Elements for green fiscal policy in Latin America Julie Lennox Jimy Ferrer Economic Commission for Latin America and the Caribbean United Nations Climate Change Conference ( COP 17 / CMP 7) - Durban, South Africa 7 December 2011

Major climate impacts: water resources, agriculture, electric generation, forests, coastal zones and on human health. Economic growth and public finance are threatened. Deforestation and agriculture generate emissions. Making sustainable management of highly vulnerable sectors bring co-benefits, including lower emissions. The contribution of Latin America and the Caribbean to global energy emissions is low. But these emissions are growing faster than world’s average. Introduction

Population and economic growth are the main emission drivers. Current decreases of energy intensity and carbonic intensity of energy use are not enough to reverse emissions trends. Public policy and energy prices and regulations must be modified. Introduction

Climate change characteristics Economics of climate change Green policy Negative externality Uncertainty Risk management Multidisciplinary Climate change

Green fiscal policy is possible in Latin America. Environmentally Harmful Subsidies: challenges for reform Policies to enhance sustainable and inclusive development. Positive externalities on human health, integrated management of water resources, sustainable agricultural and forestry systems, among others. Context green fiscal policy

National climate change funds: multisource and multisectoral. Criteria of public expenditure and investment. Labeling of expenditure. Effects of climate change on fiscal income. Fiscal policy with dynamic incentives and combining regulations with prices signals staggered. Participation in international negotiations in relation to internationals funding mechanism. Insurance sector, national and regional level. Exploring options and measures

Energy Long term price elasticity of energy demand Long term income elasticity of energy demand

Gasoline consumption Long term price elasticity of gasoline demand Long term income elasticity of gasoline demand

Gasoline consumption Long term price elasticity of gasoline demand per region Long term income elasticity of gasoline demand per region

Opportunities for public policy: Green Taxes Fuente: ECLAC Income elasticityPrice elasticity OECDNo-OECDOECDNo-OECD Energy consumption Random effect No. studies35 Gasoline consumption Random effect No. studies

Impacts on human health Effect of PM10 on respiratory mortality Effect of PM10 on mortality Effect of PM10 on mortality over 65 years

Impacts on human health Effect of Ozone on respiratory mortality Effect of Ozone on mortality Effect of Ozone on mortality over 65 years

Technology and Climate Change The expenditure elasticity of new technologies with regard to expenses in research and development is between 0.20 y 0.5 and the price elasticity oriented to reduce greenhouse emissions is around 0.8. Research and development expenses have a price elasticity of 0.8. Price energy elasticity over technical change Effect of R&D expenditure on technological change

Mexico Equation ce it = β 0 + β 1 *y it + β 2 *pre t + u t National energy consumption model: Mexico Policy Simulation cne: National ceiet: Energy industries cea: Agriculture cei: Industry cer: Residential cec: Commerce cet: Transport GDP growth: 3% Relative prices growth: 0%, 2% y 4% Energy demand scenarios

Current patterns of economic growth are not consistent with a sustainable development. Green technology and taxes are two key elements to change the BAU. The magnitude of the effort implies significant modifications in the current patterns of production, consumption, distribution, the technological paradigm and the existing relative price structure. Public policy and energy prices and regulations must be modified. The region runs the risk of being left behind. Conclusions

Elements for green fiscal policy in Latin America United Nations Climate Change Conference ( COP 17 / CMP 7) - Durban, South Africa 7 December 2011 Julie Lennox Jimy Ferrer