Blended Finance for the Transition to Net Zero Carbon Emissions in the LAC Region

Securing private finance is one of the key obstacles to the Net Zero Transition in Latin America. Emerging Markets and Developing Economies will require over USD 2.4 trillion annually by 2030 to align with the Paris Agreement, with 40% sourced from foreign private investment. However, only 14% of climate investments in the developing world are privately funded. 

This Capstone project identified the challenge of fostering private climate finance investments in Colombia and Brazil using multi-disciplinary research to address three core themes. The first section addressed financial sector preparedness, including a discussion of foreign exchange risk, the readiness of financial institutions and capital markets, the development of green taxonomies and non-financial disclosures, and an exploration of financial innovations. The second section considered fiscal incentives for investment, critiquing fossil fuel subsidies and describing renewable energy incentives. The third section outlined impediments to renewable energy project development, including the structure of the electricity market and the permitting process for renewable energy projects. 

High-level recommendations for Brazil and Colombia include: 1) Improving climate risk assessments, developing innovative mechanisms, such as blended finance structuring approaches, requesting debt-for-nature swaps, using asset tokenization and results-based finance models, and enhancing collaboration with multilateral development banks. 2) Using fiscal incentives for renewable energy development, including government tender processes and decreasing fossil fuel subsidies. 3) Implementing consistent national permitting standards, legislatively defining the scope of free prior informed consent, increasing government capacity for environmental assessment review, and promoting the development of private offtake agreements in the electricity market.