The Centre on Global Energy Policy has said Latin American and Caribbean (LAC) face a trade-off between their differing developmental goals and require an influx of funding to deliver in their net zero ambitions.
The centre has issued a new report in the region which warns while the programs have been devised the capital to fund them is still lacking.
It said the LAC countries are among the most vulnerable in the world to climate change, experiencing at least one extreme weather-related event per country, on average, every three years over the past two decades.
As signers to the Paris Agreement, LAC countries established nationally determined contributions (NDCs), pledging to significantly reduce greenhouse gas (GHG) emissions by 2030 and become net zero by 2050. Over the last two years, many LAC countries, including the six largest economies, Argentina, Brazil, Chile, Colombia, Mexico, and Peru, have updated or submitted new NDCs, raising their climate mitigation ambition. While public opinion surveys show support for climate-related policies among citizens in the region, the transition to a low-emissions economy is extremely challenging, and even out of reach, for LAC countries under current policies.
“Financing this transition is a key question for the 2022 United Nations Climate Change Conference,” it added. “As part of the ongoing research on energy transition at Columbia University’s Centre on Global Energy Policy, this report analyses the challenges of climate mitigation in LAC countries. The region has a unique composition of emissions: the Agriculture, Forestry, and Other Land Use (AFOLU) sector accounts for 40 percent of the region’s total emissions, almost double the global average.
“Deforestation and land-use change, which drive this sector’s emissions, release vast quantities of nitrous oxide and methane emissions in addition to carbon dioxide. Another characteristic of the region is its heavy dependence on fossil fuel revenues, which raises transition costs and risks of financing a low-carbon future.”
The study found LAC countries face high transition costs relative to the size of their economies. These costs include both investments in emissions abatement as well as transition risks in the form of lost export and fiscal revenues.
Across the region, the AFOLU sector will be the primary driver of GHG emissions reduction. This result holds true under two different scenarios: one that assumes a transition to carbon neutrality by 2050, and one that meets the targets set by NDCs.
“The AFOLU sector demands greater attention from the region’s policy makers not only because of its large contribution to emissions but because of its potential for low-cost carbon abatement through reforestation and forest management. Carbon offsets for emissions of hard-to-abate regions and sectors—such as heavy industry and transportation—provide an economic opportunity for LAC.”
The study added: “LAC countries have designed long-term strategies to reduce emissions, but most have not developed financial plans to support the implementation of these strategies. Large-scale carbon abatement actions, such as afforestation and forest conservation, require government intervention as well as financing from development banks and a deep and liquid market for carbon offsets.”
As such to meet their climate goals, LAC countries must consider a new fiscal policy framework. Various solutions may include carbon pricing and green fiscal rules, which could help integrate climate goals into current fiscal frameworks, leading to a convergence of fiscal and environmental sustainability.
“The region’s ambitious low-carbon transition requires major investments, but funding is limited by inadequate fiscal capacity and financing restrictions that affect both private and public sectors,” the report explained. “LAC countries must also resolve policy dilemmas arising from tensions between different developmental goals that compete for financial and human resources. In addition to the NDCs, the region is committed to achieving the Sustainable Development Goals (SDGs) by 2030. Although some believe that the objectives of NDCs and SDGs mutually reinforce each other, in practice trade-offs exist. For example, should oil and mineral-rich countries first reduce the production of fossil fuels? Or should they wait until the demand for these products falls and, in the meantime, use the revenues to meet SDGs, such as the eradication of poverty?
“This report argues that achieving the emissions reductions required by the NDCs and net-zero scenarios is extremely challenging, and even out of reach, for LAC countries under current policies.
“It further argues that acknowledging this reality is, in fact, a call for action in institutional and policy areas related to climate mitigation goals. Two challenges, in particular, make the low-carbon ambitions of LAC countries unrealistic. First, emissions reductions are very costly relative to the income of most LAC countries. Second, these countries face significant transition risks in the form of loss in export and fiscal revenues, particularly from high-emissions sectors like oil, gas, and coal.
“To bridge the gap, LAC countries need to adopt a new framework to pay for the transition that would allow them to offset the expected fiscal losses and, importantly, develop new sources of income.”