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Life in an uncertain climate

Climate change has the potential to undermine many of the advances in social and economic development that Latin American and Caribbean countries have made in recent decades. With support from the IDB, the region’s governments are designing strategies for adapting to different climate change scenarios, applying new technologies to reduce emissions of greenhouse gases (GHGs), and redoubling efforts to achieve sustainable development.

Threats to the region

Despite the uncertainties involved in predicting the impact of climate change on specific countries and regions, a broad scientific consensus has emerged that Latin America and the Caribbean could expect some of the following scenarios if temperatures continue to rise:

  • Significant drop in agricultural productivity in some regions, with adverse impacts on food security and export revenues.
  • Decreased water quality, quantity, and avail­ability for human consumption, agriculture, and energy generation.
  • Increased intensity and frequency of extreme events such as hurricanes and tropical storms. Climate-related natural disasters are currently responsible for a 0.6 percent decrease in real GDP per capita in affected countries.
  • The disappearance of glaciers in the Andes, which will affect at least 77 million people as early as 2020, according to a recent World Bank estimate.
  • Damage to coastal areas due to rising sea lev­els.
  • Widespread dieback of coral reefs causing high economic costs, particularly in the Caribbean.
  • Significant biodiversity loss through species extinction and loss of ecosystem services.
  • Gradual replacement of tropical forest by sa­vanna in the Amazon, resulting in a potential loss of 20 to 80 percent of the Amazon rainfor­est under a 2–3ºC temperature increase.

Vulnerability and adaptation to climate change in LAC

The danger that climate change poses to LAC’s long-term efforts to achieve sustainable devel­opment makes adaptationa key priority for the region. Priority sectors for adaptation action include the following:

Agriculture. Changing rainfall patterns and prolonged droughts may make some areas unsuitable for the crops they currently sustain, requiring farmers to relocate, adopt new practices and crops, or invest in irrigation systems. Particularly vulnerable will be the small-scale farm­ers who depend on rain-fed agriculture and gen­erally lack access to drought-resistant livestock or seed varieties, or crop insurance.

Forestry. In order to ensure that forests continue play a major role in regulating flows of water, reducing erosion, and maintaining the health of ecosystems, ambitious new forest protection and sustainable forestry practices will be required.

Water resources. Areas affected by diminishing water supplies will need to make major investments in conservation, efficient irrigation and demand reduction. Since water consumption tends to be extremely wasteful in the region, there is great potential for adaption through smarter use of water resources.

Energy. Reduced precipitation could reduce reservoir storage capacity for hydropower plants, requiring the development of new sources of energy. Less rainfall and in­creasing soil acidity could reduce the productiv­ity of biofuels feedstock crops such as sugar cane, which currently supplies more than 40% of Brazil’s transport fuel.

Transportation. Flooding, erosion, and tidal and storm surges caused by extreme weather events could require massive investments to enhance resilience of a trans­port roads, ports and railways.

Tourism. Climate change will present a serious challenge to countries that rely heavily on tourism, such as in the Caribbean, where the sec­tor contributes 14.8 percent of GDP. Some tourism infrastructure couldl become unusable for significant periods of time as a re­sult of increased frequency of extreme weather events and rising sea levels.

Urban Development and Housing. These factors could also require relocating residential and commercial properties in coastal communities, where some 80 percent of LAC’s ur­ban areas with populations greater than five mil­lion are located.

The challenge and opportunities of low carbon growth

Latin America and the Caribbean account for only 12 percent of global GHG emissions. Compared to the world as a whole, Latin America gen­erates more GHG emissions (as a percentage of its total GHG emissions) in two sectors: land use change(47 percent in LAC, compared with 19 percent globally), as a result of CO2 emissions from intensive deforestation; and agriculture(20 percent in LAC, compared with 14 percent glob­ally), mainly from intensive and inefficient use of fertilizers and methane emissions from cattle raising.

GHG emissions from electricity and heat production, manufacturing, transportation and other sources account for a significantly smaller percentage of LAC’s total GHG emissions: 28 per­cent in LAC compared with 61 percent globally. Energy generation at present accounts for a relatively low proportion of CO2 emissions in LAC, owing to the region’s heavy dependence on hydroelectricity compared with coal-fired plants. But in the future, the region is likely to shift more toward natural gas and coal. This trend, coupled with a projected 75 percent increase in LAC’s en­ergy needs between now and 2030, could boost the region’s per capita energy-related emissions by 10 percent in 2005–2015 and by 33 percent during the period 2005–2030, according to the International Energy Agency.

LAC has excellent opportunities for improv­ing its energy matrix and environmental sus­tainability. For one, the region has considerable potential for meeting more of its energy needs through renewable energy sources. New hydro­power could represent 28 percent of total ener­gy generation by 2015 and 36 percent by 2030. Wind power is already a part of the energy mix in 11 countries in the region. Small-scale solar energy has proven its efficiency in rural electri­fication projects. Large-scale solar is being de­veloped successfully in countries like Argentina, with a new solar energy project. The formerly prohibitive costs of geothermal technology are now dropping. LAC’s abundance of land, water, and sun is already making it a world leader in bioenergy. During 2008, ethanol production in Brazil increased to 27 billion liters from 18 billion liters two years earlier.

Substantial untapped energy efficiency potential in LAC could help reduce the region’s carbon footprint at a relatively low cost. Energy efficiency programs would reduce energy de­mand in the short term, delay construction of new power generation capacity, increase market com­petitiveness, and lower fossil fuel consumption. According to a recent IDB analysis, investments in energy efficiency could cut energy consumption in LAC by 10 percent over the next decade, sav­ing US$37 billion in deferred investments in new power generation. The savings alone from using more efficient lighting would equal 6 percent of total 2006 costs of electricity generation.

Latin America also has significant potential reduce emissions in areas such as:

  • energy use in buildings (through more efficient lighting, appliances, and water heating, and better building materials and construction)
  • transportation (through the use of efficient public transportation system such as promote bus rapid transit)
  • energy use in industry (through the use of efficient electric motors, tur­bines to recover the energy contained in gas from furnaces, etc.)
  • agriculture and animal hus­bandry (through methane capture and biofuels production on farms)
  • sanitation and solid-waste services (through better waste management practices to control methane emissions and co-generate electricity).
  • avoided deforestation (through stronger conservations measures and more effective use of carbon markets).

IDB’s role in addressing climate change

The IDB addresses climate change issues both by helping its LAC member countries adopt mitiga­tion and adaptation measures and as a member of the global community’s efforts to set policy and mobilize new sources of financing. Through policy dialogues, policy-based loans for climate change, and technical cooperation, the IDB also works with national finance and planning min­istries to set national priorities for action and assess needs for financial and technical as­sistance. The IDB supports public and private clients in developing Clean Development Mechanism (CDM) projects, considering programmatic approaches, and exploring the use of voluntary markets.

The Bank also provides technical support to countries to assess vulnerability and potential adaptation in key areas such agriculture and water. At the global level, the IDB has joined a group of multilateral development banks (MDBs) in creating a Clean Energy Investment Framework (CEIF) to scale up investments in renewable energy and energy ef­ficiency, strengthen adaptation measures to in­crease resilience to climate change, ensure that operations financed by MDBs are responsive to climate change considerations, and develop ap­proaches for reporting on GHG emissions.

Participation in the Climate Investment Funds (CIF) has provided the IDB with further op­portunities to collaborate with its partner institu­tions and very importantly a means for attracting other sources of multilateral, bilateral, commer­cial, including carbon finance and domestic fi­nance for scaling-up of investments in countries. Through its various public and private sector win­dows, the Bank supports CIF objectives through investment loans, technical co-operations, in­vestment grants, knowledge and capacity-build­ing products, and climate change policy-based loans.

Key activities in IDB’s response to climate change include:

Climate Change Modeling

Policy makers need information to design adaptation and mitigation programs that reflect local needs and conditions. In an IDB-financed project, the U.S. National Center for Atmospheric Research (NCAR) is helping Latin American and Caribbean institutions and their staffs to develop the skills and tools needed to assess climate data, climate-system models, and vulnerabilities in their countries. The three-part project will also foster communication between the scientific community and government policy makers.

Renewable Energy

Since 2000 the IDB has financed more than US$2.1 billion in renewable energy projects in LAC, including hydropower, wind power, and geothermal, in addition to improved energy efficiency in power transmission. Financing has been extended to both the public and private sectors. Since 2005, the Inter-American Investment Corporation, an IDB Group member, has financed more than 10 renewable energy projects, including hydro, biofuels, and landfill methane. The Bank’s Multilateral Investment Fund has provided funding for renewable energy and invested in four clean-energy venture capital funds.

Energy Efficiency

IDB public sector operations are supporting energy efficiency projects in Peru, Chile, Barbados, the Bahamas, Chile, the Dominican Republic, Jamaica, Mexico, and Peru, with investments over US$100 million. The Bank’s private sector operations are financing significant energy efficiency investments in heavy industry and agribusiness. The Bank’s private sector department has partnered with UNDP and the Global Environment Facility (GEF) to create guarantee mechanisms for developing and stimulating energy efficiency investments in commercial buildings in Brazil.

Sustainable Transport

The IDB has been a pioneer in financing Bus Rapid Transit systems in cities such as Curitiba, Bogotá, Cali, Lima, Quito, Santiago, Rio de Janeiro and São Paulo. These systems have the ability to sharply reduce transport-related emissions in cities, particularly when they include measures to promote the transfer of passengers to mass transit, the construction of cycle paths and pedestrian spaces for non-motorized transport and traffic control systems.

Global Environmental Facility and the IDB

Since it became a GEF Execution Agency in 2004, the IDB has increased the amount of grant resources going to its member countries for enhancing capacity to maintain and generate global environmental goods. The current IDB-GEF portfolio/pipeline amounts to US$106 million in projects, some of which are acknowledged as best practice and recognized for their innovative design. Climate Change Mitigation projects correspond to 29 percent of the total portfolio.

Limiting climate impacts of IDB projects

The IDB Bank has begun an unprecedented process to limit the greenhouse gas emissions of projects it finances by issuing a set of guidelines for coal-fired power plants. The new guidelines are the first in a series that will set clear limits and apply consistent standards and criteria to allowable climate impacts of IDB-financed projects. Project areas include manufacturing, agriculture, and oil and gas industries. The Bank chose to adopt specific emission thresholds—instead of a more general parameter—in order to provide clarity and offer transparent criteria to governments and investors who seek IDB financing. These thresholds are likely to be raised as new technology becomes available that enables all kinds of power plants to operate with lower climate impacts.

Sustainable Energy and Climate Change Initiative

A key trigger for the IDB’s involvement in the climate change agenda was the approval by its Board of Directors, in March 2007, of the Sus­tainable Energy and Climate Change Initiative (SECCI). SECCI’s objectives are to foster renew­able energy sources, energy efficiency technolo­gies and practices, and carbon finance in the region, as well as to promote and finance climate change adaptation strategies that reduce the re­gion’s climate vulnerability. The main sources of financing for these activities are the SECCI IDB and SECCI Multi-Donor Funds. A total of 63 tech­nical cooperations have been approved since 2007 under the two SECCI funds, for a total of US$35.1 million. See details at www.iadb.org/secci.

Scoring Biofuels

In order to ensure that biofuels to not contribute to to environmental problems and reduce food security by taking land out of food production, the IDB created a Biofuels Sustain­ability Scorecard to be used for screening potential IDB-financed projects. The scorecard addresses 23 key environmental and social issues such as food security, greenhouse gas emissions, water management, land use change, biodiversity, and poverty reduction. Beyond its value for individual projects, the scorecard will increase knowledge about the relationship between biofuels production and land use changes and compare fuel chain GHG emissions of current and potential future biofuel systems.

Mexico’s CIF Investment Plan

Mexico was the first country to submit an Invest­ment Plan to Climate Investment Fund’s Clean Technology Fund (CTF). The plan was prepared jointly by the IDB, World Bank, and International Finance Corporation (IFC). It outlines how US$500 million of CTF concessional finance can be used to leverage US$6.2 billion of investments in Mexico. The IDB is accessing US$200 million for programs in renewable energy and energy efficiency, both through the public and private sectors. These programs are building upon exist­ing IDB financing and technical assistance to Mexico, including the Policy-based Loan (PBL) in support of Mexico’s climate change agenda.