The Intergovernmental Panel on Climate Change (IPCC) recently released the synthesis report of its sixth assessment report, which provides an overview of the state of knowledge on climate change. What are more than 200 scientists saying about the risks of climate change? They are warning yet again about the critical challenges associated with rising temperatures. But a key difference with previous iterations is emphasizing that the solutions to stop climate change are already here, and most of them come with economic opportunities for developing countries.
First, the bad news: global temperatures have already risen by 1.1, resulting in more frequent and violent extreme weather events, such as droughts or hurricanes. We must limit warming and keep it as close to 1.5°C as possible to achieve the main goal of the Paris Agreement. Climate impacts bring a range of threats to developing countries, affecting food and water security, disrupting infrastructure, increasing human morbidity and mortality, and reducing labor productivity, household income, fiscal balances, and tourism revenues. Facing the crisis requires bold action to leave no one behind.
The good news is that, far from being a sacrifice, climate action brings many economic opportunities to Latin American and Caribbean countries. Here are two benefits of climate action and what the IDB Group offers to support countries in their transition to net-zero-carbon and climate-resilient economies.
The Development Opportunity: Unlocking Multiple Benefits
Benefit #1: Decarbonization is the Growth Opportunity of the 21ST Century. Indeed, technical solutions are now widely available, centered around generating zero-carbon electricity, replacing fossil fuels in all sectors, expanding, protecting, and restoring high-carbon ecosystems, and advancing sustainable economic practices. And they come with many benefits:
- Powering everything with renewable electricity will be cheaper and cleaner: decarbonizing electricity and a 100% renewable energy system bring USD 12 trillion in net savings, and all new electricity generation projects should be from renewable resources.
- Walkable cities and electric mobility mean cheaper transport and cleaner air: redefining public space can deliver better transport and improve lives. The transition towards electromobility has begun, as the cost of batteries has dropped dramatically, and the market share of electric vehicles is growing exponentially.
- We can share delicious meals while preserving biodiversity and the climate: modernizing farming practices to leverage nature-based solutions and combining crops will make agriculture more resilient and less polluting. More environment-friendly diets that rely less on beef can be cheaper and healthier while preserving biodiversity and carbon conservation.
- Decarbonized buildings will be more comfortable and cheaper to live in: building features can contribute to reduced heating, cooling, and lighting loads while providing quieter, more affordable homes.
- Net-zero industry is just around the corner. Heat pumps and electric heaters can provide a clean heat source for low and mid-temperature applications, such as cooking. These solutions also make industrial processes cheaper and safer for workers, which is more competitive and better for consumers.
The cherry on top is that the transition to a net-zero emission economy could create 15 million net new jobs in Latin America and the Caribbean by 2030. Of course, governments will need to ensure the skills, competencies, and support schemes are here to ensure a just workforce transition.
Benefit #2: Investing in Adaptation and Resilience Shows a Cost-Benefit Ratio of Four to Seven Dollars Per Dollar Invested. The IPCC estimates that annual adaptation costs in developing countries at USD 70 billion, and this figure is expected to reach USD 140-300 billion in 2030 and USD 280-500 billion in 2050. LAC countries must urgently step up action to adapt to the new climate reality or face severe costs, damages, and losses.
Actions to build climate resilience are essential to reduce vulnerability to climate change and are necessary for poverty reduction. Long-term adaptation planning (LTAP) is crucial to respond to the impacts of climate change and must incorporate adaptation policies to ensure national development priorities, programs, goals, and investment strategies. That is why the IDB and AFD partnered with the World Resource Institute (WRI) to understand the state of the art of adaptation mainstreaming in planning exercises and collect lessons learned from eight countries: Argentina, Barbados, Colombia, Costa Rica, Guatemala, Jamaica, Mexico, and Uruguay. Long-term plans must incorporate adaptation policies to ensure the sustainability and viability of national development priorities, programs, goals, and investment strategies. Here are some recommendations:
- Align climate policy frameworks and laws to leverage synergies between climate adaptation action and national priorities.
- Develop guidance on incentivizing and involving the private sector to foster adaptation investments and innovation for long-term planning.
- Gather, monitor, and share evidence of adaptation benefits to generate higher support for adaptation commitment and action.
Spurring Change: What does the IDB Offer
Comprehensive climate strategies can help governments develop roadmaps for attaining climate goals. For example, at the IDB, we conduct innovative research to design fit-for-purpose approaches to address the climate challenge in the region. In 2022, we supported 16 countries to help develop national and subnational institutional arrangements to address climate change. Our work includes investment, financial planning, and sectoral changes across energy, transport, and land use. Our support includes a platform for Ministers of Finance as a space for dialogue on innovation in policy, governance, and finance for climate action.
Regional integration is critical in the fight against biodiversity loss and climate change. In the Amazon Region, collaboration is vital to developing innovative solutions to benefit people. That is why the IDB established the Amazon Initiative, which mobilizes public and private resources and coordinates IDB’s financial and technical assistance to stimulate sustainable and inclusive development models and accelerate the accomplishment of the Sustainable Development Goals in the Amazonian communities and territories.
In addition, the IDB offers a suite of financial products aimed at building climate action. Aligning financial flows with net-zero emissions and climate-resilient development pathways can advance institutional changes to address the dual challenges of adaptation and ensuring just transition. At the IDB, climate finance in 2022 reached a record of US$5.9 billion: 43% of the total volume approved by the IDB.
Mobilizing concessional finance is critical to support LAC countries in their mission to realize their international commitments and generate transformational change. International Organizations like the IDB rely on donor resources to provide technical assistance and mobilize investments to deploy transformational projects in the region. For instance, the success story of the Green Climate Fund and the IDB consists of eight projects and programs worth $762 million in GCF financing plus $964 million in co-financing, benefiting 11 million people.
The Way Forward: IDB Governors Embrace Vision, Priorities and Plans for the IDB Group
As a strategic partner of the region, the Inter-American Development Bank held its annual meeting in Panama City from March 15 to 18. The Board of Governors approved resolutions that will shape the future of IDB, IDB Invest, and IDB Lab and climate change is a top priority. The IDB Group’s priorities include social issues such as food security, poverty and inequality, health, and education; climate change mitigation and adaptation, including how to deal with increasingly frequent natural disasters; and sustainable digital and physical infrastructure, with emphasis on regional integration. In addition, the President stressed the importance of preserving biodiversity through an Amazon Regional Program.
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