A recent IDB study concludes that for Latin America and the Caribbean to reach the Paris Agreement targets, it would need to redirect between 7% and 19% of GDP (up to $1.3 trillion) of public and private spending per year. While developed countries have pledged $100 billion annually in climate finance to developing countries, these flows represent only a fraction of total needs and therefore climate action would involve structural rethinking.

According to the paper, regulatory and institutional reforms are an essential piece of the puzzle. The report explores various green fiscal reforms and the elimination of fossil fuel subsidies. Governments will also need to manage the fiscal risks associated with climate targets. A long-term fiscal strategy can therefore help identify ways to replace these revenues. Moreover, climate change adaptation is also linked to social spending, which is crucial to ensure a just transition.

Governments will need to design comprehensive climate strategies that define the transformations needed in each sector and plan roadmaps to remove barriers to public and private finance for climate action. Most of the effort will come from rethinking institutions, planning and regulations to redirect existing public and private financial flows towards climate solutions.