The UN Climate Action Summit 2019, which took place in the days leading up to the 74^th UN General Assembly, delivered new pathways and practical actions for governments and private sector to intensify climate action. Among these, it recognized that the path towards protecting our planet requires a fundamental change in terms of how households, and the society as a whole, produce and consume electricity.

Despite important efforts, we are still not moving slowly in terms of investments in clean energy. According to the International Energy Agency, in 2018 alone global energy-related CO2 emissions rose 1.7 percent to a historic high, driven by higher energy demand. This #GraphForThought looks at how Latin America and the Caribbean generates and consumes energy, and outlines some elements of the way forward for LAC energy markets. It highlights that while LAC is a region whose contribution to global carbon emission from energy generation has been relatively low (contributing to less than 8% of total emissions worldwide), it has contributed significantly to the solution by moving firmly into more renewable sources of energy.

Energy needs to be transformed in order to be useful. Primary sources of energy - those found in nature such as coal, oil, natural gas, nuclear fuels, the sun, wind or rivers – need to be transformed into electricity (a so-called secondary source) to be used by industry, households, services and transportation, among other things. Additionally, electricity cannot yet be stored at a large scale: it is either used or lost. The process of electricity generation produces a series of effects that inevitably have an impact on people and the environment, albeit some more than others. That is, social and environmental impacts differ if electricity is generated by burning coal, inundating a valley, or building a wind farm, with effects varying from greenhouse gas emissions, displacement of local populations, and disturbances to local ecosystems (i.e. wind farms threaten flying wildlife). The goal in energy planning is to balance benefits and costs, aiming ideally to find mechanism that internalize the environmental impact (either through markets or through regulation, both of which require effective governance: clear, stable and credibly enforced rules).

So, how does LAC fare in terms of its energy use? According to a widely used index, the “energy intensity indicator”, LAC is the most efficient region in the world when it comes to energy use. This index captures the amount of energy needed to generate one dollar of product or service. LAC is also becoming more efficient over time, with the index falling in past years, suggesting that the region is doing relatively more with less energy.

To a large extent due to the presence of large hydroelectric power generators, 52% of LAC’s energy came from renewable sources (by 2013). This is almost three times higher than the global average of 22% and has been increasing steadily over the past two decades

This involves clearly many challenges ahead. Among the most pressing is related precisely to the impact of climate change on renewable energy generation: hydropower may be a highly efficient renewable energy system, but it is becoming less reliable due to changing weather patterns. This has been exacerbated by the effect of the El Niño and La Niña phenomena, which strongly influence rain levels in the region. In parts of South America, these lead to reduced rains and to droughts that hinder the capacity to generate electricity from hydro sources, resulting in a need to increase the generation of electricity based on fossil fuels to be able to meet growing demands. In other parts of the region, namely the deepest southern end of the continent, these phenomena produce extreme increases in rain, resulting in an unprecedented increase of water levels that affect families and lead to high vulnerability for the populations.

It is also crucial to understand the distributional impacts of continuing the transition towards renewable sources of energy in LAC. Energy transitions will have unequal distribution of their costs and benefits, particularly for communities that depend on traditional energy infrastructure for their livelihoods. Rising fuel prices can also trigger protests, as we have seen in various countries in the region including Brazil, Mexico, and most recently Ecuador (although, in this case, the rise in price was not explicitly due to a transition to renewable sources but its was clearly related to “pricing the carbon right”, by the phasing out of fuel subsidies). Inclusiveness and affordability, as well as a comprehensive understanding of winners, losers, and potential instruments for compensation and mitigation, will be critical components for a sustainable transition.

So, what is the future of energy in LAC? While hydropower will continue to be the largest energy source in the region for a while, exploiting its complementarities with other renewable energy sources will be key to ensure sustainability. This change is facilitated by the fact that technological advances have allowed for a reduction in cost and improvement in efficiency of using these renewable sources (solar and wind, for example). Countries addressing diversification efforts are working to create the enabling policy and regulatory environments for other renewable sources --such as wind and solar-- to flourish. For example, recent auctions in Argentina, Brazil, Mexico, Chile, and Peru have helped to accelerate the deployment of thousands of megawatts of wind and solar energy in the region. Opportunities for investments are vast.

Promoting the use of clean energy in efficient ways is a critical objective in our fight against climate change. LAC has been at the forefront in the use of renewable sources, being a relatively low carbon emitter. However, there are challenges ahead, with the regional demand for energy expected to keep growing as countries develop and poverty levels fall. Investments and changes in the policy environment will be needed to continue to transition towards sustainable renewable sources of energy. As Nick Stern has stated recently: if we get it right, clean energy –and climate action in general-- is the inclusive growth story of the twenty first century.