UN Report Claims Climate Change Could Worsen Economic Development in LAC Countries

SHARM EL SHEIKH, Egypt - Climate change could significantly worsen long-term economic prospects and exacerbate inequalities in Latin America and the Caribbean (LAC), according to the report Latin American Economic Outlook (LEO) 2022 released here.

Delegates seated in the main plenary at the COP26 Climate Conference in Glasgow, Scotland. (UNFCCC/Kiara Worth)The report, presented in the framework of the ongoing United Nations Climate Change Conference (COP 27), says it is urgent to move towards an ambitious and comprehensive green agenda to address its consequences and improve the well-being of all and that an effective green transition in LAC could potentially generate 10.5 percent more new jobs by 2030.

According to the 15th edition of the report, titled “Towards a green and just transition,” this year’s economic slowdown, an unstable international context hit by Russia’s war of aggression against Ukraine, rising inflationary pressures and shrinking macroeconomic policy space hamper the ability of economies to LAC to resume the path towards sustainable growth and the protection of the most vulnerable.

For example, it is estimated that in 2022 vulnerable households in LAC faced an average price increase of 3.6 percentage points more than the representative household at the national level.

Environmental impacts compound these difficulties. Thirteen of the 50 countries most affected by climate change are in LAC.

LEO 2022 argues that promoting a green transition through active mitigation and adaptation policies implemented in a systemic way can make LAC societies more resilient to climate change and promote better development.

The report breaks down the environmental, social and economic benefits that a green transition can bring. For example, investing in renewable technologies can not only substantially reduce greenhouse gas (GHG) emissions, but also provide lower-cost power generation and reduce reliance on imported fossil fuel products.

The region is well positioned to embark on an effective green transition and accelerate progress towards its economic, social and environmental development goals. LAC’s share of global GHG emissions is proportional to its share of the total world population (8.4 percent), slightly higher than its share of total gross domestic product (GDP) (6.4 percent), but lower to the per capita emissions of other regions with similar levels of development.

Its energy matrix is also greener: renewable energies represent 33 percent of the total energy supply compared to 13 percent globally.

In this context, LEO 2022 provides a detailed description of the robust and comprehensive policy actions needed to promote a green and just transition in LAC. Five priority areas are highlighted:

Further transform the energy matrix of the region away from fossil fuels and move towards decarbonization and electrification in all sectors, especially heavy industries and transport, while taking measures to increase energy efficiency. In the hardest-to-decarbonize sectors, such as chemicals, steel, road freight, aviation and shipping, investments in low-carbon alternative fuels, including green hydrogen and sustainable biofuels, will be key. .

Design fiscal policies that are sustainable and compatible with the green and just transition, phasing out environmentally harmful subsidies and harnessing the potential of environment-related taxes are also outlined in the report.

It also urges expanding the development of innovative financial instruments, such as debt-for-nature swaps, and mobilize development finance institutions and the private sector. It is crucial to adopt regulatory tools that include standards and taxonomies for green or sustainability-linked bonds.

The report wants a promotion of industrial and productive development policies to transform the economic structures of LAC and create more and better jobs, through the adoption of circular economy and blue economy principles.

“This will require investing in new technologies and skills, and training workers to take advantage of the opportunities that the transition opens up. It will also require expanding active labor market policies and designing better targeted social protection systems to support negatively affected workers during the green transition.”

The LEO is prepared jointly by the Development Center of the Organization for Economic Cooperation and Development (OECD), the United Nations Economic Commission for Latin America and the Caribbean (UN-CEPAL), CAF-Development Bank of America America and the European Commission.