In this blog, Mathieu Lacoste of CDKN provides an overview of the status of climate finance in Latin America and the Caribbean. He explores how countries of the region are creating the conditions to enjoy direct access to climate finance in the future.
Latin America and the Caribbean (LAC) countries are fast-growing economies that have had, in many cases, a sustained growth above the world average GDP rates in the last decade. Despite not being amongst the highest greenhouse gas emitters, most of the countries are highly vulnerable to climate change and climate variation due to their lack of capacity to respond to the rising challenge posed by climate change in terms of subnational planning, incorporating climate change into their public expenditure and domestic budgets at the national and subnational level and within sectors.
Climate change hampers LAC economies but can be an opportunity for development
For many LAC countries, the recent extreme weather events have acted as a wakeup call to understand the increasing economic costs of climate change and that business as usual (BAU) was no longer an option. Two countries where CDKN is working in partnership with government, Colombia and El Salvador, have experienced devastating climate-related events in the recent years, which represented an important setback for their economies. In the case of Colombia, the overall cost of “La Niña” phenomenon that battered the country in 2010-2011 accounted for more than 2% of its annual GDP. El Salvador, underwent the overwhelming effects of the Tropical Depression 12E in 2011, with estimated economic costs of around 4% of its GDP that year.
New climate projections for most of LAC countries predict loss of economic competitiveness and higher costs if they follow a business as usual development pathway. However, climate change can also be turned into an opportunity to strengthen national economies, sectoral and regional competitiveness.
These events and new circumstances have therefore generated a shift in governmental vision, making them turn their attention more proactively towards a low carbon and climate resilient development, and long-term risk management. Governments have also understood the need to shift from a government-approach to a state-approach. Therefore, most of the LAC governments have undertaken important climate change planning processes, started strengthening their institutional capacity and put climate finance at the forefront of the national climate change agenda, both to prepare themselves to attend the climate challenges in-country and also benefit from the international agenda on climate change and rising international climate finance flows.
With financial needs of LAC countries on the rise enjoying direct access to international public finance for climate change is becoming increasingly important for countries to achieve their goals.
What should we understand by direct access?
Under the current international climate finance architecture, we can distinguish three main categories of access to international public finance: i) multilateral access; ii) direct access; iii) enhanced access. The type of access is mainly defined depending on “who has the managing functions of the Fund”, “who is the implementing body” and “who is the executing body”. In other words, it conceptually focuses on “who is best place to deliver results with the money allocated”.
What does “enjoying direct access” mean for LAC Countries?
“Enjoying direct access” to international public finance refers to the capacity and level of preparedness of countries to act as implementing and executing bodies of international public funding. This means that they would have the necessary pre-existing conditions to effectively deliver, implement and execute the funds that they would be able to capture and channel from an international fund.
Still lots of barriers to be overcome to guarantee direct access
There are still important barriers to be overcome in order to be ready and benefit from direct access. Climate change is still a topic that has not completely been mainstreamed into the development agenda nor regional and sectoral policies of the countries. The positioning of climate compatible development on the national and subnational agenda is a slow process and there are not necessarily yet integral climate compatible development policies and strategies.
There are still important gaps in terms of cross-institutional coordination at the ministerial level and also between public institutions and other private stakeholders. Developing countries still struggle to provide funders with the required guarantees to channel and execute international resources. For instance, countries struggle to get the accreditation of national public institutions to international funds and address the challenges to meet the standards and requirements, because of un-adapted existing structures in the countries. This is particularly true when looking at the current reporting models of public expenditure or current monitoring frameworks embedded in the rule of law. There are also important barriers for countries in terms of their ability to create an integral and a strategic vision on climate finance, with a clear roadmap that involves both the public sector and the private/financial sectors. Countries tend to channel resources on a project basis and as a result, finances flow for specific projects without looking at the overall needs of the countries.
LAC countries are creating the conditions to enjoy direct access
México and Brazil are examples where a robust architecture has been designed and who are already showing significant results that could enable them to enhance their direct access to international climate finance. These two countries have created policies and norms on climate change and have designed schemes to support those efforts financially. In the case of Mexico, the government has sentenced a climate change law in 2012 which created a National Climate Change Fund. Brazil has also created the Amazon Fund which is managed by the Brazilian Development Bank (BNDES).
In the Caribbean countries where CDKN is currently implementing climate compatible development projects, the Caribbean Community Climate Change Centre (CCCCC) was recently appointed as a GCF accredited entity. According to its mission, the CCCCC seek to provide climate change-related policy advice and guidelines to the Caribbean Community (CARICOM) Member. Becoming a partner of the Green Climate Fund (GCF) and an accredited entity, the CCCCC will be able to directly channel funds for mitigation and adaptation in the Caribbean islands taking on the financial oversight and responsibility of the flow of finances that will come from the GCF and also be able to contract executing agencies to deliver projects.
Besides the Caribbean example, Peru and Colombia are two other countries where we operate and where the most significant progresses have been made in terms of building the right conditions for direct access to climate finance. In the case of Peru, PROFONANPE was appointed as the organisation that would channel the resources from the GCF, becoming an accredited entity last March. PROFONANPE is a fund that was originally created to channel financial resources for the conservation of protected areas and has shown the credential to efficiently administer international resources. With a US$ 6.2 million project already approved in November 2015 to build resilience of wetlands in the Province of Datem del Marañón, Peru is proving its capacity to enjoy direct access. It is becoming an example for the other member countries of the Pacific Alliance and demonstrating that strong in-country institutions can allow capturing important international resources.
Even though Colombia has not yet had any public organisation accredited to the GCF, the country is preparing itself to be able to enjoy that access and create the necessary architecture to meet the international funds requirements. The country has crafted an ambitious INDC becoming the first LAC country after Mexico to send positive signals to the international community. After several years of academic studies to produce feasible scenarios and multi-stakeholder’ debates, Colombia is committed to reduce its greenhouse gas emissions by 20% in 2030. Colombia is also strengthening its institutional capacity and planning to create a fund for Peace and Rural Sustainable Development that may allow for the creation of the necessary bridges between Peace, Sustainable and Climate Compatible Development and help the country to get direct access to international climate finance.
For LAC countries, enjoying direct access to climate finance is seen as an opportunity to leverage and channel funds in the country, contributing to meet the needs of their mitigation, adaptation and development targets. Looking at the main factors that can influence the direct access to climate finance, we can conclude that all the pre-requisites are not yet met by thecountries with whom CDKN is partnering on climate planning in LAC (Colombia, El Salvador, Peru, Caribbean region), especially since the countries’ policies, institutional architecture and monitoring, reporting and verification (MRV) are not yet settled to meet the current international climate finance standards.
However, climate finance is gaining ground into the public debate and the policy agenda. Countries like these have made important steps forward to understand their financial needs, to enhance their capacity to access and implement international climate finance. For doing so, they are currently preparing themselves and taking actions in terms of climate compatible development planning, strengthening the capacity of their national entities, building a new architecture and gradually creating the necessary frameworks and pre-existing conditions to enjoy direct access more systematically.