This post is a summary of the book published in 2022 at https://read.oecd-ilibrary.org/development/latin-american-economic-outlook-2022_3d5554fc-en#page53
Latin America (LA) countries are at a critical juncture. Just as the region was looking forward to a rebound in growth path after the pandemic, the current inflationary pressures and stark geopolitical tensions are throwing spanners in the region recovery works. In parallel, LA faces the challenge of implementing adaptation and mitigation strategies to address the climate emergency, while at the same time accelerating the pace of social, economic and institutional progress, all within narrowing fiscal space. We need to act now. This agenda must protect and value the region's unique natural and renewable energy capital. A green and just transition should strengthen social protection systems and promote job formalisation. Active labour market policies are essential to provide people with the necessary skills and help them transition to better jobs. A legitimate and politically viable transition requires a broad consensus on its objectives. This is important in a region where support for green policies is high, but where trust in public institutions has seen a sharp erosion. The COVID-19 pandemic aggravated social challenges in the region, leading to increased levels of poverty. These are projected to increase in 2022, due mainly to the economic slowdown and rising inflation, especially in food prices. Looking ahead, LA countries producing eletricity from renewables, given their abundance of low-cost renewable energy can position themselves as green hydrogen industrial hubs. The region also has a strategic position to supply key minerals for the energy transition. In 2017, 61% of global lithium reserves, 39% of global copper, and 32% of global nickel and silver reserves were in LA. Renewed industrial policies are needed to encourage and attract investments in green innovation. So far, the region's GDP expenditure in research and development has been only 0.3% of GDP and remains highly government-driven (56.5% of the total). The LA region faces the challenge of financing the green transition under a tight fiscal space. Financial strategies will have to enhance private and public sector resource mobilisation, inpart by engaging key actors. The public sector will have to create the necessary incentives to redirect these investments towards sustainable projects. In many ways, LA's fragmented voice in climate negotiations constitutes a missed opportunity, especially considering that the region hosts 50% of the planet's biodiversity. Burning of fossil fuels and deforestation are the main causes of climate change. Global carbon dioxide emissions rebounded to their highest level in history in 2021. Given its share in global GHG emisssions compared to countries with similar development levels, LA is usually associated with better environmental performance. The regional shares of total world GHG emissions are disproportionately distributed, as East Asia and the Pacific had the highest emissions, contributing with 37.5%, while Europe and Central Asia 14.4%, North America 13.2%, South Asia 8.4% and the LA region 8.1%. The structure of emissions in LA countries differs from that of the OECD countries. Although the energy sector remains the most emission-intensive for the two regions, each one has its particularities. South America's high emitting sectors are agriculture (28.5%), land-use change (23.8%), and transport (13.4%). The infrastructure of many cities in LA prioritises mobility by car, making it the transport mode that provides higher access to oportunities compared to other transport modes such as public transport. Induced demand refers to the phenomenon by which public investment in roads for car use ends up causing more, rather than less, traffic congestion. These dynamics lead to territories in which most people need to travel long distances daily and private or motorcycles are the most attractive options. Understanding the dynamics above allows policy makers to see that this "choice" is not really an individual preference but the result of the systems design. Applying a diet analogy, "unhealthy" transport systems are those in which most poeple use motorised vehicles for most of their trips. "Healthy" transport systems are those in which people can access places by walking, cycling, and using micro-or shared modes, such that they are the most convenient and people choose them most often. LA countries need to focus efforts on policies that can transform their transport systems away from car dependency. Those LA countries whose power generation largely comes from hydropower should also envisage other renewable energy sources. An over-dependence from hydro can have negative economic impacts in times of drought. Over the last two decades, many LA countries have made substantial progress in building renewable energy markets and diversifying their energy mix. In 2020, 33% of total energy supply in LA was generated by renewables compared with 13% at the global level. However, significant variations exist across the region. For instance, Brazil generates 84% of its electric power from renewables, including 6.9% from solar, 10.9% from wind and 65% from hydropower. Investments in hydrogen and other low-carbon fuels, including biofuels will be necessary to support decarbonisation in heavy industries and transportation. Some LA countries have either published or are currently preparing national hydrogen strategies. Examples of national hydrogen development strategies underway: Chile - launched a hydrogen strategy in 2020. It aims to establish 25 GW by 2030, as well as to produce the world's cheapest hydrogen and become one of the world's top three hydrogen exporters by 2040. Argentina, Bolivia, Brazil, Panama, Paraguay are preparing national hydrogen plans. The transformation of the global energy mix from fossil fuels to renewable energy is necessary to meet the Paris Agreement goals. However, fossil fuel use will continue and will also remain part of the mix even after the world has transitioned to a low-carbon economy. By 2050, fossil fuels are still expected to represent 20% of the global energy supply. Several LA countries have significant oil and gas production. Key producers in the region are: Argentina, Bolivia, Brazil, Ecuador, Mexico and Venezuela. In terms of global crude oil reserves, LA has the second-highest with 19.1%, behind only to the Middle East with 48.3%. Five key actions could help LA countries advance towards decarbonisation: 1) reducing methane emissions. 2) maximising potential of associated gas. 3) electrification of the oil and gas industry. 4) advancing carbon capture utilisation and storage; 5) phasing out fossil fuel-fired thermal generation. The green transition offers an opportunity to address one of the region's greatest challenges: the production structure. Productivity has remained stagnant in recent decades, with the productive structure biased towards activities that have high intensity for materials and natural resouces, plunging the region into a productivity trap that reinforces the environmental trap. Currently, 75% of the region's total exports are primary products and natural resource-based manufactures.
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