Credit: Omid Roshan (Unsplash)
Latin America is home to one of the most ecologically diverse and resource rich areas in the world, with Brazil alone being the most ecologically diverse country in the world—home to the Amazon Rainforest, Mata Atlantica forest, and many other sensitive ecological hotspots, hosting anywhere between 15-20% of the world’s biological diversity. Similar to Brazil, Colombia, Ecuador, Mexico, Peru, and Venezuela are also home to some of the most ecologically diverse places on the planet. Not only are these places biological hotspots, but they also host some of the world’s most coveted resources such as oil, sugar, coffee, copper, lithium, lead, zinc, and other precious metals and resources that are vital to the global economy.
The agricultural and extractive sectors have been the main economic engines of the Latin America and Caribbean (LAC) region, with some countries like Chile and Peru deriving roughly 10% of their GDP from extractive activities and accounting for over 50% of exports. On average, extractive exports in the LAC region account for 37% of all exports, with Brazil, Chile, Mexico, and Peru accounting for 85% of all mineral and metal exports from the region. While various measures and economic diversification efforts are underway, the surge in demand for “green resources” to fund the world’s decarbonization efforts has raised concerns about the potential of instigating a “Green Resource Curse.”
The Green Resource Curse
Latin America is no stranger to the resource curse—referring to the paradox in which many resource-rich nations fail to reach expected development outcomes following the discovery of said resources, and instead become more prone to conflict, more authoritarian, and less economically stable.
Differing oversight incentives in resource-rich and resource-poor countries. Source: NRGI.
“Dutch disease,” the mechanism through which the extractive sector in resource-rich nations can stifle economic activity in other sectors. Source: NRGI.
Many countries have become the very face of the phrase, such as Venezuela, which is home to the world’s largest oil reserves but also one of the weakest economies with one of the lowest human development rankings (120th out of 190 countries). While Venezuela might be on the more extreme end, the resource curse is very much present in other LAC countries such as Peru, Chile, Colombia, and Bolivia to name a few. The extractive sector has served as the economic bedrock of many LAC countries and it looks like it will stay this way for some countries for the foreseeable future as decarbonization efforts worldwide continue to gain momentum. Not only is LAC rich in oil and gas, but it also holds a large share of the world’s critical elements reserves—such as copper, lithium, nickel, and tin with 39%, 61%, 19%, and 28% respectively.
Due to explosive demand from a reawakening global economy following the COVID-19 pandemic, and an increased focus on cleantech from the United States (exemplified by the Inflation Reduction Act), lithium prices reached a record high of US$37,000/ton in 2022; similarly, copper broke the US$10,000/ton mark in the same year, making 2022 a record-setting year for commodities. While prices have since decreased, many LAC countries utilized this opportunity to boost their post-COVID recovery efforts and have implemented policies to further utilize the extractive sectors to develop their economies. Continued reliance on the extractive sector is a slippery slope and is a story that is far too familiar. Mining has been a particularly sensitive issue in the past as it has been known to exacerbate social and environmental issues, particularly regarding water and biodiversity. Mining requires a significant amount of water and land, and in certain instances cannibalizes other economic activities by depriving them of resources.
The Ills of Mining
It has been common in the past for conflicts to develop between locals and mining companies as mining operations have been the cause of significant environmental damage. In 2014, a copper mine in Mexico’s Sonora region accidentally released 40,000 cubic meters of toxic chemicals into the Sonora River, affecting 272 km of the river, 24,000 individuals, and 7 communities. This one accident devastated communities that continued to reside in the region for decades as chemicals from the spill ruined farmlands, killed livestock, and forced hundreds of people to relocate since living in the area became a health hazard and economically unviable. While the mine was closed down in 2017, the economic and social impacts still haunt the affected communities to this day, with the region still recovering from the incident.
Besides possible accidents, extractive activities in Brazil have been one of the primary causes of deforestation. Between 2010 and 2019, 30 million hectares of tree cover and 17 million hectares of primary forest loss have been directly caused by mining activities. Additional research has found that forest loss from indirect mining activities (clearing for roads, housing, etc.) contributed to 9% of all deforestation in Brazil’s Amazon rainforest between 2005 and 2015. While there have been efforts to repopulate previously mined areas, these efforts so far have seen little success and have been difficult to enforce, let alone achieve what was originally promised.
As mining activities are an important economic driver for LAC countries, it is generally seen by its people as a “necessary evil.” It is estimated that with the exacerbated effects of climate change, the LAC region could lose an average of 4% of its GDP by 2030 and further plunge two million people into extreme poverty. Despite the well-known fact that mining activities contribute a significant amount of greenhouse emissions, it is simply impossible to completely transition out of mining activities. In order for LAC to sustainably continue its mining activities, significant changes need to be ushered in, not only from a technological standpoint with greener mining practices and technologies, but changes also need to be made to laws and regulations to better protect the environment and its people.
Mining 2030 Commission
Some significant changes are on the horizon with the creation of the Mining 2030 Commission, which is being backed by global investment giants with over US$11 Trillion in assets. The commission is guided by the United Nations Environment Program (UNEP) and is supported by the Principles for Responsible Investment (PRI), and is comprised of various intergovernmental organizations, mining industry personnel, along with experts from the legal and financial sectors. The commission aims to set guidelines and norms for mining activities that respect the planetary boundaries and positively contribute to social development without corruption and conflict. George Cheveley, a portfolio manager at Ninety One, one of the contributing investment management firms states: “Mining has never been an easy industry. However, if the energy transition is going to be successful, a significant increase in the supply of sustainably mined minerals is required.”
In addition to efforts from the mining commission, significant changes need to be made by governments. LAC governments need to reinforce and develop clear strategies on how to spend revenues generated from extractive activities and develop ways to tie green projects with economic development. Traditionally, climate change efforts have been a low priority for many local and provincial governments, this has been due to conflicting interests and a lack of flexibility on how fiscal assets can be utilized. Opening up dialogues and increasing collaboration between federal and provincial governments can alleviate bottlenecks and result in funds being better utilized. Furthermore, establishing policies and programs that provide learning and training opportunities surrounding sustainability can help diversify the economy while simultaneously spurring more green projects to be launched and completed. Decarbonizing and making the mining industry more sustainable will no doubt be a monumental task; however, it is one that we can no longer brush off to the side or turn a blind eye to, the success of the global decarbonization effort might very well begin with how we get the resources to do so from the ground.
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Thank you for tuning in to the Decarb Digest through its inaugural year. Our writers and editing team will be taking a break through the end of 2023, but we will be back into the new year. Meanwhile, follow us across all socials as we cover the negotiations and side events happening at COP28! As always, feel free to message us ideas, questions, follow-ups, or topic suggestions at general@economyzero.org.
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