The economics of climate change in Latin America and the Caribbean

27 October 2009

Alicia BárcenaExecutive SecretaryEconomic Commission for

Latin America and the Caribbean

Potential GDP growth will be weaker in the near future in developed countries

Source: European Commission, 2009; Organization for Economic Co-operation and Development (OECD), 2009; International Monetary Fund (IMF), 2009.

0

0.5

1

1.5

2

2.5

OECD United States

2004-2008 2009-2010 2011-2014

Ave

rage

gro

wth

rat

es

(%)

OECD AND THE UNITED STATES OF AMERICA: POTENTIAL GDP GROWTH, 2007-2014(Percentages)

International trade has suffered strongly with the crisis and a subdued recovery is

estimated for 2010ANNUAL GROWTH RATE OF THE VOLUME OF INTERNATIONAL TRADE, 2004-2010

(Percentages)

CrisisPre crisis world

-20.0

-15.0

-10.0

-5.0

0.0

5.0

10.0

15.0

2004 2005 2006 2007 2008 2009 2010

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of OECD Economic Outlook, June 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.

JOBLESS RECOVERY Regional unemployment rate could exceed 9% in 2009

18.622.5

19.0 18.5 19.4

13.3 12.6 12.9

40,5

48,3

43,5

43,8 44,0

36,334,1 33,2

0

10

20

30

40

50

60

1980 1990 1997 1999 2002 2006 2007 2008 20090

2

4

6

8

10

12

Very poor Poor Unemployment rate (right hand side)

The post-crisis world in a nutshellGrowth 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.

THE PARADIGMS WE INHERITEDIntensive 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.

SCIENTIFIC EVIDENCE CALLS FOR URGENT GLOBAL ACTION:

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

With a 0.5% discount, the loss under the A2 scenario is close or equivalent to the country’s environmental spending.

0.110.020.60- 0.21Chile (annualized)

Farming, forestry, water, health, biodiversity (partial) , floods (partial) coastal edge (partial)

12%12%11%37%37%37%Argentina

Disasters (all=overestimate) in infrastructure and farming, biodiversity, energy, health, drinking water

57%70%44%656%805%507%Bolivia (Plurinational State of)

Farming, energy, tourism, water, coastal resources, biodiversity, disasters, indirect costs

19%40%-2%117%206%28%Uruguay

Crop farming, fruit farming, forestry, hydroelectricity, drinking water, indirect costs

20%35%6%65%193%- 63%Chile

Crop farming, water, soil use, biodiversity, tourism, livestock farming (indirectly), biodiversity (indirectly)

7%8%7%39%43%34%Mexico

Average of

scenariosA2B2

Average of

scenariosA2B1/B2

Discount rate of 4% per yearDiscount rate of 0.5% per yearCountry

Sectors evaluatedPresent value of the accumulated costs up to 2100(As a proportion of current GDP)

ECONOMIC COST OF NATURAL DISASTERS

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

450,000

año

millo

nes d

e $

US

, co

nsta

nte

2008

Agricultura Industria ComercioVivienda Educación SaludAgua y Saneamiento Energía Transportes y ComunicacionesEdif icios Públicos Medio Ambiente OtrosRemoción de escombros y limpieza Gastos de emergencia

Fuente: CEPAL Registro 1970-2008, proyección 2009-2100

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

Montevideo, Uruguay: impact on urban zones of the flooding of coastal areas up to 2100

Coastal Resources - Total economic impact

Scenarios Sea-level rise (metres) US$ 2008

A2

2010 0.1 0

2030 0.2 37,569,236

2050 0.4 862,398,690

2070 0.6 1,310,906,102

2100 1.0 2,085,332,243

Total 4,296,206,272

B2

2010 0.1 0

2030 0.2 24,954,063

2050 0.3 449,978,513

2070 0.5 1,553,509,040

2100 0.7 2,200,987,227

Total 4,229,428,843

ESTIMATES OF TOTAL IMPACT ON COASTAL RESOURCES ACCORDING TO PROPOSED

SCENARIOS

1 meter rise in sea level =

12% of 2008 GDP

THE MODEL FOR THE FUTURECarbon-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.

RIGHT TO THE FUTURE: CHALLENGES AND OPPORTUNITIES

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 alternativesThe 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

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).

60

70

80

90

100

110

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

60

70

80

90

100

110

Total OECD Latin America and the Caribbean

ENERGY EFFICIENCY COULD CONTRIBUTE TO 35% REDUCTIONS IN THE 2030 SCENARIO

Fuente: IEA-OECD World Energy Outlook 2006 y 2007.

35%

Aumento de eficiencia

enDemanda eléctrica

yDemanda de

combustibles fósiles

GROWTH WITH LOWER POLLUTION IS POSSIBLE

Source: CAIT/WRI

Fuente: División de Desarrollo Productivo y Empresarial, CEPAL

0

50

100

150

200

250

1996 2001 2002 2003 2004 2005 2006

Brecha Enérgica AL/EEUUPr relativaLinear (Brecha Enérgica AL/EEUU)Linear (Pr relativa)

Índices de brecha energética y productividad relativa, 1996-2006

PRODUCTIVITY GAP ADDS TO THE ENERGY CONSUMPTION GAP

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).

Mill

ions

of U

nite

d S

tate

s do

llars

OPPORTUNITIES FOR ENERGY MITIGATION (2010-2030)

Efficiency measures for potential emissions reductions of between 15% 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

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

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.

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.