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Environment and Energy Landscape in Latin America and the Caribbean: An Analysis of Trends from 2020-2030

Report Summary

December 2020 Introduction andobjectives Methodology Objectives About theReport • • • • • that are likely toaffect Latin America andtheCaribbean(LAC) from 2020to2030 Incentives andDalberg Advisors toconductananalysis ofkey environmental trends andenergy The UnitedStates Agency f five trends indepth The teamconducted deskresearch and consultationswithUSAIDexperts, Missions, toanalyze these andoutsideexperts Five key trends were prioritizedbasedontheirpotential impactandrelevance for USAIDandtheU.S. Government (USG) challenges andsolutionsaswell asonesthatwere pan-regional andlocal, existingandemerging The teaminitially explored adiverse setoftrends affecting theregion alongmultiple dimensions. These trends included USAID. For more detailed information please refer to the full narrative report or the specific trend report of interest This summary report provides a high-level overview of the five trends and sub-trends, as well as opportunities for trendsenergy affecting theregion tohelpinform theiractions, investments, andpartnerships gainamoreThis fullreport aimsto helpUSAIDanditspartners thorough understandingofenvironmental and or International Development (USAID)partnered with Environmental 2

Phot; Jan Kronies on unsplash Environment and Energy Landscape in Latin America and the Caribbean: An Analysis of Trends from 2020-2030

Illegal, unreported Increased exploitation Wildlife Deforestation Mining and unregulated trafficking of natural resources (IUU) fishing

Increased planetary Diseases from Health issues from changes in outdoor and indoor health issues vector ecology air pollution

Increased adoption Technology and Financing Policies of climate adaptation innovation

Increased access and use Distributed Use of modern Energy efficiency of modern energy sources generation energy sources

Expanded use of market-based Payment for Tradable Environmental Green ecosystem permits and mechanisms for environmental taxes bonds management and conservation services (PES) quotas (P&Q)

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INCREASED EXPLOITATION OF NATURAL RESOURCES

8/14/2020 4 play acrucialrole inlocaleconomies INTRODUCTION |LAC’s resources are criticalforU.S. andglobalvaluechains, 2020; 17.World Bank,“Mineralrents(%of GDP).”2018. Solution World Bank,“UnitedStatesMinerals ImportsByCountryand Region 2018.”2020;16.World IntegratedTradeSolution WorldBank,“UnitedStates OresandMetalsImportsBy Region2018.” Solution World Bank,“UnitedStatesFood Products ImportsByRegion 2018.” 2020;14.OECD-FAO, “LatinAmericanAgriculture: ProspectsandChallenges.” 2019;15.WorldIntegrated Trade Energy InformationAdministration, Crudeoilimportsbycountry2019;12.WITS,Oils: petroleumoilsandobtainedfrom bituminous minerals,crudeexports2019;13.WorldIntegrated Trade World BankData,Oilrents(% ofGDP),2017;9.WITS,Animalslive,2019;10,FAOSTATS, Allelementsincludedindetailedtradematrixexcluding liveanimals,beveragesandcigars,2018;11.US (including silverplatedwithgold orplatinum): unwroughtorinsemi-manufactured forms,orinpowderform2019;7.WITS, Fishandcrustaceans,mollusksotheraquaticinvertebrates, 2019;8. in 2018;4.WorldBankData, Miningrents(%ofGDP),2017;5.WITS,Gold(including goldplatedwithplatinum)unwroughtorinsemi-manufactured forms,orinpowderform;2019;6.WITS,Silver Sources: 1.FAOSTATS,Forestry TradeFlows,2017;2.Statista,shareofeconomicsectors inGDPLatinAmericaandCaribbean,2019;3.WITS, Carbonates:

Non-renewable Renewable For Seafood Oil Lithium Livestock/Poultry Agriculture Gold Silver Type estry

1% 10% 14% 21% 18% 26% Exports toUS 36% % of LAC % of 75% and metal imports LAC accounts for mineral imports mineral imports and 21% of ore LAC accounts for 26%of US 29% of US food imports

2% 5% 5% 8% 9% 9% 16% ( Global Exports LAC % of LAC %of 67% Paraguay Haiti, Nicaragua, and Guatemala, Guyana, Dominica, Ecuador, respectively 15% of GDP, equivalent to8%and mineral rents are In Peru andGuyana, GDP more than10%of Agriculture represents inBelize, Bolivia, lithiumcarbonateexportsby country % of LAC % of GDP 3% 5% 5

Phot; Jan Kronies on unsplash DEFORESTATION | The 2.7 million hectares of forest that LAC lost per year from 2010-2020 has enormous implications (1 of 2) Overview

Share (%) of forest loss/gain over five-year period (2000-2020) LAC lost 2.7 million ha/year between 2010-2020 - slower rate (50% less per year) than the previous decade, but still an unsustainable level

Sources: 1. FAOSTAT, “Forest Land.” n.d; 2. Reuters, “Amazon deforestation could speed up in 2020.” 2020; 3. WWF, Amazon deforestation, n.d.; 4. Nature, “When will the Amazon hit a tipping point?” 2020; 5. Global Wildlife Conservation, “Critical New Initiative to Protect Mesoamerica’s Five Great Forests Launches During UN Climate Summit.” 2017. 6 DEFORESTATION | The 2.7 million hectares of forest that LAC lost per year from 2010-2020 has enormous implications (2 of 2) Implications

Decreased biodiversity and Lost livelihoods for indigenous increased soil erosion due to and rural communities habitat destruction Increased displacement of Decreased carbon stock resulting in populations due to environmental Social Environmental greater carbon in the atmosphere degradation

Economic losses of $ 3.5 trillion Decreased food security and during the next 30 years in the nutrition for local and broader Amazons alone populations

Economic Health-Related Sample solutions

Agroforestry practices Tracking technologies Innovative governance models Land-use systems that integrate Monitor supply chains in Business partnerships agriculture and forestry to increase real-time from tree to with rural communities to commercial activity while protecting the final user improve resiliency and forest forests management

7 emerging solutionstotackleillegalityandimprove mineralextraction MINING | Oro Responsable paralaPequeñaMinería.” n.d. America.” 2016; 5.Impact,“BestPractices Formalization andDueDiligence inArtisanalandSmall-Scale Mining.”2018;6.BetterGold Initiative,“AboutBetter GoldInitiative.”n.d.;7.SECO, “Iniciativa America.” 2014; 3.Ecologist,“FairTradegold mininginthehighlandsof Peru.”2015;4.TheGlobalInitiative AgainstTransnational OrganizedCrime,“Organized CrimeandIllegallyMined GoldinLatin Sources: 1.TheGlobalInitiative AgainstTransnationalOrganizedCrime,“Organized Crime andIllegallyMinedGoldinLatinAmerica.”2016;2. Reuters,“‘Ethicalgold’aimstocurbmining’stollinSouth Illegal Small-scale Miningincludes: Illegal Small-scale Overview 2 1

InformalMining Criminal Mining • • • and/or failtomeet laws their operations licenses orwhohave notformalized miners whooperatewithout Operates inprohibited areas Linked toorganizedcrime minersorsmall-scale Artisanal Most of the small-scale miningintheregion Mostofthesmall-scale isillegal,butthere are Venezuela Illegal goldminingbycountry(%oftotalmining) 91% Colombia 80% Ecuador 77% Bolivia 31% Peru 28% Guyana 22% Nicaragua 13% (1 of2) Brazil 10%

Mexico 9% 8

Phot; Jan Kronies on unsplash emerging solutionstotackleillegalityandimprove mineralextraction MINING | Sample solutions Sample Implications Environmental Economic stages inthevaluechain standards. Certifications trace gold at all working conditions andenvironmental Certification for complying with ethical Gold Tracing &Certification Most of the small-scale miningintheregion Mostofthesmall-scale isillegal,butthere are undermines financial system Increased corruption,which given informality Loss ofsignificanttax revenue destruction ofhabitatsandprotected areas Increased deforestation, includingthe contamination mercury particularly Increased waterandairpollution, Transparency Regulations from conflict areas sourcing information, includingsourcing Require companies todisclosetheir Health-Related Social local andbr Decreased foodsecurityandnutritionfor to environmental degradation Increased displacementofpopulationsdue rural communities Lost livelihoods oader populations Gradual Formalization progressivel andsmall-scaleminersto artisanal Formalization policiesthat enable for indigenousand y comply withrequirements (2 of2) 9

Phot; Jan Kronies on unsplash region’s biodiversity WILDLIFE TRAFFICKING| n.d.; 19.USAID, “TRAFFIC: Wildlife TradeinBrazil,”2020. wildlife trafficking as organised crime.” 2019; 17. USAID, “Mesa Técnica in Guatemala Wildlife Conservation Society.” n.d.; 18. Taronga Conservation Society Australia, “TCSA Annua Report 2015–2016.” “WWF Colombia lanza la primera aplicación contra el tráfico de fauna silvestre.” 2017; 15. Network World, “How IoT trackers can fight poachers.” 2018; 16. Diálogo Chino, “Twenty countries to fight 2007–2017.” 2019; 12. Expansión, “La tecnología que salva animales en peligro de extinción,” 2020; 13. Publimetro, “Marina gasta 67 mdp en ‘super drones’ para salvar a la vaquita marina.” 2017; 14. WWF, 2015; 10.Excelsior,“Castigos ‘suaves’devoranespecies: películasdetonan demanda,” 2018; 11.DefendersofWildlife,“AnalysisOfIllegalWildlife ShipmentsFromLatinAmericaSeizedInTheUnitedStates, “Mexico has big role in the illegal parrot trade.” 2010; 8. American University, “Peru Wildlife Trafficking Poses Complex Challenges.” 2018; 9. El Universal, “Se dispara tráfico de animales exóticos en el país’, reptiles, its impact on wild populations, and the role of the European market.” 2016; 6. Defenders of Wildlife, “Combating Wildlife Trafficking from Latin America to the United States.” n.d.; 7. Mongabay, wildlife trade endangers Latin America’s jaguars.” 2020; 4. European Commission, “Questions and answers on the EU Action Plan against Wildlife Trafficking.” 2016; 5. Biological Conservation, “Trade in live Sources: 1. WCS, “Averting a Crisis: Wildlife Trafficking in Latin America.” 2018; 2. Mongabay, “Latin American ilegal wildlife trade exploding in scope and scale.” 2015; 3. Geographical, “Fangs and skin: Illegal Overview increased 43% of illegalanimals Mexico confiscations From 2013-2016, in (1 of2)

decreased 46% from LAC inUSA shipment confiscations From 2011-2016, wildlife Wildlife traffickingisonthe rise,threatening the Exporters for China parts inLACparts increased 200-fold with Confiscations 34% Importers of cases destined from 2012-2018, of jaguar 10

Phot; Jan Kronies on unsplash region’s biodiversity WILDLIFE TRAFFICKING| Sample solutions Sample Implications Environmental Economic tracking illicitactivity endangered species and Technologies for monitoring Monitoring who dependonwildlife (i.e., ecotourism) Reduced incomesandlivelihoods for communities carried by trafficked species production duetoseeds, parasites, andviruses Decreased agriculture andaquaculture population unbalancesanddiminished Increased ecosystemalterations,including endangerment ofnative species Diminished populations,includingincreased (2 of2)

Government/CivilSociety Partnerships strengthen law enforcement government toprosecute wildlife crimes and betweenPartnerships civilsocietyand Wildlife traffickingisonthe rise,threatening the health Health-Related Social contact bacteria) duetoincreased human-wildlife Emergence ofnewdiseases(viruses, organization strengthening oftransnational criminal Increased violenceandcrimedueto investigations in wildlife trafficking Stable isotopesanalysis Forensic Methods 11

Phot; Jan Kronies on unsplash threatening livelihoods andfoodsecurityintheregion IUU FISHING| Fishing and the Consequences for Latin America.” 2018; 7. University of Texas at Austin, “Overfishing – Who cares?” 2014. internacional crea fondo para países en desarrollo.” 2019; 5. France24, “FA: La pesca ilegal genera hasta 23.000 millones de dólares al año.” 2018; 6. Berkeley Political Review, “The Price of a Fish: Illegal 2018; 3. Biblioteca del Congreso Nacional de Chile, “Pesca ilegal, no declarada y no reglamentada en América Latino: Un problema para abordar en conjunto.” 2018; 4. SciDev Net, “Pesca ilegal acuerdo Sources: 1. The Global Initiative Against Transnational Organized Crime, “The Illegal, Unreported and Unregulated Fishing Index.” 2019; 2. FAO, “Growing momentum to close the net on illegal fishing.” Overview Taiwan, SouthKorea, Spain, andPortugal in LAC eachyear ~ 900illeg permitted levels fishinLAC30% of are captured above $23 billion resultingfish caught, inanannual costof Globally, IUU fishing accounts for IUUfishingcontinuestopresent amajorchallengeinLAC, al fishingboatsarrive , primarily from China, 20% of 20% of (1 of2) fishing in coastal w is ranked thew The Central America andCaribbeanregion network to combat IUU fishing In 2018, 11LAC countriescreated a boatsoperatingintheregionillegal Annually, LAC only captures 1%of

orst inresponding toIUU aters 1 12

Phot; Jan Kronies on unsplash threatening livelihoods andfoodsecurityintheregion IUU FISHING| Implications Environmental Economic IUUfishingcontinuestopresent amajorchallengeinLAC, due to illegal fishing) Increased foodchain and endangermentofspecies Increased biodiversityloss Chile annually loses$260-300million Increased economiclosses(e.g., disruptions Social (2 of2)

including human and arms trafficking Increased transnationalcrime, employed in fishing and aquaculture million peoplewhoare legally Decreased livelihoods for 2.4 food security Depleted fishstocks, threatening 13

Phot; Jan Kronies on unsplash reduce unsustainableexploitationofnatural resources across theregion OPPORTUNITIES FORUSAID| such as on topics law rule of improve and capacity technical to expand Support governments sector Support theprivate • • • • • Organized crime programs Conservation Resource management bureaucratic hurdles) (e.g., create incentives, ease informal mining andlogging to formalize smallscale/ Work withlocalgovernments resources sustainably models thatusenatural transitioning tobusiness Provide tocompanies support communities in indigenous activists, especially environmental protectSupport and private sectorofftakers in more sustainability-focused (e.g., agroforestry) andcrowd practices sustainable to totransition capital Provide catalytic The Agency canbringvariouscapabilitiesto • under LAC P10 agreement environmental activists commitments toprotect governments to fulfill where needed, LAC andpressure,Support

civic societycoalitions Build public-private- countries acrosstransfer knowledge Facilitate • • different organizations crimesacross conservation have real timedataon Data sharingcoalitionto crimes) environmental conservation has knowledge related to learning (e.g., Guatemala fora for cross-Mission Create platforms and 14

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INCREASE OF PLANETARY HEALTH ISSUES

8/14/2020 15 INTRODUCTION | There are a host of planetary health challenges in LAC, diseases stemming from changes in vector ecology and air pollution are among the most acute

50-60% of Central America’s annual harvests have been From 1980 to 2016, more than 4,000 lost due to water scarcity natural disasters, affecting 297 million and higher temperatures, people and killing 290,000 putting over 3.6 million people in conditions of Higher temperatures are driving food insecurity vector-borne diseases (VBD) outbreaks in unprecedented high-altitude locations in Air pollution is associated countries like Peru, Ecuador, Colombia, with around 6% of deaths in Bolivia, Venezuela LAC, compared to 4% in high income countries The Amazon is the region in the A 10% increase in deforestation in world with the most undiscovered the Amazon region contributed to a zoonotic diseases transmitted by 3.3% increase in malaria incidence wild mammals such as bats between 2003-2015 and was linked to other diseases such as diarrheal disease in children

Source: 1. IDB, “Seven things you need to know about disasters in Latin America and the Caribbean.” 2018; 2. Global Burden of Disease Collaborative Network, “Global burden of disease study,” 2017; 3. PNAS, “Amazon deforestation drives malaria transmission, and malaria burden reduces forest clearing.” 2019; 4. FAO, “Dry Corridor Central America – Situation Report.” 2016; 5 The New Humanitarian, “Is global warming driving the spread of dengue across Latin America?.” 2020; 6. Nature, “Host and viral traits predict zoonotic spillover from mammals.” 2017. 16 VECTOR-BORNE DISEASES | A number of changes driven by human activities in LAC contribute to the increased frequency and severity of vector-borne disease (VBD) outbreaks LAC faces high risk of infections from VBDs, particularly in the Caribbean, Central America and in countries like Brazil and Colombia Key Locations Total Cases in the Last DALYs per 5 Years (millions) 100,000 People Brazil, Mexico, Colombia, 10.6 21.9 Dengue Nicaragua, and Honduras Venezuela, Brazil, Malaria 3.0 79.4 Colombia, Peru and Haiti

Brazil, Panama, Bolivia, 2.9 25.4 Chikungunya Colombia, and El Salvador

Brazil, Colombia, Venezuela, 0.9 5.1 Zika Honduras and Martinique

Brazil, Colombia, Peru, 0.3 273.1 Leishmaniasis Nicaragua, and Bolivia Note: DALYs stands for disability adjusted life years. Sources: 1. PAHO, “ Data on Health Topics,” consulted August 11, 2020.” 2. The Lancet, “Global, regional, and national DALYs for 333 diseases and injuries and healthy life expectancy (HALE) for 195 countries and territories, 1990–2016.” 2017; 3.International Journal of Infectious Diseases, “Burden of chikungunya in Latin American countries: estimates of DALYs lost in the 2014 epidemic.” 2015; 4. International Journal of Infectious Diseases, “Economic costs of Chagas disease in Colombia in 2017: A social perspective.” 2019; 5. Value Health Regional Issues, “Economic Costs of Chikungunya virus in Colombia.” 2018; 6. IPCC, “The Latin American Region.” 2018; 7. Climatenexus, “Climate risk and spread of vector-borne diseases.” 2016. 8. PNAS, “Amazon deforestation drives malaria transmission, and malaria burden reduces forest clearing.” 2019; 9. WHO, “The power of integrated health and environment action.” 2019; 10. WHO, “Zika virus, microcephaly and Guillain-Barré syndrome situation report.” 2017; 11. The Independent, “Women, children more vulnerable to dengue, say experts; 12. Tropical Medicine & International Health, “Dengue fever and Aedes aegypti in indigenous Brazilians” 2018; 13. Pan American Journal of Public Health, “Economic impact of dengue fever in LA: a systematic review.” 2018; 14. UNDP, “Socio-economic impact assessment of the Zika virus in LAC, 2017; 15. WHO, “World Malaria Report.” 2019; 16. Value Health Regional Issues, “Economic Costs of Chikungunya virus in Colombia.” 2018; 17. PLOS, “Societal cost saving and budget impact of changing from systemic to intralesional pentavalent antimonial as the first-line treatment for leishmaniasis in Bolivia; 18. WHO, “Methods of vector control.” 2018; 19. Case Studies in the Environment, “Developing effective mosquito control strategies by utilizing vector mosquito life histories and ecology.” 2019; 20. WHO, “Guidelines for malaria vector control.” 2019. 17 VECTOR-BORNE DISEASES | A number of changes driven by human activities in LAC contribute to the increased frequency and severity of vector-borne disease (VBD) outbreaks Implications

Women and children in rural Dengue and malaria cost the areas are particularly affected, region more than $3 billion and $2 as they are usually more exposed billion per year, respectively Social Economic Sample solutions

Water Supply Mosquito’s Habitat Insecticide-Treated Nets and Management Management Reliable potable water supply Seeks to prevent or minimize Repels, disables, or kills mosquitoes. decreases the need for water-storage vector propagation by destroying, ITNs can produce a “community containers that serve as larval habitats. altering, or removing water effect” because of their impact on Water-storage containers can also accumulations that provide larval mosquito longevity and therefore be designed to prevent access by habitats vectorial capacity mosquitoes to deposit eggs

18 leading causesofdeathintheregion AIR POLLUTION | Air pollutionhasseveralhealthimplications andisoneofthe on mortalityburdenofNO attributable toambientNO Sources: 1. Global Burden of Disease Collaborative Network. “Global Burden of Disease Study.” 2017; 2. Lancet Planet Health, Global, national , and urban burdens of pediatric asthma incidence and theCaribbean.” 2018;11.AlternativeFuels DataCenter,“Doingbusiness inMexicoautomotive industry.”2014;12.Cleancooking alliance,“Partnersspotlight Guatemala,”2013. pollution and child health: prescribing clean air.” 2018; 9. Greenpeace, “Cool technologies: working without HFCs.” 2016; 210. UNDP, “Experiences and case studies on energy efficiency in Latin America the Global Burden of Diseases Study.” 2015; 6. WHO, “Burden of disease from ambient air pollution., 2018; 7. OECD, “The economic consequences of outdoor air pollution.” 2016; 8. WHO, “Air Overview but 100,000 people)are air pollutioninLAC (26per Death ratesfrom outdoor consistently amongthe Air pollutionhasbeen the worldaverage (17) high-income countries region 3 causesofdeathinthe above thelevelfor 2 2 andPM2.5inLondon.”2019; 5.The Lancet,“Estimates and25-year trendsoftheglobalburden ofdiseaseattributabletoambientairpollution: ananalysis of datafrom pollution.”2019;3.Environmental research,“Theavoidablehealth effectsofairpollutioninthreeLatinAmerican cities.”2016;4.King’sCollege,“King’sCollegereport below (44), top

per year, per100,000 children New asthmacasesduetoairpollutionexposure (1 of2) 114 Central America &Mexico Southeast Asia Sub-Saharan Africa

200 260 South America Caribbean 280 315 19

Phot; Jan Kronies on unsplash leading causesofdeathintheregion AIR POLLUTION | Air pollutionhasseveralhealthimplications andisoneofthe Sample solutions Sample Implications Health- Related processes the bestavailable technologiesinindustrial Incorporating bestpracticesorupgradingto IndustrialUpgrading Technology Lung cancer respiratory infections and acutelower pulmonary disease Chronic obstructive diseases Cardiovascular Economic (2 of2) management optionsandfreighttransport providing alternative non-motorized efficient technologies and cleaner fuels, Renewal of bus fleets with energy- Efficient Transport Systems $80 billion in LAC amounts to due toairpollution premature deaths Welfare costfrom

Social limited accesstocleancookingtechnologies exposed toairpollutionsincethey have Rural andindigenouspeopleare more frequently inchargeofcooking Women are affected asthey particularly are metabolize, detoxify, andexcrete toxicants because theirbodiesare lessable to Children are vulnerabletoairpollution brick production and usinglesspollutingkilnsinartisanal slash-and-burn practicesinagriculture, Clean domesticcookingpractices, halting Behavior Change Campaigns Behavior Change

20

Phot; Jan Kronies on unsplash OPPORTUNITIES FOR USAID | The Agency can bring various capabilities to reduce environment-related health challenges across the region

Support governments to expand Build awareness and research monitoring systems • Build awareness on key stakeholders from the public • Increase surveillance and control of areas (both sector, private sector, and philanthropic sector about the for vector diseases and air pollution) relationship between environmental degradation and human health • Provide tools, training, and best practices to local authorities, including monitoring program • Fund research activity to address knowledge and implementation capacity related to planetary health (e.g., similar to IDEAL in the food and nutrition security space)

Promote private sector Facilitate knowledge transfer across engagement and partnerships countries • Support governments to develop incentives / • Disseminate learnings from other Missions worldwide taxes that encourage market-based approaches that have supported prevention and recovery from vector (i.e., transition to biomass improved cookstoves borne diseases to bring best practices to help countries in rural areas) prepare for future outbreaks

• Deploy blended-finance mechanisms to mobilized • Disseminate learnings and best practices in terms of private funding toward cross-sectoral investments programs aiming to reduce air pollution e.g., USAID Clean in conservation, education, health, sustainable Air Green Cities project in Vietnam tourism, sustainable agriculture, etc. (e.g. USAID HEARTH)

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INCREASED ADOPTION OF CLIMATE ADAPTATION

22 INTRODUCTION | LAC is among the most vulnerable regions to the consequences of climate change Climate change vulnerability index 2020 Climate change current and projected effect

Increased temperature • Temperature in Central and South America increased 0.7°-1.0°C since the mid-1970s

Haiti (34.9), Increased sea levels Venezuela (40), th Honduras (40.5) are • In the 20 century, sea levels in the Caribbean rose the worst ranked countries in LAC ~1.8mm/yr, a faster pace than the global average (1.4 mm/yr) Greater water scarcity • 16 of LAC’s 20 largest cities are under water- related stress, and three are expected to run out of water in the next decades Worse Better Increased number of natural disasters • 5 times the number of disasters per year than 40 Central America and the Caribbean rank second and third, respectively, in the climate years ago in LAC vulnerability index (after Africa) Many LAC countries, particularly those in Central America and the Caribbean, are highly vulnerable to effects of climate change and are not ready to respond to them. There is urgency to implement adaptation solutions (e.g., financing, policies, technologies and innovation) and a clear case for investing in climate adaptation given its human, economic, and environmental benefits.

Note: The ND-GAIN Country Index summarizes a country’s vulnerability to climate change and other global challenges in combination with its readiness to improve resilience. Vulnerability and readiness are ranked on a scale of 0-0.8, with 0 being extremely low vulnerability/low readiness and 0.8 being extremely high vulnerability/ high readiness. Source:s 1. The Notre Dame-Global Adaptation Index (ND-GAIN) Country Index, 2020, available: http://gain.nd.edu/our-work/country-index/; 2. Verisk Maplecroft, “Climate Change Vulnerability Index 2017.” 2016; 3. ECLAC, “Economics of Climate Change in Latin America and the Caribbean: A Graphic View,” 2017; 4. World Bank Data, “Population living in areas where elevation is below 5 meters (% of total population),” 2010. 23 FINANCING | Financing for climate adaptation has gained momentum, but available funding remains low compared to funding for mitigation $ million Overview Adaptation Mitigation Multiple Financing Financingfrom multilaterals from multilaterals and donors in andLAC donors in LAC 767 767 94 $ Million $ million 94 Adaptation 515515 7 441 Mitigation 7 406406 382 441 348 382 34 319 319 322 322 348 23 3 34 539 539 Multiple 287 287 21 23 3 2 2 218 2 16 16 21 379379 246 218 2 272 246 12 258 272 358 30412 226 272 272 258 358 304 196 196226 129 161 134 12 11 60 34 69 129 111 20 161 134 12 11 60 34 69 111 20 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Key Challenges to Increase Financing Awareness Demand and supply Government capacity • Insufficient government • Low demand for adaptation finance from the • Limited capacity to understanding of the private sector, research institutions, NGOs, combine available importance and the benefits of and other stakeholders financial resources, which climate adaptation would enable access to a • Limited projects that have a satisfactory • Lack of private sector return on investment for investors wider variety of financing on proven business resources and improve awareness • Short loan terms are mismatched with models and awareness of financial management and longer loan repayment periods that climate fund allocation available funding streams adaptation projects often require Sources: 1. Libélula, BID, PNUD, “Hacia un desarrollo resiliente y bajo en emisiones en Latinoamérica y el Caribe Progreso en la implementación de las Contribuciones Nacionalmente Determinadas (NDC).” 2019; 2. ECLAC, “Economics of Climate Change in Latin America and the Caribbean A Graphic View.” 2018; 4. Eco Ltd Group, “Boosting climate finance for adaptation actions under the NDCs in Latin America and the Caribbean.” 2019; 5. Efe, “Uruguay lanza un plan nacional para adaptación de ciudades al cambio climático.” 2018; 6. Gobierno de la República de Panamá, “Estrategia Nacional de Cambio Climático 2050.” Peru Ministerio del Ambiente, “Perú Se Adapta al Cambio Climático Plan Nacional De Adaptación.” 2016; 7. La Ruta del Clima, “Costa Rica Trabaja en su Plan de Adaptación.” 2018; 8. UNDP, UNEP, and GEF, “Latin America in Focus: Regional Brief on National Adaptation Plans.” n.d. 24 POLICIES | Countries have recognized the importance of adaptation and are incorporating it into policy frameworks such as national action plans, and nationally determined contributions Overview Nationally Determined Contributions (NDCs) National adaptation plans (NAPs) • 30 of 32 LAC countries analyzed include adaptation in • 13 countries in LAC developed NAPs from 2015 to 2019 their NDCs • In general, NAPs have focused primarily on water resources, biodiversity, and • The sectors with the most adaptation commitments are agriculture water resources, agriculture and cattle ranching, and health • NAPs are beginning to incorporate adaptation into the strategies of ministries and institutions focused on women and vulnerable populations Key Challenges Government coordination Government Capacity • Lack of awareness at all government levels • Low capacity for decision-making and implementation • Lack of mechanisms for interinstitutional coordination • Lack of tools for implementation and evaluation Financing Cross-Sector Support • Insufficient local and national government funding for • Insufficient private sector and other stakeholder climate adaptation involvement • Poor links and mechanisms for international financing • Poor enabling conditions or incentives for the private • Limited incentives for private sector to prioritize sector to adhere to and prioritize adaptation adaptation • Insufficient behavioral changesamong citizens

25 TECHNOLOGY | Climate adaptation technologies have helped improve climate resilience in multiple sectors Overview Technology Types (Non-Exhaustive) Examples in LAC

Agriculture • Drip irrigation and irrigation efficiencies El Salvador Meteorological Observatory, an electronic climate information • Precision farming and agroforestry service; SERVIR platform monitors disasters in Central America

Natural resources • Material and Ecuador ReciVeci app for management; Partnership between Amazon Watch, Digital • Constructed wetlands Globe, Planet, and Amazon Conservation Team to use satellite maps against deforestation

• Dikes, tidal barriers, and sea-walls Coastal zones Dominica RRACC1 Project - Drainage systems, seawall technologies • Early warning and evacuation systems

Urban infraestructure • Energy and water efficiency Colombia ICT in Medellin for smart transportation and an early • Flood prevention technologies warning system, UNGRD platform to monitor disasters

Key Challenges Suboptimal environment for innovation Slow consumer level adoption Insufficient collaboration • Insufficient public and private fundingfor • Low awareness Individuals and companies lack across sectors technology research and development education on long-term benefits of adaptation • Lack of knowledge sharing among • Inadequate entrepreneurial ecosystem technologies sectors and actors • Few policies and regulations encourage the • Unaffordability Little access to financing and • Lack of multi-stakeholder development and use of adaptation technology few mechanisms to increase affordability partnerships for technology • Inaccessibility Low technology literacy development and deployment

Sources: 1. Rallying the Region to Action on Climate Change, Diálogo Chino, ”low-cost technologies that help protect Latin America’s environment.,” 2019; 2. Global Opportunity Explorer, “Fortalez: Utilizing Digital Tools To Transform Waste,” 2018; 2. IDB and GSMA, “Technology for Climate Action in Latin America and the Caribbean: How ICT and Mobile Solutions Contribute to a Sustainable, Low-Carbon Future,” 2018; 3. World Bank, CIAT, and CATIE, “Climate-Smart Agriculture in El Salvador.” 2014; 4. SPORE, “Modernising climate adaptation in the Caribbean.” 2018; 5. Think Nature, “Nature-based Solutions Handbook.” 2020; 6. IDB, “Developing solutions for climate adaptation and resilience is a business opportunity for SMEs in Latin America and the Caribbean.” 2020; 7. IDB, “Small and medium-sized businesses are among the most innovative enterprises in building climate resilience.” 2020; 8. IDB and GSMA, “Technology for Climate Action in Latin America and the Caribbean: How ICT and Mobile Solutions Contribute to a Sustainable, Low-Carbon Future.” 2016. 26 OPPORTUNITIES FOR USAID | The Agency can bring various capabilities to further expand adoption of climate adaptation across the region

Support governments to Provide access to climate Facilitate expand technical capacity services knowledge • Build local capacity on climate • Provide access to climate service transfer across adaptation, including technical capacity, information on longer-term weather countries and implementation and monitoring of conditions (e.g., historical weather NAPs and other adaptation policies patterns and expected future climate • Cross learning from conditions) other missions – USAID • Support governments mainstream reaches nearly 30 adaptation policies into national plans • Train meteorologists and others to countries in Africa, Asia, and sector plans develop tools to help planners and Latin America with • Provide tools and develop strategies science, knowledge, to build resilience to climate variability • Develop economic estimations of the tools, and actions to and risks (e.g., USAID’s Climate- value of climate services to farmers adapt to change Resilient Development Framework, and other users 2014) • Evaluate climate services programs

Support private sector engagement Support the development of financing for climate adaptation mechanisms for climate adaptation • Increase the engagement of private sector companies • Increase lending to private sector companies to promote climate to incorporate adaptation practices (as a prerequisite finance (e.g., grants) for some sectors/geographies to work with USAID) • Provide risk sharing mechanisms (e.g., guarantees) • Support the development of public private partnerships for climate adaptation • Invest in innovative finance structures to fund projects to demonstrate viability or overcome hesitance 27 Phot; Jan Kronies on unsplash Jan Kronies Phot;

INCREASED ACCESS AND USE OF MODERN ENERGY SOURCES

28 INTRODUCTION | LAC continues to rely heavily on non-renewables, although renewables have grown and represent an important share of total energy supply

Energy Supply by Source Energy Usage by Source in 2018

8% 30% 8% 9% Reneweable energy supply grew 7% by 55% from 2000 to 2020 14% Transportation 30% 15% 18% 1% represents ~ 50% of 40% 4% 8% 1% all non-renewable 6% 1% 18% energy use 8% 14% 29% 1% 1% 17% 7% 4% 8% 5% 1% 31% 15% 77% 1% 29% 5% 28% 27% 24% 36% 42% 36% 47% 41% 38% 14% 20% 2000 2010 2020pr 2030pr % of renewable 23% 25% 26% 25% % of total energy 38% 30% 16% 16% energy use by sector

Petroleum Coal Other Renewable Natural Gas Nuclear Hydropower

Note: Other renewables include: biogas, solar, wind, plant waste, cane products, and firewood. Sources: 1. OLADE SieLAC; 2. OLADE, “LAC Energy Outlook 2019”; 3. IRENA, “Renewable energy market analysis,” 2016; 4. IRENA, “Renewable Energy in Latin America 2015: An Overview of Policies,” 2015. 29 CHALLENGES | Although more than 90% of LAC has access to electricity, energy poverty still undermines livelihoods in some areas

“Energy poverty is the absence of sufficient choice in accessing adequate, affordable, reliable, high-quality, safe, and environmentally benign energy services to support economic and human development”

100 USD/kWh 0,35 Main Causes of Energy Poverty 90 % of people in energy poverty 0,30 80 Poor quality of energy infrastructure 70 0,25 60 0,20 Poor housing quality 50 98% 40 76% 0,15 65% 72% $/kWh High energy prices relative to income levels 30 0,10 20 32% 0,05 10 29% 30% 0 0,0 Social Costs of Energy Poverty Colombia Mexico D. Republic Peru Honduras Guatemala Haiti % of people in energy poverty • Constrained livelihood opportunities LAC • Fewer hours for education average • Negative health effects due to exposure to Access to Electricity 100% 100% 100% 92% 92% 95% 45% 98% harmful indoor air pollution 2018 • Lack of access to basic services that rely on electricity, such as internet connectivity

Sources: 1. World Bank, “Access to electricity (%population),” 2018; 2. Santillán, et. al, “Analysis of Energy Poverty in 7 Latin American Countries Using Multidimensional Energy Poverty Index,” 2020; 3. OLADE, “PPobreza energética en América Latina y el Caribe–Una propuesta de indicadores que midan el aceso a energia con enfoque de desigualdad social y de genero,” 2019; 4. Electricity prices from Globalpetrolprices.com; 5. The clean energy review, “Electricity prices LatAm,” 2016; 6. Hernández, et. al., “Índice De Pobreza Energética Multidimensional Por Regiones Para Colombia, IPEM_RC,” 2013. 30 OPPORTUNITIES | Distributed generation, modern energy sources, and energy efficiency can drive a more sustainable energy landscape in LAC

Distributed Generation Use of Modern Energy Sources Energy Efficiency • Distributed generation – a variety • LAC is experiencing a transition to • Investment in energy efficiency is of small-scale (on and off grid) modern energy sources, including emerging throughout the energy technologies that generate electricity renewable fuels for electricity and value chain in LAC (e.g., industrial at or near where it will be used– transportation, and modern fuels for and construction sectors are has gained traction, especially solar cooking and heating incorporating energy efficient photovoltaic systems practices into their operations as cost-saving strategies) Sources: 1. United States Environmental Protection Agency, “Distributed Generation of Electricity and its Environmental Impacts,” 2018; 2. ABM, “Mercado de Energía fotovoltaica de Baja Escala Generación Distribuida,” 2017. 31 DISTRIBUTED GENERATION | In recent years, distributed energy projects have been implemented across the region, but they are still in nascent stages of growth Overview Most common types of small-scale technologies used in distributed generation Example Around 90% of Solar Solar power can be generated and consumed off-grid or on- Electrobras Amazonas (2017) - Community decentralized grid, where it is first consumed in-site and the surplus can be generation with pre-paid service to expand access exported to the grid energy generation Biogas Uses natural organic waste to create fuel. This waste Santa Fe Women’s Group (2016) - 16 can come from both rural (farming, livestock raising) or urban biodigesters in five communities in the region () activities uses solar photovoltaic Wind Decentralized energy production using wind through small- Puerto Peñasco Community Wind Farm scale turbines can be implemented to increase urban production of (2018) - 33% reduction in electric bills power, with energy and to expand coverage in underserved rural areas biogas systems a Plan Grande Community Hydro (2015) distant second Hydropower These systems can be installed in small streams or - Access for the whole community at monthly rates of in the existing water supply network. With a capacity below 5MW, $5-10 per household they have negligible environmental effects on wildlife or ecosystems Potential Benefits Efficiency and Quality Economy Social • Improved efficiency (e.g., reduction in transmission • Reduced electricity price for end user (e.g., systems can • Improved education attainment and losses, which frequently reach levels of ~10% of total create lower and more stable pricin; 10 - 70% bill reduction) increased employment (e.g., in Nicaragua, generation) electricity access using community-managed • New source of income (e.g., self-generation home systems such small-scale plants has increased educational • Improved access and quality of energy - Provides as solar rooftops can sometimes produce surplus energy to sell attainment by up to 0.74 grades among security of supply for consumers affected by frequent to national grids, generating income for households) children in Jinotega County) outages Sources: 1. IDB, “Sustainable energy distribution in Latin America: Study on inclusive distribution networks,” 2017; 2. ABM, “Mercado de Energía fotovoltaica de Baja Escala Generación Distribuida,.” 2017; 3. MIT Technology Review, “Producción descentralizada de energía para un mundo más democrático y verde.” 2018; 4. RevistaDigital, “Beneficios de la generación distribuida mediante autoconsumo eléctrico.” 2013; 5. World Development, “Rural Electrification and Employment in Poor Countries Evidence from Nicaragua,” 2012.; 6. American Economic Journal Applied Economics, “Development Effects of Electrification Evidence from the Topographic Placement of Hydropower Plants in Brazil,” 2012; 7. IDB, “Meeting challenges, measuring progress: the benefits of sustainable energy access in Latin America and the Caribbean,” 2018. 32 MODERN ENERGY SOURCES | Use of modern energy is expanding in the region across sectors, with cleaner mobility showing significant momentum Overview

Types of Modern Energy Sources Public transport vehicles Public Transportation E-buses in LAC # of electric units, 2015-present Cleaner Mobility (e.g., Several local • The number of ~780 and national governments have made electric buses in LAC commitments to transition to e-buses/e- has increased from ~6.800 taxis) practically zero to ~1,200 in the last five Cleaner Cookstoves (i.e., efforts to reduce years - 1.27% of region’s ~1.229 use of biomass have attained significant total fleet of 96,555 Existing fleet In process of Planned but progress in LAC) units procurement/delivery not procured Cleaner Heating (e.g., heating stoves and • Major cities have Selected Existing In process of 100% of e-buses subsidies for cleaner fuels have reduced committed to create Cities fleet procurement/delivery procured by: severe air pollution episodes by 45% in the zero-emission public Bogota 483 From 631 up to 2,000 2035 last four years transport fleets in the Santiago 410 From 265 up to 4,300 2026 next 10-15 years Mexico city 120 From 130 up to 430 2025 Potential Benefits Sao Paulo 16 Up to 100 2028 Environmental Health Economic Reduced emissions Improved health Decreased cost of ownership and maintenance Total cost of ownership of an Transition to electric buses can eliminate outcomes due e-bus can be equal or less than that of a diesel bus, given ongoing savings in fuel and 25% of current black carbon emissions in to reduced air maintenance cities caused by diesel buses, depending on pollution and New business models, resulting in new employment opportunities Several ventures the source of the electricity employed noise across the region have emerged (e.g., scooters, e-bikes, renting electric vehicles)

Sources: 1. Labmob, “E-bus radar.” consulted on August 18. IDB, “ Ciclo-inclusión en América Latina y el Caribe.” 2016; 2. Bloomber New Energy Finance, “Electric Vehicle Outlook 2019,”; 3. ReportLinker, “Analysis of the Latin American electric vehicle market, forecast to 2025.” 2019; 4. IEA, “Energy Access Outlook.” 2017; 5. Global Burden of Disease Collaborative Network. “Global Burden of Disease Study.” 2017; 6. ESMAP, “What have we learned about household biomass cooking in Central America?” 2015; 7. UN Environment, “Chile takes action on air pollution.” 2017; 8. ICCT, “Financing the Transition to Soot- Free Urban Bus Fleets in 20 Megacities,” 2017; 9. ZEBRA, “Accelerating a market transition in Latin America New business models for electric bus deployment,” 2020; 10. WHO, “How air pollution is destroying our health.” 2019; 11. Advance Energy, “Beneficial buses: electric buses bring benefits to businesses, communities and utilities,” 2020. 33 ENERGY EFFICIENCY | Due to rapid increases in energy demand, efficiency throughout the value chain will be required to meet the needs of the population Overview

Projected Total LAC Energy Use to 2040 (Mtoe) Opportunities Across the Value Chain Moving to more efficient technologies is necessary to meet the projected Industrial Consumer energy needs of the region Generation Distribution and Commercial Use Sectors +70% Improvement of Improvement in Development and Changing energy 1,154 technologies that technologies and implementation of consumption habits 989 require less process designs for technologies that (e.g., use of energy 861 758 economic and reducing losses require less energy efficient appliances, 636 677 environmental (e.g., materials to expenditure (e.g., or energy saving expenses (e.g., reduce technical development and use light bulbs) renewable energies) losses) of energy-saving elevators) Digitalization is a nascent tool in the region that represents greater efficiency 2017 2020pr 2025pr 2030pr 2035pr 2040pr throughout the entire energy value chain Potential Benefits

Environmental Health Economic

Potential prevention of CO2 emissions due Potential improvement in quality Electricity savings from energy to the use of energy efficient technologies of life and health (e.g., in homes efficient technologies (e.g., thanks to (e.g., it is estimated that between 2015 and 2030, with wood-based stoves, the the use of efficient refrigerators between

energy efficiency practices can reduce CO2 implementation of energy-efficient 2005 and 2012, Argentina, Brazil, Chile, emissions by around 11% in Central America and appliances decreases the probability Colombia, Mexico, and Peru saved a total the Southern Cone, and by 3% in the Caribbean) of respiratory diseases) of 1,091 GWh per year) Note: Mtoe stands for millions of tonnes of oil equivalent. Sources: 1. Jannuzzi, Energy Efficiency and Renewable Energy in Latin American Policies toward Sustainable Development, 2017; 2. Hernández, Panorama de la situación energética en América Latina, 2020; 3. García, Caracterización espacial de la pobreza energética en México. Un análisis a escala subnacional, 2016; 4. IDB, Energy Efficiency: 3 Ways LAC Cities can reach 2030 Goals, 2014; 5. OLADE, “Eficiencia energética en América Latina y el Caribe: Avance y oportunidades.” 2017; 6. International Energy Agency (IEA), Digitalization & Energy, 2018; 7. IDB, Energy Needs in Latin America and the Caribbean to 2040, 2016; 8. OLADE, Panorama Energético de América Latina y el Caribe, 2019; 9. IEA, SDG Data and Projections, 2019. 34 OPPORTUNITIES FOR USAID | The Agency can bring various capabilities to further expand access to and use of modern energy sources across the region

Support governments Provide/support access Facilitate knowledge to expand technical to catalytic capital to transfer across capacity transition to modern countries (cross- • Build local capacity on energies or implement mission learnings) renewable energy, distributed energy efficient practices • Cross learning from other generation, cleaner mobility, Missions – USAID has and energy efficiency • Develop a risk-sharing facility for implementing modern energy projects deep experience in setting • Support governments to up distributed energy develop regulation on • Provide direct financing projects across the region, distributed generation, energy and successful and failure efficiency plans, and plans to • Support to scale innovation with proven experiences should be transition to cleaner fuels for results through access to finance broadly disseminated to transport sector learn from those experiences

Support private sector engagement for increased Support the development access and use of clean energies of market-based • Increase the engagement of private sector companies to incorporate renewable mechanisms for energy energies and energy efficiency practices (as a prerequisite for some sectors/ projects geographies to work with USAID) • Remove market barriers for private • Support the development of public private partnerships for energy projects sector participation • Promote training and guidance for utilities to transition to distribute generation models in alliance with ministries and regulators

35 Phot; Jan Kronies on unsplash Jan Kronies Phot;

EXPANDED USE OF MARKET-BASED MECHANISMS FOR ENVIRONMENTAL MANAGEMENT AND CONSERVATION

36 Examples of market-based mechanisms

“Market-based mechanisms (MBMs) refer to alternatives, Environmental Subsidies/ complements or supplements to Taxes incentives nature management that depend on Tradable permits market forces, financial mechanisms, Fees and and quotas (P&Q) or other economic instruments, charges and align economic incentives with environmental outcomes in order to encourage entities to solve Payment for Deposit-refund environmental issues” ecosystem systems services (PES)

Voluntary Green commitments Bonds INTRODUCTION | PES, tradable P&Q, environmental taxes, and green bonds are the most common and expanding market-based mechanisms in LAC

Definition LAC Relevance • PESs have gained more traction in recent years with • PES occur when a beneficiary/user of an ecosystem programs implemented for water, carbon, landscapes, and Payment for service makes a payment to the provider of that service. a few bundled across sectors. The protection of water Ecosystem The idea is that whoever preserves or maintains an sources is the most common sector application in the Services (PES) ecosystem service should be paid for doing so region. LAC has the largest amount of water funds in the world (25 in LAC vs. 16 in other regions) • Tradable P&Q have grown in the region. Up to 2017, the • Tradeable P&Q are acquired rights that stop the PINE database from OECD reported 15 tradable permit excessive use of natural resources by establishing a Tradable Permits systems (vs. 27 in North America, 65 in Europe). Mexico maximum amount to be used and use market forces started piloting an emissions trading system in 2020, and Quotas to allocate the resource or emission to its most while Colombia, Chile, and Brazil have expressed interest economically efficient user (P&Q) in establishing one • Environmentally related tax revenues (ERTRs) have slowly grown in the region, from 0,9% to 1.1% of GDP • Environmental tax is a charge whose tax base is a on average in 2018 in LAC well below the OECD average physical unit that has a proven specific negative effects Environmental of 2.3%. In the last six years, Mexico, Chile, Argentina, and on the environment Taxes Colombia have implemented carbon taxes, and Brazil has expressed interest signaling the potential to increase • A green bond is a type of loan allocated to environmental-related projects that companies, • From 2014-2019, the annual green bonds issuance governments, and banks use to finance projects. The volume in Latin America and the Caribbean grew 18-fold Green Bonds issuer of the bond owes the holder a debt and is obliged to $3.6 billion to pay back the amount lent

Sources: 1. UNDP, Payments for ecosystem services; 2. AfroMaison, Tradable Permits Quotas and Shares; 3. OECD, ENVIRONMENTAL TAXES, 2005; 4. Climate Bonds Initiative, A brief guide for understanding what climate bonds are and why they are important. 5. Fondos de agua, The role of water funds, 2020; 6. OECD, Policy Instruments for the Environment (PINE) Database, 2017; 7. The World Bank, Carbon Pricing Dashboard, 2020; 8. Initiative climate bonds, LAC Green Finance State of the Market 2019, 2019. 38 PES | PES in LAC have mainly focused on local level water solutions such as water funds, where LAC is the leading region in the world, currently with 25 funds created and 15 under development Overview

PES in LAC 8% 28% Water Funds in LAC LAC in Numbers vs. the World (sample of 40 PES) 12% Water Funds in 2% operation (41 global) Distribution 25 by ecosystem 50% service Water Funds People Water funds lead 15 in development 89 M potentially (28 global) benefited the way in the Prospect Water Funds region’s use of ha of parallel Public and Under Development conserved private PES 227k ~500 Created forest partners Potential Benefits Environmental Economic Social Decreased deforestation and Potential improvement in Expanded access to income and services for vulnerable degradation (e.g., the evaluation found quality of life and health (e.g., in populations that Mexico’s PES program has indeed homes with wood-based stoves, • In areas with a low state presence and vulnerable populations, reduced deforestation) the implementation of energy- such as indigenous and Afro-descendant, PES could serve as a Improved water quality and availability efficient appliances decreases source of income to increase the wellbeing of the population as well as reduced soil erosion the probability of respiratory • In the Colombian Amazon, 15,000 families have benefited diseases) from PES programs, including indigenous and low-income farmer communities Sources: 1. N. Grima et al, Payment for ecosystem services (PES) in Latin America: Analyzing the performance of 40 case studies, 2016; 2. Fondos de agua, The role of water funds, 2020; 3. Fondos de agua, The Sao Paulo Water Fund, 2019; 4. World Bank Blog, Paying for ecosystem services, a successful approach to reducing deforestation in Mexico, 2019; 2. Mongabay, Cash for conservation; 5. Do payments for ecosystem services work? 2017; 6. El Tiempo, Comunidad y ex-Farc rescataron sendero ancestral en macizo colombiano, 2020; 7. El Congreso, Colombia continúa avanzando en materia ambiental, 2020. 39 TRADABLE P&Q | There have been at least 16 tradable P&Q in LAC, most of which have focused on fishing quotas and emissions trading systems are emerging in the region Overview Distribution by environmental domain Emission trading systems in LAC 16 167 6% Emissions trading systems (ETS) create incentives to reduce Asia & Pacific 74 6% emissions where these are most cost-effective, and they 6% CO and other 2 represent almost 50% of all P&Qs globally. 12% 47% greenhouse gases Europe 65 NOx 13% • In 2020, Mexico launched a pilot ETS. The system covers North America 27 Water Withdrawals power, oil and gas, and industrial sectors, which account 7% for ~40% of the country’s greenhouse gas emissions 4% Other LAC 16 “Green” electricity Pilot ETS • ETS have been under consideration in some areas of the 56% 25% certificates region since 2020, such as Colombia, Chile, and Brazil Africa 1 ETS under Fishing quotas • While Brazil is not looking to implement nationwide 5% consideration Arab States 1 ETS, Sao Paulo and Rio de Janeiro have expressed 12% interest in this mechanism LAC Rest of the world Potential Benefits Environmental Economic Governance Limit the use or exploitation Enables to allocate usage/ It is not necessary to develop a law or large of resources to a maximum rights based on highest value bureaucratic programs for its application (e.g., that (in theory) represents an (economic efficiency) and/ emissions transaction programs could be applied optimal usage level or least cost for compliance independently of the environmental institutional (cost-effectiveness) structure of each country in LAC)

40 ENVIRONMENTAL TAXES | LAC revenues from environmental taxes are growing, but the regional average as share of GDP is still less than half the OECD average Overview Potential Benefits

Environmentally related tax revenue (ERTR) by sector as a % of GDP (2018) Environmental 2.5% Create economic incentives for OECD Average 2.3% • ERTR in LAC has grown environmental outcomes such as reduced by 22% since 2010, when it energy use or carbon emissions - This accounted for only 0.9% of 2.0% type of mechanism can encourage the GDP use of renewable energy (e.g., one of the • Approximately two-thirds of objectives of carbon taxes in Colombia is to discourage the use of fossil fuels) 1.5% ERTRs in the LAC region are derived from taxes on energy Economic LAC Average 1.1% (including carbon taxes), primarily taxes on diesel 1.0% % of GDP Taxes leave consumers and businesses and petrol (0.6% of GDP on with flexibility to determine the lowest- average) cost way to reduce environmental damage 0.5% • Honduras boosted its collection of taxes due to the latent dynamism of Social 0.0% domestic demand in the Generate revenue that can be used for Central American isthmus positive purpose, including compensating Peru Chile Brazil Bolivia Jamaica Mexico and the favorable evolution Panama those hurt by the downstream effect of Ecuador Uruguay LAC avg LAC Bahamas Paraguay Argentina Colombia Honduras Nicaragua Saint Lucia OECD avg Guatemala Costa Rica El Salvador of the terms of trade. Also, taxes (e.g., if countries such as Bolivia, Ecuador, its environmental taxes are and Venezuela implemented carbon taxes, with

Trinidad y Tobago Trinidad heavily focused on power an optimal tax level between $20 and $50/ Dominican Republic generation tCO2, they would obtain benefits on GDP of Energy Pollution Resources Transport between 1.16 - 3.01%)

Sources: 1. OECD, Revenue Statistics in Latin America and the Caribbean 1990-2018, 2018; 2. OECD, Taxbases - Tax Rates of Environmentally Related Taxes. 41 GREEN BONDS | The green bond market in LAC has expanded rapidly over the past few years, mostly concentrated in Brazil, Chile, and Mexico Overview LAC highlights Green bond market growth in recent years Peru Brazil Mexico • Between 2014 and 2019, a total of $12.6 billion was issued in Costa Rica Colombia Supranational LAC through 52 issuances Argentina Chile Uruguay In 2019, the growth of the green bond market • LAC issuers have contributed with 2% of the global green was due to the growth of the market in Chile bond issuance volume (1% of bonds and 5% of issuers) through 4.00 2019 Compound Annual 3.00 Growth Rate • Local green bond issuance has shown size and maturity ~78% limitations (some maximum issuance has been lower than $300 2.00

million, and seven to nine years are the maximum maturities) $ Billions 1.00 • Green bond growth is expected across the region, driven by much- needed investments in green infrastructure 0.00 2014 2015 2016 2017 2018 2019 # of Potential Benefits countries 1 2 5 4 8 3 In 2018, there was a decrease in value of green bond issuances, since Brazil (one of the main actors) reduced its issuances Environmental Economic Increased investment in environmental Able to mobilize significant funds for large-scale projects projects Green bonds would help to close the financial gap of annual investments of between Green bonds emerged as a new vehicle to $40-50 billion through 2030 to achieve a greener economy in the region finance climate-relevant investments, The money needed for the region to meet the SDGs far exceeds the scope of including renewable energy, energy and traditional financing for development water efficiency, sustainable transport, and sustainable land-use A large-scale project example: Chile’s goal by 2040 is for 40% of the private car fleet to be electric and for the public fleet to be 100% electric

Note: Green bonds are usually classified in the broader category of green finance, which is also growing in the region, but for this report we are focusing only in green bonds./ Source: 1. IDB, Green Bond Transparency Platform, 2019; 2. Climate Bonds, Latin America, and Caribbean green finance: Huge potential across the region, 2019; 3. ECLAC, The rise of green bonds Financing for development in Latin America and the Caribbean, 2017. 42 OPPORTUNITIES FOR USAID | The Agency can bring various capabilities to further expand access to and use of modern energy sources across the region

Support governments Support pipeline Facilitate knowledge to expand technical development for green transfer across capacity bonds countries (cross- • Provide technical • Engage private sector mission learnings) expertise in the companies to showcase • Cross learning from monitoring and business opportunities in other missions e.g., formulation of market the green economy Colombia carbon tax mechanisms (e.g., to set implementation the right levels/quotas) • Support private sector companies to develop • Facilitate sharing • Design the appropriate “bankable projects” to of experiences on valuation of access resources available emissions trading environmental services, through green bonds through the Carbon so that the PES is Pricing in the Americas properly executed • Provide risk sharing Platform mechanism that enables “riskier projects” to access financing

43 Photo: Bill Oxford on unsplash Bill Oxford Photo:

THANK YOU

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