The economics of climate change in Latin America and the Caribbean

1. The economics of climate change in Latin America and the Caribbean Alicia Bárcena Executive Secretary Economic Commission for Latin America and the Caribbean 27 October 2009

2. Potential GDP growth will be weaker in the near future in developed countries OECD AND THE UNITED STATES OF AMERICA: POTENTIAL GDP GROWTH, 2007-2014 (Percentages) Average growth rates (%) Source: European Commission, 2009; Organization for Economic Co-operation and Development (OECD), 2009; International Monetary Fund (IMF), 2009.

3. Pre crisis world Crisis International trade has suffered strongly with the crisis and a subdued recovery is estimated for 2010 ANNUAL GROWTH RATE OF THE VOLUME OF INTERNATIONAL TRADE, 2004-2010 (Percentages) Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of OECD Economic Outlook, June 2009.

4. 60 12 48,3 50 10 43,8 44,0 40,5 43,5 40 8 36,3 34,1 30 33,2 6 22.5 19.4 18.6 19.0 18.5 20 4 13.3 12.6 12.9 10 2 0 0 1980 1990 1997 1999 2002 2006 2007 2008 2009 Very poor Poor Unemployment rate (right hand side) JOBLESS RECOVERY Regional unemployment rate could exceed 9% in 2009 LATIN AMERICA AND THE CARIBBEAN: POVERTY, EXTREME POVERTY AND UNEMPLOYMENT RATES a (Percentages) Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of special tabulations of household surveys conducted in the respective countries. a Figures for poverty and extreme poverty rates are based on estimates for 19 countries of the region, including Haiti. The figures appearing above the bars are percentages of the population. Figures for 2008 and 2009 are forecasts.

5. The post-crisis world in a nutshell • Growth and trade with a plateau at lower levels • Jobless recovery • Global aggregate demand will be sustained more by the emerging economies. • The availability of external savings will be curtailed as a result of the massive destruction of financial wealth, tighter regulation and increased financial protectionism. • Growth in world trade will be more sluggish, trade protectionism will increase, and the competition for markets will be more fierce. • Climate change will demand the adoption of new, low-carbon production and trade patterns, which will require substantial investment.

6. Intensive use of fossil fuels would increase living standards with minor externalities. Neither energy efficiency programmes nor renewable energies are competitive and hence remain marginal. Relative prices, due to expenditure, investment and taxation, favor the consumption of fossil fuels. Gradual concerns about the degradation of the environment with partial responses. Changes in land use are promoted for urbanization (urban areas and for traditional agriculture) There is no coordination between fiscal policies, energy and climate security, innovation in infrastructure and transportation. THE PARADIGMS WE INHERITED

7. SCIENTIFIC EVIDENCE CALLS FOR URGENT GLOBAL ACTION:

8. Preliminary analysis of the accumulated costs of climate change in selected countries and sectors

9. ECONOMIC COST OF NATURAL DISASTERS Fuente: CEPAL Registro 1970-2008, proyección 2009-2100

10. Chile: Changes in agricultural output in the twenty-first century

11. Montevideo, Uruguay: impact on urban zones of the flooding of coastal areas up to 2100 ESTIMATES OF TOTAL IMPACT ON COASTAL RESOURCES ACCORDING TO PROPOSED SCENARIOS 1 meter rise in sea level = 12% of 2008 GDP

12. THE MODEL FOR THE FUTURE • Carbon-emissions limits will be set to reduce the carbon footprint • Carbon footprint will be key to competitiveness • Carbon reduction targets, incentives, penalties or taxes will be established in the international economy. • The transition will be either negotiated and multilateral through the principle of common but differentiated responsibilities • Or unilateral through protectionism • Adaptation and mitigation policies require long-term planning in infrastructure, transport, land use, trade and investment, and energy production.

13. Paradigm shift towards a low-carbon economy is urgent. Opportunity to overhaul existing infrastructure, improve production processes and move towards energy efficiency Evidence shows that cost of adaptation wil be considerable in agriculture, coastal urban and touristic areas, water availability If no multilateral meaningful agreement is reached, the unilateral option will come through protectionist measures in trade of commodities (carbon footprint). Multilateral entails targets, funding and adaptation strategies Adaptation and mitigation require long term planning and new market incentives Considerable levels of innovation in key sectors: infrastructure, transport, industry and new energy alternatives The role of the State needs to be reinforced, expressing a new alliance between the public and private: a new social covenant for a low carbon future RIGHT TO THE FUTURE: CHALLENGES AND OPPORTUNITIES

14. ENERGY INTENSITY ARE NOT IN THE RIGHT TRENDS LATIN AMERICA AND THE CARIBBEAN: ENERGY INTENSITY (Barrels of Oil Equivalent (BOE)/US$ 1000 in 2000 prices, index 1980=100) Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of OLADE, Energy-Economic Information System (SIEE) and International Energy Agency (IEA).

15. ENERGY EFFICIENCY COULD CONTRIBUTE TO 35% REDUCTIONS IN THE 2030 SCENARIO Aumento de eficiencia en Demanda eléctrica y Demanda de combustibles fósiles 35% Fuente: IEA-OECD World Energy Outlook 2006 y 2007.

16. GROWTH WITH LOWER POLLUTION IS POSSIBLE Source: CAIT/WRI

17. PRODUCTIVITY GAP ADDS TO THE ENERGY CONSUMPTION GAP Índices de brecha energética y productividad relativa, 1996-2006 Fuente: División de Desarrollo Productivo y Empresarial, CEPAL

18. Millions of United States dollars Participation by Latin America and the Caribbean in a mitigation scenario: opportunities are concentrated in improving efficiency in industry, transport and buildings Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of UNFCCC(2007).

19. OPPORTUNITIES FOR ENERGY MITIGATION (2010-2030) • Efficiency measures for potential emissions reductions of between15% and 20% by 2030: • In electricity generation • In managing demand for electricity • In the industrial sector • In transport • Increasing renewable sources participation from the current level of 25% to 40% by 2030. This will entail removing barriers in the following areas: • Economic and institutional (subsidies, internalizing positive externalities from renewables and negative ones from fossil fuels) • Technical (knowledge of available resources) • Social (acceptance of some renewables and cultural changes) • Increase in nuclear energy • Introduction of technologies for carbon capture and sequestration in electricity generation

20. Role of ECLAC in the Reviews of the Economics of Climate Change (RECCs) and structure of the Reviews Partner in Mexico (UK, IDB, World Bank), Promotor in Central America (UK), Caribbean (UK) and South America (UK, German, Spanish and Danish Cooperation Agencies, European Union, IDB): Argentina, Chile, Colombia, Bolivia, Ecuador, Paraguay, Peru and Uruguay Methodological Approach countries

21. CENTRAL OBJECTIVES OF RECCS • Measure the baselines for adaptation and mitigation and thus be in a position to compare change scenarios between the two processes and among countries; • Build consensus processes and capacity within the countries (technical teams per country-subregion); • Draw the attention of government economic agencies in the region to these issues and their relationship with development (government panels in countries); • Design low-carbon (double or triple dividend) development strategies; • Foresee changes in the international environment in which the region will be immersed in order to adjust trade and investment policy as appropriate.

22. PRELIMINARY CONCLUSIONS • Compared with other regions, ours can position itself proactively at relatively low cost by improving energy efficiency and diversifying energy sources. • This will enable the region to capture additional financial and technological flows associated with its participation in the international agenda. • Flows can be channeled towards underfinanced areas of the regional energy agenda, which need attention, regardless of the international agenda • This strategy will enable the countries to move forward simultaneously with their domestic priorities and assume a proactive role vis-à-vis the international climate change regime, consistent with their own development priorities.