Chart of the Week: 30 Years of Socio-ecological Regulatory Changes in Amazon Basin Show Deregulation Doesn’t Attract Chinese Investment

By Christina Duran 

In a March 2023 synthetic report, the Intergovernmental Panel on Climate Change (IPCC) emphasized that Central and South America face adverse impacts from increased climate damage “without rapid, deep and sustained mitigation and accelerated adaptation action,” which will disproportionately affect the most vulnerable populations.

The need for greater climate change mitigation is clear, requiring a rapid coal phaseout and transition to renewable energy, but obstacles remain to achieve net-zero emissions by 2050, especially for Global South countries. For electricity alone, Latin America and the Caribbean (LAC) regional power needs are expected to grow by more than 91 percent through 2040. The region also shows mixed results in meeting the UN 2030 Sustainable Development Goals (SDGs) in the next seven years, with Goals like Sustainable Cities and Communities (11) and Climate Action (13) at high risk. 

As the LAC region struggles to fulfill its infrastructure and energy needs, meet the SDGs by 2030 and mitigate climate change, it also faces a financing gap for low carbon infrastructure. To help fill this gap, many LAC countries have turned to China, the region’s largest trade partner and the world’s largest bilateral creditor, for development finance opportunities.

With projected low economic growth for the region, exacerbated by interest rate hikes and the lasting effects of the COVID-19 pandemic, how can LAC countries incentivize investment without compromising social and environmental protections?

Exploring regulatory changes in environmental and social protections across four Amazon basin countries – Bolivia, Brazil, Ecuador and Peru – during and after a Chinese investment boom, a 2022 working paper by the Boston University Global Development Policy Center and the Pontifical Catholic University BRICS Policy Center found softening regulation did not attract more investment, especially not from China. Rather, the study found that host countries have the policy space to set and enforce protections to meet their national needs, rather than the anticipated preferences of investors. 

In this Chart of the Week, Figure 1 from the study shows that over the past 30 years, regulatory frameworks followed the export commodity boom, in line with the “resource nationalism” literature. The researchers tracked the history of three types of regulatory changes: those that set baseline protections, strengthen existing protections or relax those same protections. The chart shows that baseline changes predominated from 1990-1997, while 1998-2011 showed an emphasis in strengthening regulatory frameworks until export prices peaked in 2011. With the fall in export prices after 2011, governments relaxed regulations.

As the region’s export price index more than doubled during the 2002-2011 commodity boom, governing regimes overwhelmingly chose to strengthen existing social and environmental protections. But once the trend reversed, governments streamlined new investments over protecting affected communities and ecosystems.

Most notably, Brazil added 23 strengthening changes from 1998-2011, followed by 14 relaxing measures after 2011 that resulted in significant changes in environmental licensing, forests and protected areas and Indigenous peoples and traditional communities.

Considering a rebound in Chinese trade and investment in the LAC region, particularly in green energy, the research shows LAC countries should base their regulations on their own sustainable development goals and encourage critical oversight by the part of governments interested in social-environmental protection. This would ensure that Chinese investment benefits, or at the very least avoids harming, local ecosystems and the communities that rely on them. A focus on social and environmental protections would in turn protect investors from conflict that may arise from unmitigated environmental and social risks.

Not only do government officials have the ability to prioritize social and environmental protections without risking investment, they could also benefit from greater cooperation between China and the US on renewable energy. In short, as governments seek finance to help them achieve their development and climate goals, strengthening social and environmental protections should not be seen as an impediment to success.

*

Christina Duran is a former Communications Fellow with the Boston University Global Development Policy Center and holds an M.A. in International Affairs with a specialization in International Communication from the Frederick S. Pardee School of Global Studies at Boston University.