How Green Growth potential can stabilise the Argentine Economy

Flying into Buenos Aires I found myself coincidentally reading about Argentina in the Economist, in an article lamenting the country’s failure to live up to its potential. This focused on the fact that a commodity-rich country with abundant natural resources finds its economy in comparative decline due to short-termism and a failure to invest properly over the last century. But this is a trend that could be reversed by a commitment to green growth, which could catapult Argentina into achieving the potential it was showing at the start of the twentieth century.

I was on my way to spend a week travelling around Argentina as the keynote speaker on a Green Growth Roadshow, jointly organised by the British Embassy and the UIA (Unión Industrial Argentina), the country’s leading industrial advocacy group – the equivalent of the CBI in the UK. The purpose of the trip was to share some of the Carbon Trust’s insight into taking advantage of the economic and environmental opportunities in energy and resource efficiency.

The roadshow involved three events, starting in Buenos Aires at the UIA’s headquarters, then to Rosario to an event hosted by FISFE (La Federación Industrial de Santa Fe), and finally to Paraná, in the province of Entre Ríos.  The three events were attended by a total of around 200 leaders from businesses as well as state and provincial government representative. So while I was sharing lessons on our work in accelerating the move to a sustainable, low carbon economy in the UK and other parts of the world, I was also able to find out a lot about the present situation in Argentina.

One of the biggest differences between Argentina and many other parts of the world is that most businesses just aren’t primarily motivated by the cost of energy. One of the major challenges here is that energy is so cheap that there often isn’t an immediate and compelling financial case for investment in energy efficiency and carbon reduction.

But despite this there was still a huge amount of enthusiasm from the people I met for driving forward green growth. This is because the case for action is not primarily about cost saving – it is about the ability to survive and thrive in a world with a growing population, limited resources and a changing climate.

Business Risks

Although the cost of energy is not currently a major concern, a lot of businesses in Argentina are already feeling the impact in other ways. Heavy industries and agriculture have been particularly affected by water scarcity, and there are ongoing issues with the security of energy supply and grid infrastructure.

These resource risks are a major concern for businesses at the moment because recently there have been serious energy and water shortages, as well as power cuts during a period of prolonged extreme heat and high demand, leading to public protests. But while some see the long-term risks of a failure to act, it appears that action on climate change is not an issue that yet features prominently on the political agenda.

It would be fair to say that government policies have not been encouraging good behaviour. Utility rates that were fixed and frozen following the economic crisis the country faced in 2002, and still remain largely in place. Subsidies were suspended for some industrial sectors and wealthy residential users in 2012, but some estimates suggest that the cost of these subsidies is rising sharply, costing the government over 70 billion pesos a year (around £5.4 billion).

The other major factor blocking action on energy efficiency is that Argentina has the world’s third largest reserves of shale gas, which could be coming on line as early as 2015/16. This has caused a partial paralysis on investment into cutting the country’s carbon footprint, as some consider that cheap, abundant gas and shale oil will be the solution to a number of the problems with both energy supply and the economy.

This means that utilities have not been incentivised to invest in new generation, which has been one of the factors behind recent blackouts. It is also one of the reasons that the Carbon Trust’s world-leading experience in designing and implementing large-scale energy efficiency programmes for businesses and the public sector is of such interest in the country. This is why I have spent a lot of this week sharing the lessons we learned from over ten years of doing this in the UK, as well as our growing experience doing the same in emerging economies such as BrazilSouth Africa and Mexico.

Technology Acceleration

Many Argentine organisations see the country as being economically unstable because they have an unsustainable system. There is the need for massive investment in grid infrastructure, as well as a need to bring down the cost of implementation of renewables and energy efficiency in the country.

Like many Latin American countries, Argentina gets a large percentage of its electricity demand from renewables – particularly hydropower which meets a third of demand – and there is the opportunity to scale this up even further. Beyond this the Patagonia region is seen as one of the best places in the world when it comes to the potential for wind energy, and the cost of solar power is falling rapidly.

With the right investment then the development of a low carbon electricity system is eminently achievable. This would provide particular competitive advantages for manufacturers and other high electricity demand sectors, especially in a carbon-constrained world where emissions carry an increasingly high cost.

International Competitiveness

But energy isn’t the only issue for Argentina. I heard a large number of people express interest in product environmental footprinting as a means of helping businesses to compete in a crowded international marketplace. Here there is an awareness that this is most important when exporting to Europe, but also that concern for sustainability is growing stronger around the world.

Many of the country’s major exports are agricultural, with meat coming at the top of the list. The production of this makes up a significant proportion of the country’s carbon footprint, with livestock second only to the energy industry as the largest sources of emissions. There are also knock-on impacts here through deforestation and land-use change to increase the rate of agricultural production.

One of the other longer-term green growth opportunities for Argentina will be in transforming its agricultural industry to minimise its environmental impact. Although beef and dairy are two of the highest footprint foods - making up a substantial proportion of global emissions along with a similarly a high impact on water and land use - the difference between the most and least sustainable farming methods can be enormous. For example with beef the best and worst performing farms can differ by as much as 800% in carbon footprint.

In a global export market where people are especially aware of food ethics and sustainability issues then there will be a competitive advantage for producers that can robustly demonstrate their environmental credentials. Here it is useful to take the example of Ireland, where agriculture, and particularly exports of meat and dairy are a significant part of the economy.

One of the priorities for Bord Bia, the organisation that represents the Irish agricultural industry, has been in improving and demonstrating the sustainability credentials of its products. It is now making this a major part of the international marketing of Irish food and drink, with a little help from local Hollywood stars. This approach is paying dividends, with Irish businesses winning international contracts from around the world due to the quality and traceability they offer throughout their supply chain.

Of course some Argentinian businesses are already recognising the value that environmental credentials can deliver in an export market. The wine industry is one of the country’s most internationally successful sectors. Here the Carbon Trust has worked with one producer – Bodegas Salentein – to certify the carbon footprint of its popular Portillo Malbec.

Opportunity for Success

Despite all the challenges the country currently faces, Argentina remains incredibly well placed in the medium-to-long-term to take advantage of the opportunities in a resource and carbon-constrained world. The country has abundant natural resources, minerals and metals, agricultural land, and renewable energy potential. It just needs to make sure that it uses them well.

In many ways the fact that it is presently lagging behind other developing nations when it comes to green growth, including its neighbours Brazil and Chile, only makes that potential even greater, as the efficiency gains from a lower baseline can be huge.