Nationally Determined Contributions Across the Americas

INSTITUTE OF THE AMERICAS | NDCs in the Americas: A Comparative Hemispheric Analysis

large funding gap, in the order of billions of dollars a year, between the so-called green transition implementation costs, and the resources countries in LAC are allocating to climate action. Mexico, the second largest economy in LAC, has an estimated funding gap of roughly USD 6bn per year, for the implementation of its unconditional commitments only, and for actions related to mitigation (not inlcusive of adapation). This speaks about the criticial need for countries in the region to commit more funding, and find more resources elsewhere, if they are to achieve their stated climate goals. 3.1.1 Paris Agreement Article 2.1.c in Latin America and the Caribbean Article 2.1.c of the Paris Climate Agreement aims to “ strengthen the global response to the threat of climate change, in the context of sustainable development and efforts to eradicate poverty, including by making finance flows consistent with a pathway towards low greenhouse gas emissions and climate-resilient development .” Signatory developing parties should marshall private and international funds to fill the resource gap and fulfill their NDCs, but should also be aligning their own income and expenditures to their climate goals. Unfortunately, as previous work from GFLAC through their Sustainable Finance Index xxxvi shows, this is an area in which Latin American countries are lagging behind. GFLAC’s assessment examined resources earmarked for climate change, renewable energy and energy efficiency, and natural disaster prevention (bundled as sustainable budget ) of 21 LAC countries, in their national budgets for 2019. Granted, countries might be allocating actual resources to these efforts that are not labelled as such and will therefore not be taken into consideration, but these are resources that cannot otherwise be tracked down or accounted for. The study found that national sustainable budgets did not exceed 0.6% of total national budgets, and furthermore, that budgets labelled for oil and gas exploration and production exceeded the total sustainable budgets in 11 of the 21 countries analyzed. The countries that earmarked the highest percentage of their total budget as sustainable , were Jamaica (0.58%) and in close second Colombia (0.54%). On the other hand, Argentina (0.08%), Chile (0.06%), Mexico (0.05%), Brazil (0.05%) and the Dominican Republic (0.05%) allocated less than 0.1% of their annual budgets to climate and sustainability actions. This means, furthermore, that governments, acting with short-term interests in mind, are allocating resources to suboptimal investments in the long-term. This inadequate budgeting will largely affect LAC nations in their efforts to address climate change in two ways. First, it will inherently make it an uphill struggle to effect real change and achieve their NDCs, so long as they do not commit appropriate amounts of resources into activities such as institutional capacity building and technology. Secondly, it makes it harder for LAC countries to advocate and lobby for more resources abroad for their conditional NDCs if they do not commit more

necessary climate risk insurance, and include climate impacts on hydro generation and water supply in their national adaptation plans. Likewise, the region should develop the untapped potential it has of geothermal power generation, as it offers baseload capacity 24 hours a day. LAC holds anywhere between 55 to 75 GW of capacity potential, yet only 1.8 GW are currently online (mostly in Mexico, Chile, Central America and small projects in the Caribbean). xxxv As these countries look to replace carbon-fueled power plants, and to fill in potential gaps from hydroelectric generation stemming from changing weather patterns, this could be a great avenue to secure capacity, for which many of these countries will need to develop much needed policy frameworks that can provide certainty to investors. 3.1 Financing Mitigation and Adaptation in the LAC Region The achievement of climate change mitigation and adaptation targets outlined in the Paris Agreement by LAC countries will depend on correct policy implementation and market signals, but mostly on the availability, mobilization and channeling of external resources. Some of the developing and least-developed countries in the region, because of higher priority issues of concern, and limited resources, made certain percentages of their NDCs conditional on external funding and assistance that needs to come from developed nations and climate funds, MDBs and other financial institutions. This need for external funds has been exacerbated in the wake of the COVID-19 crisis. LAC was the most economically affected region in the world, with a GDP fall of 7.2% in 2020. This strained government finances, also downgrading some sovereign ratings, increasing their cost of capital. To make matters worse, a majority of LAC countries have not made a detailed assessments of the costs associated with the implementation of their Paris Agreement pledges—most likely related to a shortage of technical capacity—and thus it is not possible to pinpoint their true financing needs. Mexico released in 2018 the associated costs with its first NDC submission, but only for its unconditional commitments and thus this does not reflect the overall finance gap. The Dominican Republic is one of the few other exeptions, that estimated expected costs associated with mitigation and adaptation measures, while commiting to monitoring and reporting government expenditure towards climate action. Guyana also revealed an assessment of the costs associated with the conditional part of its original NDCs. Colombia addressed the need to undertake this assessment, noting that it is in the process of developing the technical capacities to do so. In light of this, undertaking this exercise would be the first step towards understanding the necessary funding and resources that will need to be sought at both national and international levels. Yet in any case, it is a reality that there is a 3. Climate Finance: The Big Gap

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