Peru has been severely hit by the pandemic and faces one of the deepest crises of the last 50 years. In addition to the highest mortality per person in the world, during 2020 the country suffered an economic impact equivalent to more than 20% of GDP (US$ 35.8 billion). Meanwhile, unprecedented heat waves in North America and floods in Europe remind us that another crisis threatens the well-being and economic development worldwide: climate change. In Peru, it is estimated that the climate crisis could generate losses of 6% of GDP by 2030 and 20% by 2050.
The good news is that the economic crisis caused by the coronavirus and the climate crisis can be tackled together. An IDB study shows that achieving carbon neutrality by 2050 could bring $140 billion in net benefits to Peru. The study, co-financed by the IDB and the 2050 Pathways Platform, was carried out by the Universidad del Pacífico and the Universidad de Costa Rica.
How can Peru achieve a transition to carbon neutrality?
In Peru, most emissions come from agriculture, deforestation, transportation and electricity generation, which are the most urgent sectors to transform.
Achieving carbon neutrality means reducing carbon emissions in all sectors of the economy, as well as maintaining healthy and productive forests and other carbon-rich ecosystems to balance the remaining emissions.
It is essential to protect and sustainably manage the country’s forests to maintain and increase carbon sinks. Reducing deforestation would generate a net benefit of nearly US$29 billion by 2050 as a result of increased revenues from sales of agroforestry products, timber and non-timber products, and ecosystem services.
To enable these actions, the government needs to encourage silvopastoral and agroforestry systems, complete forest management and the allocation of forest rights, and improve the environmental management capacity of the various key entities involved in forest management and protection, such as local governments. Farmers need technical assistance, financing and legal certainty to adopt practices that protect forests while increasing community incomes.
Electromobility is also key. The study finds that a 100% electric public transport that achieves a 70% share of total passenger mobility by 2050 would bring net benefits of US$92 billion. This would come from operational savings, less time lost in traffic and increased competitiveness in cities, as well as a reduction in accidents and improvements in health through better air quality. To enable this transition, new business models and concessional financing are needed to make electric buses, cabs and motorcycle cabs profitable for the private sector.
Finally, decarbonizing the energy sector will reduce its own emissions and increase the impact of electromobility. High renewability of the electricity and energy matrix, improved energy efficiency in the different activities, and massification of smart grids will be key to reducing emissions. It will also reduce operating costs and improve health by reducing the use of polluting technologies, which would generate net benefits of US$ 2 billion by 2050. It is important to continue with the regulatory efforts and the generation of incentives in Peru to promote a greater penetration of renewables in the energy system.
All sectors must participate in the transition to net-zero emissions
Reaching zero net emissions requires transformations in many more sectors. Peru must adopt the circular economy, i.e., reduce, reuse and revalue waste, as well as increase the treatment and reuse of residential wastewater. It is also necessary to electrify and decarbonize industrial processes, especially in the cement industry. Actions in this direction could bring aggregate net benefits of more than US$ 16 billion by 2050.
The opportunity is excellent, but implementing these measures is no easy task. The cross-sectoral dialogue, which was the basis for the preparation of the study, will need to continue in order to formulate policy roadmaps in each sector. Studies on economic, fiscal and social impacts will also be necessary to deepen the formulation of appropriate implementation measures and ensure a fair and inclusive transition.
While challenging, the study shows that carbon neutrality is possible and desirable. The National Climate Change Strategy that the government is developing will provide further guidance on how to move forward towards 2050, and will provide a basis for action for each of the sectors. At the IDB, we are very proud to support this process, which is aligned with our Vision 2025, whose main axis is the sustainable and inclusive growth of the region, working with the productive sector, advancing social progress and strengthening its governments and institutions.
Webinario: ¿Cómo la carbono-neutralidad puede apoyar una recuperación económica sostenible en el Perú?
[Available in Spanish] Costos y beneficios de la carbono-neutralidad en Perú: Una evaluación robusta