Chapter 2

Increasing Climate Ambition

Position Paper 



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Current state of climate action in Latin America and the Caribbean and the importance of a country-specific approach

The urgency of climate action in LAC cannot be overstated. Our estimates indicate that damage caused by climate change could cost the region $100 billion annually by 2050. Climate change is already considered one of the major disruptors of agriculture and food systems; some of the worst impacts on sustainable development are expected to be felt among those whose livelihood depends on agriculture and the coasts.

This reality makes it so that, despite the socioeconomic setback generated by the COVID crisis, 14 of our borrowing member countries have updated their Nationally Determined Contributions (NDCs) since first submitting to the UNFCCC and, to date, three countries already have Long-Term Strategies (LTS) in place. Yet, the technical and financial needs of LAC countries to transition to decarbonized climate-resilient economies are varied and vast. Investment is needed to decarbonize infrastructure, to halt and reverse deforestation, to develop and implement policies that manage climate risk and ensure the transition is just and inclusive, to manage its extractive sector, and to engage the private sector as a critical actor in climate action.

LAC is ready for ambitious climate action: nine countries have pledged net-zero targets,2 and this number is continuously growing. That is why we are actively supporting our clients in the updating of their NDCs and development of LTSs and integrating climate factors in the formulation of country and sector strategies.(See Figure 2). These are essential country- and client-led processes that will build the roadmaps our region needs for a decarbonized and climate-resilient future.

The IDB Group understands the challenge ahead, and for this reason we have traced a roadmap that will take country-specific priorities and needs as a basis, and strategically intervene in ways that support further Paris Agreement alignment. We are already working in this direction through the following actions:  

  • Systematic incorporation of long-term decarbonization and climate resilience objectives in sector and country strategies, ensuring they consider transition risks, contributions to a just transition, and tools to address the vulnerability of the country and sector to the impacts of climate change.

  • Strengthening of the collaboration between the public and private arms of the IDB Group, in ways that help garner the multi-stakeholder support countries need to trace socially legitimate, technically robust, and financially viable net-zero pathways.

  • Increased efforts to provide technical and financial support to governments and private companies, to implement decarbonization technologies and develop decarbonization financing schemes.

  • Support activities for ministries of finance and ministries of planning to incorporate sustainability indicators into their decision-making on public expenditures and infrastructure planning. This is key in guiding national budgets toward the implementation of climate commitments as reflected in NDCs and LTSs.

  • Enhanced collaboration with the private sector and financial intermediaries, using a bottom-up approach to promote their Paris Alignment. IDB Invest has already begun to assist private sector clients in the development of decarbonization financing structures to help them transition to low-carbon energy and transportation. We will continue to collaborate with MDBs to finalize guidance for operations with financial intermediaries, which will serve as a basis to establish similar collaboration arrangements with them. Together, these approaches will further support clients towards the progressive adoption of climate commitments appropriate to their market segments, stages of maturity, and evolving capacities toward sustainability.

  • Support for climate entrepreneurship through IDB Lab, our innovation laboratory where we test, demonstrate, and help scale up the ideas and technologies that help partners accelerate the transition. This work will have a crucial role in testing innovative actions in the areas of biodiversity, resilience, hydrogen, and retraining for the just transition, among others.

  • Advancement of an increasingly ambitious knowledge agenda, which incorporates tools and approaches to raise awareness on science-based targets and climate investment trends that will shape the future of LAC markets; strategies to reduce the exposure to climate transition risks and costly stranded assets; to manage the fiscal impacts of decarbonization; and to harness opportunities for the catalytic mobilization of private capital.

2Argentina, Barbados, Brazil, Chile, Costa Rica, Dominican Republic, Jamaica, Panama, and Uruguay. Source: Climate Watch Net Zero Tracker.