Driving Panama’s NDC Implementation Through Green Projects and Investment Readiness
Located at the transition point between North and South America, on both the Caribbean Sea and the North Pacific Ocean, the Republic of Panama is one of the only countries in the world whose emissions are lower than its absorptive capacity.
Panama’s unique location, coupled with strong human development indices and a competitive economy bolstered by the influence of the Panama Canal, make it a key socioeconomic player in the Latin America and Caribbean (LAC) region.
Like much of the region, however, Panama is considered highly vulnerable to the effects of climate change. The Canal itself, for example, is already facing impacts due to reduced rainfall over the whole of Central America, which stands to seriously impact the country’s economy. Other extreme weather-related events likely to be exacerbated by climate change include tropical storms, floods and droughts, all of which will significantly affect the health and safety of people, ecosystems and productive systems, particularly the livelihoods of already poor or marginalized groups in the country.
In full recognition of these threats, the Government of Panama has taken important steps to prioritize and mainstream climate action at the highest level over the last decade, specifically through the alignment of climate ambition with national development goals.
Panama became a member of the NDC Partnership in December 2016 after submitting their first Nationally Determined Contributions (NDCs) to the secretariat of the United Nations Framework Convention on Climate Change (UNFCCC). This significant step was quickly followed by the submission of a request for overall NDC enhancement, together with the design of a Monitoring, Reporting and Verification (MRV) tool and the concept note for an NDC Implementation Plan.
Since then, the Partnership has responded to 27 different activity requests in Panama through the Climate Action Enhancement Package (CAEP), ranging from assessing electric mobility potential in the public sector transport, to capacity building and workshops focusing on NDC ambition. These were made possible with support from the United Nations Environment Programme (UNEP), the United Nations Development Programme (UNDP), World Resources Institute (WRI), the World Bank and the Food and Agriculture Organization (FAO).
After significant consultations and robust technical work, Panama submitted its updated and enhanced NDC in December 2020, showing greater ambition through increased climate pledges, including 29 commitments across ten strategic sectors, and reflecting a significant commitment to carbon neutrality and climate action. The country is currently preparing its second NDC with even greater ambition, including a climate-resilient and socio-economically inclusive 2050 strategy.
Committed to keeping its status as a net carbon sink, Panama’s climate vision is guided by the carbon neutrality of each of the 10 sectors included in the updated NDC through inclusive, low-carbon, and climate-resilient sustainable development. To better enable this, on 8 June 2023, the government approved Executive Decree No. 3, which officially adopts the National Climate Change Policy 2050. The framework law on climate change is also under discussion in the National Assembly, which will establish effective mechanisms and significant investments in public awareness raising.
This year, Panama further strengthened their climate commitments by launching a project to increase the climate resiliency of the country through the development and implementation of a National Adaptation Plan (NAP) and sectoral adaptation plans.
Alongside stronger mitigation targets, particularly in the Energy and LULUCF (Land Use, Land-Use Change and Forestry) sectors, and the introduction of adaptation measures, the Government of Panama has recognized the importance of mainstreaming climate across the public and private financial sector.
Ligia Castro, National Director of Climate Change, noted in 2021 that, “We are looking to transform the way the national budget and public investment is done, so that there is not a requirement for the country to have incentives or taxes in place, but rather changes the way we work to address the climate crisis. So that what we today call sustainable investment, climate finance and green projects become the norm; the way countries do their job”.
To this end, the NDC Partnership has been working directly with the Panamanian Government over the last two years on crucial initiatives to help fast-track climate mainstreaming.
Further impact has been made via direct coordination with the Ministry of Economy and Finance (MEF). Two working instruments have been used for this process, namely the Implementation Manual of Labelers for Public Investment Projects, which allows the MEF to verify investment projects in line with climate risk and relevant criteria, and the Technical Guide on Climate Change for the Planning and Structuring of Public Investment Projects, which guides planning officers on facilitating the incorporation of climate change into investment projects.
The overall goal of this process is to institutionalize green projects by easing their development and implementation. Thus far, training has been carried out in 51 selected public institutions, with priority given to those that are directly or indirectly linked to Panama’s NDCs. With 50% of the non-financial public sector institutions evaluated thus far, it has been determined that around 20% of public investment in the 2023 national budget features climate change criteria.
Other developments in Panama's drive to incorporate climate change in public investment processes are highlighted through four key project components submitted to the GCF:
- Panama's National Public Investment System (SINIP) is to effectively incorporate adaptation and mitigation criteria into its decision-making processes through climate change labelers.
- Innovative technology information systems will incorporate climate change criteria to support decision-making and monitoring processes in public financing.
- Increase climate finance through market-based instruments, with an emphasis on debt-for-adaptation swaps.
The Climate Change Directorate of the Ministry of Environment of Panama has been working closely with the national financial sector, in the framework of the Sustainable Finance Working Group (SFWG) formed in 2018 to provide Panama with an inclusive, resilient and sustainable economy. With support from UNEP, a readiness project financed by the Green Climate Fund (GCF) is underway with the objective of aligning the financial system to the Paris Agreement.
This year, progress has been made on the sustainable taxonomy for Banks, Insurance, Reinsurance and Securities Markets, which has robust mitigation and adaptation components achieved through extensive participatory consultation with experts. This instrument is undergoing public consultation, with aims for a launch in late 2023, starting with capacity building for physical climate risk management and the preparation of environmental and social safeguards. An important element of this process will involve updating the regulations of the Banks Superintendency, with assistance offered to increase the issuance of private green bonds on the Panamanian stock exchange.
"Through strategic partnerships and a commitment to carbon neutrality, Panama is working towards a future where collaboration, sustainable investment and green projects become the norm”, notes Estefanía Ardila Robles, NDC Partnership Deputy Director of Country Engagement. “The NDC Partnership is committed to supporting Panama's ongoing climate ambitions and assisting the country increase its national resilience and long-term sustainable development goals."
Several countries across the Latin America and Caribbean (LAC) region are mainstreaming climate action by including climate priorities in the design, implementation and evaluation phases of policy, public investment planning and project structuring. Read about the Dominican Republic’s story here.