WASHINGTON, November 23, 2010 – The World Bank (WB) Board of Directors approved today a package of three initiatives totaling US$713.24 million meant to bolster Mexico’s “green” efforts in energy, transportation and the environment –all of them areas seen as strategic because of their close association with the effects of climate change.
These initiatives comprise the following loans and grants:
- A US$401 million loan for public policy development aimed at supporting government efforts to meet the climate change mitigation and adaptation goals set forth in its Climate Change Special Program, PECC);
- A US$307.74 million package for the Efficient Lighting and Appliances Project – composed of a US$250 million WB loan, a US$50 million Clean Technology Fund (CTF) concessional loan, and a US$7.12 million Global Environmental Facility (GEF) grant; and
- A US$4.5 million GEF grant for the Gulf of Mexico Coastal Wetlands Climate Change Impact Adaptation Project.
“The operations approved today are the result of close collaboration between Mexico and the World Bank and will allow us to continue promoting our country's economic and social development, placing special attention on themes of climate change mitigation and adaptation,” said Ernesto Cordero, Finance and Public Credit Secretary. “Operations like these contribute to strengthen Mexico's institutional and regulatory framework to better address the climate change challenge and help us reach the goals set forth in the Climate Change Special Program (PECC). Furthermore, it will help us expand the supply of financing sources in order to support the necessary investments in the sector,” Cordero noted.
Supporting environmental sustainability and strengthening the institutions charged with implementing such policies underpin the World Bank support in this area. Addressing climate change challenges through mitigation mechanisms, as laid out in these three new projects, will have a positive effect by improving the country's competitiveness in the energy and environmental arenas, while creating employment opportunities.
These initiatives focus on a comprehensive service package that includes advisory, technical assistance, knowledge exchange and coordination services, jointly supporting the creation of a framework that will allow Mexico to advance towards a low-carbon economic growth and include measures to adapt to climate change impacts.
Towards a Low Carbon Growth
Through the implementation of government policies and programs to adapt and mitigate climate change in the energy, transportation, housing and forestry sectors, Mexico has become one of the most advanced nations internationally.
“Mexico has proven to the international community how a country with an emerging economy can adopt a responsible and proactive attitude toward climate change challenges, becoming the respected host of an international climate change agreement. COP 16 in Cancun is a clear example of the latter,” said Gloria Grandolini, World Bank Country Director for Mexico and Colombia. “We support the government's efforts to establish greenhouse gas-emission reduction initiatives in order to attain a sustainable and inclusive development,” Grandolini added.
The US$400+ million loan supports the government’s low carbon development, with the following expected results:
- Increase renewable energy sources by promoting energy efficiency through cogeneration;
- Improve the efficiency of the vehicle fleet and road operations in Mexico;
- Modernize the housing market to include energy efficiency in construction standards; and
- Incorporate climate change considerations in land management and forestry activities.
Policy areas targeted in this operation are the result of a comprehensive analytical and consultation effort undertaken by the World Bank in Mexico during the past three years. It involves areas with great potential for reduction of greenhouse gas emissions while offering economic and financial returns.
Some of the specific results of this operation include:
Energy Sector: Increasing the number of energy cogeneration permits granted by the Energy Regulation Commission.
Transportation Sector: An estimated 30,000 vehicles belonging to public transportation operators will be covered by the Clean Transportation program.
Housing Sector: Building of 200,000 new housing units under the National Housing Commission's (CONAVI) subsidy program, which contemplates energy efficiency systems and building of 100,000 new houses that qualify for international carbon credits under the Clean Development Mechanism (an agreement subscribed in the Kyoto Protocol that allows governments in developed countries and companies to enter agreements to fulfill greenhouse gas-reduction goals).
Land and Forestry Management: Increasing forest management permits from 4,000 to 6,600 between 2010 and 2012 as the result of regulatory reform; publishing the draft for the REDD+ strategy (which seeks to stop deforestation and includes strong involvement from local communities), in order to conduct public consultations.
The organization responsible for the implementation of this loan is the SHCP, which in turn has designated the National Savings and Financial Services Bank (BANSEFI) as financial agent. This is a US-dollar denominated variable interest rate (6-Month LIBOR) loan, plus a variable margin, with a 14-year maturity period. The opening fee has been fixed at 0.25% of the total sum. The project is expected to end on June 23rd, 2012.
More Efficient Lighting and Appliances
The Efficient Lighting and Appliances Program will promote a more efficient use of energy in households through technologies that mitigate climate change impacts.
First, incandescent light bulbs are replaced with more efficient compact fluorescent bulbs, especially in low income homes. About 45 million energy-saving light bulbs will be provided to 11 million low income homes. Furthermore, safe disposal mechanisms for dangerous waste, such as mercury contained in incandescent light bulbs, will be created and utilized.
Incentives will be provided to promote replacement of old and inefficient refrigerators and air conditioning equipment. Vouchers and credit will be granted to consumers to replace approximately 1.7 million old and inefficient refrigerators and air conditioning units in the space of four years.
Finally, through a technical assistance program, it will improve the Energy Secretariat's (SENER) capacity to promote activities and generate public awareness toward a more efficient use of energy.
“Mexico is both a great energy producer and exporter as well as one of the biggest energy consumers in the region. As a result, this is a strategic sector for the country's economic growth, productivity and competitiveness,” explained Gustavo Saltiel, World Bank Sustainable Development Area Manager for Mexico. “Moreover, the efficient consumption of energy is a key element in strengthening long term electricity competitiveness and sustainability,” he added.
This innovative operation combines World Bank, CTF and GEF funds for the first time. The total cost of the project is more than US$700 million involving a combination of financial products, among them a US$250 million WB loan, US$127 million in financing from Nacional Financiera (NAFIN), a CTF concessional loan worth US$50 million, a GEF grant of US$7.12 million and US$102.7 million from the government counterpart. The remaining sum consists of consumer contributions.
The entities responsible for implementing the WB's and CTF's loans are SENER and NAFIN, respectively. The first one is a variable interest rate loan (6-Month LIBOR), plus a variable margin, with a 12-year maturity period and a 12-year grace period. The second one is a loan with a fixed annual rate of 0.75 percent, a 20-year maturity period and a 10-year grace period. The project is expected to end on June 30th, 2014.
Gulf of Mexico Environmental Agenda Grant
This US$4.5 million GEF grant for the Gulf of Mexico Coastal Wetlands Climate Change Impact Adaptation Project will be executed by the WB and seeks to promote its adaptation to the effects of climate change.
The program will be carried out through pilot mechanisms to generate information on the costs and benefits of undertaking concrete actions to reduce coastal vulnerability. One of the program’s challenges is to coordinate across different government levels. To that end, mechanisms need to be drawn up to report on the adaptation process for environmental protection, as well as key economic activities such a water generation, fishing and agriculture.
Some of the expected results include:
- Design studies to guide adaptation mechanisms that facilitate prompt implementation and include a monitoring strategy and supply system;
- Three wetland management plans, one of them to be implemented in protected areas;
- Persuade municipalities to declare 15,000 hectares as conservation areas; reforest 5,000 hectares with native species to reduce the impact of climate change on coastal wetlands; and build 3,000 meters of coastal embankments to reduce the threat of sea level rises; and
- Elaborate and publish practical guidelines on the costs and benefits relating to the adaptation mechanisms for coastal wetlands, as an example worthy of imitation.
The entities responsible for implementing this grant are the National Ecological Institute (INE) and the Mexican Institute of Water Technologies (IMTA). The National Public Works and Services Bank (BANOBRAS) has been designated as financial agent. It will be implemented across a five-year period and will have a total cost of US$23.5 million, US$4.5 million of which will be financed by the GEF grant, US$1.9 million will come from the Government of Japan and US$17.1 million from the government counterpart. The project is expected to end on October 31st, 2015.
The strategic partnership between Mexico and the World Bank on climate change issues started in the mid-90s and envisages a comprehensive program of financial, knowledge and coordination services. The package includes 35 initiatives between loans, grants, greenhouse gas emission-reduction certificates and other financial instruments.
About the Global Environmental Facility (GEF) and the World Bank
The Global Environmental Facility is a mechanism that provides grants and funds with the intention of achieving global environmental benefits in six focal areas: climate change, biodiversity, international waters, persistent organic pollutants, land degradation and ozone layer reduction. The GEF also supports the work of global agreements to combat desertification.
The World Bank Group is one of the GEF’s implementing agencies and helps countries prepare projects that are cofinanced by the GEF, as well as supervising their implementation. The Bank plays a primary role in ensuring the development and administration of investment projects. It relies on its experience of investing in eligible countries to promote investment opportunities and mobilize private-sector, bilateral, multilateral, governmental and non-governmental resources that are consistent with GEF objectives and different national sustainable development strategies.