Hablando de Mercado: Latin America ahead of COP 27

Author Argus

Latin America is one of the regions most impacted by climate change, with extreme weather events becoming increasingly frequent – but despite climate change and unstable policies and economies across several countries in the region, Latin America has shown its commitment to the energy transition by making great strides in recent years.

Join Josh Vence, Business Development Manager, and Jacqueline Echevarría, Editor of Argus Latin America Energy, as they discuss the region's progress and climate promises ahead of the United Nations Climate Change Conference, COP 27, to be held in Egypt.

Learn more about Argus Latin America Energy



Josh Vence (JV): Hello and welcome to Hablando de Mercado (“Market Talks”), a series of podcasts presented by Argus on the main events affecting the energy and raw materials industries in Latin America and the rest of the world. My name is Josh Vence, and I am a Business Development Manager at Argus for Latin America. In today’s episode, we will be talking with Jacqueline Echevarría, Editor at Argus Latin America Energy with whom we will be analyzing the region’s progress and promises related to the climate ahead of the United Nations Climate Change Conference, COP 27, to be held in in Egypt.

Welcome, Jacqueline!

Jacqueline Echevarría (JE): Hi, Josh. Thanks for the invitation.

JV: Jaqueline, you are in Sharm El Sheik, at COP 27, covering the negotiations and debates taking place. This is a critical moment, given the war in Ukraine, which has raised several concerns regarding the security of energy supply, while there is an urgency to continue with the energy transition.

Additionally, the UN has warned us that the Nationally Determined Contributions of each country by 2030 are not enough to limit the global temperature increase to 1.5 degrees Celsius. With that in mind, how do Latin American countries present themselves to the Conference?

JE: The Latin American countries, which includes South America, Central America, the Caribbean and Mexico, have been working during these years to meet the goal of reducing their emissions and reaching carbon neutrality by 2050, but efforts are uneven in the region.

On the one hand, we have the example of Chile, which was the first country in Latin America to announce the commitment to carbon neutrality towards the middle of the century, including this goal in its climate change law.

On the other hand, we have countries such as Uruguay, Panama, Ecuador, Peru, and Costa Rica, which have also committed to this goal, including it in some energy policies. Finally, we have countries such as Mexico, Brazil, Colombia, and Argentina, which have publicly announced their goal of achieving carbon neutrality by mid-century, but which have not yet implemented any changes in regulations.

JV: Right. So, these countries are committed to being carbon neutral, with some advancing more in their commitment than others. How realistic are their ambitions?

JE: On paper and in speeches, these goals sound very ambitious, but the gap between discourse and action is quite wide. To achieve carbon neutrality, these countries first need to detail their Nationally Determined Contributions by 2030, known as NDCs, in which they detail their carbon dioxide emission reduction targets for the next 8 years.

Subsequently, a long-term plan, detailing the efforts and steps to reduce emissions in the different sectors of the economy, is required. An implementation plan is also needed, alongside regulations or and more concrete details on infrastructure or carbon prices. These concrete details are missing in many of these countries to show that their goals are achievable.

For example, according to the independent platform ClimateWatch, Costa Rica is the only country in the region with a sufficiently detailed strategy to meet the Paris Agreement goals.

JV: So, what are the main obstacles that the region is facing in, first, creating a credible and robust long plan and, second, in carrying it out?

JE: There are two important points: the politics of the region and the financing.

The main obstacle is the political ups and downs that we see in the region. In recent years, we have seen a growing political polarization by presidents with very different visions for their countries.

This can be seen very clearly in the vision of state sovereignty held by Mexican President Andrés Manuel López Obrador, which is very different compared to the vision held by his predecessor Rafael Correa, who, in fact, was under his mandate when Mexico signed the Treaty of Paris at COP 21.

Another example comes from Brazil, with the vision of current president Jair Bolsonaro when compared to that of the winner of the recent elections Luis Inácio Lula da Silva. In Chile, we have also seen these contrasts with the current President Gabriel Boric and his vision of a country that is now in a limbo, in a way, following the failure of the constitutional referendum.

These radically different visions can have a greater or lesser implication in energy and climate policies, slowing down progress in the implementation of Nationally Defined Contributions, roadmaps, long-term plans, or budgets for climate action.

JV: Right. You have also mentioned the issue of financing in achieving the climate objectives.

JE: Exactly. This is another very important component. How are these climate strategies going to be funded? The issue of climate finance is a discussion in which the Latin American region engages on every year during these negotiations, as it must be considered that the region emits around 10% of total global emissions and is one of the regions most affected by the effects of climate change.

To help developing countries, countries with more developed economies agreed in 2009 to provide $100 billion per year in climate financing until 2025. According to OECD data, as of 2020, $83 billion in climate financing were mobilized for these developing countries, and despite remaining below the established objective, this annual amount has been growing since 2013, when only $52 billion were mobilized.

Now, of these $83 billion, only 17% went to Latin America, compared to 42% to Asia or 26% to Africa.

JV: And why did Latin America receive less than 20%?

JE: Exactly for one of the reasons we mentioned earlier: political uncertainty, which slows down or puts a pause on countries’ progress in implementing their climate action plans. To access financing, developing countries need to demonstrate that their governments are committed to tackling climate change. They need to set their Nationally Determined Contributions and to have clear roadmaps and a detailed climate strategy at both the regulatory and financing levels. This requires quite extensive work on the part of the government, as they have to show that their objectives are aligned with their climate strategies. If a country fails to demonstrate that it has a credible long-term or short-term climate plan, it can be difficult to attract funding.

JV: So, on the one hand, Latin American countries request climate financing from advanced economies, while on the other hand, these developed economies are saying “yes, we will help you with the financing, but we need a clear climate policy.”

JE: Exactly. If there are no clear roadmaps, if there is no connection between the announced climate objectives and a robust plan by the government, it becomes difficult to attract more financing.

JV: Right. Now, let’s assess how certain countries are doing at COP27. We won’t be able to focus on every country due to the lack of time but let’s focus on the great economic powers in the region and start with Brazil.

How has Brazil advanced in the last year since COP26 and what role will it be playing at COP27?

JE: With Lula’s victory in the elections on October 30, a new hope opens up in terms of environmental policy in Brazil. Under the Bolsonaro administration, Brazil witnessed record levels of deforestation in the Amazon, and Lula has promised major changes in environmental policy as part of a plan to reduce greenhouse gas emissions.

But now, we have to wait for Lula to take office on January 1 of next year, and right now, Brazil is arriving at COP 27 with little to celebrate.

JV: What do you mean?

JE: First, the country is not fulfilling its promise to reduce deforestation. During COP 26 in Glasgow, Brazil committed to reducing deforestation by 15% each year until 2024, 40% by 2025, and 50% by 2027. The government, however, has not yet announced a concrete plan to achieve deforestation. goal. The deforestation rate in Brazil was 22% between August 2020 and July 2021, and although data for the period 2021-2022 has not yet been officially published, the deforestation rate is expected to continue to increase.

In turn, carbon emissions by the energy sector increased last year due to the major drought that affected the country, which encouraged the burning of more fossil fuels to produce electricity. This, combined with high rates of deforestation, translates into more emissions in the country.

JV: Right, but does this mean that Brazil is just sitting idly by?

JE: Not quite. Brazil has made some progress, such as in the framework of carbon markets, establishing a regulatory framework for a carbon and methane offset market, with the aim of becoming a major exporter of credits.

On the other hand, Brazil is one of the signatories of the global commitment to reduce methane emissions by 30% by 2050, starting in 2020. The government has launched incentives to reduce methane emissions through investments in biomethane production and extending tax benefits for new projects. Furthermore, the country is working on decarbonizing its transport sector.

JV: Right. So that’s pretty much it about Brazil. Let’s go to Mexico now, whose climate action is quite questionable.

JE: Exactly, and “quite questionable” is being very generous with Mexico due to its lack of action. In recent months, it appears that President Lopez Obrador has changed his rhetoric a bit on climate policy, but we have not yet seen anything concrete.

It is important to note that Lopez Obrador, during the first three years of his administration, actively sought to exercise a policy of energy sovereignty, giving priority to the state-owned electric utility CFE, as well as on actively restricting privately-owned clean energy projects – all this while promoting greater production of oil and natural gas.

JV: What has changed in the last few months and why?

JE: Lately, Lopez Obrador has been seen changing his “discourse” and has begun to publicly express his support for climate change policy. This “change” is mostly due to the pressure that Mexico has received from the United States over the past year.

In recent months, for example, Mexico has announced the construction of a 1 GW solar park in the Sonora region, on the border with the United States, which would be the largest solar park in Latin America. The electricity generated by the project is expected not only to benefit local citizens, but also to be exported to the United States. Nevertheless, next to this plant, two combined-cycle power plants will be located. They will be using natural gas, thereby generating emissions, and according to the president, will be used as backup.

JV: Another problem that Mexico is trying to address is the reduction in its methane emissions, right?

JE: Exactly. Like Brazil, Mexico signed the global methane commitment in the last Conference, while in June, Mexico’s state-owned oil company Pemex announced an investment of $2 billion to reduce gas flaring.

Nevertheless, Pemex has been criticized several times for not being transparent regarding methane emissions from its oil and gas fields. It has also been fined several times for the uncontrolled burning of gas in the Ixachi field. In September, a senator filed a complaint against Pemex for omissions related to massive methane gas leaks at the Zaap-C platform, while scientists from the University of Valencia detected, in December last year, a methane leak equivalent to about 3% of all annual emissions from the oil and gas sector in Mexico. It is estimated that Mexico’s methane emissions are about 10 times higher than in official government reports.

JV: In addition to the problem regarding Pemex’s reporting and control of its methane emissions, there is another task to accomplish, which is the update of your Nationally Determined Contributions.

JE: Yes, Mexico has committed to reducing emissions by 22% by 2030 and 50% by 2050 compared to a business-as-usual scenario in 2005. The government, however, raised the level of its business-as-usual scenario last year to 2020 amounts, effectively increasing CO2 emissions in absolute terms. This NDC is actually on hold after an environmental organization filed a lawsuit in this regard.

In July, during a forum organized by U.S. President Joe Biden, López Obrador claimed that Mexico would present an improved NDC before COP 27, in line with the objectives of the Paris Agreement.

JV: We have Brazil, which has not made much progress with its climate commitments since the previous COP, and Mexico, which appears to have not finished getting on the boat and rowing with regard to the fight against climate change. Is there any country in the Latin American region that is doing its homework and making progress in this field?

JE: Yes, and that country would be Chile. As I mentioned before, Chile not only has a carbon neutrality goal in its climate change law, but also has a roadmap with details on emission reductions by sector, a plan to encourage the expansion of renewable energies and other clean energies such as green hydrogen, and a plan to close down coal plants.

Chile has also published its long-term climate strategy in 2021, and the efforts it is carrying out include adding 25-30 GW of non-conventional renewable energy capacity by 2030. A government bill aims to require 40% of the sales of power generators to come from non-conventional sources of energy (NCSE) by 2030, compared to the current 20%, and establish nighttime NCSE quotas to support long-term storage systems, such as concentrated solar power or pumped storage.

Chile plans to create a carbon certification market next year and increase its low carbon tax from $5/t to at least $35/t, as well as potentially expanding other taxes on fossil fuels.

In the transportation sector, Chile aims to end sales of most internal combustion vehicles by 2035 and all sales by 2045.

JV: So, Chile is considered a leader in the region in the energy transition and fight against climate change.

JE: Exactly.

JV: That was a very interesting conversation about the energy transition. Thank you, Jacqueline, for joining us.

JE: I would like to Argus for the invitation.

JV: Visit our website for more information about our publications at www.argusmedia.com.

You can listen to this and other episodes of our podcast series in Spanish, available through our website at www.argusmedia.com/hablando-de-mercado.

Make sure you like, share and visit our page to follow the events affecting the world commodity market and to learn more about its effects in Latin America. We’ll be back soon with another edition of Hablando de Mercado. See you soon!

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