Over the coming decades, climate change and natural disasters have the potential to undo much of the progress made in lifting households out of povertyoverprior decades. Byone estimate, climate change could push 100 million people across the globe into poverty within the next 10 years.Bythe end of the century,the ratio of GDP per capita between the richest and poor countries in Latin America and the Caribbean is also expected to dramatically increaseas a result ofclimate change and accompanying natural disasters.
As the recent IDB reportThe Inequality Crisisexplains, the region needs to make aconcerted effort to design policies that foster inclusive growth and sustainabilityto counteract these dangeroustrends.
There are three reasons that climate shocks and natural disasters exacerbate inequality.First, poorer countries, regions, and people tend to be more exposed to climate change impacts and natural disasters than their wealthier counterparts. Second,they lose a greater share of their wealthwhen climate shocks hit. And third,theyhave fewer resources to cope with the negative impacts of climate shocks.
Figure 1. GDP Per Capita and Baseline Temperature ofLatin American Countries
Source: IDB staff calculations based onBurke et al.(2015).
WithinLatin America and the Caribbean,the high-poverty regions of Western Bolivia and Central and Southern Peru are the most vulnerable to heavy rainfalls and flooding.Moreover,across countries in Latin America, temperature is negatively correlated with GDP per capita,sothat poorer countriesaremore exposedto high temperature (Figure 1). There are similar patterns within countries as well.For instance,Brazilian states with higher temperature have lower GDP per capita suggesting that poor states are moreexposedto the impacts ofrisingtemperature(Figure 2).
Figure2. GDP Per Capita and Baseline Temperature ofBrazilian States
Source: IDB staff calculations based on the University of Delaware (reconstruction data assembled byWillmott and Matsuura(2018))and theBrazilian Institute of Geography and Statistics (IBGE)(2010).
When climate shocks do occur, the poortypicallylose a greater share of theirwealth.Forexample,Hurricane Mitch wiped out 18% of the assets of the poorest quintile in Honduras compared to only 3% for the richest quintile. Thesedisparatelosses of wealthtranslate intounequalreductionsinconsumption.
The poor are least able to cope withand recover fromthenegative impacts of climate shocks. Theyhavefewerfinancial resources, both because their social networks-- or support systems--tend to also be poor and because they have less access to formal savings, credit, and insurance.Remittances can alsoalleviate financial pressure -- orsmooth consumption--but the poor are disadvantaged here too.One studyin Jamaica found that householdswho lived inbetter constructed housing, a proxy for wealth, were more likely to smooth consumptionafter tropical stormsusing remittances.Further, while wealthier households canadjusttheir budget, for example by delaying luxury purchases, poor households alreadydedicatea significant share of their budgettomeeting theirbasic needs.
These threefactorsform a negative feedback loop in which the poor are more likely to experience climate shocks and lose a greater fraction of their wealthtothem. Forced into povertyas a result, theyare now in a worse position,with fewer resources to cope,whenthe next climate shockhits.
Fortunately,countries can break this cycle by implementinginclusivedevelopment policiesthat areconsistent with climate stabilizationand disaster risk managementgoals and, at the same time,reduceinequality.The first step is to improve social safety nets andenactpolicies that improve the poor’s ability to cope with the negative impacts of climate shocks. Betterinsurance and formal financial products, access to health care,and improved infrastructure servicesare some examples.
Governmentsalsoneed to provide assistance to themostneedywhennatural disastershit.Without quick assistance in the aftermath of adisaster,poor householdsmay sell productive assets, withdrawtheir childrenfrom school, or delay seeking medical care to meettheirimmediate needs, jeopardizing their long-term prospects.Using funds pre-authorized for this purpose, governments can quickly target resources to the most vulnerable byutilizing existing cash transfer mechanisms.
Inequality should also be considered in the design of climate change adaption and mitigation policies.Using traditional cost-benefit calculations to selectinvestments forclimate change adaption,for example,is likely to favor the wealthy at the expense of the poor.That is because the poor typicallylive inmarginalized neighborhoodsthat are more expensive to protect against climate change while possessing less wealth that would benefit from suchprotection.Only by explicitly considering inequality and involving the poor indecision-making, canthose discrepancies be resolved in a fair manner.Climate change mitigation policies, such as the removal of subsidies for fossil fuel, canalsobe done equitably.For example,the Dominican Republic, andMexicocompensate poor households forenergyprice increases through cashtransfers.
Unmitigated climate changethreatens disastrous impacts for botheconomic growth and inequalityin Latin America and the Caribbean. But bytaking actionsoonerrather than later and taking poverty and inequality into account in the design of policy, the region canretainthe social gains of the recent pastandcontinue to progress towards its development goals.
