Brazilian Amazon-- to concerns over technical issues, including with 3.3 million km2 and 47 billion tons of carbon--would regard to baseline setting and monitoring--that is, to have an opportunity cost of US$257 billion. This ensure the additionality and permanence of emission implies an opportunity cost of avoiding emissions from reductions--and with respect to leakages--that is, deforestation of about US$5.5 per ton of carbon. It the risk that avoided deforestation in some places must be noted, however, that in 6 percent of the total could be compensated by increases in others (Schla- area under study, the opportunity cost of forest mainte- madinger et al. (2007). Moreover, at the time there nance is estimated to be about 17 times higher than in were also concerns with a possible trade-off between the remaining 94 percent. Excluding this area, which the use of this potentially low-cost mitigation option is located closer to the agricultural frontier, the oppor- and the implementation of domestic emission reduc- tunity cost of avoiding emissions through forest main- tions in Annex I countries (Sawyer 2008). More recent tenance would be about US$2.8 per ton of carbon, or international negotiations, however, have moved about US$18 billion for the emissions that would be toward recognizing decreases in deforestation from a avoided through the previously described REDD pro- preestablished baseline as generating credits and/or gram (about 6 billion tons of carbon). As argued by compensations in a post-2012 regime. In particular, Nepstad et al. (2007), part of the difference between the Bali Action Plan explicitly calls for addressing the estimated cost of their REDD program and the "policy approaches and positive incentives on issues opportunity cost of the corresponding avoided emis- relating to reducing emissions from deforestation and sions could be diminished by the consideration of the forest degradation in developing countries." substantial benefits that avoiding deforestation could A conceptual framework for reducing deforestation bring to Brazilian society--beyond the mitigation of rates in the Brazilian Amazon has been proposed by climate change. Nepstad et al. (2007). In their proposal, financial incen- In the context of the climate negotiations several tives would be used to partially compensate forest- different proposals have emerged over recent years based local populations--for example, indigenous with regard to possible global frameworks for reduc- groups, traditional rural populations, and some small ing emissions from deforestation and forest degrada- landholders--and legal private landholders, respec- tion. Perhaps the main distinction between the tively for their "forest stewardship" role and forest con- various proposals is whether developed countries servation efforts. Moreover, a "government fund" would would be allowed to gain credits for their possible be needed in order to compensate the government for contributions to REDD efforts in the developing expenditures above and beyond current outlays, includ- world. Using this approach, Costa Rica and Papua ing for the management of public forests, the provision New Guinea have proposed to incorporate REDD into of services to local populations, and the monitoring of the CDM, thus allowing for the possibility of issuing private forests (including expanded environmental credits to projects or programs that reduce deforesta- licensing). Over a 30-year period, the deforested area tion with respect to some established baseline. 99 L O W- C A R B O N D E V E L O P M E N T : L A T I N A M E R I C A N R E S P O N S E S T O C L I M A T E C H A N G E Brazil, on the other hand, has established a specific potentially lead to the melting of most of the world's ice and "nonmarket" fund dedicated to REDD. The Tropical snow, as well as to sea level rises of 10 meters or more, and losses Forest Fund will channel contributions from Annex I of more than 50 percent of current species. 4. Note, however, that there is a sizable degree of hetero- countries into activities that reduce tropical deforesta- geneity within both groups of countries. Japan and most of tion, but reductions achieved would not count toward Europe, for instance, have emissions of about 10 to 12 tCO2e Annex I mitigation commitments. The fund will per capita, while the United States and Canada emit about award financial incentives, either in the form of pay- twice as much. Similarly, while India's per capita emissions are ments, technology transfer, or capacity building, to below 2 tCO2e, China's are close to 5 tCO2e. countries that lower their deforestation rates below an 5. Data are from WRI (2008): http://cait.wri.org/cait.php (September 9, 2008). established baseline rate. There would be no penalties 6. These could be complemented with government regula- for not meeting the corresponding goals, although tions aimed at addressing various types of market failures that failing to do so could count against future reductions may limit the diffusion of low-carbon technologies--for exam- below the baseline (Sawyer 2008). The fund hopes to ple, lack of information, credit constraints, or the presence of receive donations in the order of US$21 billion by split incentives. 2021. Norway has already pledged US$1 billion to the 7. UNFCCC (2007), Investment and Financial Flows to Address Climate Change. fund. Other proposals have combined aspects of both 8. An agreement would also be needed on whether to look market-oriented and fund-based alternatives. In all only at cumulative per capita emissions or, alternatively, to also proposals, the resources allocated to reducing deforesta- consider total absolute levels of emissions. The latter could be tion are to some extent transformed into financial particularly relevant in the context of stringent stabilization incentives per avoided ton of CO2. However, as noted targets, which would require a strong involvement of the by Strassburg et al. (2008), in order for those financial world's largest emitting nations, regardless of their level of development (Ellis 2006). incentives to be effective in addressing the local drivers 9. Figueres, C. 2004. "Institutional Capacity to Integrate of deforestation, and because of sovereignty issues, the Economic Development and Climate Change Considerations: intranational distribution of the resources to be allo- An Assessment of DNAs in Latin America and the Caribbean." cated to reducing deforestation needs to be decided at Inter-American Development Bank. the country level and is unlikely to be included in 10. In terms of warming potential, 1 ton of HFC is equiva- international REDD mechanisms. lent to 117,000 tons of CO2. 11. Currently the European Union (EU), the main buyer in the market, requires that CERs derived from hydropower pro- Notes jects greater than 20 MW must comply with the guidelines of 1. G-8 is the group of leading economies, which includes the World Commission on Dams (WCD), which adds com- Canada, France, Germany, Italy, Japan, Russia, the United plexity to project registration and practically prevents the reg- Kingdom, and the United States. istration of those projects. Thus the inclusion of large 2. The trajectory shown covers CO2 emissions only, includ- hydropower projects in the CDM has been limited to mostly ing approximately 1.5 GtC of emissions from land use in non- smaller-size plants. However, Annex I DNAs are sovereign Annex I countries in 2000 (note that each ton of carbon while applying its own criteria on whether or not a given corresponds to about 3.7 tons of CO2). The radiative forcing hydropower project complies with the WCD. In an effort to from non-CO2 gases is assumed to decline by about 50 percent bring homogeneity to WCD compliance criteria for CDM pro- by mid-century. jects, the EU Commission foresees the future introduction of 3. Note, however, that even for this relatively conservative an EU guideline on this matter. target, higher rates of warming cannot be excluded. The level 12. Figueres (2006). of expected warming in the hypothesis of meeting this target 13. Figueres and Newcombe (2007). rises from 3°C to 4.9°C when using high end--instead of 14. Similarly, the original interpretation of the Marrakech mode--estimates for the so-called "climate sensitivity" parame- Accords led CDM stakeholders to believe that if a country ter, which measures the expected warming associated with a issues regulations to toughen energy efficiency standards, pro- doubling of GHG concentrations. Stern (2008), for instance, jects aimed at upgrading existing technologies to meet the new using a very similar target of 550 CO2e ppm, reports a 7 percent standards could not be eligible for CDM financing. As a result, probability of temperature increases above 5°C, which could countries could have an incentive to keep their climate-friendly 100 M I T I G AT I O N E F F O RT S : M O V I N G B E Y O N D T H E F I R S T G E N E R AT I O N O F E M I S S I O N R E D U C T I O N S policies in the realm of plans and programs, and to not take the these sectors in industrialized countries for competitiveness additional step of embedding them into their official regula- reasons. See Schmidt et al. (2006) and Center for Clean Air tory framework. This was reportedly the decision made by Policy, International Future Actions Dialogue, August 2006. Colombia during 2003­04, following countrywide consulta- Ecofys/GtripleC, on the other hand, have developed sectoral tions aimed at identifying potential CDM projects and low- proposal templates, the purpose of which is to provide a stan- carbon policy options in the sectors of transport, energy, and dardized tool by which countries can prepare and propose forestry (Hinostroza et al. 2007). crediting baselines without referring to international bench- 15. Among the various precedents to their proposal, Figueres marks. See www.sectoral.org. et al. (2005) mention the "sectoral approach" proposed by 19. Ward (2008). Proponents of the SNLT mechanism Samaniego and Figueres (2002), the "programmatic crediting argue that crediting-baselines be negotiated at the same time mechanism" proposed by Bodansky (2004), and the "policy- as Annex I country targets for post-2012 are being agreed based" mechanisms proposed by Cosbey et al. (2005) and Sterk upon, so additionality would no longer need to be an issue as it and Wittneben (2006). is not for actions taken by industrialized countries that have 16. Cosbey et al. (2007) describe 44 proposals that have been emission-reduction targets. This distinguishing feature of made within and outside of formal UNFCCC processes. Thus, SNLTs is its major strength and at the same time its funda- some of those proposals have come forward in the context of for- mental drawback. The absence of the additionality criterion mal negotiations that are taking place both under the Kyoto suggests it might have the potential for scaling-up invest- Protocol, on possible future commitments beyond 2012--the ments, at least in the appropriate sectors. However, the critical "Protocol track"--and in the context of a nonbinding dialogue prerequisite for data and prepared institutions could mean that on cooperative actions to address climate change by enhancing proposals for SNLTs for some key sectors in some developing the implementation of the UNFCCC--the "Convention Track" countries will not be sufficiently developed at the time it is (Figueres 2007). expected that industrialized countries' targets should be agreed 17. See also Bodansky (2004), Bosi and Ellis (2005), upon. If this were to be the case, it would severely curtail the Figueres et al. (2005), Schmidt et al. (2004), Cosbey et al. potential impact of SNLTs. (2005), and Sterk and Wittneben (2006). The interest in this 20. Egenhofer et al. (2007). approach permeated the political spheres with the 2005 OECD 21. In the case of smaller economies that still have such high-level roundtable on transnational sectoral agreements for facilities, the OECD could consider a grant program to climate policy, the G-8 Gleneagles Plan of Action, and the ensure that they have the incremental funds to install the Major Economies Meetings. required catalysts and incineration equipment and operate 18. Two variations of the SNLTs concept have emerged, one this as per the Multilateral Fund for Phaseout of Ozone by the Center for Clean Air Policy (CCAP) and the other by Depleting Substances. Ecofys/GtripleC. On the one hand, in the CCAP version, inter- 22. As per the estimates of Soares-Filho et al. (2006), current national benchmarks would be featured explicitly as a negotia- trends in agricultural expansion would lead to the elimination tion parameter, that is, to draw links with the performance of of 40 percent of Amazon forests by 2050. 101 CHAPTER 5 LCR's GHG Emissions The LCR has an ample climate mitigation potential emissions. About 70 percent of the latter are related to waiting to be unlocked through increases in energy agriculture, with the remaining associated with waste efficiency and the deployment of low-carbon technolo- and industrial activities. In particular, despite having gies in the areas of energy and land use. As argued in the about 8.5 percent of the world's population and GDP, previous chapter, an expanded climate finance architec- in 2000 the LCR accounted for only 5.6 percent of ture could potentially play a critical role in ensuring global energy-related CO2 emissions (figure 5.1). In that the region's mitigation potential is exploited in a contrast, the LCR's share of global emissions from way that is both equitable and efficient. In order to take land-use change amounted to 31 percent and that of full advantage of this potential, however, international non-CO2 emissions to 15.4 percent. When all GHG transfers of technology and financial resources for emissions are considered--including those from land- mitigation will have to be complemented with appro- use change--the LCR's share of global GHG emissions priate climate-friendly domestic development policies. reaches 12.5 percent. Exploring the specific mitigation technologies and When focusing only on the emissions of developing corresponding policy options available to LCR countries countries, the LCR accounts for 22 percent of the total is the objective of the next chapter. As a preamble to flow of GHG emissions, 14 percent of energy-related that discussion, this chapter maps the unique composi- CO2 emissions, and 30 percent of CO2 emissions from tion and evolution of the LCR's GHG emissions. land-use change (figure 5.2). In all cases, the LCR's Latin America is a relatively minor source of energy- total emissions are below those of East Asia. However, related GHG emissions from the burning of fossil fuels they are above those of the developing countries of but a significant source of GHG emissions from land- Europe and Central Asia, the Middle East and North use change. The LCR's distinctive characteristics set it Africa, South Asia, and Sub-Saharan Africa. apart from the rest of the world. Indeed, the composi- Overall, if all GHG emissions are considered, the tion of its GHG emissions is unique, both with respect LCR's share of developing world emissions (22 percent) to OECD countries and to the rest of the developing is above its share in the total population of those coun- world. First, the LCR has disproportionately high tries (11 percent), and it is comparable to its share in the emissions from land use, land-use change, and forestry GDP of that group (21 percent). The LCR's share in (LULUCF). Second, the LCR has a relatively low share non-CO2 emissions (23 percent) is also close to that in of emissions related to energy supply. developing countries' GDP. In contrast, LCR accounts for only 14 percent of the energy related CO2 emissions Is the LCR Part of the Problem? The of those countries and for 30 percent of their land-use Region's Share of Global GHG Emissions change emissions. Thus, as shown in figure 5.3, the Latin America is a relatively minor source of energy- region exhibits higher emissions per capita than the rest related CO2 emissions but a significant source of CO2 of the developing world, with 10 tons of CO2e per emissions from land-use change and of non-CO2 GHG capita compared with 3.5 for low-income countries, 103 L O W- C A R B O N D E V E L O P M E N T : L A T I N A M E R I C A N R E S P O N S E S T O C L I M A T E C H A N G E FIGURE 5.1 Latin America and the Caribbean Region's Share of Global Greenhouse Gas Emissions, 2000 70 60 52.7 54.1 50 40 37.3 31.0 Percent of total 30 26.2 27.3 22.1 21.8 21.9 19.7 18.2 20 15.4 15.5 13.6 12.5 10 8.5 5.6 2.4 0 ­1.2 ­4.7 ­10 Low-income Middle-income countries High-income Latin America China and countries (excluding Latin America countries and the India ­20 and the Caribbean Region, Caribbean Region China, and India) ­30 Total greenhouse gas emissions (CO2, CH4, N2O, PFCs, HFCs, SF6) Non-CO2 Emissions CO2 emissions from energy CO2 emissions from land use change Source: Climate Analysis Indicators Tool (CAIT), Version 5.0 (2008). Note: HFC = hydroflourocarbon; PFCs = perfluorocarbons. FIGURE 5.2 Greenhouse Gas Emissions by Latin America and the Caribbean Region and Other Developing Regions, versus GDP and Population, 2000 100 6 6 13 14 18 18 14 10 7 6 80 6 44 39 60 36 50 46 Percent 49 40 14 2 17 9 28 3 3 12 20 1 4 30 22 23 21 2 14 11 0 Total greenhouse Non-CO2 Energy- CO2 emissions GDP-PPP Population gas emissions emissions related CO2 from land- US$2000 2000 emissions use change Latin America and the Caribbean Region Europe and Central Asia South Asia East Asia and Pacific Middle East and North Africa Sub-Saharan Africa Source: Climate Analysis Indicators Tool (CAIT), Version 5.0 (2008). 104 LCR'S GHG EMISSIONS FIGURE 5.3 Greenhouse Gas Emissions Per Capita and Per GDP Greenhouse gas emissions per capita Greenhouse gas emissions per GDP (2000, tCO2e per population) (tCO2e /thousand US$, PPP) 15.9 13.6 2.8 10.0 9.1 1.9 6.9 1.4 1.4 4.6 0.9 1.0 4.0 4.1 0.9 0.8 3.5 3.4 2.8 0.6 0.7 0.7 2.8 2.6 2.6 0.6 0.5 0.4 0.6 0.4 2.0 0.5 0.4 1.7 1.3 1.2 1.7 0.9 1.6 0.2 0.3 0.2 0.6 ­0.4 0.0 0.1 0.0 0.0 Total Energy Land-use change Other Total Energy Land-use change Other greenhouse gas greenhouse gas Low-income countries Middle-income (excluding Latin America and the Caribbean Region, China, and India) High-income countries Latin America and the Caribbean Region China and India World Source: Climate Analysis Indicators Tool (CAIT), Version 5.0 (2008). 2.8 for China and India, and 9.1 for other middle- FIGURE 5.4 income countries. However, while LCR's emissions per Greenhouse Gas Emissions by G-8 and Major Developing Countries unit of GDP--about 1.4 tCO2 per 1,000 US$ PPP-- 60 Percent of total global emissions are also above those of China and India (0.9 tCO2e), they 50 48 are below those of low-income and other middle-income 40 countries (respectively, 2.8 and 1.9 tCO2e). In compari- 33 35 30 son with industrialized countries, LCR's emissions are 19 20 20 17 15 37 percent lower in per capita terms and 144 percent 10 7 7 higher as a fraction of GDP. However, when the focus is 3 0 on energy-related emissions, the region's emissions ­1 ­4 ­10 Brazil and China, India, G-8 countries become, respectively, 80 and 25 percent lower than Mexico and South Africa those of industrialized countries. Total greenhouse gas emissions Total CO2 emissions The diversity among LCR countries also adds to (CO2, CH4, N2O, PFCs, HFCs, SF6) the complexity of the region's emissions profile. It is Total CO2 emissions, excluding CO2 emissions from land use change land use change important to note that two large LCR countries-- Source: Climate Analysis Indicators Tool (CAIT), Version 5.0 (2008). Brazil and Mexico--are among the world's top 20 largest GHG emitters. Brazil is ranked fourth when considering all GHG emissions, including those from of the world's total GHG emissions, compared to a land-use change, whereas Mexico is ranked twelfth. 33 percent share for the G-8. The conclusion that can When considering CO2 emissions without land-use be drawn from this general picture of LCR's GHG change, Mexico is ranked eleventh and Brazil four- emissions is that the region's main contribution to teenth. Together with China, India, and South Africa, global emissions is the result of land use, land-use Brazil and Mexico are among the five developing change, and forestry. However, the cases of Brazil and countries with the largest energy-related CO2 emis- Mexico show there is notable heterogeneity across the sions, in absolute levels. As shown in figure 5.4, those LCR, both in terms of the extent and composition of five developing countries account for about one-fourth GHG emissions. 105 L O W- C A R B O N D E V E L O P M E N T : L A T I N A M E R I C A N R E S P O N S E S T O C L I M A T E C H A N G E A different sector composition of GHG emissions more important in the LCR, representing 46 percent Not surprisingly, given the comparisons presented of the region's total GHG emissions, compared to 17 above, the sector composition of the LCR's GHG emis- percent for the world as a whole. Low-income countries sions is quite different from that found in the rest of the have a share of land-use change emissions close to that world (figure 5.5). In contrast with LCR, industrialized of LCR (44 percent). As for other middle-income coun- countries capture more carbon than they release into tries, land-use change (LUC) emissions are negative in the atmosphere through forestry and land-use change China and India and they represent 35 percent of the activities. Having already exhausted most of their nat- emissions of other middle-income countries. The LCR ural forests, industrialized countries therefore exhibit also has a higher share of emissions from the agricultural slightly negative emissions from land-use change. sector, which represents 19 percent of total emissions Emissions from forestry and land-use change are much compared to 8 percent for high-income countries, and FIGURE 5.5 Sector Composition of Greenhouse Gas Emissions, 2000 Total greenhouse gas emissions 100 4 2 3 4 3 8 23 17 80 35 22 44 46 13 11 60 9 30 18 13 24 Percent 9 40 26 19 10 9 5 13 6 10 5 20 10 35 3 26 9 29 27 3 8 9 0 Low-income Middle-income High-income Latin America China and World countries countries (excluding countries and the India ­20 Latin America and Caribbean Region the Caribbean Region, China, and India) Energy supply Transport Residential and commercial buildings Industry Agriculture Forestry Waste and wastewater Greenhouse gas emissions excluding land use change and agriculture 100 3 3 5 4 12 10 90 24 23 26 80 17 29 38 70 11 16 13 60 Percent 33 10 50 11 25 13 18 40 27 7 30 11 46 20 38 37 38 27 24 10 0 Low-income Middle-income High-income Latin America China and World countries countries (excluding countries and the India Latin America and Caribbean Region the Caribbean Region, China, and India) Energy supply Transport Residential and commercial buildings Industry Waste and wastewater Source: Climate Analysis Indicators Tool (CAIT), Version 5.0 (2008). 106 LCR'S GHG EMISSIONS 13 percent at the global level. As for other developing other regions of the world. Not only does the LCR have countries, those with low incomes, as well as China and a higher share of its energy supply produced from India, exhibit higher shares of agriculture in total GHG renewable sources, particularly hydro power (IEA emissions than the LCR--26 and 23 percent, respec- 2006), but the carbon intensity of the region's fossil tively, compared to 19 percent for LCR--while other fuels is lower than that of other regions of the world. As middle-income countries have a share that is closer to seen in figure 5.6, the share of renewable energy sources that of rich countries (8 percent). is 30 percent in the LCR, compared to 20 percent at Even when the focus is only on non-LULUCF emis- the global level. Moreover, while coal accounts for 25 sions, LCR still exhibits a relatively unique emissions percent of the world's energy supply, in the LCR it has profile (figure 5.5). At the global level, as well as in a share of merely 5 percent. This constitutes a signifi- high-income and other middle-income countries, cant difference considering that the carbon content of energy supply accounts for approximately 40 percent coal per unit of energy is 70 percent higher than that of those emissions, whereas in the LCR it represents of gas and 40 percent higher than that of oil. only 24 percent, a share that is closer to that of low- The composition of the LCR's primary energy income countries (27 percent). In contrast, the share supply shows striking differences with the rest of of emissions originating from the transport sector the world. For instance, the share of natural gas in (27 percent) is close to that found in industrialized the LCR's energy matrix has increased over the past countries (25 percent) and much higher than in other 15 years, from 16 percent to 20 percent, bringing developing regions (between 7 and 11 percent). More- the region closer to the world average of 21 percent over, the share of emissions from waste and wastewater (figure 5.6). It is worth noting that most of the (10 percent) is well above that found in high-income increase in the share of natural gas took place at the and other middle-income countries--between 3 and expense of renewable energy. Nevertheless, the com- 5 percent--and closer to that of low-income countries position of the LCR's fossil fuel emissions reveals a (12 percent). significant change in the share of gas fuel emissions, The region's relatively high shares of emissions from which has actually risen from 13 percent to 23 percent transport and waste management are likely the result of intense urbanization. Indeed, 75 percent of the popula- tion in Latin America and the Caribbean already lives FIGURE 5.6 in urban areas (GEF 2009), where most of the travel Composition of Total Primary Energy Supply for Latin America and the Caribbean Region and the World, 1990 and 2004 and waste production occur. The LCR's large volume of emissions from the transport sector is particularly wor- 100 90 19 20 risome as this is the fastest growing sector in terms of 33 30 80 GHG emissions. The International Energy Agency 70 25 25 5 5 projects that CO2 emissions from worldwide vehicles 60 Percent will increase by 140 percent, from 4.6 gigatons in 2000 50 45 40 46 36 35 to 11.2 gigatons in 2050. The vast majority of this 30 increase will take place in developing regions, espe- 20 cially the LCR and Asia, as a result of increased motor- 10 16 20 19 21 ization and vehicle use. 0 Latin America Latin America World, 1990 World, 2004 and the and the Caribbean Caribbean A cleaner energy mix Region, 1990 Region, 2004 The LCR's energy mix also sets it apart from other Gas Oil Coal Renewables developing countries. Indeed, the relatively low per- Source: IEA (2007). centage of emissions from energy supply found in the Note: The LCR figures from the International Energy Agency exclude Mexico. LCR reflects a cleaner energy mix in comparison with 107 L O W- C A R B O N D E V E L O P M E N T : L A T I N A M E R I C A N R E S P O N S E S T O C L I M A T E C H A N G E between 1980 and 2004. Most of this increase has Between 1980 and 2004, electricity demand been at the expense of oil, whose share fell from 73 increased at an annual rate of 4.7 percent in the LCR, percent to 64 percent. The difference between the driven by economic development and major progress in share of solid fossil fuels in the LCR's fossil fuel emis- electricity coverage, which reached 90 percent in 2005. sions in comparison with global figures is striking. In the same period, emissions from the power sector Indeed, solid fossil fuels, such as coal, account for grew at a rate of only 3.7 percent per year. As a result, only 8 percent of emissions in the LCR, compared the carbon intensity of the LCR's power generation was with 30 percent to 50 percent in most regions of the much lower than the world average. Indeed, in 2004 it world and almost 80 percent in China (figure 5.7). represented 261 grams CO2 per kWh (kilowatt hour) Further inquiry into the LCR's electricity generation for the LCR in comparison with 500 for the world mix can help explain the relatively low share taken up (Dussan 2008). by the power sector in the region's energy-related emis- The reasons behind the LCR's success in reducing sions. Looking in more detail at the LCR's electricity the carbon intensity of its power sector by 20 percent, generation mix can also explain why the region's energy despite increasing the share of thermal power genera- sector continues to exhibit relatively low-carbon inten- tion by 3 percent, lies in the region's unique energy sity. As seen in figure 5.8, hydroelectric generation has profile. As illustrated in figure 5.9, the carbon intensity accounted for more than 60 percent of the generation of the power sector generally exhibits a high positive mix for most of the past 25 years. If anything, there has correlation with the use of conventional thermal plants. only been a gradual increase in the participation of However, in the case of the LCR, the lower rate of thermal generation, mostly after power sector reform growth in emissions in comparison with electricity and private participation were introduced in many LCR demand can be traced to the development of cleaner countries, starting in the early 1990s. fuels, such as natural gas, and to improvements in FIGURE 5.7 Composition of Fossil Fuel CO2 Emissions for Latin America and the Caribbean Region and the World, 1980 and 2004 100 2 2 5 4 4 1 4 4 1 11 1 6 3 100 4 90 8 4 8 3 1 24 90 8 34 33 6 80 41 36 80 48 70 70 60 55 Percent 60 64 79 23 Percent 64 50 49 50 73 45 40 40 46 45 30 39 30 44 20 20 33 23 27 10 23 10 20 19 13 13 14 13 0 2 0 1980 2004 a a pe a t st ro ed A ed gi nd as ic ic i Ea an ro er fr Eu nn rE pe n lly ia on Re a a ce an A m Eu e s a Fa dl an ric O A Pl Pl rn id th be me lly M te or ra ra rib A es N nt nt W Ca in Ce Ce e Lat th Gas fuels Liquid fuels Solid fuels Gas flaring Cement production Source: Marland, Boden, and Andres (2007). 108 LCR'S GHG EMISSIONS FIGURE 5.8 hydro-based generation system and a very low-carbon Latin America and the Caribbean Region's Electricity Generation intensity of electricity generation (87 grams CO2/kWh Mix, 1981­2006 in 2004), ended up increasing its carbon intensity as 100 the share of thermal generation increased. In contrast, 90 Argentina and Mexico were able to reduce the rela- 80 tively high levels of carbon intensity of their power 70 64 65 62 58 sectors and at the same time increase the share of 66 60 conventional thermal generation, mainly by develop- Percent 50 ing high-efficiency gas-fired plants and retiring obso- 40 lete low-efficiency oil-fired steam plants through an 5 3 4 4 5 aggressive strategy. Similarly, Central America success- 30 10 12 18 10 10 fully reduced its carbon intensity while increasing 20 21 the share of thermal generation by developing high- 10 18 17 16 14 efficiency diesel engines running with residual oil. 0 1981­85 1986­90 1991­95 1996­2000 2001­06 Finally, República Bolivariana de Venezuela made Hydro-electricity generation Coal generation spectacular progress in reducing its carbon intensity by Natural gas generation Nuclear generation means of decreasing the share of thermal generation Oil-based generation Non-conventional through the development of low-cost generation pro- Source: Dussan (2008). jects mainly in the Caroni Basin. Country-Specific GHG Emission Patterns FIGURE 5.9 Latin America and the Caribbean Region's Carbon Intensity of Brazil and Mexico account for almost 60 percent of Electricity and Share of Thermal Generation, 1980­2006 both the region's total GHG emissions and its GDP. 900 Trinidad and Another 25 percent of the LCR's emissions and GDP Tobago 800 Caribbean are accounted for by Argentina, Colombia, Peru, and 700 Venezuela, R.B. de República Bolivariana de Venezuela (figure 5.10). A 600 Mexico United States similar ranking emerges if one excludes emissions World from land-use change, with the exception of Brazil gCO2 /kWh 500 400 Argentina and Mexico, whose share of the LCR total emissions, Peru China 300 Colombia respectively, falls from 45 percent to 34 percent and South America 200 Canada Central America increases from 13 percent to 21 percent. Emissions from land-use change are responsible 100 Brazil for 46 percent of the LCR's total GHG emissions. 0 0 20 40 60 80 100 However, land-use change emissions are distributed Conventional thermal generation (% of total generation) 1980 2004 heterogeneously across the region. As shown on the Source: Dussan (2008). right side of figure 5.11, Brazil alone is responsible for 58 percent of LCR emissions from land-use change, followed by Peru with 8 percent, and Colombia and the efficiency of thermal plants, mainly by means of República Bolivariana de Venezuela with about 6 retiring old steam turbines and introducing com- percent each. The share of land-use change in total bined cycle gas turbines (CCGTs) and medium- emissions also varies across countries. In five LCR speed diesel engines. countries--Bolivia, Brazil, Ecuador, Guatemala, and Nonetheless, as shown in figure 5.9, the differences Peru--emissions from land-use change are responsi- in emissions from electricity generation across LCR ble for at least about 60 percent of GHG emissions. In countries are striking. Brazil, for instance, due to its contrast, in Argentina, Chile, and Mexico, the share of 109 L O W- C A R B O N D E V E L O P M E N T : L A T I N A M E R I C A N R E S P O N S E S T O C L I M A T E C H A N G E FIGURE 5.10 Composition of Latin America and the Caribbean Region's Greenhouse Gas Emissions, 2000 Total Latin America and Latin America and the Caribbean Region's the Caribbean Region's emissions emissions, excluding land use change Ecuador, 2% Guatemala, 2% Ecuador, 1% Guatemala, 1% Rest of Latin America Chile, 2% Rest of Latin America and the Caribbean Region, 9% Chile, 3% and the Caribbean Region, 10% Bolivia, 3% Bolivia, 2% Peru, 5% Brazil, 45% Peru, 2% Brazil, 34% Colombia, 5% Colombia, 6% Argentina, 7% Argentina, 11% Venezuela, R.B. de 7% Venezuela, R.B. de 9% Mexico, 21% Mexico, 13% Source: Climate Analysis Indicators Tool (CAIT), Version 5.0 (2008); Venezuela, R.B. de, World Resources Institute (2008). FIGURE 5.11 Composition and Share of Latin America and the Caribbean Region's Emissions from Land Use Change, 2000 Mexico 14 Chile 16 Argentina 16 Guatemala, 2% Argentina, 2% Ecuador, 2% Venezuela, R.B. de 37 Chile, 1% Bolivia, 4% Colombia 39 Mexico, 4% Rest of Latin America Colombia, 5% and the Caribbean Region 40 Bolivia Venezuela, R.B. de 58 6% Brazil, 58% Brazil 59 Rest of Latin America Ecuador 60 and the Caribbean Region, Guatemala 68 8% Peru 73 Peru, 8% Share of land use change in total GHG emissions (%) Source: Climate Analysis Indicators Tool (CAIT), Version 5.0 (2008). land-use change emissions is close to 15 percent of to the region's average of 27 percent, constitute another total GHG emissions. variation worth highlighting. Also, the shares of the There are also large differences across countries in industrial sector in Brazil, Colombia, and República the sector composition of non-LULUCF emissions Bolivariana de Venezuela, are situated between 32 (figure 5.12). For example, while the share of energy percent and 39 percent of non-LULUCF emissions supply is relatively low in Brazil and Peru, at, respec- compared with 29 percent for the LCR as a whole. tively, 12 and 7 percent, it is above 30 percent in While emissions from residential and commercial Argentina, Mexico, and República Bolivariana de buildings account for only 11 percent of the region's Venezuela, which have power sectors among the most non-LULUCF emissions, they are responsible for as carbon intensive of the region. The high shares of the much as 24 percent of non-LULUCF emissions in the transport sector in Ecuador and Peru, which make up case of Guatemala and about 16 percent for Argentina, almost 40 percent of non-LULUCF emissions compared Ecuador, and Peru. As for emissions from waste and 110 LCR'S GHG EMISSIONS FIGURE 5.12 Greenhouse Gas Emissions from Non­Land Use/Land Use Change and Forestry, 2000 100 5 7 8 12 14 11 9 14 17 18 15 90 17 15 21 80 29 14 39 19 32 22 27 70 36 16 14 11 60 8 24 Percent 18 8 10 5 9 50 26 8 23 20 38 32 40 22 28 27 29 30 29 39 20 32 33 31 27 25 24 22 22 10 17 12 7 0 gi ica il o de a a ru ia ile r a do az in bi al ic liv Pe on Re er Ch ex m B. nt m Br ua Bo an Am te R. lo M e Ec rg Co ua a, be in A el G rib at zu Ca f L ne e o Ve th est Rd an Energy supply Transport Residential and commericial buildings Industry Waste and wastewater Source: Climate Analysis Indicators Tool (CAIT) Version 5.0 (2008) and Marland, Boden, and Andres (2007). wastewater, they represent 10 percent of LCR emissions FIGURE 5.13 when excluding LULUCF. Nonetheless, their share is Fossil Fuel CO2 Emissions for Selected Latin America and the about 50 percent higher in Bolivia, Brazil, Chile, Caribbean Region Countries, 2000 Guatemala, and Peru. 100 5 7 4 7 3 2 5 6 The composition of energy-related emissions also 90 18 14 9 varies considerably by type of fossil fuel (figure 5.13). 80 44 70 Indeed, whereas the share of emissions from gas fuels is 60 60 68 Percent 23 percent for the LCR as a whole, it reaches 52 percent 50 52 76 in the case of Argentina but only about 10 percent in 40 65 Brazil and Peru. While coal accounts for only 8 percent 30 52 of the region's fossil fuel emissions, it is about twice as 20 32 25 23 high in Brazil and Colombia. 10 11 8 0 a a o ru e l tin bi i .d ic az Pe ex m .B en Br Cross-country differences in emission levels lo M ,R rg Co a A el There is considerable heterogeneity in the levels of zu ne Ve GHG emissions per capita (figure 5.14) across LCR Gas fuels Liquid fuels Solid fuels countries. For example, total GHG emissions per capita Gas flaring Cement production are between 13 and 17 tCO2 in Bolivia, República Sources: Climate Analysis Indicators Tool (CAIT) Version 5.0 (2008) Bolivariana de Venezuela, and Brazil, and below 7 tCO2 and Marland, Boden, and Andres (2007). in Chile, Colombia, and Mexico. The former three countries are also among the region's top per capita There is less heterogeneity in terms of emissions per emitters even if land-use change is excluded, although unit of GDP, with the exception of Bolivia, which out- in this case their emissions per capita are much closer to ranks all countries in the region (figure 5.15). Bolivia those of Argentina, Chile, and Mexico. whose emissions are 7.3 kgCO2 per US$ of GDP 111 L O W- C A R B O N D E V E L O P M E N T : L A T I N A M E R I C A N R E S P O N S E S T O C L I M A T E C H A N G E FIGURE 5.14 Greenhouse Gas Emissions Per Capita for Selected Latin America and the Caribbean Region Countries, 2000 20 17.4 15.8 15 13.4 10.1 9.9 9.9 10 9.6 7.9 8.1 8.0 7.3 7.2 7.5 7.0 6.8 6.6 5.9 6.0 6.4 tCO2 /pc 5.5 5.1 5.4 4.8 5 4.1 4.0 3.2 2.7 2.4 2.7 2.5 1.5 1.0 1.0 0 o a de a a ile ru ia r il gi d al bi do ic tin az liv Re aan Pe Ch on ex m B. m ua en Br Bo te R. lo M an ric Ec rg ua Co a, be me A el G zu rib A ­5 Ca in ne e at Ve th f L o st Re ­10 Total per capita greenhouse gas emissions (CO2, CH4, N2O, PFCs, HFCs, SF6) Per capita CO2 emissions from land use change Total per capita greenhouse gas emissions, excluding land use change Sources: Climate Analysis Indicators Tool (CAIT), Version 5.0 (2008). FIGURE 5.15 Greenhouse Gas Emissions per GDP for Selected Latin America and the Caribbean Region Countries, 2000 9 7.3 7 5 4.2 kg CO2 /US$ GDP PPP 3.1 3 2.7 2.5 2.1 1.9 1.7 1.8 1.7 1.5 1.5 1.1 1.3 1.1 1.0 1.0 1.0 0.8 1 0.8 0.6 0.7 0.8 0.7 0.6 0.4 0.7 0.7 0.6 0.6 0.1 0.1 0.1 e o ia a a ile a or ru gi d il .d al tin bi ic Re aan liv az d Pe Ch on ex ­1 m m .B ua en Bo Br te lo M an ric ,R Ec rg ua Co be me la A G e rib A zu Ca in ne e at Ve ­3 th L of st Re ­5 Total greenhouse gas emissions/GDP (CO2, CH4, N2O, PFCs, HFCs, SF6) CO2 emissions from land use change/GDP Total CO2 emissions excluding land use change/GDP Sources: Climate Analysis Indicators Tool (CAIT), Version 5.0 (2008). 112 LCR'S GHG EMISSIONS (purchasing power parity [PPP]) the equivalent of about East (including India, South Korea, and Indonesia) and five times the region's average. Bolivia is followed by the Middle East have exhibited uninterrupted and República Bolivariana de Venezuela and Ecuador, with explosive rates of growth in per capita emissions reach- about 2.5 kgCO2 per US$ of GDP (PPP). These three ing levels of up to 20 times their initial 1950 emis- countries are the top emitters regardless of whether or sions by the beginning of the present decade. In not emissions from land-use change are excluded. Inter- comparison with the LCR, in 2004 Far East countries estingly, when emissions are calculated in terms of their had 35 percent lower emissions per capita while those ratio to GDP, Argentina, Chile, Colombia, and Mexico from Centrally Planned Asia and the Middle East are well below the region's average. were, respectively, 40 and 140 percent above the levels found in the LCR. The Evolution of LCR's Fossil-Fuel Emissions The LCR's ratio of emissions to GDP, also known In 1950, LCR's fossil fuel emissions per capita were as the index of "emission intensity," has remained only 6 percent of North America's and 23 percent of relatively stable since 1980, much as the ratio of Western Europe's. Between 1950 and 1980, emissions emissions to population (figure 5.17). In fact, the in the LCR grew by 170 percent, compared to the rates former index increased by 2 percent in the LCR of growth of about 30 percent in North America and between 1980 and 2004. In contrast, there was a 28 90 percent in Western Europe (figure 5.16). However, percent global decline in emissions per unit of GDP by 1980, the LCR still had a mere 13 percent of the per during the same period, a 33 percent reduction in capita emissions of North America, and 32 percent of industrialized countries and a 48 percent drop in the those of Western Europe. Over the past two-and-a-half case of China and India. Other developing countries decades, emissions per capita have been relatively stable experienced relatively small declines: 9 percent in in the LCR while they have fallen in North America low-income countries and 4 percent in other middle- and Western Europe, after peaking in the late 1970s. income countries (excluding the LCR as well as A growth pattern similar to the LCR's has been China and India). observed in Africa and centrally planned Europe, The effect of LCR's relatively small increase in although in 2004 those regions exhibited, respectively, emission intensity on the evolution of the region's about one-half and three times the levels of per capita total fossil fuel emissions has been minimized, how- emission found in the LCR. In contrast, the countries ever, by the fact that the region's per capita GDP has from Centrally Planned Asia (mainly China), the Far been growing at a slower pace than the rest of the FIGURE 5.16 Per Capita Fossil Fuel CO2 Emissions 450 3,000 400 2,500 Index (1950=100) Index (1950=100) 350 300 2,000 250 1,500 200 150 1,000 100 500 50 0 0 50 54 58 62 66 70 74 78 82 86 90 94 98 02 50 54 58 62 66 70 74 78 82 86 90 94 98 02 19 19 19 19 19 19 19 19 19 19 19 19 19 20 19 19 19 19 19 19 19 19 19 19 19 19 19 20 Latin America and Africa North America Oceania Centrally planned Asia the Caribbean Region Far East Middle East Western Europe Centrally planned Europe Source: Marland, Boden, and Andres (2007). 113 L O W- C A R B O N D E V E L O P M E N T : L A T I N A M E R I C A N R E S P O N S E S T O C L I M A T E C H A N G E FIGURE 5.17 Intensities of Energy Use and Fossil Fuel CO2 Emissions Latin America World 2.4 2.4 2.2 2.2 2.0 2.0 Index (1980=100) Index (1980=100) 1.8 1.8 1.6 1.6 1.55 1.4 1.4 1.16 1.2 1.2 1.11 1.0 1.0 0.96 1.02 0.8 0.72 0.88 0.8 0.76 0.6 0.6 80 82 84 86 88 90 92 94 96 98 00 02 04 80 82 84 86 88 90 92 94 96 98 00 02 04 19 19 19 19 19 19 19 19 19 19 20 20 20 19 19 19 19 19 19 19 19 19 19 20 20 20 Low-income countries High-income countries 2.8 2.6 2.6 2.4 2.4 2.2 Index (1980=100) Index (1980=100) 2.2 2.0 2.0 1.8 1.8 1.6 1.6 1.57 1.4 1.4 1.26 1.2 1.2 1.06 0.91 1.0 0.73 1.0 0.8 0.91 0.8 0.85 0.67 0.6 0.6 80 82 84 86 88 90 92 94 96 98 00 02 04 80 82 84 86 88 90 92 94 96 98 00 02 04 19 19 19 19 19 19 19 19 19 19 20 20 20 19 19 19 19 19 19 19 19 19 19 20 20 20 7.00 China and India Middle-income countries excluding Latin America, China, and India 2.6 6.00 2.4 4.59 2.2 5.00 Index (1980=100) Index (1980=100) 2.0 4.00 1.8 1.6 3.00 1.55 1.4 2.00 1.2 1.04 0.96 1.0 0.96 1.00 0.92 0.52 0.8 0.54 0.00 0.6 80 82 84 86 88 90 92 94 96 98 00 02 04 80 82 84 86 88 90 92 94 96 98 00 02 04 19 19 19 19 19 19 19 19 19 19 20 20 20 19 19 19 19 19 19 19 19 19 19 20 20 20 Carbon intensity (CO2/TPES) Energy intensity (TPES/GDP) Emission intensity (CO /GDP) Energy (TPES) 2 CO emissions Population 2 Income per capita (GDPpc) Income (GDP) Sources: For primary energy consumption: Energy Information Administration (2005); for CO2: Energy Information Administration (2005) and Marland, Boden, and Andres (2007); for GDP and population: World Development Indicators (World Bank). Note: TPES = total primary energy supply. world. In fact, between 1980 and 2004 LCR's per Small increase in emissions over GDP driven by capita GDP grew by only 11 percent, compared to 55 increasing energy intensity percent for the world, 58 percent for industrialized In order to better understand the drivers of changes in countries and 165 percent for other developing coun- emission intensities, it is standard to decompose them as tries. Thus, LCR's total emissions have grown at a the sum of changes in the ratio of energy to GDP, rate that is only slightly above the growth of the referred to as energy intensity, and the ratio of emissions region's population. to energy, referred to as carbon intensity (figure 5.17). 114 LCR'S GHG EMISSIONS In the case of the LCR, this decomposition reveals that has managed to maintain levels of energy-related fossil the region's small increase in emissions per unit of fuel emissions per unit of GDP that are 32 percent GDP, in comparison with other regions of the world, below the world average, 26 percent lower than those of has been driven by the region's increasing energy needs industrialized countries, and between 39 and 55 percent per unit of output, which have partially balanced off the lower than other middle-income countries. region's relatively large reductions in the carbon inten- In order to visualize the role played by the various sity of its energy. As shown in figure 5.17, in the LCR drivers of fossil fuel emissions during different subpe- the energy intensity index increased by 16 percent from riods, it is useful to follow the approach proposed by 1980 to 2004, which contrasts with reductions of 24 Kaya (1990) to decompose fossil fuel CO2 emissions percent at the global level, 30 percent in industrialized into the following factors: (1) the change in the carbon countries, and 46 percent in China and India. Low- intensity of energy (emissions per unit of energy); (2) income countries and other middle-income countries, the change in the energy intensity of output (energy however, have also experienced an increase in their consumed per unit of GDP); (3) the change in GDP energy consumption, although lower than in the LCR: per capita; and (4) the change in population. Although respectively, 6 and 4 percent. In other words, while the the "Kaya decomposition" is not based on an estimated rest of the world has reduced the average amount of model of causal links between the relevant variables, it energy needed per dollar of goods and services pro- can be useful for uncovering the main factors driving duced, the LCR and other developing countries (except observed changes in CO2 emissions (see Bacon and for China and India) have been increasing their energy Bhattacharya 2007). needs per unit of output. Figure 5.19 presents summary "Kaya decomposi- The impact of the region's increasing energy inten- tions" for the LCR and other regions of the world dur- sity on its comparative emission levels has been mini- ing 1980­2005. The figure reports the changes in mized, however, by the fact that the LCR has exhibited fossil fuel emissions that can be attributed to different larger reductions in the carbon intensity of its energy factors, expressed as a percentage of initial 1980 levels. production. In fact, this index fell by 12 percent The figure shows that during the past 25 years changes between 1980 and 2004, compared to a reduction of in the LCR's energy intensity of output contributed to only 4 percent at the global level and 9 percent in increasing emissions by 15 percent but the region's industrialized countries. Low-income countries have falling carbon intensity acted to reduce emissions by also experienced a sizable reduction of 15 percent in 17 percent. In contrast, at the global level falling that index, but declines have been smaller in middle- energy intensities contributed to reducing emissions income countries: 4 percent in China and India and 8 by 35 percent and reductions in carbon intensities percent in other middle-income countries (figure 5.17). helped reduce emissions by about 9 percent. Finally, Thanks to its cleaner power generation mix, in 2000 the LCR's relatively low rates of growth of per capita the LCR exhibited a level of carbon intensity per unit of GDP are reflected in a smaller contribution of this fac- energy that was 10 percent below that of high-income tor to fossil fuel emissions, equivalent to 23 percent of countries, 17 percent below the world average, and their initial level, compared to 82 at the global level, 40 percent below the average for China and India 51 percent in the case of high-income countries, and as (figure 5.18). Moreover, despite having increased over much as 309 percent in China and India. the past decades, in 2000 the LCR's levels of energy In order to understand the timing of the above intensity were still 18 percent below the world average effects, figure 5.20 reports similar "Kaya" decompo- and 45 percent below other middle-income countries sitions by subperiods. The figure shows that the (excluding China and India). In sum, due to its rela- contribution of rising energy intensities to the tively low and declining carbon emissions per unit of growth of the LCR's fossil fuel emissions was con- energy, and as a result of its relatively low, albeit centrated in the 1980s. During the 1990s, energy increasing, level of energy use per unit of GDP, the LCR use also increased, but its contribution to the 115 L O W- C A R B O N D E V E L O P M E N T : L A T I N A M E R I C A N R E S P O N S E S T O C L I M A T E C H A N G E FIGURE 5.18 , Indexes of Carbon, Energy, and Emission Intensity, and Per Capita GDP 2000 400 378 Index (Relative to Latin America and 350 the Carribbean Region = 100) 300 250 224 200 181 169 164 148 150 135 121 121 123 122 122 111 108 105 90 97 100 67 50 45 18 0 Carbon intensity Energy intensity Emission intensity Income per capita (CO2/TPES) (TPES/GDP) (CO2/GDP) (GDPp/c) World Low-income countries Middle-income countries (excluding Latin America and the Caribbean Region, China, and India) High-income countries China and India Sources: For primary energy consumption: Energy Information Administration (2005); for CO2: Energy Information Administration (2005) and Marland, Boden, and Andres (2007); for GDP and population: World Development Indicators (World Bank). FIGURE 5.19 Summary Kaya Decomposition of Changes in Fossil Fuel CO2 Emissions, 1980­2005 410 272 64 310 210 128 141 309 Percent 70 80 69 110 96 25 31 19 58 44 80 82 51 23 10 12 4 15 ­9 ­6 ­9 ­12 ­35 ­17 ­35 ­25 ­95 ­90 ­190 Low-income Middle-income High-income Latin America China and India World countries countries countries and the (excluding Latin Caribbean Region America and the Caribbean Region, China, and India) Carbon intensity (CO2 /TPES) Energy intensity (TPES/GDP) Income per capita (GDPpc) Population Sources: For primary energy consumption: Energy Information Administration (2005); for CO2: Energy Information Administration (2005) and Marland, Boden, and Andres (2007); for GDP and population: World Development Indicators (World Bank). 116 LCR'S GHG EMISSIONS FIGURE 5.20 Kaya Decomposition of Changes in Fossil Fuel CO2 Emissions, by Subperiods, 1980­2005 Latin America and the Caribbean Region World 400 8,000 300 6,000 1,812 175 169 1,566 200 4,000 986 164 88 4,713 100 133 2,000 3,542 3,155 77 0 17 0 162 ­33 ­918 ­509 ­91 ­1 ­36 ­390 ­100 ­2,000 ­2,040 ­2,486 ­67 ­200 ­4,000 1980­90 1990­2000 2000­05 1980­90 1990­2000 2000­05 Low-income countries High-income countries 100 4,000 80 3,000 698 831 60 59.11 34.82 2,000 40 48.30 1,000 2,297 2,064 445 9.50 806 79 20 36.32 0 19.15 19.98 ­759 ­282 ­658 0.89 ­1,127 0 ­10.65 ­1,000 ­5.53 ­20.96 ­1,830 ­20 ­2.78 ­2,000 ­40 ­3,000 1980­90 1990­2000 2000­05 1980­90 1990­2000 2000­05 China and India Middle-income countries excluding 3,000 Latin America, China, and India 700 2,500 460 262 600 2,000 500 1,500 388 1,866 300 161 2,269 400 280 1,000 1,255 300 500 374 200 363 0 ­5 ­172 80 188 297 ­500 ­565 100 ­1,466 61 3 ­1,000 0 ­65 ­45 ­1,500 ­100 ­22 ­22 ­2,000 ­200 1980­90 1990­2000 2000­05 1980­90 1990­2000 2000­05 Carbon intensity (CO2/TPES) Energy intensity (TPES/GDP) Income per capita (GDPpc) Population Sources: For primary energy consumption: Energy Information Administration (2005); for CO2: Energy Information Administration (2005) and Marland, Boden, and Andres (2007); for GDP and population: World Development Indicators (World Bank). Note: Emissions are expressed in thousands of metric tons of carbon. region's emissions was small. During the present significant reductions in energy intensities during decade, there was a reversal of the previous trend, the 1990s and a smaller reduction in the carbon with energy use per unit of GDP actually contribut- content of energy, the present decade has seen con- ing to reduce the region's total emissions. As for the siderable increases in energy usage per unit of output reduction in the carbon intensity of energy, most of and an increase also in the carbon intensity of energy. it occurred during the 1980s and to some extent As for industrialized countries, large reductions in during the first half of the present decade, with very energy and to a lesser extent in carbon intensity little progress achieved during the 1990s. A differ- indexes were achieved during the 1980s, with ent time pattern is found, however, in other regions smaller reductions in energy usage and a relatively of the world. In China and India, for example, after stable carbon intensity index observed afterward. 117 L O W- C A R B O N D E V E L O P M E N T : L A T I N A M E R I C A N R E S P O N S E S T O C L I M A T E C H A N G E Comparing the main drivers of LCR emissions across FIGURE 5.21 decades, figure 5.20 shows that during the 1980s the Energy Intensity and Primary Energy Use, 2004 increase in the energy intensity of output was more 700 Trinidad and Tobago than compensated by reductions in the carbon intensity Energy intensity (toe/millions $2000 PPP) 600 of energy and per capita GDP. During the 1990s, the resumption of income growth had a strong impact on 500 the LCR's emissions, together with population growth. 400 Changes in the level of energy consumption and in the 300 carbon intensity of energy had a very small impact on Latin America Venezuela, R.B. de and Canada overall emissions. Finally, during the first half of the 200 Caribbean World United Region Chile Argentina States Colombia 2000s, income and population growth have continued 100 Brazil Mexico to grow at similar rates, but about half of their impact Peru 0 on emissions has been compensated by falling energy 0 2 4 6 8 10 Primary energy use (toe/capita) usage and decreasing carbon intensity of energy. Source: Dussan (2008). The fact that developed countries have been able to reduce their energy intensity during the past 25 years, while the LCR has not shown significant improve- ments, can to a large extent be explained by differences higher oil prices. This finding is consistent with the in primary energy use and economic development. As evidence presented in the last section of this chapter on shown in figure 5.21, the LCR's energy intensity, at the limited reductions in energy intensities observed in about 150 tons of oil equivalent (toe) per million GDP, the LCR in comparison to other regions of the world. is still below the averages for the world and developed This is illustrated in figure 5.22, which shows that countries, such as the United States and Canada, which over the period from 1971 to 2004 the barrels of oil are in range of 200 to 250 toe per million GDP. The consumed daily per unit of annual GDP have evolved consumption of primary energy per capita in the latter in a very different fashion in the LCR and the OECD. industrialized countries is about five times greater Indeed, oil intensities have declined only moderately than in the LCR. However, those countries have been in Latin America, with the median intensity for Latin able to reduce their energy intensity through an America falling from 1.6 barrels per day per million increase of the service sector's share in their economies dollar produced (bpdpmd) in the early 1970s to 1.3 and a decline in the industrial sector's participation. In in the early 2000s. The only exception would be contrast, countries in the LCR still exhibit a larger Panama, where intensities declined from 2.8 to close share of energy intensive industries and their per capita to 1.7 bpdpmd. With regard to the rest of Latin primary energy use is still growing thanks to rising American countries, one can observe a few modest incomes and increased electricity coverage. declines and some increases. In contrast, in the OECD, oil intensities have declined much more A limited reaction to increasing oil prices markedly. For example, over the period under consid- Oil price fluctuations have generally had a significant eration, the United States reduced its oil intensity effect on the intensity of oil consumption and energy from about 4.2 barrels per day per million dollar pro- use per unit of GDP for oil importing countries. That, duced to about 2.1 bpdpmd. Similarly, whereas in however, has not been the case in the LCR. In contrast 1971 Japan and France had oil intensities of, respec- with the evidence for the OECD, the oil and energy tively, 3.6 and 3.1 barrels per day per million dollar of intensities of Latin American countries (excluding oil GDP, by 2004 both countries had oil intensities of exporters) have not been affected by higher oil prices about 2 bpdpmd. The median oil intensity for the as shown by Alaimo and Lopez (2008). To use a more OECD countries in this sample declined from 2.9 technical lexicon, they are not "Granger-caused" by bpdpmd in the early 1970s to 1.7 in the early 2000s. 118 LCR'S GHG EMISSIONS FIGURE 5.22 Oil Intensities of Selected Latin America and the Caribbean Region and OECD Countries Latin America and the Caribbean Region countries 4.6 OECD countries Barrels of oil consumed per Barrels of oil consumed per day/annual GDP per capita day/annual GDP per capita 4.3 fossil fuel CO2 emissions fossil fuel CO2 emissions 4.1 3.8 3.6 3.3 3.1 2.8 2.3 2.6 1.8 2.1 1.3 1.6 0.8 1.1 0.3 0.6 71 73 75 77 79 81 83 85 87 89 91 93 95 97 99 20 1 20 3 04 71 73 75 77 79 81 83 85 87 89 91 93 95 97 99 01 20 3 04 0 0 0 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 20 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 20 20 Argentina Brazil Chile Colombia Paraguay Peru France Spain United States Australia Japan Source: Alaimo and Lopez (2008). However, the levels of oil intensities of LCR countries and energy price changes tend to be a sensitive topic. now appear very similar to those found in the OECD, While, on the one hand, this can protect consumers ranging mostly between 1.1 and 2.1 barrels per day by isolating them from price fluctuations especially per million dollar of GDP. when facing price increases, it may, on the other As shown by Alaimo and Lopez (2008), about two- hand, fail to send the appropriate market signals. thirds of the reduction in oil intensity in OECD coun- Indeed, this means consumers will have a tendency tries was achieved by 1985, which corresponds to the not to adjust their energy consumption to changes in end of the second oil crisis. Japan, for example, cut oil oil prices. intensities from 3.6 to 2.2 bpdpmd by 1985, whereas Existing estimates of price pass-through from oil to between 1985 and 2004 the decline was much more gasoline suggest that price pass-through is higher in modest (from 2.2 to about 2 bpdpmd). The United oil importing countries and limited in oil exporting States, where by 1985 intensities had been cut to 2.7 countries. Bacon and Kojima (2006), for instance, bpdpmd, is another case in point. To a large extent compute the ratio between the change in domestic that was the result of improved home insulation, bet- prices (gasoline, diesel) and the change in oil prices1 ter gasoline mileage, and streamlined production from 2004 to 2006 for eight Latin American coun- processes that led to a reduction in the use of oil per tries. Findings show that República Bolivariana de unit of output. Since then, progress in reducing oil Venezuela, Argentina, and Mexico have negligible intensities has continued, albeit at a much slower pass-through. In contrast, Bolivia and Honduras pace, probably because of the lower level of prevailing would have a pass-through of about 60 percent for real oil prices. gasoline and 80 percent for diesel. Finally, Guatemala, Nicaragua, and Chile have the highest pass-through Is the low pass-through from oil to gasoline to of their sample with coefficients ranging from .95 to blame for LCR's stable energy intensity? 1.15 (table 5.1). Alaimo and Lopez (2008) argue that the limited reac- These findings are to a large extent consistent with tion of oil intensities observed in the LCR--and for those of the World Bank (2006), which estimates the that matter in other middle-income countries--even degree of pass-through as the coefficient from a regres- in the aftermath of large increases in oil prices may be sion of the overall price index of gasoline prices on due to governments' decisions to reduce the pass- energy prices. This study concludes that in Argentina, through of international oil prices to final consumers. Ecuador, Mexico, and República Bolivariana de In many middle income-countries and particularly in Venezuela, there is no pass-through. On the contrary, in Latin America, energy prices are heavily regulated Brazil, Colombia, the Dominican Republic, El Salvador, 119 L O W- C A R B O N D E V E L O P M E N T : L A T I N A M E R I C A N R E S P O N S E S T O C L I M A T E C H A N G E TABLE 5.1 TABLE 5.2 Pass-Through Estimations of Previous Studies Average Gasoline and Diesel Prices in Latin America and the Caribbean Region, 2005­07 (US$/gallon) Gasoline Diesel Bacon and World Bank, Bacon and Premium Regular Authors Kojima, 2006 2006 Kojima, 2006 gasoline gasoline Diesel Obs. Years covered 2004­06 mid-90s, 2000s 2004­06 Argentina 0.89 0.79 0.67 36 Argentina 0.02 None 0.11 Bolivia 0.82 0.56 0.56 30 Bolivia 0.64 0.84 Colombia n.a. 0.96 n.a. 36 Brazil Complete Costa Rica 1.25 1.20 0.88 29 Chile 1.15 1.11 El Salvador 1.14 1.08 0.95 29 Colombia Complete Guatemala 1.14 1.12 0.91 29 Dominican Rep. Complete Honduras 1.24 1.17 1.02 29 Ecuador None Mexico 1.01 0.83 0.65 36 El Salvador Complete Nicaragua 1.19 1.14 1.02 29 Guatemala 0.93 0.99 Panama 2.32 n.a. n.a. 36 Guyana Complete Paraguay 1.19 1.07 0.99 36 Honduras 0.60 Complete 0.87 Peru n.a. 1.23 n.a. 36 Mexico 0.15 None 0.11 Uruguay 1.59 1.55 1.27 20 Nicaragua 0.95 0.88 Source: Alaimo and Lopez (2008). Venezuela, R. B. de 0.00 None 0.00 Sources: Bacon and Kojima (2006); World Bank (2006). correlation is very modest: US$0.22 for premium and $0.16 for regular. On the contrary, oil prices do not and Guyana the pass-through appears to be complete. appear to be correlated with diesel at the pump On the whole, the picture that emerges from these stud- regardless of net importer or net exporter status or ies is mixed. Typically, net importing countries allow even with gasoline prices in net exporter countries. oil price fluctuations to pass through to final con- New pass-through estimates for the period between sumers. In contrast, net exporting countries show a clear 2005 and 2007 are summarized in table 5.3 by disconnect between domestic and international price Alaimo and Lopez (2008). The results indicate that changes. By isolating final consumers from price fluctu- net oil exporters fall into the "no pass-through cate- ations, net exporting countries do not allow energy con- gory" with regard to all types of fuels. For example, sumption to be affected by market prices. Peru does not show signs of pass-through for regular Do these conclusions still hold in the more recent gasoline.2 Similarly, Paraguay appears not to have period, where crude oil prices are reaching record lev- pass-through in the case of regular gasoline, but does els? To address this question, Alaimo and Lopez show signs of low pass-through for premium gasoline (2008) collected data for 13 countries from January and diesel, amounting to 15 percent and 23.7 percent, 2005 to December 2007. Table 5.2 provides the aver- respectively. Costa Rica stands out as the only Central age price of three oil products: premium gasoline, reg- American country with no pass-through for two types ular gasoline, and diesel in each country, measured in of derivatives, premium and diesel, even though it does dollars per gallon. Net oil exporter countries have translate oil price changes into regular gasoline prices lower prices than net oil importers. For example, a at a 44 percent rate. In addition to Uruguay, the gallon of regular gasoline was less than a dollar in remaining Central American countries show evidence Argentina, Bolivia, Colombia, and Mexico from 2005 of medium or high pass-through. In particular, esti- to 2007, while it averaged 1.19 US$/gallon for net oil mations suggest that Nicaragua and Uruguay have importers. Alaimo and Lopez (2008) show that oil high pass-through for premium and regular gasoline price changes are positively and significantly corre- prices and medium pass-through for diesel prices. El lated with changes in premium and regular gasoline Salvador also shows evidence of high pass-through for prices in net oil importer countries even though the regular gasoline. Finally, Guatemala and Honduras 120 LCR'S GHG EMISSIONS TABLE 5.3 A Taxonomy of Pass-Through by Country Level of Pass-through Premium Gasoline Regular Gasoline Diesel Gasoline None (*) Argentina, Bolivia, Costa Rica, Argentina, Bolivia, Colombia, Argentina, Bolivia, Costa Rica, Mexico Mexico, Paraguay, Peru Mexico Low (<.33) Paraguay Paraguay Medium (.33­.66) El Salvador, Guatemala, Honduras, Costa Rica, Guatemala, Honduras El Salvador, Guatemala, Panama Honduras, Nicaragua, Uruguay High (>.66) Nicaragua, Uruguay El Salvador, Nicaragua, Uruguay Source: Alaimo and Lopez (2008). (*) None means that either the coefficients for oil price changes were not significant or they were significant but negatively related to the gasoline price change. are classified as countries with medium pass-through FIGURE 5.23 for regular gasoline, premium gasoline, and diesel. Trends in Per Capita Fossil Fuel CO2 Emissions for Selected Latin America and the Caribbean Region Countries Cross-country differences in emission trends 600 Figure 5.23 reports historic rates of growth of fossil Index (1980=100) 500 fuel CO2 emissions in selected LCR countries. The 400 fastest rates of growth are found in Brazil and Mexico, 300 with a 300 percent increase in emissions between 1950 200 and the early 1980s. While in Mexico, emissions have been relatively stable after that period; in the case of 100 Brazil, another spur is evident during the past decade, 0 50 54 58 62 66 70 74 78 82 86 90 94 98 02 with emissions reaching 500 percent of their initial 19 19 19 19 19 19 19 19 19 19 19 19 19 20 1950 level by the mid-2000s. Trends have proven to Argentina Brazil Colombia Mexico Peru Venezuela, R.B. de vary across the other four large LCR emitters. In the Source: Marland, Boden, and Andres (2007). case of Argentina, Colombia, and Peru, emissions dur- ing the present decade were about twice their 1950 level, with most of the growth having taken place before the 1980s. The picture is slightly different for falling during the past decade in Colombia, Mexico, República Bolivariana de Venezuela, which has man- and Peru, and, to a lesser extent, in Argentina. By aged to stabilize its emissions over the past 50 years, 2005, emission intensities in Argentina were about 3 albeit at much higher levels than in the case of the percent below their 1980 level. Peru, Mexico, and other five large LCR emitters presented in figure 5.23. Colombia achieved larger reductions of 15, 20, and When emissions are expressed as a ratio to GDP, 34 percent, respectively, in the same period of time República Bolivariana de Venezuela and Brazil are the (figure 5.24). only countries among the LCR's largest emitters with The drivers of changes in fossil fuel emission intensity of fossil fuel CO2 emissions higher in 2005 intensities have been different across LCR countries than in 1980. The increase was relatively small in (figure 5.25). For instance, in Brazil, the increase in its Brazil, where emissions per unit of GDP were about rate of emissions per unit of GDP has been driven 15 percent higher by the mid-2000s than they were in mainly by the rising intensity of energy consumption 1980 compared to an increase of more than 40 percent over GDP. However, as the right side shows, this in the case of República Bolivariana de Venezuela. increase has been partially compensated by the falling In marked contrast, emission intensities have been carbon intensity of energy. A similar pattern has been 121 L O W- C A R B O N D E V E L O P M E N T : L A T I N A M E R I C A N R E S P O N S E S T O C L I M A T E C H A N G E observed in Argentina, although in this case the A different pattern is apparent in República Boliv- reduction in the carbon intensity of energy, which ariana de Venezuela, which has experienced both a amounted to 20 percent by the mid-2000s, has more higher level of energy consumption and an increasing than compensated the country's increasing energy ratio of emissions per unit of energy. Finally, when intensity. Thus, Argentina was more successful in bal- considering the whole period, Colombia, Mexico, and ancing the increase in energy intensity it witnessed Peru's energy intensities have been either declining or with a substantial reduction in the carbon intensity stagnating. Allied to the falling carbon intensities of of energy. energy, these trends have been driven by a reduction in overall ratios of energy consumption to GDP. These patterns are visible in the "Kaya decompositions" FIGURE 5.24 reported in figure 5.26. Noticeably, Brazil achieved , Intensity of Fossil Fuel CO2 Emissions Per Capita GDP Selected Latin America and the Caribbean Region Countries, 1980­2005 sizable reductions in the carbon intensity of energy during the 1980s, followed by Mexico and Colombia 160 since the 1990s. The figure also illustrates the consid- Index (1980=100) 3-year 140 erable amount of emissions that were driven by moving averages 120 increases in energy intensities during the 1980s in Argentina, and between 1990 and 2000 in Brazil and 100 República Bolivariana de Venezuela. 80 60 Projected Growth in Fossil Fuel CO2 Emissions Energy demand is the main driver of world emissions' 80 85 90 95 00 19 19 19 19 20 Argentina Brazil Colombia growth predictions. The World Energy Outlook (IEA Mexico Peru Venezuela, R.B. de 2007) predicts that under a business-as-usual scenario, Sources: For CO2 and primary energy consumption: Energy in 2030 the world's energy needs will be 55 percent Information Administration (2005) and Marland, Boden, and Andres (2007); for GDP and population: World Development Indicators, higher than today, increasing at an approximate annual World Bank (2005). rate of 1.8 percent. As much as 74 percent of the FIGURE 5.25 Intensity of Energy Use and Carbon Intensity of Energy, Selected Latin America and the Caribbean Region Countries, 1980­2005 Energy intensitiy (TPES/GDP) Carbon intensitiy (CO2/TPES) 140 Index (1980=100) 3-year moving averages Index (1980=100) 3-year moving averages 160 150 130 140 120 130 110 120 100 110 90 100 80 90 80 70 80 85 90 95 00 05 80 85 90 95 00 05 19 19 19 19 20 20 19 19 19 19 20 20 Argentina Brazil Colombia Mexico Peru Venezuela, R.B. de Sources: For CO2 and primary energy consumption: Energy Information Administration (2005) and Marland, Boden, and Andres (2007); for GDP and population: World Development Indicators, World Bank (2005). 122 LCR'S GHG EMISSIONS FIGURE 5.26 Kaya Decomposition of Projected Changes in Fossil Fuel CO2 Emissions, by Subperiods, Selected Latin America and the Caribbean Region Countries, 1980­2005 Argentina Brazil 60 140 50 120 Percentage change Percentage change 40 14 13 100 39 30 80 20 28 34 60 40 25 6 10 6 40 38 23 0 ­12 ­13 3 20 40 22 0 0 9 ­1 ­10 ­17 ­11 ­20 ­20 ­28 ­50 ­30 ­40 ­10 ­40 ­60 ­50 ­80 1980­90 1990­2000 2000­05 1980­90 1990­2000 2000­05 Mexico Colombia 150 20 15 Percentage change Percentage change 100 9 51 9 56 10 50 17 4 5 3 56 5 33 4 5 ­1 12 1 0 0 ­8 ­11 ­1 ­66 ­5 ­11 ­50 ­17 ­36 ­10 ­100 ­5 ­15 ­150 ­20 1980­90 1990­2000 2000­05 1980­90 1990­2000 2000­05 Venezuela, R.B. de Peru 60 12 10 50 8 2 Percentage change Percentage change 4 40 29 6 4 30 4 30 5 5 16 2 3 20 1 1 20 11 7 0 ­2 ­1 10 ­2 2 6 8 ­2 0 ­4 ­5 ­10 ­20 ­6 ­20 ­8 ­30 ­10 1980­90 1990­2000 2000­05 1980­90 1990­2000 2000­05 Carbon intensity (CO2/TPES) Energy intensity (TPES/GDP) Income per capita (GDPpc) Population Sources: For CO2 and primary energy consumption: Energy Information Administration (2005) and Marland, Boden, and Andres (2007); For GDP and population: World Development Indicators, World Bank (2005). Note: Emissions are expressed in thousands of metric tons of carbon. growth is projected to occur in developing countries. substantially due to rising demand in developing In fact, by 2030, developing countries will account for countries, fossil fuels are predicted to maintain signifi- more than half of the global energy market, up from cant weight as an energy supply. For these reasons, the 41 percent today. However, it is important to note that business-as-usual scenario considers a substantial China and India are the primary growth nations, increase in GHG emissions as imminent. accounting for 45 percent of the total increase in world In addition to being a relatively low emitter from demand.3 In terms of global energy supply, fossil fuels energy-related sources, the LCR's projected growth are expected to continue to dominate. Indeed, fossil in annual emissions remains considerably lower than fuels will account for 84 percent of the overall increase that of other developing countries. According to the in energy demand under the business-as-usual sce- IEA's World Energy Outlook 2006, energy-related nario. Because energy needs are predicted to increase CO2 emissions in Latin America are expected to 123 L O W- C A R B O N D E V E L O P M E N T : L A T I N A M E R I C A N R E S P O N S E S T O C L I M A T E C H A N G E grow by 27 percent between 2004 and 2015 and by The slower growth of energy-related emissions 71 percent between 2004 and 2030 (figure 5.27). projected by the IEA for the Latin America and the However, the increase in Latin American energy Caribbean Region is driven to a large extent by the related CO2 emissions is more modest than in the rest assumption that output in the region will grow at a of the developing world, where they are expected to slower pace than in the rest of the developing world. more than double, increasing by 51 percent in 2015 For instance, the LCR's output would grow at a rate of and by 108 percent in 2030. In comparison, the 3.2 percent compared to 4.7 percent per year for other OECD's fossil fuel emissions are projected to climb developing countries and 2.2 percent for the OECD. by 21 percent between 2004 and 2030, of which 12 Given these expected rates of GDP growth and the percent will be attained by 2015. assumption that population growth will be close to In its baseline business-as-usual scenario, the Inter- 1 percent per year in developing countries and 0.4 national Energy Agency takes into account all those percent in the OECD, the IEA supports the projected government policies and measures that were enacted or rates of emission growth that have been described, adopted by mid-2006, even if many of them had not with assumptions regarding drastic reductions in been fully implemented by that time. The IEA also energy intensity indexes. considers a more optimistic alternative policy scenario Indeed, as illustrated in figure 5.28 through "Kaya in which countries would adopt all of the policies that decompositions" of the IEA's projected changes in emis- they were considering in 2006 related to energy secu- sions, no significant contributions are expected to come rity and energy-related CO2 emissions. The result is a from reductions in the carbon intensity of energy, nei- projection of future emissions growth that is about 33 ther in the LCR nor in the OECD. For other developing percent lower for developing countries, including the countries, the IEA actually expects the volume of emis- LCR, and almost 90 percent lower for the OECD. In sions per unit of energy to increase, especially in the this scenario, by 2030 emissions from the OECD would 2004­15 period. Nevertheless, significant reductions in be only 3 percent above their 2004 level, while the LCR energy intensity are expected in the baseline scenario, would increase its emissions by only 47 percent and the especially in developing countries. In the LCR, those rest of the developing world by 70 percent. reductions would contribute to reducing emissions by an amount equivalent to 94 percent of the region's 2004 FIGURE 5.27 emissions, compared to 59 percent in the OECD. In Projected Increases in Fossil Fuel CO2 Emissions, Baseline, and other developing countries similar reductions would Optimistic IEA Scenarios for Latin America and the Caribbean lead to a 243 percent decrease in emissions. Region, OECD, and Other Developing Countries, 2004­30 The IEA's optimistic alternative projection attrib- 120 108 utes an increased role to possible reductions in the 100 carbon intensity of energy. Projected reductions in Percent of total 80 71 56 70 60 47 carbon intensity would contribute to emission 44 35 40 26 reductions by an amount equivalent to 6 percent of 21 51 20 27 20 9 3 35 the region's 2004 emissions. A larger contribution of 12 8 0 ­5 12 percent is expected in the OECD. In the case el he ist e e ic ist s: lin s: ­20 im th in im rie se rie ist of the LCR, what underlies these projections is an as d t e ic ic e el in im pt nd pt t Ba nt as O un : B an u pt :O aa :B co co on a :O expected increase in the share of gas fuels in the D gi ric on ic g g EC gi er D in in Re me EC Re Am O op op an A O el el region's total primary energy supply, from 20 percent be tin an in ev ev be Lat rib La D D to 29 percent during the 2004­30 period. This rib Ca Ca 2004­15 2015­30 increase would take place mainly at the expense of Source: IEA (2007). oil and biomass, with the share of other energy Note: Mexico is included with the OECD countries, not with the Latin America and the Caribbean Region countries. sources, such as coal, hydro power, and other renew- ables, remaining basically constant (figure 5.29). In 124 LCR'S GHG EMISSIONS FIGURE 5.28 Kaya Decomposition of Projected Changes in Fossil Fuel CO2 Emissions, Baseline, and Optimistic International Energy Agency Scenarios for Latin America and the Caribbean Region, OECD, and Other Developing Countries, 2004­30 Baseline International Energy Agency Scenario Latin America and the Caribbean Region countries OECD countries Developing countries (excluding Latin America and the Caribbean Region) 800 6,000 20,000 Percentage change 600 193 4,000 767 686 15,000 2,914 400 156 2,000 3,668 4,186 10,000 1,924 525 11,119 200 315 0 ­193 ­261 5,000 8,906 0 ­19 ­2 ­2,000 ­2,678 ­3,508 729 247 0 ­208 ­316 ­6,333 ­8,564 ­200 ­4,000 ­5,000 ­400 ­6,000 ­10,000 2004­15 2015­30 2004­15 2015­30 2004­15 2015­30 Optimistic International Energy Agency Scenario Latin America and the Caribbean Region countries OECD countries Developing countries (excluding Latin America and the Caribbean Region) 800 6,000 15,000 Percentage change 600 174 4,000 751 621 10,000 1,855 2,560 400 152 3,595 3,784 8,585 9,769 472 2,000 5,000 200 306 544 0 ­434 ­1,144 0 ­477 0 ­28 ­24 ­6,785 ­246 ­2,000 ­2,910 ­5,000 ­8,671 ­200 ­383 ­3,905 ­400 ­4,000 ­10,000 ­600 ­6,000 ­15,000 2004­15 2015­30 2004­15 2015­30 2004­15 2015­30 Carbon intensity (CO2 /TPES) Energy intensity (TPES/GDP) Income per capita (GDPpc) Population Source: IEA (2007). Note: Mexico is included with the OECD countries, not with Latin America and the Caribbean Region countries. FIGURE 5.29 Projected Total Primary Energy Supply under Baseline and Optimistic IEA Scenarios for Latin America and the Caribbean Region, OECD, and Other Developing Countries, 2004­30 Latin America and the Caribbean Region countries (excluding Mexico) OECD countries (including Mexico) 1 2 1 1 100 100 1 1 3 2 3 18 17 15 3 4 5 18 18 11 6 7 10 9 11 80 11 11 11 11 12 80 12 1 2 1 2 2 22 23 24 22 Percent Percent 60 20 60 23 24 29 24 27 40 40 41 39 38 39 37 45 41 40 38 36 20 20 21 20 19 19 15 5 4 4 4 4 0 0 2004 2015 2030 2015 2030 2004 2015 2030 2015 2030 Reference scenario Alternative scenario Reference scenario Alternative scenario Developing countries (excluding Latin America and the Caribbean Region) 1 1 1 1 3 100 17 14 17 16 22 80 12 14 16 14 15 Percent 60 28 28 28 27 28 40 20 36 38 37 37 34 0 2004 2015 2030 2015 2030 Reference scenario Alternative scenario Coal Oil Gas Nuclear Hydro Biomass and waste Other renewables Source: IEA (2007). Note: Mexico is included with the OECD countries, not with Latin America and the Caribbean Region countries. 125 L O W- C A R B O N D E V E L O P M E N T : L A T I N A M E R I C A N R E S P O N S E S T O C L I M A T E C H A N G E the more optimistic scenario, hydro power, nuclear is expected to continue relying heavily on coal, oil, power, biomass, and other renewables would reach and, to a lesser extent, gas, even in the most opti- 35 percent of total primary energy supply by 2030, mistic IEA scenario (figure 5.29). compared to 30 percent in 2004. As for the OECD, Notes the IEA's optimistic scenario envisages a reduction of 1. The domestic fuel price and oil price change ratios are 10 percent in the share of coal and oil, with corre- both measured in dollars. sponding increases in renewable energy sources. As 2. Gasoline is the only type of fuel available in their sample. opposed to the LCR, the rest of the developing world 3. IEA (2007). 126 CHAPTER 6 Climate Change Mitigation in the LCR: No Regrets and Beyond As shown in chapter 5, the LCR has relatively low climate change, it is incumbent upon all countries-- GHG emissions from energy consumption both in both industrial and developing--to take actions to absolute terms and in the carbon intensity of energy reduce greenhouse gas emissions. The LCR has shown use, due in part to the historically large role of hydro- its commitment to shouldering its share of emissions electricity. However, emissions from the LCR rise sig- reductions through the early signing of the UNFCCC nificantly when agricultural and land-use changes are and the Kyoto Protocol along with the vast majority of considered, and deforestation remains the largest single countries. Mexico has adopted a proactive climate source of GHG emissions. But energy consumption in change policy that--besides demonstrating its leader- Latin America has been growing faster than the world ship among middle-income countries--it hopes will average, and at current growth rates energy-related deliver other economic and social benefits, and the gov- emissions would increase by 70 percent by 2030. In ernment is currently evaluating the priorities for both this context, this chapter assesses the potential for adaptation and mitigation. The LCR has unique capaci- reduction of GHG emissions from the main contribut- ties and opportunities for reducing GHG emissions, but ing sources: energy consumption, transportation, agri- what has not been entirely clear is the relative priority of cultural and waste management, and forestry. The different mitigation measures and the "net" costs of mitigation options with the largest potential can often their implementation. be implemented with existing technologies and at rel- As argued in chapter 1, in order for the global atively low capital costs, including avoided deforesta- response to the challenge of mitigating climate change tion, energy efficiency, urban transport, and waste to be efficient, it is critical to take advantage of the management, but this will require new policies and low-cost opportunities existing in the LCR and other institutional development to overcome high transac- regions of the developing world. However, for global tion costs. Fortunately, there are multiple nonclimate mitigation efforts to also be equitable, it is key that the change benefits for many of these mitigation options, cost of undertaking the corresponding projects be which, if combined with the flow of international car- shared by the global community, including by means bon payments, can help to significantly reduce Latin of an expanded and reformed CDM (as outlined in America's overall GHG emissions. chapter 4) and the progressive rollout of low-carbon policies in the developing world. However, a further Introduction motivation for LCR countries to pursue a lower-carbon As the global community moves closer toward commit- development path has to do with the fact that many of ting itself to global emissions reductions to avoid the policies needed to advance in that direction also potentially catastrophic impacts associated with global have other advantages, including financial gains (for 127 L O W- C A R B O N D E V E L O P M E N T : L A T I N A M E R I C A N R E S P O N S E S T O C L I M A T E C H A N G E example, when using less costly low-carbon energy could become so large in the future as to far outweigh sources or increasing energy efficiency) and potential the contribution from other sectors--or could remain improvements in energy security. In addition, there are at the level comparable to emissions from the energy social protection and biodiversity conservation benefits sector. This uncertainty comes about from the depen- from improved land use and forestry management. The dence on the actual emission levels from deforestation objective of this chapter is to identify the main climate or forest degradation on tree species, end-use of timber mitigation opportunities that exist in the region and products, and several other factors. For example, using to prioritize those options in terms of their relative harvested timber for furniture stores carbon, whereas contribution to emissions reduction, technology and burning forests immediately releases carbon into the implementation costs, and co-benefits. In addition, the atmosphere. Keeping in mind that uncertainty, recent chapter explores the policy challenges in overcoming estimates suggest that emissions from deforestation in various implementation barriers and the potential the LCR may have been declining since the early synergies that may provide additional motivations for 1990s from more than 3 MtCO2 in 1991 to less than pursuing them. 2.5 MtCO2 in 2005 (Houghton 2008). If that trend continues while energy sector emissions grow, the rela- GHG Emissions and Projections for the LCR tive contribution to total GHG emissions from the The LCR is a relatively small contributor to global energy sector in the LCR may indeed become compara- emissions--6 percent of energy emissions and 12.5 ble to the importance of the emissions from land-use percent of total GHG emissions--but faces dispropor- change in the future. tionate impacts of climate change (chapter 2). The What do the current pattern of emissions and their mitigation potential is largest in the sectors that con- expected future trajectory imply for the mitigation tribute most GHG emissions in the LCR today and in opportunities in the LCR? The region may make the those sectors whose emissions are expected to experi- highest contribution to the global mitigation efforts ence high growth. Thus, an assessment of the most by reducing emissions from deforestation--and this is promising areas for mitigation begins with a close high on the global agenda--but curbing the growth look at the emissions profile in the LCR. It is strik- of energy-related emissions, particularly in the indus- ingly different from the global emissions profile, with trial and residential sectors, will emerge as another deforestation and agriculture accounting for the bulk priority area on the mitigation agenda for LCR as well of total emissions, followed by emissions associated as globally. with energy use and electricity consumption in the industrial and residential sectors. By contrast, energy Energy--Relatively Low-Carbon Intensity in the use in these two sectors is the leading source of GHG LCR Today but on a Rising Path emissions in the world, and transportation contributes The energy sector contributes a lower share of total a substantially higher share to total emissions globally emissions in the LCR than in the world because of the than in the LCR (chapter 5). Another specific aspect of region's much lower carbon intensity of energy supply LCR's emissions profile is the particularly high share and its comparatively low per capita energy use (table of the agricultural sector in total non-CO2 emis- 6.1). Low-carbon intensity is the result of a low share sions--more than 70 percent compared to the global of coal and a relatively high share of renewable average of 55 percent. Methane from enteric fermen- energy--particularly hydro--in the LCR's energy sup- tation in the livestock sector and nitrous oxide from ply. However, both indicators--carbon intensity and soils are the bulk of non-CO2 emissions in the LCR per capita energy use--are on the rise in the region, and they are projected to rise in absolute value as well and this trend will continue unless measures are taken as remaining high in relative terms. to tap the large potential of low-carbon energy supplies Depending on some assumptions about the magni- and expand energy efficiency measures in the region. tude of future emissions from land-use change, they Although the LCR is starting from a low emissions 128 C L I M AT E C H A N G E M I T I G AT I O N I N T H E L C R : N O R E G R E T S A N D B E Y O N D TABLE 6.1 FIGURE 6.1 Lower Carbon Intensity but Higher Energy Demand Growth Low Reliance on Coal and High Reliance on Hydro-Electric, Oil, and in Latin America and the Caribbean Region than Globally Biomass in Latin America and the Caribbean Region, 2005 50 Percent of total primary LCR World 40 energy supply Energy use (toe/capita) 1.19 1.77 30 Emissions (tCO2/capita in 2004) 2.4 4.2 20 Carbon intensity of energy 1.98 2.38 use (tCO2/toe) 10 GDP (US$ 2000 PPP/capita) 7,267 8,191 Primary energy supply growth 2.5% 1.8% 0 il al as er s le r as a b he O (% per year 1990­2004) Co G ow s om ew Ot p Bi Energy related CO2 emissions growth 2.6% 1.8% ro yd (% per year 1990­2004) n H re Source: Dussan (2008). Latin America and the Caribbean Region World Source: IEA online data services, http://data.iea.org/ieastore/statslisting .asp. base, energy-related CO2 emissions grew at a faster pace during 1990­2004 than the global average mainly because of the higher than average growth in intensity of electricity generation in the LCR was energy supply. If this trend continues, emissions in the about half the world average (table 6.2). However, LCR would double by 2030. CO2 emissions from electricity generation grew at a The composition and evolution of the primary faster pace in the LCR relative to the world or indus- energy matrix in the LCR during the past 25 years trial countries in the period 1980­2004. The main shows some similarities but also significant differ- reason for LCR's relatively low carbon intensity is the ences with the world. The share of natural gas in the large share of hydro and natural gas in the region's primary energy supply had risen to about 21 percent power sector fuel mix. Though mitigation of CO2 by 2005, the participation of low-carbon energy emissions was not an explicit policy objective at the (hydro, nuclear, and small renewable) had risen to time, the development of hydroelectric projects was about 10 percent, and the share of oil was high but very effective in keeping the carbon intensity of elec- declined by about 10 percent during this period. LCR tricity generation low. has a cleaner generation mix relative to the world An analysis of the drivers and dynamics of CO2 average, with a much lower contribution of coal and a emissions in the power sector reveals major differences relatively high share of hydro (figure 6.1). The contri- between countries in the LCR in terms of the carbon bution of traditional biomass is also higher in the intensity of electricity generation. While Brazil gen- LCR than in the world, although it has decreased as erated only 87 grams of CO2 per unit of electricity electricity coverage and access to other modern energy (gCO2/kWh), Mexico emitted 552 gCO2/kWh, a sources (liquefied petroleum gas, solar) have risen, dis- level similar to the United States. The Caribbean, placing the use of firewood. which relies primarily on small thermal generation units, produced 712 gCO2/kWh. South America and A high but declining share of renewables in Central America, with a relatively large base of hydro- electricity generation electric generation, had a carbon intensity below 250 Electricity generation is cleaner in the LCR as a whole gCO2/kWh, a level similar to Canada. Despite the rel- than on average in the world, but that could change. In atively clean generation mix in the LCR, the high 2004, LCR produced 6 percent of the world's electric- growth rate of emissions has important implications ity but only contributed about 3 percent of electricity for climate change. Although the region starts from a sector emissions worldwide, implying that the carbon low base of carbon intensity, it is likely that this index 129 L O W- C A R B O N D E V E L O P M E N T : L A T I N A M E R I C A N R E S P O N S E S T O C L I M A T E C H A N G E TABLE 6.2 CO2 Emissions from Electricity Generation Annual growth (1980­2004), % Carbon intensity Increase in carbon intensity Emissions Electricity generation (2004), gCO2/kWh (1990­2004), % World 2.5 3.1 500 10 United States 1.5 2.3 555 4 Canada 2.1 1.9 205 2 LCR 3.7 4.7 262 3 Central America 4.9 5.3 302 217 Caribbean 5.1 5.6 712 9 South America 2.7 4.6 165 0 Brazil 5.8 4.3 87 57 Argentina 1.5 3.5 332 20 Venezuela, R. B. de 0.6 4.7 252 24 Chile 6.6 6.2 356 16 Colombia 2.3 3.9 169 21 Peru 2.4 3.8 206 7 Mexico 4.8 4.9 552 3 Sources: Emissions (IEA online data services), generation (EIA). and the share of total energy-related emissions from natural gas reserves in República Bolivariana de the power sector will increase in the future. Venezuela, Trinidad and Tobago, and Bolivia, which are The share of renewable energy in the generation partially used in regional pipeline markets (Bolivia) or mix is expected to gradually decrease, as evident from in the liquefied natural gas (LNG) market (Trinidad the reference planning scenarios (see table 6.3).1 Despite and Tobago). There are substantial reserves of good substantial growth in the use of renewable resources, quality steam coal in Colombia, which are increasingly that growth is not fast enough to keep pace with the attractive to the region as oil prices rise. rising demand for energy. As a result, CO2 emissions Developing small-scale renewable projects is also a from electricity generation in the region are expected promising prospect in the LCR from the purely techni- to continue to grow at annual rates of about 3.9 per- cal point of view. Countries rich in large hydroelectric cent. Relatively low carbon intensity levels are main- resources also have a significant potential of small tained in the scenarios mainly because most thermal hydroelectric projects. Many countries have areas with expansion is based on natural gas; however, carbon excellent wind conditions, with a wind power class intensity is expected to increase in countries where the equal or higher to 4; there is high potential for solar share of hydro and other low-carbon sources is already energy with radiation levels of more than 5 kWh/m2 in high (Brazil) and decrease in countries with substan- large areas of the Southern Cone, Mexico, and the tial thermal generation (Mexico). Caribbean; many countries are located in volcanic areas with geothermal resources; and sugarcane bagasse Great potential for renewable energy--but already contributes about 6 percent of primary energy. addressing the environmental concerns However, information about the potential of renewable As a whole, LCR is endowed with substantial energy energy that could be developed economically, and con- resources to meet future electricity needs. The hydro- solidated at a regional level, is fragmentary and incom- electric potential is about 687 gigawatts (GW) spread plete. The fact is that in 2005 the installed capacity of throughout Mexico and South and Central America, of renewable energy (not including hydro) for electric which only 26 percent will be utilized by 2015, accord- power was only about 6,800 MW, representing less than ing to current expansion plans. There are substantial 3 percent of total generation capacity in the region. 130 C L I M AT E C H A N G E M I T I G AT I O N I N T H E L C R : N O R E G R E T S A N D B E Y O N D TABLE 6.3 Latin America and the Caribbean Region-Generation Expansion 2005­30: Reference Case Generation Mix and CO2 Emissions MEXICO-CFE POISE IEA World Energy Outlook OLADE-Energy BRAZIL-National Energy Plan 2030 2008­17 (only 2007 (LCR except Mexico) Prospective (LCR) (only Brazil) Mexico) 2005 2015 2030 2008 2018 2005 2020 2030 2006 2017 Share of renewable energy 71% 63% 58% 86% 79% 78% 16% 11% Medium and large hydro 68% 60% 53% 82% 73% 68% 13% 9% Other renewables 2% 3% 4% 4% 7% 9% 3% 3% CO2 emissions (in million tons 179 263 412 302 438 21 48 83 117 178 CO2/year) Carbon intensity of generation 198 192 200 249 241 57 67 78 519 464 (grams CO2 /kWh) Annual rate of growth Generation 4.2% 2.7% 4.1% 4.7% 3.9% 5.0% Emissions 3.9% 3.0% 3.8% 5.7% 5.6% 3.9% Source: Dussan (2008). The region has significant potential for low-carbon Challenges for expanding hydropower with few energy, especially medium and large hydroelectric environmental and social impacts plants, but also wind and biomass that are competi- Hydropower potential in the LCR is very significant. tive today in some countries and that could play a Yet the development of more than 100,000 MW of major role in future electricity expansion plans. medium and large hydroelectric projects in South America and some Central American countries, which Different implications of a menu of renewable are included in the generation expansion plans by energy policies 2015 and 2030, face many difficulties and may not be Legal, regulatory, institutional, and financing schemes realistic (figure 6.2, table 6.3). Many of the most to promote the use of renewables for electricity gener- attractive hydroelectric projects require the construc- ation are at different stages of development in the tion of large reservoirs to regulate the substantial sea- region. These policies have recently been imple- sonal variations in river inflows and provide a reliable mented in many countries due to the drop in invest- source of energy. However, the construction of large ment in natural gas infrastructure, high cost of fossil dams has been at the heart of the opposition that has fuels, and El Niño­ and La Niña­related droughts typically accompanied large hydroelectric projects in that showed how susceptible hydro generation can be Latin America over the past 25 years due to population to climate variability. Many countries have enacted displacement, including indigenous groups and ethnic renewable energy legislation recently in response to minorities, inundation of vast amounts of land and the high fossil fuel prices. The policies implemented in loss of biodiversity, and adverse impacts on aquatic the region fall into four categories: tax exemptions habitats and other ecosystems. Climate change raises and credits, mandates, tariff and subsidy support for risks for hydroelectric plants through greater variation renewables, and resource laws. Furthermore, some in rainfall or runoff patterns that may require modifi- support measures, such as guaranteed purchase prices cations to hydropower designs and plans. Although (feed-in prices), are more advantageous under rela- the environmental and social impacts can be managed tively uncertain economic conditions, while other in many cases by appropriate environmental impact instruments, such as mandates, perform well when assessment studies and mitigation plans, the environ- price uncertainty is not a major factor in investor deci- mental licensing process is often inefficient and inef- sions (box 6.1). fective at achieving the environmental objectives, and 131 L O W- C A R B O N D E V E L O P M E N T : L A T I N A M E R I C A N R E S P O N S E S T O C L I M A T E C H A N G E BOX 6.1 Supporting Policies Have Different Effects on Incentives, Investment Certainty, and Costs Tax exemptions and credits. In an effort to stimulate invest- since generators are not competing against each other, as ments in renewable energy projects, countries may elect under energy auctions. A further disadvantage is the dif- to reduce or eliminate certain taxes--such as income and ficulty of phasing out feed-in tariffs even if economic import taxes and depreciation allowances--for a set conditions change, as typical of any subsidy. number of years of project operation. The incentive laws Renewable energy mandates. A renewable energy man- of Argentina, Colombia, the Dominican Republic, El date requires existing and new generators to produce a Salvador, Guatemala, Honduras, Nicaragua, Panama, and certain percentage of their generation from renewable Peru are of such a nature. Another instrument, a produc- sources by a given target year. Binding mandates typi- tion tax credit (PTC), helps renewables compete with cally involve fees for noncompliance. Renewable energy other types of generation technologies by compensating mandates help attain production efficiency as they allow renewable energy producers for the difference in genera- market pressures to lower the cost of generation. Genera- tion costs relative to fossil fuels. But PTCs can also be a tors still compete against each other to provide the least- detriment to an industry if they are not consistently sup- cost energy and are selected and contracted by power ported by the federal government. In the United States providers in power purchase agreements. This situation the PTC for wind generation has expired and been differs from a feed-in tariff, which provides generators renewed several times, causing a boom and bust in the with a fixed purchase price for renewable energy from wind industry. If a developer begins the preparatory stud- specified sources and does not encourage innovation to ies and applies for permits but is unable to begin genera- lower generation costs. However, mandates that are not tion on the site before the PTC has expired, he is not well-structured may promote cherry-picking of technolo- eligible for the credit. In the region, only Argentina has gies rather than preserving the level playing field for adopted a PTC. diverse technologies. Chile has adopted a renewable Tariff and subsidy support. Feed-in laws require distrib- energy mandate in terms of a percentage of generation utors to buy renewable energy at a fixed rate that is that must be sourced from renewables, whereas mandates higher than the average wholesale market price and usu- in Brazil and Uruguay are in the form of specified MW ally close to the retail price of electricity. A feed-in tariff capacity additions by target years. is an associated incentive structure to encourage the Renewable energy resource laws. Using renewable resources adoption of renewable energy through government legis- to generate electricity requires specific legislation that lation, in which regional or national electricity utilities governs their use. For example, tapping geothermal are obligated to buy electricity generated from renewable resources for power generation is more successful when sources at rates set by the government at levels above the governed by a geothermal resources law than under generic market rate. This incentive mechanism for renewables mineral or water acts. Geothermal resource laws, such as has been adopted in Costa Rica, Ecuador, and Peru. Feed- those in El Salvador, Guatemala, Nicaragua, and Peru, in laws are effective at promoting renewables since devel- address such matters as drilling rights, resource conces- opers can get loans for projects as uncertainty about power sions, and environmental protection that is unique to the purchase prices is reduced. However, feed-in tariffs pro- industry. Similar policies need to be formulated for vide little incentive for innovation or cost minimization hydropower, wind, and biomass resources. when the licensing process is lengthy, risky, and expen- attaining environmental objectives and efficient from sive, it causes delays in the preparation and execution the economic viewpoint (box 6.2). of the projects, raising project risks and costs. The In most countries that have adopted a competitive challenge is to make the process of environmental electricity market with private participation, investors impact assessment and licensing both more effective at have avoided hydro projects because of high project 132 C L I M AT E C H A N G E M I T I G AT I O N I N T H E L C R : N O R E G R E T S A N D B E Y O N D FIGURE 6.2 Hydroelectric Potential in Latin America and the Caribbean Region 120,000 80 70 100,000 60 80,000 50 Capacity, MW Percent 60,000 40 30 40,000 20 20,000 10 0 0 il a o ile a a r ru y a s a ca do ra ua az in bi an al m ic Pe Ri Ch ex du m nt m na Br ua g uy a ra te lo M e on Pa st Ec G rg Co Pa ua Co H A G Planned installed capacity by 2015 Percent of potential capacity Source: Dussan (2008). Note: This figure shows planned installed capacity by 2015 as a percent of potential capacity. MW = megawatt. BOX 6.2 More Effective and Efficient Environmental Licensing Is Needed to Unleash the Region's Potential for Hydropower Minimizing adverse environmental and social effects of effects (for example, impacts of building several rather hydropower and other clean-energy projects that involve than one hydropower plant in the same river basin) and large infrastructure works requires strategic planning at compare alternatives that are not assessed in the standard the sector and subsector levels, an effective regulatory EIA process. Zoning plans can also be instrumental for framework, environmental information, and institutions selecting the sites for hydropower plants and dams and that can monitor and enforce standards and regulations. helping avoid critical wildlife habitats. This approach can The environmental licensing process for hydropower be used in planning hydropower investments, and it has projects in the LCR needs to become more efficient-- been successfully applied in other sectors with potentially impose lower-costs on the economy--and, at the same high environmental impacts. Planning roads as a net- time, more effective at achieving environmental protection work in the Tocantins state in Brazil helped avoid criti- objectives. The primary instrument for managing the cal habitats while at the same time increasing the environmental implications of hydropower investments is economic and social benefits. Using these complemen- the Environmental Impact Assessment (EIA) whereby an tary instruments of environmental management can environmental agency issues licenses. Using complemen- enhance the EIA process, improve its efficacy, and reduce tary instruments--including zoning and Strategic Envi- the regulatory costs and delays, thereby helping over- ronmental Assessment (SEA)--will improve infrastructure come the main obstacles to realizing the potential of the planning and assessment of environmental impacts. The region to meet a large share of the growing energy advantage of SEA is the possibility to assess cumulative demand from low-carbon sources. 133 L O W- C A R B O N D E V E L O P M E N T : L A T I N A M E R I C A N R E S P O N S E S T O C L I M A T E C H A N G E risks: high capital cost, need for expensive and time- America and the Caribbean, northern Colombia, and consuming feasibility studies, higher construction risks, Patagonia (both Argentina and Chile). Mexico's CFE long execution and amortization periods, and protracted (Federal Electricity Company) has estimated the feasible and politically sensitive processes to obtain environmen- potential of wind at between 7 to 12 GW, in compari- tal licenses. Development of large hydro projects requires son to the current installed capacity of 51 GW, with strong government support to help manage these risks detailed wind resource studies completed for Baja or the participation of financially solid state-owned Peninsula (1,500­2,500MW) and the Isthmus of enterprises that are willing and capable to assume these Tehuantepec centered in Oaxaca (2,000­3,000MW) risks. Because of these risks, many institutions (includ- (figure 6.3). ing multilateral banks) have reduced their involvement Wind power tends to be competitive in locations in hydroelectric projects over the past 20 years. with a favorable policy environment, resource endow- Even Brazil, a country that has been very success- ments, available infrastructure, and without low-cost ful in developing a large potential of low-cost hydro- alternative sources of energy. Wind power operating electric generation, has experienced delays in the with high capacity factors and close to a transmission development of new hydro projects. Brazil has been grid is becoming competitive for most countries in using public auctions since 2004 to award long-term Central America and the Caribbean that generate a energy supply contracts, and one of the hopes of the large share of their electricity with oil, do not have program was that it would facilitate the delivery of access to low cost hydroelectric generation, and have hydroelectric projects. However, the participation of introduced legislation to promote development of hydro in the auction process was constrained by small renewable power. In this case, wind projects can delays in obtaining environmental licenses, and only be competitive and cover their levelized generation about 50 percent of the hydro projects that intended costs at the marginal costs of new capacity.2 Wind is to participate in the first auction in late 2005 received also likely to be quite competitive in Chile and Mexico, an environmental license and were able to submit a where marginal generation costs are high based on proposal (World Bank 2008a). Consequently, the natural gas, fuel oil, or imported coal or LNG. In awarding of contracts for hydroelectricity in new Colombia, another area with good wind resources, generation capacity to be commissioned in 2008­10 wind is less competitive. In countries with access to has been lower than envisaged in the indicative gen- low-cost generation (hydro or gas-fired), including eration expansion plans, and, as a result, the share of Brazil, Colombia, and Peru wind projects cannot fossil fuel plants has increased. Hydropower projects do not necessarily have to produce negative environmental consequences. Main- FIGURE 6.3 streaming environmental considerations in project Wind Power Potential in Mexico design at an early stage can significantly reduce infrastructure's environmental footprint. This can be achieved through avoiding critical natural habitats in infrastructure siting, minimizing damage to other (noncritical) natural habitats, and through such miti- gation measures as careful engineering design and ecological compensation programs. Opportunities for wind--difficulties competing with low and unstable energy prices The wind power potential in the LCR is considerable, with the best wind resources located in Mexico, Central 134 C L I M AT E C H A N G E M I T I G AT I O N I N T H E L C R : N O R E G R E T S A N D B E Y O N D cover their levelized generation costs. In the presence TABLE 6.4 of low-cost generation sources, as in these cases, rev- Levelized Generation Costs of Wind Power enues from energy sales at marginal generation costs, projected to be in the range of 25 to 70 US$/MWh, US$/MWh are low and that makes it difficult for higher-cost Brazil 126 wind power to compete.3 Canada 78.4 116.2 China 57.4 68.6 Private developers of wind projects--as with other Costa Rica 72.8 long-term investments, such as hydro--typically Estonia 74.2 require long-term contracts with stable energy prices Mongolia 89.6 Sweden 91 sufficient to recover their fixed costs. While wind may Mexico 64.3 be competitive today in certain countries in compari- Sources: World Bank staff estimates; Wind Power Monthly, son to fossil fuels, the opportunity cost may drop in January 2008, with prices in euros converted to US$ at the future to levels that do not cover their costs, and US$1.4/euro. many wind developers do not have deep pockets. To address these hurdles, in some countries, like Hon- Bioenergy--identifying sustainable liquid biofuels duras, the developer can use a long-term contract to to avoid perverse outcomes lock current high marginal costs in the energy price. The use of bioenergy from agriculture, forestry, and Additional revenues from the sale of CERs would help municipal solid wastes represents a potentially large but are still small at current carbon prices.4 mitigation source in the efforts to combat climate As an alternative example, Brazil established a change when feedstocks for bioenergy can be collected quota-based incentive program (PROINFA) for the and produced in a sustainable manner. Fuelwood contin- development of wind, biomass, and small hydro, con- ues to provide a large share of the world's and LCR's sidered as three different markets, each one with its energy needs. However, given the unsustainable nature own energy price. In the first phase of the program a of much fuelwood production, particularly when it capacity of about 1,423 MW was awarded to wind drives deforestation, and the health costs associated with power at a much higher energy price than biomass or inefficient fuelwood stoves for cooking and heating (and small hydro. In 2007, the government decided to the global warming potential of incomplete combus- apply the scheme of public auctions with a ceiling tion), traditional fuelwood use is not a feasible option for price to purchase energy from small renewable reducing GHG emissions. While bioenergy includes all power, but the results were not positive. With a ceil- biomass used as fuel, there has recently been a lot of ing price of about US$77/MWH, only 638 MW interest in liquid biofuels, especially in the LCR. were awarded, 85 percent to biomass and the rest to Liquid biofuels are one of few alternative fuels for small hydro (World Bank 2008c), probably an indi- transport--a sector whose emissions are rapidly rising cation that wind and most small hydro projects in tandem with economic growth and improving liv- cannot compete at that price. ing standards in developing countries. With oil prices Over the past three years the increasing demand in 2008 reaching record highs, Brazil, the European for wind, especially in the United States and other Union, and the United States, among others, are industrial countries, has resulted in a short-term actively supporting the production of liquid biofuels shortage and an increase in price of wind turbines from agriculture--usually maize or sugarcane for and other equipment, with installed costs increasing ethanol and various oil crops for biodiesel. The share by as much as 17 percent in 2006. Even with these of biomass consumption in the total energy basket in cost increases, Mexico (and specifically Oaxaca) the LCR is on the decline, while the share of biofuels remains among the lowest-cost regions for wind gen- is higher than in any other region--thanks to the eration with recent bids in the range of US$64/kWh large production potential in Brazil--and is rising (table 6.4). (table 6.5). 135 L O W- C A R B O N D E V E L O P M E N T : L A T I N A M E R I C A N R E S P O N S E S T O C L I M A T E C H A N G E TABLE 6.5 Shares of Energy Consumption in Latin America and the Caribbean Region by Energy Source Industry Transport Residential, services and agriculture 2004 2030 2004 2030 2004 2030 Coal 7 6 0 0 Oil 23 21 90 84 28 25 Gas 25 25 11 15 Electricity 19 26 31 40 Heat 0 0 0 0 Biomass and waste 26 21 30 19 Other renewables 0 0 0 1 Biofuels 6 10 Other fuels 4 6 Total 100 100 100 100 100 100 Source: IEA (2006). Note: This table shows the shares of energy consumption in the LCR by energy source under the IEA reference scenario. In the IEA's alternative policy scenario, the shares of coal, oil, gas, electricity, and heat are projected to decrease by about 10 to 16 percent for all sectors (and an over 20 percent reduction of oil consumption by the transport sector) relative to the reference scenario, while the share of other renewables would increase by 110 percent compared to the reference scenario. The share of biofuels in transport would increase by 24 percent relative to the reference scenario. The global economic mitigation potential of bio- percent of its maize crop to produce ethanol in mass from agriculture is estimated at about 640 to 2007­08, and extends generous support to the industry 2,240 Mt CO2e per year, with additional mitigation through tax incentives and subsidies for biofuel produc- potential from biofuels.5 However, uncertainty about tion and consumption, coupled with consumption land availability and future yields result in a very mandates. Many developing countries are launching broad range of estimates. Furthermore, the way in biofuel programs that rely on molasses, sugarcane, and which biomass is used--unsustainable harvesting and oil-rich crops, such as soybeans, oil palm, and jatropha. combustion in inefficient and polluting stoves--lim- In the LCR, Argentina, Central America, Colombia, its its potential to contribute to GHG reduction. The and Paraguay are some of the new emerging players on mitigation potential of biofuels is even more con- the biofuels markets, although their production vol- tentious as the implications of biofuels' use on GHG umes are far lower than in Brazil. According to some emissions vary depending on the type of feedstock, estimates, more than 40 million additional hectares of process, and the environmental impact of cultivating arable land that is suitable for sugarcane cultivation can a specific feedstock. be brought into production in Brazil. Despite this large Brazil and the United States accounted for almost untapped potential, important social and environmen- 90 percent of global ethanol production--50 billion tal trade-offs need to be considered. liters--in 2007. In the same year, the EU countries To make biofuels financially viable, most govern- produced nearly 60 percent of the world's total ments extend financial and policy support to the biodiesel output of 9.6 billion liters. Brazil is an industry. Feedstock costs account for more than half ethanol pioneer, with production starting in the 1930s; the costs of producing biofuels. Despite remarkable it remains the world's most competitive producer, as reductions in production costs in Brazil and else- well as the lowest-cost sugarcane producer. Half of where, the biofuels industry has struggled until Brazil's sugarcane is now devoted to ethanol, for which recently. It has been able to stand on its own in purely a market has been guaranteed by legislation requiring economic terms in just a handful of cases, such as ethanol-gasoline blends. The United States used 24 Brazil in 2004­05 (but not 2006 when international 136 C L I M AT E C H A N G E M I T I G AT I O N I N T H E L C R : N O R E G R E T S A N D B E Y O N D sugar prices skyrocketed) and 2007­08. Elsewhere, If feedstock production in one part of the world biofuels production has not been financially viable prompts another region to change its land-use prac- without government support and protection. Domes- tices, global GHG emissions may actually rise. Life tic producers in the European Union and the United cycle analysis--which is a way to account for the total States receive additional support through high import emissions of GHGs throughout the entire process of tariffs on ethanol. cultivation of feedstocks and production of biofuels-- Possible environmental and social benefits, includ- indicates a 20 percent annual savings in CO2 emissions ing mitigation of climate change and contribution to relative to oil when ethanol is produced from maize in energy security, are cited as the main reasons for pub- the United States. However, a recent study estimates lic sector support of the rapidly growing biofuels that land conversion in the United States and else- industry. Yet despite the potential of biofuels both as a where to produce more maize may actually result in a renewable energy resource and a source of support for doubling of GHG emissions over 30 years and agricultural producers, there is mounting evidence increase GHGs for 167 years.10 that they carry social and environmental risks. These Benefits can fall further after accounting for envi- include upward pressure on food prices, intensified ronmental impacts associated with production of bio- competition for land and water, and land-use change fuels: depletion of natural resources, razing of forests that increases greenhouse gas emissions. The climate and peat surfaces to open land for cultivation, and mitigation potential of biofuels, in particular, depends damage to ecosystems. Environmental costs of nearly on the type of feedstock and production process used, half of these biofuels, including the economically as well as on the indirect emissions resulting from most important ones--such as U.S. maize ethanol, soy land-use change. diesel, and Malaysian palm-oil diesel--may have Without changes in land use, Brazilian sugarcane is greater environmental costs than fossil fuels. The estimated to reduce GHG emissions compared to ranking of biofuels by their overall environmental gasoline by about 90 percent. In contrast, the reduc- impact depends crucially on whether the cultivation tion of GHGs for ethanol from maize in the United of feedstocks results in direct or indirect land-use States is only in the range of 10 to 30 percent before change. Conversion of forest areas as a consequence of taking into account the indirect GHG emissions the expanding biofuels production can occur indi- from land-use change.6 By some estimates, the cost rectly as sugarcane or soy plantations displace crop of reducing one ton of carbon dioxide emissions areas and pastures, which, in turn, expand into forest through the production and use of maize-based areas. This type of indirect land-use change is particu- ethanol could be as high as $500 a ton, or 30 times larly difficult to measure and because of that complex- the cost of one ton of CO2 offsets in the European ity it is often overlooked in sustainability assessments Climate Exchange.7 of biofuels. For biodiesel, the emission reductions are esti- The findings of very high environmental costs of mated in the range of 50 to 60 percent--again, with- land-use change are corroborated by studies that look at out considering land-use changes--with the economic specific regions and assess the "carbon payback time," value of reductions much lower than the subsidies or time that it takes for the annual reductions in emis- typically given to biofuels. At the prices forecast in sions when biofuels replace fossil fuels to compensate carbon markets--between US$8 and US$20 per met- for the one-time emissions of carbon from land conver- ric ton: CO2 equivalent--the value of GHG reduc- sion to biofuels. Conversion of peat land or tropical tions is likely to fall between US$0.01 and US$0.04 forests to cropland to cultivate feedstocks for biofuels, per liter of biofuel.8,9 In many cases, demand-side and whether first- or second-generation, will cancel out any efficiency measures in the transport sector are likely of the emissions reductions for decades. Production of to be much more cost-effective than biofuels in annual biofuel crops, such as maize, cassava, or soybeans, reducing GHGs. on deforested land with first generation technologies 137 L O W- C A R B O N D E V E L O P M E N T : L A T I N A M E R I C A N R E S P O N S E S T O C L I M A T E C H A N G E requires approximately 300­1,500 years of biofuel car- Policy simulations from a scenario of costless land bon savings to reach a carbon breakeven point. conversion suggest that as much as 40 percent of Biodiesel compensates for forest carbon losses only after land currently under natural forests around the 30­120 years for nonpeat soils and after more than 900 world may be converted to biofuels production by years for forest growing on peat lands in South Asia.11 2100 relative to 2000 even with second-generation Carbon flows from initial land clearing and from carbon biofuels.13 Forest conversion is much lower when savings associated with the replacement of fossil fuels forest conversion is more costly (figure 6.4b) than with biofuels occur at different time periods and they with low conversion costs (figure 6.4a). These results need to be discounted, which would somewhat reduce underscore the importance of implementing conser- the carbon payback periods, but the choice of an appro- vation policies and incentives for forest preservation priate discount rate for carbon is surrounded by politi- that would increase the relative cost of land conver- cal controversy and few studies have addressed this sion from forests to agriculture. Although the study issue.12 If forests or grasslands are not converted for the uses regionally disaggregated data within a general production of biofuels--including indirect impacts-- equilibrium framework, the results should be treated the carbon payback would be significantly less. Brazil- with some caution because of the global focus of the ian researchers estimate that the carbon payback from study and the understandable general nature of the producing ethanol from sugarcane grown on former conclusions. Assessments of the likely direct impact pasture land would be less than four years. of biofuels on land use within a general equilibrium In the policy discussions, high hopes rest with framework and a high level of regional disaggrega- second-generation biofuels and the expectation that tion, with a focus on specific countries and regions, their advent would reduce the pressure on land. Yet are much needed to aid policy design. results from one of the few studies that assess the Second-generation biofuels may require less addi- interactions between land use and biofuels produc- tional land insofar as they would utilize crop residues tion on the global scale do not support that hope. and waste or energy crops grown on poor quality FIGURE 6.4 Conversion of Natural Forest to Second-Generation Biofuels in Latin America and the Caribbean Region a. Mitigation scenario with low conversion costs b. Mitigation scenario with high conversion costs (with trade in biofuels) (with trade in biofuels) 100 100 Percent of total land area Percent of total land area 90 90 80 80 70 70 60 60 50 50 40 40 30 30 20 20 10 10 0 0 97 05 15 25 35 45 55 65 75 85 95 97 5 15 25 5 5 5 65 75 85 95 0 3 4 5 19 20 20 20 20 20 20 20 20 20 20 19 20 20 20 20 20 20 20 20 20 20 Natural forest Managed forest Natural forest Managed forest Natural grass Pastures Natural grass Pastures Biofuels Crops Biofuels Crops Source: Gurgel et al. (2008). The disaggregated results for the LCR were provided by the authors. Note: Results are from the general equilibrium modeling mitigation policy scenarios, which allow unrestricted conversion of natural forest and grassland (as long as conversion costs are covered by returns), and for costly conversion (assuming the same costs as what had been observed in the past). The two models represent what might be considered the two extremes of land conversion, and the magnitude of future conversion is likely to lie somewhere between the results of these two models. 138 C L I M AT E C H A N G E M I T I G AT I O N I N T H E L C R : N O R E G R E T S A N D B E Y O N D land that is not suitable for other agricultural pro- devoted to ethanol production, coinciding with a sharp duction. The extent to which GHG emissions can drop in U.S. maize reserves. Biodiesel production in be avoided using marginal and degraded land or the European Union--again driven by subsidies and waste products is debated. Even if truly excess crop- mandates--and elsewhere, among other factors, has lands are used, biofuels would still not avoid the contributed to similar price increases for vegetable emissions as these croplands would convert either to oils (canola, soybean, and palm). The increased demand forest or grassland and start sequestering carbon if for feedstock crops by biofuel industries, by some esti- they were not used for biofuels. The net emissions mates, has accounted for about 20 percent of the overall depend on carbon sequestration by biofuels crops increase in real rice and wheat prices and about 40 per- compared to the alternative land cover. Furthermore, cent for maize from 2000 to 2007.16 On the contrary, cultivation of energy crops on marginal and degraded Brazil's ethanol production from sugarcane has not land would likely require fertilizer and irrigation, with contributed appreciably to the recent increase in food such possible environmental impacts as fertilizer commodity prices.17 Rising food prices have hit many runoff and groundwater depletion. Waste products-- food-importing countries hard, causing significant as they would not cause land-use change--have been welfare losses for the poor, many of whom are net buy- identified as a truly sustainable raw material for ers of staple crops. biofuels.14 Second-generation technologies could enable a shift Minimizing potential environmental risks from from reliance on food crops to dedicated energy crops large-scale biofuels production could be possible using a range of feedstocks, including agricultural, through certification schemes to measure and commu- municipal, industrial, and timber wastes, thus attenuat- nicate the environmental performance of biofuels (for ing the trade-offs between food and biofuels production. example, a Green Biofuels Index could reflect the pro- This could reduce pressure on food crop prices, but only duction path and contribution to GHG reductions).15 if producing these alternative feedstocks and raw mate- Similar standards already exist for organic products rials requires less land than that used for biofuels at pre- and for the sustainable production of timber, pulp, sent. Among the most promising second-generation and forest products (Forest Stewardship Council). technologies are lignocellulosic ethanol that can use a From the point of view of reducing environmental range of biomass feedstocks and oils derived from algae. risks from biofuels, however, only worldwide certifica- Such technologies are not yet commercially viable-- tion of most biofuels that is effectively enforced may and will not be for at least several more years. Bridging have a reasonable chance of making a difference. This this gap with research investments, by both private would argue for rapidly building a consensus on what companies and public authorities, should be a priority. would be a realistic way forward to ensure global envi- Biofuels trade liberalization would increase compe- ronmental sustainability. Assessment of the indirect tition in the sector. This would improve efficiency, impact of biofuel production on land-use change will bring down costs, and enable the world's most efficient be challenging or nearly impossible even if such a cer- producers to expand their share of the biofuels market. tification scheme could be implemented. But for this to deliver net gains in welfare for develop- The conflict between food and fuel is another ing countries, efforts to remove trade barriers must be important economic and social risk posed by produc- accompanied by a commitment by rich countries to tion of some biofuels. Rising energy prices, among reduce or eliminate domestic protection of feedstock several factors, have contributed to food price increases, producers and biofuels industries. A level playing field but biofuel production has also pushed up feedstock for biofuels would resolve some of the dilemmas, prices. The clearest example is maize, whose price rose attenuate the risks, and clarify the choices for policy by 87 percent from January 2005 to December 2007. makers seeking welfare gains from biofuels. Driven by subsidies, mandates, and import barriers, a Biofuels promotion policies such as agricultural sub- rapidly rising proportion of the U.S. maize crop is sidies and tax exemptions not only distort international 139 L O W- C A R B O N D E V E L O P M E N T : L A T I N A M E R I C A N R E S P O N S E S T O C L I M A T E C H A N G E trade patterns, but also impose large costs on their own production of feedstocks. And the social and distribu- populations. Interactions among different policies can tional effects will be positive if job creation and magnify these costs. De Gorter and Just (2008) analyze employment outweigh the loss of access to land and the interaction between agricultural policy (loan defi- adverse changes in cropping patterns by the poor and ciency payments for corn) and biofuels policy (tax vulnerable households with insecure land tenure. The credits), using the U.S. program as an example. With challenge for the governments in the LCR is to assess the rates for both programs used in the years 2004­07, biofuel strategies using integrated cross-sectoral they estimate average annual taxpayer costs of about approaches that fully account for the location- and $4.83 billion, with reduction in social welfare of $1.66 feedstock-specific environmental and social impacts. billion per year. These findings underscore the need to At the international level, it is essential that trade in base policy design on sound economic analysis. biofuels is liberalized so that they are produced in the The choice of policy instruments in support of bio- most efficient manner and make the maximum contri- fuels has very important and mostly overlooked conse- bution to climate change mitigation. quences for the financial cost of that support--the environmental and distributional outcomes. In the The rising role of coal and the costs of switching LCR, Argentina, Brazil, Colombia, the Dominican away from it Republic, Peru and Uruguay have defined consump- High natural gas prices and concerns about the social tion targets for ethanol from sugarcane; Argentina, and environmental impact of large and medium Brazil, and Paraguay, for biodiesel from soy; and hydroelectric projects are becoming barriers to the Bolivia and Colombia, for biodiesel from palm oil.18 development of other sources of clean or low-carbon Consumption mandates for biofuels are a preferred energy in the region. Carbon capture and storage, policy instrument on the grounds of efficiency and the which is not yet commercially available, could be a environmental impacts.19 Combining mandates with long-term option for the region. In the meantime, tax credits--a common approach around the world, coal-fired generation, a technology with a high carbon including the United States--has perverse conse- footprint, is becoming a preferred option in several quences because of a unique interaction between the countries in the region. quantity and price-based incentives in the biofuels Coal-fired generation is a cost-competitive option markets (box 6.3). These unintended adverse conse- in countries with high-cost or scarce hydroelectric quences need to be brought out into the public debate potential (Mexico, Central America, and the large in the LCR and other developing countries so that Caribbean islands) or countries with indigenous coal these countries can benefit from the experience of the reserves that do not have access to international mar- suboptimal biofuels policies of the European Union kets (Brazil and Colombia). The generation cost of and the United States. If consumption targets in the coal-fired plants for base load operation, using imported LCR become binding mandates, combining them coal, is estimated to be in the range of 50 to 70 with tax credits for biofuels would reduce or elimi- US$/MWh, and for coal-fired plants in Brazil and nate the possible beneficial economic, social, and Colombia, between 45 and 50 US$/MWh (figure environmental impacts of the mandates. 6.5). The development of coal-fired generation raises The rising market share of biofuels in the global environmental concerns and is of course a threat to the energy basket can help mitigate global climate change abatement of CO2 emissions of electricity generation if GHG emissions fall after a full accounting of fossil in some countries in the region--its emission factor in energy use and land-use change throughout the pro- tons CO2/MWh doubles the factor for a gas-fired duction cycle. The local environmental impacts will CCGT. However, it is an option that cannot be on balance be positive if the contribution of biofuels ignored as long as it remains attractive financially. For to reduce local air and water pollution outweighs example, the Dominican Republic is in the process of the adverse environmental effects caused by the developing 1,200 MW in coal-fired generation by 140 C L I M AT E C H A N G E M I T I G AT I O N I N T H E L C R : N O R E G R E T S A N D B E Y O N D BOX 6.3 Unintended Consequences of Combining Biofuel Mandates with Tax Credits Since December 2007, the new mandate signed into law in tax, like in the United States. A mandate also saves tax- the United Staes requires the use of at least 36 billion gal- payer costs and does not incur the deadweight costs of tax- lons of biofuels in 2022, a fivefold increase over the current ation. Mandates are more efficient than tax credits for the Renewable Fuel Standard (RFS) levels in the recently same level of ethanol production because mandates result passed Energy Independence and Security Act. By 2022, in relatively higher gasoline prices and lower CO2 emis- biofuels could represent more than 20 percent of U.S. sions and miles traveled. Gasoline producers always lose automobile fuel consumption. At the same time, the new from a mandate, ethanol producers gain, while fuel con- legislation calls for the continuation of the federal biofuel sumers can gain or lose. tax credit of US$0.51 per gallon which, when combined A further disadvantage of tax credits compared to man- with state tax credits, will potentially cost taxpayers over dates is the additional instability that tax credits bring to the US$26 billion by 2022. corn markets and therefore the agricultural and food markets An economic model developed by de Gorter, Just, and in general. Tax credits create an incentive to drastically Kliauga (2008) shows the effect of tax credits compared to change ethanol production in response to a large fluctuation biofuel mandates on gasoline and biofuel production and in oil prices. In addition, de Gorter, Just, and Kliauga (2008) consumption and gasoline and ethanol prices, and the show that trade restrictions through an import tariff in the combined effect of tax credits implemented simultane- United States have a smaller negative impact on world ously with consumption mandates. As this model demon- ethanol prices with a mandate compared to a tax credit. strates, any beneficial effects on energy security and the Combining mandates with tax credits leads to a perverse environment of the new RFS may be completely offset by outcome, unexpected by policy makers. With binding man- the tax credit that is in place. dates in place, the tax credits will unintentionally subsidize The key difference between tax credits and mandates is gasoline consumption. This contradicts the energy bill's the way they affect fuel consumption, mileage, gasoline, stated objectives of reducing dependency on oil, improving and ethanol prices and who the captures the subsidy. Tax the environment, and enhancing rural prosperity. Because of credits by themselves encourage ethanol production as a the unique way in which mandates reverse the market replacement for oil-based gasoline consumption. Compared effects of a tax credit, the intentions of policy makers cannot to tax credits that achieve the same level of ethanol con- necessarily be faulted. Furthermore, combining mandates sumption, a mandate results in higher fuel prices and lower with tax credits is a worldwide error of judgment as most fuel consumption (although a mandate can generate an countries use both instruments simultaneously. The policy increase in fuel consumption). This means a mandate is implication is clear: allow the mandate to work by itself, preferred to a tax credit when there is a suboptimal gasoline eliminate the tax credit, and save billions to taxpayers. Source: Adapted from De Gorter, Just, and Kliauga (2008). 2013 (for a projected peak load demand of about in CO2 emissions and the raising of the carbon inten- 3,000 MW), because of high oil and LNG prices. By sity, but also for local environmental concerns--water, comparison, large hydro can be developed at a lower land, and air pollution due to the transport, processing, cost than coal (as in Brazil, Colombia, and Peru) and and burning of coal. As noted above, coal is currently a sometimes also lower than gas (as in Brazil, Colombia, bargain compared to oil-fired generation, and in some and Central America) as long as the environmental cases is competitive compared to hydro and natural and social costs that impede hydropower development gas. However, least-cost generation expansion plans can be minimized. usually do not take into account the externality cost of The expansion of coal-fired generation in the LCR CO2 (nor adequately account for the cost of local pollu- raises environmental concerns, not only in the increase tants such as PM, SO2 or NOx), estimated in the range 141 L O W- C A R B O N D E V E L O P M E N T : L A T I N A M E R I C A N R E S P O N S E S T O C L I M A T E C H A N G E TABLE 6.6 FIGURE 6.5 Generation Costs of Hydro Are Often Lower than for Gas and Switching Costs from More to Less Carbon Intensive Energy Sources Coal-Based Power (US$/MWh) Wind Peru Central CCGT-NG America Brazil Colombia Peru Coal-fired steam Large hydro Coal to large Colombia CCGT-NG hydro 8.6 to 8.8 0 to 15.3 0 0 Coal-fired steam Gas to large Large hydro hydro 0 0 to 2.9 0 to 2.3 17.5 Brazil Coal to gas 37.2 to 38.2 25.5 0 to 15.3 0 CCGT-NG Coal-fired steam Source: Dussan (2008). Large hydro Note: Calculations assume carbon intensity of 896 tCO2/GWh Central America CCGT-LNG for coal-based generation, 404 tCO2/GWh for gas, and zero for Coal-fired steam hydro. The ranges are for the medium (the first number in the MSD range of switching costs) and high levels (the second number in Large hydro the range) of generation costs that correspond to the costs 0 20 40 60 80 100 120 140 shown in figure 6.5. US$/megawatt hours Source: Dussan (2008). Note: CCGT-NG = combined cycle gas turbine from natural gas; CCGT-LNG = CCGT from liquefied natural gas; and MSD = medium- However, these results underestimate the difficulties speed diesel. The levelized generation costs were calculated based and implicit costs that many countries face when devel- on typical investment and operation costs for generation expansion planning in the region, and based on two fuel price scenarios oping hydroelectricity. In terms of the analysis, a delay (assuming an oil price of 60 US$/bbl and a high price case of 100 US$/bbl). Imported coal and LNG prices are consistent with the two of one year in the commissioning of a hydro project in oil price scenarios. Coal and natural gas prices in local markets are the prices used in generation expansion plans in producer countries. Central America will increase the switching costs from coal to hydro by about 6.5 US$/ton CO2. At a price of US$100/barrel of oil and a cost of CO2 of US$20/ton, the rate of return for the Jepirachi wind power project of 16 to 105 US$/ton CO2.20 As an alternative to the in Colombia increases from 9.6 percent to more than evaluation of social carbon costs, one can calculate the 11.1 percent (ESMAP 2008 forthcoming). "switching cost," the price paid for carbon that will make a developer indifferent between developing a Tapping the Potential of Energy Efficiency--One high-carbon and the next best lower-carbon alternative. of the Most Promising Options Thus, "switching costs" are a benchmark for assessing By any measure, there is substantial untapped energy competitiveness of low-carbon alternatives with fossil efficiency potential worldwide and in Latin America fuels. that could reduce greenhouse gas emissions at low Table 6.6 shows the results of a simplified analysis cost. Globally, more than half of the energy related of switching prices for some selected countries in the potential to abate GHG emissions within the next region. For example, the table shows that in Central 20­40 years is attainable through improvements in America, at a price of carbon of US$8.8/ton CO2, it energy efficiency.21 Countries in the LCR could reduce would be possible to switch from a coal to a hydro energy consumption by 10 percent over the next plant, but the cost would rise to US$38.2/ton CO2 decade by investing in energy efficiency at a cost that to switch to a combined cycle natural gas turbine. is US$37 billion less than the cost of investing in new Likewise, hydro is already the preferred alternative electricity generation capacity.22 Improving energy to coal in Brazil, Colombia, and Peru assuming a efficiency has important benefits beyond climate change medium value of levelized costs for hydro. The large mitigation: lowering energy demand, delaying the need range in switching prices for some power sources is to install new generation capacity, raising competi- due to the large range in estimated levelized costs tiveness, and reducing consumption of fossil fuels along (figure 6.5). with a reduction in air pollution. Energy efficiency is 142 C L I M AT E C H A N G E M I T I G AT I O N I N T H E L C R : N O R E G R E T S A N D B E Y O N D particularly important for countries facing energy light bulb with a compact fluorescent. In Mexico, an supply constraints. energy savings trust fund (FIDE) has helped finance An array of energy efficiency measures can be under- energy efficiency investments over the past decade. taken in a wide range of sectors (table 6.7). Some mea- Energy conservation can be defined as changes in sures are best associated with new construction (such behavior whereby consumers use less energy without as building design), while others can be effectively changes in technology or the capital stock. An exam- retrofit with existing equipment or structures (new ple of an effective energy conservation program was boilers or windows). With many measures in the build- Brazil's response to the electricity supply crisis in ing sector, the additional cost of incorporating efficiency 2001 (box 6.4). Both efficiency and conservation can measures at the planning stage is typically a fraction of be driven by market forces and government policies, the cost of retrofitting it later (Dernbach 2008). with the latter of particular importance given a vari- So if energy efficiency has such a large potential and ety of market failures and externalities that inhibit the has large financial and economic benefits irrespective "market" for efficiency and conservation. of its greenhouse gas benefits, why has there been a slow uptake of energy efficiency investments? The Prices drive the incentives for efficiency core problem in many countries, both developing and improvements industrial, is the perceived high risk associated with Energy prices--such as electricity tariffs or gasoline energy efficiency projects, high transaction costs asso- prices--can significantly affect the incentives that ciated with many small but replicable investments, consumers have for undertaking energy efficiency or and difficulties in structuring workable contracts for conservation measures. Recent surges in petroleum preparing, financing, and implementing energy effi- prices have made it more attractive for companies to ciency investments. implement energy efficiency investments and to look for alternative fuels where possible. Over the past Efficiency vs. conservation decade, average real electricity tariffs in Brazil have Energy efficiency measures are typically defined as increased significantly, providing additional incen- technological switches that provide the same output tives for improving efficiency (figure 6.6). with less energy, such as replacing an old inefficient However, some consumers remain insulated from boiler with a more efficient one or an incandescent higher energy prices, such as electricity consumers TABLE 6.7 Energy Efficiency Opportunities and Measures in Key Consuming Sectors Sector Energy efficiency improvement opportunities Buildings Integrated building design and measures such as better insulation, advanced windows, energy efficient lighting, space conditioning, water heating, and refrigeration technologies Industry Industrial processes, cogeneration, waste heat recovery, preheating, efficient drives (motor, pump, compressors) Cities and municipalities District heating systems, combined heat and power, efficient street lighting, efficient water supply, pumping, and sewage removal systems Agriculture Efficient irrigation pumping and efficient water use, such as drip irrigation Power Supply New thermal power plants: combined cycle, supercritical boilers, integrated gasification combined cycle, and so forth. Existing generation facilities: refurbishment and repowering (including hydro), improved operation and maintenance practices, and better resource utilization (higher plant load factors and availability). Reduced transmission and distribution losses: high voltage lines, better insulated conductors, capacitors, efficient and low-loss transformers, and improved metering systems and instrumentation Transport Efficient gasoline/diesel engines, urban mass transport systems, modal shifts to inter- and intracity rail and water transport, improved fleet usage, compressed natural gas vehicles Households Lighting, appliance efficiency, improved cook stoves Source: World Bank staff. 143 L O W- C A R B O N D E V E L O P M E N T : L A T I N A M E R I C A N R E S P O N S E S T O C L I M A T E C H A N G E BOX 6.4 Conserving Electricity in Brazil In 2001, Brazil experienced a severe power supply short- minimized the damage of the crisis by not resorting to age as a result of a prolonged drought that reduced the blackouts. There is also evidence that some of the energy supply of hydropower (which accounted for nearly 90 efficiency measures adopted by consumers became percent of total installed capacity) and due to the under- permanent--nearly three quarters of the consumers who investment in new generating capacity. In response, the replaced incandescent bulbs with compact florescent government instituted an aggressive energy rationing lamps (CFL) during the crisis continued using CFLs system that consisted of monthly energy consumption thereafter according to the market survey by the Brazil targets for almost all consumers and a set of rules for trad- National Electricity Conservation Program. Among the ing quotas among users, setting bonuses for overachievers, lessons from Brazil's rationing program is that there is and penalties for violators. As a result of the program, significant "slack" in electricity consumption that can be from June to December 2001 there was a 20 percent reduced through a system of rewards and penalties and reduction in electricity demand compared with the previ- without resorting to forced blackouts or sacrificing basic ous year's consumption level. The quota system effectively needs provided by electricity. FIGURE 6.6 tariff categories (categories 1E and 1F) and among Average Electricity Tariff in Brazil, 1974­2006 higher income groups (figure 6.7). While raising resi- 250 dential electricity tariffs can be an effective mitigation 217.0 measure from the climate change perspective, tariff 200 reforms are difficult to implement because of the 2005 R$/MWh 150 affordability concerns and their sensitivity on the 100 73.5 political agenda. 50 0 Supply-side efficiency improvements may be the most palatable way to improve efficiency 74 77 80 83 86 89 92 95 98 01 04 06 19 19 19 19 19 19 19 19 19 20 20 20 Source: IPEA (Institute of Applied Economic Research, Government Improving energy efficiency is probably the most eco- of Brazil), ELETROBRÁS, adjusted to inflation rates by IPC-FIPE in nomic and effective way to mitigate CO2 emissions Johnson et al. (2008). from power generation. The menu of measures includes the repowering of existing generation plants who enjoy subsidized tariffs or gasoline prices that are to produce more electricity using the same amount of controlled at below-market levels. In República Boli- primary energy, reducing electricity losses, develop- variana de Venezuela, prices of gasoline remain highly ing cogeneration and distributed generation, and subsidized, leading both to high demand and giving using high efficiency technologies for thermal genera- rise to smuggling between neighboring countries tion. At high fossil fuel prices, improving the effi- such as Colombia with much higher gasoline prices. ciency of thermal plants can produce strong financial In Mexico average residential electricity tariffs cover returns for electric power generators. These efficiency only about 40 percent of the cost of supply, with less improvements coupled with the increasing share of than two percent of customers paying tariffs above the natural gas generation are the main determining fac- marginal cost of supply. As a result, electricity con- tors of carbon intensity of electricity generation in the sumption (and the consequent subsidy share) among LCR. Reducing distribution losses is also good busi- residential consumers in Mexico is significantly ness for power companies and can reduce generation higher for those people in the most highly subsidized needs and CO2 emissions.23 144 C L I M AT E C H A N G E M I T I G AT I O N I N T H E L C R : N O R E G R E T S A N D B E Y O N D FIGURE 6.7 Mexico's Tariff Structure and Electricity Consumption 1,200.00 1,000.00 800.00 kWh/month 600.00 400.00 200.00 3 0.00 1 2 3 4 5 6 7 8 9 10 Consumption decile 1 1A 1B 1C 1D 1E 1F Source: Komives et al. (2009). Note: Electricity subsidies were first introduced in Mexico in 1973 in response to persistent inflation, when the single electricity tariff was changed into a three-part, increasing block tariff, with subsidized rates for the first two blocks. The first "summer subsidy" (Tariff 1A) was introduced in 1974, providing additional subsidized rates to customers living in hotter areas (1A was defined as regions with more than four months of average temperatures above 25 degrees Celsius [°C]). Successive climate-based tariffs with increasingly subsidized rates over larger volumes were introduced in 1988 (Tariff 1B > 28 °C; 1C > 30 °C), 1990 (1D > 31 °C), 1995 (1E > 32 °C), and 2002 (1F > 33 °C). Today, Mexico has an extremely complex tariff system with over 112 different billing possibilities for residential consumers. Mexico continues to reduce carbon intensity from a example through education programs or concessional high level by replacing old and inefficient plants and financing of energy-efficient equipment. The draw- expanding thermal generation from high-efficiency back of DSM programs is that electric utilities do not natural gas plants (combined-cycle gas turbines). The naturally have an incentive to reduce their sales of average thermal efficiency of conventional thermoelec- electricity, which is the ultimate goal of energy effi- tric plants is expected to increase from 39 to more ciency or energy conservation programs.24 The most than 65 percent in 2006­17, consistent with an popular type of DSM program is where the utility increase of the participation of CCGTs in that group promotes the purchase of more energy-efficient from 43 percent to 60 percent (figure 6.8). equipment--such as lighting and appliances--and Energy efficiency programs in the LCR and else- provides the financing of such equipment with repay- where typically focus on the residential and commer- ment through the consumers' electric bill. Mexico cial sector, often through the provider of electricity in has had success with numerous DSM programs, what are known as utility demand-side management including a new program that would promote energy (DSM) programs. Such programs have the advantage efficient refrigerators and air conditioners through of being able to target a large number of consumers, the national utility, CFE, and its energy saving trust with utilities able to reach all of their customers, for fund, FIDE (box 6.5). 145 L O W- C A R B O N D E V E L O P M E N T : L A T I N A M E R I C A N R E S P O N S E S T O C L I M A T E C H A N G E FIGURE 6.8 BOX 6.5 Mexico--Improvements in Thermal Generation Efficiency Energy Efficiency in Mexico (% conventional thermal generation) 48 70 The Private Trust Fund for Electricity Savings (Fide- 45 65 icomiso para el Ahorro de Energía Eléctrica, FIDE) was Gross efficiency (%) created in 1990 as a nonprofit institution with the pur- Share of CCGT 42 60 pose of investing in energy efficiency. As of 2007, FIDE 39 55 had completed 25,917 energy audits, and concluded 36 50 3,899 electric energy saving projects, with direct electric- 33 45 ity savings of 13,191 GWh and 1,566 MW in installed capacity (mostly by reducing the peak demand). These 30 40 2002 2006 2010 2014 2017 savings are equivalent to about 3 percent of total installed Gross efficiency Share CCGT capacity and 7 percent of electricity consumption, or the Source: CFE (Comisión Federal de Electricidad) (2008b), Programa same as the domestic consumption of five Mexican states: de Obras e Inversiones del Sector Eléctrico 2008­2017. Available at: tinyurl.com/poise2017. Nuevo Leon, Jalisco, Tamaulipas, México, and Aguas- calientes. In terms of GHG emissions, these measures reduced approximately 8 million tCO2, or 2 percent of CO2 emissions (not including land-use change). Public sector energy efficiency--another very promising area Source: Authors. The energy savings potential in the public sector is large and typically cost effective but often suffers water losses--every liter of water, whether it reaches the more than other sectors from a lack of incentives to final consumer or not, requires significant amounts of undertake energy efficiency measures. Energy savings inputs, including the energy used for extraction, treat- in the public sector--including all levels of govern- ment, and distribution. A survey of some of the largest ment and all public services and infrastructure, such and better-performing WS&S utilities in Brazil found as water and sanitation, public street lighting, public that the majority of these utilities had non-revenue transit, and vehicle fleets--can exceed 20 percent of water26 ranging from 35 to 40 percent. energy use; rates of return for energy efficiency invest- Despite the substantial benefits of public sector ments typically range from 20 to 30 percent. The energy efficiency programs, many governments have public sector typically constitutes between 10 and 20 been reluctant to undertake such programs due to sev- percent of the national economic product, and is often eral types of barriers, including: (1) public procurement the largest buyer of energy-using equipment.25 rules and annual budget cycles that make the imple- One of the promising public sector areas for energy mentation of energy efficiency programs difficult; (2) efficiency improvement is the water supply and sanita- the lack of incentives and information for the public tion (WS&S) sector. Energy consumption (mainly elec- sector endusers; and (3) tight budgets and limits on tricity for pumping) is typically the largest variable debt. For example, a public hospital or school may cost item for a water utility after personnel. Energy receive a budgetary allocation for its energy expendi- efficiency can be improved directly through a number tures from a municipal or state budget and has little or of technical and operational measures, such as improv- even a negative incentive to reduce its energy consump- ing the efficiency and sizing of pumps and other tion.27 The municipality or state agency, in turn, may equipment, and reducing excessive water pressure in not be in a position to know or be able to identify the the distribution system. Utilities can often save con- opportunities for energy efficiency and as such does not siderable money simply by moving pumping opera- allocate the necessary capital budget. tions to off-peak times. In addition, energy as well as One way of promoting energy efficiency invest- all inputs can be reduced by the reduction of physical ments in the WS&S sector is through the use of 146 C L I M AT E C H A N G E M I T I G AT I O N I N T H E L C R : N O R E G R E T S A N D B E Y O N D energy performance contracts (EPC) where a private sector's emissions. With an average of about 90 vehicles sector company carries out an energy efficiency invest- per thousand people, the motorization rate in the LCR ment, typically providing financing, guaranteeing the exceeds Africa, Asia, and the Middle East, but it is less performance of the investment (that is, the savings) than half of that in Eastern Europe and a fraction of the and is remunerated based on its performance. The per- OECD countries' motorization rate of nearly 500 vehi- formance guarantee reduces the risk for the host enter- cles per thousand people.29 In absolute terms, 2005 prise, in this case a water utility, while also overcoming emissions from the transport sectors of Brazil and financing barriers. In 2007, the water utility serving Mexico were much higher than elsewhere in the region São Paulo in Brazil, SABESP, signed an EPC contract (figure 6.9). More than 90 percent of these emissions with a private firm, the first such contract in the water and fuel consumption of the transport sector were from sector in Brazil. Under the contract, a Brazilian road transport, with the exception of slightly lower energy service company (ESCO) provided the entire shares in Bolivia and Ecuador. A few countries con- financing (US$4 million) to improve the efficiency of tribute most of the emissions, but this does not imply a wastewater treatment plant, which has a simple that mitigation efforts in the sector need to focus only payback period of 3.7 years. on those countries. Significant health benefits from improvements in air quality, time savings, and reduced Transforming Transport congestion from some of the interventions may justify Global emissions from the transport sector are the implementation of a wide range of mitigation expected to rise from about one-third to one-half of measures in the smaller countries as well. total emissions from energy use. Historically, the dom- Realizing the sector's mitigation potential and the inance of emissions by the transport sector has been complementary local benefits requires a thorough more characteristic of industrial countries than devel- understanding of the factors behind the rising emis- oping countries, but in the LCR, the transportation sions trend: (1) the increasing number of vehicles, (2) sector has accounted for a large share of energy sector the distance traveled by each type of vehicle, and (3) emissions for a number of years, reflecting the rapid the emissions of each type of vehicle per kilometer growth of private vehicle fleets in many countries: traveled. The LCR's transport sector is fast growing in Argentina, Brazil, Colombia, Mexico, and República terms of GHG emissions because of the rapid eco- Bolivariana de Venezuela. In Mexico--the second nomic growth and the associated rise in car ownership largest country in the region after Brazil in terms of and use, a modal shift away from public transporta- the absolute level of transport sector emissions--car tion to private vehicles, and the rising length and ownership is expected to increase at an annual rate of number of trips per vehicle as cities sprawl. The corre- 5 percent from a fleet of 24 million in 2008 to 70 mil- sponding strategies to reduce emissions fall within lion vehicles in 2030.28 In addition, traffic congestion these three categories (figure 6.10). in urban areas and a large share of highly polluting A decomposition of emissions in a recent assess- and inefficient vehicles on the road has meant that ment of the transport sector in the region from transport is also the leading cause of air pollution in 1980­2005 shows that income growth has been the Latin American cities. The rapidly rising emissions leading cause of rising emissions in the sector in and large benefits from local environmental improve- some countries or regions (Argentina, Brazil, Costa ments mean that the transportation sector in the LCR Rica, Peru, and Uruguay). The rising energy inten- offers significant potential for mitigation--especially sity of the transport sector--possibly as a result of when institutional barriers can be overcome--while at low energy efficiency and rising congestion--has the same time delivering important auxiliary benefits. been the dominant factor in the others (Bolivia, It is not surprising that the LCR has one of the high- Caribbean, Cuba, Ecuador, Guatemala, Honduras, est motorization rates in the developing world, with a Panama, Paraguay) during most years in the study few large countries responsible for the bulk of the period; and in the remaining countries (Chile, 147 L O W- C A R B O N D E V E L O P M E N T : L A T I N A M E R I C A N R E S P O N S E S T O C L I M A T E C H A N G E FIGURE 6.9 Transport Sector Emissions in Latin America and the Caribbean Region 160,000 100 90 140,000 80 120,000 Percent of total emissions, 2005 70 Million tons of CO2, 2005 100,000 60 80,000 50 40 60,000 30 40,000 20 20,000 10 0 0 il o de Co na a ile r an ru a Co ala ca ia ay or a on y s ba do ra a az bi ic m ic liv Pe Ri ad gu gu Ch ti be Cu er ex du m B. m na Br ua en Bo a lv m te ra ru R. lo rib M Pa st Ec Sa rg A ua Pa U a, Ca H A tin EI el G e zu La Th ne er Ve th O Total CO2 emissions by the transport sector Transport sector emissions, percent of total emissions Source: IEA (2007) as reported in Timilsina and Shrestha (2008). FIGURE 6.10 Emission Levels Can Be Determined by Three Variables Number of vehicles Emissions of each type of Emissions = X Distance traveled X traveling vehicle per km traveled ­ Modal shift ­ Zoning practices ­ Fuel type ­ Increase load factor ­ Density of housing ­ Vehicle technology ­ Congestion pricing ­ Mixed land use ­ Weight of vehicle ­ Economic incentives ­ Transport corridor ­ Maintenance densification ­ Driver behavior ­ Congestion ­ Mobility management ­ Operational design Source: Authors. Colombia, El Salvador, Mexico, Nicaragua, and With the current growth in vehicle ownership and República Bolivariana de Venezuela) both factors use, especially in urban areas, there is a pressing need have been important.30 The main challenge in terms to address issues related to emissions from private of reducing GHG emissions from the transport sec- vehicles. The focus of an emission reduction strategy tor is to decouple emissions from rising incomes, should be vehicle usage and not ownership. However, despite higher rates of vehicle ownership that has ownership and emission levels are in fact closely corre- accompanied income growth in the region. lated for several reasons. First, approximately one-third 148 C L I M AT E C H A N G E M I T I G AT I O N I N T H E L C R : N O R E G R E T S A N D B E Y O N D of a vehicle's lifetime emissions stem from the upstream quality, numerous traffic deaths and injuries, millions manufacturing process of the vehicle. Second, once a of hours of lost productivity, and increased fuel con- vehicle is purchased, the convenience of use induces sumption and consequently rising GHG emissions. additional travel (Gilbert 2000). Third, in the devel- According to Time magazine, São Paulo has the world's oping world, many vehicles purchased are highly pol- worst traffic jams.32 In 2008, the accumulated conges- luting, secondhand vehicles. tion reached an average of more than 190 kilometers The energy efficiency of transport vehicles is likely during rush hour, and on May 9, 2008, the all-time to improve, but these improvements are expected to record was set at 266 kilometers, which meant that 30 be more than offset by a combination of increases in percent of the monitored roads were congested. the number of vehicles and in average vehicle utiliza- In the LCR, there has been a steady trend of people tion. While ethanol in Brazil has replaced about fifty switching to more polluting and less efficient vehicles. percent of gasoline consumption by the light-duty As income and car and motorbike ownership have vehicle fleet, the rest of the transport sector in the increased, people have preferred the use of these vehi- LCR will continue to depend overwhelmingly on cles over the public and mass transport systems, both of petroleum-based fuels for the foreseeable future. As which have much lower pollution levels per kilometer such, changes in the carbon intensity of transport fuels per passenger. Although walking is still important, are seen to have a minor impact on transport-related especially for the poor, the infrastructure investments GHG emissions, and what will be more important are and spatial growth of cities have favored motorized the efficiency of transport fleets and the share of dif- mobility and inhibited the access by foot to health care, ferent transport modes. jobs, education, and other services. The recent rapid A growing middle class has helped spur the demand increase of motorbike ownership in many cities is par- for private vehicles. A study in 2005 of low-income ticularly worrisome, as it often occurs at the expense of families in four former favelas in São Paulo found that public transport users and further affects the efficiency 29 percent of families owned a car.31 Over the years, of the overall transport systems. Increased traffic jams efficiency improvements and competition have led to and motorization further deteriorate the attractiveness a slow decline in vehicle prices with vehicles becoming and competitiveness of public transportation compet- more accessible to larger groups of people. There is an ing with the same road space as private vehicles. This increased competition from inexpensive vehicles from creates a vicious circle of declining public transport Asia and the secondhand vehicle market is also grow- quality and use and growing motorized travel. ing. Vehicle sales in Latin America are breaking records Urban sprawl in Latin American cities is probably and are expected to continue to post solid gains, the fundamental factor behind the rapid growth of buoyed by economic growth. Brazil and Mexico are vehicle emissions. As cities sprawl, the length and num- the largest auto markets in Latin America, but Peru is ber of trips rises. Latin American cities are sprawling the region's fastest-growing market. During the first and as new transport infrastructure is being devel- three quarters of 2006, vehicle sales in Peru soared by oped, origins and destinations are further apart from 41 percent. The latest trends worldwide have vehicle each other. Like many cities around the world, the manufacturers developing sturdy and inexpensive large urban centers in Latin America present acute vehicles, specifically and successfully advertised to the challenges in terms of arranging economic activities middle and lower-middle-income classes. For exam- across space. Most new development occurs at the ple, in São Paulo the fleet is growing at a rate of 7.5 periphery of large cities and at relatively low densities. percent per year, with almost 1,000 new cars bought These are the areas where the land is cheapest; how- in the city every day, and this has accelerated motor- ever, these are also the areas where service provision, ization rates in already congested cities and caused a including transportation, will be most expensive. At rapid deterioration of the existing transport systems the same time, the main cities continue to be magnets and infrastructure. The result is deteriorating air for people and jobs, forcing commuters to travel longer 149 L O W- C A R B O N D E V E L O P M E N T : L A T I N A M E R I C A N R E S P O N S E S T O C L I M A T E C H A N G E distances. Public transport services, however good in reductions are developing high quality and integrated frequency and coverage, are not competitive in sprawl- public transport systems, nonmotorized transporta- ing suburban areas and only attracts residents that tion, urban and spatial planning to reduce transport have no other choice. Congestion is aggravated by the demand, improving the efficiency of both new and fact that the different modes often compete for the use used vehicles through standards and inspection and of the same road space. maintenance programs, and freight management. Such Finally, a large number of highly polluting and old measures can be effective climate change mitigation vehicles are still driven in cities. While the transport measures, especially when they are designed as part of fleet, both public and private, is quickly growing and an integrated strategy. new technologies are being introduced, the vehicle fleet Development of High Quality Mass Transportation Sys- in use is steadily growing and deteriorating. Although tems. LCR cities still have relatively high public trans- better technologies exist and are being purchased, the port ridership, but public transport shares are gradually highly polluting in-use and secondhand vehicles are not decreasing. Therefore, there is an urgent need to priori- scrapped and continue to be widely used in Latin tize the development of high quality public transporta- America. These vehicles disproportionately contribute tion systems. Ensuring local government investments to high air pollution levels and climate change and gov- to support projects that seamlessly integrate motorized ernments often lack effective instruments and policies and nonmotorized transportation infrastructure is the to restrict or ban their use. Furthermore, due to fre- first and most critical step. At the same time, it is nec- quent breakdowns, these vehicles affect the traffic flows essary to integrate and optimize the many components and contribute to congestion in cities. of public transportation systems through a series of measures, such as improved organization and manage- GHG emission mitigation in the transport ment practices, setting reasonable fares, preferential sector--low hanging fruit and no regrets traffic flow for public transport, improved safety, out- In order to deliver the highest environmental, social, reach incentives, and training for system operators and and economic benefits, transportation policies need to planners. Curitiba and Bogota popularized the "bus integrate issues like transit oriented land-use plan- rapid transit" system that mimics the efficiency of ning, private vehicle mobility management, improve- metro systems through dedicated bus lanes along key ments in mass transportation and integration with transport corridors but at a fraction of the cost of rail nonmotorized modes of transport, freight transporta- systems. Today, dozens of cities in the LCR and world- tion, and related infrastructure development plan- wide have established similar systems based on the suc- ning. Transparent assessments of needs, benefits, and cessful experiences of Curitiba and Bogota. realistic options can ensure truly sustainable trans- Establishment of Integrated Transportation and Land Use portation policies. Planning Systems. Cities can implement policies and Such an integrated approach has been adopted in incentives to mix land uses and increase density along Mexico's recent assessment of the mitigation potential major transport corridors so as to help the accessibility to and marginal abatement costs through interventions mass transport systems or reduce the need to travel alto- that affect the transport sector's emissions.33 Mitigation gether. In the 1970s Curitiba Brazil established an inte- strategies span spatial and sectoral boundaries and grated land-use and urban planning system that gave include a series of options that fall under the broader priority to public transportation and the location of categories of land-use planning--so as to address the industry, schools, and residences in close proximity to issues of longer travel times associated with urban convenient transport. The popularity of Curitiba's Bus sprawl; fuels and technology; public, nonmotorized, and Rapid Transit (BRT) system has attracted motorists, cargo transport; and transport demand management. despite a high rate of automobile ownership relative Among the policies that are beneficial for transport to the rest of Brazil. A 1991 travel survey reported management and which provide large GHG emission that about 28 percent of "direct bus" users previously 150 C L I M AT E C H A N G E M I T I G AT I O N I N T H E L C R : N O R E G R E T S A N D B E Y O N D traveled by automobile. BRT service resulted in quality of life and reduction of emissions. A number 27 million fewer automobile trips each year and about of cities have promoted bicycles as an alternative to 27 million fewer liters of fuel annually. Curitiba uses motorized transportation, including Bogota, Rio de about 30 percent less fuel per capita because of its heavy Janeiro, and Santiago, both for short trips and as com- transit usage, and its ambient air pollution is one of the muter vehicles and through "park-and-ride" arrange- lowest in Brazil. In the 1990s, Colombia passed national ments linking to public transportation. Many other legislation that is considered a model for rational land-use cities in Latin America are starting to follow these in high-density urban areas, with public transportation examples and promoting bicycle use. being a central pillar of the legislation (box 6.6). These Control of Private Vehicles. None of the above policies policies can ensure a reduction in emissions of both con- will be truly effective in reducing GHG emissions ventional pollutants and greenhouse gases by placing without some measures to reduce or restrict private transportation considerations at the center of develop- vehicle use in highly congested urban areas. As a com- ment. By considering transportation needs and chal- plement to improving the public transport systems, lenges as an integral part of land use planning, cities can Latin American cities need to design policies to better avoid unchecked sprawl, decrease the need for travel in manage private vehicle mobility. Systems that impose personal vehicles, and allow for low-cost, high-volume one or more of the following measures have been suc- alternative transportation options. cessfully implemented in other parts of the world. Enhancement of Nonmotorized Transportation. Walking Some of these measures include the implementation of is still the prevalent mode of transport in many Latin Intelligent Transport Systems technologies to redirect American cities and, surely, the one that the poor have traffic, control roadway congestion and provide infor- access to. Latin American cities could significantly mation to drivers, and help plan and manage urban benefit from better and expanded nonmotorized trans- transport systems;34 implement varied parking rates; portation infrastructure. Establishing measures designed create incentives for intermodal integration between to encourage walking and cycling, as well as improv- private vehicles and public transport stations in the ing intermodal integration with high capacity trans- suburbs and increase occupancy rates of vehicles; and port systems can have an important benefit in terms of better regulation of motorcycle mobility in cities. BOX 6.6 Examples of Transport and Land-Use Planning in Bogotá, Colombia In 2000 and 2005 the Transmilenio Company conducted area are needed in order to cover the higher value of land, censuses of urban activity along the corridors of Phase I: thus increasing density. Second, the number of housing Caracas Avenue, Autonorte, and 80th Street. Every prop- units along phase I increased by 12 percent in the five erty along the corridors was surveyed thus diminishing years between the two censuses. Third, and related, peo- statistical error. The main findings regarding the impacts ple who live in the corridors of phase I chose to stay on land use are the following: longer in their housing units. In 2000, 48 percent of res- First, the census showed that in 2000, 96 percent of idents had lived six years or longer in their housing units the buildings had five stories or less. By 2005 this num- and by 2005 this number had increased to 52 percent. ber had dropped by 91.2 percent. Consequently, the share Again, because it was a census, the results are significant. of buildings with more than five stories more than dou- Fourth, more people own their housing unit along the bled in five years, suggesting a considerable densification corridors (46 percent in 2000 and 52 percent in 2005), of the corridor. Part of the reason for the increasing den- showing higher willingness to invest in properties along sity relates to the higher rental rates along the corridor. phase I. These results are partially explained by increased In essence, as urban rents increase, more units per unit accessibility and also a higher perception of security. 151 L O W- C A R B O N D E V E L O P M E N T : L A T I N A M E R I C A N R E S P O N S E S T O C L I M A T E C H A N G E Freight Transport Management includes strategies to revisit the relationships between alternative objectives increase the efficiency of freight and commercial to better understand synergies and trade-offs. transport. Better logistics is a way to develop more Transportation initiatives have many co-benefits. efficient freight management, including transporta- Reductions in emissions result in GHG decreases but tion practices (for example, vehicle type, shipment also in improvement of the local air environment, size, frequency, and so on), facility siting, and related with important health benefits. Promotion of mass activities. Although logistics is focused on increasing transit systems and nonmotorized transport, while efficiency and minimizing transportation costs, it can lowering emissions, also contribute to poverty allevia- also help in reducing congestion and pollution tion through providing improved mobility and access impacts. An important measure is to encourage rail for poorer segments of society. Reduction in fuel usage and water transport rather than truck for longer- and improvement in the efficiency of transport sys- distance shipping. Trucking uses much more energy tems, while contributing to decreases in emissions, per unit of transport than rail or water (10 times as also represents improvements in the operation of much in many situations), although only certain types transportation networks. Improving the flow of traffic of goods and deliveries are suitable for such shifting. to combat congestion, while resulting in lower emis- To accomplish this, there is a structural need to sions from idling vehicles, also reduces accident rates. improve rail and marine transportation infrastructure Thus, many mitigation measures in the transport and services to make these modes more competitive sector are no-regrets options, which can be imple- with trucking. There is also a need to organize mented not only at a low cost but result in large savings regional delivery systems, especially in metropolitan even before considering the co-benefits. But institu- regions, so fewer vehicle trips are needed to distribute tional and regulatory obstacles as well as collective goods (for example, using common carriers that con- action problems affect the feasibility of their imple- solidate loads, rather than company fleets) and use mentation. A comprehensive approach extending smaller vehicles and human powered transport, par- beyond the transport sector itself is the cornerstone of ticularly for distribution in urban areas. Improved a long-term vision to effectively address the three dri- maintenance and operation as well as training to vers of emissions--the number of vehicles, distance encourage more efficient driving also have proven to traveled, and vehicle emissions rate--and benefit be very cost-effective in reducing fuel consumption from the sizable positive externalities (box 6.7). and GHG emissions. Truck design improvements and Quantification of these co-benefits and an assessment new technologies can also help increase efficiency. of the feasibility of implementation is an important Simple and cost-effective measures that are already component of an overall evaluation of alternative--and being implemented in a number of cities are limiting sometimes complementary--mitigation options. Apart freight transport and avoiding delivery during traffic from the Mexico: Estudio sobre la Disminucion de peak hours in cities. Emisiones de Carbono (MEDEC) (Low-Carbon Study) The complexity of transport systems requires taking study, a series of other studies assessing the mitigation into consideration a range of criteria, such as increasing potential and costs (or benefits) associated with the mit- volume of passenger and vehicle flows, travel time, igation measures in different sectors have recently been accessibility, safety, environmental, and equity impacts. completed by the local universities and research centers Where many of the easy choices have already been for Argentina, Brazil, Chile, Colombia, and Peru; and made, increasingly intricate transport decisions aim to other efforts have previously been implemented as part achieve an optimal balance between sometimes conflict- of some of the national climate change mitigation ing interests. While transport cost and energy consump- strategies in the region.35 The availability of cross-coun- tion have always been important objectives, climate try information on the potential to reduce emissions in change is becoming increasingly important. The inclu- the transport sector is an important contribution to sion of climate change offers a significant opportunity to facilitate the setting of priorities in sectoral mitigation 152 C L I M AT E C H A N G E M I T I G AT I O N I N T H E L C R : N O R E G R E T S A N D B E Y O N D BOX 6.7 Cost-Benefit Analysis of Mitigation Measures in Mexico's Transport Sector An analysis of transport mitigation options in Mexico Some types of interventions are expected to have very demonstrates that there are numerous co-benefits of trans- large estimated co-benefits in Mexico. By reducing the port options, including financial, time savings, and local distance of urban commuting, a program to encourage environmental improvement. Among the options that dense urban development would not only cause emis- may provide the largest GHG reductions in Mexico are sion reductions of up to 117 MtCO2, but also a cumula- vehicle inspection and maintenance programs, optimized tive reduction of particulate matter (PM 2.5) by 11,800 transport planning, vehicle efficiency standards, and den- tons and nitrous oxides by 855,000 tons over the sification policies. The economic benefits resulting from 2009­30 period. Implementing efficiency standards these interventions include the financial benefits com- would result in a cumulative reduction of 195 MtCO2 pared to alternative means of transportation, time savings and a significant reduction in the emission of pollutants to individuals, for instance by reducing congestion, and on the order of 8,000 tons of PM 2.5 and 1,134,000 the local health benefits due to decreased local air pollu- tons of nitrous oxides. Transport options with high mit- tion emissions (accruing to both commuters and to local igation potential in Mexico--promotion of urban pub- inhabitants)--which leads to negative costs for reducing lic transportation--would not only result in very GHG emissions for many of the interventions evaluated. significant reduction in air pollution. They would also As is typical of such studies, other important costs that bring about time savings and other social benefits, as are difficult to estimate are not quantified, such as the long as these measures are well integrated into an over- costs of implementing monitoring systems, overcoming all strategy that ensures efficient connection between information failures, or policy or regulatory changes, different transport modes and sufficient urban density however, these costs were assessed by transport experts that would make these options viable. qualitatively and were viewed to be "surmountable." Source: Center for Sustainable Transport (2009), background report prepared for the World Bank MEDEC low-carbon study. policies, but estimates from the available studies are not low in the LCR, they are projected to increase in tandem directly comparable because of divergent and sometimes with the rising population and the level of economic unclear assumptions. In the transport sector, these activity. Waste generation tends to increase in propor- assessments need to evaluate the mitigation potential tion with GDP per capita--as much as 3 percent per and the benefits from energy savings, reduction in local year in periods of sustained economic growth.36 air pollution, and time savings using consistent Throughout the LCR, solid waste management is methodologies to ensure comparability across countries. an important priority, primarily because of the local Because of its public good, provision of this type of health and environmental benefits, but obtaining information in developing countries needs to be harmo- sustainable finances and full public cooperation is a nized at the global or at least the regional level. challenge. Municipal waste collection is generally acceptable, particularly in larger cities in the region. Waste Management--Significant Local Benefits On average, cities of more than 500,000 inhabitants of Mitigation Options collect more than 80 percent, while technical and Globally, GHG emissions from solid waste and waste- financial difficulties result in a lower collection rate water contribute only about 3 percent of the total of about 69 percent in smaller cities. Waste disposal emissions but they constitute as much as 18 percent of in the LCR is generally deficient. Only 23 percent the anthropogenic methane emissions. Even though of the waste collected is disposed of in sanitary land- emissions from waste and wastewater also are relatively fills, another 24 percent goes to controlled landfills, 153 L O W- C A R B O N D E V E L O P M E N T : L A T I N A M E R I C A N R E S P O N S E S T O C L I M A T E C H A N G E with the remainder ending up in open dumps or bodies of solid waste in the LCR. Sanitary landfills are a more water. Overall, 62 percent of the waste generated in the LCR expensive solution than open dumps because of the is burned or ends up in unknown disposal sites.37 higher upfront investment and maintenance require- Apart from proper waste disposal in sanitary or ments. Sanitary landfills operate with a system of controlled landfills, recycling and composting help pipes that capture methane gas which is then flared, minimize the volumes of waste for disposal. Only emitting carbon dioxide which does not pose the risk about 2 percent of municipal waste is estimated to of explosion and is 19­20 times less potent than be formally recycled in the region, even though methane in terms of the global warming potential. some countries or cities do so; Mexico and Chile To prevent free dispersion of methane into the atmos- report that about 10 percent of their urban waste phere, waste needs to be periodically covered with a stream is recycled.38 In addition, an estimated 500,000 layer of soil. waste pickers in the LCR operate in the informal But management of solid waste tends to be an recycling sector. unfunded public mandate in the realm of municipal In addition to the disamenities from a failure to governments, and it has been challenging to secure sus- collect and properly dispose of waste for aesthetic rea- tainable sources of financing in the sector despite the sons, it has important health and environmental con- clear public good and positive externalities from proper sequences. Inadequate waste collection and the resulting waste collection and disposal. Furthermore, proper clandestine dumping of waste in cities increases the waste management in small cities often requires coop- risk of flooding when waste blocks urban waterways eration with other municipalities to achieve the neces- and drainage channels; burning of waste on city sary economies of scale for more advanced technical streets or in open dumps emits carcinogenic dioxins solutions. Social opposition to the placement of landfill and furans because of incomplete combustion and other sites and the failure of collective action by municipali- contaminants; garbage dumps are a major source of ties and stakeholders throughout the entire chain of leachates to surface and groundwater and they prolif- waste management add further complexity. Integrated erate the spread of vector-borne diseases by insects, waste management strategies that sometimes cross rodents, and birds. Solid waste disposal sites that do municipality boundaries are the first important step not have gas management systems accompanied by toward ensuring the long-term objectives. flaring or energy recovery are major sources of methane For example, a solid waste management strategy discharges, and leaking methane gas can explode in launched in 1993 in Belo Horizonte, Brazil, succeeded people's houses or in public areas. in establishing a fully functional waste management Methane emissions from solid waste landfills are system in just four years. It included a technological expected to increase in the LCR due to the growth of component for differentiated collection, recycling, and solid waste generation rates caused by the increase in disposal systems of different types of waste materials; population and economic activity, and the improve- construction of recycling plants; and a human resources ments in landfill operational practices that are development program. Other components of the strat- expected to increase anaerobic conditions in landfills. egy promoted citizen participation and modernization Compost practices may contribute to a reduction in of the municipal waste management agency. In this methane generation, but it is extremely difficult to sense, despite the low priority of solid waste manage- predict the potential of composting practices in the ment in the LCR as a GHG mitigation option because short and medium term. Nevertheless, policies and of the low even if growing contribution of the sector financial incentives could accelerate the capture and to total emissions, many interventions are the "low- flare or use of the methane in the short term, decreas- hanging fruit" that would receive strong political sup- ing the net effect of the increase of methane emissions. port and result in very significant local benefits. Financial and institutional obstacles impede faster Total methane emissions from the landfilling of progress toward improved collection and disposal of solid waste in the LCR are projected to rise from 154 C L I M AT E C H A N G E M I T I G AT I O N I N T H E L C R : N O R E G R E T S A N D B E Y O N D about 92 Mt CO2e per year in 2005 to 109 Mt CO2e drastically reduced (figure 6.11). Potential emission in 2020.39 Capturing and burning the methane gas reductions from landfill gas projects that could be emitted from waste sites can make a substantial contri- included in the CDM range from about 51 Mt CO2e bution to mitigation of climate change, even though per year by 2020--assuming that half of all emissions the efficacy of landfill gas (LFG) projects depends on in cities with more than 500,000 inhabitants can be the quality of waste management. Lack of adequate mitigated--to 71 Mt assuming that 70 percent can be compaction, poor leachate management, waste proce- mitigated. For comparison, current landfill gas projects dures different from the original project design, and registered in the CDM for the LCR would result in a inappropriate parameters used to estimate emission reduction of waste-related emissions by 4 to 15 percent. reductions have meant that actual reductions were The ancillary benefits associated with carbon finance lower than originally anticipated in many LFG pro- activities in the management of solid waste are signifi- jects. In practice, less than 100 percent of emissions are cant, and usually outweigh the additional incremental mitigated. Scenarios of potential emission reduction costs. For example, a sanitary landfill, which is a pre- through the CDM in a range of scenarios show that requisite for LFG recovery projects under CDM, emissions from landfill gases in the LCR could be eliminates problems associated with common dumps, FIGURE 6.11 Six Scenarios Estimating Technical Potential to Reduce Latin America and the Caribbean Region's Emissions through Landfill Gas Projects in the CDM 140,000 120,000 100,000 CO2e, thousand tons 80,000 60,000 40,000 20,000 0 2005 2010 2015 2020 2025 2030 Years Scenario 1. EPA emissions--BAU Scenario 4. Emissions potential reductions 50% Scenario 2. Predicted emissions--actual CDM Scenario 5. Emissions potential reductions 70% Scenario 3. Predicted emissions--0.5 actual CDM Scenario 6. Emissions potential reductions 100% Source: U.S. EPA. Note: Scenario 1 presents the predicted emissions by the EPA in the business-as-usual (BAU) scenario. Scenario 2 presents the predicted emissions by the EPA taking into account the reductions with the actual registered CDM projects, assuming that 100% of the predicted CERs are captured. Scenario 3 presents the predicted emissions by the EPA with 50% of the estimated reductions with the actual registered CDM projects; this is based on World Bank experience. Scenario 4 presents the predicted emissions by the EPA, including the estimated potential reductions from 50% of the cities with more than 500,000 inhabitants. Scenario 5 uses the potential reductions from 70% of the cities with more than 500,000 inhabitants, and scenario 6 uses the potential reductions by 100% from cities with more than 500,000 residents. 155 L O W- C A R B O N D E V E L O P M E N T : L A T I N A M E R I C A N R E S P O N S E S T O C L I M A T E C H A N G E such as odors; ground- and surface water contamina- The economic mitigation potential both globally tion; and reduces the spread of diseases and the risk of and in the LCR is much lower than the technical methane explosion. potential due to a multitude of economic, institu- In terms of policy, the region needs to start work- tional, political, educational, and cultural constraints ing on various fronts. The first priority in the medium that prevent the implementation of mitigation mea- term is making the burning of landfill gas mandatory sures. At full biophysical potential, agriculture could for security and sanitary reasons. Another priority for offset nearly one-third of total annual CO2 equivalent the countries in the region is to initiate assessments of emissions from all sources. However, the full technical current and projected markets for recycled products potential would only be realized with exceptionally and pilot initiatives to test the feasibility of promising high prices for CO2 equivalents, while it is estimated waste minimization and recycling programs. Practices that lower prices of 0 to 20, 0 to 50, and 0 to 100 US$ that minimize the generation of waste (reduction, per ton of CO2e would deliver 35, 43, and 56 percent, reuse, recycling) and enhance the generation of com- respectively, of agriculture's total mitigation potential post need to be instituted for sanitary, environmental, by 2030.40 Obstacles to implementation that are spe- and economic reasons. Recycling of paper, metal, and cific to the agricultural sector include the issues of per- glass can be a major source of energy savings since the manence of GHG reductions (particularly for carbon amount of energy needed to process recycled materials sinks), slow response of natural systems and varying is a fraction of that required for producing virgin time profile of emissions, and high transaction and materials. There can also be important social co-benefits monitoring costs. As a result, it is likely that less than of recycling programs on the welfare of waste pickers, 30 percent of the biophysical mitigation potential may for whom waste collection and sorting for recycling is be achieved in agriculture by 2030 unless a broad a major source of income. range of climate and nonclimate policies is effective at overcoming these barriers to implementation. Mitigation Potential of Agriculture--Large The emissions profile of the agricultural sector and Location Specific varies by region. Globally, N20 emissions from soils The global technical mitigation potential from agri- dominate other sources, but in the LCR the largest culture by 2030 is very significant; it is estimated at share of emissions is methane from enteric fermenta- about 5,500­6,000 Mt CO2e per year for all green- tion. Other important sources are nitrogen dioxide house gases, including the emissions from land-use and methane emissions from soils and biomass burn- change. About 70 percent of this potential reflects ing (figure 6.12). mitigation opportunities in developing countries, and Global forecasts project a significant increase in a further 10 percent in countries with economies in greenhouse gas emissions from agriculture due to the transition, with particularly high mitigation potential escalating demand for food. Higher nitrogen fertilizer in the LCR (map 6.1). The mitigation opportunities use and increased production of animal manure are the fall into three broad categories: (1) reducing emissions main driving factors behind the projected increase in through better management of fluxes of carbon diox- agricultural emissions of about 35 percent to 60 per- ide, methane, nitrogen dioxide, and other greenhouse cent between 2005 and 2020. In tandem with the ris- gas emissions through agronomy and improved live- ing global food demand, livestock related emissions stock management; (2) removing emissions through would increase by 60 percent up to 2030 relative to enhancing carbon storage in soils or vegetative cover 2005 if CH4 emissions are assumed to grow propor- through such measures as conservation tillage and tionally to an increase in livestock numbers; or by 15 restoration of degraded lands; and (3) displacing emis- to 21 percent with improved feeding practices and sions through bioenergy feedstocks and the avoided manure management. The LCR is expected to con- cultivation of new lands under forest and other vege- tribute a substantial share of the global increase in tative cover. agricultural emissions by 2020, particularly for nitrogen 156 C L I M AT E C H A N G E M I T I G AT I O N I N T H E L C R : N O R E G R E T S A N D B E Y O N D MAP 6.1 High Mitigation Potential of Latin American Agriculture Source: Smith et al. (2008). FIGURE 6.12 and the recent dramatic increase in cropland areas and Agricultural Non-CO2 Emissions by Region and Source, 2005 application of nitrogen fertilizers. 1,600 The broad range of mitigation measures in agricul- ture ranges from cropland and grazing land manage- Million tons CO2eq./year 1,200 ment to restoration of degraded lands; management of 800 organic soils--or previously flooded soils that store greenhouse gases until they are drained; and livestock 400 and manure management. Emissions from cropland 0 can be reduced through improved agronomic practices, such as using improved crop varieties; extending crop fic s gi he sia a sia fr d ie ic A an ci Re d t on a tr A lA fr ic Pa un A th st h an an ra ut or Ea rotation; and reducing reliance on nitrogen fertilizers n d co nt ra an So be ica e Ce D ha dl rib er sia EC id Sa d Ca Am N by using rotation with legume crops or improving the O A an M b- st Su pe tin Ea ro La precision and efficiency of fertilizer applications. In Eu CH4, N2O from burning CH4, N2O from manure certain climatic and soil conditions, conservation or CH4 from growing rice CH4 enteric N2O from soils zero tillage can be effective at improving crop yields, Source: Adapted from U.S. EPA (2006). restoring degraded soils, and enhancing carbon storage in soils. Methane emissions from ruminant livestock, such as cattle and sheep, are a major source of agricultural emissions in the LCR. Measures to reduce emissions dioxide emissions from soils and methane from enteric from livestock involve a change in feeding practices, use fermentation (figure 6.13). This is not surprising of dietary additives, and breeding species and managing given the importance of the agricultural sector and livestock with the objective of minimizing emissions per particularly cattle farming in the region's economy unit of animal products. 157 L O W- C A R B O N D E V E L O P M E N T : L A T I N A M E R I C A N R E S P O N S E S T O C L I M A T E C H A N G E FIGURE 6.13 greenhouse gas reductions varies by climatic condi- Projected Cumulative Emissions from Agriculture, by Region, tions and is a subject of scientific debate. The poten- 1990­2020 tial to use zero tillage to mitigate GHG emissions 2,000 varies depending on the soil characteristics, water availability, and other climatic conditions; it is higher 1,500 in warm and moist climates than in cool or dry ones. Compared to other cropland management practices, 1,000 Mt CO2e per-hectare benefits in terms of carbon sequestration 500 may be modest, but zero tillage also has significant local benefits, especially in areas that are affected by 0 soil erosion or that are particularly well-suited for zero ic e e g tillage. Furthermore, these modest per-hectare reduc- ric ur in er rn ils an nt io 2 iss CO g ­500 so bu in 4 e m ns tions could occur over large cropping areas still under m n- ow om om CH om l e no gr fr fr fr ra ll conventional tillage. m 2O tu A 2O 2O ro N N N 4 f 4, 4, Just as the effectiveness of agricultural practices in CH CH CH ul r ic ag reducing emissions varies between climate zones and OECD countries Sub-Saharan Africa Europe and Central Asia East Asia and Pacific within regions, the costs of mitigation are also specific Middle East and North Africa South Asia to individual agricultural systems with particular eco- Latin America and the Caribbean Region logical and socioeconomic conditions. This means that Source: Adapted from U.S. EPA (2006). proposed practices need to be evaluated within these specific settings and there is no universally acceptable list of preferred interventions.42 Furthermore, compe- The effectiveness and cost of mitigation measures tition for land among different uses means that many from this palette of agricultural practices vary by cli- solutions are more effective at achieving reductions in matic zone and socioeconomic conditions. Conservation emissions and more cost effective when they are imple- or zero tillage--an agricultural practice that has been mented as part of an integrated strategy that spans successfully applied over nearly 45 percent of cropland agricultural subsectors and forestry. Nevertheless, it is in Brazil--is a case in point (box 6.8). In contrast to informative to compare the magnitude of the cost of conventional tillage, zero tillage involves no plowing of mitigation measures across agricultural practices. soils and incorporates the use of rotations with crop These global averages point to the generally higher cover varieties and mulching (application of crop cost of mitigation measures in the livestock sector residues). The result is an increase in the storage (seques- (livestock feeding and breeding) than such measures as tration) of carbon in soils. Carbon is sequestered in zero- tillage management, restoration of degraded soils, and till systems due to lower decomposition rates of organic the avoided deforestation (set aside/land-use change). soil matter in undisturbed soil--a process whereby car- Livestock additives, such as antibiotics and halo- bon is emitted--and the recycling of organic matter genated compounds, appear as a cost-effective way to through the use of mulching. Lower fuel requirements reduce emissions, but their effect on emissions may be for plowing operations that are no longer needed are transitory and some of the additives have been banned another source of greenhouse gas reductions. However, in the European Union.43 Another possibly promising application of nitrogen fertilizers to counteract nitrogen venue is research to develop low-cost vaccines against depletion, which often occurs in the first few years after methanogenic bacteria; they have been developed but conversion from conventional to zero tillage, may are not yet commercially available. In the LCR, Mexico negate some of the reductions in GHG emissions.41 has incorporated improved production efficiency Zero tillage can make a substantial contribution to through higher quality grazing systems and forages mitigation of climate change, although the extent of and improved feed management as the key measure to 158 C L I M AT E C H A N G E M I T I G AT I O N I N T H E L C R : N O R E G R E T S A N D B E Y O N D BOX 6.8 Severe Soil Erosion Precipitates the Adoption of Zero Tillage in Brazil Despite significant challenge in the application of zero- in subtropical southern Brazil that resulted from the tillage practices, particularly in areas with shallow, expansion of soybean and winter wheat cultivation with acidic, or compact soils, zero tillage has become progres- intensive plowing and burning of residues. By some sively more widespread throughout the world in such estimates, for each kilogram of soybean harvested, 10 countries as Argentina, Australia, Brazil, Canada, and the kilograms of soil were lost because of soil erosion using United States. Globally, the area under zero-till systems conventional tillage. The technology has spread to has expanded to more than 72 million hectares. In Paraguay and the cerrado--or tropical wet-dry savannah-- Brazil--the most frequently cited success story and the region of Brazil. Brazil is one of the few countries if not leading nation in terms of the adoption of this the only one with a substantial area under zero-till in the technology--zero tillage has exploded from less than tropics and with a high adoption rate by smallholder 1,000 hectares in 1973­74 to nearly 22 million, or 45 farmers; as many as 90 percent of southern Brazil's small- percent of total cultivated land, in 2003­04. The rapid holders have switched to zero tillage although not all of spread of the zero-till technology in Brazil precipitated them have switched permanently and adopted the full from severe soil degradation in the late 1960s and 1970s range of technology. Source: Bolliger et al. (2006). reduce GHG emissions from enteric fermentation; sector include improvements of animal productivity the use of high quality forages may reduce methane and use of additives to improve feed conversion and emissions there by 50 percent compared to mature intensification of livestock production systems.45,46 pastures.44 Altogether, the cumulative reduction potential in the As the efficacy of a range of mitigation measures livestock sector in the region by 2020 is estimated at and the magnitude of co-benefits varies by gas, region, about 90 Mt CO2e per year, or 10 percent of the live- site specificity, and time profile of emissions, a univer- stock sector's baseline emissions. In the cropping sec- sal recipe for reducing emissions does not exist for the tor, the reduction potential is lower in absolute terms LCR as a whole or even for specific regions. Ecosystem (about 15.5 Mt CO2e per year) and there are complex complexity further adds to the heterogeneous response interactions between CO2 reduction from zero of emissions to agricultural investments and practices. tillage--the option with the most significant poten- Some mitigation measures impact more than one tial and lowest costs--and other GHG emissions, GHG, involving synergies or trade-offs between the especially nitrous oxide. Taking these interactions emissions. Thus, a practice that is highly effective in into account, the main "low hanging fruits" are the one region may be counterproductive in another. Nev- introduction of zero-till systems in Argentina (for ertheless, several priority subsectors stand out because maize and wheat) and in Mexico (for maize).47 of their high contribution to the overall emissions Many agricultural mitigation options, just like in from agriculture, particularly in the future develop- other sectors, have negative costs and it is difficult to ment scenarios, and high mitigation potential. These assess whether important costs have been omitted or if priority areas are the reduction of greenhouse gas barriers to adoption exist that are not accounted for in emissions from soils and methane emissions from these estimates (figures 6.14a and 6.14b).48 Account- enteric fermentation, and enhancing carbon sinks in ing for adoption barriers and market failures which soils and vegetative cover. may prevent broader adoption, to gain a more com- As identified by a regional model, "low hanging plete picture of greenhouse gas mitigation potential is fruits" in the mitigation of GHGs in LCR's livestock an important area for future research. 159 L O W- C A R B O N D E V E L O P M E N T : L A T I N A M E R I C A N R E S P O N S E S T O C L I M A T E C H A N G E FIGURE 6.14a FIGURE 6.14b Marginal Abatement Cost of Reducing Latin America and the Marginal Abatement Cost of Reducing Latin America and the Caribbean Region's Livestock Sector Emissions Caribbean Region's Emissions through Soil Management 200 200 150 150 100 $/tCO2e $/tCO2e 100 50 50 0 0 ­50 ­50 0 2 4 6 8 10 12 0 2 4 6 8 10 12 Percentage reduction in net GHG emissions Percentage reduction in net GHG emissions Source: Elaboration for Latin America and the Caribbean Region based on Beach et al. (2008) and provided by the U.S. EPA, personal communication, 2009. The actual potential is much lower than the tech- Soil carbon sequestration and reduction of emis- nical potential because of high implementation costs sions from enteric fermentation are areas with high and other economic, social, and political barriers. mitigation potential that need to be addressed These implementation issues in agriculture range through additional research, adaptation of practices to from the difficulties in estimating the profile of the local conditions, and the global sharing of tech- carbon sequestration and emissions over time (perma- nologies. Although the CDM currently does not sup- nence of emissions reductions), verifying the reduc- port carbon sequestration in soils, emerging markets tions, uncertainty about the complex biological in Canada and the United States are beginning to processes and feedback mechanisms, and leakage, trade carbon offsets in these types of projects. Their whereby production can shift from regions with the experience will prove vital for its inclusion in future agreed upon GHG emissions caps to regions without carbon trading schemes and realizing the large such constraints. High monitoring and transaction untapped potential of the LCR in this area. Noncli- costs stand out as particularly significant barriers to mate policies, ranging from nonclimate UN Conven- implementation. While the magnitude of monitor- tions to trade, macroeconomic, and environmental ing costs in agriculture is still debated, innovative policies and relative price changes of agricultural technological solutions--such as remote sensing and products, can have an even greater bearing on land use measuring soil bulk density--and measurement and emissions of GHGs from agriculture. methodologies will likely alleviate this barrier as technologies develop. Transaction costs--or the Land-Use Change and Forestry--The Pillar of amount of money farmers receive for implementing Mitigation in the LCR mitigation practices--remain a formidable challenge Land-use change and forestry are the single largest and a large fraction of the market price of carbon source of GHGs in the LCR. More than half of those under the CDM. Because transaction costs tend to emissions are from Brazil, followed by Peru and decrease with the size of the contract, small farmers República Bolivariana de Venezuela with less than will continue to face high barriers to participation in one seventh of the level of Brazil's emissions. Large-scale the program. For smallholder farmers, transaction expansion of agricultural production since the 1960s costs may amount to a quarter of the market price of and forest clearing by other agents have led to a rapid carbon.49 The creation of producer organizations and increase in deforestation and emissions from tropical smallholder cooperatives is a promising venue for forests in Asia and the LCR; and 65 percent to overcoming this barrier. 69 percent of the total deforestation in the LCR from 160 C L I M AT E C H A N G E M I T I G AT I O N I N T H E L C R : N O R E G R E T S A N D B E Y O N D 1990­2005 is estimated to have occurred in Brazil50 GHG emissions in the LCR is associated with reduc- (figures 6.15a and 6.15b). Recent estimates suggest that ing deforestation and other land-use change emissions. emissions from land-use change and forestry have begun Policies to reduce deforestation have been put in place to decline in the LCR, although it is unclear to what in a number of countries. However economic forces, extent that trend has also been observed in Brazil such as an increase in soybean or beef prices can over- (Houghton 2008).51 The available estimates of emissions whelm forestry conservation policies. Domestic and from land-use change are affected by a high margin of international policies to avoid deforestation and land error in projections of deforestation rates and even greater degradation can reduce future GHG emissions from uncertainty about how that translates into carbon emis- the LCR and should be among the highest priority sions, as the level of emissions also depends on the final policies for climate change mitigation for the region. use of timber products. Depending on the true level of emissions from deforestation and degradation in tropical Effective domestic forest policies are the forests given significant uncertainty in their estimation, cornerstone of mitigation efforts in the sector they could dwarf emissions from other sectors in the LCR Many countries in the LCR have designed good laws or those emissions could become comparable with the and regulations in the forestry sector, but effectively future--and rising--emissions from the energy sector. implementing them and ensuring that they achieve As argued, exploring the large mitigation potential forest conservation objectives is challenging. Manage- associated with land-use change and forestry should be ment of forest lands is intricately linked to the issues a priority for the LCR. While reductions in emissions of land tenure, restrictions on the use of forest areas, from energy consumption could be potentially signifi- and the trade-offs and synergies between sustainable cant if appropriate policies and projects are imple- forestry and poverty. Effective implementation of for- mented, the largest potential for drastically reducing est policies may give rise to social conflicts when FIGURE 6.15a FIGURE 6.15b Carbon Emissions from Deforestation Annual Deforestation in the Amazon, 1990­2001 4.0 1,200 3.0 3.5 1,000 2.5 CO2 emissions tons, millions 3.0 Annual flux of carbon (PgC/yr) 2.5 800 2.0 Hectares, millions 2.0 600 1.5 1.5 400 1.0 1.0 200 0.5 0.5 0 0 0 90 91 92 93 94 95 96 97 98 99 00 01 0 60 70 80 90 00 10 20 30 40 50 60 70 80 20 0 00 19 19 19 19 19 19 19 19 19 19 20 20 5 9 18 18 18 18 18 19 19 19 19 19 19 19 19 19 19 ­0.5 CO2 emissions from deforestation Forest fires, Amazon/Borneo Tropical Africa High estimate Deforestation Tropical America Tropical Asia Low estimate Non-tropical regions Sources: Elaboration for Latin America and the Caribbean Region Sources: UNEP (1999); La Rovere (2000); Cramer (2004). based on Beach et al. (2008), and provided by the U.S. EPA (2008); Houghton et al. 2005b. Note: PgC/yr = petagrams of carbon/year. 161 L O W- C A R B O N D E V E L O P M E N T : L A T I N A M E R I C A N R E S P O N S E S T O C L I M A T E C H A N G E restrictions on the use of forest lands negatively affects Brazil and payment for environmental services pro- the local communities whose sources of livelihood grams. As for nationally managed protected areas, they depend on forest income. Implementation of forest tend to be more effective if they have sufficient staff; policies can also have high economic costs and be guards are important for transforming "paper parks" demanding in terms of human capacity because of the into working parks and working with local residents.54 need for monitoring and enforcement of forest regula- But too often such protected areas are underfunded, tions. Assessing feasibility of particular management with the result that deforestation continues unabated. strategies from an economic and social perspective-- On the flip side, stringent enforcement may have including the consideration of the opportunity costs adverse social consequences on the forest communities for alternative uses of forest areas and the social if regulations prohibit the use of forest products. The impact of restrictions on the use of forests--is an economic and social costs of creating parks must be important element of developing national forest poli- weighed against the economic opportunities pre- cies. Another crucial element is institutional capacity sented by other types of management to improve both to implement those policies. the social outcomes and the political feasibility of for- Two prominent approaches to management of pub- est protection measures. licly owned forests are protected areas and regulated Policies and large investments outside the forest concessions on privately owned land. Privately owned sector--energy and agricultural policy, road building, forests include areas managed by local communities, and other large infrastructure projects--have a very local governments, or individual owners. Management large impact on forest resources. By opening up new of a relatively small but growing share of forests in the forest frontiers for agricultural and logging activities, LCR is being decentralized to local governments and roads are the single most important driver of defor- indigenous communities, especially since the recogni- estation. Agroecological zoning is one of the ways to tion of indigenous land rights has found particularly mitigate the deforestation pressure created by road strong resonance in this region. The share of privately construction. The participatory agroecological zoning owned forests in the LCR far exceeds private forest process involves identification of areas of high biodi- ownership in other regions, with 56 percent in Central versity value and prioritization of infrastructure and America; 17 percent in South America, excluding other development early on in the planning process, Brazil; and 15 percent in the Caribbean compared to while taking into account the economic growth and the global average of 13 percent.52 Community-based conservation objectives. forest management in Mexico has reached a scale Modeling efforts point to a very large scope for reduc- unmatched anywhere else in the world; an estimated ing GHG emissions from land-use change in Brazil three-fourths of Mexican forests are communally through a combination of domestic policies. Better road owned either by ejidos, or indigenous communities. planning, agroecological zoning and the expansion, Land tenure over forest land and trees matters for effective enforcement of conservation objectives in pro- the way forests are managed. Recent research empiri- tected areas and--very important--also in private lands cally comparing different types of forest ownership in Brazil alone can reduce future emissions from defor- indicates that in communally owned forests, both car- estation in Brazil by half.55 Results of a combined bon sequestration and livelihoods benefits can best be agroecological and policy model of the Amazon show achieved by increasing the area of the individual forests that deforestation rates in the Amazon vary significantly under community control, giving greater autonomy depending on a policy scenario and assumptions about to local communities in managing their forests, and the stringency of conservation efforts, including compensating them to reduce forest use.53 In privately extension of the protected areas network, compliance owned forests, successful innovative approaches include with legislation requiring forest reserves on private a shift from regulation to economic instruments, such land, and road construction and paving in the Amazon. as transferable forest obligations in the Amazon in Current trends in agricultural expansion may eliminate 162 C L I M AT E C H A N G E M I T I G AT I O N I N T H E L C R : N O R E G R E T S A N D B E Y O N D a total of 40 percent of Amazon forests by 2050 in a needed to address particular drivers of deforestation business-as-usual scenario, releasing 32 / 8 Pg of while recognizing the specificities of each country's carbon to the atmosphere, equivalent to four years of social and economic setting and its state of forest current annual carbon emissions worldwide.56 In the resources. In this regard, the LCR offers a very broad "governance" scenario that assumes enforcement of range of situations: from high deforestation (for exam- mandatory forest reserves on private land, agroecolog- ple, in Nicaragua) to net reforestation (for example, in ical zoning of land use, and the expansion of the pro- Costa Rica) to historically low deforestation (for tected areas network, the deforestation rate initially example, in Guyana). Oftentimes agriculture is a key rises due to road paving and declines over time. Under deforestation driver, sometimes as a result of policy the governance scenario, 4.5 million km2 of the forest incentives for extensive cattle farming or crop cultiva- would remain by 2050 compared to 3.2 million km2-- tion. Unclear land tenure is an outstanding feature of or 53 percent of the original area of the Amazon forest-- several of the region's countries that needs to be under business as usual. In the governance scenario, addressed. Of particular relevance to REDD, technical emissions from deforestation are projected to fall to and human monitoring capacity, forest management about 15 / 4 Pg of carbon (figure 6.16). None of know-how, and capability vary significantly among these calculations take into account the possible countries within the region. Hence, a mix of cus- dieback of the Amazon in the more extreme scenarios tomized policies is needed to address the forest-climate of the impact of climate change that would exacerbate nexus in each of the region's countries. Initiatives like the difference in the emission in the business-as-usual the Forest Carbon Partnership Facility (FCPF) of the and governance scenarios. World Bank recognize the heterogeneity by country Only a concerted, multisectoral approach can make and seek to build capacity for custom-made solutions forest conversion less attractive relative to other land- addressing REDD (box 6.9). use options and reduce the pressures stemming from Countries in the LCR are the world's leaders in these sectors. But tailor-made policy solutions are implementing incentive-based payment schemes for forest conservation. In 1996, Costa Rica passed Forest Law 7575, which recognizes that forest ecosystems generate valuable ecosystem services and provides the FIGURE 6.16 legal basis for the owners of forest lands to sell these Falling Emissions Because of Strong Conservation in the Amazon services. A large number of contracts were intermedi- 120 ated by the National Fund for Forest Financing as a result. Most of these payments to landowners have 100 been for hydrological services and watershed protec- Tons of carbon, billions 80 64 tion--financed by such enterprises as hydropower generators and by municipalities--but availability of 60 new financing through the CDM for afforestation and 40 reforestation activities and payments for REDD are a promising source of revenue for Costa Rica in the 20 26 future (Pagiola 2008). To a large extent, Costa Rica is 10 16 0 now hailed as the global pioneer of payments for envi- Total carbon Emission Emission Avoided ronmental services produced by forests. Mexico's stocks by under under emission 2003 business as governance experience with the ProÁrbol Program (box 6.10) usual illustrates that these programs have great potential to Brazil Peru Bolivia Guyana Colombia Venezuela, R.B. de Ecuador attract interest from land users. But they must be carefully designed and insulated from political pres- Sources: Soares-Filho et al. (2006); Nepstad et al. (2007). sures to be effective. A conservation banking scheme 163 L O W- C A R B O N D E V E L O P M E N T : L A T I N A M E R I C A N R E S P O N S E S T O C L I M A T E C H A N G E BOX 6.9 Supporting Customized Solutions through the FCPF The FCPF intends to build the capacity of developing in the conservation and sustainable use of forest resources. countries, including at least 10 from the LCR (that is, Guyana relies on log tagging and tracking to reduce ille- Argentina, Bolivia, Colombia, Costa Rica, Guyana, Mexico, gal logging. Nicaragua, Panama, Paraguay, and Peru), to benefit from Several types of economic mechanisms for forest future systems of positive incentives for REDD. As part conservation are in use or in preparation in LCR countries. of the capacity building, countries receive assistance to Costa Rica and Mexico will continue to rely on payments adopt or refine their national strategy for reducing emis- for environmental services for protection, reforestation, sions from deforestation and forest degradation. and forest regeneration, and Colombia may start doing The Readiness Plan Idea notes prepared by the LCR so. Guyana has been using forest concessions. Panama countries participating in the FCPF so far suggest that may scale up its experience with debt-for-nature swaps. most of their programs and activities designed to reduce Bolivia is thinking about experimenting with tradable emissions from deforestation and degradation will fall in deforestation permits. the following categories: (1) general economic policies With respect to rural development programs, Bolivia and regulations; (2) forest policies and regulations; (3) recognizes the need for silvopastoral systems as a more effi- economic mechanisms for forest conservation; (4) rural cient and less destructive alternative for cattle ranching, development programs; and (5) social programs. and for the development of income generation activities in Examples of general economic policies and regula- the highlands so as to reduce migration to the lowlands of tions for REDD include Colombia's contemplation of the Amazon region. Guyana proposes to reduce deforestation eliminating perverse incentives from sectors causing defor- to foster ecotourism, handicraft using nontimber forest estation, Guyana's willingness to promote less destructive products, aquaculture, and rural electrification. Panama practices in mining and road development, and Mexico's will improve its land administration and continue to pro- efforts to mainstream forest conservation in agriculture mote investment projects at the subnational level, while and transportation. Peru is launching a number of REDD pilot projects to Forest policies and regulations are likely to form identify the activities that are necessary to reduce poverty. the bulk of LCR's REDD programs and activities. Finally, several LCR countries are proposing a range of Argentina, Mexico, and Nicaragua are establishing alter- social programs expected to generate direct or indirect native forest management practices to create alternative benefits in terms of REDD. Argentina proposes to confer livelihood for forest-dependent communities. Bolivia and ownership rights over forest land to indigenous and rural Mexico are promoting community forestry. Colombia communities and halt the internal displacement of indige- and Guyana favor reduced impact logging. Costa Rica, nous peoples. Bolivia wants to promote the sustainable Guyana, Mexico, Nicaragua, and Panama provide incen- use of nontimber forest resources, wildlife, and environ- tives for reforestation and plantations to relive pressure ment services by peasant communities and indigenous on natural forests. Costa Rica and Mexico see the need to populations, according to their knowledge, uses, and cus- reinforce the protection and management of their system toms. Guyana will engage with Amerindian communi- of protected areas. Several countries emphasize the need for ties to use their titled lands in sustainable ways. Panama better forest law enforcement. Paraguay wishes to decen- will rely on the ongoing Sustainable Rural Development tralize forest management to empower local governments program of the Ngöbe Buglé Region. in Guyana (box 6.11) is another remarkable example The scope to achieve GHG reductions through of the emerging innovations in the region which--if domestic policies depends on the technical potential and they prove successful--can be replicated in other parts biophysical characteristics of forests and soils, and on of the world. the economic factors. The cost of implementing forest 164 C L I M AT E C H A N G E M I T I G AT I O N I N T H E L C R : N O R E G R E T S A N D B E Y O N D BOX 6.10 Paying to Protect Forests through ProÁrbol in Mexico In 2003, Mexico instituted a program of payments for country, irrespective of relative importance for water ser- hydrological environmental services. This evolved into a vices. The program has also been used as a vehicle to broader program of payments for environmental services address unfunded mandates, such as a commitment that of forests, which, in turn, is part of a program of support Mexico made at the Bishkek Mountain Summit to to forests, ProÁrbol; 1.4 million ha were under conserva- increase spending on conservation in mountain areas. The tion contracts in early 2008; the 2008 contracts should result was poor targeting, at least initially (Muñoz et al. bring this total to more than 2 million ha. The program 2008). From 2003 to 2005, as much as 90 percent of for- pays landowners to conserve existing forests, mainly for est area under contract were in areas with aquifers in the services they provide in managing water resources. equilibrium or underexploited aquifers, and as much as Payments are made ex post, after the conservation has 72 percent were in areas of low or very low risk of defor- been verified. Conservation contracts are for five years, estation. More recent assessments are not available, but it and are conditionally renewable. Payments are uniform is thought that efficiency has increased somewhat (for countrywide. They are stated in multiples of the mini- example, location in an area of high deforestation risk is mum wage, and amount to about US$40 per hectare per now a prioritization criterion). A politically driven year for cloud forest and US$30 per hectare per year for requirement for uniform payments also means that pay- other forests. Despite a relatively careful preparation, the ment levels are often ill-suited to local conditions--paying good intentions of the program designers have often been much more than opportunity costs in some areas (result- overwhelmed by intense political pressures. For example, ing in much higher levels of demand for participation when it became clear that the original intention to focus than funding allows) and much less than opportunity payments on areas where aquifers are most overexploited costs in other areas (resulting in limited participation would concentrate payments in only a few states, criteria in areas that could provide very high levels of environ- were changed to spread payments more broadly across the mental services). BOX 6.11 Conservation Banking to Reduce Deforestation and Protect Biodiversity Another innovation in the region to reduce deforestation services. It will have the right to 16 percent of the is Guyana's President, Bharrat Jagdeo's offer to cede the proceeds generated from future environmental services management of his country's entire rain forest (more payments, while 80 percent would go to local communi- than 18 million hectares, covering more than 80 percent ties and 4 percent to the Global Canopy Program, an of Guyana's land mass) to the British government in alliance of 29 scientific institutions in 19 countries. return for economic assistance. While the offer is still on Similar deals in other developing countries include a the table, the government and the 371,000-hectare US$9 million investment by Merrill Lynch in Sumatra Iwokrama Forest Reserve have recently negotiated a in the expectation of eventual profits from sale of carbon more limited deal with Canopy Capital, an investment credits, and a "wildlife conservation banking scheme" in group. Exact details have not been released, but basically Malaysia established by New Forests (a Sydney-based in exchange for funding a "significant" part of investment firm), which expects to receive a return of Iwokrama's US$1.2 million annual research and conser- 15 to 25 percent by selling "biodiversity credits." This vation program for five years, Canopy Capital will underscores the potential for forests to generate financial receive partial "ownership" of the forest's ecosystems resources even outside of the formal carbon market. 165 L O W- C A R B O N D E V E L O P M E N T : L A T I N A M E R I C A N R E S P O N S E S T O C L I M A T E C H A N G E conservation measures and achieving GHG reductions some cases energy also) from which to derive supply in this sector can be approximated using the opportu- curves (Boucher and Reddy 2007). The results of 23 nity costs associated with keeping land under forest different local models suggest a cost of avoided emis- rather than converting forest to alternative uses. Despite sions from deforestation ranging from US$0 to US$14 a large range of uncertainty in the current estimates of dollar per tCO2, with a mean value of 2.51 US$/tCO2. the opportunity costs of alternative land use, and high The Stern Review estimated that deforestation could spatial heterogeneity of those estimates, even rough esti- be reduced by 46 percent (in area terms) for a cost of mates provide a useful guide to policy makers regarding US$1.74 to US$5.22 per tCO2 with a midpoint that the likely costs of forest conservation. is 38 percent higher than the mean value of the esti- mates of local studies. Global models result in the Potential for mitigation through afforestation highest cost per ton of avoided emissions, with values and reforestation in a range of US$6 to US$18/tCO2 for reducing defor- The efforts to harness the climate change mitigation estation by 46 percent also. potential of land-use change at the global level are The large differences across different models are focused on reducing emissions from deforestation and driven by the selection of baselines (rate of deforesta- forest degradation and, to a lesser extent, around affore- tion based on past or expected deforestation rates), the station and reforestation activities. Assessing the mit- assumptions about the carbon content of the forest, igation potential of these types of activities requires and the dynamics of the different variables and sectors estimating land availability and the potential carbon considered (from static to global equilibrium models). sequestration or retention potential of the available Expected deforestation rates, in particular, are based land. The latter depends mostly on biophysical con- on multiple variables including current deforestation siderations (soil type, precipitation, altitude, and so on) trends, drivers of land-use change (for example, roads and the type of vegetation. Based on a literature review and population growth), and land-use alternatives of regional bottom-up models, the IPCC estimates among others; while carbon content is determined by that the economic potential of forestry activities (A/R a series of assumptions about vegetation type and car- and reduced deforestation) in Latin America and the bon pools. Other relevant factors that will have an Caribbean Region by 2040 ranges from 500 to 1,750 impact on the cost of REDD include the existence of MtCO2 per year assuming a price of US$20/tCO2. In other types of costs (for example, transaction and sta- particular, land available for A/R activities in the LCR bilization costs to prevent leakage); asymmetries of is estimated at 3.4 million square kilometers, most of information (knowledge about the location of poten- it in Brazil. Other countries--especially Uruguay and tial deforesters) that determine the possibility to pay some Caribbean countries--also offer a significant based on price discrimination instead of marginal potential, at least in terms of the share of their corre- costs; and consideration of the benefits of the foregone sponding territory (figure 6.17).57 activity (for example, taxes paid by logger companies to the government, loss of income due to unemploy- Cost of avoided deforestation and mitigation ment, and so on). potential of REDD Even if available studies differ substantially in the Empirical assessments of mitigation potential through assumptions made of key parameters used to estimate REDD have focused on calculating the opportunity mitigation potential, such as carbon accounting, costs, cost of avoided deforestation. To that end three differ- baseline, and the inclusion or not of the mitigation ent approaches have been used: local/regional empirical potential of other sectors in the analysis, future defor- studies; global empirical area models like the Stern estation rates are in general estimated to remain Review; and global simulation models of the forest high in the tropic areas, particularly in Africa and and other sectors (for example, agriculture and in South America. Therefore reducing deforestation is 166 C L I M AT E C H A N G E M I T I G AT I O N I N T H E L C R : N O R E G R E T S A N D B E Y O N D FIGURE 6.17 Potential Area (in hectares) for CDM-A/R by Country (Without Considering Protected Areas) 2,258,770 10,000,000 100 90 280,302 1,000,000 214,779 157,127 136,643 80 85,919 76,785 48,919 28,000 100,000 24,476 70 16,435 14,326 14,854 14,561 13,779 12,791 CDM-AR area (log-scale) 8,332 Percent of total area 8,189 60 6,061 4,335 10,000 1,621 1,511 1,221 1,200 50 1,000 40 307 298 184 30 72 71 100 57 32 20 10 10 1 0 M de l ic e il lo na zu Ur bia R. y Bo o ra ia Ch y Ec ile r te s a ru na i G ma an ra a EI epu a st or Be a Ja lize h a rin as To e ar go r s re da itt na da N s om is a Pa ait on o ua ra Ba o nd ne a, ua a rg z al in Nic yan R gu c Ba aic d am ic ic Sa bl D ev Pa liv B. ad Su am H ad Pe Co vad Ri d ad A Bra gu Co nti th G bu . K Gre na ua B ba in ex G du m m H s a di el ug m u a an b u ic a an e ne om id Ve d ig St in an nt D Tr A nt ce in .V St CDM-aforestation/reforestation area % of total Source: ENCOFOR CDM-AR online analysis tool. http://www.joanneum.at/encofor. Note: The values presented for Argentina and the Dominican Republic reflect a closer estimate of the potential, because the online analysis tool did not allow applying their actual threshold values of 22.5 and 29, respectively. a high-priority option for these regions. Table 6.8 and thus support long-term adaptation to climate summarizes the most recent estimates of the cost of change. REDD and A/R can also contribute to short- REDD in LCR. term adaptation to climate change and foster climate- resilient sustainable development, for example, by Synergies between global and local benefits retaining moisture, regulating hydrological flows, from REDD and A/R stabilizing soils and protecting them against erosion, In addition to climate change mitigation, forests also restoring soil fertility, protecting or increasing the play important roles in the adaptation to climate supply of timber and nontimber wood products and change. By mitigating climate change, REDD and fuelwood, and so forth. The opportunity to earn future A/R contribute to reducing the long-term vulnerabil- carbon finance payments for A/R increases the value of ity of natural ecosystems and socioeconomic systems formerly marginal lands. Higher land rents improve 167 L O W- C A R B O N D E V E L O P M E N T : L A T I N A M E R I C A N R E S P O N S E S T O C L I M A T E C H A N G E TABLE 6.8 Economic Potential of Avoided Deforestation in Latin America and the Caribbean Region Cost of avoided Avoided emissions from Study Region deforestation (US$/tCO2) deforestation Sohngen and Sedjo, (2006) South America 27.2 80,000 cumulative tCO2 by 2050 Central America 27.2 22,000 cumulative tCO2 by 2050 IPCC AR4 (2007), Table 9.3a Central and South America 100 1,845 tCO2/year in 2030 Central and South America 20 867 tCO2/year in 2030 Strassburg et al. (2008)b Brazil, Peru, Mexico, Colombia, 5.63 97.5, 99.8, 93.4, 100, 86.7, 100, and Bolivia, Venezuela, R.B. de, and 88.4%, respectively Argentina Sathaye et al. (2008) Central America (including 34.6 CO2 choke price to theoretically (global model) Mexico) halt deforestation South America 40 Swallow et al. (2007) Peru (Ucayali province) 5 90% of CO2 emissions from (local model)c deforestation have generated returns below this price Obersteiner et al. Central and South America 19.86 50% reduction in deforestation in 24.48 2030 using the GCOMAP, DIMA, and 9.70 GTM models Nepstad et al. (2007) Brazilian Amazon 1.77 Average cost in 2007 of halting deforestation by 2017 (marginal cost is higher) a. Reported numbers represent the average activity estimates reported for three global forest sector models including GTM (Sohngen and Sedjo 2006), GCOMAP (Sathaye et al. 2007), and IIASA-DIMA (Benitez-Ponce et al. 2007). b. These results are for the scenario with an equivalent weight for both proposed incentives: emissions reductions by country compared to country specific past emissions and compared to the global baseline ( = 0.5). c. Examines associated gains to deforestation at the local level. the economic position of landowners and enhance This is not to say that trade-offs between mitigation their adaptive capacity (Lal 2004). In addition, posi- and adaptation do not arise in REDD and A/R activi- tive spillover effects for timber and nontimber forest ties. With regard to water resources, the adaptation products exist when sustainable forest exploitation is effects of A/R mitigation projects depend on the cli- permitted on top of the delivery of the environmental matic characteristics of the region in which the projects service (Landell-Mills 2002). are implemented as well as on the careful selection and REDD not only aims to avoid the emission of sub- composition of the tree species used. Findings of the stantial amounts of GHGs but the conservation of forest U.K. Forestry Research Program show that A/R activ- ecosystems can also result in benefits for local climate, ities have numerous positive effects, such as soil con- water resources, and most importantly biodiversity. The servation and flood control in regions with sufficient actual implications for biodiversity of REDD mitiga- water resources. Furthermore, forests increase average tion activities depend on the ecosystem concerned, the water availability in regions with fewer water resources, design and implementation of the activity, and particu- intense rainfalls, and long spells of dry weather. There larly the site selection and management practices. In are, for example, documented cases of competition general, reducing deforestation and forest degradation between tree plantation and agriculture in terms of the involves both biodiversity preservation and climate land and water that are needed. In arid and semiarid benefits. The conservation of biodiversity enhances the regions, A/R activities can reduce water yields. This adaptive capacity of ecosystems and, in turn, reduces is an important finding in the effort to align posi- their vulnerability to climate change. tive mitigation and adaptation effects that has to be 168 C L I M AT E C H A N G E M I T I G AT I O N I N T H E L C R : N O R E G R E T S A N D B E Y O N D considered when planning A/R activities (UK FRP Uruguay are net energy importers, thus vulnerable to 2005). Another example of trade-off to be avoided is volatility in energy prices and supplies. However, the that REDD could lead to the exclusion of vulnerable dependence on imported hydrocarbons is most acute communities from capacity building and carbon among Central American and Caribbean countries, finance flows if their rights to the land are not recog- including Barbados (86%), the Dominican Republic nized by the public and private sectors. However, (78%), Jamaica (86%), and Panama (72%).58 The positive synergies are clearly possible. exposure to volatile oil prices has prompted Latin At present only a few studies exist that systemati- American countries to take measures to diversify their cally analyze the interaction between mitigation, adap- energy matrixes and to reduce the need for energy tation, and sustainable development. The experience imports through increasing renewable energy genera- of the World Bank's BioCarbon Fund shows that the tion and improving energy efficiency. For instance, quantification of these synergies is crucial from a devel- high oil prices have made hydroelectric, windpower opment perspective and to convince potential investors. and coal power generation competitive, especially in The Fourth Assessment Report concludes that guide- countries without access to low priced natural gas. lines to promote synergies between mitigation and The development of the large potential of low-cost adaptation programs and projects would be desirable medium and large hydroelectric projects in South for the existing Kyoto Protocol flexible mechanisms America and some Central American countries is not as well as emerging mechanisms (Klein et al. 2007). A realistic without government support in most coun- systematic integration of adaptation practices in miti- tries that have adopted a competitive electricity mar- gation activities and vice versa would maximize the ket with private participation. Private investors have utility of the associated investment. difficulties and are unwilling to manage the high pro- ject risks of hydro plants: high capital cost, need of Other potential benefits of GHG mitigation expensive and time-consuming feasibility studies, One of the key conclusions for the LCR is that there higher construction risks, long execution and amorti- are numerous nonclimate related benefits for the most zation periods, and protracted and politically sensitive promising GHG mitigation policies examined in this processes to obtain environmental licenses. Brazil is chapter. While this is likely to be true for many other trying to overcome these difficulties by relying on regions, it is particularly true for the LCR given the competitive bids for awarding long-term concession synergies and developmental benefits of the largest contracts to new hydroelectric projects with environ- and fastest-growing emissions, such as from forestry, mental licenses. This scheme helps mitigate market energy, and transport. Many of the mitigation options and project risks for developers and has been effective are often the least-cost option in financial terms-- in the development of hydroelectric projects thanks to such as hydropower or energy efficiency--but are strong participation of state-owned generators and hampered by regulatory, legal, or other nonfinancial local construction companies. barriers. Among the nonclimate change motivations for pursuing GHG mitigation in the LCR are energy Avoiding high carbon technology lock-in security, avoiding lock-in of high-carbon technolo- Investments in long-lived capital assets and their corre- gies, and other co-benefits. sponding greenhouse gas emissions can last 40 to 50 years. The region is projecting a 4.8 percent annual rate Energy security of growth in electricity demand over the next 10 years, High and volatile oil and gas prices have underscored corresponding to a net increase of 100,000 MW in gen- the potential for economic disruption that results from eration capacity, of which 60,000 MW is not under heavy reliance on these fuels for energy. The LCR has a construction and has not been contracted (ESMAP number of energy-importing countries that have been 2007). The carbon intensity of this new generation negatively impacted by increasing energy prices or capacity will be decided over the next few years as decreasing fuel supplies. In South America, Chile and investment decisions are made. Policies and incentives 169 L O W- C A R B O N D E V E L O P M E N T : L A T I N A M E R I C A N R E S P O N S E S T O C L I M A T E C H A N G E that would steer investment toward a low-carbon path Climate mitigation also has ancillary energy- can avoid lock-in of carbon-intensive technologies for related sustainable development benefits: systemic the lifetime of the corresponding projects. urban transport efficiency improvements can provide These policies would help the region avoid installing better transport service, and methane capture projects technologies that in an increasingly carbon-constrained can improve solid waste treatment and generate an world will soon become obsolete, and make the region additional source of energy. Decentralized electrifica- lose competitiveness. In fact, in the context of the tion with renewable energy can provide substantial post-2012 climate regime, the European Union is social and economic benefits to underserved popula- already considering imposing an import tax on goods tions who are dependent on traditional sources, such supplied by countries that have no emission policies as biomass, kerosene, diesel generators, and car batter- and measures in order to protect the competitiveness ies. Compared to costly grid extensions, off-grid renew- of the European industry, which is under increasing able electricity typically is the most cost-effective way emission controls.59 The proposal has the support of to provide power to isolated rural populations, with an major industries, and represents a potential trade bar- estimated 50­65 million people living without rier of concern to developing countries. The introduc- electricity in Latin America, particularly in Bolivia, tion of low-carbon technologies in the next few years Honduras, and Nicaragua where electrification rates of may avoid much costlier mitigation costs in the rural areas are below 30 percent (ESMAP 2007). future, when regulations become more stringent in terms of carbon intensity. Summary and Conclusions Other ancillary development benefits Priorities for the LCR The economic, environmental, and social co-benefits Among the mitigation options with the greatest of climate change mitigation are considerable. From potential in the LCR are avoided deforestation, expan- the perspective of the environment and human health, sion of hydropower and energy efficiency, sustainable these benefits include higher agricultural productiv- urban transport, and solid waste management. ity, reduced stress on natural ecosystems, lower air · Avoided Deforestation. The largest swings in pollution, and better health conditions. The human emissions in the LCR are likely to come from health benefits from improved transportation systems deforestation and other land-use emissions, may offset a substantial fraction of mitigation costs because these emissions are large and are likely to since they range between 30 and 50 percent of esti- remain so in the future. Policies to reduce defor- mated mitigation costs (Burtaw et al. 2003; Proost estation have been put in place in a number of and Van Regemorter 2003). Others estimate that countries, however, economic forces, such as an these benefits are three to four times greater than mit- increase in soybean or beef prices, can over- igation costs (Aunana, et al. 2004; McKinley et al. whelm forestry conservation policies. Domestic 2005), depending on the stringency of the mitigation and international policies to avoid deforestation level, the source sector, and the measure and the mon- and land degradation can reduce future GHG etary value attributed to mortality risks. Studies have emissions from the LCR and should be among calculated that for Asian and Latin American coun- the highest priority policies for climate change tries, several tens of thousands of premature deaths mitigation for the region. could be avoided annually from moderate CO2 miti- · Hydropower. There is considerable low-cost gation strategies (Aunana, et al. 2004; McKinley et al. and relatively low-impact hydropower potential 2005).60 These deaths are avoided due to a reduction in the LCR that can help meet the growing in air pollution, including emissions of SO2, NOx, demand for power. In some countries--Brazil, and particulate matter from vehicles and heat and Colombia, Peru--hydro is already the least-cost power sources. alternative compared to coal but faces social and 170 C L I M AT E C H A N G E M I T I G AT I O N I N T H E L C R : N O R E G R E T S A N D B E Y O N D environmental hurdles as well as potential risks mitigation measures that also have large local from climate change itself. Reversing the decline co-benefits can be implemented at a modest in hydro development in the LCR will require incremental cost. Examples of successful imple- establishing social and environmental frame- mentation of waste management strategies in works and pursuing lower-impact hydro projects. Brazil, Colombia, and Mexico highlight the need · Energy Efficiency. By any measure, there is sub- for integrated approaches that combine technical stantial potential in the LCR for improving the assistance with public education measures, and efficiency of energy use, and in the process, gener- mechanisms for public participation to help over- ating significant financial savings and local envi- come the collective action problems and cross ronmental benefits. The potential lies not only in municipality boundaries. the dissemination of energy-efficient appliances Financial analyses show that the net cost per ton of and lighting in the residential, commercial, and reducing GHG emissions through many of these mit- buildings sectors, but in efficiency improvements igation options is low or negative (table 6.9). Aside in the industrial, transportation, and public sec- from the financial benefits, most all have substantial tors as well as the energy industry itself. nonmonetary co-benefits that contribute to their being · Sustainable Urban Transport. The movement regarded as no-regrets options. However, it is well of people, goods, and services is among the largest known that there are sizeable transaction cost hurdles energy-consuming activity in Latin America and for implementing these measures, such as aggregation has been expanding due to economic growth and problems for many small-scale renewable energy and motorization rates that are among the highest energy efficiency interventions, environment licens- in the world. The LCR is a world leader in ing requirements for hydropower, regulatory and "sustainable transport," represented by the pro- principal agent problems associated with energy effi- public transit policies demonstrated by Curitiba, ciency, and social and legal barriers associated with expanded in Bogota, and now under way in dozens avoided deforestation. of cities in the region. The mitigation options Using largely existing technology, there is huge involve institutional and behavioral changes and potential for reducing energy demand through the must be part of an overall strategy instead of the dissemination and mass marketing of energy-efficient current project-by-project approach. These strate- products, including refrigerators, light bulbs, air con- gies need to foster the use of more efficient modes ditioners, cars and trucks, and solar water heaters. The of transport and modal integration, reduce travel life-cycle cost of many energy efficiency measures is demand, improve accessibility though better land- usually superior to the cheaper and less-efficient alter- use planning, and reduce private vehicle use in native, but this is often insufficient to sway the market. congested areas. Part of the problem is the lack of information; and · Solid Waste Management. The overall potential programs, such as efficiency labeling for appliances for GHG mitigation through improved solid and other equipment, are beneficial. However, given waste management practices is relatively low com- the high discount rates that many consumers receive pared to other sectors, but many mitigation for energy efficient purchases, mandatory efficiency options are of a no-regrets nature. Proper collec- standards and other carrot-and-stick measures are tion and disposal of solid waste has very significant needed to cause a major shift in the efficiency of health and public safety benefits. There is a grow- consumer products, and, to a lesser extent, widely ing demand for improved solid waste manage- used industrial equipment, such as boilers, motors, ment in the region and therefore an opportunity to and pumps. promote sustainable development and reduce Another area where regulation is needed to better GHG emissions. Solid waste management is high align incentives for energy efficiency is in the electric- on the political agenda of local governments, and ity distribution sector. Unless specifically integrated 171 L O W- C A R B O N D E V E L O P M E N T : L A T I N A M E R I C A N R E S P O N S E S T O C L I M A T E C H A N G E TABLE 6.9 Mitigation Options in Latin America and the Caribbean Region: Potential, Costs, and Technological and Institutional Barriers Technology and Non-monetary, Mitigation Short-term Long-term Mitigation cost commercial non-CO2 potential (5 years) (>10 years) ($/tCO2 reduced) readiness co-benefits Renewable energy 1. Large hydro H M H L H L/M 2. Small hydro M M M L/M M/H M 3. Wind M/H L H M M L 4. Solar PV L M L H M M/H 5. Solar concentrating power M? M M M/H L L 6. Solar thermal hot water M M L M/H M 7. Modern biomass M H L M M/H 8. Second generation biofuels M? M M L M Energy Efficiency 1. Residential H H M L H L 2. Commercial/industrial H H M L H M 3. Public sector M M M L/M H M Transport 1. Public H M H L/M H M/H 2. Commercial H M H L/M H M 3. Private H M H M/H L/M L/M Waste Management 1. Landfill methane gas capture M M M L/M H H 2. Composting and recycling M M M M/H M M Agriculture 1. Conservation tillage H M H M/H L M 2. Livestock management M/H M H H L/M L/M Forestry 1. REDD H M H L/M H H 2. Agroforestry M M M M/H H L/M Source: Authors. Note: L = low, M = medium, and H = high emission reduction potential. into electricity regulation, distribution companies do countries in the LCR will be pursuing large expan- not have a natural incentive to promote end-use effi- sions in coal-fired generation for their power needs ciency measures as this typically reduces sales and rev- over the coming five years. Carbon payments could enues. Instead, it is necessary to devise regulatory help countries "switch" from high-carbon fuels to systems that reward energy conservation and efficiency lower-GHG technologies in the power sector, such as on the part of utilities and their customers. Earmark- hydro, wind, and natural gas, and this would be espe- ing a percentage of distribution company revenues for cially important for such long-lived investments. energy efficiency has been an approach instituted in Even excluding land-use change and deforestation, Brazil that has helped finance energy efficiency invest- agriculture is a large source of GHG emissions in the ments, while Mexico's FIDE program has successfully LCR. The growth in nitrogen fertilizer use and achieved energy savings through investments in end- methane from livestock production will accompany use efficiency. the expansion of the agricultural sector as the region While competitive in certain parts of the LCR, new becomes a major supplier of food to the rest of the renewables--wind, geothermal, solar electric, and world. To the extent that emissions are credited to bioenergy--do not broadly compete on financial terms "consumers," such emissions will be increasingly with other energy sources, most importantly, hydro, global. While there are numerous options to reduce natural gas, and coal. Without valuing local environ- GHG emissions in the agricultural sector, such as mental benefits, or without carbon revenues, many improved livestock breeding and conservation tillage, 172 C L I M AT E C H A N G E M I T I G AT I O N I N T H E L C R : N O R E G R E T S A N D B E Y O N D their effectiveness and cost vary significantly by cli- the future depends on many factors, and no integrated assess- matic and socioeconomic conditions, and there are cur- ment of GHG mitigation potential from energy crops and sce- rently few incentives for reducing GHG emissions nario analysis is available. The broad range of estimates of the total global biophysical potential fossil fuel offset from energy from the agricultural sector in the LCR or worldwide. crops puts it at 3,000 to 12,000 Mt CO2e per year by 2030. Since the mitigation solutions are very context-specific Adding mitigation potential from using agricultural wastes in the agricultural sector, research efforts need to have and residues, the total potential from agricultural bioenergy is a strong participatory dimension and respond to the estimated to be about 4,000 to 16,000 Mt CO2e per year by needs of small farmers. 2030. The economic potential is estimated at between 4 and Interactions between sectors and policy instruments 14 percent of the maximum bio-physical potential that could be achieved at carbon prices of US$20 and US$50 per ton of are another important consideration for countries in CO2e, respectively. Thus, the maximum global economic mitiga- the region as they devise their climate change strate- tion potential of biomass from agriculture is estimated at 640 gies. Many mitigation options--particularly those (16,000 x 4 percent) to 2,240 (16,000 x 14 percent) metric tons relating to agriculture, production of biofuels, forestry, of CO2e per year, or between 30 and 100 percent of all other and building dams and reservoirs for hydropower-- agricultural greenhouse gas mitigation measures combined. induce a change in land use. Where these interac- Smith et al. (2007). 6. Farrell et al. 2006; Hill et al. 2006; Kartha 2006; tions are important, they need to be explicitly taken review of studies reported in Worldwatch Institute (2006) and into account. Otherwise, incentives to specific miti- Kojima et al. (2007). gation options could inadvertently lead to perverse 7. Koplow (2006). outcomes. 8. Kojima et al. (2007). 9. At US$40 a ton, a multiple of the current market price Notes of carbon, the maximum carbon credit would be US$0.07 per 1. The latest energy outlooks by the IEA and OLADE are liter of ethanol and US$0.11 per liter of biodiesel (Avato 2007). the only projections with reasonable details on a regional basis 10. Searchinger et al. (2008). for the expansion of power generation in the LCR. These 11. Gibbs et al. (2008). results were complemented with specific generation planning 12. De Gorter and Tsur (2008). studies on Mexico and Brazil, the two largest emitters of CO2 13. Gurgel et al. (2008). in the region (SENER 2007a; EPE 2007). 14. Zah et al. (2007), Gibbs et al. (2008), Searchinger et al. 2. The levelized cost is calculated as the cost of the electricity- (2008). generating system including all the costs over its lifetime: ini- 15. Turner et al. (2007). tial investment, operations and maintenance, cost of fuel, and 16. Rosegrant et al. (2008). cost of capital. 17. Mitchell (2008). 3. About 25 US$/MWh in Peru, 45 US$/MWh in Colom- 18 Whiteman and Cushion (2008). bia, and 55 to 72 US$/MWH in Brazil (average annual values), 19. De Gorter et al. (2008). according to the latest indicative generation plans: Peru--Plan 20. A note on the Economic Analysis of Projects in a Green- Referencial de Electricidad 2006­15, Colombia--Plan de house World, The World Bank, February 2007. Expansion de Referencia Generación-Transmisión 2008­22, 21. International Energy Agency Outlook (2006), the Brazil--Plano Decenal de Expansao de Energia 2007­16. Fourth Assessment of the Intergovernmental Panel on Climate 4. Carbon prices in the Chicago Climate Exchange from Change (2007), and the study on cost curves published by the March­May 2008 have been in the range of 5 to 7.5 US$/ton McKinsey Quarterly (2007). CO2. Using optimistic assumptions, high carbon prices, and 22. A recent study by the Inter-American Development displacement of coal-fired generation from the baseline (896 Bank assessed the cost of reducing electricity use by 143,000 tons CO2/GWh), the average revenue would be 6.7 GWh in 2018 using widely available energy efficiency mea- US$/MWh or about 10 percent of levelized cost for wind sures of US$16 billion compared to the costs of about US$53 power. billion to build the equivalent of 328 gas-powered open cycle 5. According to the available estimates, the contribution generators (250 MW each) necessary to produce the same of biomass to global energy supplies ranges from below 100 143,000 GWh of power. EJ per year currently to above 400 EJ per year in 2050. Uncer- 23. In LCR many private companies were successful in reduc- tainty about land availability and yield levels results in this ing electricity losses from levels in the range of 20 percent to 30 broad range of estimates. Availability of biomass resources in percent to levels of 10 percent, by improving their commercial 173 L O W- C A R B O N D E V E L O P M E N T : L A T I N A M E R I C A N R E S P O N S E S T O C L I M A T E C H A N G E practices. A substantial portion of the losses corresponded to times, fuel consumption, and, therefore, air pollution and nontechnical losses (metering problems, fraud, and theft), which greenhouse gas emissions. while not energy efficient, can reduce demand if consumers have 35. A series of studies in these countries has been carried out to pay for their electricity. Many of the remaining opportunities with the sponsorship of the Spanish energy utility company to reduce losses in the region will require restructuring public ENDESA (2008). utilities to improve their corporate governance. 36. World Bank (2008). 24. Exceptions to this are when: (1) the utility can save 37. Pan American Health Organization (2005). money by reducing peak demand--such as by shifting con- 38. Gutierrez-Avedoy (2006) and CONAMA (2007) as sumption from high-cost peak hours to low-cost times of day cited by World Bank (2008). using baseload plants--a process known as "load manage- 39. As a result of uncertainties about the time profile of ment"; (2) the utility is supply-constrained and the reduc- emissions, these estimates of methane emissions by the U.S. tion of demand allows the utility to serve new customers; EPA (2006) fall within the range of / 10 to 30 percent for and (3) there are large commercial losses and the utility can countries with good data on waste and / 20 to 60 percent reduce costs by reducing electricity consumption by non- or for countries without annual data. under-paying customers. 40. Smith et al. (2008). 25. In Brazil, government spending was about 15 percent of 41. IPCC (2007). GDP in 2005. In the EU, public procurement is in excess of 42. Bolliger et al. (2006). 200 billion euros, or about 3 percent of total GDP. The public 43. Smith et al. (2008). sector accounts for 10 percent of the purchase of energy-using 44. Background report on land-use and bioenergy (LUBIO) products in the United States. for the MEDEC low-carbon study (World Bank 2009). 26. Non-revenue water is the difference between the volume 45. U.S. EPA (2006). of water that is put into a water distribution system and the vol- 46. The following options stand out in terms of the mitiga- ume that is charged to consumers. NRW comprises three com- tion potential and low cost: antimethanogenic vaccination of ponents: physical or technical (real) losses, commercial (or beef cattle in Argentina, Brazil, and some other countries in apparent) losses, and unbilled but authorized water consump- the region; vaccination and intensification of dairy cattle pro- tion, such as for social purposes (for example, firefighting, free duction systems in Brazil; and intensive grazing of beef cattle water to low income consumers). Electricity savings from reduc- in Argentina, Brazil, Colombia and some other countries in the ing NRW by half would be about 1.5 billion kWh/year, while region. Improved manure management is another measure those from improving energy efficiency by 25 percent would with sizable mitigation potential and low costs. equal 1.8 billion kWh/year, for a total of 3.3 billion kWh/year, 47. Application of nitrogen inhibitors is another fairly low or 34 percent of total electricity used by the sector in 2006. cost option with significant mitigation potential in some crop- 27. In some public institutions, staffing is often tied to ping systems in the region. operating budgets, meaning that reducing the budget for a 48. High-cost options tend to be those that are either not school or hospital by cutting energy expenditures may result in very effective at reducing net greenhouse gases or that have reductions in employees which, in turn, can be related to man- adverse yield and productivity effects. Adoption barriers have agement compensation. not been explicitly addressed (all mitigation options consid- 28. MEDEC (2008). ered technically feasible in a given region are assumed to be 29. International Road Federation (2006). adopted in data year 2000). 30. Timilsina and Shrestha (2008). The study uses IEA data 49. Projections by Smith et al. (2007). on CO2 emission from the transport sector for 20 LCR coun- 50. FAO (2005). tries during the 1980­2005 period. 51. The latest data from Houghton (2008) show a higher 31. The Economist, (2007). average value of CO2 emissions for Brazil for the period 32. http://www.time.com/time/world/article/0,8599,17338 2000­05 compared to the decreasing trends observed for the 72,00.html. years 1995 and 2000 based on his previous data (Houghton 33. MEDEC (2008). 2003). Still, the value for 1990 was higher than the average for 34. Intelligent Transport Systems group information and 2000­05 in Brazil. In addition, due to a slight change in the communication technologies to improve management of methodology used to estimate emissions from deforestation in transport infrastructure and vehicles. Intelligent Transport the latest data (most of the change affected estimations for Asia Systems aim to manage factors that are typically at odds and not the LCR), time series data for emissions by country with each other, such as vehicles, loads, and routes to using the same methodology are not available. improve safety and reduce vehicle wear, transportation 52. FAO (2005). 174 C L I M AT E C H A N G E M I T I G AT I O N I N T H E L C R : N O R E G R E T S A N D B E Y O N D 53. Agrawal (2008). 2008) to the crown cover threshold defined by each country 54. Chomitz et al. (2007). under the Kyoto Protocol. This tool is available online at 55. Soares-Filho et al. (2006). http://csi.cgiar.org/encofor/forest/. 56. Soares-Filho et al. (2006). 58. ESMAP (2007). 57. Potential land availability and location for A/R projects 59. European Commission, proposal for Phase III of Euro- by country within the LCR region were obtained by applying pean Trading Scheme. the ENCOFOR CDM-AR Online Analysis Tool (Zomer et al. 60. IPCC (2007), Chapter 11. 175 Appendix: Authors of Background Papers Veronica Alaimo and Humberto Lopez, World Bank Manuel Dussan, Inter-American Development Bank Oil Intensities and Oil Prices, Evidence for Latin America Assessment of Climate Implications of the Energy Sector in Latin America Carlos E. Arce The Weather Insurance Market and Its Role in the Natural Cata- Vladimir Gil, The Earth Institute, Columbia University strophic Agenda in Latin America Adaptation Strategies to Climate Change: A Case Study of the Societal Impacts of Tropical Andean Glacier Retreat Juliano J. Assunçao, PUC-Rio, and Flavia Fein Cheres, CEDE- PLAR/UFMG Donald F. Larson, Ariel Dinar, and Shaikh Mahfuzur Rahman, Climate Change, Agricultural Productivity and Poverty World Bank Explaining the Composition of Project Investments under the Clean Juliano J. Assunçao, PUC-Rio, and Flavia Fein Cheres, CEDE- Development Mechanism and the Implication for Latin American PLAR/UFMG Climate Change Policies Climate Migration Humberto Lopez, World Bank Eduardo Bitran Colodro and Pedro Rivera Izam The Social Discount Rate, Estimates for Nine Latin American Planned Adaptation to Climate Change: Results from the Chilean Case Countries Benoit Bosquet, Sebastian Scholz, Carla della Maggiora, and Andrew Mason, World Bank, and Javier E. Baez, World Bank Alejandro Deeb, World Bank and IZA The Role of Forests in Climate Change Policy in Latin America and Dealing with Climate Change: Household Risk Management and the Caribbean Adaptation in Latin America Harry de Gorter, Cornell University, and Yacov Tsur, Hebrew Robert Mendelsohn, Yale University University of Jerusalem Impacts and Adaptation to Climate Change in Latin America On the Costs and Benefits of Biofuel Production Robert Mendelsohn, Yale University Harry de Gorter, Cornell University, and Yacov Tsur, Hebrew Adaptation to Climate Change in Latin America University of Jerusalem Robert Mendelsohn and Shun Chonabayashi, Yale University Towards Genuine Sustainability Criteria for Biofuel Production The Market Impacts of Climate Change in Latin America Harry de Gorter, David R. Just, and Erika Kliauga, Cornell Robert Mendelsohn and Hilda R. Guerrero Rojas, Yale University University Barriers to Trade in Biofuels Impact of Climate Change on the Rio Bravo River 177 A P P E N D I X : A U T H O R S O F B A C K G R O U N D PA P E R S Robert Mendelsohn, Peter Christensen, and Jesus Arellano- Natsuko Toba, World Bank, 2008b, in Walter Vergara, Nat- Gonzalez, Yale University School of Forestry and Environmen- suko Toba, Daniel Mira-Salama, and Alehandro Deeb, The tal Studies Consequences of Climate-Induced Coral Loss in the Caribbean by The Impact of Climate Change on Mexican Agriculture: A Ricar- 2050­80, Sustainable Development Department, Latin dian Analysis America and the Caribbean Paul Procee, World Bank Dominique Van Der Mensbrugghe and Denis Medvedev, The Current Situation of Motorization and Vehicle Emissions in World Bank Latin America Climate Change in Latin America: Impact and Mitigation Policy Claudio Raddatz, World Bank Options The Macroeconomic Costs of Natural Disasters: Quantification and Felix Vardy, World Bank, 2008 Policy Options Preventing International Crises: A Global Public Goods Perspective Pasquale L. Scandizzo, University of Rome Adaptation Projects and Real Options Antonio Yunez Naude, COLMEX, and Jose Jorge Mora Rivera, ITESM Natsuko Toba, World Bank, 2008a, "Economic Impacts of Cli- Climate Change and Migration in Rural Mexico mate Change on the Caribbean Community," in Walter Vergara, ed. Assessing the Consequences of Climate Destabilization in Latin Steven Zanhiser, USDA America, Sustainable Development Department, Latin America Toward Climate Change Adaptation Policy for Agriculture: The and the Caribbean Case of the European Union 178 Bibliography Adams, R., B. Hurd, S. Lenhart, and N. Leary. 1998. "Effects of Arjona, F. 2005. "Environmental Framework: Colombia Inte- Global Climate Change on Agriculture: An Interpretative grated National Adaptation Program." Instituto de Review." Climate Research (11): 19­30. Hidrología Meteorología y Estudios Ambientales. http:// Adger, W., P. Kelly, A. Winkels, L. Huy, and C. 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Environment 126 (1­2): 67­80. 189 Index Page numbers followed by f, n, or t refer to figures, notes, or tables, respectively. A Aforestation/reforestation Adaptation to climate change adaptation strategies, 57 in agricultural practice, 50­55 benefits, 57, 167­168 categories of policies, 71­72 with carbon sequestration, 67­68, 69 challenges to planning, 49 Clean Development Mechanism considerations, 88, 90, 95 cost consideration, 72­73 governance capacity for, 163 ecosystem protection, 58, 69 potential for climate change mitigation, 161, 166, facilitative policies to promote, 59­65 167f, 168­169 forestry management, 56­57, 167­169 rationale for implementation in LCR, 5 gradual implementation, 49­50 water management and, 57 individual differences in, 49, 59 See also Deforestation and forest degradation; Forestry international transfers to support, 73 Agriculture market responses to climate change, 58­59, 63­65 adaptation policy prioritization, 71 migration response as, 53 adaptation strategies, 50­55 mitigation and, 25­26, 168­169 benefits of climate change, 3 nonfacilitative policies to promote, 65­70 biofuel production, 135­140 policy-making considerations, 25­26, 49 carbon fertilization, 35 policy prioritization, 70­72 climate change mitigation strategies, 156, 157 private capacity for, 58 crop decisions in response to climate change, 50­51 public health interventions, 57­58 crop quality degradation as climate change effect, 69 response to water supply changes, 55­56 deforestation pressures from, 163 response to weather shocks versus, 53­55 economic consequences of climate change, 34­36 strengthening households' economic capacity for, 59­61 genetically modified organisms, 68­69 strengthening risk management capability, 61­63 GHG emissions related to, 27 n.11, 87­88, 106­107, technological and knowledge systems for, 68­70 127, 128, 156­157 theoretical conceptualization, 49 historical coping strategies, 51­52 timing of policy implementation, 26, 72 insurance markets, 61­63 vulnerable populations, 58 livestock mitigation measures, 158­159, 174 n.46 weather monitoring and forecasting, 59 market responses to climate change, 58­59, 63­65 191 INDEX obstacles to climate change mitigation, 160 Brazil potential mitigation of GHG emissions, 157­160 agricultural adaptation policies, 70 productivity, 36f, 60 climate change effects on poverty, 36f projected GHG emissions, 156­157 climate-friendly public investment, 24 prospects for climate change mitigation, 172­173 energy economy, 109, 119­120, 143, 144, 147 regional differences in climate change effects and extreme weather events in, 2, 29, 32 mitigation, 35, 158, 159 forest management policies, 25, 162 research, 73, 74 fossil fuel emissions, 121, 122, 129 strengthening household capacity to adapt to climate GHG emissions, 105, 109, 110, 111, 147, 149 change, 59­61 government role in drought response, 67 strengthening risk management capability, 61­63 land-use change GHG emissions, 160­161, 162 technological and knowledge systems for, 68­70 projected climate change effects, 32, 35 weather monitoring and forecasting, 59, public spending response to economic crises, xii 60f, 62 public transportation investments, 150­151 zero-tillage technique, 158, 159 renewable energy program, 134, 135, 136­137 See also Food supply solid waste management, 154 Amazon rainforest strategies for reducing deforestation, 99, 100 carbon storage, 42 transportation sector GHG emissions, 147, 149 ecological significance, 42 See also Latin America and the Caribbean Region (LCR) projected climate change effects, 41­42, 43f strategies for reducing deforestation, 99, 162­163 C Andean Development Corporation, 91 Canada, fossil fuel emissions, 129 Andes mountains Cap-and-trade systems glacial melting, 3, 37­39 carbon tax policies versus, 14­16 hydroelectric supply, 38 information needs, 13­14 temperature rise, 29, 37 international system, 16, 81 Antarctic and Greenland ice sheets optimal pricing, 80­81 projected outcomes of global warming, 7 periodic adjustment, 15 sea level rise from melting of, 43 purpose, 13 Arctic sea ice melting trends, 3 Carbon dioxide Argentina causes of climate change, 1, 4 benefits of agronomic research, 60 climate stabilization paths, 77­78 climate change manifestations, 3, 9, 32, 35 Kaya decomposition, 115­117, 122, 124 energy economy, 109, 119, 120 LCR emissions, 103­105, 129 extreme weather events in, 2 projected emissions from developing countries, 23, flood control projects, 66 122­123, 124 fossil fuel emissions, 121­122 projected emissions from LCR, 123­126 GHG emissions, 109­110 sources, 4­5, 27 n.11 population distribution by elevation, 43 target levels for climate change mitigation, 17, 77, 78 traditional weather coping strategies, 52 See also Fossil fuel emissions; Greenhouse gases (GHG) See also Latin America and the Caribbean Region (LCR) Carbon Dioxide Information Analysis Center, 27 n.13 Carbon intensity B cross-country comparison, 121­122 BioCarbon Fund, 169 definition, 114 Bioenergy, 135­140, 141, 173 n.5 evolution in LCR, 107, 108­109, 115, 116f, 118, 127 Bolivia future of LCR mitigation strategies, 91­92, 144­145, climate change manifestation, 3, 4f 169­170 energy economy, 119, 120, 130 projections, 124, 125f, 128­130, 141 extreme weather events, 2, 3 Carbon tax policies GHG emissions, 109, 111­113 cap-and-trade policies versus, 14­16 traditional weather coping strategies, 52 carbon prices needed to stabilize GHG emissions, 18 See also Latin America and the Caribbean Region determining optimal structure, 80­81 192 INDEX information needs, 13­14 sectoral distribution of emissions reductions, 87­89 international system, 15­16, 81­82 shortcomings of project-based approach, 92, 94 purpose, 13 sustainable development goals, 93­94 Caribbean Catastrophe Risk Insurance Facility, 73, transportation emissions under, 88­89 74­75 Climate change Caribbean Community Climate Change Center, 68 causes, 1, 3­5 Caribbean Islands challenges to modeling effects of, 13­14 projected climate change impacts, 47­48 current economic conditions and, xi­xii See also Latin America and the Caribbean Region economic consequences, 34­37 Chacaltaya Glacier, 3, 4f, 37­38, 41f, 48 n.8 ecosystem impacts in LCR, 37­42 Chile estimating country capability to mitigate, 83 benefits of agronomic research, 60 estimating country potential to mitigate, 83 Clean Development Mechanism projects, 89­90 estimating country responsibility for, 83 energy economy, 119 evidence, 2­3 GHG emissions, 109­110, 111 extreme weather events related to, 2, 3 projected climate change effects, 9, 32, 35 food supply outcomes, 35 solid waste management, 154 global impacts, 3, 6­7 See also Latin America and the Caribbean Region (LCR) health impacts, 44­46, 54, 57­58 China and India manifestations in LCR to date, 1­2, 3 Clean Development Mechanism projects, 85, 86, 87 need for action to address, 1, 6, 77 energy generation and consumption, 115 physical impacts, 26 energy intensity, 115, 117 positive effects, 3 fossil fuel emissions, 108, 113 projected damage costs, 19­21 GHG emissions, 79­80, 103­105 projected effects in LCR, 7­9, 10­11f, 12t, 26, 29­34, projected energy demand, 123 39f, 49 Cholera, 45 See also Adaptation to climate change; Greenhouse gases Clean Development Mechanism of Kyoto Protocol (GHGs); Policies to address climate change; Sea level rise; accomplishments, 83 Temperature rise aggregation of projects under, 90, 95 Climate sensitivity parameter, 13­14, 27 n.20 agricultural mitigation strategies, 160 Colombia barriers to expansion in LCR, 89­90 ecosystem management projects, 69 benefits, 25 energy economy, 119­120, 130 credits for reducing deforestation, 23, 99­100 fossil fuel emissions, 121, 122 development bank support for LCR projects, 90­91 GHG emissions, 109, 110, 111 energy efficiency projects, 89 projected climate change effects, 35 financial sector considerations, 90 public transportation and land use planning, 151 future of finance options, 98­99 See also Latin America and the Caribbean Region (LCR) GHG emission levels of participating countries, 86­87 Conditional cash transfers, 61 incorporation of developing countries in, 82 Consultative Group on International Agricultural land use-related emissions, 88, 90, 91 Research, 73, 74 LCR participation, 83­90 Coral reefs, 39, 46, 68 market mechanisms, 92 Costa Rica market share distribution, 85­87 biodiversity outcomes of climate change, 46 opportunities for improvement, 2, 3, 25, 91­92, 127 Clean Development Mechanism projects, 93 perverse incentives, 93, 96 energy economy, 120 policy-based approach, 96­97 forest management policies, 25, 163 policy considerations in, 92­93, 94­95 See also Latin America and the Caribbean Region (LCR) post-2012 regime, 91, 92, 96 Cost­benefit analysis programmatic approach, 94­96 agricultural adaptation to climate change, 51 public enterprise participation, 90 cap-and-trade versus carbon tax, 13­16 rationale for sectorwide approach, 94 climate change mitigation strategies, 9­13, 80­81 sectoral approach, 96, 97­98 transportation sector mitigation efforts, 152­153 193 INDEX Credit markets, 64 E CREWS Station, 68 Economic functioning Cuba balancing equity and efficiency goals in mitigation projected climate change effects, 35 strategies, 81­83 See also Latin America and the Caribbean Region (LCR) benefits of climate change, 3 biodiversity value, 46 D biofuels effect on food prices, 139 Deforestation and forest degradation carbon intensity switching costs, 141­142 benefits of reducing emissions from, 168 consequences of climate change, 34­37 biofuels production and, 137­139 cost­benefit analysis of climate change mitigation Clean Development Mechanism considerations, 23, 88, strategies, 9­13, 80­81 90, 91, 99­100 costs of adaptation policies, 72­73 climate change effects, 46 costs of climate change in CARICOM countries, 48 climate change mitigation potential, 166­167 costs of disease, 45­46 cost of avoided emissions from, 166­167, 168t costs of extreme weather events, 1­2, 32, 34t, 37 future of LCR policies, 5, 25 current challenges to addressing climate change, xi­xii GHG emissions related to, 88, 127, 128, 160­161 damage costs of climate change, 19­21 policies to promote climate change adaptation, 57, effects of weather variability and shocks, 54­55 168­169 future of coal-fired energy generation, 140­142 prospects for international agreement on, 25 GHG emissions during industrialization, 79­80 recommendations for LCR, 170 global costs of emissions reduction, 17­18 strategies to reduce, 162­166 global gross domestic product, 5 trends, 162­163 growth trade-offs in climate change mitigation, Dengue, 45, 57 24­25, 79, 80 Developed countries hydropower financing, 131­134 equity considerations in climate change mitigation, 78­80 income growth and motorization rate, 147, 148, 149 GHG emission reduction scenarios, 77­78 policies to stimulate climate-friendly investment, xii GHG emissions during economic growth, 79­80 projected growth, 124 historical responsibility for GHG levels, 23 prospects for determining optimal mitigation transfers to support adaptation in developing countries, 73 pathways, 21­22 See also specific country sea level rise effects, 44 Developing countries social cost of carbon, 20­21 balancing equity and efficiency goals in mitigation socioeconomic status, climate change outcomes and, 7, 58 strategies, 81­83, 127 sources of greenhouse gas emissions, 4­5 contributions to global GHG levels, 23 strengthening household capacity to adapt to climate economic growth and climate change mitigation, 79­80 change, 59­61 equity considerations in climate change mitigation, wind power financing, 135 77, 78­80 Ecosystem health GHG emission reduction scenarios, 77­78 adaptive policies, 58 implementation of mitigation strategies, 23, 82­83 biodiversity outcomes of climate change, 46 LCR share of GHG emissions from, 103 biofuels production and, 137­138 projected energy needs, 122­123 challenges to hydropower growth, 131, 134 projected fossil fuel emissions, 124 climate change effects, 37­42, 58 public spending response to economic crises, xi­xii monitoring, 68 sustainable development goals of Clean Development policies to strengthen natural resource management, Mechanism, 93­94 65­68, 69 See also Latin America and the Caribbean Region (LCR); regional vulnerabilities, 37 specific country Ecuador Development banks, 90­91 agricultural responses to weather conditions, 52 Doha Round, 65 GHG emissions, 109, 110, 113 Dominican Republic, 119­120, 140­141 projected climate change effects, 35 Dynamic Integrated Model of Climate and the Economy, 21 See also Latin America and the Caribbean Region (LCR) 194 INDEX El Niño-Southern Oscillation, 60 costs, 1­2, 32, 34t, 37, 54­55 El Salvador migration response, 53 energy economy, 119­120 projections for LCR, 6­7, 32 projected climate change effects, 9, 32 recent trends in LCR, 1­2, 3, 29, 32­34, 35f, 36­37 See also Latin America and the Caribbean Region (LCR) regional risk assessment, 7­8 Emissions intensity response to, versus adaptation to climate change, 53­55 Clean Development Mechanism goals and, 94, 97 sea surface temperature and, 32 cross-country comparison, 121­122 definition, 113 F evolution in LCR, 113­114, 115­117 Feed-in tariffs, 132 obligation of industrialized economies, 23 Financial markets progression of mitigation strategies in developing Clean Development Mechanism and, 90 countries, 82 response to weather shocks, 64­65 Energy economy Food supply ancillary benefits of climate change mitigation, 170 biofuels production and, 137, 139 benefits of low-carbon technology investment, 169­170 projected effects of climate change, 35 biomass mitigation potential, 173 n.5 trade regulation during crises, 64­65 carbon intensity, 108­109 Forest Carbon Partnership Facility, 163, 164 challenges to addressing climate change, xi Forestry conservation programs, 143 challenges to mitigation strategy implementation, demand-side management, 145 161­162 energy-related GHG emissions in LCR, 103 climate change threats, 56 future prospects, 122­126, 127, 140­142 community-based management, 162 glacier-fed hydropower in Andes region, 38 conservation banking, 165 international comparison, 129 forested land of LCR, 56 LCR, 5, 107­109 mitigation strategies, 57, 162­166 oil price­efficiency linkage, 143­144 payment for environmental services, 165 oil price­emissions linkage, 118­119 policies to promote climate change adaptation, 56­57, potential for increased efficiency, 142­147, 171­172, 67­68, 167­169 173­174 nn.22­24 privately-owned forests, 162 price pass-through effects, 119­121 See also Aforestation/reforestation; Deforestation and projected electricity demand, 169 forest degradation public sector consumption, 146­147 Fossil fuel emissions trade policies to reduce GHG emissions, 65 cost­benefit analysis of emissions reduction, 12­13 See also Fossil fuel prices; Renewable energy cross-country differences, 121­122 Energy intensity efficiency improvements to reduce, 142­143, cross country comparison, 121­122 144­145, 149 definition, 114 energy and carbon intensities, 113­118, 128­129 evolution in LCR, 114­118 future of coal-fired generation, 140­142 international comparison, 115, 117, 118 global costs of emissions reduction, 17­18 LCR transportation sector, 147­148 incentives to develop low-emission technologies, 16­17 price of oil and, 118­121 from industrialized countries, 78­79 projections, 124, 125f international comparison, 113, 118­119, 129 Ethanol, 65, 136 LCR, 5, 103, 107­109, 111, 113­122 European Commission, 89, 100 n.11 oil prices and, 118­119 Extinction of species per capita, 113 climate change threats, 46, 58 projections, 122­126, 127, 128­130 global warming effects, 7 sources of greenhouse gases, 4­5, 27 n.11 valuation, 46 switching costs, 141­142 Extreme weather events transportation-related, 147­153 associated morbidity and mortality, 3, 32 See also Cap-and-trade systems; Carbon dioxide; Carbon tax climate change manifestation, 1, 2, 3 policies; Fossil fuel prices; Greenhouse gases (GHGs) 195 INDEX Fossil fuel prices sources, 4­5, 27 n.11, 127, 128, 156, 160­161 cap-and-trade systems, 13­16, 80­81 target levels for climate change mitigation, 17, 22­23 challenges to addressing climate change, xi See also Carbon dioxide; Fossil fuel emissions emission patterns and, 118­119 Guatemala energy security and, 169 energy economy, 119, 120­121 pass-through effects, 119­121 GHG emissions, 109, 110, 111 policies to stimulate investment in alternative energy, xii projected climate change effects, 9, 32 prices needed to stabilize GHG emissions, 18 See also Latin America and the Caribbean Region (LCR) See also Carbon tax policies Gulf of Mexico, loss of wetlands to sea level rise, 39­41 France, 118 Guyana energy economy, 119­120 G forest management policies, 163­164, 165 Gasoline prices, 119­121, 144 population distribution by elevation, 43 Genetically modified organisms, 68­69, 70, 73, 74 sea level rise effects, 44 GHGs. See Greenhouse gases traditional weather coping strategies, 52 Glaciers See also Latin America and the Caribbean Region (LCR) climate change manifestations in South America, 3, 37­39 as hydropower source, 38 H water supply from, 38 Haiti, extreme weather events in, 37 Greenhouse gases (GHGs) Health impacts of climate change biofuel potential for reducing, 136, 137 adaptation policies, 57­58 carbon prices needed to stabilize emissions of, 18 ancillary benefits of mitigation, 170 causes of climate change, 1, 3­5 scope of risk, 44­46, 54 Clean Development Mechanism projects, 83­90 socioeconomic distribution, 57 cost­benefit analysis of emissions reduction, 12­13 socioeconomic status, weather shock effects and, 54 country-specific emission patterns, 109­111 Honduras current international agreements, 22­23 energy economy, 119, 120­121 declines related to slow economic growth, xi safety net programs, 61, 62 economic development trade-offs in reducing, 24­25, 79, 80 Hurricane Catarina, 2 emissions during industrialization, 79­80 Hurricane Katrina, 2 emissions intensity, 111­113 Hurricane Mitch, 2, 36, 37 equity considerations in mitigation, 77, 78­80 Hurricane Wilma, 2 global costs of emissions reduction, 17­18 Hydropower historical responsibility of industrialized countries, 23 carbon intensity switching costs, 141­142 incentives to develop low-emission technologies, 16­17 challenges to growth of, 131­134, 169 international comparison of emissions and mitigation, 86­87 current LCR, 107, 108 LCR contribution, 5­6, 103­105, 128 energy security and, 169 mitigation costs, 171 glacial melting implications, 38 mitigation options in LCR, 127 projected growth, 124­126, 129, 130 mitigation potential of agriculture, 157­160 recommendations for LCR, 170­171 motivations to reduce emissions, 127­128 nonclimate-related benefits of mitigation I policies, 169­170 Income distribution. See Socioeconomic status per capita emissions, 103­105, 111 India. See China and India projected emissions, 6, 128, 156­157 Industrial gas emissions and mitigation, 87 prospects for determining optimal mitigation Infectious disease, 44­45, 57­58 pathways, 21­22 Insurance sectoral sources of emissions, 106­107, 109­111, 128 Caribbean Catastrophe Risk Insurance Facility, sectoral sources of emissions reduction, 18, 87­89 73, 74­75 social cost of carbon, 20­21 financial, 64 from solid waste and wastewater treatment, 87, international transfers to support adaptation, 73 110­111, 153­156 risk management, 61­63 196 INDEX Intelligent Transport Systems, 174 n.34 regional distribution of climate change effects, 7­8, 39f Inter-American Development Bank, 91 renewable energy potential, 130­140 Intergovernmental Panel on Climate Change responsibility for climate change, 83, 84t climate change findings, 3, 29 sectoral sources of GHG, 87­89, 103, 106­107, 127, GHG emission scenarios, 27 n.13 160­161 projections for climate change effects in LCR, 29 transportation sector GHG emissions, 147­153 urban population, 107 J See also specific country Japan, 118, 119 M K Malaria, 44­45, 57 Kyoto Protocol, 22­23, 127. See also Clean Development Methane, 4, 87­88, 128, 153, 154­155, 156, 157, 158­159 Mechanism of Kyoto Protocol Mexico benefits of agronomic research, 60 L biodiversity outcomes of climate change, 46 Landfill GHG emissions, 87­88 climate change mitigation policies, 127 Land use changes community-based forestry, 162 biofuels production and, 137­138 electricity generation, 109, 145 consideration in climate change mitigation, 55 energy economy, 119, 120, 130 cost­benefit analysis of climate change mitigation energy efficiency investments, 143, 146 strategies, 9 energy tariffs, 144 country-specific GHG emission patterns, 109­110 extreme weather events in, 29 emissions from developed and developing countries from, 79 forest management policies, 163, 165 LCR contribution to greenhouse gases, 5 fossil fuel emissions, 121, 122, 129 prospects for international agreement on, 25 GHG emissions, 105, 109­110 as source of greenhouse gases, 4, 103, 105, 106­107, 127, projected climate change effects, 9, 32, 35 160­161 solid waste management, 154 See also Aforestation/reforestation; Agriculture; traditional weather coping strategies, 51­52 Deforestation and forest degradation transportation sector GHG emissions, 147, 153 Latin America and the Caribbean Region (LCR) water supply, 55f, 66, 69, 72 capability to mitigate climate change, 83, 84t wind power potential, 134 Clean Development Mechanism participation, 83­90 See also Latin America and the Caribbean Region (LCR) climate change manifestations to date, 1­2, 3, 29, 32­34, Microlending, 64 35f, 36­37 Migration response to climate change, 53 costs of extreme weather events, 32, 34t Mortality and morbidity current climate change mitigation efforts, 127 ancillary benefits of climate change mitigation policies, 170 economic consequences of climate change, 34­37 climate change effects, 44­46, 54, 57 ecosystem consequences of climate change, 37­44 costs of disease, 45­46 emission reductions investment, 83­85 extreme weather event-related, 3, 32 extreme weather event risk, 33t heat-related, 57 food trade, 64­65 public health interventions, 57 forested land, 56 socioeconomic distribution, 57 future of Clean Development Mechanism projects socioeconomic status and outcomes of climate change, 7 in, 91­100 See also Health impacts of climate change future of coal-fired generation, 140­142 future of forest management policies, 5, 25 N greenhouse gas emissions, 5­6, 103­105, 127, 128 Nariva wetlands, 67­68, 69 potential capacity to mitigate climate change, 83, 84t, 103 National Adaptation Plans of Action, 51 projected climate change effects, 8­9, 10­11f, 12t, Natural gas supply and consumption, 107­108, 129, 130 29­34, 49, 75t Nicaragua projected fossil fuel emissions, 123­126 energy economy, 119 recommendations for mitigation strategies, 170­173 safety net programs, 61­62 197 INDEX traditional weather coping strategies, 52 prospects for global cooperation, 22­24 See also Latin America and the Caribbean Region (LCR) public investment in climate-friendly projects, xii Nitrogen dioxide, 156­157 recommendations for LCR, 170­173 Nitrous oxide, 4 safety net programs, 60­62 solid waste management, 156 O strengthening households' economic capacity OECD to adapt, 59­61 energy intensities, 118­119 strengthening natural resource management, 65­68 GHG emissions, 103 strengthening risk management capability, 61­63 motorization rate, 147 strengthening technological and knowledge projected fossil fuel emissions, 124, 126 systems, 68­70 support for alternative and renewable energy, 131, 132, P 133, 136­137, 139­140, 141 Panama, 118. See also Latin America and the Caribbean water resource management organizations, 56 Region (LCR) See also Cap-and-trade systems; Carbon tax policies; Paraguay Public spending energy economy, 120 Population projected climate change effects, 32 distribution by elevation, 43 Peru LCR, 5, 103 energy economy, 120 migration response to climate change, 53 extreme weather events in, 2 urban LCR, 107 fossil fuel emissions, 121 Poverty GHG emissions, 109, 110, 111 climate change impacts in rural areas, 36 glacier-fed hydropower, 38 in rural LCR, 50 land-use change GHG emissions, 160 safety net programs, 60­61 motor vehicle ownership, 149 strengthening households' economic capacity for projected climate change effects, 9, 32, 35 adaptation to climate change, 59­61 renewable energy options, 95­96 See also Socioeconomic status traditional weather coping strategies, 52 Precipitation patterns See also Latin America and the Caribbean Region (LCR) adaptation to water supply changes, 55­56 Policies to address climate change agricultural response to change in, 51 adaptation, 25­26 benefits of climate change, 3 ancillary benefits, 127­128, 169­170 disease risk and, 45 balancing equity and efficiency goals in, 81­83 future prospects, 6, 9 challenges to formulation and implementation, 1 in LCR, 3, 29 Clean Development Mechanism considerations, 92, 96­97 projections for LCR, 29­32, 49 conditional cash transfers, 61 regional distribution of climate change effects in LCR, 7 cost­benefit analysis, 9­13, 80­81 runoff projections, 50t, 75t delayed impact, 6 water supply and, 44 economic development trade-offs, 24­25, 79, 80 Preparation for climate change effects facilitating adaptation, 59­65 adaptation policies, 25­26, 49 implementation strategies for developing countries, 23 regional risk assessment for extreme weather impacts, 7­8 incentives to develop low-emission technologies, 16­17 weather monitoring and forecasting, 59, 60f, 62 interactions among, 173 See also Policies to address climate change long-term and short-term calculations, 14­15 Public spending market interventions, 63­65 ecosystem protection, 66­67 meteorological infrastructure investment, 59, 60f incentives to adopt low-emission technologies, 17 need for global cooperation, 1, 77­78 incentives to develop low-emission technologies, 16­17 nonfacilitative strategies to promote adaptation, 65­70 nonfacilitative policies to promote climate change prioritizing adaptation policies, 70­72 adaptation, 65 prospects for determining optimal mitigation rationale for environmentally-sensitive investment, xii pathways, 21­22 response to economic crises, xii 198 INDEX safety net programs, 60­62 T solid waste management, 154 Tax policy strengthening households' economic capacity for support for renewable energy projects, 132, adaptation to climate change, 59­61 139­140, 141 technological and knowledge systems, 70 See also Carbon tax policies weather monitoring and forecasting, 59, 60f Temperature rise Public transportation, 150­151 Amazon rainforest dieoff from, 41­42 coral reef destruction, 39 R crop yields and, 52 Real options methodologies, 72 disease risk and, 45­46 Reducing emissions from deforestation and forest degradation ecosystem threats, 58 (REDD), See Deforestation and forest degradation effects of GHG emission reductions, 17­18 Renewable energy evidence, 3 bioenergy potential, 135­140, 141, 173 n.5 extreme weather event risk and, 32 current LCR capacity, 130 glacier retreat, 37­39 feed-in tariffs, 132 global impacts, 6 future prospects, 124­126, 129­131, 172 health threats, 57 policy support for, 131, 132, 133, 136­137, 139­140, 141 in LCR to date, 3, 29 tax credits, 132 models of agricultural response to, 50­51 wind power opportunities, 130, 134­135 projected damage costs, 19­20 See also Hydropower projections, 6, 9, 29­32 Risk management, 61­63 threats to forests, 56 Trade policies, 64­65 S Transportation Sea level rise ancillary benefits of GHG emission reductions, 152 causes, 43 biofuels for, 135 economic consequences, 44 carbon intensity, 149 future prospects, 7, 43­44 Clean Development Mechanism provisions for emissions in LCR, 3, 43­44 from, 88­89 loss of wetlands to, 39­41 commercial and freight sector, 152 recent history, 3 control of private vehicles, 151 vulnerable population, 43 cost­benefit analysis of mitigation efforts, 152­153 Sectoral No-Lose Targets, 97, 101 nn.18­19 economic growth and motorization rate, 147, 148, 149 Social cost of carbon, 20­21, 141­142 efficiency improvements, 149 Social Time Preference, 20­21 energy intensity, 147­148 Socioeconomic status mass transit investments, 150­151 capacity for adaptation to climate change, 58 nonmotorized transportation infrastructure, 151 climate change effects, 7 projected GHG emissions, 147­148 facilitative adaptation policies, 59­61 recommendations for LCR, 171 strengthening household capacity to adapt to climate sources of greenhouse gases, 4, 5, 107, 128, 148­149 change, 59­61 strategies for reducing GHG emissions from, 148­153 weather shock effects, 54 trends, 5­6, 107, 147­148, 149 See also Poverty Trinidad and Tobago, 130, See also Latin America and the Solid waste and wastewater treatment Caribbean Region (LCR) Clean Development Mechanism projects, 87­88 GHG emissions from, 110­111, 153­154 U health threats, 154 United Nations Framework Convention on Climate projected GHG emissions from, 154­155 Change, 22­23 recommendations for LCR, 171 United States recycling and composting, 154 biofuels market, 135, 136, 141 strategies for reducing GHG emissions from, 154, 155­156 extreme weather events, 2, 32 Sustainable Development Policies and Measures, 96­97 fossil fuel emissions, 80, 100 n.4, 129 199 INDEX oil intensity, 118, 119 W production tax credits, 132 Water supply Urban areas adapting to changes in, 55­56 LCR population distribution, 107 energy efficiency in public sector areas, public transportation investments, 150­151 146­147 transportation-related GHG emissions and, 149­150 glacial melting implications, 38 Urban planning, 150­151 market functioning, 63­64 Uruguay non-revenue water, 174 n.26 climate change manifestations, 3 policies to strengthen management, ecosystem protection, 66 65­66 energy economy, 120 projections for LCR, 44, 55, 63 population distribution by elevation, 43 rainfall reduction effects, 44 projected climate change effects, 9, 32 salt water intrusion and, 56 See also Latin America and the Caribbean Region (LCR) transbasin transfers, 63­64 See also Precipitation patterns V Weather insurance, 61­62, 63, 64 Venezuela, R. B. de Weather monitoring and forecasting, 59, electricity generation, 109 60f, 62 energy economy, 119, 130, 144 Wetlands, sea level rise in Gulf of Mexico, 39­41 extreme weather events in, 2, 36 Wind power, 130, 134­135 fossil fuel emissions, 121, 122 World Bank GHG emissions, 109, 110, 113 carbon finance projects, 90­91 land-use change GHG emissions, 160 Forest Carbon Partnership Facility, 163, 164 See also Latin America and the Caribbean Region (LCR) World Trade Organization, 65 200 ECO-AUDIT Environmental Benefits Statement The World Bank is committed to preserving Saved: endangered forests and natural resources. · 56 trees The Office of the Publisher follows the rec- · 18 million BTUs ommended standards for paper usage set by of total energy the Green Press Initiative, a nonprofit pro- · 5,369 lbs. of CO2 gram supporting publishers in using fiber equivalent of that is not from endangered forests. greenhouse gases In the printing of Low-Carbon Development, · 25,856 gallons of we took the following measures to reduce our wastewater carbon footprint: · 1,570 lbs. of solid waste · We used paper containing 100 percent recycled fiber made from postconsumer waste; each pound of postconsumer recy- cled fiber that replaces a ton of virgin fiber prevents the release of 2,108 lbs. of greenhouse gas emissions and lessens the burden on landfills. · We used paper that is chlorine-free and acid-free. For more information, visit www.greenpress initiative.org. his book, the companion volume to Low Carbon, High Growth: Latin American Responses to Climate T Change, examines some of the major threats posed by climate change to the region's economies, soci- eties, and biodiversity. It describes the patterns of greenhouse gas emissions in the Latin America and Caribbean region and in specific countries, finding that the future trajectory could be increases in emissions rel- ative to other regions. Low-Carbon Development explains why it is in the region's best interest to participate actively in global efforts to reduce emissions and what type of global climate change architecture could allow the countries to make their most effective contributions. Finally, the book lays out an agenda for domestic policies and investments to help the countries adapt to climate change while reducing their emissions profiles. It will be useful to policy makers, civil society organizations, and researchers working in climate change. Clearly and compellingly written, Low-Carbon Devel- Low-Carbon Development: Latin American Responses opment: Latin American Responses to Climate Change to Climate Change provides the first comprehensive illuminates the special challenges the developing analysis of the effects of climate change in Latin countries of Latin America and the Caribbean face both America and the Caribbean and sketches what could in adapting to and in helping mitigate human-caused become the regional contribution to its solution. The climate change. Perhaps even more helpfully, the report endorses the adoption of differential caps on report makes clear the many tools this resourceful emissions, underscoring the importance of adopting region can deploy in addressing climate change over tougher standards on changes in land use. In terms of the coming decades. All the regions of the world costs, mitigation initiatives require transfers from would benefit from geographically focused studies of countries with higher incomes and emissions. The responses to climate change comparable to the one proposed actions are worth careful consideration by presented here. governments committed to the protection of the -- Robert Engelman region's rich biodiversity, without compromising eco- Vice President for Programs, The Worldwatch nomic growth. Institute, Washington, DC -- Mauricio Cardenas Senior Fellow and Director, Latin America Initiative, Climate change mitigation and adaptation are crucial The Brookings Institution, Washington, DC for the region's diverse society and economy. Low-Car- bon Development raises many issues, some of which An excellent primer on the economics of climate are open to scientific and political discussion, and pro- change from a Latin American and Caribbean perspec- vides the baseline material for such a debate, during tive--consequences, risks, costs, and policy options-- which each society needs to make its own choices with a welcome emphasis on win-win "no regrets" within the framework of global cooperation to fight cli- opportunities. A timely entry for anyone concerned mate change. with development priorities in a region that, with luck The authors also highlight an often-forgotten issue, and good leadership, can capture big gains for its which is the interrelation between climate change and poor and middle-income majorities by finding and other relevant environmental issues, such as defor- exploiting a low-carbon growth path. estation, water, and soil degradation and desertifica- -- Nancy Birdsall tion. This is important since in recent years many Founding President, The Center for Global mitigation proposals, if approved, could have led to Development, Washington, DC even worse consequences through social and environ- mental impacts. -- Dr. Pablo O. Canziani Director, Interdisciplinary Team for the Study of Atmospheric Processes in Global Change, The Pontifical Catholic University of Argentina, Buenos Aires ISBN 978-0-8213-8054-3 SKU 18054