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Delivering a climate-resilient economy: Latin American homework for Europe

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For a few years now E3G has been engaged in strategic dialogue with a number of Latin American countries, including Chile, Colombia, Peru and Mexico, on the question of how climate and development ambitions can be financed through a strategic approach. In the last year we deepened our engagement in Chile and Mexico and worked closely with government officials to begin developing National Financing Strategies that could make their climate commitments a reality.

In the beginning much of this discourse was characterised by a divided North-South dynamic. To look at this issue from a different perspective, E3G has bought together expertise from a range of countries. For many years we had been wrestling with the challenge of how energy market reforms combined with institutional innovation and an activist approach to using public finance, could be used to accelerate private investment into the low carbon economy. Significant wins along the way include the creation of the UK’s Green Investment Bank and major reforms to the European Investment Bank’s approach to energy lending that saw unabated coal investment screened out and energy efficiency put onto a fast-tracked ‘white list’.

E3G is also playing a lead role in ‘flipping’ the European energy market reform debate, shifting the focus away from building large-scale centralised energy infrastructure to looking at how reforms can best support investment in smart, clean and flexible decentralised generation with energy ‘prosumers’ at their heart. This of course has put us in a good position to provide useful advice as the governments and stakeholders in the region tackle the same issues Europe is facing.

But as E3G’s engagement with Chilean and Mexican stakeholders and government partners has deepened, what has really struck home is how much innovation is going on in the Latin American region – and how much Europeans could learn from the way the governments in the regions are starting to tackle the dual challenge of financing their Nationally Determined Contributions and meeting UN Sustainable Development Goals. Two of the most striking differences are in the inclusive and strategic approach being taken and in the attitude to risk.

In delivering the infrastructure investment needed to meet both climate and wider sustainable development goals big and sometimes hard choices need to be made on how infrastructure will be planned, built and financed. When faced with such choices the smart thing to do is to bring a wider range of civil society actors, investors and companies together in an inclusive process focued on informing good political economy choices.

In both Mexico and Chile this is exactly what is starting to happen. Both countries have taken an active approach to facilitating wide stakeholder engagement – including civil society, investors and private companies – in a strategic national dialogue on how to deliver a climate-resilient economy. E3G’s report on Chile sets out how such an approach could be developed further and is a product of such multi-stakeholder engagement. Yet despite the calls for a similar approach to be deployed in the EU – including Aviva’s calls for a National Capital Raising Plans to be developed in Europe – this is still something that is completely missing from the European debate.

The European approach to the climate risk issue is another startling regional difference. Latin America is highly exposed to climate-related shocks – whether from water stresses or extreme weather events. Governments are used to coping with the kinds of catastrophes that are now becoming more common is Europe as the global temperature increases. In both Mexico and Chile the dialogues on how to go about developing National Financing Strategies have included a core focus on managing climate risks.

A range of approaches are being considered from promoting innovative agricultural practices to better managimg water stresses, through to developing new public-private insurance products to limit the economic impact of extreme weather events and enable those affected to recover losses and get back to work quickly. This acknowledgement of physical climate risk and focus on how to manage it is almost entirely missing from the European discussion. This is despite the fact that over the last 3 decades the EU has seen a 60% increase in extreme weather events. The strong continued preference to hide or ignore the increasing climate-related impacts is a major concern and is something that urgently needs to change.

In a post-Paris world with all countries committed to their national contributions and with the spotlight again on how Europe will plan for, finance and deliver a net-zero economy in 2050, I think there are a few lessons we can learn from our Latin America friends. European governments need to have a more inclusive and strategic debate on to how make good infrastructure choices that are aligned with a 2°C/1°5C world. There needs to be a well-managed dialogue on how public and private finance flows can be aligned with meeting these goals; and a there needs to be a clear plan for managing risk and ensuring resilience.

Much of the thinking is already being done in Latin America. It’s time to take some of this innovation back and ask what Latin America can tell Europe about building a climate-resilient economy.

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