- Clean Technology Fund money will boost Mexico’s efforts on cleaner urban transportation, energy efficiency, and renewable energy, especially wind power.
- The urban transport plan could alter the footprint of the Mexican economy, given that 75% of the population lives in urban areas and most economic growth occurs there.
- Recent laws setting targets and policies for renewable energy provide a “window of opportunity” for accelerating wind power development
June 15, 2009—Mexico boosted its image as a global leader in climate change in December 2008, when it announced it had set the goal of reducing greenhouse gas emissions to 50 percent below 2002 levels by 2050.
Now Mexico is embarking on a comprehensive strategy to cut emissions and reduce energy use while also potentially putting the Mexican economy on a low carbon growth path.
The plan will get a $500 million boost from a new Clean Technology Fund supported by eight governments, managed by the World Bank, and administered by the World Bank Group and other multilateral development banks.
Mexico is among the first countries to tap the $5.2 billion fund that provides grants and low-interest financing to pilot and scale up low carbon technologies and make other changes that reduce energy use and pollution.
On June 5, during the celebration of World Environment Day in Mexico, President Calderon launched the Special Climate Change Program (Programa Especial de Cambio Climático – PECC). As with all government programs, the PECC is considered part of the 2007-2012 National Development Plan (NDP), and in particular, part of the environmental sustainability pillar of the NDP. The PECC establishes a low-carbon development scenario for Mexico, identifying priorities and financing sources, both domestic and international.
“Mexico has recognized it will be heavily impacted by the effects of climate change,” says Ricardo Ochoa, Head of the International Affairs Unit of the Ministry of Finance. “The good news is it has decided to act accordingly. That means that despite not being a significant contributor to greenhouse gas emissions globally, it wants to send a signal it’s important to take action.”
The strategy involves every sector of the economy, but the $500 million from the Clean Technology Fund endorsed in January will boost the country’s efforts on cleaner urban transportation, energy efficiency, and renewable energy, especially wind power.
Urban Transport Plan Could Alter Economic Footprint
The urban transport plan has the potential to alter the overall footprint of the Mexican economy, given that 75 percent of Mexicans live in urban areas and most economic growth occurs there, according to the CTF investment plan for Mexico.
Transport is thought to be responsible for 18 percent of Mexico’s greenhouse gas emissions and is second only to energy generation as an emissions source. Indeed, Mexico’s transport emissions have increased by 27% between 1990 and 2005 and now account for about 2% of the global transport sector’s GHG emissions (Transport and Climate. World Bank, 2007) while continuing to grow at an annual rate of about 2%.
The plan is to shift to efficient, low carbon bus rapid transit systems and light rail, and to retire old buses and replace them with lower carbon alternatives, such as hybrid vehicles.
Gustavo Saltiel, the World Bank Sector Leader for Sustainable Development in Mexico, says that the program promotes market penetration of low-carbon transport technologies. Local operators would not be able to purchase low-carbon buses otherwise, because their expense would not be readily justifiable by current market conditions, he says.
The CTF financing will help cities obtain the buses without having to transfer the additional cost of acquisition to the users. Additionally, CTF will support the purchasing of old buses and the implementation of the scrapping process.
The CTF is contributing $200 million and the World Bank $600 million to the plan, expected to cost about $2.4 billion.
It will be modeled after a successful bus rapid transit corridor in Mexico City that is partially funded by selling carbon reduction credits to industrialized countries under the Clean Development Mechanism.
The Clean Technology Fund’s low-interest financing is especially important in providing an incentive to municipalities to take old buses off the road, says Saltiel.
And overall, “it’s been a tremendous catalyzer” in decision-making about climate change spending, says Saltiel.
“The money has created a lot of momentum to commit resources. It has made decisions much easier.”
Wind and Hydro Power, Energy Efficiency Scale-up Eyed
CTF funds will also boost efforts to develop renewable energy, particularly wind power and mini-hydro installations, which promise to eventually create hundreds of thousands of new jobs, according to the CTF investment plan.
Whereas 22 percent of energy produced in Mexico comes from hydroelectric resources, the wind sector is virtually untapped, providing only about 7 percent of Mexico’s electricity output. But recent laws setting targets and policies for renewable energy provide a “window of opportunity” for accelerating wind power development in Mexico.
One of the most promising areas for wind power generation in Latin America is the state of Oaxaca,, where various projects are under implementation, says Saltiel. One of those initiatives is the La Venta III Project supported by the World Bank through a $50 million grant from the Global Environment Facility. The grant will encourage the development of wind energy by subsidizing part of the cost of La Venta III wind power, thus lifting one of wind development’s key bottlenecks, namely its lack of financial competitiveness.
Along these lines, the CTF money will support large-scale wind power projects with a capacity of 500 megawatts in Oaxaca and the development of small-hydropower projects with an estimated capacity of 325 megawatts.
On energy efficiency, the Clean Technology Fund will help expand a program begun in the 1990s. More than 20 percent of national energy consumption could be reduced through energy efficiency.
Industry accounts for 27 percent of energy usage. To reduce this amount, the strategy calls for replacing at least 35,000 electric motors for efficient, variable speed motors; modernizing the tortilla industry by substituting obsolete energy intensive equipment for energy efficient appliances and introducing efficient lighting and solar water heaters in production facilities.
Programs will also encourage high-emitting industries such as cement, steel, glass and metals to adopt new technologies.
CTF financing will be used to offer financial benefits and incentives to consumers to buy energy efficient appliances and equipment.