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In the last 80 years, the gross domestic product per capita worldwide has increased almost fivefold. But, in parallel and “unfortunately, greenhouse gas (GHG) emissions have multiplied by seven due to this formidable growth in per capita income and the increase in population.” This is one of the first sentences with which the latest Economy and Development Report (RED) of CAF – development bank of Latin America and the Caribbean, begins, which, for the first time, puts the magnifying glass on the fair energy transition that the region needs. A path that, if done well, will not only allow countries to develop, but to do so in a sustainable way.
Latin America and the Caribbean, explains Lian Allub, principal economist of the Socioeconomic Research Department of CAF and co-author of the report, still has a lag in development when compared to the countries of the Organization for Economic Cooperation and Development (OECD). , suffers from a strong inequality problem, and its emissions, which only represent around 11% globally, do not come mostly from the energy sector: by 2019 almost 65% came from land change and use. But this does not make it immune to climate change. For this reason, this latest report presented by CAF and launched this Thursday at the Adolfo Ibañez University in Santiago de Chile, revolves around making an energy transition that is not inherited or imported. But one, says Allub, “that does not turn its back on the old development problems and the needs of the region.”
The clue to achieve this is hidden in a fundamental concept: decoupling. “Typically and historically, economic growth has generated an increase in emissions responsible for climate change,” explains Fernando Álvarez, also author of the report and senior economist in the same direction as Allub at CAF. “So decoupling is achieving economic growth without emissions growing.” Although the concept sounds simple, achieving it is not. And an energy transition in Latin America and the Caribbean will not only require the change to a system with fewer fossil fuels and more non-conventional renewables, but also evolutions that range from how the energy rate is determined, to where the region obtains its income. to the role that people have as consumers.
Added to this is that, because it is a heterogeneous region, it will not be just one transition but many. “Each country will experience the energy transition at the speed that suits it, adopting strategies and policies appropriate to its reality and possibilities,” is one of the conclusions of the report.
Offer: double electrification
Although the differences between countries are several, Álvarez believes that there is a kind of mantra that could be applied to the entire region: double electrification. It is common to hear that Latin America has an electrical matrix low in emissions, since its main input is hydroelectric plants, not fossil fuels. But electricity is just one of the many types of energy that Latin America consumes. There is also transportation energy, which involves gasoline and other liquid fuels, or gas used for cooking. Both examples are energies, but they are not electrical energy.
Making that clear, what you also need to know is that 20% of the region’s energy consumption comes from electricity generation, and although it is a percentage that is slightly below that of OECD countries (22%), The region has the advantage that 57% of this electricity comes from renewable sources, which exceeds the world average (36%). With this guarantee that it is a low-emission electrical matrix, we must “think about a future in which 40% of the energy in Latin America and the Caribbean comes from electricity,” insists the expert, linking it to something which the report also mentions. “In the scenario of announced commitments of the International Energy Agency, the electrification rate for the region amounts to 41% in 2050.”
This implies some logical challenges, such as overcoming the intermittency of an electrical system whose input is variable factors – such as water, wind and the sun -, or creating infrastructure to transmit and distribute electricity (the region’s electrical network is 20 kilometers per 10,000 inhabitants and to achieve a scenario of net zero emissions in 2050, it will require twice as many). But there are also other not so logical challenges. For example, the report proposes modifying the formula of how the energy rate is currently calculated, since it is designed under the rules of fossil fuels. “Given the penetration of non-conventional renewables,” the document says, a good practice would be to “include pricing schemes differentiated by hourly blocks.”
The transition, on the part of energy demand, will also imply other important changes. The CAF document highlights improving energy systems so that there are no such large leaks – since when transforming thermal energy into electricity there are losses on average of 56% – and betting on low-emission fuels, emphasizing hydrogen and hydrogen fuel. agricultural origin.
Demand: the challenge of industries that are difficult to decarbonize
Thinking about electrifying everything comes with an Achilles heel: there are key industries for the development of countries, such as cement, steel and chemicals, that need such high amounts of heat that electricity is not enough. This is why they are called industries that are difficult to decarbonize. “The industry generates 11% of direct emissions and 24% of energy emissions in Latin America and the Caribbean. Of these, the cement, steel and chemical subsectors represent 57%,” the report warns. This, in other words, means that, even in the most desired climate scenario, the region’s energy matrices will need some fuel. But as Allub says, the conclusion is not to think that we have to sit idly, but, again, “to think about developing low-emission fuels, such as biofuels – taking care that they do not compete with food security – green hydrogen.” , and not rule out a technology that, according to the report, although still incipient, will be necessary: carbon capture.
To this, Álvarez adds, we must incorporate a piece that the climate world also talks a lot about: the circular economy. “We must transform industrial processes. For example, using scrap metal to produce steel would reduce emissions.” The input for steel is usually iron ore that is placed in furnaces that reach very high temperatures and are fueled with fossil fuels. But, if the input is scrap, an electric arc furnace can be used, whose source is electricity. The CAF document even points out that “something that distinguishes Latin America and the Caribbean from the rest of the world is that both production methods [mineral de hierro y la chatarra] They are used in similar proportions. This difference and the fact that the region’s electrical matrix is relatively clean explain, in part, why its emissions per ton of steel produced are lower than the global average.” In 2019, those emissions were 12% lower than the rest of the world and 25% lower than China.
Regarding demand, the report also talks about other important transitions, such as promoting energy efficiency in homes and changing the technology with which cooking is done. But there is one recommendation that might seem unexpected. In transportation – which generates 12% of direct emissions and 25% of energy emissions in the region – the report proposes investing more in urban planning that allows people to use electric public transport and move around by bicycle, above of electric cars. At least, in terms of transportation in the city. Because? “The region’s income is not enough for electric cars, they demand a charging infrastructure that does not exist and they do not solve a big problem: traffic,” says Álvarez. And there is a figure that backs it up. “For an average Latin American and Caribbean, paying for a car that runs on fossil fuels requires between 6 and 14 years of income, while for the cheapest electric vehicle it takes almost 17 years.”
This CAF report is a clear signal that the energy transition in Latin America and the Caribbean will require big bets and they are not necessarily those that Europe or the United States are making. It is a transition with its own opportunities and challenges. One that, while guaranteeing clean energy, does not forget the transition of jobs, income, regulations, but, above all, does not leave behind a historic struggle in the region: that of inequality.
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