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Some revenue risks to the region, IDB warns

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As some regional Governments seek to transition to carbon-neutral economies by 2030, an Inter-American Development Bank (IDB) publication is urging countries to put measures in place to mitigate some economic risks that will accompany the move.
In a recent IDB paper titled Fiscal Policy and Climate Change, the multilateral financial institution spoke to many of the positives that could be derived from the transition to renewable energy.
In fact, the IDB publication cited an International Labour Organisation (ILO) study that suggested some 15 millio jobs could be created by 2030 as part of a programme transition to net zero emissions.
“There is overwhelming evidence at the international level showing that proper planning for the transition to the green economy offers significant economic and development opportunities that will create more and better jobs,” outlined the coordinators of the paper Raul Delgado, Huascar Eguino and Aloisio Lopes.
They explained that efforts to boost economic growth after the havoc caused by the COVID-19 pandemic created some opportunities to invest in a better type of development that could substantially increase the region’s ability to adapt and move toward net zero carbon emissions.
At the same time, it was noted there were significant risks as international efforts to address climate change were “still largely insufficient”.
 According to the three coordinators of the paper: “Extreme weather events can lead to major human losses and significant economic damage while also placing substantial pressure on public finances.
For example, it is estimated that at least one extreme weather event per year is associated with an increase in the fiscal deficit of 0.8 percent of gross domestic product (GDP) for lower middle-income countries in Latin America and the Caribbean.”
They added: “Greater production of energy from renewable sources and the growing electrification of public and private transportation worldwide will reduce the demand for products from fossil fuel exporting countries in the region, with a potentially significant impact on fiscal revenue.
“The countries in the region must make additional efforts to fully internalise these opportunities and challenges across all economic and government activities from a public policy, planning, and financing standpoint.”
The economists pointed out: “The transition to economies with net zero emissions in Latin America and the Caribbean will disrupt sectors that have traditionally contributed to tax revenues, such as exports and fossil fuels.
“In particular, the global energy transition means that the finances of several countries will be affected by an inability to exploit some resources and physical assets, which may have to be devalued or retired before the end of their useful life cycles.”
As a consequence, Delgado, Eguino, and Lopes warned Finance Ministers of the region they needed to anticipate the risks of lower revenues and plan for the transition from fossil fuels by implementing alternative measures. (IMC1)

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