Climate finance in Guatemala refers to resources mobilized by public and private institutions and international partners to reduce greenhouse gas emissions and strengthen the country's resilience to the impacts of climate change. Despite accounting for only 0.08% of global CO₂ emissions in 2023 (approximately 43.98 Mt), Guatemala is among the nations most exposed to extreme events— prolonged droughts, tropical storms, and hurricanes that, in 2020, with Eta and Iota, highlighted its agricultural and social vulnerability.
Domestically, the country has a set of legal instruments and financing programs that include the Renewable Energy Incentive Law (Decree 52-2003), the 2013 Climate Change Framework Law, and the PEG-5-2025 auction, which aims to contract 1,400 MW of clean energy by 2030. In 2024, the government allocated approximately US$6.5 million to the National Climate Change Fund (FONCC), earmarking 80% for adaptation and 20% for mitigation, with ambitious targets set of 80% renewable generation by 2030 and increased energy efficiency by 2050.
The private sector has increasingly adopted green instruments, as demonstrated by CMI Energy's $700 million green bond issuance, Banco Promerica Guatemala's $500 million green bond, and CABEI's $30 million credit line to Banco Agromercantil. At the international level, membership in SIEPAC and partnerships with the World Bank, the World Food Programme, and the Development Bank of Latin America and the Caribbean have leveraged investments in forest conservation, climate insurance, and resilient infrastructure projects.
However, Guatemala's climate finance system faces criticism regarding its transparency and effectiveness in allocating resources. Hydroelectric projects have been the target of allegations of human rights violations and inadequate consultation with indigenous communities, while funding mechanisms are often subject to misuse or excessive bureaucracy, limiting direct access for the most affected populations.
Climate context and vulnerabilities
Climatic context Guatemala is among the world's most vulnerable countries to climate change. In 2010, it was ranked second on the Global Climate Risk Index due to its high exposure to and frequency of extreme events such as droughts and storms. About half of the country's workforce depends on agriculture, and in 2018, approximately 300,000 subsistence farmers reported crop losses due to drought.
Guatemala is located in a complex geographic area marked by the intersection of three tectonic plates and the Intertropical Convergence Zone, which accentuates the occurrence of earthquakes, volcanic activity, floods, and tropical storms. Hurricanes Eta and Iota, which hit the country in November 2020, exemplified the severe impact of these phenomena, causing significant economic losses and confirming the country's macro-critical vulnerability.
Economic and social context Agriculture is a mainstay of Guatemala's economy, accounting for about 10% of GDP and employing over a quarter of the workforce, with key exports including bananas, coffee, palm oil, and raw sugar. However, the sector is highly vulnerable to climate shocks, as evidenced in 2024 when El Niño -intensified droughts devastated staple crops such as corn and beans across tens of thousands of hectares, severely compromising food security.
Chronic malnutrition is a persistent crisis in Guatemala, which has the highest rate in Latin America and one of the highest in the world—about half of children are stunted, a problem exacerbated by prolonged droughts and recurring periods of food shortages.
About 25 percent of Guatemala's territory is agricultural land, while the remainder is mostly forested or used for other purposes. However, forest cover has declined significantly—from 50 percent in 1950 to about 35 percent today—due to agricultural expansion, illegal deforestation, and a heavy reliance on firewood as an energy source in rural areas.
Natural resources are of great economic importance in the country, as wood and sugarcane byproducts provide more than half of the country's energy, especially in rural households, where firewood remains the main fuel for cooking and heating, even when some families are able to switch to cleaner sources.
Guatemala's transportation infrastructure is limited, with only 43% of its 17,440 km of roads paved, resulting in slow and costly transportation of goods—generating high logistics costs.
Poor connectivity and poor road maintenance contribute to inefficiencies in the transportation sector, which in turn exacerbate air quality problems, especially in urban areas. Air pollution in the country is primarily driven by an aging vehicle fleet, including outdated municipal buses and imported used cars that do not meet modern emissions standards, resulting in extremely high levels of pollutants such as carbon monoxide and fine particulate matter (PM2.5). Studies have recorded concentrations of fine particulate matter (PM2.5) in Guatemala City far above the limits recommended by international health guidelines, reaching 800 mg/m³ in a one-hour period, an amount that can make an adult sick simply by being on the street. The situation is exacerbated by insufficient air quality regulations and weak oversight, as well as stagnation in public transportation modernization projects, such as the Transurbano, which has been marred by corruption.
In 2023, Guatemala's total CO₂ emissions were approximately 43.98 million metric tons, representing only 0.08% of global emissions. The energy and transportation sectors—especially the burning of petroleum products —are the main sources, accounting for over 92% of combustion-related emissions in the country, while other relevant factors include deforestation, land-use change, and industrial activities.
Energy context
Guatemala's energy supply relies heavily on biofuels and waste, accounting for 60% of the country's energy supply. Firewood alone accounts for more than half of total energy consumption, especially in rural households where traditional cooking methods are still widely used despite the availability of modern fuels. The sugar industry plays a significant role by generating electricity from sugarcane bagasse and producing ethanol from molasses, contributing to the country's renewable energy matrix.
Despite Guatemala's strong potential for solar and wind energy, these sources currently represent only a small fraction of the national energy matrix. Studies indicate that although solar and wind resources are abundant, their deployment has been limited by factors such as high upfront costs, infrastructure challenges, and the focus of public policy on other renewable sources such as hydropower and biomass.
Guatemala's total installed electricity generation capacity is approximately 4.21 GW, with a per capita consumption of about 689 kWh per year. Residential users dominate electricity consumption, accounting for 61.8% of total use, while the commercial and industrial sectors account for about 3.5% and 8.7%, respectively.
The average residential electricity price in Guatemala is approximately US$0.295 per kWh, one of the highest in the region and well above the global average. The largely privatized electricity generation sector, combined with limited grid access and high distribution costs in rural areas, drives up national average prices and disproportionately affects rural consumers. The Comisión Nacional de Energía Eléctrica (CNEE) regulates the sector, while the Instituto Nacional de Electrificación (INDE) and private companies are responsible for supply.
Legal and institutional frameworks Guatemala has set ambitious targets to achieve 80% of its electricity generation from renewable sources by 2030 and to expand energy efficiency across all sectors by 2050. These goals build on a foundation in which renewables—primarily hydropower and biomass —already account for more than 60% of installed capacity. The country has also committed to phasing out the inefficient use of biomass and promoting electric mobility —measures that will also reduce dependence on oil and firewood.
Guatemala’s ambitious renewable energy expansion goals require substantial investments—at least $5 billion—to modernize grid infrastructure, expand energy storage capacity, and achieve rural electrification. The recent launch of PEG-5-2025, the largest energy auction ever held in the country, seeks to contract up to 1,400 MW of firm capacity from renewable and low-emission sources such as solar, wind, hydropower, geothermal, and natural gas, with 15-year contracts starting in 2030.
The 2013 Climate Change Framework Law established a legal basis for climate action, requiring private companies to consider climate impacts and adopt appropriate technologies, and allowing participation in voluntary and regulated carbon markets—key steps toward integrating Guatemala into global emissions reduction efforts.
Guatemala's National Strategy to Attract Foreign Direct Investment (FDI) seeks to foster a favorable environment for sectors such as renewable energy, with the aim of boosting green investment and strengthening the country's international competitiveness.
The Renewable Energy Incentive Law (Decree 52-2003) grants a 10-year exemption from VAT, income tax, and import tariffs for renewable energy projects, aiming to stimulate investment in solar, wind, hydropower, and biomass energy. The PEG-5 Tender (2024–2025) further facilitates the integration of small-scale projects into the national grid by allowing their participation in energy auctions or sale in the spot market.
Guatemala’s Foreign Investment Law provides a highly open environment for foreign investors, allowing 100% foreign ownership in any legal sector—including renewable energy—while guaranteeing free currency convertibility and profit repatriation. This legal framework, combined with the Government’s National Strategy to Attract Foreign Direct Investment, positions Guatemala as a competitive destination for global capital.
The proposed National Carbon Credit Program, with an expected allocation of $51 million, aims to further incentivize emissions reductions and strengthen Guatemala's role in carbon markets through the creation of a national credit certification system.
Public funding In 2024, the Guatemalan government allocated approximately US$6.5 million from the national budget to the National Climate Change Fund (FONCC), of which 80% was applied to adaptation projects and 20% to mitigation actions, with the aim of improving the transparency and effectiveness of public climate spending.
Community forest management programs and incentives such as Programa de Incentivos Forestales (PINFOR) and PINPEP have been implemented to engage local populations in reforestation and forest protection actions, although their effectiveness is often limited by unfavorable market conditions, poor agricultural services, and persistent poverty.
Despite these mechanisms, central government capital spending has fluctuated between just 0.3% and 1% of GDP over the past decade, restricting fiscal space for new investments, including climate-related ones. To increase domestic revenues, the K'atun 2032 National Development Plan and the Guatemala No Se Detiene program prioritize improvements in tax administration, budget transparency, and fiscal reform, aiming to strengthen the resource base available for public policies, including environmental ones.
Private financing The successful issuance of $700 million in green bonds by CMI Energy (Corporación Multi Inversiones), with an interest rate of 6.25% and maturity in 2029, exemplifies the growing use of green finance to support renewable energy projects in Guatemala and the region as a whole.