LEO 2022: Green transition can be a driver of economic and social change

November 07, 2022

Climate change could significantly worsen the long-term economic outlook and exacerbate inequalities in Latin America and the Caribbean (LAC). It is urgent to move towards an ambitious, comprehensive green agenda to address its consequences and improve the well-being of all. An effective green transition in LAC could potentially create 10.5% more new jobs by 2030, says the Latin American Economic Outlook (LEO) 2022: Towards a green and fair transition, presented today in the framework of COP27 in Sharm el-Sheikh.

According to the 15th edition of the report, this year's economic slowdown, an unstable international backdrop hit by Russia’s war of aggression against Ukraine, rising inflationary pressures and a shrinking macroeconomic policy space hinder the ability of LAC economies to shift back to the path of sustainable growth and the protection of the most vulnerable groups. In 2022, for example, vulnerable households in LAC faced an estimated average price increase of 3.6 percentage points more than the nationally representative household.

Environmental impacts compound these difficulties. Thirteen of the 50 countries hit hardest by climate change are in LAC. LEO 2022 argues that promoting a green transition through active systemically-implemented mitigation and adaptation policies can make LAC societies more resilient to climate change and foster better development.

The report breaks down the environmental, social and economic benefits that a green transition can bring. For example, investing in renewable technologies cannot only substantially curb greenhouse gas (GHG) emissions, but can also provide lower-cost power generation and reduce dependence on imported fossil fuel products.

The region is well positioned to embark on an effective green transition and accelerate progress towards economic, social and environmental development goals. LAC’s share of global GHG emissions is proportional to its share of the total world population (8.4%), slightly higher than its share of total gross domestic product (GDP) (6.4%), but lower than the per capita emissions of other regions at similar development level. Its energy matrix is also greener: Renewables account for 33% of total energy supply compared to 13% globally.

In this context, LEO 2022 provides a detailed overview of the robust and comprehensive policy actions needed to advance a green and just transition in LAC. Five areas are prioritized:

  • Further shifting the region’s energy matrix away from fossil fuels and towards decarbonization and electrification in all sectors, especially heavy industries and transport, while taking steps to increase energy efficiency. In the most difficult sectors to decarbonize, such as chemicals, steel, road freight transport, aviation and sea transport, investments in low-carbon alternative fuels, including green hydrogen and sustainable biofuels, will be key.
  • Designing sustainable fiscal policies compatible with the green and just transition, phasing out environmentally harmful subsidies and harnessing the potential of environment-related taxes. Expanding innovative financial instruments, such as debt-for-nature swaps, and mobilizing development finance institutions and the private sector. It is crucial to adopt regulatory tools with standards and taxonomies for green or sustainability-linked bonds.
  • Promoting industrial and productive development policies to transform LAC economic structures and create more and better jobs, through the adoption of circular economy and blue economy principles. This will require investing in new technologies and skills, and training workers to leverage the opportunities the transition opens. It will also require scaling up active labor market policies and designing better targeted social protection systems to support impacted workers during the green transition.
  • Strengthening institutional mechanisms to foster consensus on the policy options needed to advance the green transition. The green agenda can be the cornerstone of a new sustainable social contract: 68% of people in the region see climate change as a very serious threat to their country over the next 20 years, i.e. higher than in other regions. The objectives of Nationally Determined Contributions should translate into concrete, visible, implemented and funded actions in the context of long-term strategies, such as National Development Plans.
  • Developing and expanding international partnerships. With half of the world’s biodiversity, LAC countries are key players in international climate negotiations. To fully leverage the new international green rules and regulations, and manage the impact of policies adopted in partner countries in the region—for example on trade—LAC countries need to enhance cooperation with key stakeholders, including the private sector and multilateral institutions.

    • The LEO is jointly prepared by the Organization for Economic Co-operation and Development (OECD) Development Center, the United Nations Economic Commission for Latin America and the Caribbean (UN-ECLAC), CAF—development bank of Latin America—, and the European Commission.

    Learn more about the report: https://www.oecd.org/dev/americas/. Follow the social media launch on #LatinAmerica & #EconomicOutlook.

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