CAF highlights Latin America and the Caribbean’s potential for clean, affordable, and stable energy

Jun 18, 2024 News

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Kaieteur News – The energy transition is now. Since 1850, human activity has emitted over 2,300 gigatonnes of carbon dioxide (CO2). More than 68% of these emissions came from the use of energy generated by fossil fuels. That’s why scientists warn that, at the current rate of emissions, we have 28 years left to limit the temperature increase to 2°C compared to pre-industrial levels, and only nine years to limit it to 1.5°C.

Comparatively, Latin America and the Caribbean contribute little to emissions (11% of the global total) but are particularly vulnerable to the negative effects of climate change, which in turn demands adaptation and climate resilience efforts. Therefore, the energy transition must be fair, promote vigorous and inclusive economic growth, and contribute to closing the per capita income gaps with the developed world, as well as reducing inequality and poverty. This implies that while all countries in the region must join efforts to reduce energy emissions, the speed, and strategies for doing so will be specific to each country’s reality.

These are some of the findings and recommendations of the new CAF Economics and Development Report (RED) titled “Renewed Energies: A Just Energy Transition for Sustainable Development,” which provides a comprehensive analysis of the current energy situation in the region, focusing on energy supply and demand agendas. The report emphasizes three crucial sectors for demand: transportation, industry, and the residential sector, and concludes with an analysis of the impacts that the transition will have on the overall macroeconomy, particularly on public finances, the external sector, and the labour market.

“We are a region of solutions, capable of contributing to the global energy transition process by seizing the opportunities that arise for countries with critical mineral reserves—such as lithium, copper, or nickel—for countries with gas reserves whose use during the transition would reduce emissions without immediately abandoning fossil fuels, and for countries with potential for renewable energy production in the relocation of energy-intensive activities (power shoring). With this RED, the development bank for Latin America and the Caribbean reaffirms its commitment to accompany the region as it successfully faces the challenge of a transition with renewed energies,” said Sergio Díaz-Granados, Executive President of CAF.

The supply-side actions for decarbonization proposed in the RED include increasing electricity generation capacity driven by a greater share of unconventional renewable sources and the development of low-emission fuels such as biofuels or low-emission hydrogen. Additionally, during the transition, the report argues that gas can play a crucial role by substituting more polluting fossil fuels like oil and coal. If 50% of current oil and coal uses were replaced by gas, emissions in the region could be reduced by 7%, representing almost 65% of the total commitments the region set for 2030.

From the demand perspective, energy efficiency and savings are also indispensable pillars on the path to decarbonization. In the case of the industrial sector, the transition involves electrifying some processes or uses that currently depend on fossil fuels, as well as promoting circular economy practices. In urban mobility, the use of sustainable (massive and active) public transport is important. There is room for electrification in urban logistics, while in the case of freight transport, promoting efficiency and the use of alternative fuels are effective short-term measures.

A just transition also requires closing the gaps in access to and quality of energy that still persist in the region. Among the household demand policies highlighted in the RED are electrifying some consumptions, such as heating and cooking, avoiding the still frequent use of biomass with its negative health consequences. Likewise, it is recommended to promote improvements in energy efficiency, with appliances consuming less energy and better building envelopes, among others.

The energy transition will impact the economies of the region across the board, with effects on the labor market, economic structure, and macroeconomic balances. In the labor market, it will involve a shift of workers from traditional sectors and occupations to “green” jobs, which, besides having different characteristics, particularly demand more skills and abstract tasks and offer higher wages.

The challenges of the transition are global, but this process will affect the countries of the region differently depending on their energy matrix and dependence on fossil fuels. Therefore, the responses and speeds at which actions aimed at moving towards less dependence on fossil fuels will be specific to each country. To address the challenges of the energy transition, the RED also proposes four cross-cutting policies: green financing, carbon markets and carbon taxes, carbon capture and utilization technologies, and the circular economy.

The RED presents a regional context in which it is vital to coordinate national and regional efforts to transition towards energy transition. As part of its strategy to be the green bank for sustainable and inclusive growth in the region, CAF has committed to dedicating at least 40% of its approvals to green projects, including those facilitating the energy transition.

The regional launch of the RED took place on Thursday, June 13, at the Adolfo Ibáñez University in Santiago, Chile, in an event attended by the Ministers of Finance, Mario Marcel; Environment, Maisa Rojas; and Energy of the Republic of Chile, Diego Pardow; along with the Executive President of CAF, Sergio Díaz-Granados, and experts in energy transition.

 

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