Plummeting demand and prices of fossil fuels in 2020 gave Latin America a glimpse of the painful impact the coming energy transition will likely have for economies that continue to rely on these fuels in the face of change. When prices rebounded in 2021, many governments seeking to recover from the pandemic’s impact on their economies reinforced their commitments to mining, oil and gas as familiar sources of revenue rather than charting a new future.
In 2022, these regions cannot move forward by continuing to do the same. Latin America and other regions that depend on fossil fuel-extractive industries will not find a winning formula by delaying or looking back. They must push through this inevitable transition to create a vision for a different kind of economy, one based on sustainable low-carbon pathways that carefully manages new environmental and social risks.
“Governments may be reluctant to move away from fossil fuels, but signals urging for change are coming from many directions, including markets, climate diplomacy, labour unions, activists and even within certain government branches.”
— Elisa Arond, Research Fellow, and Mónica Trujillo, Research Associate
Governments may be reluctant, but signals urging to plan for change are coming from many directions, including markets, climate diplomacy, labour unions and activists. Certain government branches are even generating policies to support alternatives, such as bioeconomy strategies, including Costa Rica and Colombia. In 2022, we will likely see the urgency of planning processes aimed at inclusive, just transitions coming to the fore. Led by labour unions and civil society with support from academia, such debates will have to engage with a wide range of intertwined issues: the volatility of fossil fuel prices, the need for economic diversification, the absence of adequate regulatory frameworks around mine closure, the human rights and labour risks as pressures rise to cut costs and stay competitive in an increasingly tight market and the renewed and new risks of economic dependency on “new” extractive industries.
Certain countries such as South Africa are moving forward ambitiously with just transition planning. Other major producing countries such as Colombia have had minimal discussions about reducing fossil fuel dependency at the national level, even though concerns are growing in fossil-fuel producing regions that see the changes ahead.
The energy transition brings new demands for other extractive resources, especially minerals and metals key to renewable energy technologies such as batteries for electric vehicles and materials for solar panels. The World Bank estimates a roughly 500% increase over the next 30 years in global production of key minerals critical for low-carbon technologies. Renewable energy will need lithium, cobalt, graphite, nickel, aluminum, silver and copper.
This means new environmental and social footprints that must be managed better than those left by previous extractive industries. Governments that are proposing the mining of these new minerals as a leading sector for economic recovery have thus far offered few guarantees – either to protect civil society leaders and their communities who claim their right to consultation or protect ancestral lands, livelihoods and waterways. They have also not yet reckoned with the climate change-related vulnerabilities of these new extractive activities, which often require considerable water resources and are a significant source of greenhouse gas emissions.
Popular resistance to extractive projects is on the rise and likely to increase further as demand increases for the materials needed for renewable energy. Civil society groups are likely to continue to push for greater transparency and accountability for the extractive sector in 2022. Concerns are wide-ranging, taking on revenues, contracts and inclusive public consultation processes, but also emissions reductions, carbon offsetting, labour reconversion, mine closures and environmental rehabilitation plans.
Thus, companies will face increasing pressure to reduce their climate impacts, adapt to shifting social and environmental conditions, and publicly show themselves as socially responsible – all while remaining competitive. At the same time, increasing trends toward automation will make the local employment contribution of such industries increasingly irrelevant or limited.
What is the way forward? National and regional governments will need to diversify. Sustainable, employment-intensive sectors, such as in agriculture and agro-industries, will be of growing importance. Indeed, some governments in the region, including Colombia, Costa Rica and some regions in Brazil, have placed the bioeconomy as a key strategy for economic recovery. But capitalizing on the sustainable use of biodiversity and biomass will require investments in science, technology and innovation.
Regional and national governments interested in capturing value beyond raw commodity exports will need to place even greater attention to innovation. Governments will need to invest in education, research, infrastructure, public services, entrepreneurial capacities and innovation incentives, especially building on local bio-resources to generate sustainable impacts at the level of local and regional economies. They are likely to struggle to be competitive in the short and medium terms. Achieving these objectives requires holding an aspirational vision for generating employment and new enterprises, reducing inequalities and helping people gain the skills to earn higher incomes.
The risks of delaying a just transition away from fossil-fuel and extractive economies were brought to light by the pandemic. If Latin American and other fossil fuel-dependent economies want to build the necessary capacities to chart a new future, now is the time to begin investing in that direction.