Energy, Climate Change & Extractive Industries

The Inter-American Dialogue’s Energy, Climate Change & Extractive Industries Program seeks to improve understanding and communication on energy and climate policy issues in Latin America through research, public events, and roundtable discussions. By producing balanced analysis and convening policymakers, corporate leaders, and industry experts, we inform and shape policies that promote energy security and climate change mitigation while encouraging economically, socially, and environmentally responsible development of natural resources.

 

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Over the last few decades, China has become a major player in Latin America’s energy sector. As one of the world’s largest oil consumers, the Asian giant has provided oil-backed loans and equity investments in numerous countries with large oil reserves like Venezuela and Brazil. Yet increasingly, China has been expanding its footprint in the region’s renewable energy sector as well.

Within Latin America, the primary recipients of Chinese renewable finance have been Argentina, Brazil, Bolivia, and Chile, as well as Cuba and Peru to a lesser degree. According to data from Boston University (BU), more than 15 percent of the money invested in the region’s energy sector from 2000-2020 went to renewables. In many markets, resources have been allocated to large hydropower projects, such as the Cóndor Cliff and Barrancosa dams financed by the China Development Bank (CDB) in Argentina, as noted in the Inter-American Dialogue and BU China-Latin America Finance Database, and the planned Rosita hydropower project in Bolivia, financed by the Export–Import Bank of China (Exim). Indeed, hydropower has played a pivotal role in China’s renewables finance strategy for the region, in line with its behavior at the global level: Chinese public policy banks have financed over $44 billion worth of hydropower projects around the world.

Other renewable technologies have also attracted Chinese investment, such as solar. Negotiated by officials in Argentina’s Jujuy province, the Exim-financed Cauchari Solar Park, with 1.2 million solar panels, is one of the largest solar farms in the world. There are already plans underway to expand the project. Furthermore, Chinese manufactures play an active role in supplying solar panels for projects throughout Latin America and beyond. Even in cases where project developers are European, many firms opt to use Chinese equipment, given the competitive prices offered and large market share held by Chinese companies. 

Chinese commercial banks, such as the Industrial and Commercial Bank of China (ICBC), the Bank of China, and the China Construction Bank have also financed several projects in the region, from joint ICBC and Bank of China investment in Argentina’s CDB-backed dam projects, to the Punta Sierra wind farm in Chile, jointly financed by ICBC and the China Construction Bank. Commercial banks, which serve a different function than their policy bank counterparts, are still likewise characterized by heavy state involvement.

Beyond finance and equipment, Chinese companies are also constructing and developing renewable energy projects. China Three Gorges, a state-owned power company, has expanded its footprint in the construction of hydropower projects in Bolivia, Ecuador, and Peru. In 2016, the company also acquired extensive hydropower assets in Brazil thanks to its purchase of Duke Energy’s holdings in the country. Likewise, the Power Construction Corporation, better known as PowerChina, has a significant presence developing and constructing hydropower and non-conventional renewable projects from Cuba to Chile. In Central and South America, PowerChina has 57 projects under construction, valuing nearly $10 billion.

While Chinese loans and investment have helped countries that have difficulty tapping international capital markets, such as Argentina, to expand their renewable portfolio, Chinese-supported energy projects have generated controversies over environmental degradation and the use of equipment and labor from China. Chinese companies are the largest foreign investors in large hydropower projects in the Amazon region, according to research by the Inter-American Dialogue. In the case of the massive Coca Codo Sinclair dam in the Ecuadorean Amazon, Chinese construction giant Sinohydro faced allegations of poor infrastructure design and state corruption, as well as insufficient environmental impact assessments.

As part of the Belt and Road Initiative (BRI), China has diversified its investments in energy markets in Latin America, increasingly including renewables in addition to oil and gas assets. This influx of capital to develop low carbon energy systems and reduce growing emissions is crucial to mitigate climate risk and strengthen the region’s resilience. Ultimately, it will be up to governments in the region to develop policy frameworks to maximize and diversify investment while also enforcing clear environmental, social, and governance standards.

RELATED LINKS: 

Latin America's role in China's Energy Security 

China's Energy Experts

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As countries around the globe make the much-needed transition to zero carbon energy, the livelihoods of millions of coal and oil workers hang in the balance. Discussions surrounding the need for a “just transition”—a framework to protect workers' rights in the shift to a more resilient, low-carbon economy—have begun in some parts of the world but have been slower to permeate emerging economies. In Latin America, Chile’s initiative to fully phase out coal generation by 2040 will be critical for the Southern Cone country to comply with its Nationally Determined Contribution (NDC) under the Paris Agreement, as well as to meet its domestic decarbonization goals. However, despite the urgency of slashing Chile’s emissions, ensuring that coal workers are not economically abandoned in the process exemplifies one of the main challenges for policymakers surrounding the just transition.

Since the 1990s, economic growth has led to a steady rise in Chile’s total energy consumption. Following a shortage of natural gas imports from neighboring trade partner Argentina in the early 2000s, along with difficulties expanding hydropower capacity, new coal-fired power plants were constructed to ensure Chile’s energy security. According to the International Energy Agency, coal’s share in Chilean electricity generation increased from 13.7 percent in 2005 to 41 percent in 2016. Today the matrix relies more heavily on renewables than ever before, although coal was still responsible for 40 percent of the country’s power generation in 2019. Chile stands out as one of the countries in Latin America most reliant on coal-fired electricity generation.

Clean energy generation in Chile has surged over the last few years thanks to an increase in wind, solar, and other forms of renewable generation. Non-conventional (non-large hydro) renewable generation has expanded every year since 2014 and comprised one fourth of total generation at the end of 2020. 2021 promises to be a record year for renewable additions—data from Chile’s energy commission indicates that there are four gigawatts of new renewable projects in the pipeline, equivalent to 16 percent of current total installed generation capacity.

An important obstacle facing the Chilean government is how to implement social safeguards to ensure that the communities affected by this shift away from coal are not left behind. In 2019, a report found that coal-fired power generation provides 4,391 direct jobs and 9,505 indirect ones, accounting for 0.17 percent of total employment in Chile. The loss of these jobs would be much more pronounced in the areas where they are concentrated than in the country as a whole. Employment generated by these plants represents 6.8 percent of employment in Huasco, Atacama and 4.4 percent in Tocopilla, Antofagasta, both in northern Chile. While coal-fired generation only accounted for 0.69 percent of the country’s gross domestic product (GDP) in 2019, regional impacts are also greater in relative terms. For example, in the Atacama Region, coal plants represent 3.89 percent of GDP, while in the Antofagasta Region they represent 3.65 percent.

As Chile charts a path toward greener sources of energy, the country has also begun integrating aspects of a just transition into its climate plans. Through its updated NDC, Chile has committed to “respect and promote the obligations related to a just transition,” and in the process of decarbonizing its matrix, the Chilean government has worked with businesses, union leaders, and international organizations to incentivize impact reports to better understand how Chilean coal workers will be affected by this transition. Chile’s decision to prioritize the issue makes it unique among its Latin American peers. But despite the mention of a just transition in policy documents, the government lacks a concrete plan to transition coal workers to other jobs. Thus far, most workers from retired units have been transferred to plants that are also soon to be terminated or reconverted. While new green jobs will certainly be created because of the coal phase-out, a report by the Inter-American Development Bank anticipates that former coal workers may struggle to find jobs in other sectors in light of their specific skill set and training.

Labor unions have also expressed concern over the administration’s authority on environmental justice issues given the widespread social unrest the country faced starting in October 2019, leading President Sebastián Piñera to move the COP 25 climate summit to Madrid. The unions argue that the government’s violent repression of the protests damaged the administration's credibility on issues relating to social justice. The protests, which began as a student-led demonstration against a hike in public transport fares, escalated into a general reaction to economic inequality in the country. Despite some progress, in recent years Chile has been ranked as one of the OECD countries with the highest level of income inequality. The protests underscore the need to ensure that the transition to clean energy is equitable and that progress on climate change fully embraces measures guaranteeing social justice. 

As the energy transition in Chile accelerates, examining ways to ensure the shift is just will be increasingly important. In the run-up to this year’s climate change conference in Glasgow in November, COP 26, building coalitions and sharing lessons learned between countries including Chile will be crucial to raising ambitions for a just transition on a global scale. Political will, as well as dedicated funding streams for job training, will be required to help meet the goals of a just transition. Likewise, the Chilean government will need to design future climate policy in a cooperative, community-centered manner that focuses not only on the needs of the government and industry, but on those that the energy transition threatens to leave behind as well.

RELATED LINKS: 

Is Chile On Track to Become Carbon Neutral By 2050?

Turmoil in South America and the Impact on Energy Markets

Latin American State Oil Companies and Climate Change: Decarbonization Strategies and Role in the Energy Transition

[post_title] => Chile's Coal Phase-Out: Opportunities for a Just Transition [post_excerpt] => Chile’s initiative to fully phase out coal generation by 2040 will be critical for the Southern Cone country to comply with its Nationally Determined Contribution (NDC) under the Paris Agreement. However, despite the urgency of slashing Chile’s emissions, ensuring that coal workers are not economically abandoned in the process exemplifies one of the main challenges for policymakers surrounding the just transition. [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => chiles-coal-phase-out-opportunities-for-a-just-transition [to_ping] => [pinged] => [post_modified] => 2021-07-16 20:27:33 [post_modified_gmt] => 2021-07-16 20:27:33 [post_content_filtered] => [post_parent] => 0 [guid] => https://www.thedialogue.org/?p=111728 [menu_order] => 0 [post_type] => post [post_mime_type] => [comment_count] => 0 [filter] => raw ) [2] => WP_Post Object ( [ID] => 109170 [post_author] => 56 [post_date] => 2021-04-21 09:00:14 [post_date_gmt] => 2021-04-21 09:00:14 [post_content] =>

Tomorrow, April 22, on the 51st Earth Day, US President Joe Biden will kick off what promises to be a signature campaign of his presidency: a mission to rally nations around the world to unprecedented climate action. At a virtual Leaders Summit on Climate, Biden will mark the return of the United States to the Paris Agreement with what is expected to be a bold new Nationally Determined Contribution. He will appeal to other countries to raise their ambitions as well, and push for greater support for vulnerable countries to adapt to the mounting impacts of climate change.

Just as Biden tackles one of his greatest foreign policy challenges, his administration is also grappling with one of its most vexing and urgent domestic issues: an immigration system gravely overextended by an increase in migrants at the southern border. More than 170,000 migrants arrived in March, the highest number since 2006. They have largely originated in the Central American region often referred to as the Northern Triangle (El Salvador, Guatemala, and Honduras), fleeing a complex mix of gang violence, poverty, inequality, corruption, weak rule of law, and other factors. Covid-19 has amplified the effects of some of these problems. And though they are by no means the leading drivers of migration, disasters, hunger, and economic insecurity fueled by the impacts of climate change (to which Central America is particularly vulnerable) are increasingly important and expected to accelerate.

Thus, making climate change a central theme of a renewed US focus on the root causes of migration from the Northern Triangle presents an opportunity for the Biden administration to address its border dilemma while simultaneously advancing its climate-related foreign policy goals. 

Climate-related Migration from the Northern Triangle

Climate change contributes to Central American migration in many ways, and largely through its intersection with other structural factors that push people to leave. The easiest to visualize is the devastation wrought by extreme weather events such as 2020’s Hurricanes Eta and Iota. Scientists have linked warming oceans to stronger storms and described the striking of these Category 4 storms just two weeks apart as unprecedented. Their impacts were harrowing. According to USAID, they affected nearly 9 million people in Guatemala, Honduras, and Nicaragua, displacing hundreds of thousands from their homes and exacerbating preexisting humanitarian and economic crises. At least 230 people perished. In Honduras, where nearly half the population was affected, the World Bank preliminarily estimated economic losses of $2.8 billion (GDP was $25.1 billion in 2019) and damage to 85,000 homes. The destruction of 800,000 acres of crops and the disruption of the sowing cycle have raised the specter of famine this year.

In addition to increasingly calamitous individual weather events, Central Americans are also threatened by a more pernicious general growth in both flooding and drought in the agriculture-dependent Dry Corridor, the majority of which is located in the Northern Triangle and Nicaragua. Agriculture employs a large share of the workforces of these countries—more than 30 percent in Guatemala and Honduras. According to the Migration Policy Institute, floods and droughts, often hard to forecast and linked to the increasingly frequent and intense El Niño phenomenon, combine with factors such as poverty, low access to health care and financial services, damage to rural infrastructure by disasters, deforestation, and lower fish stocks during El Niño years to produce extreme rural food insecurity. The UN’s World Food Program (WFP) USA states that of 2.2 million people currently affected in the Dry Corridor, 82 percent are resorting to “crisis-level coping strategies, including selling agricultural tools and animals, skipping meals, and eating less nutritious food.” A 2019 survey by the UN Food and Agriculture Organization and WFP found that 8 percent of families in the region intended to migrate due to the conditions.

Most of these migrants are not initially bound for the United States. Instead, they head to nearby towns or to cities, which “quickly grow overcrowded...stretch[ing] infrastructure, resources, and services to their limits,” according to a 2020 New York Times/ProPublica report. Urban migrants from rural areas often become concentrated in “slumlike suburbs” of cities like San Salvador, where public services, good jobs, and the state are practically absent and gang violence proliferates. In a process known as “stepwise migration,” migrants gradually take greater risks and move farther from home in pursuit of opportunity. Some eventually arrive at the southern border of the United States. The report’s model suggests that if governments take only “modest action” to reduce emissions, 680,000 migrants driven primarily by climate (5% of migrants are projected to fall in this category) will reach the US from Central America and Mexico between now and 2050. Unchecked, climate change could produce over a million such migrants—excluding undocumented immigrants, who could number twice as many.

US and Northern Triangle Climate Goals

As the consequences of climate change build in Central America and elsewhere, Biden is carving out a central role for climate change in his presidency. One week after taking office, he signed a sweeping executive order that, among many other measures, mandated the infusion of climate change into all aspects of US foreign policy. Biden wants the United States to reach net-zero emissions by 2050 and to urge other countries to step up as well. At this week’s summit, the White House aims to keep the more ambitious of the Paris Agreement’s targets (an increase of less than 1.5 degrees Celsius above pre-industrial levels) within reach and drum up financial support for at-risk countries to adapt to climate impacts. Of the 40 countries invited to the summit, 17 account for roughly 80 percent of global emissions. Vulnerable countries, including Antigua and Barbuda, a Caribbean nation whose smaller island (Barbuda) was decimated by Hurricane Irma in 2017, are also represented, though no Central American countries are included. 

Despite their low greenhouse gas emissions per capita relative to countries like the United States, Northern Triangle countries are taking steps to do their part. Guatemala aims for a reduction of 11.2 percent (22.6 percent with international support) of its total greenhouse gas emissions by 2030 (relative to a business-as-usual (BAU) scenario with 2005 as a base year). El Salvador has a goal of reducing its energy sector emissions by 46 percent relative to BAU by 2025. And Honduras hopes to reduce its emissions by 15 percent (relative to BAU and conditioned on international support) and reforest 1 million hectares of forest coverage by 2030.

Aid from the Biden administration can support progress toward these goals while enhancing opportunity and prosperity for would-be migrants and stemming migration’s root causes. Three key officials that Biden has appointed to respond to the strain on America’s immigration system—Vice President Kamala Harris, Coordinator for the Southern Border Roberta Jacobson (who is stepping down at the end of April), and Special Envoy for the Northern Triangle Ricardo Zúñiga—have already been involved in climate-related conversations, largely focused on adaptation and resilience.

On April 9, the White House requested $861 million from Congress for the Northern Triangle as part of Biden’s first budget proposal. Using some of these funds to advance climate change mitigation and adaptation efforts could directly contribute to development and alleviate both climate-related and non-climate drivers of migration. Notably, the $4 billion four-year Northern Triangle aid package mooted by the Biden campaign contemplates grid modernization, a transition to clean energy, and doubling the capacity of the Central American Electrical Interconnection System (SIEPAC by its Spanish initials) in addition to adaptation and resilience measures. Some of these objectives carry over from Biden’s leading role in Central America energy assistance as vice president.

Opportunities for Development Driven by Climate Action

Investment in renewable energy is one area with potential to yield benefits beyond climate change mitigation. Paired with investment in technical education and training, it could create higher-value jobs and reduce dependence on agriculture and manufacturing. Increasing the supply of affordable and reliable energy could also catalyze economic development. Electricity in Central America is expensive—in September 2020, six of the seven Latin American countries with the highest business electricity prices were in Central America, according to one database. In 2019, two thirds of the Northern Triangle’s electricity was generated by fossil fuels, which are largely imported and have volatile prices, or hydropower, which is threatened by droughts. Parts of Guatemala (> 5 percent of the population) and Honduras (> 8 percent) remained without electricity at all as of 2018. 

Moreover, parts of the Northern Triangle are rich in renewable energy potential, particularly solar and geothermal. Auctions for renewable energy across Latin America, including in El Salvador, have yielded competitive prices. Diversifying generation sources will reduce vulnerability to oil price spikes and droughts, and decentralization of generation and implementation of energy storage could increase resilience to disasters. The creation of solar microgrids with battery storage could bring electrification to the region’s remaining non-electrified rural areas without expensive transmission investments. Greater clean energy usage could also improve health in Central American cities. Guatemala and El Salvador are two of the top four countries in Latin America with the highest proportion of deaths associated with air pollution from burning fossil fuels (9.2 percent and 9.1 percent, respectively).

Despite the possibility of renewable energy jobs in the future, dependence on agriculture is likely to continue in the near term due to the current skills and education of the labor force. This means adaptation will be paramount in rural areas. Nature-based solutions such as reforestation could create alternative sources of income and food to agriculture, making rural families less vulnerable to the destruction of their prospects by a weak harvest or a hurricane. Reforestation could also reduce net emissions and mitigate climate impacts like erosion and flooding. The region’s forests have been razed by illegal cattle ranching, oil palm plantations, and cocaine trafficking—three of Central America’s largest forests were reduced in size by more than 23 percent from 2002 to 2017. Bolstering forest protections and rooting out the illicit activities driving deforestation would make communities safer. And financially empowering indigenous groups to be forest stewards and strengthening indigenous land rights, which studies have shown to be a highly effective conservation strategy, would resonate with the values of indigenous communities. Proactive engagement with local communities and existing civil society infrastructure is essential to the success of these measures.

Finally, the Northern Triangle’s weak institutional capacity and rule of law have long been leading drivers of migration, and their strengthening would bring clear benefits for mitigating and adapting to climate change. Transparency is needed for the proliferation of high-value contracts necessary to expand renewable energy. City planning must involve broadening access to housing outside of disaster-prone areas while limiting housing within them. Emergency response capabilities need to be scaled up. As discussed, the rule of law must be established in the region’s forests. A more educated workforce, particularly in the skills that clean industries demand, would help diversify the economy. 

These problems are nothing new and anything but simple, but the reengagement of the United States with the Northern Triangle to address them is an important step. Biden’s high-level envoys to the region suggest he understands the gravity of the situation, and this week’s Earth Day summit is a chance to further demonstrate the same on climate. The question is whether he and his team will capitalize on the chance to respond to both climate change and migration in Central America in one fell swoop.

 

RELATED RESOURCES

Biden's Central America Plan: Perspectives from the Region (Event summary)

Central American Migration: Current Changes and Development Implications (Report)

Let's Work With Latin America to Fight Climate Change (Op-ed)

[post_title] => Climate and Migration: Two Biden Priorities Meet in the Northern Triangle [post_excerpt] => Making climate change a central theme of a renewed US focus on the root causes of migration from the Northern Triangle presents an opportunity for the Biden administration to address its border dilemma while simultaneously advancing its climate-related foreign policy goals.  [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => climate-and-migration-two-biden-priorities-meet-in-the-northern-triangle [to_ping] => [pinged] => https://blog.nationalgeographic.org/2017/06/19/to-secure-our-border-secure-central-americas-forests-first/ [post_modified] => 2021-08-12 13:59:51 [post_modified_gmt] => 2021-08-12 13:59:51 [post_content_filtered] => [post_parent] => 0 [guid] => https://www.thedialogue.org/?p=109170 [menu_order] => 0 [post_type] => post [post_mime_type] => [comment_count] => 0 [filter] => raw ) )
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