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It’s time for finance ministries to take climate action to the next level

September 8, 2021 por Huáscar Eguino - Raúl Delgado - Aloisio Lopes Leave a Comment


A recent edition of the British magazine, The Economist, said that 2021 will likely be one of the coldest years of the 21st century (even though this has already been the hottest decade in history) as the international community has been unable to reduce emissions, which are driving global warming.

To avoid this scenario, we need to limit the increase in the global average temperature to below 2 degrees Celsius as stated by the Paris Agreement. To support this goal, Latin America and the Caribbean finance ministries must take climate action to the next level to drive the transformation towards green economies and promote a sustainable recovery from the pandemic.

These ministries play a central role as their economic policies and strategies influence private sector investment decisions and how government resources can be leveraged to combat climate change.

The need for action is urgent. The annual frequency of extreme weather events increased by more than 50% between 2001-2019 compared to the average between 1980-2000 in our region. These events greatly harm the most vulnerable and have caused losses of between 0.2-0, 3% of annual GDP in the region during the last two decades.

First, finance ministries need to strengthen the management of these risks. They should improve the management of public investment, incorporating elements of resilience and risk management and use methodologies that allow quantifying and managing public spending related to natural disasters. It would payoff: every dollar invested in making the economy more resilient can generate up to four dollars in economic benefits.

Second, they must promote a just and strategic transition to green economies. That means managing the fiscal risks caused by reduced demand for fossil fuels and expanding the use of renewable energy and green businesses.

It is estimated that Latin American oil production needs to fall to less than 4 million barrels per day in 2035 to be in line with the goal of the Paris Agreement, which would cause losses of almost three trillion dollars of revenues for governments in the region by 2035.

Finance ministries need to design fiscal strategies to promote proper management of taxes, spending, and subsidies to mitigate these losses and reduce possible fiscal costs generated by stranded assets and address the distributional impacts on economic sectors and workers affected by the transition.

They can also contribute to boost job creation: Proper fiscal planning would help the decarbonization of the region’s economies and create 15 million net new jobs by 2030.

Finally, while countries design their recovery plans, finance ministries can support the development of decarbonization and adaptation strategies that can guide the process.

These strategies can play an essential role in helping to identify and plan the deployment of renewable energy projects and policies, digital infrastructure, and nature-based solutions. They can also help to ensure that public funds avoid bailing out polluting industries and support the expansion of financing to the private sector, including the development of a green bond market.

It is time to implement these measures now. In our institutional strategy, Vision 2025, we have identified that addressing climate change in a transversal way across government operations is a great opportunity for our region to achieve a sustainable recovery from the pandemic. Finance ministries can play a central role in capitalizing on this opportunity and help to prevent 2021 from being one of the coldest years of this century.

This article was originally published in Spanish by Infobae.

Recommended reading:

Fiscal Policy and Climate Change: Recent Experiences of the Finance Ministries of Latin America and the Caribbean.

Are Latin America’s fossil fuels at risk of becoming stranded assets this decade?

Photo: Nuno Marques – Unsplash.com


Filed Under: Climate change Tagged With: ministries of finance, sustainable recovery

Huáscar Eguino

Huáscar Eguino es Consultor Senior de le División de Gestión Fiscal del BID. Economista especializado en políticas fiscales y cambio climático, finanzas públicas subnacionales, y gestión de inversión pública. Durante sus más de 20 años de experiencia como especialista del BID, trabajó directamente con 17 países de la América Latina y el Caribe, asesoró a más de 75 gobiernos subnacionales, y coordinó el desarrollo de dos temas emergentes en el BID: política fiscal y cambio climático y gestión fiscal subnacional. Actualmente, trabaja como consultor brindando asesoramiento y apoyando el desarrollo de productos financieros y de conocimiento en temas de política fiscal y cambio climático. Cuenta un Máster en Estudios para el Desarrollo del Instituto de Estudios Sociales de la Universidad de Rotterdam, y estudios de postgrado en el Instituto Tecnológico de Massachussets, Universidad de Harvard, Universidad de Pennsylvania, y la Universidad de los Andes. Además, cuenta más de 10 certificaciones profesionales en temas de política fiscal y cambio climático y finanzas públicas. Es (co)autor de más de 20 publicaciones en el BID que han superado más de 120 mil descargas.

Raúl Delgado

Raúl Delgado es Especialista Líder en Cambio Climático en el Banco Interamericano de Desarrollo (BID) donde participa en la planificación y ejecución de la agenda de la División de Cambio Climático, lidera la Plataforma NDC Invest que es el esfuerzo colectivo del Grupo BID para apoyar la implementación del Acuerdo de París, asistiendo a los países en el diseño e implementación de sus políticas, metas y compromisos relacionados con el cambio climático. Economista, cuenta con amplia experiencia en políticas públicas, financiamiento multilateral y estructuración de proyectos públicos trabajando desde hace más de 18 años en la Secretaría de Hacienda y Crédito Público de México. Raúl lideró la estrategia institucional y la coordinación de actividades crediticias y de asistencia técnica con instituciones financieras internacionales. Durante ese tiempo (2007-2011 y 2015-2017) también fue Punto Focal y Miembro del Consejo de México para el Fondo para el Medio Ambiente Mundial (GEF) y Miembro de la Junta del Fondo Verde para el Clima, así como punto focal para los Fondos de Inversión Climática. Entre 2011-2014 ocupó el cargo de Asesor Senior del Director Ejecutivo de México en el BID.

Aloisio Lopes

Aloisio Lopes is a senior consultant in the Climate Change Division of the IDB. He worked in the development of financing instruments and in the formulation, management, and evaluation of programs for the environment, climate change, agriculture, and social development in the Ministry of Finance and other agencies of the Federal Government of Brazil for 19 years. He holds a bachelor's degree in agronomic engineering, a master's degree in economic development and agriculture, and specializations in public policy management and climate change economics.

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Sustainability

This blog is a space to reflect about the challenges, opportunities and the progress made by Latin American and Caribbean countries on the path towards the region’s sustainable development.

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