A new climate solution for Latin America – Economic

The planet urgently needs to reduce polluting gas emissions. This statement is easy to say, but, as has been seen over the years, very difficult to implement.

May 22, 2022 – 01:00

The main reasons why emissions have not been curbed to the extent necessary to prevent the increase in global temperature are various, and range from the difficulty of countries in assuming binding agreements, the complexity of undertaking the energy transition or the multimillion-dollar investments needed to move towards green economies that are less dependent on fossil fuels.

Among all the proposals on the table to reduce the pace of emissions and move towards clean economies, the carbon market seems the most promising, especially for developing regions such as Latin America and the Caribbean. These markets consist of countries making transfers of emission reductions voluntarily or bindingly among themselves.

The price or carbon tax for companies to offset their carbon footprint has led to a sustained demand for carbon credits. In parallel, private companies have also been assuming corporate commitments and have the need to show their climate commitment by reducing, avoiding and, if necessary, offsetting their emissions. This is generating a new global demand for carbon credits, and represents an unprecedented opportunity for Latin America and the Caribbean (LAC).

The creation of a carbon market in the region is called to generate new attractive instruments thanks to the fact that it provides gains of scale, reduces costs and attracts critical mass, determining factors for the functioning of the market.

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Although they are not yet regulated, the agreement between the countries at the COP26 in Glasgow was essential for the mechanisms necessary for their operation to begin to be activated.

“Latin America could play a key role in carbon markets, especially given its ability to offer green projects and nature-based solutions. But to take advantage of all that potential, it will be essential to have infrastructures that allow it to be articulated efficiently,” says Jorge Arbache, vice president of the Private Sector of the Development Bank of Latin America (CAF).

According to Arbache, carbon markets will be much more attractive and will fulfill their function the higher the quality of the projects and the credibility of the credits, which will require monitoring, control, data collection and compilation systems, as well as infrastructure for its functioning. This includes skills and human capital and services necessary for the operation of the value chain. In other words, expensive and complex infrastructure, both tangible and intangible, will be needed to make the market work and really attract sellers and buyers.

In this regard, CAF announced that it will articulate the creation of a carbon market in Latin America and the Caribbean, hand in hand with local development banks, with the aim of promoting the global competitiveness of the supply of carbon credits generated in the region, strengthening the conditions for future voluntary and regulated markets and expanding its impact in the generation of employment, income, new technologies, green business clusters and the fight against poverty.

Among the immediate actions of this initiative, called ILACC, are the preparation of a regional diagnosis on the carbon market, the launch of the Carbon Market Observatory, the formation of a scientific council, in addition to the creation of the ILACC Regional Forum to expand multisectoral collaboration that allows diversifying and broadening the base of climate projects generated in LAC.

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The carbon market in the region can be an oxygen balloon to travel the path of raising capital to curb the effects of global warming. Developed countries adopted a commitment to finance US$100 billion a year for green projects more than a decade ago. Of this figure, only about US$ 80,000 million have been mobilized, in a sign that new commitments and more attractive investment systems are needed.

The region needs to continue taking innovative measures to deal with climate change. Despite the fact that Latin America is only responsible for 10% of greenhouse gas emissions, it will be one of the regions most affected by global warming: rainfall patterns will change, the melting of Andean glaciers and the increase in acid and marine levels in the Pacific and Atlantic oceans, among a long list of events.

Carbon

The price or carbon tax for companies to offset their carbon footprint has led to a sustained demand for carbon credits.

Region

The creation of a carbon market in the region is called to generate new attractive instruments thanks to the fact that it provides gains in scale and reduces costs.

Senior communication executive at the Development Bank of Latin America (CAF).

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