After years of relative inaction, Latin America seems to have woken up to global warming. To the surprise of many, business and political leaders, gathered in Santiago in April at the World Economic Forum (WEF) on Latin America, defined environmental sustainability policies as one of the priorities for the region, second only to education. A report prepared for the meeting by the WEF Global Risk Network identified climate change as one of four main groups of risks for the region, with potential effects that “include increased frequency and severity of extreme weather events, drought, increasing food insecurity, disease and population displacement.”
The issue might still seem an abstraction in a region facing chronic problems of poverty, crime and income distribution, to name just a few. The region as a whole is responsible for only 6% of greenhouse gas emissions. Countries like Chile and Argentina are responsible for only 0.2% and 0.9% respectively, meaning that whatever they do, it will make little impact on the problem. For that reason, apart from performing inventories of climate change, the region has few commitments under the Kyoto Protocol that imposes restrictions on emissions by a group of around 30 industrialized countries --with the notable exception of the US.
Nevertheless Ricardo Sanchez, regional director of the United Nations Environment Program (UNEP), reckons that the region’s countries “are committed to this. They are carrying out activities even if they are not associated with Annex 1,” the list of countries required to reduce emissions. As examples, he lists Brazil’s efforts to reduce deforestation in the Amazon; the 250 million trees planted this year by Mexico; campaigns by Venezuela and Cuba that have together installed 75 million energy-saving lightbulbs; and a commitment by Costa Rica to become carbon-neutral by 2021, meaning it will emit no more greenhouse gases than absorbed by its forests.
The main thrust of emissions reduction in the region, however, is also a business opportunity. The Kyoto Protocol establishes the Clean Development Mechanism (CDM), which allows industrialized countries with a greenhouse gas reduction commitment to invest in projects that reduce emissions in developing countries as an alternative to costlier reductions at home. Brazil has been quick to take advantage, with 350 projects approved under the mechanism, followed by Mexico with 65. But both trail China and India, which between them account for three fifths of expected annual reductions from the CDM.
Meanwhile Chile, which has won plaudits for implementing complex contracts and mechanisms aided by country’s economic stability and legal framework, accounts for just 1.9% of expected reductions. In general, Latin America “was the region that pioneered the previous stage,” says Leonidas Girardin, director of Fundacion Bariloche, a scientific foundation that has helped the Argentine government prepare technical reports on climate change. But it has been unable to compete with the sheer number and scale of projects in Asia. “So far Latin countries have reaped little benefit, despite the effort, funds and human capital invested.” With the exception of Brazil, “where there is a very dynamic private sector and projects on a scale that is attractive to the international market, the other countries are left with the crumbs.”
2/3 of the forests destroyed worldwide between 2000 and 2005 were located in Latin América“América Latina ha sido activa, pero los proyectos han sido pequeños y eso hace que el mercado para nosotros haya sido un poco más complejo”, dice Maria Teresa Szauer, directora de medioambiente de la Corporación Andina de Fomento (CAF).”Es muy factible que a futuro, cuando se acaben los proyectos grandes en Asia, América Latina vuelva a tener un repunte interesante”.
The CAF is promoting the CDM scheme though its Latin American Carbon Program (PLAC), launched in 1999, and last year extended to all Latin American countries. Acting as an intermediary, especially for Dutch and Spanish buyers, the Program has closed deals for close to 9 million tonnes in carbon reductions. It also offers technical assistance and develops new methodologies, for instance in transport. With the Program’s support, the Transmilenio urban passenger transportation system in Bogota became the first project of its type in the world to enter the CDM scheme and it is now looking to repeat the experience elsewhere in Colombia, in Ecuador, Central America and Peru.
The World Bank’s Carbon Finance Unit has a similar approach, acting as an intermediary in the purchase of carbon credits for reduced emissions, offering technical assistance and developing procedures and strategies to broaden the CDM market. According to Carter Brandon, an environmental specialist at the World Bank in Buenos Aires, the bank had committed $2 billion in funds worldwide by the end of 2006 and is currently the only buyer for emission reductions beyond 2012, when the Kyoto Protocol expires.
Concentrating on the CDM scheme, however, leaves various sectors uncovered. For starters, in order to meet reduction targets, Brandon says, roughly a third each of reductions are slated to come from carbon finance to developing countries and measures taken in developed countries. But at least a third must come from changes in behavior by households, an area that has so far received little attention in the region.
For Jose Goldemberg, former environmental secretary of São Paulo and a professor at the Institute of Electrical Engineering and Energy of the University of São Paulo, the CDM is simply too small. Brazil, he says, will probably receive under $100 million from the scheme. “The amount of emissions so large, you need a much stronger mechanism.”
Fundacion Bariloche’s Girardin is even more scathing. “It’s a perverse mechanism, because if those who implemented measures of mitigation early on have them included on their baseline and are not attractive.” In the regional energy sector, for example, Brazil’s electricity generation is dominated by hydro plants, while the vast majority of Argentina’s generating capacity is hydro or the latest generation combined cycle natural gas. “If Argentina was like the US or Canada, where 60% of generation comes from coal, it would be much more attractive,” he says. “For many Latin Americans the only interesting opportunity in CDM is the forestry sector.”
But forestry projects present a new set of problems for CDM. Many carbon purchasers eschew the sector, because of the difficulties of monitoring and achieving planned reductions. With regulations for forestry only agreed at the conference of Kyoto Protocol signatories in Buenos Aires in 2004, “again, it’s a market in construction,” shrugs the CAF’s Szauer. In addition, “the tonnes collected by these projects are cheaper than those in energy projects. That makes them a bit less desirable.”
What’s more, the mechanism covers reforestation or planting new trees, but does not give any credit for not cutting them down. That is a bone of contention between the industrialized countries and others like Brazil, which is the world’s 6th-largest carbon emitter, mainly due to deforestation. According to the UNEP, around two-thirds of the forest cover lost worldwide between 2000 and 2005 took place in the region. But rich countries are loathe to pay countries like Brazil to protect the Amazon, if they were going to do so even without financing. According to the UNEP’s Sanchez, that is exactly what is happening, with deforestation in Brazil dropping from 2.6 million ha to 1.1 million ha a year over the last three years, unaided by carbon financing. But in Brazil, Goldemberg is skeptical. The reductions were because “the price of soya dropped on the international market,” he says. “Now prices have rebounded, deforestation is increasing again.” Although one Brazilian participant at the Santiago WEF meeting argued that, if the world wants to preserve the Amazon rainforest, it should pay for it, Goldemberg says that sort of argument “has not led anywhere. Philanthropy on that scale doesn’t exist.”
Production of biofuels is another sector that currently falls outside CDM, but is viewed with enthusiasm in much of the region. Demand is set to leap, with both Europe and the US intending to include them in a mix with gasoline and diesel to reduce fossil fuel consumption. Argentina too will require 5% biofuel content at the pumps from 2010. But that poses other problems. Brazilian ethanol production relies on sugarcane, which does not compete with native trees for land. It has already replaced 40% of gasoline consumption in Brazil. “But it’s not going to solve the problems of the world,” Goldemberg says. “It’s a small contribution.”
Elsewhere, especially in the Mercosur countries, the concern is that fuel from soya and maize, for example, will drive up food prices at the cost of forest cover, with opponents dubbing biofuels “deforestation diesel”. Over the last four years, Argentina has lost over 1 million ha of forest, mainly for soya production, with deforestation rising 42% compared with the preceding four years. Nevertheless, and despite a public campaign, in early November a law to halt clearances was still being held up by vested interests in the country’s Senate.
Goldemberg doubts that biodiesel from soya is economically viable without subsidies. Indeed, while soya production in Argentina is subject to an export tax of 35%, biofuels pay just 5% and receive an additional 2.5% rebate. Girardin adds that since cultivation of soya naturally produces nitrous oxide, a greenhouse gas even more harmful than CO2, production “does not make much sense” from an ecological viewpoint. “Argentina, Brazil, Paraguay and Bolivia, have to think seriously about far they can go with soya,” Sanchez adds.
As for clean energy, Szauer agrees that is another “topic that has been slow to take off.” But the creation of around 10 new venture capital funds focusing on the sector in recent years gives her room for optimism. In Argentina though, Nazareno Castillo Marin, director of the Office of Climate Change at the Secretariat of Environment and Sustainable Development, warns that clean technology tends to be more expensive and that low local energy prices may not justify investment. The country’s Patagonian region, for example, is a prime location for wind farms. But the World Bank’s Brandon says the current artificially low electricity tariffs mean that it is “uneconomic to bring in private capital, even with carbon credits.” The government is apparently studying a possible two-tier approach, with higher prices for clean energy, as part of a new energy strategy due to be unveiled by year-end.
Szauer agrees that the market approach has shortcomings, but underlines ongoing efforts to develop more precise methodologies, more stringent criteria of additionality --to ensure that carbon credits are only issued for reductions that would not have happened anyway-- and new technologies. The optimists reckon there will be improvements in both the supply of projects and demand for emission reductions. Sanchez, for instance, says that when the Kyoto trading period officially begins next year, it “will boost the market.” According to Martha Castillo at the CAF’s PLAC, “the big projects are waiting to see what happens in 2012,” when the current phase of the Kyoto Protocol expires.
But her colleague Szauer adds that markets continue to expand both within Kyoto and outside. The EU’s Emission Trading Scheme, which is scheduled to continue beyond 2012, should expand still further with the tightening of initially slack restrictions on emissions in Europe. And even in the US, voluntary markets, like the Chicago exchange and Regional Greenhouse Gas Initiative, will provide fresh demand. “There are a range of institutions that are making the market increasingly vigorous. That’s why we are very optimistic about Kyoto post-2012,” she says.
Current discussions, most recently at United Nations climate change talks in Vienna in August, indicate that the industrialized world is preparing to negotiate reductions in greenhouse gas emissions of between 25% and 40% of 1990 levels, by 2020. There is also some optimism that a new deal might include the US, the world’s largest emitter, which has so far rejected mandatory limits. For one thing, the US may lose its main ally on the issue, with long-serving Australian prime minister John Howard, looking likely to be ousted in elections in November by opposition leader Kevin Rudd, who has pledged to ratify Kyoto. President Bush also faces home pressure, with 16 states forming a Senate majority in favor of restrictions on emissions.
The question is what will be required of the developing countries, particularly China and India, but also Brazil and Mexico. Both the Latin nations appear closer to the US and Chinese position, favoring voluntary limits and rejecting any measures that would compromise development or poverty reduction. This approach was tried in 1992, Goldemberg says, with very poor results. “I know of no case where a voluntary agreement has worked. It is a recipe for disaster.”
On that front, however, optimists and pessimists agree that little has so far been achieved. In the region only Peru, Ecuador and Colombia have made advances, Brandon says. “They are very frightened about the drying up of rains and melting of glaciers and the huge impact it will have on the water supply.” More studies are needed, but financing is lacking. With the future of the planet largely out of the region’s hands, local governments may thus be advised to hope for the best, but start preparing for the worst.
