Climate Change and Latin America and the Caribbean

• According to NOAA and NASA, 2023 was the hottest on record, approaching 1.5°C above preindustrial levels. Global warming brought devastating heat waves, floods, wildfires, and hurricanes. So far, in 2024, January was the hottest January on Record, above 1.5 Degrees Celsius. 
• Climate-related natural disasters have tripled in the last 50 years, with increasingly adverse effects on morbidity and mortality, ecosystems, and economies. Disasters can reduce GDP by up to 0.9 percent in lower-income countries; in the Caribbean, they can destroy 3.6 percent. Climate change will also drive the migration of 17 million people by 2050. 
• Chile experienced its most devastating natural disaster in years, resulting more than 131 fatalities and hundreds unaccounted for. Argentina's Patagonia region was engulfed in flames, destroying thousands of hectares of land. Due to deforestation, El Niño, and climate change, in Brazil, the Río Negro recorded a depth of just 12.7 meters — its lowest level in 120 years.  
• The region is one of the world's most vulnerable to climate change and needs to invest between $470 billion and $1.3 trillion to deliver on the Paris Agreement goals. 

The solution to the problem: Leading rapid policy change, INNOVATION in financial mechanisms, SUPPLY CHAINS for the revolution. 

• LAC can be a part of the solution to challenges related to global climate change. It gets 30% of its energy from renewable sources, double the world average. It is home to two-thirds of the world's lithium and 38% of its copper, crucial to the green transition.  
• Of the 12 million tons of green hydrogen that Europe will need annually by 2030, at least a third could be exported from our region, representing a market of $9.1 billion per year that will require $83 billion in investments. 
• Benefits can be unlocked through incremental improvements, supply-side solutions, and changing consumption. In the agriculture, forests, and other land use sectors, inducing afforestation with a shift in agricultural production and consumption reduces the supply chain losses. It accelerates gains in productivity and conserves land. Given the region's extensive biodiversity, LAC's comparative advantage lies in its ability to leverage restoration efforts to address climate change and biodiversity conservation simultaneously, contributing to sustainable development and long-term prosperity.  
• LAC produces enough food to feed 1.3 billion people and contributes approximately 40% to net global food exports. Reducing food waste through the agriculture supply chains can minimize economic loss. LAC farms lost 12% of the food produced before reaching markets.  
• The economic and social benefits of decarbonization for the region surpass the costs: the transition to net zero could create 15 million net new jobs by 2030 and provide US$2.7 trillion in net benefits by 2050.  
• These benefits include fuel savings ($900 billion), avoided pollution ($500 billion), other health, safety, and productivity gains ($1 trillion), and energy security. 
• Clean technologies challenge old tradeoffs between climate protection and economic returns. Renewable energy costs 80 percent less than a decade ago. Renewables are cheaper than fossil fuels. High upfront outlays for electric vehicles pay lifelong dividends via lower fueling and maintenance expenses. 

Doing everything everywhere all at once may not be feasible or necessary. The IDB is working with countries on their decarbonization and adaptation strategies, including their nationally determined contributions (NDCs) and long-term strategies (LTSs). In addition, our work with knowledge and ministries of finance provides ad-hoc policy transformations for sectors and decision-makers. 

• The IDB is actively supporting countries in advancing climate policy change. By 2023, we supported 20 countries in developing national and subnational institutional arrangements to address climate change.  
• In 2023, we supported policy loans or guarantees in eight countries (Argentina, Bahamas, Brazil, Chile, Colombia, Ecuador, the Dominican Republic, and Panama). Our work supports policy interventions to enable the transformation to a region that is a climate-resilient, biodiversity-positive, and net-zero.  
• All our operations were aligned with the Paris Agreement in 2023, and we provided $7.0 billion of green and climate finance, with 90% of operations supporting climate action. 

Our innovative research offers countries knowledge to formulate long-term adaptation and emissions reduction strategies, increase the ambition of their NDCs, and develop disaster risk management institutions.  

• We developed cost-benefit analyses for Costa Rica, Peru, Colombia, and Chile. Our research has found net benefits of approximately $41 billion in Costa Rica, $7 billion in Chile, $330 billion in Colombia, and $140 billion in Peru. 
• In 2023, we launched a position paper that identifies the social impacts of the transition to net zero and presents a set of actions that governments in the region can take to ensure that the transition to net zero is just and inclusive. 
• On fiscal policy, we launched a publication with best practices and technical guidelines to facilitate the integration of climate actions into fiscal policy and management. 
• IDB has published numerous regional and country-level recommendations and guidelines to advance towards net zero, such as 15 transformations to unlock decarbonization, guidelines for climate action in cities and regional governments, as well as costs and benefits of achieving carbon neutrality, which could bring up to $2.7 trillion by 2030.  

The IDB serves as the technical secretariat in The Regional Climate Change Platform of Ministers of Finance and Economy. It facilitates governance enhancement by fostering knowledge exchange experiences within the region's finance ministries. Through the platform, the Ministries have already developed documents, including a practical guide on thematic emissions and an analysis of climate financial strategy implementation, tools for green public investment and financial management, and policy documents to understand ministries' expectations for establishing carbon pricing mechanisms.  

Currently, the platform works around three key areas: Debt Management and Green Finance, Tax Revenues and Incentives, and Climate Public Spending. Workshops, training sessions, knowledge-sharing initiatives, and projects focusing on carbon markets, green taxonomies, and other related topics are progressing within the platform's agenda. 

To reach net zero, the IDB is leading a social agenda encompassing not only transition and labor markets but also health, education, and gender initiatives aligned with climate action.  

• Green Job Creation: The IDB is collaborating with Brazil, Colombia, Ecuador, Honduras, Peru, and the Dominican Republic to conduct comprehensive studies of their labor markets to identify opportunities for creating green jobs. 
• Strengthening Barbados' Education for Sustainability: the IDB is launching "Skills for the Future II," a loan operation to revitalize the country's education system. This initiative will equip Bajan students with the skills necessary for sustainable economic development and climate objectives.  

The IDB assesses disaster and climate change risks for 100% of its new infrastructure projects. We have conducted 45 disaster risk assessments in 19 countries, including a Disaster Risk Profile for droughts and floods in Uruguay. 

• The IDB developed the iGOPP tool for policy reforms, used in all 26 member countries, and guides policy changes in The Bahamas.  
• The IDB supported Barbados in improving coastal resilience through a $50 million investment loan.  
• The IDB helped Ecuador establish an early warning system for riverine floods and tsunamis and a shock-responsive social protection system in El Salvador with a $100 million loan. 
• The IDB Supported 17 contingent credit facilities worth $3.9 billion for humanitarian aid and basic repairs of critical infrastructure triggered when natural disasters strike. 

Innovation in financial mechanisms, examples of rapid change of IDB's projects and initiatives: 

At COP28, we announced we will triple direct and mobilized climate financing for the region to $150 billion over the next decade.  

The IDB Group is pioneering innovative finance mechanisms to help bring more scale:  

• IDB Clima: To align financial incentives with climate actions, the IDB launched IDB CLIMA. In its pilot phase, IDB CLIMA offers the equivalent of a 5% discount on the loan principal as a grant when selected loan projects meet nature climate goals. The first ten countries expected to participate in the pilot program are Barbados, Belize, Brazil, Chile, Colombia, the Dominican Republic, Ecuador, Paraguay, Suriname, and Uruguay. 
• Resilient Debt Clauses (CRDCs): The IDB is the first MDB to reach $1 in loans covered by these clauses. Currently, The Bahamas (Hurricanes), Barbados (Hurricanes plus excess rainfall), Honduras (Hurricanes, excess rainfall plus earthquakes and Ecuador (earthquakes, floods) are protected by these clauses for a total amount of $1.2 billion loans.  
• Uruguay, Sustainable Linked Bond: Supported Uruguay's Ministry of Economy and Finance (MEF) in preparing the first SSLB, whose coupon varies if the country's NDC targets are achieved. The bond issuance received demand 2.6 times higher than issued.  
• Debt for Nature Conversion Guarantees: The IDB will continue to lead among MDBs, working with co-guarantors and partners to deliver up to $2 billion for conservation outcomes in the next years. In 2023, the IDB and the U.S. International Development Finance Corporation (DFC) supported the largest ever DFNC to protect the Hermandad Marine Reserve in the Galapagos. The combination of political risk insurance of $656 million and the IDB guarantee of $85 million allowed Ecuador to buy back $1.6 billion, generating more than $450 million for conservation over 18 years. In Barbados, the operation comprised a $100 million guarantee from the IDB and another $50 million guarantee from TNC that enhanced a loan provided to Barbados (Blue Loan) to existing debt. The savings generated by the operation will be used by Barbados to fund a conservation fund to achieve a conservation commitment, currently estimated at $50 million.  
• Hedging Platform for Green Transformation Plan Investments:  Brazil’s Ministry of Finance and the IDB have a unique financial solutions platform for foreign exchange risk for investments aligned with socio-environmental principles and climate change adaptation and mitigation. These innovative tools seek to attract green investments within the Green Transformation Plan. Initially, it has the potential to mobilize coverage of up to $3.4 billion, a figure that may increase over time.    
• The Green Coalition of Public Development Banks aims to mobilize resources between $10 billion and $20 billion by creating a sustainable development platform. These resources will be directed to the Amazon development agenda 2024-2030, with the collaboration of the Green Coalition's international partners, to support the financing of sustainable investments in the Amazon region. It will focus on designing financial solutions and providing technical support to promote the scalability of environmentally and socially responsible businesses and projects in the Amazon. 
• Resilience Sustainability Facility (RSF):  the IMF, the IDB, the World Bank, the European Investment Bank, the Caribbean Development Bank, and the CAF are starting to show results in Barbados, Jamaica, Costa Rica, and Paraguay. The work includes creating or expanding Sustainable PPP Project Preparation Facilities, where the IDB's PPP Single Window will support capacity building and PPP structuring to mobilize private capital for sustainable infrastructure projects. The IDB has also helped these countries achieve various RSF reform measures, including greater energy efficiency in buildings, electric mobility policies, and incorporating climate change considerations and climate impact assessments into public investment decision-making.