Which Latin American countries are best prepared to tackle climate change?

Keyword: 
Climate change
Topic: 
Environmental Economics

Trees rising out of the Jaguari reservoir, next to the re-emerging old city of Igarata, Sao Paulo State, February 4, 2015.

How climate-resilience is Latin America?

This article is part of the World Economic Forum on Latin America 2017 and it was first published in the World Economic Forum Blog, on March 30, 2017.

Cutting global greenhouse gas emissions is essential for managing climate change risks in every corner of the world. However, even if we can limit global warming to 2°C, the climate will still change, affecting both businesses and communities across Latin America.

The 2°C target for global warming is often misunderstood. There is a tendency to think of it as a scientific boundary that perfectly delineates between “safe” and “dangerous” levels of climate change. It is not.

Instead, it is a line drawn by politicians in 2010 in a pragmatic attempt to strike a balance that avoids the more severe climatic changes associated with greater levels of warming, while recognizing that keeping global warming to much below 2°C would be politically challenging.

But make no mistake, global warming of 2°C will still seriously impact businesses and communities. Some scientists – most notably NASA’s James Hansen – warn that even 2°C of warming could be disastrous, creating “feedbacks” that lock in much higher levels of warming.

A number of the world’s most vulnerable countries highlighted this point at the UN climate change conference in Paris in December 2015. As a result, the Paris Agreement included a more ambitious target of limiting warming to ‘well-below 2°C’ with a stretch goal of 1.5°C.

How do the impacts of 1.5C of warming compare to 2C of warming?
Rosamund Pearce for Carbon Brief

The problem is that the world has already warmed 1.1°C above pre-industrial levels. And, UN Environment analysis shows that even if all countries meet the individual commitments they made to cut emissions as part of the Paris Agreement, the world will still warm by somewhere between 3.0°C and 3.2°C.

The good news is that there are huge opportunities for low-carbon investments that build resiliency and reduce emissions. The International Finance Corporation estimates this market in Latin America will be worth more than $600 billion over the next 14 years.

Demonstrating that the shift to a clean economy is aligned with creating a safe and vibrant economy will enable governments to increase their ambition and set future climate targets that will get us closer to the 2°C or below pathway.

While we need to quickly ramp up efforts to cut greenhouse gas emissions, we also need to get serious about improving our climate resilience. They are two sides of the same coin.

Irrespective of political allegiances – or views about what causes climate change – most people agree it is happening. Preparing for its impact on communities and businesses should be a central part of every country’s economic plan.

How climate-resilient is Latin America?

Climate resilience is notoriously hard to measure consistently. One approach, used by the University of Notre Dame, measures a countries’ vulnerability to climate change and its level of readiness. It uses 45 different indicators to measure the vulnerability across categories such as food systems, water availability, infrastructure and human health, along with its economic, governance and social readiness. Together, they give an indication of a countries’ overall climate resilience.

This is how countries in Latin America compare:

University of Notre Dame’s ND-GAIN Country Index

How can climate resilience be improved?

Every policy-maker and business leader has a responsibility to take climate resilience seriously, and their voters and shareholders should hold them to account.

The first priority is to increase understanding of the range of changes expected in a country or region and to map these against its industries, human settlements and infrastructure. In many countries, climate change is a “known unknown” – that is, decision-makers know it is happening but don’t know precisely how fast or how severe the changes will be. This is why climate scientists talk in “pathways”, “scenarios”, “ranges”, and “likelihoods”. The variables are complex and influenced by local and regional factors. This makes local research essential.

While the specific priorities for improving climate resilience will differ in every country, there are three types of actions all countries need to take to improve climate resilience.

1. Building climate resilience into infrastructure standards

Much of the world’s infrastructure is being built using approaches that are several decades old. This needs an upgrade.

Consider the amount of infrastructure forecast to be built in Latin America in the next four years alone. The United Nations Economic Commission for Latin America and the Caribbean recommended that the region invest 6.2% of GDP in infrastructure – around $320 billion – every year to 2020. If not designed and built to be resilient to climate change, it is more likely to need to be rebuilt, diverting funds from other development priorities like health and education.

In cases where the initial cost-premium is too high to build infrastructure to higher standards straight away, climate-resilience can still be built into the design specifications. Smart design could enable modular approaches or phased construction that keeps initial costs down but enables it to be bolstered or added to as conditions change over the infrastructure’s lifespan.

2. Reducing structural vulnerabilities

In 2016, ratings agency Moody’s issued guidance on how climate change could affect states’ ability to repay their debts, saying “while all countries will experience the physical effects of climate change to some degree, sovereigns [countries] with larger, more diversified economies and geographies are less susceptible”.

Diversification should be a priority for countries whose income comes from a sector heavily exposed to climate change (e.g. agriculture), relies on single pieces of major transport infrastructure (e.g. ports/railway lines), or which has large populations living in climate-exposed locations.

In some cases the solution is to build-in redundancy – for example, alternative supply chains, secondary capacity, and back-up plans should energy, water or transport infrastructure be interrupted. As many businesses are also grappling with how to manage vulnerabilities across their global supply chains, there may be opportunities for them to co-invest with governments to improve resilience in critical locations.

3. Exploring innovative financing models

Financing the additional upfront costs of more resilient infrastructure is challenging, but new models of “blended” finance could help. For example, multilateral development banks (MDBs) are exploring loan swaps so they can increase their investments in their particular region without increasing the overall risk profile of their lending portfolio. With the right framework, insurers may also be able to offer premium reductions for climate-resilient infrastructure. The savings could be used to repay loans from an MDB that financed the additional upfront costs.

Changes in the climate could impact on sustainable development plans and people’s quality of life in diverse ways – from food security, energy security, sanitation and health, through to employment conditions and availability, personal mobility, and property values. Improving resilience can help reduce those impacts.

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