04/10/2023

International Financing for a Just Ecological Transition in Argentina

The current reality, marked by record global temperatures and a historic drought in Argentina, demonstrates how climate change, the loss of biodiversity, and contamination, far from being fashionable rhetoric in international forums, are relevant phenomena for our national interest given that they affect our macroeconomic stability, as well as our food, water, energy, and health security, among others.

We are currently facing the challenging task of repairing canoes in open sea: navigating a path of sovereign sustainable development that simultaneously addresses environmental, economic, and social issues, based on our reality, capabilities, and resources. To achieve this objective, a central element is the access to affordable financial resources for the implementation of public policies aimed at combating climate change and addressing profound social inequities. Globally, there is a tremendous challenge of mobilizing resources within a context marked by the effects of the pandemic, war, the supply crisis for energy and food, and the debt crisis faced by 60% of developing countries.

In this context, the investment necessary for adaptation in developing countries, including access to water, resilient infrastructure, and agriculture, among others, ranges from USD 160 to 340 billion annually by 2030, and due to the consequences of climate change, it could reach between USD315 and 565 billion by 2050, according to the 2022 Adaptation Gap Report by the United Nations Environment Program (UNEP).

Regarding investments in mitigation, which are those related to the reduction of Greenhouse Gas Emissions (GHGs) to combat global warming, typically linked to sustainable transportation and energy, the International Energy Agency (IEA) estimates that by the end of 2030, the investment needs for developing countries and emerging markets will be USD2 trillion per year.

In this regard, it is worth noting that the commitment made by high-income countries to provide USD 100 billion annually, as well as transfer technologies and capabilities to developing economies to help them adapt to and mitigate climate change, has not been fulfilled. Therefore, financing from International Credit Organizations (ICOs) and international climate funds becomes particularly relevant due to the financial conditions they offer.

Argentina is a clear example of a country with a low incidence of GHG emissions, yet it suffers greatly from their consequences. While we are responsible for less than 1% of global emissions, our geographical, social, and productive characteristics make us particularly vulnerable to the effects of climate change. Therefore, droughts, late frosts, and hailstorms in the past year severely affected our population and a wide range of productive sectors, with a significant negative impact. According to data from the Rosario Stock Exchange (2023), it is estimated that between soy, corn and wheat production alone, the losses, between exports and services associated with production, reached USD 19 billion, which is equivalent to 3% of the estimated GDP for 2023. In turn, this loss also meant a reduction of more than USD 6 billion in fiscal revenues.

As mentioned earlier, sustainable development must be considered in its three dimensions: economic, social, and environmental, and the fight against climate change must necessarily be linked to the eradication of poverty and a greater well-being for our population. The primary goal is to be able to adapt to the consequences of climate change and promote a just, affordable, and sovereign energy transition that recognizes different paths based on the capabilities of each country and leverages the significant opportunity represented by gas as a transitional fuel and a vector for economic and social development.

To respond to this series of measures, from the Undersecretary of International Financial Relations for Development of the Ministry of Economy, we have worked with a comprehensive vision regarding the mobilization of resources from international sources and their application to national and subnational climate change mitigation and adaptation projects. This vision, which served as a guiding framework to accelerate, expand, and enhance the quality of climate financing, culminated in the development and approval of the first International Climate Financing Strategy of Argentina (ENFCI), which aims to outline a roadmap to ensure financing to promote a sustainable, resilient, low-carbon development model and a just, inclusive, and sovereign transition that contributes to the eradication of poverty.

In this regard, during the current administration, in collaboration with various multilateral and bilateral credit organizations, we have developed a portfolio of active operations with a direct or indirect impact on climate change, which currently amounts to approximately USD 16.27 billion.

In the energy sector, for example, we have approved numerous projects for the transmission of electric power and to finance the reversal of the Gasoducto Norte (Northern Gas Pipeline) and the construction of gas compression plants for the transportation of gas. These projects are essential for achieving energy sovereignty, expanding access to secure energy across the national territory, and promoting a fair energy transition. Additionally, we have collaborated in international financing to develop a National Strategy for Low-Emission Hydrogen, which has culminated in the presentation of a bill to the National Congress for its promotion.

In water management, we have approved projects that adapt federal production systems to the effects of climate change and ensure the supply of potable water for production and human consumption, while contributing to national and global food security. In terms of sanitation management, we have successfully completed the long-awaited Matanza-Riachuelo system, as well as projects that promote the closure of open-air landfills, with a strong social component and a clear improvement in the quality of life for those living near landfills. We have also structured central projects for the sustainable management of our native forests and the prevention of wildfires.

While the work accomplished has been substantial, our country needs to significantly increase investment in these sectors. This inevitably leads to a global discussion which we must engage in as a country with a greater role in redesigning international financial architecture for mitigation and adaptation in emerging economies. Strengthening the capital of multilateral banks, the role of private financing, the effectiveness of international climate funds, and innovative mechanisms such as debt-for-climate-action exchanges and the conservation of biodiversity, among others, must be exclusive discussion topics on the agenda.

From Argentina, from the region, and from the Global South, we must promote the recognition of the historical responsibility that high-income countries bear regarding GHG emissions, as well as the role of environmental creditors, countries like Argentina, whose natural capital and biodiversity provide ecosystem services to all of humanity. Only in this way can we close a financing gap that, if left unaddressed, will lead to greater disparities between the development paths of high-income countries and those with middle- and low-incomes.

Leandro A. Gorgal is a Political Scientist (UCA), Master in Administration and Public Policy (UDESA), and Master of Science in Development, Administration and Planning (UCL). He is the Undersecretary of International Financial Relations for Development at the Ministry of Economy of Argentina.