URUGUAY

Transitioning to a Green Economy

Uruguay stands out in Latin America for being an egalitarian society. It has a high per capita income, low levels of inequality and poverty, and almost no extreme poverty. Over the last decades, Uruguay has also made huge transitions to renewable energy generation and lowering its carbon footprint. However, Uruguay still faces the important challenge of combining sustained economic growth with higher rates of social inclusion and consolidating the environment as one of the pillars for its economic development, as approximately 80% of exports depend on sectors that rely heavily on natural resources. Greening the Uruguayan economy offers an important opportunity to deal with these challenges.

Intervention
 

Uruguay stands out in Latin America for being an egalitarian society. It has a high per capita income, low levels of inequality and poverty, and almost no extreme poverty. Over the last decades, Uruguay has also made huge transitions to renewable energy generation and lowering its carbon footprint. However, Uruguay still faces the important challenge of combining sustained economic growth with higher rates of social inclusion and consolidating the environment as one of the pillars for its economic development, as approximately 80% of exports depend on sectors that rely heavily on natural resources. Greening the Uruguayan economy offers an important opportunity to deal with these challenges.

Key Policy Insights and Recommendations
 

  • Investments in the green economy policies assessed have a positive impact on the environment and also generate sustained economic growth, stimulate private investment, and contribute to poverty reduction. Importantly, they also increase Uruguay’s capability to adapt to and mitigate climate change impacts without negatively impacting indicators related to poverty, and social and gender equality.
     

  • GDP per capita will see continuous growth until 2035, with the ‘green scenario’ being 1.9 per cent higher than the base scenario. The agriculture/ livestock sector stands out for achieving the highest GDP growth. The service sector (including transport and tourism), even though the impact is less significant, will represent 70 per cent of GDP by 2035.
     

  • Public investments catalyze private investment into green activities. Increased green investments will have a sustained effect in the long run on private investments, as the latter is 2.5 per cent higher under the green scenario at the end of the 2035 simulation period.
     

  • CO2e emissions from fossil fuel is approximately 1.1 per cent lower in the green scenario than in the base scenario. This means that green policies designed to lower fossil fuel consumption will lower emissions without affecting GDP growth. In the livestock sector, even though CO2e emissions increase with the foreseen increase in production in this scenario, the emissions will be lower per unit of production.
     

  • Due to the recommended expansion of the area to irrigate, water demand for irrigation is, on average, 50 per cent higher in the green scenario. However, this increase does not drastically affect water availability. Water stress index, which represents the water demand in relation to the total supply, remains below the desired value of 5.
     

  • Reorganization and improvement of the management of the public transport system in the capital city Montevideo, implementation of a national energy efficiency labeling system for vehicles, and rehabilitation of the railway network for the cargo transportation, contribute to reducing energy consumption and the transition to a low carbon economy.
     

  • Adoption of fiscal incentives improve energy efficiency in the industrial sector, while greater formality and the application of measures aimed at improving the qualification of personnel employed in the sector would have an impact on working conditions and the qualification of workers; which increases the productivity of the sector.

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