About the carbon market
The carbon market offers a historic opportunity for the region to consolidate itself as an essential actor in the greenhouse gas emissions mitigation agenda, thanks to its unique ability to offer nature-based climate solutions, such as forest conservation and restoration or regenerative agriculture, among others.
The Latin American and Caribbean Carbon Market Initiative (ILACC) is a regional effort led by CAF, in coordination with twelve National Development Banks, which aims to boost the global competitiveness of the carbon credits produced in the region.
With this initiative CAF Development Bank of Latin America seeks to strengthen carbon markets in its member countries through convergence and the articulation of actions that improve competitiveness of carbon credits supply and the presence of Latin America and the Caribbean in the international market along with it.
Voluntary carbon markets are international markets that play a key role in the transition to a clean, low-carbon economy. Its purpose is to facilitate exchange between organizations that for various reasons, whether fulfillment of corporate commitments, access to markets, etc., have the need to offset their carbon emissions, through projects with a positive impact on the climate.
Although there is no central regulatory unit for this market, at COP26 held in Glasgow, the elements that would allow regulating transactions registered in the voluntary market were agreed, thus opening up an important business opportunity for companies that require or want to reduce their emission levels.
The objective of the Latin American and Caribbean Carbon Market Initiative (ILACC) is to boost global competitiveness of carbon credit supply generated in the region, strengthening the conditions for both voluntary and regulated markets and expanding their impact on employment, income, new technologies and green business clusters, as well as the fight against poverty.
Among ILACC's immediate actions are the preparation of a regional carbon market diagnosis, implementation of the ILACC Observatory, creating the Technical Committee and Advisory Council, in addition to the ILACC Regional Forum to expand multisectoral collaboration to develop the value chain linked to carbon markets.
ILACC will also promote carbon market development by strengthening the institutional capacities of its participants, as well as supporting basic principles, taxonomy, transparency mechanisms, project financing and co-financing, access to markets and other aspects that contribute to establishing a good relationship between suppliers and buyers at a global level.
As part of the initiative launch framework, held at the 52nd regular meeting of the General Assembly of the Latin American Association of Development Finance Institutions (ALIDE) on May 19, 2020, Jorge Arbache, Vice President of CAF's Private Sector, stated that "The region has great climate potential, especially thanks to its unique ability to offer nature-based solutions. that have a fundamental role in mitigating the effects of climate change. In this regard, the carbon market offers a historic opportunity for Latin America, perhaps even more important than other boom cycles experienced by the region associated with agribusiness, mining and hydrocarbons."
Mr. Carlos Linares, President of COFIDE and ALIDE, also stressed the importance of "an initiative such as the one CAF is proposing to achieve better carbon market development in the region" and pointed out that "ALIDE is ready to join the initiative and lend support with training activities and exchange of experiences." He spoke of the importance of jointly putting together a platform for this kind of development in the region.
ILACC will work in the following areas:
- 1) Strengthening the capacities of the participating institutions, seeking to align interests and knowledge about the carbon market's costs and benefits, along with the elements necessary for its development.
- 2) Creating knowledge, addressing issues of regional interest for a roadmap aimed at the convergence of taxonomies, standards, verification methodologies and certifications, all central elements for the carbon market to function efficiently.
- 3) Multi-sectoral dialogue, to create and disseminate knowledge that contributes to accelerating learning processes and exchanging experiences and good practices, thereby strengthening the value chain.
The ILACC initiative is aligned with CAF's strategy to become the green bank of Latin America and the Caribbean, which will materialize in financing for green projects for USD 25 billion over the next five years. Additionally, 40% of CAF's approvals will be related to green objectives by 2026.