Why AILAC cares about finance and how Europe should respond

Why AILAC cares about finance and how Europe should respond

Amongst those countries actively looking for an ambitious climate agreement in Paris you will always find Chile, Colombia, Costa Rica, Guatemala, Panama and Peru, which together make The Independent Association of Latin America and the Caribbean (AILAC). These countries see finance as a means to deliver and enhance mitigation and adaptation actions within a comprehensive package in the Paris agreement. In their view, a legally binding Paris agreement needs to include a clear set of rules and transparency framework that can guide countries in delivering the best climate outcomes.

But what is behind their ambition and how can Europe respond to secure a deal that goes beyond the US-China dynamic? Let’s start by looking at their efforts at home.

AILAC countries are already securing effective climate finance. They have been ramping up investments in low carbon technologies and putting in place regulatory and institutional changes, such as the Carbon Tax in Chile, to facilitate the transition towards sound climate economies.

Chile and Costa Rica have increased investments in renewable energy. Peru and Colombia have also attracted investments from a range of sources – including from the government, Multilateral Development Banks (MDBs) and private sector – for low carbon public transport systems. For example, the integrated public transport system operating in Bogota is not only reducing GHG emissions and improving air quality, but it has also greatly improved mobility and provided an affordable and reliable public transport service that was not available before.

These countries' political leaders have understood that low carbon investment, managing urbanisation, reducing poverty and economic diversification are a winning formula.

Why does AILAC care about climate finance?

First of all it’s because they seek an ambitious deal. For AILAC it’s clear that the scale of climate change is such that no one country or region can deal with it alone. Thus it requires a collective effort of all countries to pull in the same direction as hard as they possibly can. This is why an ambitious multilateral agreement in Paris this year is an opportunity not to be missed.

However, finance is also key for AILAC in the grander politics of the deal. The US, China and EU have all put down their initial mitigation offers. We know that Paris will not deliver a ‘slam dunk’ 2 degree outcome, but more likely keep us within the window of a 2 degree trajectory. Quite rightly countries within AILAC are getting jumpy. Not only is finance needed to secure more action, but with a chance of not reaching 2 degrees their also hedging their bets. Paris will need to provide countries Chile and the rest from AILAC money for adaptation. AILAC will have to adapt under a scenario where 2 degrees is attainable, but if that scenario goes awry they will need that finance even more.

How can Europe respond?

To start with, Europe needs to create agency and make the mitigation debate live beyond the INDCs – INDCs shouldn’t be the final word from Europe. Critically, Europe will need to engage both on adaptation and finance if it is to shape the Paris outcome and provide an alternative pole of influence to the US-China dynamic.

On finance, we need Europe to engage on a more sophisticated finance discussion, where finance is fit for purpose. For example, as AILAC countries seek to further expand their financial systems there is an opportunity to work together to enable the development of green bonds, equity investments, guarantees and carbon markets, all financial instruments commonly used in European countries.

Furthermore, Europe will need to have a serious evaluation on how to enable predictability of finance. So far the discussion hasn’t gone beyond laying down budgetary constraints. Whilst it is understandable that there are some limits, this shouldn’t be an excuse to evaluate how to go around them and allow for effective planning. Implying incapacity to provide certainty of finance undermines the need to gear up on mitigation and adaptation ambition.

Financing climate action is not new between Europe and AILAC countries. In fact, the EU and AILAC have a great opportunity to jointly reflect on lessons on what has been learnt over past years. These provide the basis for evolving onto the next level within discussions on climate finance. AILAC is ready but is Europe ready too?


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