Climate Action in Latin America and the Caribbean: Fiscal Policies and the Indispensable Role of Finance Ministries

Countries in the Latin American and Caribbean (LAC) region face escalating challenges from climate change due to geographic location, economic reliance on climate-sensitive sectors, and increasing frequency, intensity, and duration of extreme weather events. Despite international commitments and efforts from LAC countries, current mitigation and adaptation investments are insufficient to avert significant climate impacts. Estimations of financial needs vary significantly depending on the source, ranging between US$228 billion and US$513 billion per year for mitigation, while annual adaptation flows range from US$65 billion to US$250 billion. As in other regions of the world, LAC countries have prioritized mitigation over adaptation. To achieve a more balanced approach the region requires a change in fiscal policies. Exploring fiscal space for increased investments in climate in the context of severe postpandemic social needs and the need to prevent and prepare for future pandemics is challenging. It is imperative for finance ministries to decisively engage by changing the composition of public investment while leveraging private sector engagement. The use of green budgeting methodologies, regulation, public debt strategies, and state-owned enterprises for this purpose is crucial. This report offers a diverse array of tools and policies for finance ministries to bolster climate action across three core pillars: (i) developing climate strategies for nations, (ii) creating the right incentives to mobilize climate financing, and (iii) ensuring fiscal management consistent with climate goals.