Latin America is the world’s secret weapon against climate change. Simply put, humanity can’t halt global warming without the region’s incredible natural resources. It’s a ‘secret’ because although lots of people talk about the importance of the Amazon rainforest, they ignore Latin America’s other great bulwarks against rising temperatures.
Latin America gets plenty of attention as home of the Amazon rainforest. And undoubtedly the region’s jungles have an incredible potential to sequester carbon dioxide. Moreover, it is vital that we reverse the decades of deforestation that sadly means the Amazon rainforest now emits more C02 than it captures. But this Amazon focus misses the other crucial reasons humanity needs Latin America to fight climate change.
Climate change commodities
Lots of world leaders talk about switching fossil fuels for renewable energy. What they conveniently omit to mention is the incredible amount of cleantech metals that would require. The most obvious is copper. Chile and Peru are the number one and number two global copper producers, while untouched Ecuador and Argentina have the most potential to add to international supplies. It’s a similar story in lithium – the vital component for the batteries that will store all of this extra electric power. The lithium triangle of Argentina, Bolivia and Chile accounts for 56% of the total reserves of the metal.
So, you’d think that Latin American countries would have a central role in the global renewable market – similar to the role that Opec has exercised on the oil industry over the last 50 years. But no – the region has been sidelined. A bizarre interpretation of coronavirus data means that the only seven countries left on the UK’s travel red list are all from Latin America. That has restricted the size of these countries’ COP26 delegations, putting them at a disadvantage when it comes to the tense, technical talks that attempt to balance the local impact a large copper mine can have against the massive global benefits.
Perhaps COP26 organisers don’t believe mining is part of the solution. Maybe they believe biofuels are the answer. Well, if so, then even more reason to court Latin America, which, thanks to Brazil and Argentina, is the largest producer and consumer of biofuels in the world. The region also has the greenest electricity grid in the world, which will allow it to export renewable energy in the form of green hydrogen. Indeed, Chile is aiming to become a global green hydrogen leader. Having the most renewable electricity grid also allows Latin America to produce other commodities with less CO2 emissions.
That matters for international investors because it means there are incredible climate change investment opportunities in the region. The commitments made by politicians in Glasgow will ensure enormous long-term demand for key Latin American commodities. That will create further opportunities in finance, infrastructure servicing those projects. Latin America begun this century with a golden decade, fuelled by China’s commodity supercycle. Now it looks well placed to benefit from the climate change commodities boom.
A realistic COP26
But, although we are an investment magazine, there is something even more important than investor returns. When G10 politicians and the CEOs of FTSE100 companies make glib carbon zero pledges, very few will be thinking about Latin America. But their decisions will have a profound impact on the lives of millions of Latin Americans. Mining – even when it is done responsibly – has a huge impact on the lives of people living near to the operation. Many people in Latin America don’t want a large copper mine beside their house – indeed it is a safe bet that few of the elites at COP26 live near one.
LatAm INVESTOR firmly believes that responsible mining has a positive impact on communities in the region. Moreover, it is the only way to complete the energy transition. But ironically the same ESG principles that push copper demand are also making it more difficult to develop mines in Latin America. The average development period of a large copper mine in the region has increased to 12 years from seven years a decade ago. Any successful climate change agreement has to accept the uncomfortable truth that switching from fossil fuels to renewable power will involve building hundreds of new largescale mines that will inevitably cause local environmental disruption.
Latin America looks well placed to benefit from the cleantech commodities boom
Until now the pressure has been on individual mining companies to gain community consent for their project. Which is why development time has increased. Yet if the world is serious about limiting the rise in average global temperatures to just 1.5 Celsius – ‘keep 1.5 alive’ as COP26 organisers repeatedly tell us – then it needs to create a mining agreement. One that compensates locals for the disruption they face in return the global benefit. If we don’t make it easier to build large copper mines and lithium operations in Latin America then ‘1.5’ is dead.
Oil and gas is another taboo subject. It gets discussed of course, but as something that needs to be phased out and eliminated. Yet the natural gas shortage in Europe and Asia demonstrates how dependent we still are on fossil fuels. It’s estimated global consumption of hydrocarbons will be similar in 2050 to what it is today. Because even as we succeed in replacing some oil and gas transport with electric alternatives, the massive increase in global population – to 9 billion people in 2050 from 7 billion today – will push up overall energy demand. For example, the IDB predicts that by 2050, Latin America’s energy demand will have grown by 80%.
Latin America is a natural oil and gas exporter as it is home to 20% of global reserves but just 10% of the world’s population. A combination of geology and infrastructure means it also has some of the world’s ‘cleanest’ oil. Producing crude onshore in Colombia, with operations powered by the country’s 60% renewable electricity grid, emits far less emissions that the oil coming out of Canada’s oil sands or the US shale patch. A successful climate change agreement would incentivise consumption of this cleaner oil and gas, while marginalising more carbon-intensive crudes.
Of course, not everything can, or should, be done by the politicians. One COP26 aim is to harness private-sector investment in the fight against climate change – a wise idea given the current state of most states’ post-pandemic public finances. Indeed, we can’t beat climate change without channelling flows of developed-world capital to Latin America’s natural resources. Now we need an agreement that accelerates those investments by recognising Latin America’s unique role in fighting climate change.