Why it is important: The World Bank has developed an innovative financing mechanism to incentivize countries to achieve ambitious climate and environmental conservation targets.
How it works: The mechanism consists of the performance-based reduction of interest payments on a US$350 million Development Policy Loan (DPL) to support policies that promote a greener economy and resilient economic growth.
Uruguay at the forefront: Uruguay is the first country in the world to use this innovative mechanism.
Methane emissions: The chosen target is the reduction in emissions intensity of methane from livestock production. The reduction of methane emissions is key to achieving climate change mitigation goals in Uruguay, as methane emissions from beef production account for 48.6 percent of all greenhouse gas emissions nationwide.
Grazing and conservation: Livestock production, the country's main export sector with revenues of US$3.614 million in 2021, is mainly carried out in natural pastures, which are unsuitable for crops. Livestock plays an essential role in protecting these pastures, preventing their degradation and contributing to biodiversity and soil conservation. Uruguay has already implemented several initiatives demonstrating that proper grazing management and appropriate animal stocking rates per hectare can reduce methane emissions.
Progressive reduction: Key performance indicators have been set for two periods. The indicators for reducing methane emission intensity will be at least 33% between 2028 and 2032 and at least 36% between 2033 and 2037.
Ambitious target: The targets agreed by Uruguay and the World Bank are 1% more ambitious than the country's voluntary nationally determined contributions (NDCs) adopted to reduce national greenhouse gas emissions under the Paris Agreement.
Initial evaluation: Beginning in 2028, there will be an annual assessment to determine whether the country is meeting the agreed-upon targets for reducing methane emissions.
Savings of US$12.5 million: For Uruguay, this could mean a reduction of up to US$12.5 million in loan interest payments if it achieves a verifiable decrease in methane emissions from livestock production.
US$1 million grant: The World Bank will provide an additional US$1 million to the Ministry of Livestock, Agriculture and Fisheries (MGAP) to help achieve methane reduction targets.
Monitoring targets: The United Nations Development Program (UNDP) will be responsible for monitoring key performance indicators annually.
Funding source: The US$12.5 million allocated to the reduction in interest rates paid on the DPL will come from the Fund for Innovative Global Public Goods Solutions (a World Bank fund for projects that support the development of global public goods).