Transforming a Market Toward Low-Carbon Growth in Mexico

Challenge

In 2008, Mexico was the second largest emitter of greenhouse gasses (GHG) in Latin America and the 12th largest globally. Energy-related emissions, including energy use in the transport sector, contributed to over 60 percent of Mexico’s total GHG emissions. Mexico’s residential sector accounted for more than 25 percent of electricity consumption in 2008. Energy consumption in the residential sector was growing faster than GDP, with air conditioning, home appliances, electronics, and lighting contributing equally to levels of residential electricity consumption.

Approach

In response to the dominant role of the residential sector in electricity consumption, the Mexican government initiated several energy efficiency programs using price incentives to replace inefficient lighting and appliances in the sector. The Mexico Efficient Lighting and Appliances Project was part of this effort as well as an element in a broader national strategy designed by the government to reduce greenhouse gas emissions and thus mitigate the impacts of climate change, which are predicted to be severe in Mexico due to its geography. Two nationwide programs were supported by the project: (i) the Sustainable Light (Luz Sustentable) program aimed at phasing out incandescent light bulbs (IBs) by replacing 45.8 million IBs with compact fluorescent lamps (CFLs); and (ii) the “Replace Your Old Appliance with a New One” (“Cambia Tu Viejo por uno Nuevo”) program. These initiatives provided financial incentives for consumers that resulted in replacement of 1,682,802 refrigerators and 201,327 air conditioners ten years old or older.   

An aggressive media campaign was essential to the project’s success. It involved using television, radio, newspapers, and the Internet to spread the message, as well as targeted promotions during soccer matches. To deepen the impact of the campaign by making it relatable for audiences, an innovative idea was put into effect: entering the world of telenovelas. One of Mexico’s most popular telenovelas, Abismo de Pasión (Abyss of Passion), wove information on energy efficiency into its plot lines and dialogue to encourage viewers to replace their light bulbs and household appliances with more efficient models. This new approach to using mass media shows to engage their audiences in the initiative to conserve energy was very cost effective. Actors continued their support by making public service announcements and attending promotional events, such as a public appearance in Mérida, Yucatán, on July 23, 2012, that resulted in an immediate spike in appliance replacements. 

Results

The Sustainable Light program successfully delivered exemplary results:

• The IB replacement program provided approximately 8 million Mexican families with 45.8 million CFLs, in two phases: the first phase distributed 22.9 million CFLs by June 2012, and a second phase distributed another 22.9 million CFLs by September 2012.
• The scale of the achievement in the first phase resulted in an entry in the Guinness Book of Records for the largest number of IBs replaced with CFLs at no cost to the final consumer.
• The program also helped the Mexican government to phase out IBs from the Mexican market, as the national standard (Norma Oficial) was updated in 2010 to ban their commercialization by 2014.

Under “Cambia tu Viejo por uno Nuevo,” the Nacional Financiera (NAFIN) received a line of credit allowing it, in turn, to extend credits to low-income families to replace old and inefficient appliances and fulfill other program goals:

• This successful program led to the replacement of 1,884,129 inefficient appliances (approximately 90 percent refrigerators and 10 percent air conditioners).
• The program also included a comprehensive ecological strategy to collect and then destroy the old appliances in specialized centers at which the refrigerant gases could be confined. The project’s benefits thus extended to creating new jobs at these collection centers. Some centers continued in operation after the project closed by offering their services to commercial and industrial customers.
• The national standard for energy efficiency on refrigerators and freezers was updated in 2012.

By June 2014 (closing date), the project had helped meet key energy-saving targets:

• It contributed to energy savings of 9,242 gigawatt hours.
• Project-supported activities captured and stored or destroyed approximately 147,000 kilograms of ozone-depleting refrigerant gases (R12, R22, and R134).
• Emissions of 5,074,000 tonnes of carbon dioxide equivalent were avoided.
• At the peak of appliance replacement, approximately 100 scrapping facilities were operating, contributing to job creation throughout the country.

Bank Group Contribution

The Mexican government’s efforts to develop a sustainable market for energy efficiency equipment in the large and fast growing energy end-use sectors for lighting, refrigeration, and air conditioning were supported by a blended package of financing instruments. The project was supported by the World Bank, through an International Bank for Reconstruction and Development loan in the amount of US$ 250.625 million, a Clean Technology Fund (CTF) loan in the amount of US$ 50 million, and a Global Environment Facility (GEF) grant in the amount of US$ 7.12 million.

The Bank loan helped to shift the lighting market to CFLs and provided relevant subsidies for low-income appliance customers. The CTF loan provided concessional financing; without this financing, or similar financing from another source, NAFIN, the Mexican development bank, would have had to pull out of the appliance replacement program. The GEF grant helped to design and implement a solid financial package (through the capitalization of a Guarantee Facility) and, through various technical assistance activities, contributed to strengthening Mexico’s institutional capacities.  

Partners

The institutional framework for implementing the Mexico Efficient Lighting and Appliances Project involved numerous partners, each an essential element in the whole. These partners included SENER (Secretariat of Energy) as the implementing agency directly responsible for project oversight and technical assistance activities; FIDE (Trust Fund for Electricity Savings), responsible for the CFL replacement program; and CFE (Comisión Federal de Electricidad, Federal Electricity Commission, the national utility) and NAFIN, which shared the responsibility (along with FIDE) for the appliance replacement program. A dedicated project implementing unit within a key directorate in SENER provided project monitoring, financial management, and reporting.

Moving Forward

The Efficient Lighting and Appliances Project has already resulted in follow-up interventions financed by the government of Mexico from its own resources (for example, further IB replacements are taking place in locations not previously benefiting from Luz Sustentable 1 or 2). In addition, technical assistance activities supported by the project included application of a special diagnostic instrument, the Tool for the Rapid Assessment of City Energy (TRACE), which revealed potential energy efficiency investments in 30 municipalities across the country. These diagnostics helped identify priority areas for energy savings as part of a larger national municipal energy efficiency program and paved the way for a new investment program, recently negotiated for a US$ 100 million Bank loan that seeks to reduce energy consumption in selected municipalities by increasing their capacity to prepare, finance, and implement energy efficiency investments. This new project would address, inter alia, core concerns of Mexican municipalities—their high expenditures on street lighting, lighting for government buildings, water supply, and wastewater treatment—and represents a logical extension of the Efficient Lighting and Appliances Project. The Mexican government remains interested in continuing its partnership with the Bank to improve energy efficiency, and new interventions on energy efficiency in hospitals and schools are currently being discussed.

Beneficiaries

The primary target groups of the project were low- to middle-income households; the low-income social groups included indigenous peoples. Numerous municipalities with medium, high, or very high degrees of marginalization benefited from IB exchanges under Component 1 (Programa Luz Sustentable 1 and 2) of the program. Three of those municipalities have largely indigenous populations.

The appliance replacement program had a national scope, and exchanges were observed in every single state of the country.