Climate policy representatives from the region and key actors in climate finance exchanged experiences on relevant aspects for the implementation of long-term
climate goals, considering financial flows and fund mobilisation in each country.
Brussels, 12 July 2022. How are Latin American countries preparing for the implementation of long-term climate strategies in terms of financing? Climate policy and finance experts from the region gathered around this question at the workshop "Financing for decarbonisation in Latin America", organised by the EUROCLIMA+ programme, through the German Society for International Cooperation (GIZ) GmbH, and the French Development Agency (AFD), together with the 2050 Pathways Platform. At the meeting, they reviewed various approaches to financing long-term goals in the region, the role of multilateral and bilateral banks in the implementation of long-term strategies, and the experiences of Chile, Costa Rica, Uruguay and Colombia in orienting financial flows to long-term objectives in the countries.
"Several countries in the region are already preparing their Long-Term Climate Strategies (LTCS), and this requires recognising the implications for key actors and sectors that will be central to the transformations needed for decarbonisation in Latin America. These transformations will be underpinned by large-scale investments, and the question is where these investments will come from. In this exchange we seek to identify possible sources of finance, but also to recognise the importance of enabling policy frameworks, macroeconomic considerations and fiscal adjustments in the countries to redirect public and private finance flows consistent with long-term objectives, as well as the role of development banks in mobilising climate finance for decarbonisation in Latin America". Claudia Cordero, regional advisor GIZ /EUROCLIMA+
The meeting started with the intervention of Marcela Jaramillo, Senior Associate of 2050 Pathways Platform, who spoke about the main trends in the implementation of long-term strategies and highlighted that in order for these to attract international financing, it is important that they clearly transmit what their priority sectors and subsectors will be, the technologies that will be used for decarbonisation and adaptation, the pace of decarbonisation throughout the economy, the carbon lock-in risks identified, and that the objectives are aligned to support sustainable economic development with just transition and poverty reduction.
For his part, Adrien Vogt-Schilb, senior economist at the Inter-American Development Bank (IDB), presented key aspects of the study “How much will it cost to achieve the climate change goals in Latin America and the Caribbean?” He pointed out that a decarbonised and resilient development in the region would imply spending between 7% and 19% of GDP; equivalent to 470 and 1300 billion dollars per year respectively. This would not be additional expenditure, but rather different spending, as climate spending cannot be separated from development spending. In this regard, it is essential that countries redirect public and private financial flows towards climate solutions to meet the long-term goals of the Paris Agreement. So, in addition to seeking new resources, the public sector has an important role to play in policy and regulatory reforms to redirect private and public spending.
Experiences in countries of the region
From the Chilean Ministry of Environment, Sandra Briceño, Head of the Climate Finance and Means of Implementation Department of the Climate Change Division, presented the country's experience in the process of formulating and implementing its long-term climate strategy, and how the recently approved Framework Law on Climate Change allows the operationalisation of climate action in Chile, recognising the carbon neutrality and resilience targets for 2050 established in the LTCS and the NDCs, while enabling sectoral mitigation and adaptation plans, such as action plans in the country's regions.
In this regard, Juan Labat of Uruguay's Ministry of the Environment pointed out three aspects that characterise the operationalisation of the LTCS in that country: considering the decarbonisation strategy as a long-term programmatic document, which allows for the progressive development of specific regulations, for example that make the energy transition viable; the leading role of the Ministry of Economy and Finance in mobilising international financing; and the capacity to mobilise private financing for the LTCS, incorporating key partners such as the Central Bank, to promote instruments such as the green taxonomy that operationalises financial flows under a common language.
For his part, and in the framework of Costa Rica's National Decarbonisation Plan, which aims to position the country as a decarbonised economy with net zero emissions by 2050, Jairó Quirós, a researcher at the University of Costa Rica, commented on the IDB-supported study “Fiscal impact of transport decarbonisation in Costa Rica and policy options for managing it”. For transformations in the transport sector, one conclusion is that decarbonisation will have tangible benefits for households and businesses by reducing fuel costs. There are also positive effects on the economy through increased tax revenues from the sale of electricity. So, for the period 2023-2050, the average annual fiscal impact of transport decarbonisation is -0.4% of GDP which contrasts with an average annual financial benefit of 1.48% of GDP. In other words, the financial benefit is 4 times larger than the fiscal impact of decarbonisation. The expert concluded that it is possible to make fiscal adjustments to eliminate the fiscal impact and, at the same time, try to preserve the benefits for households and businesses. Examples of these studies are useful to guide other countries in analyses related to macroeconomic and fiscal considerations for decarbonisation.
From the Ministry of Environment and Sustainable Development in Colombia, Erika Ginett Amaya commented on the incentives for the mobilisation of financial flows, an example of this is the tax reform stipulated by National Law N°1819/2016, establishing the country's first green tax. This national carbon tax, rather than a collection instrument, functions more as an incentive for the development of sustainable energy projects focused on tackling climate change. Another very recent element within the financial instruments for Colombian climate action is the green taxonomy developed by the Ministry of Finance and the Financial Superintendence together with the Ministry of Environment and Sustainable Development, the National Planning Department, and the National Administrative Department of Statistics. This taxonomy covers 10 sectors and 50 economic activities and is the benchmark for determining which activities contribute to the country's climate action objectives.
To comment on the role of multilateral banking in decarbonisation, economist Slim Dali presented the main tools available to the French Development Agency (AFD) to support countries in the preparation and implementation of the LTCSs, such as public policy budget loans, non-financial tools and grants. Examples of these are the ones carried out through the EUROCLIMA+ programme; and Facility 2050, which allow for maintaining a dialogue with local authorities, implementing short-term policies such as NDCs, investment planning and mobilisation of climate finance; and at the same time, preparing and implementing the long-term strategy.
This workshop was held in the framework of EUROCLIMA+ support to multi-country action on Regional Collaboration on transparency and implementation of Nationally Determined Contributions and capacity-building for Long-Term Climate Strategies, to jointly advance the achievement of the Paris Agreement goals.
About EUROCLIMA+
EUROCLIMA+ is a programme funded by the European Union and co-financed by the German federal government through the Federal Ministry for Economic Cooperation and Development (BMZ), as well as by the governments of France and Spain through the Ministry of Foreign Affairs, European Union and Cooperation.
The Programme's mission is to reduce the impact of climate change and its effects in 18 countries in Latin America and the Caribbean, promoting mitigation, adaptation, resilience and climate investment. It is implemented according to the "Spirit of Team Europe" under the synergistic work of seven agencies: the Spanish Agency for International Development Cooperation (AECID), the AFD Group: the French Development Agency (AFD)/ Expertise France (EF), the Economic Commission for Latin America and the Caribbean (ECLAC), the International and Ibero-America Foundation for Administration and Public Policy (FIIAPP), the German Society for International Cooperation (GIZ) GmbH, and the UN Environment Programme (UNEP).