The Role of Expansion Plans Promoting Feasible Nationally Determined Contributions (NDCs)
The future of energy needs to be sustainable. In the future, energy consumption should not be associated with CO2 emission. Among many uncertainties, this seems to be an agreement. All the IDB member countries signed the Paris Agreement, pledging to make efforts to stabilize the increase in global temperature well below 2°C by midcentury. When, how, and what is the best path to achieve this sustainable future is being actively discussed. How are LAC countries aligning their electricity investment plans and climate policy commitments?
It is part of the IDB mission to support Latin American and Caribbean (LAC) countries to achieving the Paris agreement’s goals and to promoting inputs for well-informed discussions. In order to address this issue, the Energy and the Climate Change divisions held the workshop “Are we still in time to make it? Meeting Paris Agreements in the LAC Energy Sector” by bringing together studies and practical experience about policy implementation.
In that sense, to operationalize the temperature targets countries have submitted Nationally Determined Contributions (NDCs). In doing so, governments assessed what they have, what they can do in the short and middle term. Hence, it was essential to understand where each country stands in terms of resources, capacity, and infrastructure.
Measuring NDCs in LAC
It was not easy, but as our study (that will be published soon) shows, most LAC countries did it well. The countries having a robust expansion plan for energy were able to propose expansion plans aligned with NDCs. The capacity of planning the energy sector in many of LAC countries, especially the electricity expansion, has been an important asset for them when establishing feasible targets and measuring their evolution.
In energy, governments face a range of tools to make it happen (or not): Market design (promoting auctions), policies incentives (promoting rooftop solar for households) or through direct intervention (public utilities starting to manage the heating of householders to make the use of energy more efficient). The use of an expansion plan has also been a key tool to align policies.
The climate objectives are empty pieces if it is not translated into investment choices. When well utilized, the expansion plans give the countries the link pieces among the different objectives. It allows acknowledging the success of the tools implemented to make feasible commitments in the short/middle term but also questioning it when envisaging their long-term commitment.
What should countries do to continue the path toward a sustainable future?
Therefore, the question is: how can LAC countries best align NDCs to reach the long-term commitment assumed by signing the Paris Agreement? The investment decisions for the next years, even if complying with NDCs, can become stranded assets under climate policy restrictions in the following years. How can we best avoid this?
These questions remain open. However, empowering LAC countries to make the best of their transition to the sustainable future requires to think in different time horizons: short, middle and long term. The current round of NDCs has allowed the creation of national processes to discuss options that reduce emissions. Their interaction with electricity expansion plans has been an important mechanism to look for feasible choices.
Thereupon, the next step is to reinforce the ambition of NDCs over time, making it possible to align short-term planning with long-term decarbonization targets. The long-term commitments, the investment choices for the next years, should consider the costs associated with the risks of becoming stranded assets if policies continue in the path to achieving the commitment which we all signed for: to stabilize the increase in global temperature well below 2°C.