As the impact of climate change gains presence in our everyday lives, many countries have engaged in efforts to mitigate the emission of global greenhouse gases (GHGs) in innovative and cost-effective ways to scale up emissions reductions and foster financial flows, including through so-called carbon market instruments.
To support, facilitate and build "readiness" for such instruments, the World Bank established a grant-based global partnership of developed and developing countries that provides funding and technical assistance for the collective innovation and piloting of market-based instruments for the reduction of greenhouse gases emissions.
This platform, called the Partnership for Market Readiness (PMR), is celebrating its 8th Assembly Meeting in Mexico City, the capital of one of the countries that has established an agenda to prevent and mitigate the effects of climate change as part of its national plan for the next years.
In this interview with Cesar Arreola, a World Bank expert in carbon markets we explore the current situation of the carbon markets, the role of Mexico in a global context and the impact this type of initiatives might have on the everyday lives of Mexican families.
1) What are carbon markets?
Emission reductions or ‘carbon credits’ (calculated in metric tons of carbon dioxide equivalent, or tCO2e) are traded in carbon markets. This form of permit trading is a common method countries use in order to meet their obligations under the Kyoto Protocol; namely the reduction of carbon emissions in an attempt to reduce greenhouse gas emissions and mitigate future climate change.
2) What would happen if countries didn´t make efforts to reduce their carbon emissions? Why is this a pressing issue?
The climate is changing and it’s changing more quickly than many people realize. If we don’t act now and act decisively, global temperatures will rise above 2 degrees Celsius and this will have catastrophic consequences. This was recently discussed in a number of reports issued by the World Bank.
A changing climate affects the poorest people in developing countries the most. Droughts or heavy rains that lead to floods are disastrous to people with no buffers or savings. A changing climate may cause major migrations of displaced peoples which will affect all countries. We need to act now to prevent rising temperatures and sea levels and increasingly destructive natural disasters.
3) How ready are countries to face the impacts of climate change? What is the global panorama we are looking at?
Countries are working both to mitigate climate change (by lowering their greenhouse gas emissions) and to adapt to the consequences of a changing climate (for example by building sea walls and introducing drought resistant seeds to farmers). But this is very expensive. In general, there is not enough funding available to implement the necessary mitigation and adaptation measures. Many countries are not ready to face the impacts of climate change and progress in reducing GHG emissions is too slow. At this pace, we may see some disastrous consequences of past greenhouse gas emissions. This is why initiatives such as the PMR are so important.
4) The 8th Partnership Assembly of the PMR is happening in Mexico. Why Mexico?
Mexico kindly agreed to host the 8th Partnership Assembly meeting. It is an excellent opportunity for Mexico, who is a key global player in climate change action, to showcase its progress to stakeholders, including the general public, the private sector, the media and of course colleagues in developed and developing countries around the world.
5) What has Mexico done to reduce carbon emissions?
During the last few years, the Government of Mexico has made climate change mitigation and adaptation a national priority. Mexico established an Inter-Ministerial Climate Change Commission in April 2005, produced its first National Climate Change Strategy in 2007 and began the implementation of a Special Climate Change Program in 2009.
Also, since 2012 it has a General Climate Change Law that has created an unprecedented mandate to transition towards a competitive, sustainable, and low-carbon economy that can generate environmental, social and economic benefits. The Bill also supports Mexico’s aspirational target of reducing greenhouse gas emissions by 30% below business-as-usual levels by 2020 and 50% below 2000 levels by 2050. This complements other obligations, including limits to electricity generation from fossil fuels (the caps are 65% by 2024, 60% by 2035, and 50% by 2050).
The Law also gives the Mexican Federal Government the authority to create programs, policies and actions to mitigate emissions, including an emissions trading scheme or carbon taxes.
The current administration has also produced a new and updated National Climate Change Strategy, its guiding policy instrument. This seeks to address – in the medium and long terms – the effects of climate change and supports the transition to a competitive, sustainable and low carbon economy.
In order to achieve this, Mexico introduced a carbon tax on fossil fuels this year. The tax – which is linked to the specific carbon content of each fuel – aims to promote a shift to cleaner energy sources (including natural gas). Furthermore, the annual tax bill under which the tax was created allows Mexico to use project-based certified emission reductions (CERs, or carbon credits) to offset the tax obligation, which could support the creation of a domestic carbon market.
6) How will this impact the everyday lives of average Mexican families?
Mexico’s greenhouse gas emissions represent roughly 1.4% of global emissions (making it the 12th largest emitter in the world). Although it could be argued that the country’s contribution is not significant, Mexico has repeatedly demonstrated “it is a country with global responsibility, convinced that economic development can and must be achieved while protecting the environment, as this is a public good” (the National Climate Change Strategy).
In addition, Mexico is highly vulnerable to the effects of Climate Change. As a recent World Bank study has shown, a changing climate can negatively affect Mexico’s poverty reduction goals. In Mexico and elsewhere, climate change can easily roll back decades of efforts to fight poverty. As World Bank President Kim Jim said, “If we don’t confront climate change, we won’t end poverty”.
7) What are the next steps for Mexico and Latin America? What are the challenges ahead?
The creation of new mitigation instruments – such as a carbon tax – calls for new rules and procedures, in particular regarding an offset mechanism. Also, Mexico still needs to update its Special Climate Change Program and the Special Renewable Energy Program to set specific goals, targets and actions. This is expected to be announced in the second quarter of 2014.
Ongoing reforms may also require the re-alignment of existing mitigation instruments and the creation of new regulatory frameworks. The main challenge is to ensure that a carbon market infrastructure is set up quickly. Mexico and the region will also need to strengthen and develop capacity and local knowledge, which is why the Measurement, Reporting and Verification (MRV) Workshop at the end of this week is so important.
Finally, it is important that Latin American countries benefit and learn from the lessons and best practices seen in similar carbon market initiatives around the world.