With the 2nd largest economy in Latin America (15th largest in the world), and as one of only two countries in the region accounting for more than 1% of global GHG emissions, Mexico will clearly be an important gauge for how the Paris agreement is faring in terms of implementation on the ground in developing countries.
A year after Paris, we took the opportunity of catching up with senior staff at the National Institute of Ecology and Climate Change (INECC), a decentralized body of the Ministry for Environment and Natural Resources and one of the lead agencies coordinating Mexico’s implementation efforts.
We are grateful to Dra María Amparo Martínez Arroyo (Director General), Msc Iris Jiménez Castillo (Director for International Affairs), Mr Rodrigo Fernández Borja (Head of Communications) and other Ministry experts for both their written and oral responses to our questions.
Background to Mexico’s NDC
Mexico’s INDC was one of the first to be submitted ahead of the Paris COP (COP21), and was ratified in September 2016. The NDC is very much part of a wider context of climate policy in Mexico, which has been in development for more than a decade and a half, since the first of three National Strategies on Climate Change was published in 2000. The latest phase of this evolution has seen a fairly comprehensive set of climate-related policies and programmes promulgated over the past few years.
The most important of these, the General Law on Climate Change (LGCC in Spanish), entered into force in October 2012 and, according to Climate Action Tracker, was “one of the world’s first climate laws – and the first in a developing country”.
Other relevant laws and policies include a carbon tax and an “Electricity Law”, both introduced in 2014, an Emissions and Emissions Reductions Registry introduced in 2015, and the Energy Transition Law, enacted just after Paris, which includes clean energy targets for the period to 2024.
Mexico’s NDC contains an unconditional commitment to reduce GHGs by 22% on a “Business As Usual” (BAU) basis as at 2030. Subject to finance and other assistance from international actors, it indicated a further 14% reduction (to 36% in all against a 2013 baseline) could be achievable. As well as GHGs, the NDC included short-lived climate pollutants (SLCPs or “black carbon”), with the addition of which the reduction targets reached 25% (unconditional) and 40% (conditional) respectively.
The NDC also included quite detailed indications on adaptation actions that would be required, given Mexico’s vulnerability to a variety of climate risks and the concentration of their impacts on more vulnerable municipalities.
The NDC submitted on ratification was identical to the INDC submitted in 2015 and no revision is expected before the first official review date in 2018.
“The unconditional NDC is based around actions the Government believes are the most cost-effective to implement over the 2030 timeframe”
We began by asking the INECC team about this overall background and context for the NDC
Broadly speaking, the unconditional element of the NDC represents the targets and actions that are already built into the General Law on Climate Change and the other laws and policies that support this. These actions are the ones which the Government believes are the most cost-effective to implement over the timeframe of the NDC. The conditional element represents additional measures we could implement given the necessary assistance internationally, both in terms of finance and technology transfer.
It’s obviously early days yet, but how has progress been on the other new laws and programmes that were introduced in 2014 and 2015?
Mexico’s Energy Transition Law includes a clean energy target: 25% of electricity generation from clean sources by 2018, 30% by 2021, and 35% by 2024. The implementation of this law is crucial for Mexico’s emissions pathway. Promising areas as we move forward into implementation include industrial energy efficiency standards, co-generation and waste heat recovery at industrial plants, and the early retirement of inefficient facilities. These measures have high potential uptake in the private sector.
The Special Tax for Production and Services on carbon emissions, such as gasoline (the so-called “Carbon Tax”), has been fully operational since 2014 when it entered into force. Overall, it has generated revenue of approximately $8 billion pesos ($380 million) annually since then. The tax is levied on the carbon content of the fuel, exempting natural gas, which is used as a reference fuel.
The tax is the precursor to other policies that will allow the creation of a national carbon market that could be launched in 2018.
The “Electricity Law” of 2014 provided for the issuance of Clean Energy Certificates (CELs in Spanish), that are designed to prompt major power consumers to seek their supply from accredited clean energy generators. If they don’t meet the levels set by the law, users must purchase CELs to compensate for the electricity consumed that has not been generated from clean sources.
“We are on track to meet the clean energy target for 2018”
The law will take effect in 2018, when the minimum requirement for the use of clean electricity by major users will be 5% of all their electricity consumption, rising to 5.8% by 2019. Following the two long-term energy auctions organized by the National Energy Control Center (CENACE) in 2016, Clean Energy Certificates are expected to be auctioned in January 2017.
In general terms, we are on track to meet the overall target in the Energy Transition Law, of 25% of clean energy by 2018.
How is NDC implementation being co-ordinated? Which is the lead ministry and which are the other key implementing ministries?
The Ministry of Environment and Natural Resources (SEMARNAT in Spanish) coordinates the discussion and implementation of the NDC through the Interministerial Commission on Climate Change. This is a body comprised of 13 federal ministries including the Ministry of Agriculture, Rural Development, Fisheries and Food and the Ministries of the Interior, Foreign Affairs, Communications and Transport, Social Development, Tourism, Economy, Public Education, Health, Energy, Environment and Natural Resources, Treasury and Public Credit, and the Navy.
On mitigation, the starting point for implementation has been the development of ten sectoral analysis projects, each of which has the objective of analysing and evaluating possible technological routes for the implementation of NDCs at a sector level. The sectors that have been studied are:
- Oil and Gas
- Energy-intensive industries (steel, cement, lime)
- Other industries (chemical, automotive, paper, pharmaceutical, non-ferrous metals, etc)
- Sewage water
- Solid Waste
- Residential and Commercial sectors
- Land use, land use change and forestry
Five of these studies are already ongoing and the rest are about to start. They assess the horizons committed to in the NDC, including sectors such as transport or oil and gas, where possible technological routes indirectly represent changes in national electricity demand (in the transport sector, for example, if large parts of the urban and interurban sector are electrified). The studies analyse contributions by other sectors, for example by permanent industrial co-generation by the oil and gas sector.
As well as providing a technical roadmap for implementation at a sectoral level, these studies will contribute to a costing of the NDC commitments and an understanding of the possible sources of finance for the various actions that will be needed.
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How are things organized at lower tiers of government?
The coordination with the sub-national governments (states and municipalities) is organized under the National System for Climate Change.
It is also important to note that in certain activities, sub-national levels of government may actually be taking the lead. For example in a sector like transport, many projects make best sense at a metropolitan level, including in the creation of public / private partnerships that can attract international and private sector financial support.
“Green bonds are a reflection of Mexico’s commitment to sustainable development”
What is the role of the development banks, especially NAFIN? What are the proceeds of its green bonds being used for?
NAFIN (Nacional Financiera, a government owned development bank) is a pioneer in wind energy projects in Mexico. Its first green bond issuance, in October 2015 ($500 million, rated BBB+) will finance the current portfolio of nine wind farms located in the states of Oaxaca, Nuevo León and Baja California. A further issuance was completed in August 2016. This was for 2 billion pesos and the proceeds will be used for the financing of wind farms and mini hydroelectric plants.
The NAFIN green bonds are a further reflection of Mexico’s commitment to sustainable development. With these issuances, NAFIN is positioning itself as a strategic development bank to meet the Federal Government’s environmental goals.
The bonds have been well received by the international financial community. “A major Mexican issuance with the Standard Climate certification sends a positive signal to Latin America and beyond, in the sense that the green bonds can be a valuable source of funding for low carbon projects”, according to Sean Kidney, CEO of the Climate Bonds Initiative.
He also commented that “The Climate Bond Initiative hopes to build on this innovative initiative jointly with NAFIN in the future and continue to develop green bond markets globally.”
What has been the progress on the Inter-American Development Bank (IDB) bond programme in association with the GCF?
The GCF approved USD 20 million in guarantees for the IDB programme in Mexico and USD 2 million of non-reimbursable funds for the development of the programme. This was in November 2015.
In each of the four countries where the programme will operate, it will use a two-step approach. At first, targeted energy efficiency projects will be funded through loans. Once a sufficient number of projects is aggregated, the programme will “bundle” them to underpin the issuance of partly guaranteed green bonds.
Will Mexico be using the IDB’s recently announced “NDC Invest” programme, and if so what types of support will it be seeking?
As we noted earlier, Mexico has two types of mitigation targets: unconditional and conditional. In the case of the conditional targets, funds from institutions such as the IDB could be used, since the targets depend on international support and external financing to be carried out. It may also be possible to use funds that facilitate the coverage of unconditional measures from such sources as well, including for technical co-operation projects. The priority activities would be areas like renewable energy (wind and solar), green buildings, sustainable cities, urban mobility and infrastructure.
How is the involvement of the private finance sector developing?
Funding for climate change by public and private financial institutions supports the transition to a low carbon economy, reducing the concentration of greenhouse gases, and promoting resilience and adaptation to climate change.
Almost 30 Mexican banks have signed a protocol developed by the Mexican Banking Association for the responsible handling of the environmental risks.
On October 31, the Climate Finance Advisory Council (CCFC) was constituted, bringing together financial sector institutions in Mexico such as AFORES (the association of pension fund administrators), insurers, development and commercial banks, as well as investment funds. The Council is also sponsored by the Mexican Stock Exchange and the Climate Bonds Initiative. At the moment, members have not committed to specific investment amounts, but they have indicated that they are open to including sustainable projects in their investment portfolios. The Council is also seeking to respond to the need to spread access to sustainable financing instruments to Mexican companies.
In addition to guiding the growth of these sustainable investment portfolios, the CCFC, will also advocate on regulatory issues, and to help mature the green market through the Mexican Stock Exchange and creation of institutions that certify green projects. The main sectors that the Council sees as benefitting from these developments are energy, transport, water treatment, agriculture, forestry, housing and real estate.
One other area where we see considerable private sector potential is the scaling up of REDD+ instruments. Mexico has benefitted from UN programmes to date, also from a co-operation with USAID. We are working very closely with the agriculture sector as this creates the biggest pressure on forests. We are also working with communities at the grassroots level, focussing on the most vulnerable areas such as restoration of coastal wetland ecosystems. But institutional capacity building is vital if we are to scale this up.
The Mexican government held a “roadshow” for London-based investors in May 2015. Is that part of a wider programme and were there any specific outcomes?
This was one of many ways the Government is looking to help to match-make for investments at an international level. No specific outcomes were expected, this is part of a process which will be ongoing over a long period. Other roadshows are being planned but there are no defined dates yet.
How are you handling the issue of conditionality of the INDC? Has it been agreed with UNFCCC how this will be monitored? For example, the definition of international assistance to be used?
Many countries presented conditional commitments. The monitoring of the NDCs is still an ongoing discussion under the UNFCCC, including the definitions regarding international assistance.
The main area where we will need international co-operation is in technical assistance and capacity building. We mentioned earlier capacity building in ecosystems management. Another example would be the development of MRV programmes to track progress on goals in sectors such as agriculture and forestry. We need to create better capacity in these sectors, for example in creating accounting systems for mitigation actions.
On the technical co-operation side, an example would be in transport. We are seeking to redefine fuel-efficiency and other fleet standards. There are already established protocols for such standards elsewhere, as well as established ways of working with local vehicle manufacturers on the processes and infrastructure they need in order to meet such standards, and it would obviously be much more quick and efficient for us to be able to tap into such experience rather than having to reinvent from scratch.
Has the NDC implementation process led to any conflicts with other national goals, e.g. the SDGs, and if so, how have these been resolved?
A process is being conducted to make synergies among the SDG goals and climate change commitments, including the identification of processes and indicators that are common for both initiatives. Mexico supports the search for synergies among all three UN Conventions – UNFCCC, UNCCD, and CBD.
Are there any key dependencies for Mexico’s NDC implementation of the environmental policies that may be pursued in the USA?
The NDC as a national commitment will be pursued by implementing the national climate change policy. Mexico will fulfill its commitments as a responsible international actor. Of course, international co-operation will be a part of the means of implementation and we have an important partnership with Canada and the United States as part of the goals at the North American Leaders’ Summit. The three countries shared a common commitment to a competitive, low-carbon and sustainable North American economy and society. We are confident we will find a common understanding with the new U.S. administration to continue pursuing this agenda.