This publication is part of a series of commentaries authored by advisory group members of the Just Transition Initiative (JTI). This series highlights the diverse perspectives and expertise of the JTI advisory group on different aspects of the low-carbon transition and its implications for equitable development.
The 26th Conference of the Parties (COP26) of the United Nations Framework Convention on Climate Change (UNFCCC) will take place in November this year. The conference represents a landmark moment to speed up the process of deep decarbonization and reaching net-zero by 2050. Many national governments and their delegations are navigating a sea of initiatives, policies, regulations, and white papers to learn about the challenges and experiences worldwide and devising how to apply these lessons as they prepare their revised nationally determined contributions (NDCs). Some parties to the UNFCCC are also assessing how to balance their recovery efforts with ambitions to reduce fossil fuel dependency, promote clean energy markets, and create equitable conditions for the labor market to adjust and thrive in a net-zero world.
Furthermore, the Covid-19 pandemic has highlighted the vulnerability of developing countries to shocks and the need for a global response to not only mitigate this toll but prepare for future pandemics and extreme weather events. It has also shown the need to fill information gaps and feed evidence into sound planning processes that can enhance countries’ preparedness for shocks and disruptive change.
The Latin America and the Caribbean (LAC) region is a case in point. It was the most affected region in economic terms by the Covid-19 pandemic. Its GDP per capita fell by 7.2 percent in 2020. Moreover, between 2000 and 2019, according to the German Watch’s Global Climate Risk Index, six LAC nations ranked among the top ten hardest-hit countries in terms of average losses per unit of GDP as a result of extreme weather events (storms, floods, heatwaves, etc.), and four nations ranked among the top ten in terms of average fatalities per 100,000 inhabitants. So far this year, the region has experienced 25 floods, seven storms, three volcanic-related events (ash fall and pyroclastic flow), an earthquake, and a forest fire, which have caused hundreds of millions of dollars in damages and have affected over 1.1 million people, underscoring the need to focus on how to urgently tackle the drivers of climate change while preparing for LAC´s climate vulnerability in ways that support the most vulnerable in society.
The capacity to respond to this greatest of challenges is of course highly dependent on countries’ economic outlook. In LAC, this outlook is influenced by the hydrocarbons trade, which is changing fast. Although the region is a net energy exporter, there are two compounding trends that will affect the balance of energy trade: lower surpluses and restrictions in trade. A falling trend in production over the last decade and an increase in consumption have resulted in a lower surplus of hydrocarbons available for trade. This equates to around a 6.9 percent reduction in natural gas exports over the last decade and one-fifth fewer oil exports since 2005.
Additionally, in May 2021 the International Energy Agency predicted that in order to meet a net-zero target by 2050 there should be no new fossil fuel extraction projects from this year onward. If decarbonization aspirations are to be met, jurisdictions will have to start adjusting their expansion plans in hydrocarbon assets in line with their mid-and long-term targets, complemented by the potential for reduced demand for such products from major fossil fuel consumers (i.e., transport and industry). In short, these reductions in trade receipts and the corresponding economic vulnerability that comes with them mean that LAC and other fossil fuel–producing regions need to start planning in earnest for the inevitable and accelerating race to net-zero and a decarbonized world. Although LAC has a relatively low dependence on oil rents (1.9 percent of GDP) compared to the Arab world, there are several countries that would be placed at a disadvantage if their sources of income are not diversified. For example, Venezuelan oil rents represent 11.5 percent of its GDP, while they represent 6.7 percent and 3.7 percent of GDP in Ecuador and Colombia respectively.
There are two levers that can set LAC on a clear path toward a system change in favor of deep decarbonization and toward leading COP26 negotiations with bold actions to achieve a just transition to net-zero. The first lever, related to the Renewable Energy for Latin America and the Caribbean (RELAC) Initiative, was launched in December 2019 by 10 LAC countries that committed to achieving a regional goal of 70 percent renewable energy by 2030, equivalent to adding around five gigawatts of renewables, up to US$11 billion in investments, and 100,000 new jobs per year.
The second lever is to utilize the opportunities created by energy efficiency. International experience shows that the implementation of Energy Management Systems (EnMS) can achieve energy savings between 10 percent and 40 percent. According to the Inter-American Development Bank and the Latin American Energy Organization, if the region were to take full advantage of EnMS, productivity and competitiveness would improve, there would be savings of $23.2 billion annually, industry emissions could be cut in half, and there could be 232,000 new jobs created per year.
In LAC, where a little over half of the population works informally, a push for an inclusive and just system change across the region toward renewables (RELAC) and energy efficiency (EnMS Observatory) would have profound distributional impacts and would open up long-term quality job alternatives for both informal and hydrocarbon industry workers, in addition to offering the economic and sustainability benefits of a deep decarbonization pathway.
COP26 represents an opportunity for the Group of Latin American and Caribbean States (GRULAC, composed of 33 member states) to announce its commitment to secure global net-zero by mid-century and keep 1.5 degrees within reach by setting two intermediate targets by 2030: (1) 70 percent clean energy generation, and (2) adoption of a biannual mandatory certification of ISO 50001 for commerce, industry, and services.
In addition, in line with COP26 goals, for these transformational and ambitious targets to come to fruition, the multilateral financial institutions, including the Climate Investment Funds, the Central American Bank for Economic Integration, the CAF Development Bank of Latin America, the Inter-American Development Bank, and the World Bank, in a coordinated effort could establish a Just Transition Fund for GRULAC. Some of the priority activities that could be supported by such a fund include the creation of a regional knowledge hub to mobilize the academic community to close information gaps about a just transition and to improve modeling, planning, and institutional capacities required to understand the impacts of implementing the 2030 targets. The fund could also be used to scale up climate finance for the region and to set up a platform for regional social dialogue to have broad inclusive stakeholder engagement when the 2030 targets are designed.
COP26 could be the perfect opportunity for the international climate finance architecture to support the LAC region and champion a just transition to net-zero.