The role of green fiscal policy in the recovery from COVID-19: Experiences, good practices and next steps in Latin America and the Caribbean (UN ECLAC)

Objective: Exploring the role of green fiscal policies in greening a COVID-19 recovery with the aim of supporting public health efforts, reducing environmental and climate change risks, and strengthening resilience to future crises by incorporating socio-economic, inclusive, and sustainable considerations into national economic planning.

This regional workshop was organized by UNEP, GIZ and the IMF under the auspices of the Green Fiscal Policy Network (GFPN), and ECLAC. It sought to foster policy dialogue, peer learning, and exchange by bringing together legislators and experts from the governments of the region, mainly from the finance and environment ministries, but also sector ministries such as energy, transport, and industry, with experts from international organizations, think tanks and academia. The organizers seek to involve as many governments in the region as possible.

The Technical Workshop was organized over two days as a five-session virtual event. The sessions lasted 60 minutes each, with 3 key guiding questions to structure the discussions in each session. The 5 sessions followed a traditional panel format, with 4 panelists delivering presentations according to the guiding questions (maximum 10 minutes), followed by a 20-minute open discussion.

DAY 1. Tuesday, October 13, 2020

OPENING SESSION: GREEN RECOVERY – THE ROLE OF GREEN FISCAL POLICIES

Nature has suffered from a crisis similar to a pandemic for more than a century. Human activity has accelerated the rate at which plant and animal species are going extinct by a factor of more than 100, and paved the way for a growing climate crisis. To date, the global economic response to the COVID-19 crisis is intended to reinforce this trend. The scale of current aid and recovery packages is unprecedented, yet green measures represent a small segment of total COVID-19-related stimulus spending globally. Given the scale of the recovery packages, it will leave a lasting impact on the direction of our economies. Thus, Consideration of resilience and sustainability is critical to ensuring a recovery that does not deviate from the path of sustainability to which world leaders have committed under the Sustainable Development Goals (SDGs). Focusing on environmental sustainability can generate multiple benefits in terms of job creation, stimulating demand, and economic activity.

Why should sustainability be at the center of the COVID-19 recovery and how green are the current COVID-19 stimulus packages?

How can green fiscal policies meet national short-term and long-term priorities for a green and inclusive COVID-19 recovery?

How can good green fiscal policy design address sensitive political economy challenges and just transition concerns?

  • Joseluis Samaniego: Fiscal policies, climate action, and development Download presentation
  • Steven Stone, Head of the United Nations Environmental Resources and Markets Area (R&M), UNEP and GFPN: Experience, Best Practice And Next Steps In Latin America And The Caribbean Download presentation
  • Santiago Aparicio, Director of Environment and Sustainable Development, National Department of Planning Colombia
  • Brian O’Callaghan, University of Oxford Economic Recovery Project Leader, Smith School of Business and Environment

SESSION 2: ALIGNING THE PUBLIC FINANCE FRAMEWORK FOR GREEN RECOVERY PLANS AND BEYOND: FUNDING FOR THE SDGS AND THE PARIS AGREEMENT

In the same way that COVID-19 hits people with pre-existing health conditions hardest, the economic crisis triggered by the pandemic exposes and worsens financial vulnerabilities that have accumulated over a decade of extremely low rates and volatility. To rebuild a resilient, inclusive, and sustainable recovery, it is critical to increase the efficiency and effectiveness of budget processes and align them with broader climate and environmental goals, while ensuring medium and long-term macro-fiscal sustainability.

In the context of COVID-19, what are the key measures to improve the efficiency and effectiveness of public finance processes in the Latin American and Caribbean region for a sustainable and green recovery from COVID-19?

How can countries in the region efficiently and effectively use public finances for a recovery from COVID-19 that is aligned with the implementation of the SDGs and the commitments of the NDCs?

How can the commitments of the SDGs and NDCs be incorporated into national economic planning and what challenges are there in achieving this?

  • Maria Dolores Almeida, Expert in Green Fiscal Policy, Ecuador: Aligning the Public Finance Framework for Green Recovery Plans and Beyond: Financing for the SDGs and the Paris Agreement Download presentation
  • Violeta Luna and Jorge Escobar, Directorate of Fiscal Transparency, Ministry of Public Finance, Guatemala: Experiences, good practices and next steps in Guatemala Download presentation
  • Scherie Nicol, Policy Analyst at the Directorate of Public Governance and Territorial Development, OECD: Aligning public finance for green recovery plans and beyond Download presentation
  • Neil Bird, Senior Researcher, Overseas Development Institute (ODI): Financing the Paris Agreement in the context of COVID-19 recovery Download presentation

DAY 2. Wednesday, October 14, 2020

SESSION 3: PRICES OF POLLUTION AND ENVIRONMENTAL DEGRADATION FOR A GREEN RECOVERY FROM COVID-19

Financing the massive fiscal measures that governments take to avoid economic collapse during the pandemic requires looking for ways to increase public revenues in the future. This highlights a carbon price and other forms of environmental taxes as a source of revenue, which has the added benefit of minimizing the risk of misallocation of vital investments; and thinking of poorly designed infrastructure projects that lock in high carbon emissions for decades to come. A substantially higher carbon price is needed to encourage climate-smart investment and accelerate the shift to cleaner and more energy-efficient fuels. Other forms of environmental taxes can also help reduce air pollution (research has also found links between higher levels of air pollution and higher death rates from COVID-19) and support a broadening of the green transition by aligning prices and incentives with the SDGs and more ambition in the NDCs. At the same time, concerns about the impact of environmental taxes on competitiveness in the world market also deserve serious consideration. This transition must also be fair and conducive to growth. For example, revenue from environmental taxes can be used to provide start-up assistance to the poorest households, reduce burdensome taxes, and support investments in health, education, and infrastructure.

What are the key considerations for maximizing the effectiveness of green taxation instruments as a tool to better rebuild and combat climate change?

What are the important socio-political and economic factors, including competitiveness concerns, to consider when designing an appropriate green tax plan in the context of COVID-19?

How can regional experiences provide good practices and knowledge on the design, communication, and revenue utilization components of green tax instruments?

  • Rodrigo Pizarro, Expert in climate policy, Chile
  • Ian Parry, Senior Expert on Environmental Fiscal Policy, International Monetary Fund: Pricing Pollution for a Green Recovery Download presentation
  • Jorge Murillo, Chief Economist, Ministry of Finance, Costa Rica
  • Jens Holger Helbo Hansen, Ministry of Finance, Denmark: Other green taxes than on energy / GHG in Denmark Download presentation

SESSION 4: ELIMINATION OF ENVIRONMENTALLY HARMFUL SUBSIDIES FOR BETTER BUILDING AND OTHER CARBON PRICE ISSUES

The removal of fossil fuel subsidies and the introduction of fossil fuel taxes that take into account externalities could provide governments with average revenue streams of about 2.6 percent of global GDP. In particular, reforming tax expenditures would further improve taxpayers’ perception of the fairness of the tax system and improve budget transparency. Key negative externalities include local air pollutants that affect the local environment and biodiversity, as well as imposing significant health costs; and greenhouse gas emissions that contribute to dangerous and costly climate change. The record price of oil offers a unique opportunity for countries to make decisions about removing and redirecting these subsidies. Similarly, agricultural subsidies, particularly for fertilizers and pesticides, account for a large part of public spending in many countries and can create perverse incentives that lead to negative environmental impacts (including chemical leaks and leaks, water pollution, increased GHG emissions) and can have serious consequences for human health and broader socioeconomic impacts. Reforming these ineffective and unsustainable agricultural subsidies would generate significant tax savings. They represent a large part of public spending in many countries and can create perverse incentives that lead to negative environmental impacts (including chemical leaks and leaks, water pollution, increased GHG emissions) and can have serious consequences for human health and broader socioeconomic impacts. Reforming these ineffective and unsustainable agricultural subsidies would generate significant tax savings. They represent a large part of public spending in many countries and can create perverse incentives that lead to negative environmental impacts (including chemical leaks and leaks, water pollution, increased GHG emissions) and can have serious consequences for human health and broader socioeconomic impacts. Reforming these ineffective and unsustainable agricultural subsidies would generate significant tax savings.

What is the role of environmentally harmful subsidy reform in supporting government efforts to finance sustainable COVID-19 rescue and recovery in the LAC region?

What can regional experiences with respect to fuel subsidy reform or other environmentally damaging subsidy reform highlight in relation to policy design and political economy and implementation challenges?

How important is the use of revenue components in policy design and effective communication for the sustainability and success of environmentally damaging subsidy reform?

  • Alexandra Lastra, Leader of the Subsidies Unit, Ministry of Economy and Finance, Ecuador: Ecuador: the path of fuel subsidy reforms Download presentation
  • Lourdes Sanchez, Senior Policy Advisor and Director of the International Institute for Sustainable Development (IISD): The reform of fossil fuel subsidies in the context of COVID-19 Download presentation
  • Agustin Redonda, Senior Member of the Council for Economic Policies: Driving Tax Expenditure Reform in Times of COVID-19 Download presentation
  • Temir Burzhubaev, Senior Financial Expert, UNDP-BIOFIN

SESSION 5: GUIDING THE POLITICAL ECONOMY AND THE EQUITY CHALLENGES OF THE GREEN FISCAL POLICY REFORMS

The potential impacts of green fiscal policy reforms need to be identified, including the full range of costs and benefits, winners and losers, and anticipated and unintended effects in the economic, social and environmental spheres. The political challenges of reform remain significant, and sometimes despite good intentions and due process, green fiscal policy reform efforts fail or decisions are reversed in the face of political or social pressure. While the current economic situation calls for green fiscal policy reforms, good design, sequencing and communication will be required to address sensitive and, in many cases, justifiable political economy challenges.

What are the key factors to consider to make green tax policy socially fair (going beyond simply minimizing the short-term negative effects of green tax reforms to add value to socio-economic equity and progress on the SDGs), especially in COVID-19? context?

What is the role of communication and the generation of perception in the design of green fiscal policies to obtain socio-political acceptance?

What can regional experiences with green fiscal policies illustrate key considerations and best practices related to policy design, communication, and sequencing?

  • Luis Miguel Galindo, Researcher, National Autonomous University of Mexico
  • Fernando Lorenzo, Researcher, Center for Economic Research, Uruguay: Political Economy of Environmental Taxation in times of Covid-19 Download presentation
  • Jan Steckel, Head of the Climate and Development Working Group, Mercator Research Institute for Global Commons and Climate Change, Germany: Navigating political economy and equity challenges of Green Fiscal Policy reforms Download presentation
  • Belén García Carretero, Head of Research Studies of the Directorate of Studies, Institute of Fiscal Studies, Spain: Initiatives in green taxation for a just transition in Spain in the current context of COVID-19 Download presentation

Note: This blog is a re-post of the original posted on the UN ECLAC Website.