The Benefits and Costs of Decarbonizing Costa Rica's Economy

Costa Rica's National Decarbonization Plan (NDP) sets the ambitious goal for the country to become carbon-neutral by 2050 and lays out a wide range of policy and institutional reforms to achieve this goal. The authors of this report developed an integrated model that estimates the benefits and costs of implementing the NDP in all major sectors, informed by consultations with numerous government agencies, industries, and nongovernmental organizations, and used it to evaluate whether the NDP makes economic sense for Costa Rica — that is, whether the benefits of the NDP exceed its costs.

The authors' analysis suggests that under the vast majority of plausible assumptions about the future, the NDP would achieve or nearly achieve its greenhouse gas emissions reduction goals and do so at a net economic benefit. Conversely, without a concerted focus and investment in decarbonization, Costa Rica's greenhouse gas emissions will increase substantially.

The findings from this study can play an important role in ensuring that the implementation of the NDP is robust — meaning that it will achieve its goals in the uncertain future. This analysis confirms which lines of action are most critical to the success of the NDP — transport and land use — and identifies some key conditions necessary to achieve close to zero net emissions at a large net economic benefit. This study also offers ideas and models that are valuable for other countries interested in decarbonization, and that can inspire development partners globally.

Key Findings

• Under baseline assumptions, decarbonization would yield $41 billion in net benefits to Costa Rica between 2020 and 2050, using a 5 percent discount rate.
• Under all but 22 of the more than 3,000 plausible futures considered, implementation of the decarbonization plan would lead to economic benefits that exceed the costs.
• Currently, electricity is almost completely renewable, and with modest investments it would provide nearly emissions-free energy to support the electrification of much of Costa Rica's economy.
• In the transport sector, significant emissions reductions are possible through electrification of transport and shifting to public transportation. The economic benefits from energy savings, fewer accidents, time saved from reduced congestion, and the reduced negative impacts of air pollution on health more than compensate for the initially higher up-front costs of switching to electric vehicles and building infrastructure for zero-emissions public transport.
• Reducing emissions in agriculture and livestock could lead to increased productivity, and increasing carbon sequestration by forests would increase valuable ecosystem services, such as renewable forestry products, water and soil benefits, and support for tourism and cultural heritage.
• Emissions reductions from buildings, industry, and the waste sector are also important to reach zero net emissions and together provide modest net benefits through energy cost savings, increased productivity, and the value of treating and recycling and reusing liquid and solid waste.

Recommendations

• Costa Rica should continue implementing its NDP to both meet its international obligations to decarbonize and facilitate an economic transition that would very likely lead to large net benefits and contribute to a sustainable COVID-19 pandemic recovery.
• As Costa Rica recovers from the COVID-19 pandemic, it should focus on decarbonization investments that would reactivate the economy and provide support to the most critically affected sectors of the economy.
• Costa Rica should monitor the costs of alternative-fuel vehicles, as well as the adoption of improved public transportation options, and make adjustments to the transport decarbonization strategies as needed to ensure net economic benefits and sufficient emissions reductions.
• As Costa Rica continues to manage its forests for long-term sustainability, it should measure and monitor ecosystem service benefits in order to best target the NDP interventions.
• Costa Rica should continue to develop more-detailed proposals for implementing the plan and reevaluate benefits and costs periodically to ensure the greatest net benefits, including by aligning its Nationally Determined Contribution to the NDP.

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Our analysis suggests that, under baseline assumptions, implementing the NDP would lead to net-zero GHG emissions by 2050 and provide about $41 billion of net benefits across the economy from 2020 to 2050, discounted back to 2015 at a rate of 5 percent per year.3 It would save or otherwise provide $78 billion in benefits, and it would cost about $37 billion. There is significant uncertainty around these estimates, but the analysis shows that under the vast majority of plausible assumptions about the future, the NDP would achieve or nearly achieve its emissions reduction goals and do so at a net economic benefit.

Under baseline assumptions, fully implementing all lines of action in the NDP would lead to about $41 billion in net benefits (Figure S.2). The greatest benefits are due to actions affecting transport,  agriculture, livestock, and forestry net emissions. In the agriculture, livestock, and forestry sectors, ecosystem services provided by forests, such as renewable forestry products, water and soil benefits, support for tourism and cultural heritage, and improved yields are worth much more than the investments required to decarbonize and the forgone value of land dedicated to forests—providing discounted net benefits of about $22 billion. The public and private transport sectors together with the freight sector would provide $19 billion in net benefits under baseline assumptions, since the economic benefits from energy savings, fewer accidents, time saved from reduced congestion, and the reduced negative impacts of air pollution on health more than compensate for the initially higher up-front costs of switching to electric vehicles and building infrastructure for public transport (Godínez-Zamora et al., 2020). Efficiency gains in industry, and the economic value of recycled materials and treated wastewater, result in a small net benefit for the industry and waste sectors: $1.3 billion together. Figure S.2 shows modest net costs for the electricity and buildings lines of actions. However, the benefits of cheaper electricity are accounted for under the transport, industry, and buildings sectors.

https://www.rand.org/pubs/research_reports/RRA633-1.html

by David G. Groves, James Syme, Edmundo Molina-Perez, Carlos Calvo Hernandez, Luis F. Víctor-Gallardo, Guido Godinez-Zamora, Jairo Quirós-Tortós, Felipe De León, Andrea Meza Murillo, Valentina Saavedra Gómez, Adrien Vogt-Schilb

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