Figure 2.5. Climate Change Could Drive Millions of People in LAC Back into Extreme Poverty

Moreover, it is expected that changes in demand will increase peak electricity consumption, affecting the stability of power systems as well as generation capacity requirements.

All in all, the combined effects of climate change in LAC are projected to push between 2.4 million and 5.8 million people into extreme poverty by 2030 (Jafino et al. 2020), mostly due to health-related effects—the increasing prevalence of child stunting, vector-borne diseases, and diarrhea—resulting from lack of access to safe water and sanitation, excessive heat, and more frequent droughts and floods (figure 2.5).

Figure 2.5. Climate Change Could Drive Millions of People in LAC Back into Extreme Poverty

Climate change impacts on poverty by 2030

a. Additional people living in extreme poverty as a percent of the total population, by country b. Additional people living in extreme poverty, by country

Percent of total population 1.4 1.2 1.0 0.8 0.6 0.4 0.2 Million 3.0

2.5

2.0

1.5

1.0

0.5

0.0

0.0 Bolivia BrazilColombiaCosta Rica Dominican RepublicEcuadorEl SalvadorGuatemalaHondurasMexicoNicaraguaPanama PeruUruguay Bolivia BrazilColombiaCosta Rica Dominican RepublicEcuadorEl SalvadorGuatemalaHondurasMexicoNicaraguaPanama PeruUruguay Ag revenues Disasters Food prices Health Labor productivity

Source: Jafino et al. 2020. Note: Extreme poverty is defined as living on less than US$1.90 a day. Ag = agriculture.

Moreover, without concrete adaptation and mitigation actions, estimates suggests that more than 17 million people in LAC (2.6 percent of the population) could be forced to migrate within their own countries to escape the slow-onset impacts of climate change. This is particularly concerning if climate-migrants are forced to the poorest and informal settlements in cities. These areas are often the most exposed to flooding and landslides, which are expected to become more frequent and severe because of climate change.

Finally, the region’s exports could be reduced by the EU’s progressive embrace of Carbon Border Adjustment Mechanisms (CBAM) that would tax goods that are intensive in carbon or that have other environmentally damaging effects.2 The introduction of the pilot CBAM tariffs comparable to the EU Emissions Trading System (ETS) on cement, iron and steel, aluminum, fertilizers, and electricity imports from 2023 will probably have a limited effect on the region. Iron and steel sector exports from Brazil are likely to be the most affected. As the tax expands to agricultural products, however, the effects could be more widespread. Thus, it is increasingly important to decarbonize quickly to ensure the competitiveness of regional exports. Opportunities also exist for LAC exports, which are less emission-intensive than those of export competitors from other regions.