Scaling Up Climate Finance in Latin America

The decision to withdraw the United States from the Paris Agreement was widely criticized around the world and raised speculation about how the Agreement’s goals, including targets related to climate finance would be met. The good news is that while the U.S. federal government is refusing to lead on climate action, other U.S. leaders are not. In recent weeks, we have seen cities, states and corporations in the U.S. pledge their support for Paris and recommit to reducing their emissions, despite Trump’s announcement. Yet a fundamental aspect of implementing the agreement is figuring out how to pay for the types of investments in renewables, efficiency, clean transportation, water management and adaptation actions that will be necessary around the world in the coming years and decades. By deciding to abandon the Paris Agreement, President Trump also walked away from the commitment made under the Obama Administration to channel US$3 billion to the Green Climate Fund (only a third of which had already been delivered). Priority shifts under the Trump administration also mean that development aid and other international funding previously available for climate and clean energy related initiatives may be severely curtailed in the future, presenting a further shortfall of international climate finance.

So how exactly can developing countries―historically the least responsible for climate change and yet the most vulnerable to its impacts―meet their climate commitments in this new context?

This is a critical question for Latin America and the Caribbean (LAC), a region already on the frontlines of climate. While nearly all countries in the region have presented intended nationally determined contributions, or climate action plans, most will require at least some funding from international sources to meet their most ambitious mitigation targets and successfully adapt their economies and vulnerable communities to a changing climate. The costs of implementing the region’s NDCs are still being estimated, but based on one conservative calculation by the International Finance Corporation the LAC region will need to invest roughly $176 billion per year between 2016 and 2030.

Even under the most optimistic scenarios, public coffers are insufficient to meet this level of necessary spending. To achieve their climate commitments, countries in LAC will need to use public programs and funding judiciously to attract private capital and scale up investment in low carbon and resilient infrastructure. This was the case even before Trump’s announcement. It is now more urgent than ever.

The good news is that Latin American countries have already shown considerable leadership on climate action, including when it comes to working to develop approaches to finance sustainable solutions. In Mexico, the EcoCasa program offered by Sociedad Hipotecaria Federal is helping to finance energy efficiency for low-income housing by providing “green” mortgages for low-carbon homes. Meanwhile in Colombia, Banco Nacional de Comercio Exterior (Bancoldex) has an energy efficiency program targeting hotels, clinics and hospitals and another focused on financing for hybrid buses.

At an upcoming conference in Mexico City next week, there will be an opportunity for some of the region’s national development banks to gather with a number of green investment banks (GIBs) from the United States, United Kingdom and beyond to discuss and exchange experiences with innovative financing solutions to scale up climate investments. Trump might have announced the withdrawal of the U.S. from the Paris Agreement, but he can’t stop states like Connecticut and New York, and their green banks, from investing in a climate smart future and from sharing their experiences with their peers.

Green investment banks around the world have already shown impressive results in leveraging private capital and reducing emissions. Elements of the GIB model, such as specialized teams working under a narrow climate mandate to develop financial products that reduce the risks for private capital and also generate demand for climate solutions, are replicable in Latin America and could help spur implementation of country climate plans.

For updates from the event next week check #ForoBancoVerde on Twitter; and to see some of NRDC’s material on how the green investment bank model could help advance climate action in Latin America, visit this page