We’ve often heard that the window opportunity to tackle climate change is approaching. Well, it is true. According to the IPCC, the next decade is critical to see whether countries can move fast enough to implement plans to adapt to this increasingly complex challenge: the climate crisis. The time gap is closing and a “livable and sustainable future for all” could be missed rapidly if we do not act rapidly.
Human activities have warmed the atmosphere, oceans, and land, causing widespread changes in the weather and climate extreme events in every region worldwide. In Latin America and the Caribbean (LAC), the tropical Andes have lost 30% and more of their area since the 1980s. In Guatemala, El Salvador and Nicaragua, 7.7 million people experienced high levels of food insecurity in 2021, with contributing factors from hurricanes Eta and Iota. The 13-year-old Chile “Mega Drought” is the longest in 1000 years; extreme rainfall killed hundreds and displaced many thousands, including deadly landslides in Brazil; and sea level rise increases put coastal populations at risk.
Our estimates indicate that damage caused by climate change could cost the region $100 billion annually by 2050. Therefore, climate action is urgent for and from everyone.
Through concessional climate finance, Multilateral Development Banks like the IDB and Global Funds, including the Green Climate Fund (GCF), provide financing through grants and concessional lending to developing countries.
IDB as the Leading Development Partner on Climate in the Region
The IDB outlined the Climate Change Action Plan 2021-2025 to respond to the complex challenges of climate change. Various types of resources are needed to drive climate action in LAC, and the IDB is committed to leveraging each of them according to its strengths. To achieve this goal, partner resources, particularly those that are concessional, can serve to overcome barriers to investment. In this context, the IDB became an accredited entity to GCF in 2015 to partner in the implementation of large projects guided by the priorities of developing country governments in Latin America and the Caribbean. As the world’s largest climate fund, GCF seeks that its investment decisions follow an approach of transformational planning and programming, catalyzing climate innovation, de-risking investment to mobilize finance at scale, and mainstreaming climate risks and opportunities into investment decision-making to align finance with sustainable development.
The success story of this partnership consists of eight projects and programs worth $762 million in GCF financing plus $964 million in co-financing, benefiting 11 million people. These efforts have focused mainly on mitigation actions, especially in buildings, cities, industries, and appliances.
The case of El Salvador and Argentina
El Salvador is the first Central American country to access the GCF funds with the support of IDB. In 2016, the GCF Board of Directors approved the Energy Savings Insurance (ESI) for private energy efficiency investments by Small and Medium-Sized Enterprises (SMEs) project, which aims at improving access to financing for SMEs in El Salvador to replace energy-intensive motors, air-conditioning, refrigeration and boilers, increasing energy efficiency and developing a new market in energy services. The annual reduction in electricity consumption is expected to be 36.5 GWh, equal to a 0.6% reduction in national electricity consumption. In 2022, the reduction in energy consumption of 39 SMEs was 18.63 GWh, which implied a national saving in the cost of purchasing fossil fuels of $3.2 million. To date, the reduction in energy consumption is 24.14 GWh, which represents 66.1% of the goal and generates an additional flow of $1.4 million per year. The annual reduction in energy consumption of the subprojects portfolio generated GHG reductions of 280,263 tCO2e during the useful life of the project. In addition, 244 jobs were created, of which 48 were direct jobs (43% for women) and 196 indirect jobs (19% for women).
The Argentinian government is increasing the share of renewable energy in the country’s energy mix to 20 percent and will reduce energy consumption by 5.9 percent by 2025. The baseline in the country indicates an installed renewables capacity of 709 MW, according to a 2017 report by MINEM. In 2018, the GCF approved a project for $163.9 million to promote risk mitigation instruments and finance for renewable energy and energy efficiency investments. Five renewable energy sub-projects, four on biogas and one on biomass, have been financed since the start of the project and all of them are up and running, generating a total of 32,946 GWh of energy in 2021. The expected reduction in GHG emissions due to these projects is equivalent to 27,017 tCO2e per year or approximately 540,347 tCO2e over the course of the project´s 20-year lifetime. The project also has a strong gender equality focus with women-led businesses and female employment targets for the credit line. The gender baseline study laid the building blocks for this goal and gender discrepancies are now much more visible across Argentina and in the project portfolio. Efforts were made to position the Bank for Investment and Foreign Trade (BICE), the executing entity, as a leader in gender issues.
It doesn’t end here
Last July, the GCF board approved the E-mobility Program for Sustainable Cities in LAC, which is expected to provide $450 million in concessional loans and grants to nine countries: Barbados, Chile, Colombia, Costa Rica, Dominican Republic, Jamaica, Panama, Paraguay, and Uruguay. This is the first regional fund to promote electric mobility and green hydrogen in the region. The IDB will provide $200 million of the funding ($195 million in loans and $5 million in grants), and GCF approved another $200 million ($145 million in loans and $55 million in grants). The governments of the nine beneficiary countries are expected to provide an additional $50 million in local partner funds. This is our most recently approved project in partnership with GCF.
Concessional financing is transforming the way countries access funds and resources. Concessionality facilitates high-impact climate action in the region, delivering projects on the ground that benefit both people and the planet.