Written by Enrique Lendo, Business Development Mexico Advisor
The current economic landscape is complex, a different scenario from all the sustainability projections for 2020. At the macro level, governments are now able to choose whether the incentives built into their economic recovery policies will be directed to traditional, less competitive, and more polluting industries, or towards sectors that will create economic gains and social welfare in the long term. For instance, investment in renewable energy could bring gains of $100 trillion dollars, create 42 million new jobs, and reduce greenhouse gas emissions in the energy sector by 70% by 2050.
At the micro-level, manufacturers will have to adapt to the new trends in the value chains of a less interconnected world and find input providers closer to their production centers. In the service sector, digitization and virtualization have expanded like never before, fostering innovation and the development of new products and processes. Only these companies and sectors able to adapt with creativity and speed will survive in the post-Covid world.
In the coming months, trillions of dollars will be mobilized to address both the sanitary and economic crisis triggered by Covid-19. However, only a small fraction of national governments, regional groups, and subnational jurisdictions have signaled their intent to consider sustainability principles and policy tools in their economic recovery plans. The European Union has ratified its net-zero emissions commitment for 2050 by placing its “Green Deal” at the center of its economic recovery strategy, while the new government of South Korea will base its economic recovery plan on incentives for green recovery to reach carbon neutrality by 2050.
In the Americas, this issue has been part of the debate in the recent US legislative and the upcoming national elections, with lawmakers proposing a “Green Deal” as one of the pillars for the economic recovery strategy. In addition, a number of subnational governments such as New York and California have incorporated climate green objectives in their economic recovery plans. On the other hand, Canada’s federal government has stated that the crisis will not obstruct its climate change commitment and it is supporting investment projects to help industries meet their methane emissions goals. Notably, however, climate change and sustainability agendas have been absent in the language of politicians, CEOs, and other decision-makers in the Latin America and Caribbean (LAC) region.
While LAC contributes only 11% to global greenhouse gases (GHG), the region is highly vulnerable to the impacts of climate change. At the same time, many countries in the regions have stood out for their mitigation and adaptation strategies, with emerging carbon pricing schemes in Mexico, Colombia, Chile, and Argentina.
Due to its rich forest, ocean, coastal and biodiversity resources, as well as highly proficient technical expertise in carbon accounting, the region is also a priority geography for Nature-Based Climate Solutions (NCS) Along with globalization, economic integration and the building of environmental laws and institutions in the last years, the private sector in many LAC countries has embraced environmental responsibility principles and practices.
Covid-19´s economic crisis presents major challenges for the LAC region. In this context, governments and companies already engaged in the path towards low emissions and sustainable development might be tempted to deviate from longer-term sustainability goals to address more immediate short-term needs. Opportunities to boost long term and financially sustainable economic growth and create millions of jobs should be secured in cleaner industries. A recent report by UN -Climate found that 35 million green jobs can be created in LAC if the region invests in a 100% renewable energy matrix and electrifies its transport sector. At the same line, tens of millions of jobs could be created in the forest, rural and coastal sectors through forest conservation and restoration, as well as sustainable agriculture and blue carbon projects, financed with carbon compensation credits, green bonds and other financing innovative tools using SDGs and NDCs as benchmarks.
It is in this context that countries in the LAC region will need to design their recovery strategies according to their needs and circumstances, preferably based on low emission and sustainable development criteria. In the design of such strategies, it will be necessary to consider both the scale of resources and incentives needed, as well as the different sources of funding, policy tools, and industries/sectors to trigger the adjustment.
Currently, countries in the region finance their recovery strategies from international sources such as rescue packages from the International Monetary Fund (IMF), and from national public and private sources. In addition, governments may adjust their regulatory frameworks to ease the compliance cost with different standards for the benefit of vulnerable citizens or industries. They can also strengthen regulations, standards, and supervision in those sectors or industries presenting a higher risk to the economy or public health.
The stimulus measures commonly used to incentivize economic recovery in times of crisis include direct government transfers and subsidized interest loans, fiscal loans, debt restructuring or forgiveness, stabilization funds, and investment in infrastructure and public works projects, among others. The destiny of resources can vary from companies and organizations to communities and citizens, according to priority geographies, sectors, and industries in each country. Some areas of opportunities for “Green/Sustainable Recovery Strategies” in LAC countries include:
- Trade and investment incentives for clean and sustainable products and services
- Price incentives for energy intensive industries, including carbon pricing and subsidies phase-out in key environmentally harmful sectors.
- Public/private investment in natural capital, resilience, adaptation, and sustainable agroforestry, fisheries, and food systems, including Nature-Based Climate Solutions.
- Automation of processes, digitization, and virtualization of transactions and services.
- Investment in industries and sectors with high potential for green/sustainable job creation.
- Reconfiguration of infrastructure investment in the transport-mobility, housing, education, services, entertainment, and leisure.
- Investment in R&D to boost innovation and improve products and processes towards sustainable patterns of production and consumption.
- Regulatory and fiscal incentives for sustainable businesses.
Building on CPLC´s model for enhancing dialogue, creating knowledge, and boosting advocacy amongst public and private leaders, a public-private dialogue process is proposed to identify concrete opportunities and projects in the area of carbon pricing, sustainable finance, and economic recovery from the Covid-19 crisis.The initiative could start in countries active in the carbon pricing arena such as Mexico, Colombia, Chile and Argentina, but also others considering carbon pricing instruments at the subnational level or among private actors like Brazil, and with high potential for investment in NCS sectors such as Guatemala, Costa Rica, and Peru.
IETA has already launched a process to develop Natural Climate Solution strategies in the region starting with Colombia, Mexico, and Brazil. In the north of the hemisphere, Canada’s federal government, some Canadian provinces, as well as some states in the US, might be interested in participating. The process could consider representatives from the following areas:
- National and subnational governments
- Central Banks
- Business groups and private companies with green/sustainable profile
- Banking and finance associations
- NGOs and think tanks
- Youth organizations and leaders
- International Organizations and Development Banks: World Bank, IFC, CPLC, IDB, CAF, UN-ECLAC, UN-Climate, UN-Environment, UNDP, CDB, OECD, GGGI.
Written by Enrique Lendo, Business Development Mexico Advisor.
The World Environment Day sets a landmark for the international community. On June 5 of 1972, the Stockholm Conference on the Human Environment triggered a process that has produced over 500 international environmental cooperation instruments to date. Mexico has subscribed about a 100 of these agreements, strengthening our environmental management capacity and positioning our country as a player committed with global challenges.
Currently, most of the countries around the world have enacted environmental laws and established institutions for their implementation. However, they have not been capable to halt global environmental degradation. Greenhouse gas emissions have doubled since the adoption of the United Nations Framework Convention on Climate Change in 1992. We have also lost 80% of wildlife species biomass and half of the natural ecosystem’s original areas due to massive deforestation, urbanization and pollution. Over one million species around the world are in danger of extinction.
But in the last years, the methodologies to monetize climate change impacts and the contribution of natural capital to the economy have also been improved. For instance, we know that services provided by biodiversity to productive systems are worth at least 1.5 times the value of global GDP. We also know that natural disasters cost over $100 billion dollars a year in damages and that the cost of climate change inaction could reach over 15% of global GDP by 2050.
Therefore, capital markets around the world are currently tuning their risk models to account for environmental and climate change impact of investment projects. On one the hand, physical infrastructure is more vulnerable to hydrometeorological impacts, on the other, the new generations of consumers and investors demand responsibly produced goods and services. Mexico´s Central Bank (Banco de México) and the UN have recently released the “Climate and Environmental Risks and Opportunities in Mexico’s Financial System”, setting this sector in a path that will reward sustainability and punish pollution through risk assessment.
The post-covid19 crisis provides a point of inflection in which governments and companies are able to choose between updating their strategies towards sustainability patterns or perpetuate inefficient and shortsighted growth models. In the last weeks, countries, regional blocks, and subnational governments around the world have announced green recovery strategies. The European Union just released its € 750 billion economic recovery package to finance low carbon infrastructure. In the US, Democrats are positioning a “Green Deal” in the face of the upcoming national elections, while South Korea and Indonesia already implement green recovery plans.
In contrast, sustainability has been absent in the language of decision-makers in the Latin American region despite its potential to scaleup investment, create jobs, and foster welfare in the long term. A recent UN report concluded that the transition towards renewable energy and transport electrification in the region could create 35 million jobs by 2050. In Mexico, millions of people living in rural areas could benefit from investment packages to foster sustainable practices in the agriculture and forest sectors. But in order to harness these opportunities, governments need to start designing their economic recovery strategies with a comprehensive and long term perspective. Never in history had we been presented with such an attractive and feasible chance to redefine our development model.
** Article originally published in Reforma news paper: