Reducing emissions caused by human activity

Latin America and the Caribbean emissions profile

Latin America’s great contribution to global decarbonization lies in the reduction of deforestation […] We have to stop destroying our biodiversity, protect it and make the world pay for it […] Because one hectare protected with forests, with jungles in Latin America, is a hectare that will help the whole world to maintain a dynamic economic activity.

Based on an interview with Mauricio Cárdenas

GHG emissions are usually classified into two major groups. The first, called agriculture, forestry and other land use (AFOLU), comprises emissions resulting from land cover modifications (LULUCF), as well as emissions from agricultural production associated, crucially, with the digestive process of livestock, and nitrogen oxides associated with the use of fertilizers. The second group is called Fossil Consumption and Industrial Processes (FCIP), and includes emissions associated with the use of fossil fuels, as well as non-energy emissions linked to certain industrial processes and waste decomposition.

Globally, almost 80 % of GHG emissions come from IPCC, while just over 20 % come from the AFOLU sector. In contrast, about 54 % of Latin America’s emissions came from the AFOLU sector, a much more significant amount than the 13 % from the Caribbean or 8 % from OECD countries¹ (see figure 4.5). 

As might be expected, there are notable differences within the region in terms of the importance of these two sources of emissions. For example, in Latin America, countries where AFOLU exceeds 70 % of emissions (Brazil, Nicaragua, Paraguay and Uruguay) coexist with others where it represents less than 30 % (Chile, Mexico, El Salvador).

Within the AFOLU component, in the case of Latin America, the LULUCF component slightly dominates the agricultural component (56 % vs. 44 %), but both are very important. In contrast, in the Caribbean and OECD countries, they come mainly from the agricultural component; moreover, the LULUCF component has had negative emissions due to processes such as the growth of the forest area. On the other hand, the most important subsector within agricultural emissions is enteric fermentation, which refers to methane emissions (CH₄) associated with the digestive process of cattle, which represents almost two thirds of agricultural emissions.

In terms of FCIP components, the share of the buildings sector is modest: approximately 5 % in Latin America, 3 % in the Caribbean and more than 10 % in the OECD. However, this value refers only to emissions from the use of fuels in this sector, although it is responsible for indirect emissions associated with the generation of electricity using². 

Household energy consumption is comparatively low in the region: 7.12 gigajoules, well below China (19.3), the United States (30.6) and Europe (23.4) (OLADE, 2021; National Bureau of Statistics of China, 2022; EIA, 2020; Eurostat, 2022). This is due to lower household incomes and the low need for heating. However, it is indispensable to advance mitigation policies also at the household level: household energy consumption is expected to increase as incomes rise and due to increased cooling needs caused by global warming³. Electrification of consumption and energy efficiency are key dimensions for mitigation in this sector.

Emissions associated with the other components are, in general, significant. For example, in Latin America, energy systems (including fugitive emissions) are responsible for 31 % of emissions, transport for 26 %, and industry (including waste management) for 38 %. In the Caribbean, transport has a comparatively smaller share, at 12 %, while energy systems and industry account for more than 40 % each.

It should be noted that emissions associated with international maritime and air transport are not included in figure 4.5 because they are not usually attributed to any country. These account for 1.55 % and 1.19 % of global GHG emissions, respectively. To put this number in perspective, together they account for almost 40 % of total emissions in Latin America and the Caribbean. Therefore, mitigation in this sector is essential to achieve net zero emissions.

Mitigation in energy systems⁴

From the energy supply side, four mitigation actions are highlighted in RED 2024 (Allub et al., 2024):

Action # 1: Reducing energy system losses

Energy production, transformation and transportation processes are associated with losses that amplify consumption-related emissions, which must be reduced.

In the case of electricity, for example, for Latin America and the Caribbean, losses associated with fuel-based electricity generation average 56%, while losses in the transmission and distribution phase amount to 19%. Although not all are attributable to inefficiency problems, the differences between countries indicate potential room for improvement; for example, transmission and distribution losses represent 5 % in the United States (EIA, 2022). Problems in the quality of generation and transmission and distribution infrastructure may be responsible for these excessive losses and may be correctable.

With respect to fuels, significant losses have also been identified. For a set of 10 countries studied, for every 100 tons of CO₂ equivalent (t CO₂e) emitted when fossil fuels were consumed, more than 29 t CO₂ were previously released during their production and transport_. Most of these were methane emissions generated by venting or flaring of unused natural gas, or by leaks in the production, transformation and transportation processes (see figure 4.7).

These pre-consumer emissions can be reduced with better equipment and electrification of some processes⁵. Proper disposal of oil and gas fields and coal mines is also crucial to reduce methane emissions.

Action # 2: Natural gas as a transition fuel

Natural gas is the hydrocarbon with the lowest CO₂ emissions per unit of energy delivered. For example, during combustion, it emits less than 60 % of the emissions that would be obtained by getting the energy with coal. Natural gas is associated with significant emissions in production and transportation due to leakage, a relevant area of action for emissions mitigation in the region. However, even considering current fugitive emissions, replacing coal with natural gas implies an emissions reduction of approximately 20 %. 

To put this virtue of gas in perspective, if 50 % of the use of coal and oil-based fuels in Latin America and the Caribbean were replaced by natural gas, considering current production processes, a direct reduction equivalent to 7 % of current emissions would be achieved, representing almost 65 % of the commitments set for 2030.

One risk of gas penetration is that investments in production, transportation and consumption will delay the speed of convergence towards carbon neutrality. One way to minimize this risk is to consider the retrofitting of equipment for natural gas use as a step in a strategy towards decarbonization.

The two actions outlined so far are aimed at reducing emissions in contexts where dependence on fossil fuels persists; however, the path towards greater decarbonization, and in particular towards zero net emissions, rests on two pillars: green electrification and the penetration of clean fuels.

For these countries that have natural gas, the important thing is that it gives us time while we move forward with electrification. It is a transitional fossil fuel, but it makes the transition smoother, less costly and, above all, allows the economy to adjust.

Based on an interview with Mauricio Cárdenas

Action # 3: Green electrification

According to the most recent data (2022), electricity accounts for about 20 % of consumption in Latin America and the Caribbean. This electrification rate is slightly lower than that of OECD countries (around 23 %) and remarkably heterogeneous across countries (figure 4.8, top panel). The region’s electricity matrix is relatively green: 61 % of this electricity is generated from renewable sources, up from 36.5 % at the global level. However, non-conventional renewable sources (solar/wind) are responsible for 12.5 % of electricity generation, similar to the global value (11.7 %). This indicates that the advantage in non-fuel generation comes from water resources (see figure 4.8, lower panel).

The energy transition requires a significant increase in the electrification rate, driven notably by the expansion of non-conventional renewable sources. Indeed, according to the IEA, in the scenario of commitments made, electricity generation capacity increases from 520 GW in 2022 to 1,857 GW in 2050, which implies that the electrification rate rises from 20 % to 40 %. In turn, under this scenario, the generation capacity of non-conventional renewable energy sources (NCRE) should be multiplied by more than 13 times, representing around 63 % of electricity generation (see figure 4.9).

Green electrification has challenges. The first is related to the intermittency of solar and wind energy. This makes backup mechanisms that include hydroelectric power plants, thermal generation plants (e.g., open-cycle natural gas or clean fuel-based) and batteries indispensable. Under the commitments scenario, the battery system is expected to have a capacity of 137 GW by 2050, 44 % of the estimated hydroelectric capacity by that date. Energy integration of national and international systems can also mitigate intermittency problems.

A second challenge stems from the cost structure of NCRE, characterized by relatively high initial investment costs, but generation costs close to zero during the years of operation. This very distinctive cost structure with respect to fuel-based sources of electricity generation calls for regulatory changes in the way electricity generators are remunerated. In addition, experts indicate that changes in the rate structure charged to consumers are required in the face of the massive adoption of solar home generation. Tariff schemes based on fixed and differentiated charges according to the time block in which the electricity is consumed are part of the recommendations that emerge with the incorporation of NCRE.

A third challenge is associated with transmission and distribution. The region’s transmission network is approximately 20 km per 10,000 inhabitants and, in the net zero emissions (NZE) scenario, it needs to more than double by 2050, in line with the expected increase in electricity consumption. This expansion implies financial and land-use permitting and concession management challenges. On the other hand, the incorporation of NCRE may require changes in transmission and distribution networks, due to a greater diversity and dispersion of generation sources and the expansion of solar home panels.

Action # 4: Penetration of low carbon fuels

Even in the NZE scenario, more than 50 % of energy consumption will depend on fuels. This is due to the existence of sectors that are difficult to electrify and the need for back-up systems to deal with the intermittency of electricity generation from NCRE sources. There are two alternatives for obtaining clean fuels to replace fossil fuels: agricultural fuels and hydrogen and its derivatives⁶.

Agricultural fuels (e.g., biodiesel and ethanol) have the challenges associated with the use of land and agricultural inputs such as fertilizers, herbicides and insecticides. This implies, on the one hand, GHG emissions due to the increase in cultivated area that drives deforestation and the carbon content of agricultural supplies, and, on the other hand, the increase in the price of food by competing with its production. Some conditions that reduce these challenges are the increase in agricultural productivity, the use of non-food crops, forestry, agricultural and livestock waste or solid urban waste, as well as production on degraded land that is not suitable for food production.

The development of agricultural fuels requires the adoption of regulatory frameworks that establish guidelines for their production with low environmental impact, including certification frameworks for sustainable management with independent verification and covering the entire supply and production chain. Secondly, policies that encourage consumption should be adopted⁷. A third axis corresponds to policies that promote innovation, especially for waste-based fuels, particularly wood and paper. In this line, the adoption of mandatory quotas for the use of advanced biofuels as a policy instrument stands out.

Regarding the second alternative, hydrogen can be used directly as a fuel (molecular hydrogen) or in the form of ammonia. For it to be an ally in decarbonization, it must be obtained with low or zero emissions. The alternatives for producing it are: 1) natural gas-based production with integration of carbon capture and storage with production; 2) hydrogen production by electrolysis of water, with electricity generated from renewable or clean sources; and 3) use of inputs from sustainable organic sources, incorporating carbon capture. The required penetration of clean H₂ demands reducing the costs of its production and, above all, the difficulties of its transport and storage.

Mitigation in energy uses

Mitigation strategies involving end-users entail promoting energy efficiency, encouraging more sustainable practices and electrification of uses where feasible, and adopting clean fuels in uses that are not. Concrete actions are sector-specific.

Industries difficult to decarbonize

Three industries are responsible for almost 60 % of the emissions of the entire industrial sector in the region: cement, steel and chemicals. They are key to the region’s economic development and, at the same time, difficult to decarbonize due to the nature of their production processes; for example, due to the need for heat or key inputs with a high impact on emissions. The main decarbonization policies for these sectors are presented in table 4.2.

In general, these policies can be grouped into three: 

(1) Use of clean fuels: for example, green hydrogen in the steel industry. 

(2) Equipment modernization: for example, modernizing kilns in the cement industry⁸.

(3) Process transformation: e.g., reducing clinker content in the cement industry, use of carbon capture and storage technologies in the chemical industry, use of scrap and electric furnaces in steel production⁹. 

Within the strategy for reducing emissions in industrial processes, the case of waste management also stands out, representing 15 % and 12 % of FCIP emissions in Latin America and the Caribbean, respectively, and barely 3 % in OECD countries. Introducing circular economy principles would reduce these emissions by promoting the reuse of resources that are treated as waste.

Transportation sector

In Latin American and Caribbean countries, land transport accounts for almost 90 % of the sector’s emissions, almost equally distributed among private cars, freight vehicles and buses. As in the case of the industrial sector, mitigation strategies here will depend on the mode and type of vehicle.

In the case of heavy-duty transport, electrification options are still limited. Strategies are oriented, first, towards the use of cleaner fuels such as advanced biofuels or, even in the transition, natural gas. Secondly, to promote logistical efficiency in cargo handling to reduce the incidence of lightly loaded trips. Moving freight by rail can be a valid mitigation option if scale permits. Rail freight transportation has an energy use that accounts, on average, for only 15 % of that in land freight transportation (Gross, 2020). However, rail infrastructure is expensive, so it would only be economically viable when a route reaches a sufficiently high freight scale. For urban logistics, typically light freight, electrification is an economical and viable option. 

Regarding urban passenger transportation, a first strategy is to increase the use of public transportation and its electrification rate; for example, by incorporating electric buses and, where efficient, subways. Likewise, the increase of active mobility such as walking or cycling is also a necessary option to give capillarity to the public transport system. This requires transforming the infrastructure of cities, especially those oriented to the use of individual transportation. The adoption of individual electric vehicles is a lower-emission alternative to internal combustion engines, although still limited by high costs and the precarious charging infrastructure in cities.

In the case of international maritime and air transport, since all countries are jointly responsible for emissions in these sectors, the key bodies for promoting mitigation in this subsector are the International Civil Aviation Organization (ICAO) and the International Maritime Organization (IMO). The latter has made progress in adopting a strategy based on two central components: fuel emissions standards and energy efficiency (MEPC, 2023). ICAO, for its part, adopted a global aspirational strategy in 2022 to achieve net zero emissions (ICAO, 2022). 

Mitigation actions in this sector include energy efficiency, but especially promoting sustainable fuels that today represent a very low fraction of the sector’s consumption. Under the International Energy Agency’s NZE scenario, these are expected to cover more than 80 % of the sector’s needs by 2050.

Residential

Interventions to improve efficiency and promote savings in electricity consumption in the residential sector can be grouped into three categories: (1) improving the efficiency of appliances and buildings through subsidies or mandatory standards; (2) providing information and education for both the adoption of new, more efficient appliances and the use of existing ones; and (3) modifying the level and structure of energy prices.

In the case of households, in addition to these mitigation actions, it is necessary to close existing gaps in access to quality energy and ensure affordability (see box 4.1).

Mitigation in land use and agriculture

For emissions associated with land use and land-use change and agriculture, the following mitigation actions are highlighted in RED 2023 (Brassiolo et al., 2023):

Action # 1: Halt land use change in high carbon ecosystems

In line with the sectoral composition of emissions, the main mitigation action in this sector is to halt land use change. That is, slowing the advance of the agricultural frontier, particularly in ecosystems with a high carbon content: tropical forests, freshwater wetlands and mangroves. To this end, there is a set of instruments that have been implemented with moderate success: establishment of protected areas, anti-deforestation laws and supply chain regulations. However, the effectiveness of these policies is compromised by a lack of implementation capacity. As an example, it is estimated that more than 96 % of deforestation in the Amazon region is illegal. These policies are discussed in the section «Protection of the environment and ecosystems».

Action # 2: Improve agricultural productivity

Reducing deforestation without compromising the growth of the agricultural sector requires increasing agricultural productivity. Using detailed geographical data on the potential production of each plot, Adamopoulos and Restuccia (2022) find that the use of the best existing practices and technologies, together with a better choice of crops according to the characteristics of the plots, would allow a fivefold increase in production per hectare in poor countries. The participation of public research and technology transfer institutes is required in this area.

Technological progress presents great opportunities for the agricultural sector, particularly in two dimensions: precision agriculture and genetic improvement in crop and animal production. The first, facilitated by the use of autonomous vehicles and automated image processing for crop monitoring, makes it possible to reduce the need for inputs, thereby reducing pollution. The second improves resilience to pest incidence and climate variability.

Productivity gains in the agricultural sector support mitigation in two ways: by reducing the use of inputs, especially those with a significant carbon footprint per manufacture or per use, and by reducing the area required per dollar invested in production.

Increasing productivity in the agricultural sector alone does not guarantee that the expansion of the agricultural frontier will be contained, since it encourages the recovery of land use for production. Containing such expansion over ecosystems with high carbon density requires complementary actions.

Action # 3: Strengthening land registers and protection of property rights

Deforestation and land use change are favored in the region by diffuse land ownership rights. In the Brazilian Amazon, for example, there is evidence that illegal appropriation of public lands by private producers and subsequent titling by the State is associated with deforestation, since fencing and long-term productive use, which ultimately lead to deforestation, are included in land regularization mechanisms (Carrero et al., 2022). The imperfect implementation of property rights that make appropriations possible entails zero cost or even remuneration for emissions associated with land use change. Therefore, the regularization of domains, the strengthening of land registers and the agile implementation of legal and juridical mechanisms to guarantee respect for property rights and stop illegitimate appropriations and exploitations, especially on public lands, are key.

Action # 4: Improved agricultural practices for soil carbon management, livestock emissions and agricultural wastes

In regions affected by crop production and grazing, soils have a great potential to store carbon.

Some practices that increase carbon in croplands are the use of improved varieties, crop rotation and the use of cover crops between planting cycles. In grazing lands, the appropriate management of the number of livestock per hectare, the use of diverse pasture varieties and fire prevention stand out.

Soil carbon sequestration through improved agricultural practices is considered a high-potential, low-cost area, although subject to monitoring and verification challenges necessary for widespread adoption (IPCC, 2022a).

Two cross-cutting tools: carbon pricing and capture technologies

Carbon markets and carbon tax

GHG emissions generate a negative externality at the global level. Emitters do not consider all the costs that these emissions impose on the rest of society; therefore, they are inefficiently high. Carbon taxes and carbon markets seek to correct this externality.

In terms of taxes, the government sets a price for the emission of CO₂ equivalent units that must be paid by the emitter. The presence of this cost discourages GHG emissions. In addition to assigning a social cost to GHG emissions, such taxes provide fiscal revenues that can finance projects necessary for the green transition. Carbon markets are trading systems where carbon credits are traded. Different economic agents, such as companies or families, can offset their emissions through the purchase of carbon credits allocated by the government or offered by other agents that eliminate or reduce GHG emissions. These carbon markets can be of two types: regulated, where companies and entities buy credits to comply with national or international regulations, or voluntary, where they buy credits on an optional basis (UNDP, 2022)¹⁰. 

There are different ways of distributing these emission permits. For example, by allocating them to companies according to their level of emissions in some reference period or through auctions, which results in a source of revenue. After the initial allocation, trading of emission allowances between companies (or countries) is authorized, allowing those who emitted less than expected to sell their surplus to others, providing an incentive for mitigation.

Among the advantages of carbon markets is that the price is determined by the market, while the tax requires administrative processes to change its amount. This may give carbon markets more flexibility to adjust to particular situations in the economy; but, at the same time, it makes the price more volatile. On the other hand, at the level of international cooperation, carbon taxes would require global unification of the price per ton of CO₂ equivalent or border adjustment mechanisms to avoid what is known as carbon leakage, i.e., emissions from companies that migrate their production from countries with strict regulations to others where they are more permissive. 

If there is one thing we know in economics is that the price of carbon should be the same worldwide, because one particle emission in China is equivalent to one particle emission in Brazil […]. If we are really committed to the climate agenda […] we will need to have these markets integrated. Therefore, I do not think we can make carbon a fundamental part of the mitigation agenda as long as these markets remain segmented […] We need a market with Government participation, one that is regulated, and where there is this integration between the different countries.

Based on an interview with Juliano Assunção

Carbon capture, use and storage (CCS)

Even in zero net emissions scenarios, fossil fuels will not disappear, at least not until the middle of the 21st century. This highlights the need to advance the development of carbon capture, use and storage technologies to eliminate the emissions associated with fossil fuels that remain. The incentives for the penetration of these technologies will be conditioned by the cost assigned to GHG emissions. 

There is a natural process of carbon capture, use and storage (CCS). This occurs through the recovery of forests or vegetation by eliminating productive activities on soils. There are also technologies with varying degrees of development that can have a place in the set of mitigation measures¹¹. In the capture phase, there are two types of technology: directly at the place of emission (a physical point, such as a factory or a thermal power plant), and those that take carbon from the air (known as direct air capture). The most developed applications of the first type are in the electricity and industrial sectors. On the other hand, air capture is more costly because it consumes more energy. 

CCS can allow recovering part of the value of energy assets at risk of abandonment in transition processes, since their negative effect on the climate would be lower (Clark and Herzog, 2014; IPCC, 2005). For these technologies to be economically viable, it is necessary that investors perceive that this activity has a value and that it reflects the environmental costs in the future