47604 WORLD BANK LATIN AMERICAN AND CARIBBEAN STUDIES Low Carbon, High Growth Latin American Responses to Climate Change An OVERVIEW Augusto de la Torre Pablo Fajnzylber John Nash LOW CARBON, HIGH GROWTH: LATIN AMERICAN RESPONSES TO CLIMATE CHANGE AN OVERVIEW LOW CARBON, HIGH GROWTH: LATIN AMERICAN RESPONSES TO CLIMATE CHANGE AN OVERVIEW Augusto de la Torre Pablo Fajnzylber John Nash Washington, D.C. ©2009 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 12 11 10 09 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. 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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: 978-0-8213-7619-5 eISBN: 978-0-8213-7921-9 DOI: 10.1596/978-0-8213-7619-5 Library of Congress Cataloging-in-Publication Data has been requested. Cover design: Naylor Design. Contents Acknowledgments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .vii Preface . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .ix 1. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1 2. Climate Change Impacts in Latin America and the Caribbean . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1 3. The Need for a Coordinated, Effective, Efficient, and Equitable Global Response . . . . . . . . . . . . . . . . . . . . . . . . . . . .15 4. LAC's Potential Contribution to Global Mitigation Efforts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20 5. Policies for a High-Growth, Low-Carbon Future . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .40 6. Summary and Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .59 Annex 1: Mitigation Potential by Country and Type of Emissions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .61 Annex 2: Potential Annual Economic Impacts of Climate Change in CARICOM Countries circa 2080 (in millions 2007 US$) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .65 Bibliography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .66 Endnotes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .72 v Acknowledgments L OW CARBON, HIGH GROWTH: Latin Carmen Notaro, Paul Procee, Claudio Raddatz, Pedro American Responses to Climate Change is the Rivera, Pasquale L. Scandizzo, Sebastian Scholz, product of a collaborative effort of two Shaikh Mahfuzur Rahman, Yacov Tsur, Dominique units of the Latin American and the Van Der Mensbrugghe, Denis Medvedev, Felix Vardy, Caribbean Region of the World Bank: the Antonio Yunez Naude, Steven Zanhiser, Natsuko Office of the Chief Economist and the Sustainable Toba, Adriana Valencia, and Seraphine Haeussling. Development Department. The report was prepared This Overview (Volume I) of the report was pre- by a core team led by Pablo Fajnzylber and John Nash, pared by Augusto de la Torre, Pablo Fajnzylber, and and comprising Veronica Alaimo, Javier Baez, Svetlana John Nash. The authors of the chapters in the forth- Edmeades, Christiana Figueres, Todd Johnson, Irina I. coming Volume II are as follows: chapter 1, Fajnzyl- Klytchnikova, Andrew Mason, and Walter Vergara. ber and Nash; chapter 2, Nash and Vergara; chapter 3, Ana F. Ramirez and Carlos Felipe Prada Pombo pro- Nash, Edmeades, Baez, and Mason; chapter 4, Fajnzyl- vided valuable research assistance to the team. ber and Figueres; chapter 5, Fajnzylber and Alaimo; The team greatly benefited from background chapter 6, Johnson and Klytchnikova. papers and other inputs prepared for this report by the Special thanks go to Laura Tuck for her careful following individuals: Veronica Alaimo, Carlos E. reading of drafts of the documents and for her insight- Arce, Juliano J. Assunçao, Javier Baez, Brian Blanke- ful comments and suggestions on both substantive spoor, Eduardo Bitran Colodro, Benoit Bosquet, and editorial levels. Excellent guidance and advice Flavia Chein Feres, Shun Chonabayashi, Alejandro was also received from peer reviewers Marianne Fay Deeb, Uwe Deichmann, Ariel Dinar, Manuel Dussan, and Charles Feinstein, as well as Makhtar Diop, Mac Vladimir Gil, Harry de Gorter, Hilda R. Guerrero Callaway, Jocelyne Albert, and Carlos Nobre. And Rojas, David R. Just, Erika Kliauga, Donald F. Lar- last, but certainly not least, we would like to thank son, Humberto Lopez, Carla della Maggiora, Andrew Susan Goldmark for proposing the idea of doing this Mason, Robert Mendelsohn, Bekele Debele Negewo, regional report on climate change. vii Preface A GLOBAL FINANCIAL AND ECO- that the price of fossil fuels has fallen dramatically rel- NOMIC CRISIS of unprecedented ative to alternative, clean sources of energy. Not sur- dimensions was unfolding at the time prisingly, utilities already seem to be making of this writing. The urgency, immedi- significant reductions in their investments in alterna- acy, and staggering magnitude of the tive energy, and there is already a reduction in the challenges posed by such a crisis have the potential to flow of project finance devoted to low-carbon energy crowd out efforts aimed at addressing the challenges projects. The expectation that a low relative price of of global warming that are discussed in detail in this fossil fuels is here to stay might not only deter invest- report. The capacity of political leaders and of national ment in low-carbon technology, it could also induce and supranational institutions to deal with major substitution in consumption in favor of cheaper but global threats is, after all, not unlimited. It would be, dirtier energy. For example, low gasoline prices could therefore, naïve to think that the world's ability to deflate the momentum toward hybrid vehicles, partic- tackle simultaneously the breakdown of financial mar- ularly in North America. With lower economic kets and the threats posed by global warming is free of growth worldwide, furthermore, greenhouse gas tensions and trade-offs. These two global menaces are (GHG) emissions could experience a cyclical decline; of such far-reaching implications for mankind, how- this might create political incentives to postpone pol- ever, that it would be imprudent to allow the shorter- icy efforts to bring down the emissions trend. In all, term emergency of the global financial crisis and the global financial and economic crisis could lead to a economic downturn to unduly deflect policy attention shortening of policy horizons that might induce a away from the longer-term dangers of climate change. shift toward a more carbon-intensive growth path. The challenge clearly is to find common ground and This shift would only increase the difficulty and raise to identify and pursue as many policies as feasible that the costs of reducing GHG emissions down the line. can deliver progress on both fronts simultaneously. Experience with previous financial crises in emerg- This is possible in principle, but not easy to achieve in ing economies suggests that tradeoffs often arise practice. between long-term environmental concerns and In effect, the world economic slump will be associ- short-term macroeconomic policy responses.1 In par- ated with a fall in private investment, including cli- ticular, as competing claims rise on shrinking bud- mate-friendly investment. The latter may tend to getary resources during a crisis, budget cuts tend to suffer disproportionately in the current context, given affect to a larger extent the provision of public services ix L O W C A R B O N , H I G H G R O W T H : L AT 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 AT E C H A N G E that are considered to be a "luxury"--that is, services cal compromises and sound judgment on the part of whose immediate impact on the people or sectors policy makers to ensure that long-term considerations affected by the emergency is perceived to be low and are not neglected for political expediency. only indirect. In developing countries, these often Greater scope for synergies is likely to be found in include such items as forest conservation or the pro- the area of public investment. Massive public invest- tection of ecosystems. According to an IMF paper,2 for ment programs will have to be part of the fiscal stim- example, in the aftermath of the Asian and Russian ulus required to deal with the global economic crisis, crises, Brazil reduced public expenditures (excluding especially in developed countries and high-saving wages, social security benefits, and interest payments) emerging economies. Appropriately designed and im- for 1999 by 11 percent in nominal terms with respect plemented, these programs can generate win-win to 1998. However, some key Amazon environmental dynamics and outcomes, simultaneously advancing programs were reduced by much more than the aver- the causes of supporting economic recovery while age. The Brazilian Institute for the Environment and helping to encourage growth in areas that minimize Natural Renewable Resources (IBAMA), for instance, or mitigate the impact on climate change. Moreover, experienced a budget cut of 71 percent with respect to countries that manage to effect the transition from a originally approved funding, and of 46 percent com- high-carbon to a low-carbon economy during the eco- pared to 1998. There are also indications that this nomic slump can enjoy "first-mover advantages," that phenomenon went beyond the federal level. Brazilian is, a greater competitive ability to promote long-term states and municipalities, faced with the need to pro- growth beyond the cyclical downturn. As a result, the duce "primary surpluses," were not able to compen- current financial crisis can actually create a unique sate for the cuts in federally funded environmental opportunity for a new deal for the 21st century, programs in the Amazon.3 focused on low-carbon growth. The declared vision for If leaders at the national and international levels are environmental sustainability and energy security of the visionary, they can avoid falling into the trap of sacri- recently elected government in the United States adds ficing environmental sustainability to short-term hope in this regard. A "green recovery"--that is, a vir- macroeconomic necessities, and can take advantage of tuous interaction among job creation, growth resump- opportunities to address climate change concerns. In tion, and low-carbon-oriented public investments and particular, policies and programs to address today's policy actions--is a worthy option and arguably the pressing problems can be designed and implemented only sensible option for the world community at this with a long-term horizon. Sometimes, these decisions juncture. Such an option can be turned into reality if can be win-win. But sometimes, there will be trade- leaders and political systems rise to the occasion. offs. For example, private investment in, and con- sumption of, clean energy will be stimulated by a Laura Tuck relative increase in the price of fossil fuels; this can be Director, Sustainable Development Department encouraged through a combination of regulations, Latin America and the Caribbean Region taxes, carbon-trading schemes, and subsidies. But The World Bank making firms pay to pollute and forcing households to consume more expensive, if cleaner, energy are not Augusto de la Torre popular in times of economic recession. Tilting private- Chief Economist sector activity in a sustainable fashion toward low- Latin America and the Caribbean Region carbon choices thus calls for carefully managed politi- The World Bank x AN OVERVIEW Low Carbon, High Growth: Latin American Responses to Climate Change 1. Introduction Looking forward, the IPCC predicts that global Based on analysis of recent data on the evolution of GHG emissions will increase by as much as 90 per- global temperatures, snow and ice covers, and sea level cent between 2000 and 2030 if no additional climate rise, the Intergovernmental Panel on Climate Change change mitigation policies are implemented. As a (IPCC) has recently declared that "warming of the cli- result, under "business as usual" scenarios, global mate system is unequivocal."4 Global surface tempera- temperatures could increase by as much as 1.7°C by tures, in particular, have increased during the past 50 2050 and by up to 4.0°C by 2100. Actual emissions years at twice the speed observed during the first half during recent years, however, have matched or of the 20th century. exceeded the IPCC's most pessimistic forecasts The IPCC has also concluded that with 95 percent (figure 1). Taking this into account, Stern (2008) pre- certainty the main drivers of the observed changes in dicts that the stock of GHG in the earth's atmosphere the global climate have been anthropogenic increases could increase from the current level of 430 parts per in greenhouse gases (GHG).5 Models of the evolution million to 750 by 2100.8 This would imply that in global temperatures that take into account the global warming with respect to preindustrial times effects of man-made emissions of greenhouse gases would exceed 4°C with an 82 percent probability and (the pink paths in map 1) match much better with would rise above 5°C with a 47 percent probability. actual recorded temperatures (the black lines) than do models that do not incorporate these effects.6 The con- 2. Climate Change Impacts in clusion is inescapable that, as man-made emissions Latin America and the Caribbean have accumulated in the atmosphere, they have caused The "unequivocal" warming of the climate system temperatures to increase. reported by the IPCC is already affecting Latin Amer- While the greenhouse effect is a natural process ica's climate. Temperatures in Latin America increased without which the planet would probably be too cold by about 1°C during the 20th century, while sea-level to support life, most of the increase in the overall con- rise has reached 2­3 mm/yr since the 1980s. Changes centration of GHGs observed since the Industrial in precipitation patterns have also been observed, Revolution has been the result of human activities, with some areas receiving more rainfall (southern namely the burning of fossil fuels, changes in land use Brazil, Paraguay, Uruguay, northeast Argentina, and (conversion of forests into agricultural land), and agri- northwest Peru), and others less (southern Chile, culture (the use of nitrogen fertilizers and livestock- southwest Argentina, and southern Peru). Finally, related methane emissions).7 extreme weather events have become more common in 1 L O W C A R B O N , H I G H G R O W T H : L AT 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 AT E C H A N G E MAP 1 World Actual and Modeled Average Temperatures, by Region, 1900­2000 Europe (ºC) North America anomaly (ºC) Asia Temperature (ºC) anomaly Year Africa anomaly Temperature (ºC) Year Temperature anomaly Year South America Australia (ºC) Temperature (ºC) anomaly Year anomaly Temperature Year Temperature Year Models using only natural forcings Models using both natural and anthropogenic forcings Source: Climate Change 2007: Synthesis Report. Contribution of Working Groups I, II and III to the Fourth Assessment Report of the Intergovernmental Panel on Climate Change. Figure SPM.4. IPCC, Geneva, Switzerland. several parts of the region, including more periods of FIGURE 1 Observed Global CO2 Emissions Compared with Emissions intense rainfall and consecutive dry days.10 Scenarios and Stabilization Trajectories Ecosystems are already suffering negative effects 10 Actual emissions: CDIAC from ongoing climate change in LAC Actual emissions: EIA Apart from some possible positive effects on crop 9 450ppm stabilization 650ppm stabilization yields in the Southern Cone, the impacts so far have /y) A1FI been profoundly negative, already affecting some of (GtC 8 A1B A1T the unique features and ecosystems of the region. A2 Based on their irreversibility, their importance to the 7 B1 Emissions 2 B2 ecosystem, and their economic cost, four impacts CO stand out as being of special concern. These Climate 6 Ecosystem Hotspots are (a) the warming and eventual disabling of mountain ecosystems in the Andes; (b) 5 1990 1995 2000 2005 2010 the bleaching of coral reefs leading to an anticipated Source: Raubach, et al. 2007. Emission trajectories corresponding to total collapse of the coral biome in the Caribbean the main scenarios studied by the IPCC's Special Report on Emission basin; (c) the damage to vast stretches of wetlands and Scenarios (2001). Note: The curves shown for scenarios are averages over available associated coastal systems in the Gulf of Mexico; and individual scenarios in each of the six scenario families, and differ slightly from "marker" scenarios. Further details on each scenario (d) the risk of forest dieback in the Amazon basin. In and sources of data are in the attached endnote.9 this section of the report, we initially present evidence 2 A N O V E RV I E W on the first three of these processes, which are ongo- square kilometer in area) have declined in surface area. ing, as well as on the increasing damage from tropical For example, Bolivia's Chacaltaya Glacier has lost storms, another current phenomenon. We then most (82 percent) of its surface area since 1982 (Fran- address future expected climate trends and their possi- cou et al. 2003). High mountain ecosystems, includ- ble impacts, including the above-mentioned risk of ing unique high altitude wetlands ("paramos") Amazon dieback, as well as other impacts on natural associated with the glaciers, are among the environ- and human systems. ments most sensitive to climate change. These ecosys- The melting of the Andean glaciers with damage to asso- tems provide numerous and valuable environmental ciated ecosystems has been going on for some years, dri- goods and services, and drastic reductions in popula- ven by the higher rates of warming that have been tions of mountain flora and fauna have already been observed at higher altitudes (figure 2).11 An analysis observed in recent years. of trends in temperature (Ruiz-Carrascal et al. 2008) Another serious environmental impact already indicates possible increases on the order of 0.6°C per observable is the bleaching of coral reefs in the decade, affecting the northern, more humid section of Caribbean. Coral reefs are home to more than 25 per- the Andes. Many of the smaller glaciers (less than 1 cent of all marine species, making them the most bio- FIGURE 2 Retreat of the Chacaltaya Glacier in Bolivia Source: Photographs by B. Francou and E. Ramirez and archive photographs. 3 L O W C A R B O N , H I G H G R O W T H : L AT 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 AT E C H A N G E logically diverse of marine ecosystems, and an analog Data are also suggestive of a trend underway of more to rainforests on land ecosystems. In the case of the and/or stronger storms and weather-related natural disasters Caribbean, coral reefs are hosts to fish nurseries for an in the region. Estimates of the macroeconomic cost of estimated 65 percent of all species in the region, so climatic natural disasters suggest that on average, their survival is critical to the ecology of the ocean in each of them causes a 0.6 percent reduction in real this region. When stressed by heat, corals expel the GDP per capita. To the extent that, since the 1990s, microscopic algae living symbiotically in their tissues. such events have taken place on average once every If this is a one-time event, it is not necessarily fatal, three years--compared to once every four years in the but repeated episodes will kill the reef. Consistent period since 1950--their average impact on the increases in sea surface temperatures have led to sev- affected countries would be a 2 percent reduction in eral recent bleaching events (1993, 1998, 2005), the GDP per capita per decade (Raddatz 2008).14 latest of which caused widespread bleaching through- Latin Americans are well aware of the high toll out the region. taken by extreme weather events. In 1999, for exam- Damage to the Gulf Coast wetlands in Mexico is yet ple, 45,000 people were killed in floods and mud- another serious ongoing concern. Global circulation slides in República Bolivariana de Venezuela, while models agree that the Gulf of Mexico is the most vul- Hurricane Mitch in 1998 killed at least 11,000 and nerable coastal area in the region for impacts from cli- perhaps 19,000 across Central America and Mexico. mate change, and Mexico's three national One report calculated the economic damage in Hon- communications (NCs) to the UNFCCC12 have docu- duras at US$3.8 billion--two-thirds of GDP. More mented ongoing damage, raising urgent concerns recently, Hurricane Wilma in 2005, the strongest about their integrity. Wetlands in this region are cur- Atlantic hurricane on record, damaged 98 percent of rently suffering from anthropogenic impacts derived infrastructure along the southern coast of Mexico's from land use changes, mangrove deforestation, pol- Yucatan Peninsula, home to Cancun, and inflicted an lution, and water diversion. These make the ecosys- estimated US$1.5 billion loss on the tourism industry. tem even more vulnerable to climate change impacts, Recent reviews of hurricane activity over time including the reduction in rainfall of up to 40 per- (Hoyos et al. 2006; Webster and Curry 2006) point to cent that is forecast by 2100 (P. C. D. Milly et al. trends in the intensification of hurricanes. Of particu- 2005). Total mangrove surface is disappearing at a lar significance is the recent increase in Mesoamerican rate of 1­2.5 percent per year. Wetlands provide landfalls since 1995 after an extended quiet regime of many environmental services, including the regula- nearly 40 years. In 2004, for the first time ever, a hur- tion of hydrological regimes, protection of human ricane formed in the South Atlantic and hit Brazil. settlement from floods and storms, sustenance for And the year 2005 saw the number of hurricanes in many communities settled along the coast, and habi- the North Atlantic hit 14, a historic high. Four of the tats for waterfowl and wildlife. These wetlands pos- ten most active years for hurricane landfalls have sess the most productive ecosystem in that country occurred in the last 10 years, and 2008 saw Cuba, and one of the richest on earth.13 About 45 percent of Haiti, and other islands devastated by multiple hits. Mexico's shrimp production, for example, originates This raises the question of whether we are already see- in the Gulf wetlands, as do 90 percent of the country's ing an impact of climate change that will increase the oysters and no less than 40 percent of commercial expected damages in the region. In fact, following fishing volume. While other coastal areas in the LAC Hurricane Katrina, U.S. risk-modeling companies region will also be prone to similar impacts, the bio- raised their estimation of the probability of a similar logical and economic value of the Gulf wetlands justi- event from once every 40 years to once every 20 years fies their identification as a particularly important as a result of the warming of water temperatures in climate hotspot. the North Atlantic Basin. Taking all kinds of climate- 4 A N O V E RV I E W FIGURE 3 extremes already observed across the region. Thus, as Index of Climate-Related Disasters in LAC vs. illustrated in the first four panels of map 2 (see p. 6), Rest of the World (1970 = 100) it appears that many areas with a current high expo- 900 sure to droughts or flood risks would in the future 800 LAC Rest of world have to deal with respectively even drier conditions 700 600 and more intense rainfall. exd 500 In particular, this would be the case in all the high- In400 drought-risk areas of Chile, Mexico, Guatemala, and 300 200 El Salvador, for which the predictions of at least seven 100 to eight global climate models indicate that by 2030 0 6 6 the number of consecutive dry days will increase and 197019721974197 1978198019821984198 198819901992199419 1998200 2002200420 96 0 06 heat waves will become longer. Similarly, between 47 Year and 100 percent of the high-flood-risk areas of Source: World Bank Staff calculations based on EM-DAT: The OFDA/CRED International Disaster Database, Catholic University of Louvain.15 Argentina, Peru, and Uruguay are expected to become even more exposed to intense rainfall. True, there are still considerable differences in the specific regional related disasters together, there appears to be a posi- projections derived from various global climate mod- tive trend over the last few decades, although less els. However, as illustrated in the four panels of map 2 marked in LAC than in the rest of the world (figure 3). showing concordance (see p. 7), for most of the exam- ples above, the majority of the available climate mod- As climate change intensifies, more serious els coincide at least in the sign of their predictions. consequences are likely in the future Climate change will also lead to a rising sea level, The IPCC's Fourth Assessment Report predicts that which will affect all coastal areas. Sea level is forecast under business-as-usual scenarios, temperature by the Fourth Assessment of the IPCC (2007) to rise increases in LAC with respect to a baseline period of by 18 to 59 centimeters in the current century from 1961-1990 could range from 0.4°C to 1.8°C by 2020 thermal expansion as the air warms from glacial melt and from 1°C to 4°C by 2050 (Magrin et al. 2007). In (mainly in Greenland and Antarctica) and from most of the region, the expected annual mean warm- changes in territorial storage capacity. There remains, ing is likely to be higher than the global mean, the however, considerable scientific uncertainty over the exception being the southern part of South America state of the Greenland Ice Sheet, which holds water (Christensen et al. 2007). These projections, derived sufficient to raise sea level by 7 meters, and the Antarc- from global circulation models, also forecast changing tic, which could raise sea level by 61 meters if fully precipitation patterns across the region, although in melted. Small changes in volume of these could have a many subregions there is much less agreement among significant impact. So, while large-scale rise in sea the models on the direction and magnitude of changes level is not highly likely in periods less than centuries, in rainfall than on the change in temperature. In Cen- there remains much uncertainty, and recent evidence tral America, for example, while most models do pre- does point to more rapid increases than in the IPCC's dict lower mean precipitation in all seasons, there is a Third Assessment Report (Dasgupta et al. 2007). possibility that this could be compensated by increased rainfall during hurricanes, which is not well Damages to ecosystems will be captured in most general circulation models.16 even more serious in the future... Notwithstanding the high uncertainty regarding The impacts in the future on ecosystems and human future rainfall patterns in some areas, there are strong society of such changes could be profound. Perhaps the indications that climate change may magnify most disastrous impact, if it occurs, will be a dramatic 5 L O W C A R B O N , H I G H G R O W T H : L AT 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 AT E C H A N G E MAP 2 Expected Climate Risks and Measures of Model Concordance in LAC, 2030 More dry days Longer heat waves Cities Cities Country border Country border Number of consecutive dry days Heatwave duration index days days Higher rain intensity Higher maximum rainfall Cities Cities Country border Country border Simple daily rain intensity Max rain/5-day (Map continues on next page) 6 A N O V E RV I E W MAP 2 (continued) Dry days: concordance Heat waves: concordance Cities Country border Cities Consecutive dry days SIGN Country border models: less dry Heat wave index SIGN models: less dry models: less heat wave models: less dry models: less heat wave models: less dry models: less heat wave models + / ­ models + / ­ models: more dry models: more heat wave models: more dry models: more heat wave models: more dry models: more heat wave models: more dry models: more heat wave Rain intensity: concordance Maximum rainfall: concordance Cities Cities Country border Country border Rain intensity SIGN Rain 5 days SIGN models: less rain intensity models: less rain models: less rain intensity models: less rain models: less rain intensity models: less rain models: less rain intensity models: less rain models + / ­ models + / ­ models: more rain intensity models: more rain models: more rain intensity models: more rain models: more rain intensity models: more rain models: more rain intensity models: more rain Source: World Bank Staff calculations using eight global circulation models. Lower four maps indicate concordance (agreement) among forecasts of different models. Model concordance is measured by the number of models whose predictions for changes in temperatures or rainfall are of the same sign. 7 L O W C A R B O N , H I G H G R O W T H : L AT 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 AT E C H A N G E dieback of the Amazon rainforest, with large areas converted threatened with extinction.19 The single most biolog- to savannah. Most Dynamic Global Vegetation Models ically diverse area in the world is the eastern Andes. (DGVM) based on the IPCC emission scenarios show Around 27 percent of the world's mammals live in a significant risk of climate-induced forest dieback LAC, as do 34 percent of its plants, 37 percent of its toward the end of the 21st century in tropical, boreal, reptiles, 43 percent of its birds, and 47 percent of its and mountain areas, and some General Circulation amphibians. Forty percent of the plant life in the Models predict a drastic reduction in rainfall in the Caribbean is unique to this area. Climate change is western Amazon.17 While there is as yet no consensus likely to drastically affect the survival of species, as in the scientific community regarding the likelihood breeding times and distributions of some species and extent of the possible dieback of the Amazon, the shift.20 Arid regions of Argentina, Bolivia, and Chile, Technical Summary of the Fourth Assessment Report along with Mexico and central Brazil, are likely to of the IPCC indicates a potential Amazon loss of experience severe species loss by 2050 using mid- between 20 and 80 percent as a result of climate range climate forecasts (Thomas and others 2004). impacts induced by a temperature increase in the Mexico, for example, could lose 8­26 percent of its basin of between 2.0 and 3.0°C. The credibility of mammal species, 5­8 percent of its birds, and 7­19 this kind of scenario was reinforced in 2005, when percent of its butterflies. Species living in cloud large sections of southwestern Amazonia experienced forests will become vulnerable, as the warming causes one of the most intense droughts of the last 100 years. the cloud base to rise in altitude. In the cloud forest of The drought severely affected human populations Monteverde in Costa Rica, this kind of change is along the main channel of the Amazon River and its already being observed, as reductions in the number western and southwestern tributaries. of mist days have been associated with decrease in The Amazonian rainforest plays a crucial role in the populations of amphibians, and probably also birds climate system. It helps to drive atmospheric circula- and reptiles (Pounds et al. 1999). Amphibians are tion in the tropics by absorbing energy and recycling especially susceptible to climate change. Species that about half of the rainfall that falls upon it. Further- are both threatened (according to the Red List of the more, the region is estimated to contain about 10 per- IUCN) and climate change-susceptible inhabit areas cent of the global stock of carbon stored in land of Mesoamerica, northwestern South America, various ecosystems, and to account for 10 percent of global Caribbean Islands, and southeastern Brazil (map 3). net primary productivity (Melillo et al. 1993).18 Mois- Among birds, the families that are highly susceptible ture injected by the Amazon ecosystem into the and are endemic to Latin America are Turdidae atmosphere also plays a critical role in the precipita- (thrushes, 60 percent of which are classified as highly tion patterns in the region. Disruptions in the vol- susceptible), Thamnophilidae (antbirds, 69 percent umes of moisture coming from the Amazon basin highly susceptible), Scolopacidae (sandpipers and allies, could trigger a process of desertification over vast 70 percent highly susceptible), Formicariidae (ant areas of Latin America and even in North America thrushes and ant pittas, 78 percent highly susceptible) (Avissar and Werth 2005). The IPCC also indicates a and Pipridae (manakins, 81 percent highly susceptible).21 likelihood of major biodiversity extinctions as a conse- quence of Amazon dieback. ...and socioeconomic damages will be high as well Even apart from the huge loss of biodiversity from Climate change is likely to also cause severe negative such cataclysmic changes as Amazon dieback, climate impacts on socioeconomic systems. Some of these change will threaten the rich biodiversity of the LAC socioeconomic impacts will be due to the direct effects Region more generally. Of the world's 10 most biodi- of climate on human activities, while others will be verse countries, 5 are in LAC: Brazil, Colombia, intermediated through the impact that the climate Ecuador, Mexico, and Peru, and this list also com- will have on ecosystems which provide economically prises 5 of the 15 countries whose fauna are most significant services. Among the economic sectors, the 8 A N O V E RV I E W between climate and farm production is quantified, MAP 3 Areas of High Concentration of Amphibians According to forecasts of future climatic changes (in temperatures Levels of Threat and Climate Change Susceptibility and precipitation) can be used to predict how farmers will respond. Endogenous choices by farmers to own livestock, choose crop types, pick livestock species, determine herd size, and install irrigation can all be examined with these data. The standing hypothesis is that these choices are sensitive to climate. The models also examine how land values--as a measure of overall profitability--vary with climate. Applications of this so-called Ricardian approach to data from Mexico and seven South American countries reveal that indeed, Threatened and climate change susceptible land values are sensitive to climate and tend to fall Top (%) 10 5 2.5 with higher temperatures and higher precipitation, Species 8 13 21 87 over ranges of these variables that are relevant to Latin America. These studies also find--somewhat contrary Not threatened and climate to expectations--that in percentage terms, small farms change susceptible Top (%) 10 5 2.5 are not more severely impacted than large, perhaps Species 20 26 30 61 because the larger farms tend to be more specialized in temperate (heat-intolerant) crops and livestock, and therefore less adaptable.22 Of course, small farmers living close to the margin of subsistence will suffer Source: Foden et al. 2008. greater hardship than will larger farmers from a simi- lar percentage decline in production. one likely to suffer the most direct and largest impact In the case of the South American farms studied in from gradual changes in temperature and precipita- this report, average simulated revenue losses from cli- tion is agriculture. Also important, at least from a mate change in 2100 are estimated to range from 12 local perspective, are the economic and social impacts percent for a mild climate change scenario to 50 per- of the expected increase in the frequency and/or inten- cent in a more severe scenario, even after farmers sity of hurricanes and tropical storms, the disappear- undertake adaptive reactions to minimize the dam- ance of tropical glaciers in the Andes, the increase in age.23 (Of course, these kinds of studies cannot take the rate of sea-level rise, the bleaching and eventual into account potential adaptive responses using future dieback of coral reefs in the Caribbean, possible water technological developments.) Another study applying shortages created by changes in rainfall patterns, and similar techniques to Mexico forecasts that that coun- the expected increase in mortality and morbidity rates try would be heavily impacted, with a virtually total derived from climate-related changes in the preva- loss of productivity for 30­85 percent of all farms, lence of various diseases. depending on the severity of warming.24 Yet it is Agricultural productivity could suffer a precipitous fall worth noting that across countries and even within in many regions. One of the leading approaches to esti- the same country, the impacts are likely to vary sub- mating the long-run impacts of climate change on stantially from one region to the next. (Map 4 reports agriculture takes advantage of individual data on large the results for small farms, which have a pattern of cross-sections of farmers. By matching farms to cli- impacts similar to that for large farms.) Even in hard- mates, and adjusting for other characteristics, one can hit Mexico, some regions are forecast to benefit. examine how climate influences farm decisions and Across the continent of South America, losses are gen- economic returns to farming. Once the relation erally forecast to be higher nearer the equator, with 9 L O W C A R B O N , H I G H G R O W T H : L AT 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 AT E C H A N G E MAP 4 Expected Changes in Agricultural Land Values by 2080 ($US/hectare) Change of land value Source: Mendelsohn 2008. Notes: Results reported here are for small farms under Canadian Climate Center scenario with temperature rise of 5°C by 2100. Land values in $US per hectare. some areas on the Pacific and in the south of the con- omy as a whole. Past modeling efforts for Latin Amer- tinent showing possible gains. ica have estimated agricultural losses to range from What does this mean in terms of aggregate impact US$35.1 billion per year (out of US$49.0 billion total on GDP? For LAC as a whole, the agricultural sector losses for all sectors, representing 0.23 percent of is a small part of the economy, and following the pat- GDP),25 to US$120 billion per year (out of US$122 tern of almost all countries' historical experience, its billion total losses, 0.56 percent of GDP)26 by 2100. share is expected to shrink further as the economies A very recent study, based on a global general equilib- develop. The large impacts on agriculture translate rium model with endogenously determined emissions into losses that are not very large relative to the econ- levels, projects total losses in LAC of around US$91 10 A N O V E RV I E W billion (about 1 percent of GDP) by 2050 if warming MAP 5 reaches about 1.79°C relative to 1900.27 Since this is a Effects of Climate Change on Poverty, Brazilian Municipalities permanent reduction in level of income, it would be N equivalent in present value terms to a one-time shock W E of around 18.2 percent of GDP, using a discount rate S of 5.5 percent.28 None of these estimates include dam- age to noneconomic sectors, for example to ecosys- tems. Also, they do not take into account the possibility of increased frequency or potency of nat- ural disasters, nor do they account for the possibility Brazilian States of catastrophic climate change from events such as the Effects of poverty (in % change) ­3.880­0 collapse of major ice sheets or melting permafrost. 0­0.84 What would be the impact of the expected changes 0.84­2.74 2.74­3.67 in agricultural productivity on rural poverty? Answer- 3.67­4.96 4.96­7.22 ing this question requires modeling the way in which No data households would respond. In particular, the evidence 900 0 900 1800 Miles suggests that there would be big differences in impact, depending on the degree of households' eco- Source: Assuncao and Chein 2008. nomic mobility. In the case of Brazil, for example, simulations based on municipal data suggest an aver- age reduction of 18 percent in agricultural productiv- When this approach is used to model likely land- ity by the middle of the century, which in turn could falls of tropical storms for Mexico's Gulf Coast, Central increase rural poverty by between 2 and 3.2 percent- America, and the Caribbean region,29 the projections age points, depending on whether households are able indicate on average a very large increase in damage or not to migrate in response to climate impacts. In during the next 20 years, driven not only by greater either case, the effect of climate change is highly storm intensity and, to a lesser extent, frequency (under region-specific, depending on the regional changes in two of the four scenarios modeled), but also by the the climate per se, as well as the variation in produc- increasing value of assets at risk resulting from eco- tivity responses--which vary from increases of 15 per- nomic development. In particular, estimates suggest a cent to reductions of 40 percent in different parts of 10-fold increase in losses from hurricanes in Mexico's Brazil--and off-farm economic opportunities (map 5). Gulf Coast during 2020­25, compared to the average Economic damage from hurricanes and tropical storms is five-year period during 1979­2006 (table 1). also likely to increase. Although there is no scientific Central America and the Caribbean would experi- consensus that hurricanes will become more common ence respectively threefold and fourfold increases over in the future, there is greater consensus that global the same periods. In relative terms, Caribbean coun- warming is likely to cause their intensification. tries would still be the most affected, with cumulative Indeed, global tropical storm intensity data since losses of more than 50 percent of annual GDP by 1970 indicate an average increase in intensity of 6 2020­25, compared to about 10 percent of GDP for percent for each increase of 1°F in sea surface temper- Mexico and 6 percent for Central America. Another ature (Curry et al. 2008). Based on this kind of data, recent study of the annual economic damages to 20 storm activity can be forecast using projections of the CARICOM countries circa 2080 from hurricanes and warming likely in the future. Such forecasts can take other natural disasters estimates these losses at into account the influence of both natural variability US$4.9 billion in 2007 dollars, or about 5 percent of and cycles as well as global warming on tropical storm GDP per year (Toba 2008a; complete table of dam- frequency, intensity, and tracks. ages from all sources in annex 2 to this document). 11 L O W C A R B O N , H I G H G R O W T H : L AT I N A M E R I C A N R E S P O N S E S T O C L I M AT E C H A N G E TABLE 1 melt will also have serious consequences for water Cumulative Losses from Tropical Cyclones, supply to the Andean cities. Historic and Projected (millions of 2007 US$) Rising sea levels will economically damage coastal areas in numerous ways. With rising sea level, livelihoods, socioeconomic infrastructure, and biodiversity in low- Average losses lying areas of Mexico, Central America, and the Historic loss per 5 (across 4 scenarios) per years (1979­2006) 5 years (2020­25) Caribbean will be affected by increased salinity in Country/region coastal lagoons, such as Mexico's Laguna Madre. Mexico 8,762 91,298 Saline intrusion from sea-level rise, combined with Central America 2,321 6,303 the above-noted reduced precipitation in the Gulf Greater Antilles 6,670 28,037 Coast region of Mexico, will cause increasing damage Lesser Antilles 925 2,223 Total 18,678 127,861 to wetlands there, reducing the many environmental services they provide. Agriculture could also be Source: Authors' calculations from Curry et al. 2008. Numbers reported are averages of the four scenarios considered. impacted by sea-level rise, particularly through loss of perennial crops, such as forests and banana trees, caused by the washing out of arable land and increased The expected disappearance of tropical glaciers in the soil salinity (UNFCCC 2006). Andes will have economic consequences on water and It is very hard to value ecosystem services, and hydropower availability. Modeling work and projec- existing studies of the damage from sea-level rise have tions indicate that many of the lower-altitude glaciers focused on more direct effects on economic activities, in the cordillera could completely disappear during the finding that these costs would be significant in vul- next 10-20 years (Bradley et al. 2006; Ramírez et al. nerable areas. Annual economic damage from climate 2001). The Chacaltaya Glacier (see fig. 2), for example, change in CARICOM countries has been estimated at may completely melt by 2013 (Francou et al. 2003). around US$11 billion by 2080, or 11 percent of GDP, Andean countries are highly dependent on with about 17 percent of the losses (around 1.9 per- hydropower (more than 50 percent of electricity sup- cent of GDP per year) due to the specific effects of sea- ply in Ecuador, 70 percent in Bolivia, and 68 percent level rise--loss of land, tourism infrastructure, in Peru). Some of the hydropower plants depend in housing, buildings, and other infrastructure.30 In the part on water from glacial runoff, particularly during LAC Region as a whole, estimates of total economic the dry season. While the glaciers are melting, flows damages from sea-level rise range from 0.54 percent are high, increasing the threat of flooding. But this is of GDP for a 1 meter rise to 2.38 percent for a 5- a temporary phenomenon. Although it will continue meter rise (Dasgupta et al. 2007), with the magnitude for decades, eventually the volume of melt water will of losses differing greatly among the Region's coun- decline. This will create adjustment problems, as pop- tries (figure 4). These estimates are considered conser- ulations may have become dependent on the tem- vative, since they include only inundation zones, do porarily higher flows. In the longer term, while the not include damage from storm surges, and use exist- disappearance of the glaciers might not affect total ing patterns of development and land use. water supply (compared to the situation before glaci- Continued warming of sea-surface temperatures will ers began to melt), seasonal flow patterns are likely to cause more frequent bleaching and eventual dieback of the change. Any reduction in the regulation of water coral reefs, with high economic costs to the Caribbean. flows in the dry season, caused by either increases in Future impacts of warming on the Caribbean reefs the variability of precipitation or reductions of natural have recently been modeled, and the prospects are water storage (glaciers, paramos, mountain lakes) poor. With the IPCC's business-as-usual scenario (and would require new investments in reservoirs to main- a low temperature sensitivity scenario), the model tain generation capacity. The phenomenon of glacier predicts the mortality of all corals in the area between 12 A N O V E RV I E W FIGURE 4 Projected Impact of Sea-Level Rise on GDP in LAC Countries 40 35 30 1 meter 2 meter 3 meter 4 meter 5 meter 25 (GDP) 20 impact 15 % 10 5 0 Rico Cuba Brazil Peru Haiti Rica Chile GuyanaGuianaBelize Jamaica Mexico Suriname Bahamas Ecuador UruguayPanama Salvador Argentina Honduras Colombia Puerto VenezuelaRepublic El NicaraguaCosta Guatemala French de B. R. Dominican Source: Dasgupta et al. 2007. 2060 and 2070. Other scenarios assuming higher semi-arid regions of Argentina, northeast Brazil, warming suggest that complete mortality could hap- northern Mexico, and Chile, further reductions in rain- pen as soon as 2050. The model predicts that corals in fall could create severe water shortages. The number of the northern Caribbean are likely to suffer the impacts persons in Latin America living in water-stressed sooner than in more southern areas. watersheds in 1995 was estimated at around 22 mil- In addition to loss of biodiversity, this would have lion. Modeling the effects of climate change, under large direct socioeconomic impacts. Corals provide a the scenarios considered by the IPCC (Special Report natural protection against storm surges; as they on Emission Scenarios, 2001), by 2055, the number bleach, the reefs disintegrate and thus eliminate this living in water-stressed areas in LAC would increase protection. As mentioned, around 65 percent of all under three of the four scenarios by between 6 and 20 species in the Caribbean depend to some extent on million persons (Arnell 2004). The economic conse- coral reefs, so the collapse of these reefs may have quences of such severe water shortages in the region widespread impacts on fisheries as well as the ecolo- gies of the area. Reefs are also a tourism attraction and TABLE 2 as these bleach and disintegrate, they lose any esthetic Potential Value of Lost Economic Services of Coral Reefs, circa value. These economic losses are inherently difficult 2040­60 in 2008 US$ million (assuming 50% of corals in the to monetize, but table 2 presents estimates of their Caribbean are lost) value in the event that 50 percent of coral reefs are lost. They suggest that total losses could range from 6 Low estimates High estimates to 8 percent of the GDP of the smaller affected coun- Coastal protection 438 1,376 tries--including Belize, Honduras, and the West Tourism 541 1,313 Indies.31 Fisheries 195 319 While forecasts of changes in local patterns of rain- Biodiversity 14 19 fall from global climate models are not as consistent as Pharmaceutical uses 3,651 3,651 those of changes in temperatures, forecasts of major Total 4,838 6,678 changes in some areas are fairly consistent. In arid and Source: Vergara, Toba, et. al. 2008b. 13 L O W C A R B O N , H I G H G R O W T H : L AT 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 AT E C H A N G E have not yet been analyzed, but could be large, partic- while increased precipitation is a significant variable ularly as they may lead to significant changes in the contributing to malaria transmission. An increase in hydroelectric generation potential of the region, the number of cases of malaria in Colombia has either in overall capacity or in its location. already been observed, from about 400 per 100,000 in Climate change is also likely to have multiple the 1970s to about 800 per 100,000 in the 1990s. impacts on health, but the relationship is complex. Based on statistical models of the incidence of both Worldwide, the single most significant impact identi- malaria and dengue, and forecasts of change in precip- fied by the IPCC is an increase in malnutrition, par- itation and temperatures (derived from eight global ticularly in low-income countries (Confalonieri et al. circulation models used in the fourth assessment of 2007), with mortality and morbidity from extreme the IPCC), the total number of dengue victims is fore- events in second place. Other impacts identified cast to increase by around 21 percent by 2050 and by include increases in cardiorespiratory diseases from 64 percent by 2100. Similarly, the incidence of reduction in air quality (due, for example, to more for- malaria is expected to increase by 8 percent by 2050, est fires), changes in temperature-related health and by 23 percent in 2100 (table 3). impacts (increasing heat stress, but reduction in cold- It is worth noting that the corresponding economic related illness, depending on the region), and an costs, in terms of lost productivity and the cost of increase in water-borne disease if sewage systems treating the additional victims, would be relatively become overloaded from heavy rainfall and dump raw small: US$2.5 million for the five-year period sewage into sources of drinking water. 2055­60, and US$7.5 million for the period Of special concern in LAC will be the effects on 2105­10.32 However, an important caveat in inter- malaria--mainly in rural areas--and dengue in urban preting these results is that the additional cases were areas. Vectors and parasites have optimal temperature calculated only in the municipalities in which the cor- ranges, and because mosquitoes require standing responding disease was present in the 2000­05 water to breed, changes in precipitation are also period; the cost estimates above do not consider the expected to have an effect on the prevalence of these potential spread to new municipalities. diseases. In areas that are now too cool for such vectors On the other hand, areas receiving less rain may to survive, higher temperatures could allow expansion experience a reduction in malaria risk, as forecast for both of the range and of the seasonal window of trans- Central America and the Amazon.33 But--underscor- mission. In areas where temperatures are now close to ing the complexities in forecasting the net health the upper threshold of tolerance, the range could con- impact of drier weather--the seasonal pattern of tract. Areas with higher precipitation will have an cholera outbreaks in the Amazon basin has been asso- increased risk. In Colombia, there is evidence that ciated with lower river flow in the drier season.34 No temperature is important for dengue transmission, overall assessment has been carried out of the net TABLE 3 Additional Numbers of Cases of Malaria and Dengue for 50- and 100-Year Future Scenarios Historic total number during Additional number of cases for a Additional number of cases for a Vector-borne disease the 2000­05 period 6-year period. 50-year scenario 6-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 Hernandez 2008. 14 A N O V E RV I E W health effects for the LAC region as a whole, but tend to increase with the level of emission reductions. recent national health impact assessments in both Low levels of emission reductions can be attained at Bolivia and Panama, for example, have concluded that relatively low costs; as reduction targets become more on balance there is likely to be an increased risk of ambitious, these cheap solutions are exhausted and infectious disease in those countries. more expensive investments are required. The mar- ginal benefits of mitigating climate change (the addi- 3. The Need for a Coordinated, Effective, tional adaptation expenditures and residual damages Efficient, and Equitable Global Response avoided), on the other hand, tend to fall with the scale The evidence presented so far indicates that climate of emission reduction efforts.38 The optimal degree of change will impose significant costs on mankind and effort to mitigate the consequences of climate change ecosystems. Attempts to minimize these damages can would be the point at which the marginal cost of be broadly grouped into two classes. The first com- reducing emissions by one more ton just balances the prises efforts to mitigate climate change, which in the damages avoided by doing so: Q* in figure 5, with a jargon of the climate literature means reducing GHG socially efficient price of carbon of P*. In a world in emissions so as to slow down global warming and which all costs and benefits were taken into account other climate trends.35 The second group of possible by the same decision makers with perfect information, responses comprises so-called adaptation actions, this optimal solution might be reached. aimed at adjusting natural or human systems in order In practice, however, this outcome is unlikely for to moderate harm or exploit beneficial opportunities two reasons. First, emitters only absorb a very small associated with climatic stimuli or their effects. fraction of the associated social costs, which are largely While there are many kinds of actions that provide paid by others, most of whom belong to future gener- significant cobenefits while helping to mitigate or to ations. So individual agents--and countries--have an adapt to climate change, in general, investments in incentive to "free-ride" on the mitigation efforts of mitigation and adaptation have some costs. These others. Moreover, even if some countries with large costs may be incurred in the form of financial costs expected damages may decide to take mitigation (for example, the additional cost of using wind power actions unilaterally, the opportunities in these coun- instead of coal to generate electricity), or as opportu- tries are not likely to be as cost-efficient as those in nity costs (for example, the income-generating oppor- other countries. tunities forgone by preserving a forest). In order to determine what is the optimal global response to the climate change challenge, these costs must be weighed against the benefits of avoiding future damages. FIGURE 5 The tradeoffs and synergies between mitigation Marginal Mitigation and Damage Costs and adaptation measures in principle call for an inte- grated approach to making simultaneous decisions on optimal levels of effort on both fronts.36 But in a sim- Marginal mitigation costs plified framework, one can focus on the optimal level e) of mitigation efforts and assume that, given the 2 CO resulting expected climate change impacts, adapta- ($/t tion expenditures will be decided optimally, by taking Costs into account the corresponding costs and benefits of E* such actions.37 Both the marginal costs and the mar- P* Marginal damage costs (including adaptation) ginal benefits of mitigating climate change depend on the scale of the emission reductions to be undertaken. O Q* Emission reduction (t CO2e) On one hand, the costs of additional mitigation efforts 15 L O W C A R B O N , H I G H G R O W T H : L AT 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 AT E C H A N G E Indeed, there is no reason to expect that countries tions, the damage costs from climate change, and the with the highest risk exposure would also happen to technological options for mitigation. have the lowest mitigation costs. In summary, global In fact, the 1992 agreement on the United Nations mitigation through uncoordinated individual efforts Framework Convention on Climate Change is likely to be (a) too small, (b) implemented too late, (UNFCCC), which has been ratified by 189 countries, and (c) undertaken by the wrong countries.39 In order explicitly recognizes as its overarching objective the to have any chance of reaching a level of mitigation stabilization of GHG concentrations at a level that and adaptation efforts close to that which would pre- avoids "dangerous" anthropogenic climate change. vail in the absence of "free-riding," the world as a While there is as yet no universally accepted defini- whole needs to come to a joint agreement. tion of such "dangerous climate change," one But second, even with collective action, determin- approach is to focus on reducing the prospect of ing the optimal level of mitigation effort would be encountering biological and geological "tipping difficult because information required to estimate points,"42 when a system goes abruptly and irre- both the costs and the benefits is very imperfect. In versibly from one state to another, with wide systemic particular, it is very hard to quantify the probabilities consequences, either for the world as a whole or for associated with specific climate impacts. In this some regions. Examples would include the permanent regard, when dealing with climate change, policy loss of valuable ecosystems and/or species, and the makers are confronted not only with risk--random- possible disruption of key intrinsic processes of the ness with known probabilities--but also with uncer- climate system itself--for example, loss of the Ama- tainty.40 The chain of causality between emissions zon, the disintegration of the West Antarctic or the today and the future impacts of climate change has Greenland ice sheets. Some socioeconomic impacts many links, and there is a great deal of scientific could also be considered "dangerous" in the sense that uncertainty involved in moving from each one to the if certain critical levels--for example, large cumula- next.41 This greatly complicates expected cost-benefit tive socioeconomic impacts or serious disruptions of analyses. Moreover, there are potentially catastrophic current practices--are reached, there could be conse- climate impacts, the probability of which is thought quences for human well-being that could be consid- to be low but is not well known. And the global cli- ered ethically or politically unacceptable (at least from mate system has a lot of inertia, creating long lags a local perspective), or even produce large-scale social between changes in emissions and the impacts on nat- disorder. Examples could include levels of climate ural systems, meaning that by the time it is discov- change that would trigger catastrophic food or water ered that a catastrophe is coming, it may be too late to shortages, extensive coastal flooding, or the widespread avoid it. These considerations may make it prudent dissemination of malaria or other tropical diseases for policy makers to adopt an approach based on pre- caution, in which a large weight is assigned to the Avoiding "dangerous" impacts objective of avoiding such events. As per the evidence presented above, the actions taken In practice, this leads to a focus on establishing tar- so far under the UNFCCC framework have not been gets for GHG stocks, for which the probabilities of bold enough to move the world away from potentially high levels of global warming with catastrophic con- "dangerous" climate change trajectories.43 What sequences are estimated to be relatively small. This would it take, in terms of emission reductions, to implicitly amounts to a willingness to pay an "uncer- avoid such paths? There is no single answer, but the tainty premium" so as to preempt those events. The more stringent the reductions, the lower are both the definition of the specific targets that would shape likelihood of catastrophic events and that of reaching public policies is akin to an iterative process of risk "dangerous" levels of cumulative negative socioeco- management, informed by the evolving scientific evi- nomic impacts. The most stringent potential targets dence on the sensitivity of climate to GHG concentra- considered by the IPCC call for stabilization of GHG 16 A N O V E RV I E W concentrations within a range of 445 to 535 ppm for the world as a whole, emissions would have to be CO2e. The likely temperature increases associated reduced from about 6.9 tCO2e in 2000 to between 3.2 with these targets are between 2°C and 2.8°C with and 4.8 tCO2e in 2050. Even if rich countries would respect to preindustrial levels. To achieve these targets agree to reduce their emissions by 100 percent (thus global emissions would have to peak by 2020 at the becoming "carbon-neutral"), these targets would be met latest. By 2050 they would have to drop to between only if developing countries were to reduce their per 30 and 85 percent of the 2000 level. The costs of capita emissions by as much as 28 percent by 2050.45 achieving these goals, based on 15 climate models Developing countries' participation, however, considered by IPCC, is estimated to be a reduction of would be needed not only to guarantee effectiveness up to 3 percent of global GDP in 2030 and up to 5.5 but also to ensure that stabilization targets are reached percent by 2050. efficiently, that is, at the least possible global cost. An alternative set of targets considered by the Assume, for example, that by 2030 a global uniform IPCC would imply stabilizing GHG concentrations at price of carbon of US$100 per ton of CO2e was the levels between 535 and 590 ppm CO2e. The cost of outcome of a global "carbon tax" or a "cap-and-trade" achieving these targets would be lower than for the scheme. As shown by the IPCC, this would lead to more stringent targets mentioned above--up to 2.5 sufficient emission reductions to stabilize GHG con- percent of global GDP in 2030 and 4 percent in centrations in the range of 445 to 535 ppm CO2e.46 2050--but expected temperature increases would be While these mitigation investments would be spread slightly higher--between 2.8°C and 3.2°C. across many sectors, in most of them (the only excep- Note, however, that given the large uncertainties tion being transport) more than 50 percent of the involved, much higher rates of warming would still global mitigation potential would be located in devel- be possible (albeit improbable), even if the above tar- oping countries. In fact, in the cases of industry, agri- gets were met. The expected level of global warming culture, and forestry, almost 70 percent of the global for the second group of targets, for example, could potential for reducing emissions comprises opportuni- increase to almost 5°C if one were to use the more pes- ties in developing countries.47 simistic available estimates (instead of the mode) for Clearly, developing countries' engagement is indis- the so-called climate sensitivity parameter.44 Simi- pensable if those targets are to be met, so strong larly, Stern (2008) estimates that for a stabilization incentives to become part of the solution are in every- target of 550 CO2e ppm there would be a 7 percent one's best interest. This approach would ensure that probability of temperature increases above 5°C, which the world takes advantage first of those mitigation could potentially lead to the melting of most of the opportunities that offer the largest "bang for the world's ice and snow, as well as to sea-level rises of 10 buck." In other words, a globally efficient solution is meters or more, and losses of more than 50 percent of only possible if reductions take place in countries current species. that have the greatest potential for low-cost reduc- tions, not necessarily where emissions are the highest. Effectiveness and efficiency call The global savings from such an efficient solution for developing country participation would be large. A recent study, for example, finds Because of the scale of the emission reductions that are that reducing global emissions by 55 percent in 2050 required, an effective global agreement to mitigate globally--relative to a baseline business-as-usual climate change will necessarily have to involve both path--would cost 1.5 percent of global GDP using a industrialized and developing countries. This is the uniform carbon tax. The same global emission reduc- result of the simple arithmetic of the situation. tion--implemented in such a way that each country Assume, for example, that stabilization targets of 535 cuts its own emissions by 55 percent--would cost 2.6 to 590 CO2e ppm--one scenario considered by the percent of global GDP, or about 73 percent more than IPCC--were to be adopted. On a per capita basis, and when using the more efficient approach.48 17 L O W C A R B O N , H I G H G R O W T H : L AT 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 AT E C H A N G E The need for the global response to be equitable lower level of responsibility of developing countries Would a rapid and substantial contribution of devel- can be illustrated by the fact that the cumulative oping countries to the funding of global efforts to energy-related emissions of rich countries from 1850 mitigate climate change be compatible with equity to 2004 are, on a per capita basis, more than 12 times considerations? Clearly not, for two reasons, which higher than those of developing countries--respec- together are at the heart of the principle of common tively 664 and 52 tCO2 per capita.49 Thus, even but differentiated responsibility established by the though their share of the world's population is only UNFCCC. First, developing countries already face the about 20 percent, industrialized countries are respon- challenge of poverty reduction and are the most vul- sible for 75 percent of the world's cumulative energy- nerable and the least able to adapt to the adverse related CO2 emissions since 1850. This leads many effects of climate change. They can hardly be expected observers to conclude that rich countries should to shoulder the additional burden of reducing their assume a much larger share of the cost that will be GHG emissions. An equitable solution would allow associated with reducing global GHG emissions. developing countries to attain the quality of life that The relatively small contribution to cumulative has been achieved by the current developed nations emissions of even some of the largest developing over the last 100 years. countries is illustrated in figure 6. It shows that emis- Second, industrialized countries carry a much sions grew with income at much faster rates when larger historical responsibility for the existing GHG today's rich countries were industrializing than has concentrations that are driving climate change. The been observed in recent decades in China, India, FIGURE 6 Historic Trends in per Capita GDP and per Capita CO2 Energy Emissions 5 4.5 4 3.5 3 capita per 2.5 2 emissions 1.5 GHG 1 0.5 0 ­0.5 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 GDP per capita United States (1850­1940) France (1851­1961) United Kingdom (1850­1957) Japan (1893­1968) Brazil (1931­2002) China (1979­1996) India (1983­2002) Mexico (1890­2000) Source: WB staff calculations using data from Angus Maddison and WRI. 18 A N O V E RV I E W Brazil, and Mexico. In other words, thanks to techno- Considering the technical and political challenges logical change, development has already become associated with negotiating a global cap-and-trade much less carbon-intensive than it was in the past. scheme or a global carbon tax, however, it is worth considering other possible alternatives for decoupling Can an effective, efficient, and equitable the site of mitigation from its payment. While some global agreement be reached? of these alternatives may be more difficult to imple- The discussion above implies three desirable charac- ment, some of them may constitute more acceptable teristics for a coordinated response to the challenges of outcomes from a political point of view. First, assum- climate change. First, effectiveness in meeting stabiliza- ing that industrialized countries (including the tion targets that would likely serve to avoid "dangerous" United States) make deeper emission reduction com- impacts would require emission reductions to take place mitments, expanded market-based instruments may in both industrialized and developing countries. play an important role. Second, complementary non- Second, efficiency would require a mechanism to market financial instruments could help defray some establish some kind of uniform price for carbon, so of the costs of mitigation in developing countries, that the reductions would be carried out in the ways even if not serving to transfer emission rights to those and places that it could be done most cheaply, and who provide the funds. Finding the appropriate com- much of this will be in developing countries. Third, bination of these different types of instruments would equity considerations would call for developed coun- be complex; it would have not only to adequately bal- tries to carry a disproportionately larger share of the ance supply and demand within market cost burden. mechanism(s), but also to balance, within the non- Is it possible to build a "global deal" that could sat- market mechanism(s), willingness to pay on the part isfy both equity and efficiency considerations? The of the industrialized countries and effectiveness to answer is in principle a clear yes, by decoupling the promote reductions in the south. cost of mitigation from the site of mitigation (Spence et But if successfully negotiated, such a palette of cli- al. 2008), but the task will not be easy. The delinking mate finance instruments could bring all countries could be achieved in several ways. One option is to together into a common framework, and provide adopt an international cap and trade scheme, through operational meaning to the phrase "common but dif- which a common price on carbon would emerge even ferentiated responsibilities." In particular, a global if countries agreed on different levels of contributions agreement could confirm most (small) developing to global efforts--that is, different caps on emissions. countries as continued hosts of scaled-up market- Resources would flow automatically to pay for emis- based mitigation efforts. sion reductions in countries that offer the lowest-cost But it could at the same time provide the necessary mitigation opportunities, thus potentially funding an incentives for the larger developing countries to grad- important level of mitigation efforts. A similar out- ually move toward adoption of their own climate mit- come could be achieved with a carbon tax mecha- igation commitments, which do not necessarily have nism--and some authors argue that such a to be Kyoto-type commitments. One example of how mechanism might even be easier to negotiate and eas- to alleviate the tradeoffs between economic develop- ier for developing countries to administer (Aldy et al. ment and climate change mitigation objectives would 2008). But with a carbon tax, equity would require a have some developing countries start with a focus on parallel agreement on a set of international resource "climate-friendly" development policies, and transit transfers aimed at ensuring that the share of the global over time, based on demonstrated capability (for exam- "bill" for climate change mitigation that is paid by ple, as measured by per capita income) to commit- each county is proportional to its responsibility for ments regarding the rates of growth of their emissions generating the problem and not necessarily to the and, finally at some point in time, to some of them country's actual contribution to its solution. adopting emission reduction commitments (figure 7). 19 L O W C A R B O N , H I G H G R O W T H : L AT 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 AT E C H A N G E could divide those reasons in two groups. First, it is FIGURE 7 Possible Scheme for Gradual Incorporation of Developing Countries in the region's best interest to do so; thus, it should do it. Second, the region is well placed, in terms of Gradual incorporation its comparative advantages and potential to reduce GHG emissions, to make an important contribution Emission reduction targets to global efforts: therefore, one could argue that LAC can do it. ABILITY Limiting emission growth CAP Why LAC should be "ahead of the pack" Adoption of climate- friendly policies As described above, LAC is already being hit by nega- No mitigation tive climate change impacts. If GHG emissions con- commitments tinue unabated, the Region is likely to suffer much TIME more severe impacts in the future. As a result, LAC Source: Figueres (2008). has a vested interest in the success of global mitiga- tion efforts. While it is recognized that the challenge needs a global response, leadership on the part of LAC In order to uphold the integrity of the system, all would have a clear positive effect. In addition, there mitigation efforts, whether based on climate-friendly are at least two types of instance in which undertaking policies or eventually on targets, would have to be its own climate mitigation efforts may involve benefits domestically measured and reported, and indepen- for the Region, even though it would contribute only dently verified. In order to ensure fairness and equity, modestly to avoiding future climate change damages, the gradual incorporation of developing countries given the Region's relatively limited emissions. could be linked to--that is, be conditional upon-- First, in many cases emission reductions can be industrialized countries' verified performance (in obtained while pursuing other economic development terms of both the provision of financing for develop- objectives. In these situations, which we will discuss ing countries mitigation efforts and emission reduc- in detail below, climate change mitigation would be a tions achieved at home). byproduct of actions that the region would be inter- Moreover, an agreement would have to be reached ested in pursuing anyway in order to promote sustain- on possible objective criteria for defining the thresh- able growth and reduce poverty, regardless of climate olds that would trigger an increasing degree of incor- change. Thus, one could argue that mitigation in poration of developing countries. In this respect, it is these cases would involve "no regrets in the present." important to recognize the wide variety of country The main examples of such opportunities are related circumstances that are found not only across rich and to investments aimed at increasing energy efficiency, poor countries, but also within the group of develop- reducing deforestation, improving public transporta- ing countries. In this context, we now turn to an tion, deploying renewable energy sources, developing analysis of how the specificities of the Latin America low-cost and sustainable biofuels, increasing agricul- and Caribbean Region may affect its participation in a tural productivity, and improving waste management. global coordinated policy response to the climate Second, climate mitigation may also involve "no change challenge. regrets in the future" in a "carbon-constrained world," especially if the region takes a leadership position in 4. LAC's Potential Contribution to the deployment of low-carbon technologies. In partic- Global Mitigation Efforts ular, given the growing scientific consensus regarding There are many motivations for Latin American and the real and present threats posed by climate change, Caribbean countries to participate actively in global developing as well as developed countries ultimately efforts to mitigate climate change. However, one will have to take strong action to reduce GHG emis- 20 A N O V E RV I E W sions. As a result, companies and countries will face an reduce the need to abandon current production tech- increasing pressure to internalize the social costs nologies. Second, it is possible that a global agree- imposed by emissions. ment with all the desirable characteristics discussed in Anticipating this shift has a number of advantages. the previous section will prove politically infeasible, Chief among them is the possibility of avoiding the at least in the short and medium terms, which would "regrets" associated with the effect of future carbon reduce the potential for international cost sharing of taxes, emission caps, or other related regulations on early actions. Third, the cost of low-carbon technolo- the future profitability of current investments in gies will tend to fall over time, as a result of cumula- "high-carbon" technologies, or the need to undertake tive investments in research and development and large and rapid mitigation efforts later. These poten- dynamic economies of scale. Thus, there would be an tial "regrets" could be minimized by taking into advantage in waiting for adoption costs to fall, which account early on, in the corresponding investment would need to be weighed against the advantages of decisions, the prospective future emergence of carbon earlier action. pricing. In other words, by incorporating expectations To deal with these risks, a prudent approach would about the likelihood of future government policies involve focusing first on investments that involve and carbon market forces penalizing GHG emissions, clear "no regrets" in the present, and fewer technolog- companies and countries could improve the expected ical uncertainties. The decision to move into riskier profitability of their investments, especially in "car- investments--with potential "no regrets" in the bon-intensive" sectors. future--could then be conditional on the achievement Additional benefits of such an "early-mover" of sufficient momentum in global mitigation efforts approach could be associated with the possibility of and/or to access to international cost-sharing mecha- developing new comparative advantages in low-car- nisms that would allow compensating for the risks bon technologies. This potential benefit would apply described above. Besides minimizing the above- to companies and countries that make early invest- described downside risks associated with LAC being ments in technologies for which market growth even- an "early mover," this approach would have the added tually accelerates as global mitigation efforts gain advantage of helping create momentum toward a momentum. Finally, by moving "ahead of the pack," global agreement for addressing climate change chal- LAC countries that make early investments in low- lenges. Indeed, a strong show of leadership by carbon technologies are likely to benefit to a larger medium-income countries such as those in LAC could extent from international financing mechanisms. help pave the road for increasing commitments Indeed, the development and early deployment of among their high-income counterparts. In fact, this low-carbon technologies is likely to benefit from some type of approach has already been adopted by a num- sort of subsidization, including through international ber of medium-income countries, both from LAC and financing mechanisms. By adopting an "early-mover" other regions.50 approach, LAC countries could thus be able to reduce the domestic costs of their investments in innovative LAC's potential for "no-regret" mitigation low-carbon technologies. As argued before, LAC has an interest to take the lead, It is worth noting, however, that there are also among developing countries, in participating in inter- downside risks associated with being an early mover. national efforts to mitigate climate change. This sec- First, the underlying assumption that the world will tion argues that the Region is also well placed to take soon move to more aggressive limits on GHG emis- such a leadership position. To that end, we first pre- sions could be proven wrong. This could happen, for sent some basic stylized facts on the levels and trends instance, if new scientific evidence appears that of LAC countries' GHG emissions and then proceed reduces the current sense of urgency with regard to to documenting concrete "no-regrets" mitigation climate change, or technological breakthroughs opportunities in various economic sectors. 21 L O W C A R B O N , H I G H G R O W T H : L AT 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 AT E C H A N G E LAC's GHG emissions: mass, and two-thirds of the biomass existing in tropi- composition, levels, and trends cal forests.51 Were the large amounts of carbon stored The first objective of this section is to identify the in LAC's forests to be released to the atmosphere, cur- areas in which LAC's emissions are relatively low, thus rent GHG concentrations would already be much suggesting that the Region has a comparative advan- higher. Second, LAC has enjoyed many decades of tage for pursuing a low-carbon growth path. Second, growth with very clean power. In particular, thanks to we aim at characterizing those areas in which there its low use of coal-fired plants and its large use of appear to be opportunities for reducing the Region's hydroelectricity, LAC's power sector generates 40 per- emissions, as suggested either by large ratios of emis- cent less CO2 emissions per unit of energy than the sions to GDP or by high rates of emission growth. To world as a whole--74 percent less than China and achieve these goals we compare LAC's emission pat- India, and 50 percent less than the average for devel- terns with those of other regions of the world, and also oping countries.52 explore the extent of heterogeneity existing across Not surprisingly, the composition of LAC's flow of LAC countries. GHG is dominated by CO2 emissions from land use change, which constitutes 46 percent of LAC's emis- The composition of LAC's GHG emissions sions, versus 17 percent for the world (figure 8). Put LAC has historically made a substantial contribution simply, because some other regions long ago cut down to keeping levels of atmospheric CO2 low. First, LAC a large part of their forests, LAC has a large proportion is host to about one-third of the world's forest bio- of the trees that are still standing, and as a result it FIGURE 8 Composition of Greenhouse Gas Emissions, LAC and Other Regions of the World Industialized countries: composition LAC: composition of GHG emissions of GHG emissions 46% ­1.6% 18.3% 26% 28% 83.3% Other developing countries: composition of GHG emissions World: composition of GHG emissions 30% 18% 59% 45% 23% 25% Other GHG (non-CO2 in agriculture, waste, etc.) Land-use change emissions (CO2) Energy related emissions (CO2) Source: CAIT, WRI. 22 A N O V E RV I E W also has a large fraction of the emissions generated by sions would be lower than those of industrialized cutting them. In contrast, the share of CO2 energy countries, but higher than those of low-income. Fig- emissions in LAC's total GHG emissions (26 percent) ure 9 also shows that despite the large growth in is much smaller than at the global level (59 percent). GHG emissions observed in China and India during The remainder of LAC emissions (about 28 percent recent years, those countries still have much lower compared to 23 percent for the world as a whole) are emissions per capita than LAC, and also a much lower other GHG generated mainly in the agricultural sec- ratio of emissions to GDP. Note, however, that if the tor--70 percent in the case of LAC vs. 55 percent for focus is placed on energy emissions, LAC is among the the world--but also as a result of waste disposal as regions of the world with lowest emissions per unit of well as industrial and extractive activities. GDP, and its emissions per capita are more than 30 These first basic traits of LAC emissions have a percent below the world average number of general implications in terms of identify- ing the main challenges, looking forward, for explor- Is LAC moving in the wrong direction? ing the Region's mitigation potential. First, it is clear Over the past two and a half decades, energy emissions that LAC has an enormous mitigation potential asso- per capita have been relatively stable in LAC, while ciated with reducing land-use change emissions, they have fallen in North America and Western which implies looking in detail at the potential for Europe. A growth pattern similar to LAC's has been avoiding deforestation and implementing afforesta- observed in Africa and Central and Eastern Europe. In tion and reforestation projects. Second, it would be contrast, the countries from Centrally Planned Asia critical to maintain and further reduce LAC's relatively (mainly China), the Far East (including India, South low ratio of emissions to energy, including emissions Korea, and Indonesia), and the Middle East have from power generation, transport, industrial activities, exhibited uninterrupted and explosive rates of growth and commercial and residential buildings. in per capita emissions. Of particular concern is the recent trend toward LAC's ratio of emissions to GDP has also remained increasing the carbon intensity of power supply due to relatively stable, experiencing only a 2 percent the shift away from hydroelectricity and toward nat- increase between 1980 and 2004. In contrast, there ural gas and coal, a trend that is exacerbated in future was a 28 percent decline in global emissions per unit projections of the sector. In order to at least maintain of GDP during the same period, a 33 percent reduc- the past relatively low level of energy-related emis- tion in industrialized countries, and a 48 percent drop sions, the Region would have to invest further in in the case of China and India. Other developing energy efficiency, renewables, and cleaner transport. countries experienced relatively small declines: 9 per- cent in low-income countries and 4 percent in other How large are the region's emissions? middle-income countries (excluding LAC as well as LAC accounts for about 8.5 percent of the world's China and India). population and GDP, and for 12 percent of global The fact that LAC's emissions per unit of output emissions, considering all GHG. The Region's emis- have remained relatively stable is to some extent sur- sions are thus above the world average in terms of prising, given that the Region has achieved large their ratio to both population and to GDP. While reductions in the quantity of emissions per unit of there is no agreement on how to measure responsibil- energy consumed. In fact, this reduction in LAC's ity and capability, those ratios could be used at least as "carbon intensity of energy" has been almost totally indicative proxies for respectively the Region's respon- compensated by a growing level of energy consump- sibility and potential for reducing emissions. tion per unit of GDP. As illustrated in figure 10, this On both counts, as shown in figure 9, LAC would is a trend that has only been observed in LAC and in be in an intermediate position, in between low- and low-income countries.53 Indeed, during the same high-income countries. Thus, LAC's per capita emis- period, other middle-income countries (including 23 L O W C A R B O N , H I G H G R O W T H : L AT 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 AT E C H A N G E FIGURE 9 Ratios of Greenhouse Gases Emissions to Population and GDP (2000) 16 15.9 GHG emissions per capita (2000, tCO2e per population) 14 13.6 12 10.0 10 9.1 8 6.9 6 4.6 4.0 4.1 4 3.5 2.6 3.4 2.8 2.8 2.6 2.0 1.7 1.7 2 1.3 1.2 1.6 0.9 0.6 -0.4 0.0 0 Total GHG Energy Land-use change Other 3.0 2.8 GHG emissions per US$GDP (tCO2e/thousand US$ PPP) 2.5 1.9 2.0 1.4 1.5 1.4 0.9 1.0 1.0 0.9 0.8 0.7 0.7 0.6 0.6 0.4 0.5 0.5 0.6 0.4 0.5 0.4 0.3 0.2 0.2 0.1 0.0 0.0 0 Total GHG Energy Land-use change Other Low income Middle income (excluding LAC, China & India) High income LAC China & India World Source: CAIT, WRI. China and India), as well as high-income countries, main factors that is likely to have driven LAC's lim- exhibited decreasing levels of energy intensity, espe- ited reaction to the increases in international oil prices cially in the years immediately following the oil of the 1970s remains largely unchanged.54 Indeed, as shocks of the 1970s. explored in detail further below, energy prices in the The good news is that most of the increase in LAC's Region continue to be heavily regulated in such a way energy intensity took place during the 1980s, and that international price increases are only partially some significant reductions have already been passed through to consumers and thus fail to provide observed since 2000. The bad news is that one of the the appropriate incentives to reduce consumption. 24 A N O V E RV I E W FIGURE 10 Decomposition of Changes in Fossil Fuel CO2 Emissions (1980­2005) 410 272% Energy intensity (TPES/GDP) Income per capita (GDPpc) 64% Population 310 Carbon intensity (CO2/TPES) 210 128% 141%% 309% 69% 80% 110 70% 96% 25% 31% Percent 19% 58% 44% 80% 82% 51% 23% 10 12% 4% -9% 15% ­6% ­9% ­25% ­12% ­17% ­95% ­35% ­35% ­90 ­190 Low income Middle income High income LAC China & India World (excluding LAC, China & India) Sources: Primary Energy Consumption: Energy Information Administration, International Energy Annual 2005; CO2: IEA and Marland et al. (2007); GDP (ppp adjusted) and population: WDI. Looking forward, the International Energy Agency emissions and its GDP. Another 25 percent of LAC's (IEA) predicts that LAC's per capita energy-related emissions and GDP is accounted for by Argentina, emissions will grow by 10 percent between 2005 and Colombia, Peru, and República Bolivariana de 2015, and by 33 percent during 2005­30. These pro- Venezuela. A similar ranking emerges if one excludes jections are much lower than those made for other emissions from land-use change, with the exception of developing countries--for example, energy emissions Brazil and Mexico, for which the share of LAC total in China and India are expected to grow by more than emissions respectively falls from 46 to 34 percent and 100 percent on a per capita basis between 2005 and increases from 13 to 21 percent. 2030. However, LAC emissions are predicted to grow While emissions from land-use change are respon- by more than the world average after 2015. While the sible for almost half of LAC's total GHG emissions, IEA does expect significant reductions in LAC's their share varies widely across countries in the region. energy intensity, it predicts no significant contribu- In five countries--Bolivia, Brazil, Ecuador, tions to emission reductions in the Region to come Guatemala, and Peru--land-use change accounts for from further declines in the carbon intensity of its at least about 60 percent of total GHG emissions. In energy. This is to some extent surprising, given that, contrast, in Mexico, Chile, and Argentina, the share of as discussed below, LAC still has a very large potential land-use change emissions is close to 15 percent. for developing clean energy sources. Brazil alone is responsible for 58 percent of LAC emis- sions from land-use change, followed by Peru with 8 Cross-country differences in emissions patterns percent, and by República Bolivariana de Venezuela About 85 percent of the Region's emissions are con- and Colombia with about 5 percent each. centrated in six countries. Brazil and Mexico account There is considerable heterogeneity across LAC for almost 60 percent of both the Region's total GHG countries in levels of GHG emissions, both in per 25 L O W C A R B O N , H I G H G R O W T H : L AT 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 AT E C H A N G E FIGURE 11 GHG Emissions per Capita for Selected LAC Countries (2000) GHG emissions per capita (2000, tCO2/pc) 20 17.4 15.8 15 13.4 10.1 9.9 9.9 9.6 10 8.1 8.0 7.3 7.9 7.2 7.5 7.0 6.8 6.6 5.9 6.0 6.4 5.5 5.1 5.4 4.8 5 4.1 4.0 3.2 2.7 2.7 2.4 2.5 1.5 1.0 1.0 0 Bolivia R.B. de Brazil Peru Argentina Ecuador Guatemala Mexico Rest of Colombia Chile Venezuela LAC Total p/c GHG Emissions Per capita CO2 emissions Total p/c GHG emissions excluding land (CO2, CH4, N2O, PFCs, HFCs, SF6) from land use change use change Source: Climate Analysis Indicators Tool (CAIT, Version 5.0) and WDI. capita terms (figure 11) and as a ratio to GDP (figure República Bolivariana de Venezuela), while for others 12). For instance, total GHG emissions per capita are the potential for reducing GHG emissions lies mainly between 13 and 17 tCO2 per capita in Bolivia, in LUC or agriculture (for example, Brazil and Peru). República Bolivariana de Venezuela, and Brazil, and A finer analysis of relative mitigation potentials for below 7 tCO2 per capita in Chile, Colombia, and more disaggregated categories of emissions is reported Mexico. The former three countries are also among the in annex 1.55 Region's top per capita emitters even if land-use change is excluded, although in this case their emis- How LAC can be part of the solution: sions per capita are much closer to those of Argentina, Specific "no-regrets" mitigation opportunities Chile, and Mexico. As described above, LAC clearly has a comparative The ratio of emissions to GDP and the rate of advantage in pursuing a low-carbon growth path, by growth of emissions are possible measures of coun- means of implementing policies and programs to con- tries' mitigation potential. Indeed, where both of serve its large forests and to maintain its relatively those variables are low, there is arguably little room clean energy matrix. To realize this potential requires for further emission reductions. Figure 12 exhibits the identifying concrete opportunities for reducing GHG values of those two variables--the ratio to GDP in the emissions without compromising sustainable devel- horizontal axis and the emission growth rate in the opment objectives. As documented below, there are vertical one--together with the absolute value of total many ways in which the Region's emissions can be emissions (size of the "bubble"). The top panel focuses reduced at low cost, while at the same time reaping on energy-related emissions and the bottom panel on sizable development cobenefits. In some cases, these land-use change (LUC) and non-CO2 emissions (for cobenefits have a value that would more than offset example, from agriculture). In both cases, the point the costs of undertaking the measures; that is, there where the axes cross corresponds to the typical LAC would be negative net costs. These could be called country. Figure 12 suggests that some LAC countries "no-regrets" options, in the sense that even if reducing have a relatively high mitigation potential in energy emissions is not a consideration; a country should have (for example, Argentina, Chile, Mexico, and "no regrets" in undertaking them, since they are good 26 A N O V E RV I E W FIGURE 12 GHG Emissions Growth and Ratio to GDP Energy-related CO2 emissions: growth (1990­2004) and ratio of emissions to GDP (2004) Belize El Salvador Honduras Guatemala 1.300 Panama Bolivia Costa Rica Dominican Republic 2 CO Paraguay Chile 0.800 Nicaragua Ecuador Growth Haiti Brazil Jamaica Peru Uruguay Trinidad and Tobago Antigua and Barbados Suriname 0.300 Mexico Guyana Argentina Colombia R. B. de Venezuela -0.200 0 100 200 300 400 500 600 700 CO2/GDP Non-energy-related GHG Emissions: growth (1990­2000) and ratio of emissions to GDP (2000) -300 200 700 1200 1700 2200 2700 1.300 0.800 Trinidad and Tobago 2 Haiti CO 0.300 Argentina R. B. de Venezuela Mexico Colombia Paraguay El Salvador Growth Chile Dominican Republic -0.200 Guatemala Belize Jamaica Costa Rica Honduras Peru Guyana Nicaragua Ecuador Brazil Panama -0.700 Uruguay -1.200 CO2/GDP Sources: Climate Analysis Indicators Tool (CAIT, Version 5.0) and WDI. Note: Size of bubble indicates absolute volume of emissions. 27 L O W C A R B O N , H I G H G R O W T H : L AT 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 AT E C H A N G E development policy. Where the cobenefits are finan- eration in the steel and cement industries and by cial, the negative net cost is reflected in pecuniary sav- means of efficiency improvements in residential and ings. Of course, the fact that these "low-hanging commercial lighting. In both cases the cost of achiev- fruits" have not yet been harvested suggests that there ing the corresponding emission reductions would be are various obstacles--pecuniary or nonpecuniary. negative. The electricity savings from using more Concrete measures to address these barriers are dis- energy efficient lighting would amount to 6 percent cussed in section 5 of this paper. of total generation in 2006, which would allow investments of about US$1.5 billion to be deferred, Energy efficiency and saving US$1.7 billion in energy subsidies. Improving energy efficiency has important benefits Additional opportunities for no-regrets invest- beyond climate change mitigation. They include the ments have been identified in several recent studies. ability to reduce energy demand in the short term, One study for Mexico found good opportunities for delay construction of new electric generating capacity, efficiency improvement in the residential, industrial, increase competitiveness by lowering production and public sectors.58 Similar studies sponsored by the costs, and reduce fossil fuel consumption and the energy company Endesa in Argentina, Chile, Colom- emission of local pollutants. Energy efficiency is par- bia, and Peru also suggest a large potential for emis- ticularly important for countries facing energy supply sion reductions at negative costs in the area of energy constraints as it can reduce the growth in demand in efficiency.59 In the case of Chile the largest potential is the near term, which avoids the administrative and found in efficiency improvements in electricity gener- legal processes and time needed for planning, licens- ation, followed by improvements in the industrial and ing, and constructing new generating capacity. mining sectors. The studies for Argentina and Colom- By any measure, there is substantial untapped bia find a sizable mitigation potential in the areas of energy efficiency potential worldwide and in Latin residential and commercial lighting, while the Peru America that could reduce GHG emissions at a rela- study found a large potential for energy efficiency tively low or even negative cost. The IPCC calculates improvements in the industry and agroindustry sectors. that about 25 percent of the global mitigation poten- tial for carbon prices of up to US$100/tCO2e could be Forestry achieved at negative social costs. About 80 percent of Efforts to harness the climate change mitigation these no-regrets mitigation alternatives are associated potential of land-use change at the global level are with increases in energy efficiency in commercial and focused on reducing emissions from deforestation and residential buildings. Similarly, the International forest degradation (REDD) and, to a lesser extent, Energy Agency estimates that energy efficiency around afforestation and reforestation (A/R) activities. accounts for more than half of the global energy- In addition to helping reduce net GHG emissions, related emission abatement potential achievable forest conservation efforts also play important roles in within the next 20­40 years.56 supporting sustainable development in the corre- In LAC, a recent analysis by the InterAmerican sponding areas, as well as in helping ecosystems and Development Bank estimates that energy consump- communities adapt to climate change. tion could be reduced by 10 percent over the next In particular, forest conservation efforts can foster decade by investing in energy efficiency. The cost of climate-resilient sustainable development by helping such measures would be US$37 billion less than regulate hydrological flows, restore soil fertility, investing in new electricity generation capacity.57 In reduce erosion, protect biodiversity, and increase the the case of Mexico, ongoing studies sponsored by the supply of timber and nontimber forest products.60 World Bank suggest that between 2008 and 2030, This is not to say that tradeoffs between mitigation GHG emissions could be reduced by about 15 million and adaptation do not arise in A/R and REDD activi- tons (Mt) of CO2e through an increased use of cogen- ties. There are, for example, documented cases of com- 28 A N O V E RV I E W petition between tree plantation and agriculture in tent of the forest, and the dynamics of the different terms of the land and water that are needed, especially variables and sectors considered (from static to global in arid and semi-arid regions. equilibrium models).63 Assessing the mitigation potential of A/R and Other relevant factors that will have an impact on REDD activities requires estimating land availability the cost of REDD--beyond the opportunity costs dis- and the potential carbon sequestration or retention cussed above--include costs related to the implemen- potential of the available land. The latter depends tation of the corresponding government policies (for mostly on biophysical considerations (soil type, pre- example, forest monitoring and regulation enforce- cipitation, altitude, and so forth) and the type of veg- ment). Moreover, even when government policies etation. Based on a literature review of regional focus on compensating stakeholders for conserving bottom-up models, the IPCC estimates that the eco- forest land, the costs of the corresponding programs nomically feasible potential of forestry activities in the may vary depending on whether the authorities price- LAC Region by 2040 ranges from 500 to 1,750 discriminate between lands with different opportu- MtCO2 per year, assuming a price of US$20/tCO2. In nity costs. Finally, one should also consider the fact particular, land available for A/R activities in LAC is that the activities forgone for the purpose of forest estimated at 3.4 million square kilometers, most of it conservation may have not only private but also pub- in Brazil. Other countries--especially Uruguay and lic benefits (taxes paid by logging companies to the some Caribbean countries--also offer a significant government, loss of income as a result of unemploy- potential, at least in terms of the share of their corre- ment, and so forth). sponding territory.61 It is clear that further research is needed to improve Empirical assessments of mitigation potential our estimates both of the opportunity costs of avoid- through REDD have focused on calculating the ing deforestation and of the costs of implementing opportunity cost of avoided deforestation or, in other REDD policies. To assist countries in understanding words, on the forgone income associated with conserv- how land-use change affects GHG emissions, and to ing forests as opposed to implementing other eco- tailor respective policy responses, a background paper nomic activities in the corresponding land. To that for this report was commissioned. This is the first end three different approaches have been used: analysis for LAC that provides spatially explicit, local/regional empirical studies, global empirical quantitative estimates of historical GHG emissions studies (for example, those reported in the Stern resulting from deforestation activities (Harris et al. Review), and global simulation models.62 The results 2008). Results from this analysis provide information of a review of 23 different local models suggest a cost about the estimated magnitude of potential emissions of avoided emissions from deforestation ranging from in total for the Region, as well as identify specific zero to US$14/tCO2, with a mean value of countries and approximate locations within each US$2.51/tCO2. country where efforts to prevent deforestation might In comparison, the Stern Review estimated that result in the largest avoided emissions in the future. deforestation could be reduced by 46 percent (in area This high-resolution tool can effectively identify terms) for a cost U$1.74­5.22 per tCO2 with a mid- deforestation drivers and improve the targeting of point that is 38 percent higher than the mean value of policies and enforcement efforts by the institutions the estimates of local studies. Global models result in responsible for resource management and planning. the highest cost per ton of avoided emissions, with Notwithstanding the large variation in existing values in a range of U$6­18/tCO2 for reducing defor- estimates, the available evidence suggests that the estation by 46 percent also. The large differences very large mitigation potential existing in this sector across models are driven by the selection of baselines could be tapped at a relatively low cost and with sig- (rate of deforestation based on past or expected defor- nificant synergies with other sustainable development estation rates), the assumptions about the carbon con- objectives. In this regard, and considering that under 29 L O W C A R B O N , H I G H G R O W T H : L AT 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 AT E C H A N G E a business-as-usual scenario future deforestation rates lion vehicles in 2030.65 Motorization rates are rising are estimated to remain high in South America and in the region in tandem with increasing incomes and other tropical areas, it appears that mitigation activities improved availability of low-cost vehicles (box 1). in this sector should be a top priority for the Region With the current growth in vehicle ownership and (assuming there is adequate future international use, especially in urban areas, there is a pressing need demand for this type of GHG mitigation efforts). to address issues related to emissions from private vehicles. In addition, traffic congestion in urban areas Transport and a large share of highly polluting and inefficient The LAC Region's transport sector is fast growing in vehicles on the road have meant that transport is also terms of GHG emissions because of the rapid eco- the leading cause of air pollution in Latin American nomic growth and the associated rise in car ownership cities. The rapidly rising emissions and large benefits and use, a modal shift away from public transporta- from local environmental improvements mean that tion to private vehicles, and the rising length and the transportation sector in the LAC Region offers number of trips per vehicle as cities sprawl. With an significant potential for mitigation--especially when average of around 90 vehicles per 1,000 people, the institutional barriers can be overcome--while at the motorization rate in the LAC Region exceeds those of same time delivering important auxiliary benefits. Africa, Asia, and the Middle East, even though it is Many no-regrets mitigation measures are available still less than half of that in Eastern Europe and a frac- in the transport sector that can be implemented either tion of the OECD countries' rate of nearly 500 vehi- with large savings or at a relatively low cost but with cles per 1,000 people.64 In Mexico--the second significant cobenefits. Time savings, improved fuel largest country in the region after Brazil in terms of efficiency, and health benefits from better transporta- the absolute level of transport sector emissions--car tion systems can offset a substantial fraction of miti- ownership is expected to increase at an annual rate of gation costs.68 For example, studies have calculated 5 percent from a fleet of 24 million in 2008 to 70 mil- that for Asian and Latin American countries, tens of BOX 1 Demand for Private Vehicles Is Rapidly Rising in Latin America A growing middle class has helped spur the demand for oping sturdy and inexpensive vehicles, specifically and private vehicles. A study in 2005 of low-income families successfully advertised to the middle- and lower-middle- in four former "favelas" (shanty towns) in São Paulo income classes. For example, in São Paulo the fleet is grow- found that 29 percent of families owned a car.66 Over the ing at a rate of 7.5 percent per year, with almost 1,000 new years, efficiency improvements and competition have led cars bought in the city every day. This has accelerated the to a slow decline in vehicle prices, with vehicles becom- motorization rate in already congested cities and caused a ing more accessible to larger groups of people. There is rapid deterioration of the existing transport systems and increased competition from inexpensive vehicles from infrastructure. The result has been deteriorating air qual- Asia, and the second-hand vehicle market is also grow- ity, numerous traffic deaths and injuries, millions of hours ing. Vehicle sales in Latin America are breaking records of lost productivity, and increased fuel consumption and and are expected to continue to post solid gains, buoyed consequently rising GHG emissions. According to Time by economic growth. Brazil and Mexico are the largest Magazine, São Paulo has the world's worst traffic jams.67 In auto markets in Latin America, but Peru is the region's 2008, the accumulated congestion reached an average of fastest-growing market. During the first three quarters of more than 190 km during rush hours, and on May 9, 2006, vehicle sales in Peru soared by 41 percent. The lat- 2008, the all-time record was set at 266 km, which meant est trends worldwide have vehicle manufacturers devel- that 30 percent of the monitored roads were congested. 30 A N O V E RV I E W thousands of premature deaths from air pollution international standards--exist along South America's could be avoided annually from moderate CO2 mitiga- Pacific coast, in northeast Brazil, and in large parts of tion strategies in the transport sector.69 In Mexico, Mexico, Central America, and the Caribbean. Geother- many no-regrets measures in the sector are expected to mal resources are also significant, as many countries in have significant cobenefits (box 2). Despite the low or the region are located in volcanic areas. The potential negative economic costs of these options after account- of biomass is also well proven, with biofuels already ing for their complementary benefits, most of these accounting for about 6 percent of the energy consumed "low-hanging fruits" have not yet been "harvested." in the region's transport sector, dominated by ethanol Indeed, institutional and regulatory obstacles impede production and consumption in Brazil. The region's the implementation of some options, and others require largest potential in the area of renewable energy, how- that costly monitoring systems are put in place. ever, lies in hydroelectricity. The region's total poten- The region's main challenge in terms of reducing tial in this area was estimated to be about 687 GW, GHG emissions from the transport sector is to decou- spread among Mexico and South and Central America. ple growth in emissions from rising incomes, despite Some wind projects are competitive with liquified the higher rates of vehicle ownership that accompany natural gas (LNG), diesel, and high-cost hydroelectric income growth. In dealing with the transportation of projects, both in a scenario that assumes oil prices at people, the top policy priority in the region is to slow US$60/bbl and in one in which prices reach down the rapidly rising rate of emissions from light US$100/bbl.71 Moreover, in Brazil, Chile, Colombia, vehicles by providing incentives for more efficient cars Ecuador, and Peru, medium- and large low-cost and for reduced car use. This can only be attained with hydroelectric projects--with levelized generation integrated transport strategies that span across differ- costs (including investment, operation and mainte- ent transportation modes and are supported by efforts nance costs) below US$37/MWh--are competitive to reduce urban sprawl through better urban plan- with all thermoelectric alternatives in the two above ning. In the transportation of goods, optimization of mentioned scenarios for oil prices.72 The only excep- freight traffic through better logistics and improve- tions would be gas-fired plants in the cases of Peru-- ments in fuel efficiency of heavy-duty vehicles are the given the low domestic price of natural gas at top priority. US$2.1/MBTU--and Colombia for a scenario of low international oil and gas prices. This evidence is con- Renewable energy sistent with the findings of recent studies that iden- Renewable energy, including large-scale hydropower, tify a significant potential for reducing GHG has the potential to reduce significantly the use of coal, emissions at negative costs through the implementa- petroleum products, and natural gas in power genera- tion of hydropower projects in Chile and Brazil-- tion. Hydropower has traditionally supplied the major- respectively, by about 5 MtCO2e and 18 MtCO2e per ity of electricity in countries such as Brazil, Colombia, year. An even larger potential has been identified in and Peru, but the share of hydropower has been falling the case of Peru--about 59 MtCO2e per year-- in recent years as gas-powered and thermal generation although in this case mitigation costs would be low has provided a significant share of new generation. but not negative--US$7.0 per tCO2e.73 LAC has considerable potential for renewable Similarly, in Central America hydropower projects energy generation. Wind conditions are excellent in with investment costs in the range of US$2,000/kW many LAC countries--for example, with a wind and average levelized costs of about US$59/MWh power class equal to or higher than 4. The best wind would also compete with LNG-fired, combined cycle resources are located in Mexico, Central America and gas turbine (CCGT) plants and diesel engines for both the Caribbean, northern Colombia, and Patagonia oil price scenarios. While in these countries hydro- (both Argentina and Chile).70 High solar radiation electric plants would not be able to compete with levels of more than 5 kWh/m2--which is high by coal-fired generation plants, carbon prices as low as 31 L O W C A R B O N , H I G H G R O W T H : L AT 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 AT E C H A N G E BOX 2 Cost-Benefit Analysis of Mitigation Measures in Mexico's Transport Sector An analysis of transport mitigation options in Mexico by reducing congestion, and the local health benefits demonstrates that there are numerous cobenefits of trans- resulting from decreased local air pollution emissions port options, including financial, time savings, and local (accruing to both commuters and to local inhabitants). environmental improvement. While there is considerable This leads to negative costs for reducing GHG emissions uncertainty regarding the exact numbers, among the for many of the interventions evaluated. (The environ- options that may provide the largest GHG reductions in mental health benefits are not included in the costs in Mexico are vehicle inspection and maintenance programs the figure.) As is typical of such studies, other important (including import restrictions on high-emitting vehi- costs that are difficult to estimate are not quantified, cles), optimized transport planning (including public such as the costs of implementing monitoring systems, transport and freight), vehicle efficiency standards, and overcoming information failures, or policy or regulatory urban density policies (box figure). The economic bene- changes. However, given that most of these interven- fits resulting from these interventions include the finan- tions have already been implemented on some scale in cial benefits compared to alternative means of Mexico, these costs are viewed by transport experts to be transportation, time savings to individuals, for instance "surmountable." Mitigation potential and benefits in Mexico's transportation sector--including the gains from efficiency and time savings but excluding environmental benefits and regulatory and monitoring costs 250 Emission reduction MtCO2E 227 210 Social cost per ton (US$) 200 185 150 135 131 117 104 100 85 57 48 50 19 0 BRT Public NMT Freight Urban Area Vehicular Train Efficiency Vehicular Bus Transport Enterprises Densification Import (Freight) Standard Restriction Hybridization Optimization Restriction ­20 ­12 ­50 ­62 ­69 ­68 ­83 ­100 ­92 ­126 ­150 ­140 ­200 Source: MEDEC 2008. Note: BRT is bus rapid transport. NMT is nonmotorized transport. 32 A N O V E RV I E W US$9/tCO2 could equalize the costs of both types of aging environmental and social issues. Climate change alternatives, thus allowing a switch to the cleaner one impacts are creating another risk for hydroelectric at no additional cost. Much higher carbon prices plants, through accelerated glacier melt and variations would be needed, however, to make gas-fired plants in rainfall that need to be taken into account in plan- competitive with their "dirtier" coal-fired counter- ning and operating hydropower plants. parts--investors would have to assume carbon prices The effect of these challenges is illustrated by the above US$25/tCO2 to prefer the former over the lat- case of Brazil, a country that has been very successful ter. This suggests that if the opportunities for in developing low-cost hydroelectric generation, but hydropower development and other renewables are has experienced delays in the development of new not explored, several countries in the region--that is, hydropower projects. Brazil has been using public those without access to low-cost natural gas--are auctions since 2004 to award long-term energy supply likely to increase the carbon intensity of their fossil- contracts. However, the participation of hydroelectric- fuel-based power generation capacity, thus leading to ity in the auction process was constrained by delays in higher rates of GHG emissions. obtaining environmental licenses, and only about 50 Current expansion plans call for exploitation of percent of the hydropower projects that intended to only a small fraction of the region's hydropower participate in the first auction in late 2005 received an potential--about 28 percent by 2015 (table 4), possi- environmental license and were able to submit a pro- bly rising to 36 percent by 2030, according to IEA posal (World Bank 2008a). Consequently, the govern- projections. This is due in part to policy barriers exist- ment decided to require that projects obtain at least ing in some countries: cheap fuel prices, cumbersome preliminary environmental licenses before participat- licensing processes, and unclear procedures for man- ing in auctions. Thus, the award of contracts for TABLE 4 Largest Hydroelectric Potential in LCR (MW, % developed) Potential planned installed capacity by 2015 Country Potential MWa Installed 2004 MW % Brazil 260,000 67,792 101,174 39 Colombia 93,085 8,893 9,725 10 Peru 61,832 3,032 3,628 6 Mexico 53,000 9,650 12,784 24 Venezuela, R. B. de 46,000 12,491 17,292 38 Argentina 44,500 9,783 11,319 25 Chile 25,165 4,278 5,605 22 Ecuador 23,467 1,734 3,535 15 Paraguay 12,516 7,410 9,465 76 Guyana 7,600 5 100 1 Costa Rica 6,411 1,296 1,422 22 Guatemala 5,000 627 1,400 28 Honduras 5,000 466 1,099 22 Panama 3,282 833 1,300 40 Total 646,858 128,290 179,846 28 Sources: a. Potential: OLADE estimates. SIEE Energy Statistics, 2006. Installed capacity by 2015 based on 2006 national expansion plans. EIA: Installed capacity 2004. 33 L O W C A R B O N , H I G H G R O W T H : L AT 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 AT E C H A N G E hydroelectricity in new generation capacity to be certain countries in comparison to fossil fuels, if oil commissioned in 2008-10 has been lower than envis- prices fall in the future the opportunity cost may drop aged in the indicative generation expansion plans, and to levels that do not cover its costs. To address these as a result the share of fossil fuel plants has increased. hurdles, some countries have implemented quota- The government plans to facilitate investment in based incentive programs and long-term contracts hydropower by conducting preinvestment studies and with stable prices aimed at promoting the develop- making them available to potential investors. ment of renewables. These and other policy measures While motivated by legitimate concerns over envi- to explore the Region's large potential in renewable ronmental and social impacts, the environmental energy are explored in more detail in section 5. licensing process usually is lengthy, risky, and expen- Renewable energy development offers substantial sive. This can mean delays in the preparation and exe- cobenefits. For example, decentralized electrification cution of the projects, and higher project risks and with renewable energy can provide large social and costs. The effect of such delays is hard to quantify, but economic benefits to underserved populations that are one estimate is that a delay of one year in the commis- usually dependent on traditional energy sources, such sioning of a hydropower project in Central America as biomass, kerosene, diesel generators, and car batter- will increase the switching costs74 from coal to ies. Compared to costly grid extensions, off-grid hydropower by about 6.5 US$/tCO2. Another recent renewable electricity typically is the most cost-effec- study75 estimated that in Brazil the cost of dealing tive way of providing power to isolated rural popula- with environmental and social issues in hydropower tions. In Latin America, an estimated 50-65 million development represents about 12 percent of total pro- people still live without electricity. In Bolivia, ject cost. Options for addressing some of these obsta- Nicaragua, and Honduras, rural electrification rates cles without compromising the environmental and are below 30 percent.76 social objectives of the licensing process are explored Other potential cobenefits associated with increas- in section 5. ing the share of renewable energy include the possibil- Notwithstanding the above-mentioned risks, there ity of avoiding high-carbon technology lock-in, as has been a renewed interest in the development of discussed above, and providing some insulation from hydropower projects by both the public and, impor- the high volatility of oil prices. With regard to this tantly, also by the private sector. Examples of the last point, LAC has a number of energy-importing renewed activity include a substantial number of countries that during recent years have been nega- plants being built in Brazil, a recent auction in tively impacted by increasing energy prices or Colombia where the majority of winning projects decreasing fuel supplies.77 The exposure to volatile oil were for hydropower, a plan to hold new auctions in prices is prompting countries everywhere to take mea- Peru aimed at encouraging hydropower development, sures to diversify their energy matrixes and to reduce and the existence of small and medium-size entrepre- the need for energy imports through increasing neurs building hydropower plants in Honduras. Still, renewable energy generation and improving energy it must be recognized that the development of more efficiency. than 100,000 MW of medium and large hydroelectric As for the risk of locking in technologies that could projects in South America and some Central American eventually become obsolete--given possible regula- countries, included in the generation expansion plans tory changes that would penalize emissions--it is by 2030, presents a considerable challenge. worth noting that investments in long-lived capital As they do with other long-term investments-- assets in energy generation can last several decades. such as in hydropower--private developers of wind The Region is projecting a 4.8 percent annual rate of projects typically require long-term contracts with growth in electricity demand over the next 10 years, stable energy prices sufficient to recover their fixed corresponding to a net increase of 100,000 MW in costs. While wind power may be competitive today in generation capacity, of which 60,000 MW are not 34 A N O V E RV I E W under construction and have not been contracted.78 biodiesel. While the mitigation of climate change has The carbon intensity of this new generation capacity been mentioned as one of the motivations for such will be decided over the next few years as investment support programs, there are other important objec- decisions are made. Policies and incentives that steer tives driving these programs. These include possible investment toward a low-carbon path will help the contributions to "energy security" and the possibility Region avoid installing technologies that in an increas- of rural employment generation and boosting farm ingly carbon-constrained world will soon become obso- incomes. Based on these supposed cobenefits, many lete, and make the Region lose competitiveness. governments in LAC and elsewhere are considering or While the recent drop in oil prices makes renew- beginning programs to encourage use and production able energy appear less competitive, a factor to be con- of biofuels. sidered as part of the equation in evaluating renewable With few exceptions, development of biofuels energy as an option for power generation is the volatil- poses several social and environmental risks. These ity of oil prices, which increases the risks associated include upward pressure on food prices, intensified with thermal power generation costs (see box 3). competition for land and water, damage to ecosystems, and indirect impacts on emissions from land-use Biofuels change--for example, when converting forests to Liquid biofuels are one of a few existing alternatives to agricultural production. These latter impacts are crit- fossil fuels for transport. With oil prices reaching ical from the point of view of mitigation policies, as record highs during recent years, Brazil, the European they could potentially eliminate biofuels' positive Union, and the United States, among others, have contributions. In summary, it has become increasingly actively supported the production of biofuels, based clear that the costs and benefits of biofuels need to be on various agricultural feedstocks--usually maize or carefully assessed before extending public support and sugarcane for ethanol and various oil crops for subsidies to biofuels industries. BOX 3 Incorporating Fuel Price Volatility in Power Planning and Investment Generation of electricity with renewable energy, for level of fuel prices, they do not address the issue of risk example, using hydropower or wind, is characterized by caused by price volatility. New techniques are being local availability of the resource, high capital costs, and developed to take into account the value of a higher but low and stable operating costs. These characteristics are stable cost option in comparison to a lower but more different from those of thermal power plants, which are volatile cost option. characterized by lower capital costs and higher operating These techniques enable analysts to make specific costs, mainly for fuel. While future oil prices have always tradeoffs between the return/cost of a generation option been uncertain, today's levels of price volatility are and its relative riskiness. This tradeoff between risk and unprecedented, as demonstrated by the fall in prices in return can also highlight the role of "free-fuel" renew- 2008 from US$150 per barrel to US$50 per barrel. This ables in the overall power generation mix. By combining volatility increases the risk associated with the cost of the power of traditional generation expansion models electricity from a thermal power plant. Power system with portfolio analysis techniques, it is possible to assess planners have traditionally tried to accommodate fuel the relative risks and returns of a wide array of potential price volatility by using different price levels of oil, gas generation portfolios and to quantify the differences and coal in their planning exercises. While these meth- among them. Use of these methods permits the system ods provide point estimates of the riskiness of a particular planner or investment analyst to look at investment risks project or the sensitivity of a generation portfolio to the more systematically than has been the case in the past. 35 L O W C A R B O N , H I G H G R O W T H : L AT 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 AT E C H A N G E Brazil--the largest player in the global biofuels prices--also varies by the type of biofuel. In contrast markets with about half of the global ethanol produc- to large-scale diversion of corn for ethanol production tion--has developed the capacity to produce ethanol in the United States, Brazil's ethanol production from at a fraction of the cost of producing it in other coun- sugarcane does not appear to have contributed appre- tries. Because of favorable conditions for cultivation of ciably to the recent increase in food commodity sugarcane and the uniquely flexible industrial struc- prices.82 ture for sugarcane and ethanol processing, in periods Impacts on emissions from land-use change can of high oil prices Brazil's ethanol industry has been arise directly, when feedstocks are grown in areas that competitive even without government support. were previously not used for agriculture, or indirectly Brazil, in fact, may be the only country in which the when, for example, feedstock production displaces ethanol industry has been able to stand on its own crop areas and pastures, which in turn expand into for- without government subsidy, and even in Brazil, this est areas. The problem, however, is that when incen- appears to have been the case only in 2004­05 (but tives are put in place to produce ethanol, it is not 2006 when international sugar prices skyrock- impossible to assure that only low-productivity land eted) and 2007­08. (The Brazilian industry was also will be converted, unless countries have in place ade- subsidized for many years to get to this point.79) Else- quate policies, institutions and transparent monitor- where, biofuels production has not been financially ing systems to safeguard other types of land from viable without government support and protection. conversion. Even then, it is possible that the result Biofuels producers in the European Union and the may be land conversion in another country (see box 4). United States receive additional support--over and LAC has the advantage of having large amounts of above farm subsidies and support to producers land devoted to low-productivity agriculture and pas- through biofuels mandates and tax credits--through tures. To the extent that there is potential for increas- high import tariffs. ing productivity in these areas, biofuels production In evaluating the mitigation potential of biofuels, could in principle increase without causing large it is necessary to take into account the emissions com- increases in land use change emissions and while min- ing directly from producing and burning them, rela- imizing competition with food production. Whether tive to gasoline, and also emissions from land-use this happens in practice would depend on how effec- changes that come about from growing feedstocks. tively land use change can be controlled. For countries There are divergent assessments of the overall impact considering whether and how to promote biofuels of biofuels on GHG emissions depending on which production, it is worth considering carefully whether feedstocks are used to produce them and how those the appropriate institutions and legal systems are in crops are grown. Without considering changes in land place to control land use change, and also whether the use, Brazilian ethanol from sugarcane may reduce benefits outweigh the necessary fiscal and other costs. GHG emissions by about 70­90 percent with respect Efforts are underway to develop sustainability cer- to gasoline. For biodiesel, the emission reductions are tification schemes for biofuels, which in the long term estimated up to 50­60 percent with respect to gaso- could help reduce the environmental and social risks. line. In contrast, the reduction of GHGs for ethanol The many obstacles to effective implementation of from maize in the United States falls only in the range such schemes range from the need to ensure broad of 10 to 30 percent--also before taking into account participation of all major producers to the difficulty, if the indirect GHG emissions from land-use change.80 not the impossibility, of accounting for indirect land- By some estimates, the cost of reducing one ton of car- use change. For countries without the potential to bon dioxide (CO2) emissions through the production produce low-cost first-generation biofuels, "second- and use of maize-based ethanol could be as high as generation" cellulosic technologies for producing US$500 a ton.81 The extent of the social risks-- ethanol from waste materials hold the promise of mainly the pressure that some biofuels put on food delivering GHG reduction benefits with lower social 36 A N O V E RV I E W and environmental risks, but are still many years away Agriculture from commercialization. In the meantime, it is clear The LAC Region has great mitigation potential in the that from the perspectives of emissions, social costs, agricultural sector, associated with the deployment of and economic production costs, ethanol from sugar in improved agronomic and livestock management prac- Brazil is superior to alternatives. Reducing or elimi- tices, as well as with measures to enhance carbon stor- nating the high trade barriers and huge subsidies cur- age in soils or vegetative cover. Some of these rently in place in many countries would produce measures have significant cobenefits. Only about a economic benefits for Brazil and its trade partners, third of this mitigation potential, however, could be and reduce GHG emissions. economically exploited unless carbon were priced at BOX 4 In Evaluating Biofuels' Impact on Overall Emissions, Land-Use Change Is Critical The substitution of biofuels for petroleum-based fuels from land being switched from yet other crops and/or reduces emissions from vehicles to the degree that the nonagricultural land being converted. To the extent land former offset the GHGs released as they burn by seques- is converted, it has the effect described above of releasing tering carbon in their feedstocks. After appropriately GHGs. accounting for this and other "life-cycle" effects (emis- The original increase in maize production thus starts a sions involved in growing and processing feedstocks), chain reaction of land-use changes in the agricultural emissions directly attributable to producing and burning markets. Because global markets are well integrated, the ethanol from Brazilian sugarcane are estimated to reduce original changes in the price of maize are transmitted GHG emissions by 70 to 90 percent compared to gaso- globally, and so these indirect land-use changes may line. In contrast, the reduction of GHGs for ethanol from occur anywhere, not only in the country in which the maize in the United States is only in the range of 10 to biofuel feedstock takes place. An overall assessment of the 30 percent.83 impact of biofuels on GHG mitigation also needs to take But the story does not end there. Land used to produce into account the emissions resulting from both direct and feedstock for biofuels--let's say maize--must be taken indirect land-use change. either from production of other crops or from some other This type of indirect land-use change is particularly current use. If the land for maize is converted from most difficult to measure and because of that complexity it is other uses (forests, grasslands, pastures), GHGs are often overlooked in sustainability assessments of biofuels. released as the soil is disturbed and as the vegetation But the implications are enormous. For example, as noted removed from the land (which is sequestering carbon) is above, life-cycle analysis indicates an annual saving of burned or decays. In evaluating the overall impacts of around 20 percent in CO2 emissions relative to oil when biofuels, this one-time release of GHGs is analogous to ethanol is produced from maize in the United States. an up-front investment, which then must be "paid back" However, a recent study estimates that land conversion in over time by the ongoing flow of emission reductions the United States and elsewhere to produce more maize coming from the substitution of biofuels for gasoline. may actually result in a doubling of the GHG emissions If the land to grow more maize is taken from other over 30 years and increase GHGs for 167 years.84 This crops, this in turn reduces the supply and raises the prices study projected increases in cropland for all major tem- of those products. The higher price reduces consumption perate and sugar crops and livestock using a worldwide to some extent and also gives other producers an incen- model as a result of an expected increase in U.S. corn- tive to grow more. This increment in supply can come ethanol production by 56 billion liters by 2016. (Box continues on next page) 37 L O W C A R B O N , H I G H G R O W T H : L AT 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 AT E C H A N G E BOX 4 (continued) In that model, the resulting diversion of 12.8 million ment in this study concurs with the conclusion from hectares of U.S. cropland would bring 10.8 million other studies that biofuels from waste have the most hectares of additional land into cultivation, of which 2.8 favorable carbon balance and questions the feasibility of million are in Brazil, 2.3 million in China and India, and reducing emissions through cultivation of dedicated 2.2 million in the United States,85 with the impact on feedstocks even on marginal land.86 The findings regard- GHG emissions depending on the type of land that is ing environmental costs of land-use change are corrobo- converted. Excluding indirect land-use change, Brazilian rated by studies that assess the carbon payback time for sugarcane is assumed to reduce emissions by 86 percent conversion of specific kinds of land, which indicate that (with the carbon payback period of only four years) if ethanol from Brazilian sugarcane is clearly the most effi- sugarcane only converts tropical grazing land. An assess- cient in this regard87,88 (see box figure). Years needed to repay Biofuel Carbon Debt from Land Conversion (*) (Ethanol from Corn or Sugarcane, Biodiesel from Soybean or Palm Oil) Brazil Sugarcane Ethanol in Wooded Cerrado 17 (*) Years needed for lower biofuels emissions (compared to fossil fuels) to compensate for Brazil Soybean Biodiesel in Cerrado Grassland 37 the CO2 released from ecosystem biomass and soils in order to convert land for biofuels production. US Corn Ethanol in Abandoned Cropland 48 Indonesia/Malaysia Palm Biodiesel in Tropical Rainforest 86 US Corn Ethanol in Central Grassland 93 Brazil Soybean Biodiesel in Tropical Rainforest 319 Indonesia/Malaysia Palm Biodiesel in Peatland Rainforest 423 Since the investment and the payback occur at differ- ethanol yield per hectare from sugar in Brazil is about ent time periods, some argue that the payback flows need twice that of ethanol from corn in the United States.91 to be discounted, which might somewhat reduce the car- This fact has led to the estimate that if the ethanol cur- bon payback periods, but the choice of an appropriate rently produced in the United States were instead pro- discount rate for carbon is surrounded by political con- duced in Brazil,92 it would require only 6.4 million troversy and few studies have addressed this issue.89 One hectares, instead of 12.8 million, potentially leading to recent study used a wide range of discount rates in an reduction in pressure for indirect land-use change and evaluation of this payback period with different kinds of substantial savings in emissions from this source. But the land converted for ethanol in the United States and potential for Brazilian sugar-based ethanol to replace Brazil. It indicated a favorable cost-benefit analysis for less efficient production from other sources is limited some types of low-productive land in Brazil, using any of by the current high barriers to import of ethanol into the discount rates considered.90 the United States and other high-income countries. In assessing the impacts on overall emissions in pro- Reduction of these trade barriers to imports of Brazilian ducing biofuels in different countries, one relevant ques- ethanol could lead to substantial savings in world cost tion is how much land must be shifted from other crops of production of ethanol and a lower level of land-use or converted to produce each gallon of biofuel. The change. 38 A N O V E RV I E W over US$20 per tCO2e.93 Obstacles to implementa- from conventional to zero tillage may negate some of tion that are specific to the agricultural sector include the reductions in GHG emissions.94 the issues of permanence of GHG reductions (particu- In summary, while there are a number of opportu- larly for carbon sinks), slow response of natural sys- nities for contributing to increasing agricultural pro- tems, and high transaction and monitoring costs. duction while reducing GHG emissions, the proposed Emissions from cropland can be reduced by practices need to be evaluated within specific regional improving crop varieties; extending crop rotation; and and local settings, and there is no universally accept- reducing reliance on nitrogen fertilizers by using rota- able list of preferred interventions. Furthermore, com- tion with legume crops or improving the precision petition for land among different uses means that and efficiency of fertilizer applications. In certain cli- many solutions are more cost efficient and more effec- matic and soil conditions, conservation or zero tillage tive at achieving reductions when they are imple- can be effective both at improving crop yields, restor- mented as part of an integrated strategy that spans ing degraded soils and enhancing carbon storage in agricultural subsectors and forestry. Since mitigation soils. Methane emissions from ruminant livestock, solutions are very context-specific in the agricultural such as cattle and sheep, as well as swine, are a major sector, research efforts need to have a strong participa- source of agricultural emissions in the LAC Region. tory dimension so as to ensure that they respond to Measures to reduce emissions from livestock involve a the specific needs of small farmers. change in feeding practices, use of dietary additives, selective breeding, and managing livestock with the Waste objective of increasing productivity and minimizing The overall potential for GHG emission reduction emissions per unit of animal products. Another through sanitary landfills and composting is not very approach in the case of animals confined in a relatively large because of the low contribution of waste to small area, like swine and dairy, is to use biodigestors LAC's overall emissions. However, proper collection to process waste and capture the methane for later use. and disposal of solid waste have very significant envi- This can either be flared (potentially generating car- ronmental, health, and public safety benefits, making bon credits, since emissions from flaring are much less this an important overall priority. potent as GHGs than is methane) or used to generate Inadequate waste collection and the resulting clan- electricity for on-farm or local use. Projects to do this destine dumping of waste in cities increase the risk of are currently underway in Mexico and Uruguay. flooding when waste blocks urban waterways and The potential for cobenefits as well as the effective- drainage channels; burning of waste on city streets or ness and cost of mitigation measures from this palette in open dumps emits carcinogenic dioxins and furans of agricultural practices vary by climatic zone and because of incomplete combustion and other contami- socioeconomic conditions. Conservation or zero nants; garbage dumps are a major source of leachates tillage--an agricultural practice that has been suc- to surface and groundwater and they proliferate the cessfully applied over nearly 45 percent of cropland in spread of vector-borne diseases by insects, rodents, and Brazil--is a case in point. In contrast to conventional birds. Solid waste disposal sites that do not have gas tillage, zero tillage involves no plowing of soils and management systems accompanied by flaring or incorporates the use of rotations with crop cover vari- energy recovery are major sources of methane dis- eties and mulching (application of crop residues). The charges, and leaking methane gas can explode in peo- result is an increase in the storage (sequestration) of ple's houses or in public areas. carbon in soils. Lower fuel requirements for plowing Municipal waste collection rates are generally operations that are no longer needed are another acceptable in LAC, particularly in larger cities in the source of GHG reductions. However, application of region. On average, cities with more than 500,000 nitrogen fertilizers to counteract nitrogen depletion inhabitants collect over 80 percent of their waste. In that often occurs in the first few years after conversion smaller cities, however, technical and financial diffi- 39 L O W C A R B O N , H I G H G R O W T H : L AT 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 AT E C H A N G E culties result in a lower collection rate of around 69 enhance the positive. In this context, a major chal- percent. Overall, 62 percent of the waste generated in lenge for governments and the international commu- LAC is burned or ends up in unknown disposal sites.95 nity will be to provide the policies, institutional The good news is that solid waste management is infrastructure, and public goods that will facilitate high on the political agenda of local governments and and support the autonomous process of adaptation of many mitigation measures that also have large local human and natural systems. One-size-fits-all strate- cobenefits can be implemented at modest incremental gies, however, will not work well in dealing with cli- costs. In fact, many examples of successful implemen- mate change, as the way in which individuals adapt tation of waste management strategies can be found in will be highly idiosyncratic. Moreover, to the extent Mexico, Brazil, and Colombia, among other LAC that most individual adaptive actions will have little countries. Emulating these examples of good practices effect on others--that is, they will involve small or no could have an important positive impact. externalities--most government policies to support human adaptation will probably have to be "facilita- 5. Policies for a High-Growth, Low-Carbon Future tive" in nature (Tol 2005). In other words, govern- Keeping the countries of LAC on a trajectory of high ments may need to focus on nonprescriptive measures growth and poverty reduction, while at the same time that establish a framework for individuals to adjust, maximizing their contribution to reducing global and empower them to do so, but do not direct them emissions, will require a coherent set of policies on how to change behavior, nor subsidize private invest- three levels. First, given that climate change is ments. The main objective should be to expand inevitable--indeed it is already happening--the options and enhance households' economic resilience countries of the Region will have to adapt their own and mobility--their ability to make well-informed growth and poverty reduction strategies so as to min- decisions and welfare-enhancing economic transitions imize the adverse impacts on their populations and in the face of longer-term changes in the external ecosystems. Second, in order for global mitigation environment. efforts to be effective, efficient, and consistent with Not all adaptation policies, however, will be facili- equity considerations, there must be an appropriate tative. There will of course be areas in which govern- international policy environment in place, including mental interventions and investments are necessary to (a) full participation by the high-income countries in deal with climate change, just as they now deal with an agreement on climate change and (b) a LAC- natural disasters--both to help prevent damage and friendly global climate change policy architecture. to aid in recovery. Active interventions by govern- LAC countries can actively take a leading role in the ments and international institutions will be necessary negotiation of this agreement and the implementing to provide some critical public goods, including architecture. And third, in order for the LAC coun- improvements in natural resource management sys- tries to exploit the various efficient mitigation oppor- tems, infrastructure investments to provide direct tunities described in the previous section, a series of protections against climate-related threats, and addi- new domestic policies will be required. tional investments in the development and deploy- ment of technologies that will be critical for producers Adapting efficiently to a changing climate in LAC to adapt to climatic changes. Beyond the provision of these public goods, facilitative policy responses will Introduction be important in the areas of weather monitoring and Just as they have adapted to past climatic shifts, forecasting, social protection, climate-related risk humans and ecosystems will, to some extent, sponta- management, and improvement of water and financial neously respond to the forthcoming climatic changes markets. In most of these cases, we argue, adaptive in ways that will reduce the negative effects and responses will be highly congruent with good devel- 40 A N O V E RV I E W opment policies. In other words, mainstreaming cli- is one area in which the mitigation and adaptation mate change considerations in government policies agendas may intersect, in countries where multi-use will often involve measures of a no-regrets nature. dams could help manage flood control while also gen- erating clean electricity. Necessary public policy actions to Public investments will also be needed to preserve adapt to CC that go beyond facilitation ecosystem services in the face of climate change The nature of climate change itself and several inher- impacts. One key short-run component in a strategy ent features of adaptive responses will be relevant in to help ecosystems adapt to climate change over the shaping optimal government policy. As we have seen, next few decades will involve reducing other stresses climate change is both long term and in important on those systems and optimizing their resilience. In respects uncertain in its effects on weather in specific the next decades, as conditions change and more locations. Undertaking major investments or policy information becomes available, other potential strate- responses in anticipation of specific future climatic gies can be identified. Biological reserves and ecologi- impacts runs a high risk of wasting resources or even cal corridors can serve as adaptation measures to help increasing adverse impacts if the changes do not mate- increase resilience of ecosystems (Magrin et al. 2007). rialize as expected, or if future technological advances Helping coral reefs survive in an environment of ris- allow a more cost-effective response. Weighed against ing sea surface temperatures, for example, may require that is the risk that failure to take timely actions may increased attention in the design of marine protected incur preventable damages, and some investments and areas to identifying and protecting particular reefs policies may take a long time to bear fruit. The need that are especially resilient, either because they are to strike a balance between these considerations located where cool upwelling provides natural protec- argues that policy should be flexible over time, easily tion against thermal events or because they seem to allowing updating as new information becomes avail- have natural resiliency.96 Some ecosystems or individ- able--for example, investments in coastal protection ual species may need to be "transplanted" to more that allow for expansions as new information on the hospitable environments as their current habitats risk of sea level rise becomes available. There is value become too hot, or at least corridors preserved so they in waiting for more information and better technol- are able to migrate. Recent projects to preserve the ogy, so nonurgent decisions may be deferred, and coral reefs in the Caribbean and protect the integrity investments should be designed in modular ways of the Meso-American Biological Corridor are exam- when feasible. This said, some of the main areas in ples of this kind of effort, which can be scaled up in which public policies will be critical to make adapta- the future. tion to climate change both effective and efficient Investment decisions in activities to support include the following. ecosystem adaptation must be based on sound science, Strengthening natural resource management, focusing underscoring the need to build capacity in the Region especially on managing changing water flows and improving and the need for transfer of resources for this purpose. resilience of ecosystems. In addition to providing a sup- The foundation of more reliable vulnerability and portive environment for development of water mar- impact assessments is the availability and use of sound kets, governments may need to invest directly in science. Resources for strengthening the capacity of public goods to improve drainage in areas with the local scientific community and relevant govern- increased rainfall or in new dams to regulate the flow mental institutions in LAC, and transfer/sharing of of water in areas where glaciers have melted and no knowledge from the developed world are necessary for longer perform this function. On the other hand, the development of an adaptation agenda. This is the some dams may need to be decommissioned as they focus of a number of ongoing projects in the region may no longer be needed if flows fall sufficiently. This (box 5). 41 L O W C A R B O N , H I G H G R O W T H : L AT 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 AT E C H A N G E BOX 5 Climate Change Projects in LAC Current projects in a number of countries focus on build- results of this effort have served as input in the ing capacity and generating knowledge to assess vulnera- preparation of national adaptation strategies. bilities and risks associated with climate change, · Application of data from the Earth Simulator of the particularly those related to ecosystems. Some examples of Meteorological Research Institute of Japan (MRI) for these activities, which are being carried out in partnership the design of basin vulnerability maps in the tropical with local academic and research institutions, include: Andes (Bolivia, Ecuador, and Peru). This effort is · Expansion of the coral reef monitoring network being complemented with the installation of a through the installation of a coral reef early warn- monitoring network of eight high mountain mete- ing station (CREWS) in Jamaica and the update of orological stations to measure the gradual process sea level monitoring stations in 11 countries in the of glacier retreat, and development of a climate Caribbean. monitoring system to analyze the carbon and water · Generation of climate projection scenarios in the cycle in "paramo" ecosystems in the Tropical Andes. Caribbean focused on adapting existing global cli- · Development of a methodology for the assessment mate change models to develop appropriate statis- of impacts of anticipated intensified hurricanes on tically and dynamically downscaled regional coastal wetlands and quantification of these climate change models relevant for the region. The impacts in Mexico. Strengthening direct protection against climate-related ing system based on the incorporation of system tools threats in cases for which collective action is needed. Some in public health surveillance to detect increases in the investments have characteristics of public goods in transmission of malaria and dengue, and aid in devel- that the benefits are shared by all and individual pay- opment of preventive strategies. ments would be infeasible to organize. These would Where the effects of ongoing climate change are include investments to "climate-proof" public infra- already being felt (for example, glacier melt in the structure, control floods, better regulate more erratic Andes), infrastructure investments may be needed in water flows, and protect coastal populations in the the near future. A first step is now being taken with a face of rising sea levels. Many of these will need to be project to help assess the impact of climate change on carried out at local levels of government. For example, the hydrology of specific basins in Peru and the threat more intense rainfall will threaten to overwhelm that this presents to water availability for drinking, sewer systems in cities where storm sewers are not agriculture, and generation of hydropower. For separated from sanitary sewers, requiring that these longer-term planning, the possibility of future cli- systems be rebuilt to avoid threats to public health. mate change needs to be taken into account in a num- Measures will be necessary to combat public health ber of ways. Increased intensity of hurricanes--and threats from vector-borne diseases as well. In connec- possible increased frequency--implies that risks need tion with the latter, surveillance and monitoring will to be re-evaluated, which will in turn mean that more be especially important in those countries where it is climate-resistant engineering designs will pass the expected that climate change will allow the expansion cost-benefit test. This is already being recognized in of disease vectors into new areas where the population projects to help Caribbean countries recover from lacks immunity. One project now underway, for exam- recent hurricanes, as infrastructure is being rebuilt to ple, focuses on strengthening of the public health sur- higher specifications. veillance and control system in several Colombian But of course this does not necessarily mean that all municipalities based on climate change considera- investments to help harden infrastructure against tions. The pilot program is setting up an early warn- anticipated climate change need to be started imme- 42 A N O V E RV I E W diately. In conditions of uncertainty, when some of the with climate stresses and increases in temperatures up uncertainty will be resolved as time passes, there is to 2°C. Above that temperature, the efficiency of value in waiting, and this should be incorporated in genetic improvements will be limited as it will hinder planning. Tools for cost-benefit analysis that explic- photosynthesis (Assad and Silveira Pinto 2008). And itly take into account this kind of uncertainty--such in any event, technological improvements take time as real options analysis--will be useful in this regard. to materialize and are costly. It takes between 5 and This will mean postponing actions in some cases and 10 years for new varieties to be developed and in others will lead to building in more flexibility by, released, and perhaps even longer for them to be for example, modular design of infrastructure. adapted to specific agro-ecological conditions. Strengthening technological linkages and knowledge flows. Adoption of improved technologies could Facilitative adaptation policies potentially minimize the kinds of adverse impacts on The point is often made that good development policy agricultural productivity that were quantified in sec- is good adaptation policy. Higher incomes and human tion 2. Farmers in temperate regions should be able to capital increase resilience to shocks of all kinds and adapt to warmer temperatures using existing varieties give households the capacity to deal better with that are currently grown in more tropical zones. That change. This point is well illustrated by a kind of nat- is, varieties grown in warmer climates can be trans- ural experiment in Mexico's Yucatan Peninsula, where planted to warming environments, moving from low two hurricanes hit the peninsula 22 years apart. Hur- to high latitudes. This assumes that trade and regula- ricane Janet hit in 1955 as a Category 5 storm and tory regimes are open to such technology transfer. One killed over 600 people. Hurricane Dean landed in issue that governments may need to consider is almost the same spot in 2007 as a slightly stronger whether their regulations governing introduction of storm, but with no loss of life. In the intervening 22 new varieties (GMOs and non-GMOs) should be years, of course, private incomes had increased and revised in light of the increased value of technological government institutions had developed, allowing "spill-ins" from abroad.97 The cost-benefit calculus on everyone to be better prepared.98 which these regulations are based could be profoundly The fact that adaptation policy and development affected by climate change. policy have much in common is good news in that the To the extent that existing varieties can in general tradeoffs in deciding whether to take actions now or satisfy the needs of farmers in areas that are not at the postpone them are not as stark. For many measures extreme ranges of crop tolerances, these conditions that are good economic policy, but may face political may not need to be the major focus of research and opposition or are currently low priority, the specter of development of new varieties. In such cases, research climate change may alter the political calculus in a may need to focus on the productivity limitations for reform-friendly direction. For these, there is no reason crops that are currently being grown in areas close to to delay action. And there are other areas in which their thresholds of temperature tolerance. This, how- urgent action is warranted to deal with ongoing cli- ever, may be a challenging endeavor. Many crops in mate change or to prevent irreversible damages, espe- LAC are grown in very thin temperature and rainfall cially to ecosystems that are currently under ranges and may be susceptible to these threshold climate-related stress. For other measures, however, effects (Baez and Mason 2008). The problem is illus- the high levels of uncertainty associated with predict- trated by the experience of The Brazilian Corporation ing long-term changes in climate create risks that for Research in Agriculture (Embrapa) in developing may outweigh any advantages of quick action. What genetic varieties of crops that are more tolerant to is needed is a kind of triage or prioritization of actions high temperatures and water deficit, as well as to dis- to identify what has to be done in the short term and eases and pests (cassava and banana hybrids). Embrapa what can be postponed. The following are some of the has discovered that biotechnology can help crops deal most important examples of policies that facilitate 43 L O W C A R B O N , H I G H G R O W T H : L AT 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 AT E C H A N G E adaptive responses and are in general good develop- also critical. Consultations in LAC countries have ment policy. shown that even where weather information is in principle available, it is not well disseminated to Strengthening weather monitoring and forecasting tools stakeholders. This will provide better information to reduce uncer- tainty and help people make well-informed choices. Strengthening social protection Some of the types of tools most valuable to reduce Evidence reveals that food and basic nonfood con- uncertainty are an historical climate database, sumption, education, health, and nutrition are partic- weather-monitoring instruments, systems for analyz- ularly vulnerable to shocks. Well-targeted, scalable, ing climate data to determine patterns of intra-annual and countercyclical safety nets can help keep the poor and interseasonal variability and extremes, and data from falling into a "permanent poverty trap" and on system vulnerability and adaptation effectiveness being forced into "low-risk, low-reward" production (for example, resilience, critical thresholds) (FAO strategies or liquidation of productive assets in 2007). For example, recent studies have quantified the response to a weather shock. Several countries in the potential economic value of climate forecasts based on LAC region have been in the forefront of developing predictions of the "El Niño-Southern Oscillation" the conditional cash transfer as a safety net tool, with phenomenon (ENSO99). They have concluded that programs such as Familias en Accion (Colombia), Bolsa increases in net return from better forecasting and Familia (Brazil), Red Solidaria (El Salvador), Oportu- consequent adjustments in agricultural production nidades (Mexico), Red de Proteccion Social (Nicaragua), practices could reach 10 percent in potato and winter Programa de Asignacion Familiar (Honduras), and Aten- cereals in Chile; 6 percent in maize and 5 percent in cion a Crisis Pilot, a pilot program in Nicaragua specif- soybeans in Argentina; and between 20 and 30 per- ically designed to respond to weather shocks. cent in maize in Mexico, when crop management There is considerable evidence that these programs practices are optimized (for example, planting date, can be effective in response to shocks of various kinds. fertilization, irrigation, crop varieties). Adjusting Rural households in the area of influence of the Opor- crop mix could produce potential benefits close to 9 tunidades program in Mexico have constant interac- percent in Argentina. (IPCC 2007, Ch. 13). The pro- tions with natural hazards: based on six rounds of vision of reliable forecasts jointly with agronomic surveys between 1998 and 2000, around 25 percent of research has led to a drop in the damage of crops in them experienced a natural disaster. After such drought times in areas of Peru and Brazil (Charvériat shocks, many families are forced to remove children 2000). Yet in LAC, even the hardware is inadequate from school, risking descent into a multigenerational and in some cases the situation has become worse poverty trap. But the indirect insurance offered by the over time as weather data collection infrastructure program results in one additional child staying in has deteriorated. The density of weather stations has school for every five children protected (de Janvry et been diminishing for most countries in the Region, al. 2006). And in response to the coffee crisis in in part because of fiscal constraints in the mainte- 2000­03, the consumption of participants in the Red nance of equipment and trained personnel. In de Proteccion Social program in Nicaragua fell by only 2 Bolivia, for example, there are currently around 300 percent, compared to over 30 percent for non-partici- working weather stations out of 1,000 stations a few pants (Vakis et al. 2004). Similar results have been years ago. Likewise, Jamaica is currently operating found for the Programa de Asignacion Familiar in Hon- around 200 weather stations, down from a total of duras to protect the consumption and investments in 400 in 2004, and similar situations can be found in child human capital of coffee-growing households Guatemala and Honduras. Putting in place effective enrolled in the program in the face of the coffee crisis mechanisms for disseminating weather information is (World Bank 2005a). Social funds have also proven to 44 A N O V E RV I E W be a good instrument to increase resilience to climate In particular, these interventions intended to shocks and have the advantage that they can respond reduce the use of inefficient and costly (in terms of rapidly (Vakis 2006) (box 6). human welfare) ex ante risk management and coping Of course, each type of safety net has its strengths, strategies. Indeed, evaluation has shown--in addition flaws, and implementation challenges, and their effec- to the effects on consumption, education, and nutri- tiveness is likely to vary across countries and weather tion--that these supplementary packages improved shocks. No one size fits all when it comes to design of income diversification and the use of savings ex ante effective interventions, and the choices of policy mak- and reduced the use of child labor and the sale of assets ers need to account for this degree of heterogeneity to cope with shocks. Other lessons for program design among different programs. Some specific features may are that it is important that the program be designed need to be incorporated to tailor these instruments to to scale up and down quickly, and that payments be weather shocks; for example, conditionalities to dis- well targeted. Two approaches to targeting are (a) courage exposure to climate risk. preshock eligibility based on degrees of risk exposure The novelty of the Atencion a Crisis Pilot in and poverty/vulnerability, and (b) ex post targeting Nicaragua--which was specifically designed with that incorporates actual levels of damage and impacts. weather risks in mind--was to add two interventions (vocational training and a productive investment Strengthening households' and governments' package) to the standard nutrition and education abilities to manage risks, especially weather shocks package to improve the resilience of poor rural house- In order to facilitate private adaptation efforts, it is holds to natural risks and economic downturns. important to strengthen private insurance markets, BOX 6 Social Funds and Natural Disasters: The Example of the Honduras Social Investment Fund and Hurricane Mitch Despite the fact that Hurricane Mitch killed thousands of prioritized clearing debris and repairing or rebuilding Hondurans, left a million homeless, and inflicted damage water lines, sanitation systems, roads, bridges, health equivalent to two-thirds of GDP, poverty rose only mod- centers, and schools, thus hastening national recovery erately in its wake. and generating about 100,000 person-months of employ- This remarkable reality is attributable largely to the ment in the three months following the crisis. efficacy of the Honduras Social Investment Fund (FHIS), The decentralized structure and institutional flexibil- a public program created in 1990 to finance small-scale ity of the FHIS enabled its rapid and influential investments in poor communities. Originally conceived response. Building on strong pre-existing partnerships as an antidote to the adverse effects of structural adjust- with municipalities and communities, FHIS directors ment policies, FHIS nimbly became an emergency- established 11 temporary regional offices and quickly response program of sorts after Mitch devastated the delegated resources and responsibilities. Directors country in 1998. reduced the number of steps in the subproject cycle from FHIS successfully prevented the disaster from aggra- 50 to 8, established safeguards to ensure accountability vating poverty by rejuvenating economic activity, and and transparency, and effectively accessed International restoring basic social services. Within 100 days of the Development Association financing. As an article hurricane, the program approved US$40 million for reviewing program outcomes concluded several years 2,100 community projects; by the end of 1999, FHIS later, "FHIS demonstrates that a social fund can play a had financed 3,400 projects, four times the number vital role as part of the social safety net in times of natural financed in a comparable pre-hurricane period. Projects disaster." 45 L O W C A R B O N , H I G H G R O W T H : L AT 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 AT E C H A N G E particularly to address specific weather shocks. 1. Water markets. Many of the most important Among developing regions, LAC is second only to impacts of climate change will be intermedi- Asia in premiums for weather insurance, but the mar- ated through water availability, yet water rights ket is still very small. Furthermore, index-based are currently ill-defined and water grossly weather insurance, which is probably in the long run undervalued in most countries. In virtually the most viable form, is still a relatively foreign con- every water system around the world,100 exten- cept in most countries, notwithstanding significant sive amounts of water are currently used to technical assistance to introduce it. To grow this mar- grow low-value crops. In LAC, Chile and Mex- ket, a number of obstacles need to be resolved. One is ico have made considerable advances, yet even that insurance markets as a whole are underdeveloped in these countries, the markets are far from in LAC. Measured by premiums as percent of GDP, being adequately designed to allocate water to LAC lags the developing regions of Asia, Africa, and its highest valued use. Studies indicate that Eastern Europe (Swiss Re). Another is the lack of a shifting water to its most valuable use can sig- regulatory framework conducive to this type of insur- nificantly reduce the harmful effects of climate ance in most LAC countries. A third is that local change. One background study for this report insurers are unable or unwilling to take on the risk used a simple illustrative simulation exercise to associated with catastrophes. One lesson of experience quantify the economic cost of water shortages in providing technical assistance to develop this mar- forecast for the Rio Bravo basin in Mexico by ket is that sometimes governments may need to take 2100.101 In one "maladaptation" scenario, the this high-risk market segment, perhaps laying off shortage was accommodated by across-the- some of the risk in international reinsurance markets. board proportional reductions in all types of The vacuum in weather data is also a problem, and as uses (agriculture, industry, and residential). In noted above, this seems to be getting worse. Interna- another scenario, the water was allocated to the tional institutional innovations such as the Caribbean highest-value uses, as would occur if it were Catastrophic Risk Facility are helping governments in efficiently priced. The economic costs under the this Region manage their own risk exposure, and former scenario were hundreds of times their work is underway to develop a similar facility for Cen- size under the latter, underscoring the ability of tral America. But it has to be recognized that while efficient adaptation policy to reduce the costs of insurance can help cope with short-term weather climate change, while not foreclosing comple- shocks--which may become more severe in the mentary measures to address adjustment costs future--it cannot compensate for long-term climatic and distributional implications. In some cases, trends. And governments may need to adjust their transbasin transfers may be useful in dealing own internal insurance policies--and their policies of with regional scarcity, as they have been in Cal- damage compensation. If these insure people against ifornia. In LAC, potential for this kind of option their own risky behavior by compensating them for exists in the Yacambu basin (República Bolivar- losses from weather risks, such policies can undermine iana de Venezuela), Catamayo-Chira basins incentives to adapt appropriately to changing climate. (Ecuador and Peru), Alto Piura and Mantaro basins (Peru), and São Francisco basin (Brazil) Strengthening markets (Magrin et al.). But organizing such transfers On a national level, two kinds of markets deserve par- will require considerable planning, invest- ticular priority because they are currently poorly ments, and in some cases international coordi- developed in most developing countries and because nation. Effective international institutions will they will be especially important in making adjust- be necessary not only to facilitate transboundary ments to climate change. water trade, but also to improve mechanisms for 46 A N O V E RV I E W mediating conflicts provoked by changes in and in some countries, insurance has been pack- water availability (UN Foundation). aged with microcredit. 2. Financial markets. Financial markets play two In connection with the consumption-smooth- roles with respect to adapting to climate ing role of credit markets, the nature of change. In the short term, they allow individu- weather-related shocks has an important policy als to adjust efficiently to shocks through saving implication. Weather shocks tend to be highly and dissaving to smooth consumption. In the correlated across fairly large areas. This means longer term, financial institutions are sources of that a financial institution with a client base investment capital that will be needed to concentrated in one area--particularly a rural finance adaptation expenses. While urban areas area, where many clients rely directly or indi- in many LAC countries are reasonably well rectly on agriculture--is likely to be poorly served by financial institutions, rural areas-- equipped to deal with a shock, since all of its especially small farmers--are generally not, for depositors would need to withdraw savings at reasons related to high transactions costs and the same time. One way to deal with this is to low ability of such clients to offer reliable col- insure the loans against weather risk. The other lateral. Yet there are good examples of how strategy is to rely on geographic diversification. these barriers can be overcome. Social capital Regulatory policy can encourage reliance on and peer monitoring can be used to good advan- insurance by, for example, putting a premium tage. Using a value-chain approach, for exam- on insured loans when calculating capital ade- ple, FUNDEA in Guatemala finances inputs quacy ratios. Alternatively (or in addition), it and outputs for small farmers, accepting stand- can promote the development of financial insti- ing crops as collateral. Furthermore, public pol- tutions with clientele that are not exclusively icy can support pilot testing of technological rural, and that are not heavily exposed to innovations that reduce costs and risks of offer- weather risks. In small countries especially, for- ing financial instruments to rural small-scale eign banks may be best placed to fill this role, producers. Just as cellular phones can speed but in any case, regulatory policy could be market and price information to producers, so- designed to encourage development of extensive called mobile or m-banking, now being piloted linkages outside of a rural client base. in Brazil, can also dramatically reduce transac- tions costs for rural financial transactions.102 A critical mass of participation by Where necessary, financial regulations may high-income countries is essential need to be reformed to remove interest rate ceil- Especially in the area of mitigation policies, strong ings and permit institutions to mobilize savings leadership by all rich countries is a precondition for deposits, perhaps via branchless banking, tak- progress in the fight against global warming, for ing advantage of existing post offices, gas sta- example, through a global agreement to which all tions, and other retail outlets as conduits for these countries are signatories. This is important not rural financial transactions. Stimulating data only to set an example for other countries moving to a collection via credit-reporting bureaus can also low-carbon growth path, but also to create the percep- reduce the current risk premium associated tion that such an agreement is equitable, thereby with rural lending, owing to information lending it credibility. From an economic perspective, deficits to gauge behavioral risk of potential this kind of participation is also necessary to create a borrowers. Rural finance for smallholders could market of sufficient size to generate incentives for the also benefit from the creation and expansion of investments in research, development, and production insurance instruments to protect against losses, that would be required in such a large-scale undertak- 47 L O W C A R B O N , H I G H G R O W T H : L AT 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 AT E C H A N G E ing. The market could to a large extent be driven by of goods, purchasing existing intellectual property the incentives created by valuing carbon emissions, rights to make the technology widely available, or whether through some kind of carbon tax or an inter- offering prizes for specific types of technologies. national cap-and-trade system. Individual countries Support for international research on climate are likely to also have local regulations, taxes, and change itself will be important, as will research on subsidies of various kinds. To the extent practicable, adaptation. Particularly important will be technolo- however, the system as a whole would ideally generate gies to maintain agricultural productivity. In this a net price of carbon emissions that is uniform across sphere, private seed companies are investing signifi- countries and activities. cantly in developing varieties, including GMOs, with Apart from agreement to take aggressive actions to characteristics needed to cope with changing climatic reduce their own emissions, action by the high- conditions. But they cannot be expected to focus on income countries is needed in several other areas, as open-pollinated varieties that would be most useful described below. for small-scale producers in developing countries. For this, internationally supported research through the The need for high-income countries' leadership CGIAR (Consultative Group for International Agri- in technology development and transfer cultural Research) centers will be required. While the pricing of carbon will automatically create incentives for progress in technologies for emission Financing of human and ecosystem reduction, the public-good nature of knowledge will adaptation in developing countries require public funding of some kinds of research, to As discussed in section 3, equity considerations call support both mitigation and adaptation to climate for high-income countries--which bear primary change in developing countries. This is the case for responsibility for the GHGs that are causing global basic research (to generate knowledge that has no warming--to subsidize the consequent adaptation short-term commercial application) and especially for costs in developing countries, perhaps taking into research dealing with technologies the primary mar- account the varying degrees of responsibility and ket of which is in countries where the population has capability of different countries. The mechanism low purchasing power. High-income countries have through which subsidies are administered is impor- the skills and commercial base to undertake research tant, and should ideally be consistent with the eco- and development of cutting-edge technologies for nomic principles that will shape adaptive behavior. low-carbon power generation and energy efficiency. Since adaptation policy largely coincides with devel- Much of the low-wind-speed technology now being opment policy, it may make more sense to simply employed in wind farms in the region, for example, is augment aid flows through existing mechanisms German, while technology to modernize bus fleets (multilateral and/or bilateral), rather than creating with hybrid engines comes from Japan, Brazil, and new mechanisms, provided that (a) this funding is the United States. Some of this technology uptake has transparently additional to normal flows and (b) aid is been financed through carbon finance (CDM), and concessionary, even to middle-income countries. small-scale donor projects have for years financed invest- In addition to supporting human adaptation to cli- ments in clean technology such as microhydropower mate change, it is incumbent on high-income coun- plants in Peru and solar powered irrigation pumps in tries to provide financial and technical support for Brazil. But more innovative ways need to be found to developing countries to preserve the global public accelerate this process in the future. Various ideas have good of biodiversity. Many LAC ecosystems threat- been advanced on mechanisms through which donors ened by climate change are of global significance. could encourage development and diffusion of technol- Internationally funded adaptation projects are already ogy in such countries. Mechanisms could include being piloted through the Global Environmental advanced commitments to purchase some set quantity Facility (GEF), and successful ones can be scaled up 48 A N O V E RV I E W and replicated. There is also an adaptation component These are currently being addressed in the Doha in the new Climate Investment Funds managed by the Round negotiations, but progress has been limited. World Bank, to which donor countries can contribute. Of particular interest to LAC is the reduction of barri- ers to trade in ethanol. This is of greatest interest to Maintaining an open international trade regime Brazil, which is the lowest-cost producer in the world, to facilitate efficient adaptation and mitigation but may be important for other countries in the While all the countries that are members in the Region where ethanol can be efficiently produced World Trade Organization (WTO) will play a role, from sugarcane. From the dual perspectives of effi- leadership by the high-income countries will be criti- ciency and effectiveness in reducing emissions, it is in cal in reaching agreement on some of the issues in the the world's interest to ensure that ethanol is produced WTO that are particularly relevant for helping the where this can be done most efficiently, rather than in world deal with challenges created by climate change. countries where it requires large subsidies and high First, all kinds of barriers to food trade will need to be trade barriers. Current trade policies and subsidies to effectively disciplined. This would facilitate changing biofuels in high-income countries have generated patterns of food trade as climate change alters produc- huge distortions in agricultural markets, with adverse tion patterns over the long term, as well as spread the impacts on poor food consumers worldwide, and at effects of short-term supply shocks and ensure that best minimal reductions in carbon emissions. consumers and producers respond appropriately. With Finally, the WTO's Committee on Technical Barriers a share of close to 11 percent of world agriculture and to Trade is already involved in reviewing the increasing food exports, LAC is currently a major food-exporting number of standards and labeling requirements tar- region. But some countries may suffer large losses in geted at energy efficiency or emissions control. It productivity, leading to dramatic shifts in food trade could also play an important role in ensuring that patterns inside and outside the region. This issue is other trade policies--including tariffs levied on the therefore of vital concern to the LAC Region. basis of the producing country's emission reduction One of the lessons of the recent precipitous commitments or environmental regulations--are not increases in food prices is that when shortages arise, discriminatory and do not unnecessarily restrict trade. there is a tendency for countries to react with "beggar- thy-neighbor" trade policies that insulate domestic A LAC-friendly global climate consumers and producers from international price change architecture is also needed movements, and in doing so, shift the adjustment For LAC, as for other developing countries, the archi- costs onto others. This has included ad hoc reductions tecture of the post-2012 climate regime will be criti- in import tariffs and increases in export barriers, nei- cal. As currently designed, the Clean Development ther of which is effectively disciplined under current Mechanism (CDM) cannot deliver LAC's potential to WTO rules. Many governments have also responded reduce its GHG emissions in a cost-effective way.103 to the food crisis by focusing on measures to increase In the design of the post-2012 regime, there are two their degree of self-sufficiency in food production. In prominent issues for LAC. First, from the perspective the future, as climate change makes food production of high-volume cost-effective mitigation and critical increasingly high-cost in some countries, trying to biodiversity protection, the new chapter of the regime maintain levels of self-sufficiency will likewise must incorporate REDD. Second, from the perspec- become increasingly costly. This underscores the tive of long-term low-carbon (sustainable) economic importance of keeping the trade system open in order growth, the Region needs a mechanism for carbon to give all countries confidence that they can rely on it finance that goes beyond the project-based approach to supply their food requirements. of the CDM in order to create incentives to signifi- Second, barriers to trade in goods and services that cantly shift the carbon intensity of investments that help reduce emissions would ideally be eliminated. will be made in the energy and transportation sectors 49 L O W C A R B O N , H I G H G R O W T H : L AT 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 AT E C H A N G E and to take advantage of the many opportunities for ment in low-carbon technology. First, to maintain the increasing energy efficiency. Region's relatively clean profile in energy generation, it is especially important that the carbon-trading Incorporating REDD in the architecture recognize the value of hydropower. Cur- international climate architecture rently the European Union, the main buyer in the The single most important issue for LAC in the nego- market, requires that certified emission reductions tiations over the post-2012 regime is the incorpora- derived from hydropower projects over 20 MW must tion of REDD in the international climate change comply with the guidelines of the World Commission architecture. The first commitment period of the on Dams. In practice this requirement has added com- Kyoto Protocol only recognized afforestation and plexity to project registration and prevented the regis- reforestation projects in the CDM and did not include tration of all but small projects. Better incorporation reduced emissions achieved by means of avoided of hydropower into the global mechanism could rein- deforestation or other types of forest management in force the country-level actions that also need to take developing countries. More recent international nego- place as described below. tiations have moved towards recognizing decreases in A number of additional concerns with the current deforestation and forest degradation from a pre-estab- functioning of the CDM need to be addressed in order lished baseline as a source of credits and/or compensa- to unlock LAC's full potential to contribute to reduc- tion in a post-2012 regime. One important challenge ing emissions. One problem is that the current CDM in designing such schemes is how to give credit to focuses on project-level emission reductions, relative countries which have effectively preserved their forests to baseline scenarios. This single-project approach and so have a very low baseline rate of deforestation. makes it unlikely to "catalyze the profound and last- Several types of proposals for incorporating REDD ing changes that are necessary in the overall GHG have emerged during recent years. Perhaps the main intensities of developing countries' economies" distinction between the various proposals is whether (Figueres, Haites, and Hoyt 2005). Many of the developed countries would be allowed to gain credits potentially good options for reductions--especially in for their possible contributions to REDD efforts in energy efficiency and agriculture--involve measures the developing world. A large number of developing or investments that individually have a small effect on countries, including several from LAC, favor a market emissions, and consequently cannot qualify as projects approach in which REDD activities would give rise to or are too small to justify the transactions costs associ- tradable credits. Other countries favor a nontradable, ated with the CDM, but in the aggregate are signifi- "fund" approach. Brazil, in particular, has established cant. A more effective approach would entail a specific "nonmarket" fund dedicated to REDD. The transforming the baselines themselves so as to make Amazon Fund will receive contributions from indus- development pathways more carbon-friendly (Heller trialized countries but those will not count towards and Shukla 2003). In this context, rather than focus the mitigation commitments of those countries. The on actions at the project level, mitigation efforts in Fund will award financial incentives for reductions in developing countries would have to shift toward pro- deforestation rates below established baselines. Other moting reforms across entire sectors--for example, proposals have combined aspects of both market-ori- energy, transport, agriculture, and forestry. ented and fund-based alternatives, while also estab- One way of implementing this is to broaden the lishing financial incentives per avoided ton of CO2.104 CDM to include reductions obtained by developing countries while pursuing climate-friendly develop- Improving the mechanisms to ment policies. One first important step in this direc- support low-carbon development tion was the decision to include programs of activities A number of features in the global architecture would in the CDM, taken in December 2005 in Montreal. improve its ability to provide incentives for invest- This so-called "programmatic approach" could be 50 A N O V E RV I E W especially relevant in the areas of energy efficiency and region with CO2e emissions exceeding 1 percent of fossil fuel switching, where the deployment of low- global emissions, and they account for over 60 percent carbon technologies usually occurs through multiple of the regional tally. Both are members of a group of coordinated actions executed over time, often by a large developing country emitters that are at the cen- large number of households or firms, as the result of a ter of discussions regarding emission reductions. In government measure or a voluntary program. In this the medium term, these two countries are likely to new approach those programs of activities--and not continue to dominate the CO2 regional picture. Thus, just the individual projects--can be made eligible for most mitigation efforts in the region are likely to con- the sale of emission reduction credits, which greatly tinue to put significant focus on these two economies. reduces transaction costs and thus facilitates the partic- In the third group of "intermediate" emitters--com- ipation in the mechanism of less developed small and posed of 11 countries: Argentina, Bolivia, Colombia, medium countries. Chile, Ecuador, Guatemala, Nicaragua, Panama, Other proposed extensions of the CDM--not yet Paraguay, Peru, and República Bolivariana de accepted--include the so-called policy-based and sec- Venezuela--mitigation actions may also have some toral approaches. The former aims to create incentives global effect. It is, however, a diverse group and miti- to transform overall development policies and make gation priorities vary considerably across countries them more climate-friendly. Emission reduction cred- (see section 4 and annex 1). its would be awarded to developing countries that Most other countries in the region, however, are successfully meet nonbinding commitments to reduce low-carbon economies, defined as those with a carbon GHG emissions, by means of policies and measures footprint of less than 40 million tons of CO2e per year. aimed primarily at sustainable development objectives. Most of these also have low carbon intensities. This The first step in this direction was the decision in 2005 category includes Costa Rica, El Salvador, Honduras, to include programs of activities in the CDM, but fur- Uruguay, and all Caribbean nations. Together this ther developments are needed to enhance the impact of cohort has a total CO2 contribution of less than a quar- this mechanism. In the "sectoral" approach (Samaniego ter billion tons of CO2e (about 0.55 percent of global and Figueres 2002), emission reduction credits would emissions). Furthermore, either because of their lim- be awarded to developing countries that overachieve ited population or as a consequence of the composi- on mitigation targets adopted voluntarily for specific tion of their emissions--typically dominated by the sectors. The targets could take the form of fixed emis- power and transport sectors and, in some cases, by sion reductions, changes in emission intensities, or modest rates of land use change--it is very unlikely adoption of policies that result in emission reductions. that the GHG emissions of these nations will show significant changes in the future. And even if they do, Priority domestic mitigation policies in LAC the net global impact will be negligible. It is worth To understand better the relative importance of miti- noting, however, that even in this group of smaller gation policies across the various countries in the emitters, no-regrets mitigation options could repre- region, it is useful to group them in three different sent non-negligible opportunities for tackling impor- categories, depending on their total emissions: (a) tant development challenges while benefiting from large emitters, those countries that exceed 1 percent of the financial and technological support of the interna- global emissions; (b) low emitters, including those tional community. that emit less than one-thousandth of global emis- In setting priorities for mitigation efforts in LAC, sions; and (c) a group in between. it is reasonable to expect that the first priority will be As mentioned before, the largest regional emitters given to the many measures that have low net costs of GHGs are Brazil and Mexico (about 2.3 and 0.7 (accounting for cobenefits), and offer large reductions, billion tons CO2e per year, respectively, considering while looking for opportunities to benefit from finan- all GHGs).105 These are the only countries in the cial flows in carbon markets. Of course, priorities will 51 L O W C A R B O N , H I G H G R O W T H : L AT 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 AT E C H A N G E vary depending on country circumstances, but the 17 in South America excluding Brazil, and 15 in the sectors that appear to fit these criteria best across the Caribbean compared to the global average of 13 per- region are (a) land use and land-use change (especially cent.107 Community-based forest management in forestry), (b) energy generation, (c) transportation, and Mexico has reached a scale unmatched anywhere else (d) energy efficiency.106 All countries would also bene- in the world; an estimated three-fourths of Mexican fit from looking closely at their domestic policies and forests are communally owned either by ejidos or regulatory regimes to ensure that they provide a indigenous communities. framework conducive to taking advantage of opportu- Land tenure matters in the way forests are man- nities in the carbon market. This suggests the high aged. Recent empirical comparisons of different types priority of the policy objectives discussed in the suc- of forest ownership indicate that in communally ceeding sections. owned forests, both carbon sequestration and liveli- hoods benefits can best be achieved if certain measures Reduce emissions from land-use change are taken. These include increasing the area of the While it is critically important to LAC that the future forests under community control, giving greater climate architecture incorporate REDD activities, this autonomy to local communities in managing their is also an agenda that countries have an interest in forests, and compensating them to reduce forest pursuing outside the global architecture, either uni- use.108 In other types of privately owned forests, suc- laterally or bilaterally. cessful innovative approaches include a shift from reg- Effective domestic forest policies are the corner- ulation to economic instruments such as transferable stone of efforts to reduce emissions from this source as forest obligations in the Amazon in Brazil and pay- well as to increase the resilience of these ecosystems to ment for environmental services programs. Nationally prepare them for the changing climate. Many coun- managed protected areas tend to be more effective if tries in the LAC region have designed good laws and they have sufficient staff; guards are important for regulations in the forestry sector, but effectively transforming "paper parks" into working parks and implementing them and ensuring that they achieve working with local residents.109 But too often such forest conservation objectives has proved challenging. protected areas are underfunded, with the result that Several of the main constraints to halting deforesta- deforestation continues unabated. On the flip side, tion are (a) the fact that politically difficult policy stringent enforcement may have adverse social conse- actions are required; (b) the need for adjustment to quences on the forest communities if regulations pro- development strategies that go well beyond forests but hibit the use of forest products. The economic and impact forests (including agriculture, transportation, social costs of creating parks must be weighed against mining, and energy); and (c) rising population pressure. the economic opportunities presented by other types of Two prominent approaches to management of management to improve both the social outcomes and forests are protected areas and regulated concessions the political feasibility of forest protection measures. on privately owned land. Privately owned forests Policies and large investments outside the forest include areas managed by local communities, local sector--energy and agricultural policy, road building, governments, or individual owners. Management of a and other large infrastructure projects--have a very relatively small but growing share of forests in LAC is large impact on forest resources. By opening up new being decentralized to local governments and indige- forest frontiers for agricultural and logging activities, nous communities, especially since the recognition of roads are the single most important driver of defor- indigenous land rights has found particularly strong estation. Agro-ecological zoning is one of the ways to resonance in this region. The share of privately owned mitigate the deforestation pressure created by road forests in LAC by far exceeds private forest ownership construction. The participatory agro-ecological zon- in other regions, with 56 percent in Central America, ing process involves identification of areas of high bio- 52 A N O V E RV I E W diversity value and prioritization of infrastructure and services and watershed protection--financed by such other development early on in the planning process, enterprises as hydropower generators and by munici- while taking into account the economic growth and palities--but availability of new financing through conservation objectives. Recent modeling efforts show the CDM for afforestation and reforestation activities that better road planning, agro-ecological zoning, and and payments for REDD are a promising source of effective enforcement of conservation objectives in revenues for Costa Rica in the future (Pagiola 2008). protected areas and private lands can reduce future To a large extent, Costa Rica is now hailed as the emissions from deforestation in Brazil by half.110 global pioneer of payments for environmental services Only a concerted, multisectoral approach can make produced by forests. Mexico's experience with the forest conversion less attractive relative to other land- ProArbol Program (box 8) illustrates that these pro- use options and reduce the pressures stemming from grams have great potential to attract interest from these sectors. But tailor-made policy solutions are land users. But to be effective they must be carefully needed to address particular drivers of deforestation designed with clear criteria to target payments in while recognizing the specificities of each country's ways that meet the program's objectives. Conservation social and economic setting and its state of forest banking schemes (box 9) provide additional examples resources. In this regard, LAC offers a very broad of the emerging innovations in this area. range of situations: from high deforestation (for exam- Designing effective policies, however, requires ple, in Nicaragua) to net reforestation (for example, in good information on how land-use change affects Costa Rica) to historically low deforestation (for emissions. In general, countries that are interested in example, in Guyana). Oftentimes agriculture is a key moving forward with a REDD strategy may wish to deforestation driver, sometimes as a result of policy consider the following steps: (a) fine-tuning the esti- incentives to extensive cattle farming or crop cultiva- mation of emissions from land-use change at the sub- tion. Unclear land tenure is an outstanding feature of national level using high-resolution imagery (for several of the region's countries that needs to be example, Landsat with a 30-meter resolution); (b) addressed. Of particular relevance to REDD, technical conducting a national forest inventory to estimate car- and human monitoring capacity, forest management bon stocks; (c) adopting a spatially explicit modeling know-how, and capability vary significantly among approach to predict future deforestation; and (d) countries within the region. Hence, a mix of cus- establishing a national monitoring, reporting and ver- tomized policies is needed to address the forest-cli- ification system capable of tracking changes in defor- mate nexus in each of the Region's countries. estation and forest degradation and the resulting Initiatives such as the Forest Carbon Partnership GHG emissions. Several LAC countries are already Facility (FCPF) of the World Bank recognize the het- using or planning to use high-resolution remote sens- erogeneity by country and seek to build capacity for ing techniques to establish their baseline deforestation custom-made solutions addressing REDD (box 7). trends and monitor deforestation over time. Several Countries in the LAC region are the world's leaders forest inventories are also being planned in the coun- in implementing incentive-based payment schemes tries that do not have one--few currently do, because for forest conservation. In 1996, Costa Rica passed the of the cost involved. Forest Law 7575, which has recognized that forest ecosystems generate valuable ecosystem services and Transform urban transport provided the legal basis for the owners of forest lands Many "low-hanging fruits" for mitigation are avail- to sell these services. A large number of contracts were able in the Region's transportation sector but few have intermediated by the National Fund for Forest been harvested. What are the crucial policy measures Financing (FONAFIFO) as a result. Most of these in the sector to tackle the regulatory and institutional payments to landowners have been for hydrological barriers and market failures that may have prevented 53 L O W C A R B O N , H I G H G R O W T H : L AT 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 AT E C H A N G E BOX 7 Supporting Customized Solutions through the Forest Carbon Partnership Facility (FCPF) The FCPF intends to build the capacity of developing use of forest resources. Guyana relies on log tagging countries, including at least 10 from LAC (Argentina, and tracking to reduce illegal logging. Bolivia, Colombia, Costa Rica, Guyana, Mexico, Several types of economic mechanisms for forest Nicaragua, Panama, Paraguay, and Peru), to benefit conservation are in use or in preparation in LAC coun- from future systems of positive incentives for REDD. tries. Costa Rica and Mexico will continue to rely on As part of the capacity building, countries receive payments for environmental services for protection, assistance to adopt or refine their national strategy for reforestation, and forest regeneration, and Colombia reducing emissions from deforestation and forest may start doing so. Guyana has been using forest con- degradation. cessions. Panama may scale up its experience with The Readiness Plan Idea Notes prepared by the debt-for-nature swaps. Bolivia is thinking about LAC countries participating in the FCPF so far suggest experimenting with tradable deforestation permits. that most of their programs and activities designed to With respect to rural development programs, reduce emissions from deforestation and degradation Bolivia recognizes the need for silvopastoral systems as will fall in the following categories: (a) general eco- a more efficient and less destructive alternative for cat- nomic policies and regulations; (b) forest policies and tle ranching, and for the development of income- regulations; (c) economic mechanisms for forest con- generation activities in the highlands so as to reduce servation; (d) rural development programs; and (e) migration to the lowlands of the Amazon region. social programs. Guyana proposes to foster ecotourism, handicrafts using Examples of general economic policies and regula- nontimber forest products, aquaculture, and rural elec- tions for REDD include Guyana's willingness to pro- trification. Panama will improve its land administration mote less destructive practices in mining and road and continue to promote investment projects at the sub- development and Mexico's efforts to mainstream forest national level to improve rural livelihoods, while Peru is conservation in agriculture and transportation. launching a number of REDD pilot projects to identify Forest policies and regulations are likely to form the the activities that are necessary to reduce poverty. bulk of LAC's REDD programs and activities. Finally, several LAC countries are proposing a range Argentina, Mexico, and Nicaragua are establishing of social programs expected to generate direct or indi- alternative forest management practices fostering the rect benefits in terms of REDD. Argentina proposes to creation of economic opportunities for forest-depen- confer ownership rights over forest land to indigenous dent communities. Bolivia and Mexico are promoting and rural communities and halt the internal displace- community forestry. Colombia and Guyana favor ment of indigenous peoples. Bolivia wants to promote reduced-impact logging. Costa Rica, Guyana, Mexico, the sustainable use of nontimber forest resources, Nicaragua, and Panama provide incentives for refor- wildlife, and environment services by peasant commu- estation and plantations to relieve pressure on natural nities and indigenous populations, according to their forests. Costa Rica and Mexico see the need to rein- knowledge, uses, and customs. Guyana will engage force the protection and management of their system with Amerindian communities to use their titled lands of protected areas. Several countries emphasize the in sustainable ways. Panama will rely on the ongoing need for better forest law enforcement. Paraguay Sustainable Rural Development program of the wishes to decentralize forest management to empower indigenous Ngöbe Buglé Region in an effort to reduce local governments in the conservation and sustainable poverty and poverty-related deforestation. 54 A N O V E RV I E W BOX 8 Paying to Protect Forests through ProÁrbol in Mexico In 2003, Mexico instituted a program of payments for been verified. Conservation contracts are for five years, hydrological environmental services. This evolved into a and are conditionally renewable. Participants receive pay- broader program of payments for environmental services ments of about US$40/ha/yr for cloud forest and of forests, which in turn is part of a program of support to US$30/ha/yr for other forests. Although the program has forests, ProÁrbol. About 1.4 million ha were under con- grown rapidly, it was initially poorly targeted. Recent servation contracts in early 2008; the 2008 contracts years have seen significant efforts at improving targeting would bring this total to over 2 million ha. The program by introducing clear prioritization criteria. Efforts are pays landowners to conserve existing forests, mainly for also underway to diversify the program away from its the services they provide in managing water resources. current one-size-fits-all approach so that it is better Payments are made ex post, after the conservation has suited to local conditions in different parts of the country. BOX 9 Conservation Banking to Reduce Deforestation and Protect Biodiversity Another innovation in the region to reduce deforestation in other developing countries include a US$9 million is President of Guyana Jagdeo's offer to cede the manage- investment by Merrill Lynch in Sumatra in the expecta- ment of his country's entire rain forest (over 18 million tion of eventual profits from sale of carbon credits, and a hectares, covering more than 80 percent of Guyana's land "wildlife conservation banking scheme" in Malaysia mass) to the British government in return for economic established by New Forests (a Sydney-based investment assistance. While the offer is still on the table, the gov- firm), which expects to receive a return of 15­25 percent ernment and the 371,000-hectare Iwokrama Forest by selling "biodiversity credits." This underscores the Reserve has reportedly negotiated a more limited deal potential for forests to generate financial resources even with Canopy Capital, an investment group. Similar deals outside of the formal carbon market. the implementation of the most promising measures BRTs--dedicated bus lanes, prepayment of bus fares, with the highest mitigation potential, low costs and and efficient intermodal connections--are the entry large cobenefits? point to a process of a broader urban transformation In contrast to most of the earlier approaches that toward more livable cities with less congestion and have tended to focus on one technical or economic better land-use planning. solution in the sector at a time, mitigation policies are The benefits from BRT and mass transit systems more effective if they broaden the focus and simulta- are magnified when combined with a broader set of neously address different aspects of the transport land-use policies to foster densification along main problem: growth in private vehicle use, deteriorating transport corridors and promote intermodal integra- public transport systems, poor nonmotorized facili- tion with nonmotorized transport and other modes, ties, sprawling cities, and lack of intermodal integra- including private vehicles. This set of complementary tion. This calls for comprehensive strategies that measures can reduce travel time, reduce local and integrate transport sector and urban planning. One global emissions, and provide other social benefits. In way to achieve this integration is through the provi- the case of Mexico, a combination of measures to sion of alternatives to travel in private cars, such as reduce the distance of urban commuting by encourag- Bus Rapid Transit (BRT) and rail based transit sys- ing dense urban development, and the implementa- tems. The region's pioneering experiences with tion of efficiency standards for vehicles is expected to 55 L O W C A R B O N , H I G H G R O W T H : L AT 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 AT E C H A N G E reduce emissions over 2009­30 by, respectively 117 public transport operations could make it possible to and 185 MtCO2e, and have additional social and envi- reduce emissions by 95 MtCO2e between 2007 and ronmental benefits.111 A large share of the cobenefits 2030.112 from more efficient public transportation systems can Reducing emissions, congestion, and local air pol- accrue to the poor, as is evident from the assessment of lution from freight transport in Latin America has benefits distribution from time savings from the emerged as another top priority on the climate policy TransMilenio BRT system in Bogota (figure 13). and sector's agenda. Studies of improvements in logis- Apart from the provision of alternatives to the use tics and projects to attain those improvements that are of private vehicles, incentives for their reduced use underway in the Region have identified opportunities and improved efficiency are another key element of to improve fuel efficiency and reduce GHG emissions the mitigation agenda. Any successful mitigation pol- and local air pollution at the same time.113 Specific icy in the transport sector needs to address growth in measures--including programs to improve opera- private vehicle use and related emissions, especially in tions, fleet maintenance, and driver behavior--that the Region's urban areas. This can be accomplished by target major transport operators and freight compa- improving fuel efficiency of vehicles and by introduc- nies can yield significant fuel savings, large economic ing low-carbon fuels. Even more important are poli- benefits, and GHG emissions reductions. cies that make private vehicle use less attractive while Finally, making available basic data collection and also creating incentives for public and mass transit assessment frameworks to decision makers and the systems. Recent studies in Brazil have estimated that broader set of stakeholders would improve under- implementing improved automobile fuel efficiency standing of the fundamental linkages between trans- standards could reduce emissions by about 25 MtCO2 port, climate change, and other economic and per year, while at the same time generating significant environmental benefits. Quantification of these financial savings and reducing local pollution. In cobenefits and an assessment of the feasibility of Peru, the renovation of the vehicle fleet could also lead implementation is an important component of an to large emission reductions, of about 7 MtCO2 per overall evaluation of alternative--and sometimes year at negative costs (considering the fuel savings). complementary--mitigation options. The availability Finally, in Colombia the optimization of freight and of cross-country information on the potential to reduce emissions in the transport sector such as this is an important contribution to facilitate the setting of FIGURE 13 priorities in sectoral mitigation policies, but estimates The Time Savings from TransMilenio from the available studies are not directly comparable Accrue Disproportionately to the Poor because of divergent and sometimes unclear assump- 70 tions. In the transport sector, these assessments need AVERAGE TIME SAVINGS 60 to evaluate the mitigation potential and the benefits minutes) 18 50 from energy savings, reduction in local air pollution, 15 fic 10 10 and time savings, using consistent methodologies to traf 40 13 10 ensure comparability across countries. Because of its (peak 30 public-good nature, the most efficient provision of time 20 this type of information in developing countries would require harmonization at the global or at least 10 ravelingT the regional level. 0 1 2 3 4 5 6 Transport policy decisions made in Latin America Income strata today will have a profound impact on the ability to Traveling Time WITHOUT TransMilenio Traveling Time WITH TransMilenio control global greenhouse gas emissions from the sec- Source: TransMilenio project staff calculations. tor in the future. Current policies will also in part 56 A N O V E RV I E W determine the extent to which other key development tions that can monitor and enforce standards and reg- objectives, such as health outcomes, economic effi- ulations. Mainstreaming environmental and social ciency, and an improvement in the overall quality of considerations in project design at an early stage can life, are attained in urban areas. Implementation of significantly reduce infrastructure's environmental policies that promote motorization--such as large- footprint. This can be achieved through avoiding crit- scale investments in roads and city planning that ical natural habitats in the choice of infrastructure encourages urban sprawl instead of public transport sites and minimizing damage to other (noncritical) systems and densification of urban areas--makes it natural habitats, and through such mitigation mea- more difficult to return to more sustainable trans- sures as careful engineering design and ecological portation options in the future. Thus, transportation compensation programs. Environmentally friendly policies need to be assessed with a long-term horizon options that can be considered in project design and keeping in mind that the policy options available include using run of river instead of a reservoir design, in the future will depend on today's choices. or different turbine technologies for generators. Using other instruments to complement the Envi- Continue to decarbonize growth ronmental Impact Assessment (EIA)--including zon- through reliance on hydropower ing plans and Strategic Environmental Assessments Combining high-income growth--and the consequent (SEA)--will improve infrastructure planning and the growth in demand for electricity--with low emissions assessment of environmental impacts. The advantage will require that LAC continue to rely on clean energy of SEA is the possibility of assessing cumulative sources for a relatively large fraction of its generation effects (for example, impacts of building several rather capacity. The most obvious way to do this is to develop than one hydropower plant in the same river basin) more hydropower generation, in which the Region as and comparing alternatives that are not assessed in the a whole has huge untapped potential. As noted in sec- standard EIA process. Zoning plans can also be instru- tion 4, expansion of hydropower faces significant pol- mental for selecting the sites for hydropower plants icy barriers, including the challenges of the licensing and dams and helping avoid critical wildlife habitats. process. Hydropower projects can have adverse envi- This approach has been successfully applied to plan- ronmental and social consequences, and so are gener- ning roads as a network--helping avoid critical habi- ally required to undergo some kind of licensing tats and increase social benefits--in the Tocantins procedure. While the reasons for the licensing are state in Brazil. Using these complementary tools can legitimate, the process is sometimes unnecessarily enhance the EIA process, improve its efficacy, and long, with uncertain outcomes, and adds significantly reduce regulatory costs and delays, thereby helping to project costs. overcome the main obstacles to realizing the potential Yet much has been learned and internalized about of the region to meet a large share of the growing how to develop hydropower projects with minimal energy demand from low-carbon sources. negative environmental and social consequences. A In summary, the realities of climate change and the recent study114 in Brazil suggested that regulatory consequent need to reduce emissions have increased costs could be reduced while remaining sensitive to the benefits of hydropower development, while expe- environmental and social concerns by making a num- rience and advances in licensing tools have reduced ber of legislative and regulatory changes to streamline the risks. In light of this, it would be useful for all and better coordinate the process. Minimizing adverse stakeholders to take a new look at the cost-benefit cal- environmental and social effects of hydropower and culus of hydropower development. other clean energy projects that involve large infra- structure works requires strategic planning at the sec- Make energy generation and use more efficient tor and subsector levels, an effective regulatory Despite some successes, and even though most coun- framework, environmental information, and institu- tries in LAC have already adopted a range of energy 57 L O W C A R B O N , H I G H G R O W T H : L AT 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 AT E C H A N G E efficiency policies, the energy savings achieved so far promoting energy efficiency in public institu- have been modest. Stronger public policies could pro- tions like hospitals, schools, and government vide incentives for individuals and the private sector buildings through information awareness pro- to invest in cost-effective energy efficiency measures. grams and changes in procurement rules to rec- While energy efficiency improvements can be under- ognize the long-term savings opportunities that taken one technology at a time, the best practice investments in energy-efficient products can involves the implementation of a package of measures. provide; (c) demand-side management programs And, while implementation can take place on a one- by electrical utilities--including changes in reg- off, single-site basis, such as in a single factory or ulatory incentives--that encourage energy con- building, a far greater impact can be achieved when servation and the adoption of energy-efficient energy efficiency measures are implemented on a practices and equipment; and (d) a reduction in widespread, systemic basis among many users, using a electricity use by the water sector, primarily for combination of incentives, information, and policies water pumping, by reducing water losses, to achieve the necessary market transformation. But improving management practices, and installing encouraging energy efficiency is not always easy. One more energy-efficient equipment. issue is that the party undertaking the initial invest- · On the supply side of the equation, there are ment (for example, a building owner contemplating many ways to increase efficiency of electricity installation of better insulation that will reduce the service provision. These include improving gen- heating costs of tenants) may not be able to capture eration efficiency and reducing distribution the benefits of the energy savings without incurring losses. Several countries, including the Domini- high transaction costs. Another obstacle is that reduc- can Republic, Honduras, and Ecuador, have sig- ing subsidies to energy consumption has proven to be nificant losses in distribution, through old and politically sensitive. This is one reason why, in aggre- inefficient distribution lines and substations, as gate analyses, these options always seem to be "nega- well as commercial losses stemming from theft tive-cost" or "no-regrets," but are rather rare in and nonpayment. These can be improved practice. Still, a serious effort to improve energy effi- through investments in distribution system ciency will involve an integrated package of policies improvement, and improved management, on several fronts. metering, and control. One important way to The most important measures in many countries increase generation efficiency in industry and in would include: the power sector is through cogeneration. Mex- · Encourage a switch to energy-saving technologies. This ico continues to reduce carbon intensity from a can be done through promulgation of efficiency high level by replacing old and inefficient plants labeling rules, performance standards, promo- and expanding thermal generation based on tion of energy efficiency among industry associa- high-efficiency natural gas plants (combined- tions, and special programs to increase awareness cycle gas turbines, CCGT). The energy company of and financing for use of energy-efficient tech- CFE expects that the average thermal efficiency nologies. of the group of conventional thermoelectric · Improve energy efficiency on both sides of the supply- plants will increase from 39 percent to 46 per- and-demand equation for energy. On the demand cent during 2006­17, consistent with an side, in addition to promotion of more efficient increase of the participation of CCGTs in that electrical equipment and appliances, this would group from 43 percent to 60 percent. include (a) supporting the creation of energy ser- · Reduce and better target subsidies to energy consump- vice companies to assist in identifying and tion. While well-targeted subsidies are often financing energy efficiency opportunities in essential for ensuring energy access by low- commercial and industrial consumption; (b) income or disadvantaged sectors of society, 58 A N O V E RV I E W poorly-targeted fuel and electricity subsidies can to suffer dramatically as conditions become intolera- lead to overconsumption of energy and increased ble for current product varieties. carbon emissions. In 2005, fuel subsidies were The impact of climate change will vary greatly valued at an average of 2.3 percent of GDP across Latin American countries and subregions, not across the LAC region.115 For example, Mexico only with their level of exposure to climatic shocks, and República Bolivariana de Venezuela have but also with their ability to adapt. Caribbean significant subsidies on end use of petroleum nations, for instance, are likely to be hit on multiple products, for example, for kerosene used in fronts, including through more intense natural disas- stoves or diesel in transport. Clearly, reducing ters and the dieback of marine ecosystems. As a result, these subsidies is politically difficult, but cli- those nations stand to suffer relatively more, with per- mate change provides an additional motivation, manent economic losses reaching by some estimates and carbon finance perhaps a source of funding several percentage points of their GDP. Other coun- to partly compensate losers and ease the transi- tries will likely experience negative consequences in tion. only some regions, for example, farmers in drought- affected areas of Brazil's northeast and water-deprived Make domestic policies more valleys of Central Chile. And, in some cases, the carbon-trade-friendly effects could be positive, for example, the south of Countries can move on several fronts to make the local Brazil and some of Chile's northern regions, which environment more conducive to development of an could benefit respectively from higher temperatures active market in carbon credits. A 2006 survey of and increased water availability. investors in CDM projects found that LAC had some Because many of the climatic shocks that are likely advantages over other regions, but slower project to hit the region are to a large extent inevitable ­ due approvals, more host country requirements, and more to inertia and the long lag times in the earth's climate differences in procedures among countries in the system--the region's governments have to consider Region. These shortcomings could be mitigated by appropriate adaptation policies and investments. reducing procedural requirements and speeding up Uncertainties regarding the nature and locations of national approval processes for CDM projects. It climate change impacts mean that for some kinds of would also be helpful for more countries to include responses there is value in waiting. This is true espe- strategies for taking advantage of the CDM in their cially for investments to respond to specific effects comprehensive national climate change strategies. about which the science is not yet clear (for instance, Currently, among countries in the Region, only Mex- the magnitude of sea-level rise). Responses to ongoing ico and Brazil have such strategies. This would impacts are more urgent. Fortunately, good adapta- include integrating carbon-trade opportunities into tion policy is largely congruent with good develop- sectoral strategies, for example, as potential sources of ment policy. In other words, many adaptive measures funding for projects. A related measure would be can be described as no regrets in the sense that they fuller participation of state-owned enterprises in the should be undertaken anyway, as part of an overall carbon markets. development strategy. Examples include actions to improve the region's natural resource management 6. Summary and Conclusions systems and incorporate climate related threats into Latin American and Caribbean countries are already the design of long-term infrastructure investments. In experiencing the negative consequences of climate addition, governments can also play an important role change. Moreover, under current trends those impacts in facilitating private responses to climate change by are likely to become much more severe over the next increasing households' flexibility and options by, for decades. The Region's rich biodiversity, in particular, example, improving weather monitoring and forecast- is at great risk, and agricultural productivity is likely ing; enhancing social safety nets so as to allow house- 59 L O W C A R B O N , H I G H G R O W T H : L AT 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 AT E C H A N G E holds to cope better with climate shocks; and enhancing the climate change challenge. This is not only possi- the functioning of land, water, and financial markets. ble; it is also in Latin America's best interest. Indeed, Beyond adaptation policies, there is a strong case many of the actions needed for reducing the growth in for Latin America to be an active part of a broader the region's emissions are of a no-regrets nature: They effort to mitigate climate change by means of drasti- would be socially advantageous regardless of their cally reducing the world's GHG emissions. As argued impact on climate change mitigation. In addition, in this paper, for such a coordinated global mitigation adopting a low-carbon development path would bene- effort to be effective and efficient, it must entail emis- fit the Region's long-term competitiveness to the sion reductions also in the developing world, particu- extent that the world's technological frontier moves in larly the larger middle-income countries. the direction of low-carbon technologies. Effectiveness calls for Latin American participation Taking advantage of these opportunities, however, because even a reduction in emissions by high-income requires an appropriate international policy environ- countries to zero would not suffice to keep the stock of ment in which a critical mass of high-income coun- GHG below "dangerous" thresholds. Efficiency also tries take a global leadership role. This is important requires Latin American involvement because much of not only to make such a global framework equitable, the low-cost, large-impact mitigation potential is thereby lending it credibility, but also to generate suf- located in emerging economies. However, coordinated ficient incentives and momentum for the private sec- global efforts that can engage constructive contribu- tor to invest in low-carbon technologies. In addition, tions by middle-income countries, including from for the world to benefit from Latin America's efficient Latin America, require a framework consistent with mitigation contributions, the international climate equity considerations--that is, a framework where the framework needs to be responsive--and welcoming-- site of mitigation can be delinked from the financier to the Region's potential contributions in the areas of of the mitigation effort and where mechanisms exist forest conservation, renewable energy sources and to allow countries to share the costs of climate change environmentally sustainable biofuels. Finally, while mitigation on the basis of their differentiated levels of taking advantage of these opportunities will require "responsibility" and "capability." specific domestic policy actions, it is critical that the Given its past record of low-carbon development, international community develop climate financing its wealth of natural resources, and its intermediate mechanisms that go beyond the project-based levels of income--when assessed on a global scale-- approach of the Kyoto Protocol's Clean Development many Latin American countries are well placed to take Mechanism, and provide support to climate-friendly a leadership role in the developing world's response to development policies at large. 60 A N O V E RV I E W Annex 1: Mitigation Potential by Country and Type of Emissions TABLE A1 Relative Importance of Mitigation Potential in Energy and Non-Energy-Related Emissions Based on Emissions Growth Rates and Ratio of Emissions to GDP116 Total GHG emissions Energy emissions (CO2) Land use change (CO2) Non-CO2 emissions in 2000 (Mt/CO2e) Brazil Low High High 2,333 Mexico Medium Low Low 682 Venezuela, R. B. de Medium Low Low 384 Argentina Medium Low Low 353 Colombia Low Low High 274 Peru Low High Medium 257 Bolivia High High High 144 Chile High Low Low 99 Ecuador High Low Low 99 Guatemala Medium High Medium 84 Nicaragua High High Medium 66 Panama Medium High Low 58 Paraguay Medium High High 54 Guyana Medium High High 39 Honduras Medium High Medium 31 Dominican Republic High Low Low 30 Trinidad and Tobago Medium Low Medium 29 Belize High High High 23 Costa Rica Medium Low Low 21 Jamaica Medium Low Low 16 Uruguay Low Low Medium 16 El Salvador Medium Low Low 15 Haiti Low Low High 11 Suriname Medium n.a. High 4 Antigua and Barbuda Low n.a. High 2 Granada Medium n.a. n.a. 0.3 Dominica Low n.a. n.a. 0.2 61 L O W C A R B O N , H I G H G R O W T H : L AT 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 AT E C H A N G E TABLE A2 Relative Importance of Mitigation Potential in Energy-Related Emissions Based on Energy and Emissions Growth Rates and Ratio of Emissions to Energy117 Energy intensity Industry and buildings: (per US$ of GDP) Power: carbon intensity Transport: carbon intensity carbon intensity Brazil Medium Medium Low Medium Mexico Medium Medium Low Medium Venezuela, R. B. de High Low Low Medium Argentina Medium Medium Medium Medium Colombia Low Low Low Medium Peru Low Medium Low Medium Bolivia High Medium Medium High Chile Low Medium Medium High Ecuador Medium High Medium Medium Guatemala High High High Medium Panama Low High High Medium Paraguay Medium n.a. High Low Honduras Medium High High Medium Costa Rica Medium Medium Medium Low Uruguay Low Low Medium Low El Salvador Medium Medium Medium Medium Haiti High Low Medium Medium TABLE A3 Relative Importance of Mitigation Potential in Non-Energy-Related Emissions Based on Emissions Growth Rates and Ratio of Emissions to GDP118 Agriculture Waste Other non-CO2 Brazil High Low Low Mexico n.a. Medium Medium Venezuela, R. B. de Low Medium Medium Argentina Low Low Medium Colombia High High Medium Peru Low High Medium Bolivia High High Low Chile Low Low Low Ecuador Low High Medium Uruguay High Low Low 62 A N O V E RV I E W FIGURE A1 Emissions Growth Rates and Ratio of Emissions to GDP Energy-related CO2 emissions: growth (1990­2004) Non-energy-related GHG emissions: growth (1990­2000) and ratio of emissions to GDP (2004) and ratio of emissions to GDP (2000) Belize -300 200 700 1200 1700 2200 2700 1.300 El Salvador Honduras Guatemala 1.300 Panama Bolivia 0.800 Costa Rica Dominican Republic Chile Trinidad and Tobago 2 Paraguay 2 Haiti CO 0.800 Nicaragua CO 0.300 Ecuador Argentina Mexico Colombia Paraguay Haiti R. B. de Venezuela Brazil El Salvador Jamaica Chile Dominican Republic Peru Uruguay Trinidad and Tobago -0.200 Growth Antigua and Barbuda Suriname Growth Belize 0.300 Guatemala Jamaica Costa Rica Honduras Peru Mexico Guyana Nicaragua Ecuador Guyana Argentina Brazil Panama Colombia -0.700 R.B. de Venezuela Uruguay -0.200 0 100 200 300 400 500 600 700 -1.200 CO2/GDP CO2/GDP Energy efficiency: level (2005) and growth (1990­2005) Power: emissions growth (1990­2005) and carbon intensity of energy (2005) 0.20 5.10 Honduras Haiti El Salvador Brazil Guatemala Bolivia 4.10 0.10 Ecuador 1990­2005 El Salvador Guatemala R. B. de Venezuela Ecuador 3.10 0.00 Costa Rica Bolivia Panama Paraguay 1990­2005 Costa Rica 2.10 Brazil Mexico -0.10 Uruguay Honduras Chile (energy/GDP), Panama emissions, 1.10 Uruguay Peru 2 Chile -0.20 Argentina Argentina CO Mexico Peru Colombia Growth 0.10 Colombia Haiti R. B. de Venezuela -0.30 Growth 7.00 12.00 17.00 22.00 -0.90 Energy/GDP, 2005 0.00 0.50 1.00 1.50 2.00 2.50 3.00 Emissions/energy, 2005 Transport: emissions growth (1990­2005) Other energy emissions: growth (1990­2005) and carbon intensity of energy (2005) and carbon intensity (2005) Guatemala 1.80 1.50 El Salvador Costa Rica Haiti 1.30 ­2005 Bolivia Panama El Salvador ­2005 1.10 Guatemala 1.30 Honduras 1990 1990 0.90 Chile Brazil Haiti Honduras 0.70 Colombia Chile Paraguay Panama 0.80 Ecuador 0.50 emissions, Mexico R. B. de Venezuela 2 emissions, Ecuador Bolivia 2 0.30 Argentina CO Paraguay Peru 0.30 CO Uruguay Brazil 0.10 Peru Argentina Costa Rica Mexico R. B. de Venezuela -0.10 Growth Colombia Growth -0.20 -0.30 2.45 2.55 2.65 2.75 2.85 2.95 0.00 0.50 1.00 1.50 2.00 2.50 3.00 Emissions/energy, 2005 Emissions/energy, 2005 (Figure continues on next page) 63 L O W C A R B O N , H I G H G R O W T H : L AT 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 AT E C H A N G E FIGURE A1 (continued) Land use change CO2 emissions: growth (1990­2000) Agriculture non-CO2 emissions: growth (1990­2000) and ratio of emissions to GDP (2000) and ratio of emissions to GDP (2000) -800 -300 200 700 1200 1700 2200 2700 -0.297 1.100 Bolivia Chile Jamaica -0.298 0.900 Costa Rica Ecuador Nicaragua 2 -0.298 Colombia Brazil 0.700 CO 2 Peru Panama -0.299 CO 0.500 Colombia Brazil Mexico Peru R. B. de Venezuela Uruguay Guatemala Bolivia Growth -0.299 Argentina Honduras 0.300 Guyana Growth Paraguay 0 100 200 300 400 500 600 -0.300 0.100 Chile Belize R. B. de Venezuela Argentina El Salvador -0.300 Haiti -0.100 Ecuador -0.301 -0.300 CO2/GDP CO2/GDP Waste non-CO2 emissions: growth (1990­2000) Other non-CO2 emissions: growth (1990­2000) and ratio of emissions to GDP (2000) and ratio of emissions to GDP (2000) 0.320 Bolivia 50 250 450 650 850 1050 Antigua and Barbuda Belize 0.270 0.950 R. B. de Venezuela Ecuador Bolivia Colombia 0.220 0.750 Peru Mexico 2 Guyana Guatemala CO 2 0.550 Trinidad and Tobago 0.170 CO Haiti Chile Paraguay Colombia Brazil 0.350 Peru Suriname 0.120 Brazil Uruguay Growth Argentina Uruguay Growth 0.150 Argentina Mexico 0.070 Chile R. B. de Venezuela El Salvador Nicaragua -0.050 Jamaica Dominican Republic Honduras 0.020 Ecuador Panama 10 20 30 40 50 60 70 -0.250 Costa Rica CO2/GDP CO2/GDP Source: Climate Analysis Indicators Tool (CAIT, Version 5.0) and WDI. Note: Size of bubble indicates absolute volume of emissions. 64 A N O V E RV I E W Annex 2: Potential Annual Economic Impacts of Climate Change in CARICOM Countries circa 2080 (in millions 2007 US$)119 Pre- subtotal Subtotal Total Total GDP loss due to climate change­related disasters (hurricanes, floods): 4,939.90 Tourist expenditure 447.0 Employment loss 58.1 Government loss due to hurricane 81.3 Flood damage 363.2 Drought damage 3.8 Wind storm damage 2,612.2 Death (GDP/capita) due to increased hurricane-related disasters 0.1 (wind storm, flood and slides) Floods DALY (GDP/capita) 0.8 Sea-level rise 1,888.5 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 sea related tourism entertainment expenditure 88.2 Housing replacement 567.0 Electricity infrastructure loss 33.1 Telephone line infrastructure loss investment needs 3.9 Water connection infrastructure loss investment 6.7 Sanitation connection infrastructure loss investment needs 9.0 Road infrastructure loss investment needs 76.1 Rail infrastructure loss investment needs 2.7 Temperature rise Loss of tourists expenditure 4,027.4 General climate changes Agricultural loss 220.5 Water stress: cost of additional water supply 104.0 Health Malaria DALY (GDP/capita) 0.003 Other diseases costs 7.1 Total Grand total 11,187.30 % of GDP 11.26% 65 L O W C A R B O N , H I G H G R O W T H : L AT 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 AT E C H A N G E Bibliography Destabilization in Latin America. 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EOS Transactions American Geophysical Union 88: 261-268. 71 L O W C A R B O N , H I G H G R O W T H : L AT 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 AT E C H A N G E Endnotes and alternatives). The curves shown for scenarios are averages over 1. See, for example, Ruta and Hamilton (2008), "Environ- available individual scenarios in each of the six scenario families, and ment and the global financial crisis." Mimeo, the World Bank. differ slightly from "marker" scenarios. The stabilization trajecto- 2. Giambiagi and Ronci (2004), "Fiscal Policy and Debt ries are spline fits approximating the average from two models Sustainability: Cardoso's Brazil, 1995-2002," IMF Working that give similar results. They include uncertainty because the Paper 04/156. emissions pathway to a given stabilization target is not unique. 3. See Kasa and Naess (2005), "Financial Crisis and State- 10. Magrin et al. (2007). NGO Relations: The Case of Brazilian Amazonia, 1998­2000," 11. See Bradley et al. (2006). The evidence is based on Society and Natural Resources 18: 791­804 analysis of ensemble analyses from global circulation models, 4. "Fourth Assessment of the IPCC" (2007). The report was and other analyses of field data confirm this trend. published in September 2007 and was produced by more than 12. National Communications to the UNFCCC (2001, 450 authors from more than 130 countries, with more than 2004, 2007). 2,500 expert reviewers. 13. Caso et al. (2004). Wetlands in the Gulf of Mexico have 5. The most important anthropogenic GHG is carbon diox- been identified by the Mexican National Institute of Ecology ide (CO2), which in 2004 represented 77 percent of total GHG (INE) as one of the most critical and threatened ecosystems by emissions. Other important GHGs are methane (CH4) and anticipated climate changes. Data published on projected nitrous oxide (N2O). Global atmospheric concentrations of forced hydroclimatic changes, as part of IPCC assessments CO2 increased by 35 percent between 1750 and 2005, while (Milly et al., 2005) indicate that Mexico may experience signif- those of CH4 and nitrous oxide N2O increased by 148 percent icant decreases in runoffs, of the order of minus 10 to 20 per- and 18 percent respectively, during the same period. cent nationally, and up to 40 percent over the Gulf Coast 6. Francou et al. (2005). wetlands, as a result of global climate change. This has been 7. In 2004, CO2 emissions from fossil fuel use represented documented in Mexico's third national communication to the 56.6 percent of total GHG emissions, while CO2 emissions UNFCCC. from land-use change were 17.3 percent. Agriculture was 14. These results are based on a VAR analysis for the sample responsible for 13.5 percent of total GHG emissions, account- of countries that have experienced at least one disaster since ing for almost 90 percent of N2O emissions (which in turn were 1950, excluding those cases in which disasters affected less than 8 percent of total GHG emissions) and for more than 40 per- 0.05 percent of the countries' population or GDP. See Raddtaz cent of CH4 emissions (which were 14 percent of total GHG (2008). emissions). Other sources of CH4 include emissions from land- 15. Notes: Group of countries include Anguilla; Antigua and fill waste, wastewater, and the production and use of bio energy. Barbuda; Argentina; Bahamas; Barbados; Belize; Bolivia; Bra- IPCC (2007). zil; Cayman Islands; Chile; Colombia; Costa Rica; Cuba; Domi- 8. These concentration levels are expressed in terms of "CO2- nica; Dominican Republic; Ecuador; El Salvador; French equivalent" units. That is, they are weighted averages of the Guiana; Grenada; Guadeloupe; Guatemala; Guyana; Haiti; stocks of all GHG, with weights determined by the relative Honduras; Jamaica; Martinique; Mexico; Montserrat; Nether- warming potential of each gas with respect to CO2. Hereafter lands Antilles; Nicaragua; Panama; Paraguay; Peru; Puerto these units will be referred to as CO2-equivalent parts per mil- Rico; St. Kitts and Nevis; St. Lucia; St. Vincent and The Gre- lion, or "CO2e ppm." nadines; Suriname; Trinidad and Tobago; Turks and Caicos 9. The figure depicts observed global CO2 emissions, from Islands; Uruguay; República Bolivariana de Venezuela; Virgin both the EIA (Energy Information Administration of the U.S. Islands (UK); Virgin Islands (U.S.). It includes disasters that Department of Energy) (1980­2004) and global CDIAC (Car- meet at least one of the following criteria: (a) 10 or more people bon Dioxide Information Analysis Center of the U.S. Depart- reported dead, (b) 100 people reported affected, (c) declaration ment of Energy) (1751­2005) data, compared with emissions of a state of emergency, (d) call for international assistance. scenarios and stabilization trajectories. EIA emissions data are 16. Christensen et al. (2007). normalized to the same mean as CDIAC data for 1990­99. The 17. There are estimates of up to a 90 percent reduction in 2004 and 2005 points in the CDIAC dataset are provisional. rainfall by the end of the century (Cox 2004, 2007). However, The six IPCC scenarios are spline fits to projections (initialized some estimates suggest that 40 percent reductions in rainfall with observations for 1990) of possible future emissions for four would suffice to initiate a dieback process. scenario families: A1, A2, B1, and B2. Three variants of the A1 18. According to the 2005 FAO Global Forest Resource (globalized, economically oriented) scenario lead to different Assessment, Latin America accounts for about 33 percent of the emissions trajectories: A1FI (intensive dependence on fossil world's forest biomass. Moreover, estimates by Houghton fuels), A1T (alternative technologies largely replace fossil (2005) suggest that the region contains 50 percent of the fuels), and A1B (balanced energy supply between fossil fuels world's tropical forests and 65 percent of the tropical forest bio- 72 A N O V E RV I E W mass. Global Change Biology 11, pp. 945-958, "Above Ground ed., Assessing the Consequences of Climate Destabilization in Latin Forest Biomass and the Global Carbon Balance." America. 19. http://www.usaid.gov/locations/latin_america_caribbean/ 33. Van Lieshout et. al (2004). issues/biodiversity_issue.html. 34. Gerolomo and Penna (1999). 20. IPCC 2007, Thomas et al. 2004 35. The so-called greenhouse effect can be briefly described 21. The antbirds are a large family, Thamnophilidae, of as follows: The earth's global mean climate is determined by passerine birds found across subtropical and tropical Central the balance of incoming and outgoing energy in the atmos- and South America, from Mexico to Argentina. The Formicari- phere. Most of the energy that the earth receives from the sun is idae, formicariids, or ground antbirds are a family of smallish absorbed by the planet, but a fraction is reflected back into passerine birds of subtropical and tropical Central and South space. The amount of energy that is bounced back depends on America. Manakins are found from southern Mexico to north- the concentration of so-called greenhouse gases (GHGs) in the ern Argentina, Paraguay, and southern Brazil, and on Trinidad earth's atmosphere. These gases trap some of the radiation and Tobago as well. Most species live in humid tropical low- received from the sun and allow the planet's temperature to be lands, with a few in dry forests, river forests, and the subtropi- about 30o C above what it would be otherwise (Stern 2007). cal Andes. Source: Wikipedia.org. While the greenhouse effect is a natural process without which 22. Mendelsohn (2008a). the planet would probably be too cold to support life, the con- 23. Seo and Mendelsohn (2008). centration of GHGs in the atmosphere has been accelerating 24. Mendelsohn et al. (2008b). over the past 250 years. According to IPCC (2007), there is a 25. Mendelsohn and Williams (2003). 95 percent probability that increases in GHG concentrations 26. Tol (2002). are responsible for the increases in average global temperatures 27. Medvedev and van der Mensbrugghe (2008). and other climate trends observed over the past century. 28. The use of a discount rate of 5.5 percent is consistent 36. Tradeoffs are mostly related to the possibility that miti- with Nordhaus (2007), Journal of Economic Literature XLV (Sep- gation expenditures crowd out the resources available for adap- tember 2007), pp. 686­702, "A Review of the Stern Review on tation or possibly vice versa. Tol and Yohe (2007), for example, the Economics of Climate Change." report that in the case of Sub-Saharan Africa the total value of 29. The methodology is only applied to countries where expected nonmarket climate damages is highest in the most complete economic data are readily available, specifically: ambitious mitigation scenario, mainly because mitigation Antigua and Barbuda, Barbados, Bahamas, Belize, British Vir- crowds out public health care. As for synergies, they are mainly gin Islands, Cuba, Dominica, Dominican Republic, Haiti, derived from the fact that successful global mitigation efforts Grenada, Honduras, Jamaica, Mexico, Nicaragua, Puerto Rico, should in principle reduce the need for adaptation invest- St. Kitts and Nevis, St. Lucia, and the Grenadines. ments--for example, by successfully reducing the rate of global 30. Toba, N., forthcoming, 2008, "Economic Impacts of warming through reductions in GHG concentrations. In addi- Climate Change on the Caribbean Community," in W. Vergara, tion, some climate mitigation efforts may also increase the abil- ed., Assessing the Consequences of Climate Destabilization in Latin ity of natural and human systems to adapt to climate change America. impacts. Efforts to reduce deforestation for example may also 31. If one includes Mexico in the set of affected countries, foster more climate-resilient sustainable development. See, for the estimated losses fall to between 0.5 and 1.2 percent of GDP. instance, Lal (2004) and Landell-Mills (2002). Estimates are based on the Coral Mortality and Bleaching Out- 37. The optimal level of adaptation depends on the compar- put model (COMBO), developed by Budenmeier and cowork- ison of the expected damages of climate change with and with- ers (Buddemeier et al. 2008). COMBO models the response of out adaptive responses, as well as the costs of those responses, coral growth to changes in sea surface temperature (SST), and the costs associated with misadapting--that is, undertak- atmospheric CO2 concentrations, and high-temperature- ing adaptive responses in a scenario in which climate change related bleaching events. The model estimates the growth and impacts do not materialize. See Callaway (2007). mortality of corals over time based on future climate predic- 38. To see why a curve showing the marginal damages as a tions and on the probability and effects of short-timed, high- function of emission reductions undertaken in the present is temperature-related bleaching events taking place in the area. downward sloping, consider two possible points on the curve Buddemeier, R.W., Jokiel, P.L., Zimmerman, K.M., Lane, and assume that in the future the world will implement little D.R., Carey, J.M., Bohling G.C. (2008). Limnology and Oceanog- or no additional emission reductions (i.e., the whole curve is raphy Methods 6, 395­411. drawn assuming the same "business-as-usual" path for future 32. Javier T. Blanco and Diana Hernández, "The Costs of emissions). The first point (which would be on the far left of the Climate Change in Tropical Vector-Borne Diseases--A Case curve) would indicate no effort to reduce emissions from cur- Study of Malaria and Dengue in Colombia," in W. Vergara, rent levels. Using Stern's (2008) predictions, the earth could 73 L O W C A R B O N , H I G H G R O W T H : L AT 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 AT E C H A N G E eventually face a 50 percent chance of global warming in excess 46. For the less stringent target of stabilization at 535 to of 5oC, which in turn would imply a large probability of very 590ppm CO2e, IPCC reports a median carbon price of 45 large damages. Thus, starting from this point on the left-hand US$/tCO2e in 2030, with model estimates ranging from 18 to side of the curve, marginal emission reductions could have large 79 US$/tCO2e in that year, and from 30 to 155 US$/tCO2e in benefits--assuming that they could allow for avoiding some of 2050. those very large damages. In contrast, starting from a point 47. According to IPCC, increases in energy efficiency in towards the right-hand side of the curve--for example, assum- buildings would account for between one-fifth and one-third of ing that the world implements large-scale emission reductions global mitigation potentials. In addition, energy supply, indus- at least on a once-and-for-all basis--it is safe to assume that the try, and agriculture would each account for between 15 percent most catastrophic potential damages will at least be postponed, and 20 percent of the total potential, while forestry could con- which implies that the marginal benefit of additional emission tribute 8 percent to 14 percent depending on the scenario. reductions would be smaller (at least if one assumes a positive Emission reductions in the transport sector would account for discount rate). less than 10 percent and waste for about 3 percent of the total 39. See Vardy (2008). global mitigation potential. 40. See Knight, F. (1921). Risk, Uncertainty and Profit. 48. Medvedev D. and D. van der Mensbrugghe (2008). The Boston MA: Houghton Mifflin. simulations performed are, respectively, a uniform global car- 41. To illustrate the difficulties associated with climatic pre- bon tax and a set of country-specific carbon taxes--for example, dictions, it is useful to briefly consider all the steps that are with higher taxes in countries with lower potential so as to inevitably involved. One has first to deal with estimating long- reach the same 55 percent emission reduction in each and all run global demographic and economic trends so as to predict countries. future flows and stocks of man-made GHG emissions--with the 49. The difference between both groups of countries is leap from the former to the latter involving nontrivial scientific smaller but still significant when not only emissions from challenges associated with the so-called carbon-cycle. Next, one energy but also from land-use change are considered for the has to estimate the impact that increasing stocks of GHG will shorter 1950­2000 period. Land-use change emissions are not have on average global temperatures and other critical climate available from this source for previous periods. In this case, the parameters. Finally, one has to translate expected global cumulative emissions of industrialized countries would be 457 changes in climate into regional scenarios and assess what the tCO2 p/c compared to 103 tCO2 p/c for developing countries. corresponding impacts will be on specific human and natural Data are from WRI (2008): http://cait.wri.org/cait.php (Sep- systems. Once again, this requires an enormous modeling effort tember 9, 2008). and massive data gathering, and in the end will still leave much 50. In the case of Brazil, in October 2008 the Minister of uncertainty. the Environment announced that the country could achieve a 42. See Schneider and Lane (2007) and Yamin, Smith and 10­20 percent reduction of emissions from 2004 during the Burton (2007). period 2012­20, presumably by reducing illegal deforestation 43. Under the UNFCCC framework, the 1997 Kyoto Pro- rates. However, the government warned that these reductions tocol established a binding commitment by industrialized are conditional on certain international prerequisites, which countries to reduce GHG emissions during 2008­12 by 5 per- the Brazilian government will announce at a later date. Simi- cent with respect to their 1990 level. The Protocol was subse- larly, Mexico's 2007 National Strategy on Climate Change quently ratified by 162 countries, although some key countries, (Estrategia Nacional de Cambio Climatico, Secretaria de Medio including the United States, failed to do so. The current chal- Ambiente y Recursos Naturales, Mexico, 2007) acknowledges lenge is that of reaching a follow-up agreement that, given the the importance of urgent and concerted action on climate more recent scientific evidence, would have to extend Kyoto change mitigation and adaptation. The strategy emphasizes both in terms of the ambition of its goals and in its global cov- Mexico's willingness to engage in a more ambitious climate erage. change framework than that established by the Kyoto Protocol 44. This measures the expected temperature increase associ- and its willingness to adopt long-term targets of a nonbinding ated with a doubling of GHG concentrations. nature. The two sectors targeted for mitigation efforts are 45. Alternatively, in a scenario where, as suggested by Stern energy and land-use change and forestry. The 2007 strategy (2008) all countries in the world would agree to converge to a identifies a total mitigation potential of 107 Mtons in the common level of per capita emissions by 2050, industrialized energy sector by 2014 (representing a 21 percent reduction countries would have to reduce their per capita GHG emissions from BAU over the next six years) from end-use energy effi- to between 23 and 34 percent of their 2000 level, while devel- ciency, increase in the use of natural gas, and increase in the oping countries would need to reduce theirs to between 64 and cogeneration potential in the cement, steel, and sugar indus- 96 percent of their 2000 level. tries. However the bulk of Mexico's mitigation potential comes 74 A N O V E RV I E W from the land-use sector. The strategy identifies a mitigation post-2012 intent in written form, in August 2008 Ambassador potential that ranges from 11 to 21 billion tons CO2 in the Rae-Kwon Chung, chief climate negotiator for the country, land-use and forestry sector by 2012, most of which will come announced that South Korea would adopt a national carbon from public reforestation and private planting, and will depend reduction target next year. A few months later he called for the on the level of available resources. Outside of LAC, China is establishment of an international registry for developing coun- already implementing a wide range of energy and industrial tries to record their domestic emission reduction policies. Reg- policies that, while not driven by climate change concerns, are istering would be voluntary, but laying out a domestic policy contributing to climate efforts by slowing the growth of would translate into an international commitment that could China's GHGs. China's 11th Five-Year Plan includes a major be monitored and verified. program to improve energy efficiency nationwide, including a 51. Data on tropical forest biomass are from Houghton goal of reducing energy intensity (energy consumption per unit (2005), based on 2000 FAO data. Data on share in total forest of GDP) by 20 percent below 2005 levels by 2010. The gov- biomass are from the FAO's 2005 Global Forest Resource Assess- ernment projects that meeting this target would reduce China's ment. GHG emissions 10 percent below business as usual; researchers 52. Data from the International Energy Agency. estimate that over 1.5 billion tons of CO2 reductions would be 53. Figure 9 follows the approach proposed by Kaya (1990) achieved (Pew Center for Climate Change, Climate Change to decompose fossil fuel CO2 emissions into the following fac- Mitigation Measures in the People's Republic of China, Inter- tors: (a) the change in the carbon intensity of energy (emissions national Brief 1, April 2007). In the case of India, In June per unit of energy); (b) the change in the energy intensity of 2008, Prime Minister Singh released the country's first output (energy consumed per unit of GDP); (c) the change in National Action Plan on Climate Change (NAPCC), outlining GDP per capita; and (d) the change in population. Although existing and future policies and programs addressing climate the "Kaya decomposition" is not based on an estimated model mitigation and adaptation. The plan identifies eight core of causal links between the relevant variables, it can be useful "national missions" running through 2017 and directs min- for uncovering the main factors driving observed changes in istries to submit detailed implementation plans to the Prime CO2 emissions (see Bacon and Bhattacharya 2007). The figure Minister's Council on Climate Change by December 2008 reports the changes in fossil fuel emissions that can be attrib- (http://www.pewclimate.org/ international/country- uted to different factors, expressed as percentage of initial 1980 policies/india-climate-plan-summary/ 06-2008). Emphasizing levels. The figure shows that, during the past 25 years, changes the overriding priority of maintaining high economic growth in LAC's energy intensity of output contributed to increasing rates to raise living standards, the plan "identifies measures emissions by 15 percent, but the region's falling carbon inten- that promote our development objectives while also yielding sity acted to reduce emissions by 17 percent. In contrast, at the co-benefits for addressing climate change effectively." The mis- global level, falling energy intensities contributed to reducing sions include: tripling renewables to 10 percent of installed emissions by 35 percent, and reductions in carbon intensities capacity by 2012; 500 percent increase in nuclear power (to helped reduce emissions by about 9 percent. Finally, LAC's rel- 20GW) by 2020; decreasing 7 percent of coal plants by 2012 atively low rates of growth of per capita GDP are reflected in a and another 10,000MW by 2017, and increasing energy effi- smaller contribution of this factor to fossil fuel emissions, ciency in order to save 10,000 MW by 2012. In South Africa, equivalent to 23 percent of the initial level, compared to 82 at in July 2008 the government approved a progressive policy on the global level, 51 percent in the case of high-income coun- climate change that puts the country on a low-carbon economic tries, and as much as 309 percent in China and India. development path (Long Term Mitigation Scenarios: Strategic 54. As shown by Alaimo and Lopez (2008), in contrast with Options for South Africa, Department of Environmental the evidence for the OECD, the oil and energy intensities of Affairs and Tourism, Pretoria, South Africa, 2007). The policy Latin American countries (excluding oil exporters) have not calls for emissions to peak at 546 megatons of carbon by 2025 been affected by higher oil prices. To use a more technical lexi- and decline in absolute terms by 2030­35. One of the measures con, they are not "Granger-caused" by higher oil prices. being considered is a carbon tax, introduced by the Minister of 55. The main messages for the group of seven largest emit- Finance in his Budget Speech in February 2008. The Cabinet ters are as follows: First, among countries with either high lev- has mandated the National Treasury to study further a carbon els or high growth rates of energy related emissions, high levels tax as a potential option. Other measures being considered are of energy consumption per unit of GDP ( energy efficiency) are stringent vehicle fuel efficiency standards, the development of a special concern in República Bolivariana de Venezuela, while 10,000 GWh of energy from renewable energy sources by relatively high emissions per unit of energy could be a bigger 2012, mandatory use of carbon capture and storage (CCS) for concern for Mexico, Argentina, and Chile. In Chile in particu- all new coal-fired power stations, and an increase in nuclear lar, emissions are relatively high and growing at a fast pace in generation. Finally, while South Korea has not formalized its the industry and building sectors. Second, outside of energy, 75 L O W C A R B O N , H I G H G R O W T H : L AT 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 AT E C H A N G E land-use change is particularly important for Brazil and Peru, the measure and the monetary value attributed to mortality emissions from agriculture are either high or growing fast in risks. Brazil and Colombia, and emissions from waste should be of 69. Aunana, et al. (2004); McKinley et al. (2005). These special concern in Colombia and Peru. deaths are avoided because of a reduction in air pollution, 56. World Energy Outlook (2006). including emissions of SO2, N2O, and particulate matter from 57. The study looked at the cost of reducing electricity use vehicles and heat and power sources. by 143,000 GWh in 2018 using widely available energy effi- 70. Mexico's energy agency, CFE, has estimated the feasible ciency measures at a cost of US$16 billion compared to the potential of wind at between 7 to 12 GW, in comparison to the costs of around US$53 billion to build the equivalent of 328 current installed capacity of 51 GW, with detailed wind gas-powered open cycle generators (250 MW each) necessary to resource studies completed for Baja Peninsula produce the same 143,000 GWh of power. (1500­2500MW) and the Isthmus of Tehuantepec centered in 58. World Bank (2009). Oaxaca (2000­3000MW). 59. Presentations made at CEPAL (Santiago de Chile) on 71. The wind projects in question would be those projects October 16, 2008, by representatives of Fundacion Bariloche, with high-capacity factors (about 37 percent). It is important Universidad de Chile, PSR/COPPE, Universidad de los Andes, to note, however, that the economic evaluation of generation and Universidad Catolica del Peru. alternatives is much more complex than the simplified analysis 60. In addition, the opportunity to earn future carbon above based on levelized costs. One should also consider factors finance payments can increase the value of formerly marginal such as transmission costs related to the connection of the pro- lands. Higher land rents improve the economic position of ject to the national grid; local differences in operation costs and landowners and enhance their adaptive capacity (Lal 2004). the reliability of the interconnected power system; fuel price Moreover, positive spillover effects for timber and nontimber and demand risks; externalities like the environmental impact forest products exist when sustainable forest exploitation is per- of the projects; and fuel transportation and storage costs. From mitted on top of the delivery of environmental services (Lan- a private point of view, the economic evaluation has also to take dell-Mills 2002). into account the capital cost of private companies; the project, 61. Potential land availability and location for A/R projects market, and country risks; costs of the firm's fuel supply; finan- by country within the LAC Region were obtained by applying cial and fiscal incentives; transaction costs; connection and the ENCOFOR CDM-AR Online Analysis Tool (Zomer et al. transmission costs; and power market rules and prices. See Dus- 2008) to the crown cover threshold defined by each country san (2008). under the Kyoto Protocol. This tool is available online at 72. Dussan (2008). The low-cost hydroelectric projects con- http://csi.cgiar.org/encofor/forest/. sidered have investment costs below US$1,200/kW. Levelized 62. This third group of studies models the forestry together generation costs cover fixed and variable costs, thereby includ- with other sectors (agriculture and in some cases also energy) ing investments and operation and maintenance expenditures. and they end up deriving supply curves. See, for instance, The generation costs of thermoelectric alternatives vary from Boucher and Reddy (2007). 41 to 65 US$/MWh for coal-fired plants; from US$49 to 63. Expected deforestation rates, in particular, are based on US$83/MWh for gas-fired plants (except for Peru, in which the multiple variables, including current deforestation trends, dri- cost is estimated at US$29.4/MWh and Colombia in the sce- vers of land-use change (roads and population growth) and nario of low oil and gas prices, for which the cost would be land-use alternatives among others, while carbon content is US$35.5/MWh); and from US$88 to US$132/MWh for diesel- determined by a series of assumptions about vegetation type fired plants. and carbon pools. 73. Presentations made at CEPAL (Santiago de Chile) on 64. International Road Federation (IRF). 2006. World Road October 16, 2008, by representatives of Universidad de Chile, Statistics 2006. Geneva: IRF. PSR/COPPE and Universidad Catolica del Peru. 65. World Bank (2009). 74. "Switching cost" is the minimal price of carbon that 66. The Economist, 2007. "Adiós to poverty, hola to con- would make it financially viable to undertake an investment in sumption," August 16th 2007. a low-emitting technology instead of using a technology that 67. http://www.time.com/time/world/article/0,8599,17338 has lower up-front costs, but emits more carbon. 72,00.html. 75. World Bank 2008. Environmental Licensing for Hydro- 68. Estimates range from between 30 and 50 percent, electric Projects in Brazil: A Contribution to the Debate. Brazil according to Burtaw et al. (2003) and Proost and Regemorter Country Management Unit, Report 40995-BR. (2003), to three to four times greater than total mitigation 76. ESMAP (2007). costs (Aunana, et al. 2004; McKinley et al. 2005), depending 77. In South America, Chile and Uruguay are net energy on the stringency of the mitigation level, the source sector, and importers, and thus vulnerable to volatility in energy prices 76 A N O V E RV I E W and supplies. However, the dependence on imported hydrocar- 97. Gisselquist, Nash, and Pray (2002) find that overly bons is most acute among Central American and Caribbean restrictive seed regulations interfere with technology flow, par- countries, including Barbados (86 percent), Dominican Repub- ticularly in some developing countries. lic (78 percent), Jamaica (86 percent), and Panama (72 per- 98. P. Michaels, 2008, "Confronting the Political and Scien- cent). ESMAP (2007). tific Realities of Global Warming," Washington DC: Cato 78. ESMAP (2007). Institute for the Hokkaido G8 Summit. 79. See Kojima, M., D. Mitchell, and W. Ward "Consider- 99. ENSO, a global coupled ocean-atmosphere phenome- ing Trade Policies for Liquid Biofuels," Energy Sector Manage- non, is associated with floods, droughts, and other disturbances ment Assistance Program Renewable Energy Special Report in a range of locations around the world. 004/07, 2007, World Bank. 100. See, for example, Howitt, R. and E. Pienaar. 2006. 80. Farrell (2006); Hill and others (2006); Kartha (2006); "Agricultural Impacts" in J. Smith and R. Mendelsohn (eds.) review of studies reported in Worldwatch Institute (2006) and The Impact of Climate Change on Regional Systems: A Comprehensive Kojima, Mitchell, and Ward (2006). Analysis of California Edward Elgar Publishing, Northampton, 81. Koplow (2006). MA. Pp 188­207; Hurd, B., J. Callaway, J. Smith, and P. Kir- 82. Mitchell (2008). shen. 1999. "Economics Effects of Climate Change on US 83. Farrell (2006); Hill and others (2006); Kartha (2006); Water Resources," in R. Mendelsohn and J. Smith (eds) The review of studies reported in Worldwatch Institute (2006) and Impact of Climate Change on the United States Economy. Cambridge Kojima, Mitchell, and Ward (2006). University Press, Cambridge, UK, pp. 133­177; Lund, J., T. 84. Searchinger and others (2008). Zhu, S. Tanaka, M. Jenkins. 2006. "Water Resource Impacts," 85. Searchinger and others (2008). in J. Smith and R. Mendelsohn (eds.) The Impact of Climate 86. Zah and others (2007), Gibbs and others (2008). Change on Regional Systems: A Comprehensive Analysis of California 87. Gibbs and others (2008). Edward Elgar Publishing, Northampton, MA. pp 165­187; 88. Another study that also estimates the carbon payback Strzepek, K., D. Yates, and D. El Quosy. 1996. "Vulnerability period concludes that "converting rainforests, peatlands, savan- assessment of water resources in Egypt to climatic change in nas, or grasslands to produce food-based biofuels in Brazil, the Nile Basin." Climate Research 6: 89­95. Southeast Asia, and the United States creates a 'biofuel carbon 101. Mendelsohn, R. 2008, "Impact of Climate Change on debt' by releasing 17 to 420 times more CO2 than the annual the Rio Bravo River." Background paper for this report, July 2. GHG reductions these biofuels provide by displacing fossil 102. E. Bresnyan and P. Werbrouck, "Value Chains and fuels." Source: Fargione and others (2008). Small Farmer integration," World Bank, LCSAR, Agriculture 89. De Gorter and Tsur (2008). for Development series. 90. De Gorter and Tsur (2008). 103. The CDM that was created under the Kyoto Protocol. 91. The former is 7,225 liters/ha, compared to 3,750 This mechanism currently allows industrialized countries to liters/ha. According to Nyberg, J. "SUGAR-BASED meet some of their climate mitigation commitments by invest- ETHANOL International Market Profile." Background paper ing in emission reductions in developing countries for the Competitive Commercial Agriculture in Sub­Saharan 104. For example, in one proposal for reducing deforestation Africa (CCAA) Study, 2007 FAO and World Bank, citing figures rates in the Brazilian Amazon (Nepstad et al. (2007)), financial from UNICA. Available at: http://siteresources.worldbank.org/ incentives would be used to partially compensate forest-based INTAFRICA/Resources/257994-1215457178567/Ethanol_ local populations and legal private landholders, respectively, for Profile.pdf. their "forest stewardship" role and forest conservation efforts. 92. De Gorter and Tsur (2008) In addition, a "government fund" would compensate the gov- 93. Smith and others (in press). ernment for expenditures above and beyond current outlays, 94. IPCC (2007). including for the management of public forests, the provision 95. Waste disposal is generally deficient. Only 23 percent of of services to local populations and the monitoring of private waste collected is disposed in sanitary landfills; another 24 per- forests (including expanded environmental licensing). It is esti- cent goes to controlled landfills, with the remainder ending up mated that over a 30-year period, the deforested area could be in open dumps or courses of water. Pan American Health Orga- 490,000 km2 smaller and avoided emissions 6.3 billion tons of nization 2005. carbon lower than in a business-as-usual scenario estimated by 96. West, J. M., and R. V. Salm 2003. "Resistance and Soares Filho et al. (2006). The overall cost of such a program Resilience to Coral Bleaching: Implications for Coral Reef Con- would be about US$8.2 billion, or about US$1.3 per ton of servation and Management," Conservation Biology, 17(Aug), no. avoided carbon emissions. It is worth noting, however, that a 4: 956- 967. problem with the proposal of Nepstad et al. (2007) is that it 77 L O W C A R B O N , H I G H G R O W T H : L AT 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 AT E C H A N G E does not consider it necessary for the financial incentive 113. Argentina: The Challenge of Reducing Logistics Costs, designed to avoid conversion of forest to soy or cattle ranching 2006; Costa Rica: Country Economic Memorandum: The to equalize the opportunity cost of the land. The authors cite an Challenges for Sustained Growth, 2006; Improving Logistics ongoing and successful forest protection subsidy program Costs for Transportation and Trade Facilitation, 2008; working with local communities and derives the incentive lev- Infraestructura Logística y de Calidad para la Competitividad els from that program. de Colombia, 2006; Brazil: How to Decrease Freight Logistics 105. These figures are for the year 2000, the last year for Costs in Brazil (under preparation). which CAIT (2008) reports emissions of all GHG. Focusing on 114. World Bank 2008. Environmental Licensing for energy-related CO2 emissions only yields annual emissions of Hydroelectric Projects in Brazil: A Contribution to the Debate. 0.36 and 0.43 billion tons of CO2 per year, respectively, for Brazil Country Management Unit, Report 40995-BR Brazil and Mexico in 2004 (the latest year for which data is 115. Rios Roca, A. R., M. Garron B., and P. Cisneros 2005. available for this type of emissions in CAIT, 2008). "Targeting Fuel Subsidies in Latin American and the 106. Reflecting the country-specific nature of reduction Caribbean: Analysis and Proposal." Latin American Energy opportunities, of course, other sectors (waste management, Organization (OLADE), June. agriculture) may be more significant than any of these four in 116. Countries are classified as having a relatively high certain countries. (low) potential when they are above the median LAC country in 107. FAO (2005). terms of both (neither) their rate of growth of emissions of a 108. Agrawal, A. 2008. "Livelihoods, Carbon, and Diversity given type and (nor) in terms of the ratio of those emissions to in Community Forests: Tradeoffs or Win-Wins?" Presentation GDP. A medium potential is attributed to countries for which at conference on "Rights, Forests, and Climate Change," Octo- the rate of growth of emissions is above the median but the ber 15­17, 2008, Organized by Rainforest Foundation Norway level is not (or vice versa). and the Rights and Resources Foundation. http://rightsand 117. Definitions of potential are as in table A1 but substi- climate.org/. tuting, in column 1, the levels and rates of growth of the ratio 109. Chomitz and others (2007). of energy to GDP (over the variables described in table A1); 110. Soarez-Filho and others (2006). and the level of ratios of emissions to energy instead of that to 111. The cumulative reduction of particulate matter (PM GDP in the other columns. 2.5) would be of 11,800 tons and that of nitrous oxides of 118. Definitions of potential are as in table A1. 855,000 tons for the first example, and on the order of 8,000 119. Caribbean community included 15 member countries tons of PM 2.5 and 1,134,000 tons of nitrous oxides for the sec- and 5 associate member countries, totaling 20 countries. Some ond. World Bank (2009). data are not available for some countries and thus such costs are 112. Presentations made at CEPAL (Santiago de Chile) on not estimated in those countries for a specific item. Therefore, October 16, 2008, by representatives of Fundacion Bariloche, the total estimates may be regarded as conservative. Universidad de Chile, PSR/COPPE, Universidad de los Andes, and Universidad Catolica del Peru. 78 T here is an increasing consensus in the scientific community that climate change is a real and present threat. Despite the large uncer- tainty on the timing, magnitude, and even the direction of some of the physical and economic effects of this phenomenon, it is widely accept- ed that these effects will be regionally differentiated and that developing countries and lower income populations will tend to suffer the most. In this context, it is critical that Latin American and Caribbean countries develop their own strategies for adapting to the various impacts of climate change and for contributing to global efforts aimed at mitigation. Low Carbon, High Growth contributes to these efforts by addressing a num- ber of questions related to the causes and consequences of climate change in Latin America. What are the likely impacts of climate change in the region? Which countries and regions will be most affected? What can governments do to tackle the challenges associated with adapting to climate change? What role can Latin America and the Caribbean play in the area of climate change mitigation? How can the international community best help the region respond? While the study does not attempt to provide definitive answers to these questions, its goal is to contribute new information and analysis to help inform the public policy debate on this important issue. ISBN 978-0-8213-7619-5 SKU 17619