Green Growth in Latin America and the Caribbean: The Inter-American Development Bank’s VisionUntitled Copy
Remarks at the David Rockefeller Center for Latin American Studies
April 20, 2023
*
I am pleased to moderate this panel discussion hosted by the David Rockefeller Center for Latin American Studies and the Growth Lab at Harvard Kennedy School. I want to thank Professors Steve Levitsky and Ricardo Hausmann for supporting this initiative and recognizing the hard work put in by Jimena Codina, Tiago Genoveze, Douglas Barrios, and Ketan Ahuja in organizing this event.
The transition towards a carbon-neutral economy to adapt and mitigate climate change will significantly impact Latin America and the Caribbean in many ways. According to the Inter-American Development Bank, this transition can bring the region 15 million net new jobs and 1% additional GDP growth by 2030.[1]
The countries’ relationship with oil and strategic minerals is one variable that will determine this impact.
The Inter-American Development Bank reports that Latin America and the Caribbean hold one-fifth of the world’s proven oil reserves, with Venezuela (91% of resources in the region), Brazil (3.8%), Mexico (2.3%), and Ecuador (1%) being the key players. Countries such as Ecuador, Mexico, Trinidad and Tobago, and Venezuela heavily depend on oil exports. We should also consider the emergence of new players in the global market, particularly Guyana. As part of the commitments made under the United Nations Framework Convention on Climate Change (UNFCCC), part of the oil reserves could remain unused. Some estimates suggest that about 40% of the region’s oil reserves will remain untouched by 2050 to meet emission reduction targets.[2]
However, the energy transition is not just about reducing fossil fuel consumption, as pointed out by Professor Hausmann.[3] Instead of asking what Latin America and the Caribbean can do to lower their emissions, we should also ask what the region can do to contribute to a world trying to reduce its emissions. Green growth is not only about reducing emissions but also about how countries can actively contribute to the global agenda of decarbonization.
One crucial aspect of the energy transition is the need for strategic minerals to electrify the economy. Lithium has emerged as one of the leading strategic minerals in a carbon-neutral economy. The so-called lithium triangle – Argentina, Bolivia, and Chile – accounts for approximately 55.95% of the world’s lithium resources. To decarbonize the economy, the world will need Latin American lithium. However, as of 2022, the Lithium Triangle only accounts for 22% of the world’s production, with Australia (which has 8.2% of the world’s resources) producing 55% of the total world production.[4]
The Inter-American Development Bank has estimated that the production of strategic minerals in Latin America and the Caribbean represents an investment opportunity of about 50 billion dollars by 2050, particularly in Argentina, Bolivia, Brazil, Chile, Mexico, and Peru. Based on a 3°C scenario, lithium production could increase by 990%.[5]
The growth in mining activity will require a comprehensive approach to governance, sustainability, and community engagement that prioritizes the social well-being of local residents. This includes designing institutions that promote transparency and accountability, as well as fostering social license through active community participation.[6]
All those challenges require working in the transition of the political institutions to facilitate the resilience capabilities that the Government will need. Building resilient political institutions will be an important task considering the historical institutional fragility in the region.
Particularly, evaluating the different impacts of the energy transition on political institutions will be necessary. In oil states like Ecuador, permanently diminishing oil revenues may impair the distributive institutions shaped by oil rents. To avoid the risks of instability, the oil state will have to build bureaucratic institutions.
The mining state will face the perils of booms that can favor the emergence of the rentier and distributive institutions, hindering its bureaucratic capacity. To avoid these risks, the mining regulatory framework could include institutions to immunize mining revenues -such as sovereign wealth funds.[7]
**
Today’s seminar presents an initial vision of the diverse challenges Latin America and the Caribbean face regarding transitioning to a carbon-neutral economy.
For this purpose, Lenin Balza summarized the Inter-American Development Bank’s current vision for green growth. He is an economist in the Infrastructure and Energy Sector of the Inter-American Development Bank, where he coordinates and supervises projects in Argentina, Bolivia, Chile, and Guyana as part of the special group on Mining, Hydrocarbons, and Geothermal Energy. Balza holds a degree in economics from Universidad Central de Venezuela, postgraduate studies in economics from Torcuato Di Tella University, and a master’s degree in economic development from Harvard University.
Ricardo Hausmann, founder and Director of Harvard’s Growth Lab, and the Rafik Hariri Professor of the Practice of International Political Economy at Harvard Kennedy School, explained how countries can tap into green growth by understanding the changes occurring in the global economy and leveraging them to propel their growth forward.
Finally, Araceli Clavijo provided remarks on the challenges regarding the socio-environmental aspects of lithium mining in Argentina. Clavijo is a biologist with a Master’s in Environmental Engineering from Granada University in Spain and a Ph.D. in Agricultural Sciences from Buenos Aires University. She will share some of the research conducted as Visiting Fellow at the Institute of Latin American Studies at Columbia University.
***
The seminar left three main conclusions.
The first conclusion is that a carbon-neutral economy will demand several challenges for Latin America to ensure a just energy transition. One main obstacle is how to facilitate social inclusion and equal access to clean and affordable energy supply due to the energy transition in one of the most unequal regions in the world.
The second conclusion is that Governments cannot address the energy transition solely from the perspective of reducing greenhouse gas emissions. Latin America has the potential to play a major role in helping the world decarbonize its economy by ensuring a stable supply of strategic minerals, such as lithium. The region could also attract industries that require a reliable supply of renewable energy sources that cannot be transported as easily as oil. Additionally, economic growth opportunities can emerge from the capture of emissions.
The third and final conclusion is that strategic minerals require governance institutions that reduce the risks of environmental conflicts, particularly regarding lithium. The energy transition demands not only a global legal framework but also domestic regulations that address the social and environmental impact that the strategic mineral boom will cause.
[1] Kazekas, Andreas, et al., (2022), Achieving Net-Zero Prosperity, Washington D.C.: Inter-American Development Bank, 4
[2] Solano-Rodríguez, Baltazar, et al., (2019), Implications of climate targets on oil production and fiscal revenues in Latin America and the Caribbean, Washington D.C.: Inter-American Development Bank, 1.
[3] Hausmann, Ricardo (2022), “Green Growth Opportunities”, International Monetary Fund, at: https://www.imf.org/en/Publications/fandd/issues/2022/12/green-growth-opportunities-ricardo-hausmann
[4] Based on data from the U.S. Department of Interior- Geological Survey, Mineral commodity summaries 2022. See our considerations here: José Ignacio Hernández G., Latin American Constitutional Law and Green Constitutionalism: A Path Forward, Int’l J. Const. L. Blog, Jan. 20, 2023, at: http://www.iconnectblog.com/2023/01/latin-american-constitutional-law-and-green-constitutionalism-a-path-forward/
[5] Solano-Rodríguez, Baltazar, et al., (2019), Implications of climate targets on oil production and fiscal revenues in Latin America and the Caribbean, Washington D.C.: Inter-American Development Bank, 1.
[6] Balza, Lenin et al., (2021), La licencia no escrita: licencia social para operar en el sector extractivo de América Latina, Washington D.C.: Banco Interamericano de Desarrollo, 3.
[7] Unzueta, Adriana, et al., (2022), Leveraging the Growth in Demand for Minerals and Metals in the Transition to a Low Carbon Economy, Washington D.C.: Inter-American Development Bank, 12.