Seizing Green Growth Opportunities

CHAPTER 2

SEIZING GREEN GROWTH OPPORTUNITIES

Recovery in Latin America and the Caribbean (LAC) will take place within a global context in which concerns around climate change are giving rise to far-reaching policy changes. The sixth report (2022) of the Intergovernmental Panel on Commission on Climate Change (IPCC) sounded even more insistent alarm bells on likely damage to developing countries in terms of loss of livelihoods, increased climatic catastrophes, and ecosystem degradation, stating that “Climate Resilient Development is already challenging at current warming levels. It will become more limited if global warming exceeds 1.5°C (2.7°F).In some regions it will be impossible if global warming exceeds 2°C (3.6°F)” (IPCC 2022). The increasing frequency and power of extreme weather events— such as the dramatic drought that has affected agriculture and power generation in Argentina, Brazil, Paraguay, and Uruguay, and the devastating hurricanes of the past two seasons in the Caribbean—are the most notable and visible effects of climate change, creating billions of dollars of losses in infrastructure, lost productivity, disease, poverty, and death. However, climate change is more than a series of shocks; it is a change in trend. In LAC, that trend threatens agricultural productivity, food security, and most importantly the health and well-being of the region’s population.

Both the public and private sectors are mobilizing with increased urgency to meet the goal of keeping warming at manageable levels and correctly so. The uncertainty around these forecasts, as well as the irreversibility of the damage, dictates taking aggressive action (Pindyck 2021). At the last United Nations Climate Change Conference (COP26) in 2021 in Glasgow, countries committed to carbon emission reductions by 2030 and agreed to a basic set of rules for voluntary carbon markets that potentially will involve billions of dollars’ worth of carbon credits. Green finance continues to grow, and many more firms are pledging to go green and be sustainable.

Many Latin American countries are also committed to reducing carbon emissions, phasing out coal, and decreasing deforestation by 2030. Clearly, meeting these goals will require changing how we do business in important ways, some of which will necessarily constrain growth in some sectors. Over the long term, petroleum production will contract and the sector will likely become a “stranded asset.” Reduction in deforestation necessarily implies reduced expansion of new cropland (although not necessarily crop production) and curtailment of unsustainable forestry and mining. Under existing production techniques, reducing methane emissions from livestock would seem to require reducing herd sizes. Although the region’s manufacturing sector, including steel and cement, contributes relatively less to climate change, manufacturing industries face few easy ways of reducing carbon usage, implying that, in the short term, carbon taxes will reduce output and raise prices.

Viewed through the lens of currently employed technologies, such restrictive policies will have costs and are likely to face political resistance. However, the message of this chapter is, first, that LAC is well positioned to take advantage of the emerging Green World Order. The region’s economies are already very green and offer a comparative advantage relative to competing exporters as LAC faces increasingly restrictive carbon content import requirements. But more importantly, we should not view climate mitigation and adaption through the lens of existing technologies: they must be seen as issues of technological adoption and innovation that place this agenda precisely at the nexus with growth more generally (Cirera and Maloney 2017; Cirera and Cruz forthcoming). New herd management technologies are generating lower-emission livestock and new agricultural technologies are improving yields and productivity in farms—but the region must adopt these technologies. However, at the heart of the low growth documented in chapter 1 is precisely the weak regional performance in technological adoption and innovation. This “knowledge” or “innovation agenda” needs to be placed at the center of both the growth and greening debates, and the policy synergies between the two agendas are potentially great. Further, in a context of tightening financial conditions, opportunities are opening in the green finance sector, where analysts suggest that investor appetite is growing rapidly and outstripping supply. If well managed, the tradeoffs between climate change mitigation and prosperity will have real but modest costs, while the opportunities that global greening offers the region can offer new sources of exports and growth.