Billion dollar trade deal will open up investments between Beijing and South America, but will it promote green growth?
The China-CELAC deal will see Beijing invest around $250 billion in Latin American and Caribbean countries over the next decade (Pic: Soya field/Lima Pix/Flickr)
China is now a major creditor, investor, and trade partner across the Community of Latin American and Caribbean States (CELAC).
Chinese-CELAC trade has accelerated rapidly and China recently replaced the European Union as the second largest market for CELAC exports.
Between 2000 and 2013, trade in goods between Latin America and the Caribbean and China increased from around US$12 billion to nearly US$275 billion.
This trade and investment is overwhelmingly concentrated in natural resources and energy such as oil, copper and soybeans.
Following the newly created China-CELAC Forum last January, countries agreed to aim to reach US$500 billion of bilateral trade and US$250 billion of Chinese direct investment to the region over the next decade.
Below the team at the Brown University Climate and Development Lab explore how this could impact low carbon development on the continent.
Why are Chinese-CELAC relations for climate change?
The rapidly expanding economic, commercial and political ties between China and Latin America have far reaching implications for the global effort to confront climate change.
Together, China and CELAC account for roughly 36% (China 27% / CELAC 9%) of total global greenhouse gas emissions.
The world’s ability to stay below a global average temperature increase of two degrees will rest in part on the willingness of these countries to reduce their emissions and shift to low-emission economies.
China’s considerable presence in the region, like those of other major powers in the region, tends to focus on high-carbon activities including fossil fuel extraction, large-scale agriculture and energy intensive industries.
CELAC countries’ exports to China have a higher concentration of greenhouse gas emissions than exports to other regions.
China’s activities in Latin America which tend to focus on high-carbon activities may be entrenching high carbon development pathways in Latin America.
Chinese investments and imports of Latin American commodities may be strengthening the relative power of political and commercial domestic constituencies and of “dirty” ministries (e.g. ministries of mining or energy) in relation to environment and climate change ministries.
These actors are less inclined to promote an ambitious climate agenda compared to ministries of environment which are traditionally marginalized in the region.
China may thus be inadvertently undermining CELAC countries’ attempts to advance climate change policies by reinforcing and strengthening actors within those countries that regard action on climate change as an impediment to growth.
What does the new China-CELAC Cooperation Plan call for?
The China-CELAC 2015-2019 Cooperation Plan covers various topics including trade, investment, infrastructure, energy, agriculture and science.
The Plan calls for cooperation on advancing the international climate negotiations and strengthening and investment on renewable energy such as solar and wind power.
However, despite these official plans the level of cooperation on climate change and low carbon development between China and Latin America is currently minimal.
What are the opportunities for China-CELAC to cooperate on climate change?
The China-CELAC Forum has the potential to be a transformative platform to reverse the high-carbon partnership between Latin America and China, and boost low-carbon development.
China and CELAC could promote cooperation on renewable energy and capitalize on the emerging international ecosystem for climate finance led in part by China.
There is remarkable potential for China and CELAC to cooperate on renewable energy.
China’s growing domestic renewable energy market and influence in exporting technology to global renewable energy markets presents excellent opportunities to invest in clean energy in CELAC.
The conditions in CELAC for renewable energy are encouraging with over a dozen countries having established renewable energy targets.
Could it mean more money for green investments?
The ongoing evolution of the global financial architecture is likely to have far-reaching implications for Chinese-CELAC relations.
For example, China is working with other BRICS (Brazil, Russia, India and South Africa) countries to establish a New Development Bank (NDB) with $50 billion in initial capital to fund infrastructure projects.
The NDB will finance infrastructure and “sustainable development” projects in the BRICS countries initially, but eventually other developing countries will also be eligible to apply for funds.
This is particularly relevant for CELAC where countries need to develop their energy infrastructure, improve access to energy while developing plans for low carbon development.
How the New Development Bank interact with or work alongside the Green Climate Fund for instance, will have implications for CELAC as they seek to attract finance for implementation of their “Intended Nationally Determined Contributions” (INDCs).
China is making positive progress on the green finance agenda, which is already generating valuable lessons for CELAC that are facing similar challenges to China in building a financial system that supports the transition to a low carbon and sustainable economy.
How could relations between China and CELAC impact the UN climate talks?
The UN climate negotiations this year are charged with creating a new global agreement.
All countries, including China and those from CELAC, are invited to put forward their INDCs by March.
Taking into account the current nature of Chinese-CELAC relations, greater focus on climate change through the China-CELAC Forum could prove significant for whether CELAC countries put forward ambitious or modest INDCs.
Renewable energy cooperation between China and CELAC if generously scaled could enhance both actors’ role at the UN climate negotiations given the focus on shifting from carbon intensive fossil fuels to renewable energy in order to keep alive the goal of staying under 2 degrees of warming.
CELAC should use the China-CELAC Forum to engage China on taking action on climate change within their bilateral partnerships and ensure that Chinese-CELAC relations positively contribute to global efforts to create an ambitious and equitable global climate agreement.
This Q&A is based on a discussion paper published by the Climate and Development Lab and E3G. To access the discussion paper click here: http://www.e3g.org/library/china-lac-partnership-on-low-trade-and-investment