Source: Atlantic Council.
Climate change and the global energy transition place Latin America and the Caribbean at a crossroads: it can either take a leap forward to become a more prosperous and relevant region, or it can fail and see our human and economic development stagnate. To address this dilemma and seize opportunities while avoiding impending risks, the region must follow the path of the three “Ds”—Decarbonize, Diversify, and Depolarize.
Scientific evidence tells us that decarbonization must happen if we want to have a planet for the next generation. When Costa Rica launched its decarbonization plan in 2019, it was the first of its kind to propose the transformation of the entire economic and social operation of the country by 2050. While this was a brave and visionary effort, it was also an isolated one.
Today the scenario is very different. This path is rapidly advancing in key public and private sectors worldwide, with strong steps being taken to reduce demand for fossil fuels such as oil, coal, and natural gas. The United States, for example, recently passed the Inflation Reduction Act (IRA), which invests USD $370 billion in U.S. industries specifically working in the energy transition and the fight against climate change. Similar actions are being taken in major economies such as the European Union, India, and China. Germany’s Mercedes-Benz will stop selling vehicles with internal combustion engines by 2030. Similarly, both the state of California and the European Union will require all cars and light trucks sold to be zero-emission vehicles by 2035.
While these big economies are making important strides, Latin America and the Caribbean remain highly dependent on fossil fuels. A study by the World Resources Institute showed that fossil fuels account for 55% of exports in Colombia, 39% in Ecuador, 32% in Bolivia, and 14% in Brazil. Fiscal revenues from fossil fuels are also very high in the cases of Trinidad and Tobago (35%), Suriname (28%), Ecuador (19%), and Mexico (18%). If this scenario is not changed in the coming years, opportunities will be missed and risks will materialize.
In the United States, the IRA and other policies are likely to be environmentally and economically successful, but this national success could occur in the midst of a regional failure to enact similar policies. If so, the entire Hemisphere could be at a competitive disadvantage relative to the European and Asian trading blocs that are moving more coherently toward such goals. Faced with this scenario, the worst thing that can happen to Latin America and the Caribbean is to ignore or resist the reality of the need to invest in decarbonization. We must embrace the process and ride the wave it represents, so as not to be swept away by it. We must break our addiction to fossil fuels.
The second strategic pillar must therefore be production diversification. Today, the Latin American and Caribbean region participates in the global economy mainly through extractive activities such as fuels or materials, the agri-food production, and some services. Electrification resulting from decarbonization will increase demand for metals such as lithium, nickel, and cobalt, as well as the so-called rare earths—some of which are found in the region.
However, to take advantage of new opportunities, individual countries and the region as a whole should strive to design, explore, and conquer more sophisticated niches in the international economy. These could serve as launching pads to build prosperity with social inclusion, political stability, and sustainability at the center of development in the region.
Defining where to direct our education, training, financing, research, and industrial policies to take advantage of these new employment opportunities must be a shared task. We need a concerted effort of foresight, analysis, and creativity from the best minds in the region—from universities, multilateral banks, the private sector, and civil society at all levels and with the highest degree of inclusion. Without a concerted effort, we will repeat the mistakes of the past and fall again into the traps that resource extraction can bring. Innovative initiatives such as BOGA (Beyond Oil and Gas), launched by Denmark and Costa Rica, are bringing urgent attention to this crucial discussion.
Of course, efforts to decarbonize and diversify the economy do not happen overnight. Rather, they are deliberate commitments by societies that must be sustained over time and across administrations. This is an extremely complex task given the high levels of political and social polarization in the region.
Populism, post-truth, and polarization, to use Moisés Naim’s term, are hindering progress. Each administration—whether from the left or the right side of the political spectrum—have their own nuances and incorporate their own priorities. However, the region must make a conscious effort to overcome extremely polarized debates to understand that there is more at stake and that there are constructive ways to improve the lives of our peoples.
By suppressing pluralism, autocracies can maintain a constant direction over time. However, this apparent advantage comes at an enormous and unacceptable cost in terms of human rights, freedom, and sustainability. Aware of this, intelligent political leaders with strong democratic convictions must undertake extraordinary efforts to reach agreements on the basic tenets of effective public policies. While maintaining their differences and criticisms, ruling parties and the political opposition, must be able and willing to find common ground.
Embracing decarbonization to give the next generation a livable future, diversifying our economies to reap the benefits of this global transformation, and depolarizing politics to have the democratic tools to make good change possible are the necessary paths forward for the Latin American and Caribbean region and the Western Hemisphere as a whole.
Carlos Alvarado-Quesada is a former President of Costa Rica (2018-2022) and currently a Professor of Practice of Diplomacy at The Fletcher School, Tufts University, and President of the Climate, Democracy and Inclusion Institute.