The imperative of sustainable infrastructure in Latin America

Thousands of government officials, ministers, investors, and civil society leaders are descending on Washington D.C. this week for the Spring Meetings of the World Bank Group and the International Monetary Fund. There is one date that should be central to the discussions: 2020.

If the Paris Agreement’s goal of limiting global temperature rise to 1.5 degrees Celsius is to be met and the UN Sustainable Development Goals are to be obtained, greenhouse gas emissions must peak by that year, and then drop steadily. This is the central message of the “2020 Climate Turning Point” campaign launched last week by a group of experts convened by Christiana Figueres, the former head of the UN Climate Change Secretariat.

While the 2020 goal is very ambitious, it must be firmly on the Spring Meetings’ agenda, right alongside the focus on infrastructure such as transport, energy, buildings and natural infrastructure including forests.

The Global Commission on the Economy and Climate states that investing in sustainable infrastructure is critical to boost global growth, realize the Sustainable Development Goals such as ending poverty, and building resilience to the impacts of climate change consistent with the Paris Agreement.  It estimates that the world is set to invest $90 trillion in infrastructure over the next 15 years.

With 70 percent of the forecast increase in emissions from developing countries set to come from infrastructure that has yet to be built, decisions made today will determine whether the Paris Agreement and Sustainable Development Goals remain viable. In Latin America and the Caribbean, decisions surrounding infrastructure investments are especially significant.

Governments and the private sector must factor in climate risks when considering investments. The physical risks of climate change such as more intense floods pose a substantial threat to valuable assets. Latin America is already being rocked by extreme weather events, which are set to become more frequent and intense due to global warming. This year Peru and Colombia have been pummeled by rains which led to catastrophic floods and mudslides that killed hundreds. In Peru, over 240 bridges and thousands of miles of roads were destroyed. The reconstruction bill is estimated to be around $6 billion, more than 3 percent of Peru’s GDP.

Transition risks associated with regulatory responses to climate change –including emission reduction targets or the falling cost of renewable energy that render some fossil fuels less competitive– are also an issue. A failure to consider these risks could affect economic and financial stability due to the increased possibility that assets may become stranded, suffering premature or unanticipated write-downs or losses.

In Latin America and the Caribbean the demand for infrastructure is rising fast as citizens call for improved sanitation, energy and transport systems. At the Inter-American Development Bank (IDB), we estimate that up to 5 percent of the region’s GDP or roughly $250 billion per year will be required to meet this demand.

The region’s power needs are projected to grow by more than 91 percent through 2040. Countries face considerable challenges to ensure that climate risks are factored in as they attempt to meet this demand while also delivering on their climate and sustainability goals.

Renewable energy must play a leading role.  Our research indicates Latin America can meet its future energy needs through renewable sources –including solar and wind– which are sufficient to cover its projected 2050 electricity needs 22 times over.

Most Latin American countries are making good progress. Chile aims to reach 70 percent of its electricity from renewables by 2050. Climatescope 2016, the clean energy competitiveness index, ranked Chile top in Latin America and second to China globally for its ability to attract clean energy investment. Future prospects for clean energy look very bright; the International Finance Corporation estimates that the market for clean energy investments in Latin America and the Caribbean will reach $1 trillion by 2040, with $600 billion materializing by 2030.

At the IDB we are working with countries to capitalize on these low-carbon opportunities and build resilience to global warming by integrating climate risk into infrastructure investment decision-making. This year we are piloting a new methodology for evaluating proposed operations for disaster risk, climate change, and resilience, with broad implementation expected next year.

The IDB’s new platform NDC Invest is supporting countries’ efforts to implement their commitments under the Paris Agreement by mobilizing investors to deliver investments for sustainable infrastructure. The platform can play a transformative role in convening governments, investors and civil society to accelerate the development of transparent pipelines of sustainable infrastructure projects for clean public transport and renewable energy systems.

Although sustainable infrastructure projects often entail upfront costs that are roughly 5 percent larger than those of the past, they can generate lower operating costs over the life of the investment, while also reducing risks. These projects can create new jobs and help modernize energy and transport systems, which is crucial for increasing productivity and competitiveness.

To realize these benefits, decision-makers need to integrate their climate change plans with national development agendas. Designing infrastructure investment plans that are in sync with long-term low-emission strategies is required to deliver growth that creates new business and jobs in low carbon and climate resiliency sectors, while minimizing the risks of the transition to cleaner and more sustainable economies.

Strengthening the capacity of governments while encouraging greater interest from investors for this type of infrastructure planning is essential if the right decisions are to be made today, and well before 2020.

 

 

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titulo: Infrastructure for Competitiveness – Port of Manzanillo, México