The new development frontier
Climate change is altering natural and economic systems. In fact, the need to contain global warming by reducing gas emissions requires the protection of nature to be incorporated into the pricing system, which will affect the allocation and use of resources. The protection of the planet is, of course, a priority issue. But it poses a new economic challenge for developing countries.
Latin America, which already faces immense challenges with development, will also have to face the climate agenda. But the combination of relatively low emissions with the availability of immense forests, rich biomes and unique water and natural resources provides the region with unprecedented trade opportunities.
To turn these challenges into opportunities, it will be necessary to merge the paths of environmental protection with those of development. In this regard, there would be at least two avenues to explore. On the one hand, there would be the region's demands to address climate change. On the other, there would be the contributions of the region in supporting decarbonization and sustainability at a global level.
The region needs to mitigate and adapt to the effects of climate change, based on demand. The IFC study identifies and measures new business opportunities in the region's four largest economies in the areas of renewable energy, industrial energy efficiency, transport and green buildings and waste. Though limited in scope, the study and estimates indicate businesses on the order of USD 2.64 trillion between 2016 and 2030, or something on the order of USD 176 billion per year. As a reference, this value is well above the average annual value of foreign direct investments in Latin America between 2016 and 2020, which was USD 138 billion.
Business estimates by country would lead to a corresponding 27% increase in the value of gross fixed capital formation in Argentina; 32% in Brazil; 20% in Colombia; and 21% in Mexico. But even more importantly, because of their productive and technological nature, these companies could mobilize many and varied value chains, train labor, create many jobs, move markets for services, capital, and finance, and help generate virtuous development circles.
In terms of supply, the region would be well positioned to provide solutions converging with the interests and needs of third parties in areas such as food safety, decarbonization, sustainability and well-being. These include bioenergy, organic and sustainably produced food, green and blue conservation projects, sustainable biodiversity exploration, bioeconomy and sustainable tourism, just to name a few activities.
This agenda will also be able to mobilize many and varied value chains, while creating and training for jobs, and will require the same amount of business and investments in subsidiary sectors. But most importantly, this agenda has a high potential to leverage and promote research, innovation and the development of new markets, which could have implications on sustainable development.
Although the businesses associated with supply and demand are economically relevant, it is in the carbon credit market that the most important and immediate income-generating possibilities would be found, as several countries in the region will be able to participate in and benefit from that market due to favorable natural conditions.
In fact, four fifths of global emissions still bypass carbon markets and of the part already incorporated, the average price per ton is only USD 3. Although still hot, this market should gain momentum this year, even with the support of larger economies, and is expected to expand substantially and rapidly over the next few years. The IMF proposes the creation of an international floor for the carbon price of USD 75 per ton to be reached in 2030. This outlook is certainly very encouraging for the region.
The new development frontier is broad and has much greater entrepreneurial potential than estimated by the IFC, which could be critical for economic development, the fight against poverty and for the region to pass through the gateway into the twenty-first century economy. Unlike other development approaches, the green strategy attracts international financing on advantageous terms and offers business and employment prospects for rural areas and cities, for mines and factories, offices and the streets, and for large, but also small and medium-sized enterprises.
Realizing all that potential will require huge and timely efforts to align interests, the establishment of coalitions and partnerships, as well as leadership and proactivity around positive policy and green standards, both nationally and internationally. The post-pandemic period will be the ideal time to “readjust” the region's development strategies and programs. We can’t afford to waste it.
