Reaping the benefits of a low-carbon economy

Argentina’s President Mauricio Macri has declared 2017 the “year of renewable energy” and has launched a plan for his country to meet 20% of its power demand through renewable energy by 2025. As the chair of the G20 in 2018, Argentina is well-placed to demonstrate ambitious action on climate change to a group that already recognizes that climate action is key to securing prosperity.

Indeed, evidence compiled by the OECD suggests that combining climate and pro-growth policies could increase GDP by up to 2.8% across G20 countries in 2050. This will help us remain on track to reach the well-below 2°C Paris objective, and reduce the risks from climate change impacts.

An essential step towards designing such policy packages is the preparation of multi-sector long-term strategies towards zero net emissions. To understand why, let’s take a step back. As long as we keep emitting carbon dioxide into the atmosphere, global temperatures will keep growing. To stabilize climate change below 2°C, we need to reach net zero emissions in the second half of the century. The objective of climate policies should therefore be not just to reduce emissions, but to make sure that economies make consistent progress towards net zero emissions.

Argentina’s 20% renewable power target backed by a series of renewable energy auctions is a good example. Replacing its coal power plants —that account today for more than a quarter of the power supply in the country— with somewhat cleaner gas power plants could, in principle, reduce emissions in a relatively low-cost way. Switching from coal to gas could even allow Argentina to meet the pledge it made in Paris – reducing its GHG emissions 15% to 30% by 2030. But unabated gas technologies still emit CO₂, so this path may not allow the country to reach zero net emissions by mid-century. Instead, investing in renewable power will be a decisive step towards stabilizing climate change, even if it is slightly more expensive than gas and also requires further investments to modernize the grid.

Long-term decarbonization strategies are useful precisely in telling us where critical infrastructure and policy choices should be made in order to stay on track. They can also set milestones for some critical developments – the share of electric vehicles on the road, the rate of decarbonization of power generation, the renovation of buildings and the technology requirements for new construction, or the needed rate of reforestation. Latin American and Caribbean countries are already thinking this way. Continuing with the energy sector as an example, Chile aims to generate 70% of its electricity from renewable sources by 2050, and Costa Rica and the Dominican Republic are aiming for 100% renewable electricity by 2050.

Those targets can help governments identify public policies that will align private investment with sustainable development goals. Many countries are using auctions to grant renewable power projects to the local companies that will produce at the best cost. In the transportation sector, governments have used feebates or tax exemptions on electric vehicles to nudge consumers to choose the cleanest technologies. Sector roadmaps and interim targets provide a visible base on which governments can build sound policies, and investors can follow.

Low-emission development strategies can also serve as a brake on high-carbon infrastructure investments that are out of sync with the Paris Agreement and will either expose investors and economies to asset stranding or lock in high-carbon practices. Each investment in an oil field, a gas or coal power plant, or a neighborhood in a urban sprawl is a commitment to emit carbon dioxide for decades to come. Realizing later that these investments are not consistent with a country’s Paris Agreement objective would mean premature closures, at a loss to investors and a high cost to society overall. It would also create political resistance to ambitious mitigation action down the line. The risk of stranded assets could undermine economic stability and produce political unrest. Early planning for a transition that invests in environmentally and socially sustainable jobs and sectors is critical to minimize these risks.

Many actors recognize the value of preparing decarbonization pathways. Benin, Canada, France, Germany, Mexico, and the U.S have published their long-term strategies in accordance with the Paris Agreement, and other countries are following up. However, despite this progress, global infrastructure investors are not taking the full measure of the importance of low-carbon infrastructure investments, and of the risk associated with business as usual. A 2016 study examined 16 national Public-Private Partnership policy frameworks, and did not find a single mention of climate change. We believe that long-term low-carbon development pathways are needed now to direct PPPs and other infrastructure projects in the right direction.

The Inter-American Development Bank’s NDC Invest platform is working with Latin American governments, investors and civil society to speed up the development of low-carbon projects. The IDB is also helping Argentina, Colombia, Costa Rica, Ecuador and Peru develop their own tools to prepare long-term emission reduction strategies. Additionally, it has partnered with the 2050 Pathways Platform, an international initiative which supports the elaboration of robust long-term strategies and facilitates sharing information and best practices. There are currently 15 cities, 17 regions and states, 192 companies and 25 countries including Brazil, Colombia, Costa Rica, Peru, and Chile that share the Platform’s interest in elaborating robust decarbonisation pathways to best guide near term decision-making.

To ensure we reach net zero emissions by 2050 and limit warming well below 2°C, the right policies and incentives must be created now to lock in action on climate change as a prerequisite for prosperity. The preparation of low-emission development strategies by 2020 is a vital step towards that goal.