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PROGRAM INFORMATION DOCUMENT (PID)
APPRAISAL STAGE
Report No.: AB3676
Mexico - Climate Change Development Policy Loan
Operation Name
LATIN AMERICA AND CARIBBEAN
Region
General water, sanitation and flood protection sector
Sector
(50%); General energy sector (25%);Forestry (25%)
P110849
Project ID
Borrower(s)
Secretaría de Hacienda y Crédito Público, México
Secretaría de Medio Ambiente y Recursos Naturales
Implementing Agency
(SEMARNAT)
March 4, 2008
Date PID Prepared
Date of Appraisal Authorization February 28, 2008
April 8, 2008
Date of Board Approval
1. Country and Sector Background
1.
Mexico emitted 643 million tons of carbon dioxide equivalent (Mt CO2e) in 2002, of
which almost 400 Mt CO2e resulted from the combustion of fossil fuels. Mexico ranks twelfth
in the world based on total greenhouse gas (GHG) emissions and is the second largest emitter
in Latin America after Brazil. As shown in Figure 1, Mexico accounts for 1.4 percent of global
CO2 emissions from fossil fuels, excluding other GHGs and land-use change and forestry. As in
other emerging economies, Mexico’s GHG emissions have been growing steadily over the past 25
years (Figure 2). The main sources of Mexico’s GHG emissions are energy generation (24 percent),
transport (18 percent), forests and land-use change (14 percent), waste management (10 percent),
and agriculture (7 percent). The oil and gas sector is responsible for about 12 percent of GHG
emissions, about half of which is classified under energy generation.
Figure 1: Mexico’s Share of CO2 Emissions in 2005
(as percentage of world emissions, excluding land-use change and forestry)
Source: Energy Information Administration US Department of Energy
Figure 2: Mexico’s CO2 Emissions from Fossil Fuels
(excluding other GHG and land-use change)
Mexico: Total CO2 Emissions
450
400
350
300
250
200
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
Source: Energy Information Administration, US Department of Energy
2.
Based on global modeling simulations, Mexico will be disproportionately affected by
climate change. In particular, hurricanes and changes in temperature and precipitation (with more
rain leading to floods in some regions, and less rain in other areas) are expected to cause more
frequent and severe floods and droughts. The country’s large and relatively exposed coastline along
the Gulf of Mexico is a frequent landfall point for hurricanes. The cost of hurricanes and tropical
storms has steadily increased in Mexico. Recent data indicates a 1000 percent increase in damages
compared to the decade of the 1950s. Projected sea level rise will lead to further impacts on the
Gulf Coast.1 Also, recent studies on the vulnerability of hydrologic regions in Mexico suggest that
potential changes in air temperature and precipitation may have a dramatic impact on water
availability. Data from the Intergovernmental Panel on Climate Change (IPCC) assessments on
projected forced hydro-climatic changes indicate that Mexico may experience significant decreases
in run-offs, on the order of 10 to 20 percent nationally and up to 40 percent along the Gulf Coast
wetlands as a result of global climate change. These climate change impacts will further aggravate
the current pressures on already stressed water resources. Reduced runoffs will also negatively
affect the integrity of major ecosystems, including the system of wetlands in the Gulf of Mexico as
well as the remaining primary forests in the north of the country.
3.
Mexico has emerged as a global leader in the climate change arena. Mexico’s leadership
has been recognized in an independent assessment of countries’ overall climate performance. This
assessment, called the Climate Performance Index, ranks countries based on (i) per capita GHG
emission trends in the energy, transport, residential and industrial sectors; (ii) absolute energyrelated GHG emissions; and (iii) climate policy. In this international assessment released at the end
of 2007, Mexico ranked fourth in the world behind Sweden, Germany and Iceland, and fourth
among OECD countries.2 In addition, Mexico is the only non-Annex I to have submitted a Third
National Communication under the UNFCCC.3 In this communication, Mexico reported its latest
GHG emissions levels and trends, and described the measures that were being taken to adapt to and
mitigate climate change.
1
Hurricane intensity has been increasing in the Caribbean basin with a 40 percent increase in category 4 and 5
hurricanes generated and reaching landfall over the past five years compared to a comparable period starting in 1970 in
the North Atlantic. A recent analysis commissioned by the Bank indicates that a further increase should be expected as a
result of increase sea surface temperatures in the Caribbean.
2
See http://www.germanwatch.org/klima/ccpi2008.pdf
3
Please see http://unfccc.int/resource/docs/natc/mexnc3.pdf
4.
On May 25, 2007, President Calderón announced the National Climate Change
Strategy (NCCS), thereby committing the country to place climate change at the heart of the
country’s national development policy.4 The NCCS sets the country’s long-term climate change
agenda, together with medium to long-term goals for adaptation and mitigation. In the Strategy, the
country commits itself to reducing GHG emissions on a voluntary basis (as a non-Annex I country,
Mexico has no formal obligation to reduce its emissions by 2012). The Strategy recognizes the
possibility for the country to adopt voluntary commitments, and to have those monitored by the
international community (‘pledge and review’). However, no penalty will be incurred for noncompliance, and the pledge will not compromise Mexico’s basic right to economic development.
The NCCS identifies measures and associated emission reduction potential that enables Mexico to
reduce the carbon intensity of development. In addition, the NCCS identifies areas to reduce
vulnerability to climate change and analyzes the institutional and economic challenges to an
effective adaptation policy.
5.
To operationalize the NCCS, Mexico is developing a Special Climate Change Program
(Programa Especial de Cambio Climático) to be adopted in 2008. This Program will be aligned
with the 2007-2012 National Development Plan, and will expand upon the National Climate
Change Strategy, in particular by identifying priorities and financing needs for climate change
mitigation.
2. Operation Objectives
6.
The objective of the proposed operation is to support the government’s efforts under
its National Climate Change Strategy to mainstream climate change considerations in public
policy. The various measures undertaken by Mexico in the area of climate change illustrate the
country’s leadership on climate change.
7.
The proposed operation provides overall budget support in recognition of the
significant contribution that the NCCS will make to Mexico’s development agenda. The
Strategy establishes the framework and represents the vital first steps for confronting the challenges
of climate change in a comprehensive and integrated fashion. Development was a national effort
and a major undertaking by several Ministries, coordinated by the Ministry of Environment and
Natural Resources (SEMARNAT). It distinguishes Mexico among most other major developing
countries. Besides Mexico, only South Africa and China have adopted such a strategy.
8.
The proposed Climate Change Development Policy Loan (DPL) is conceived as a single
operation that will highlight Mexico’s achievements in the climate change area and support its
planned policy program. The operation will also provide a strategic framework for an expanded
dialogue between the Government of Mexico (GoM) and the Bank on climate change. The DPL
focuses on the following three recent actions:
(i) Submission of the Third National Communication to the UNFCCC in 2006;
(ii) Approval in May 2007 of the NCCS by the CICC reinforcing the institutional and
strategic framework in place; and
4
See www.semarnat.gob.mx/Documents/Estrategias_libro_completo_compress2.pdf for the complete Strategy in
Spanish. An executive summary in English can be found at
http://www.semarnat.gob.mx/queessemarnat/politica_ambiental/cambioclimatico/Documents/enac/sintesis/sintesisejecu
tiva/Executive%20Summary.pdf .
(iii) Initiation of sectoral programs for energy, and environment and natural resources
(forestry in particular), including policy incentives to reduce the carbon intensity of the
Mexican economy.
3. Rationale for Bank Involvement
9.
The Bank’s engagement with Mexico on climate change issues has a long history. For
example, the Bank approved the first Climate Change project for Mexico in March 1994 with
a US$10 million grant from the GEF. The project helped reduce greenhouse gas emissions as well
as local environmental contamination through the replacement of incandescent bulbs with
fluorescent light bulbs in two major markets: Guadalajara and Monterrey. Since then the BankMexico partnership on climate change has evolved into 25 initiatives, financed by IBRD loans, GEF
grants, carbon finance emission reduction purchase agreements, grants for capacity building in the
carbon finance area, and grants for economic sector work and knowledge products (see Annex 6).
These initiatives are the result of a long-standing dialogue with a wide range of Mexican
stakeholders and center on the following main objectives: (i) support for adaptation; (ii) policy
development and institution building; (iii) first-of-a-kind mitigation projects and programs; and (iv)
identification and promotion of short-term and long-term mitigation options.
10.
The proposed operation is planned to be the first in a series of DPLs that make up a
streamlined lending approach, and that will be accompanied by an expanded set of analytical
and advisory services. As outlined in the Mexico 2008-2013 Country Partnership Strategy (CPS),
to be presented to the Board at the same time as the proposed loan, the GoM has requested that the
Bank adopt a new business model by changing its lending and advisory services program over the
next few years to a series of on-demand analytical and advisory services. This streamlined approach
would be anchored on a large multi-sector DPL, following the operational guidelines for such loans,
namely a focus on the GoM’s own reform program contained in the National Development Plan
with a set of prior actions. Annual base lending to the federal government is planned to be $800
million over the next three years. The proposed DPL supports the transition towards the newly
defined Bank support program and provides space for on-going FY08 pipeline operations. The CPS
also foresees a series of smaller, environmentally-focused loans and grants.
11.
This DPL is central to the new CPS with respect to its theme (climate change) and its
streamlined-focus. The DPL is also fully in line with Mexico’s 2007-2012 National Development
Plan, in particular its environmental sustainability pillar.
4. Financing
12.
The Government of Mexico (GoM) has requested a Development Policy Loan (DPL) in
the amount of US$501.25 million to be presented to the Board for its approval jointly with a
new CPS The request underlines the GoM’s interest in the continued, strong engagement with the
Bank, under a new business model deemed more appropriate for a leading emerging market
economy like Mexico. This will be a single tranche loan.
5. Institutional and Implementation Arrangements
13.
The proposed loan will be implemented by SEMARNAT. The Ministry of Finance (SHCP)
has designated the national savings bank Banco del Ahorro Nacional y Servicios Financieros
(BANSEFI) as financial agent of the Borrower with regard to the loan.
14.
Further, to carry out its commitment to the UNFCCC, and recognizing the multi-sectoral
dimension of the climate change challenge, Mexico established the Intersecretarial Commission on
Climate Change (Comisión Intersecretarial de Cambio Climático – CICC) in April 2005. The
CICC’s key mandates include: (i) formulating national climate change strategies and incorporating
them in sectoral programs; (ii) coordinating the implementation of these strategies; (iii) acting as
Designated National Authority on climate change; (iv) promoting national climate change research;
and (v) promoting GHG emission reduction projects.5 The CICC contains several working groups,
namely on mitigation, adaptation, and the Designated National Authority on Climate Change.
15.
Associated with the CICC is a Consultative Council on Climate Change (Consejo
Consultivo de Cámbio Climático), which is composed of scientists and representatives of civil
society and the private sector, and provides advice to the CICC. The Consultative Council creates a
link between the CICC, the scientific community and civil society.6
6. Benefits and Risks
16.
In the context of the long-term development challenges posed by climate change, the DPL’s
contributions are:

Reinforcement of a results framework for voluntary emission reductions and focus on
vulnerability reduction through adaptation action plans.

Improved institutional capacity, including coordination and knowledge base, to
undertake key actions.
17.

Risks and mitigation measures of the proposed loan include:
Institutional risks: To mainstream climate change in key economic sectors and in subnational
entities, significant multisectoral and federal-state collaboration is needed, which could face
bottlenecks in the implementation of the NCCS. Because of uneven capacity among the sectoral
agencies at federal, regional, state, and municipal levels, and due to the disproportionate level of
impacts and priorities, the implementation of the Strategy may be slow and uneven. On the
budget side, institutional inertia and administrative resistance may affect the capacity of the
GoM to redesign programs such that sectoral agencies fail to mainstream climate change in their
core programs. Risk mitigation: The GoM is fully committed to the Strategy’s implementation;
this initiative is one of the first to be adopted by the new administration. In addition,
coordination risks are being mitigated through the establishment of the CICC, which will
support multisectoral collaboration for the Strategy’s implementation. A Special Climate
Change Program (SCCP) is being developed and expected to be adopted by the GoM in
calendar year 2008. The Program will provide concrete and prioritized measures for the
implementation of the Strategy and will thus contribute to the convergence of different interests
5
The CICC is chaired by the Minister of Environment and Natural Resources (Secretaría de Medio Ambiente y
Recursos Naturales – SEMARNAT), the Vice-Minister of Environment serves as Executive Secretary with Ministers of
the following areas serving as members: the Ministry of Agriculture, Livestock Production, Rural Development,
Fisheries and Food (Secretaría de Agricultura, Ganadería, Desarrollo Rural, Pesca y Alimentación – SAGARPA), the
Ministry of Communication and Transportation (Secretaría de Comunicación y Transportes – SCT), the Ministry of
Economy (Secretaría de Economía – SE), the Ministry of Social Development (Secretaría de Desarrollo Social –
SEDESOL), the Ministry of Energy (Secretaría de Energía – SENER), and the Ministry of Foreign Affairs (Secretaría
de Relaciones Exteriores – SRE). The Ministry of Finance and Public Credit (Secretaría de Hacienda y Crédito Público
– SHCP) is a permanent invited member to the CICC’s deliberations. See more details at
http://www.semarnat.gob.mx/queessemarnat/politica_ambiental/cambioclimatico/Pages/cicc.aspx
6
See http://www.semarnat.gob.mx/queessemarnat/politica_ambiental/cambioclimatico/Pages/c4.aspx
or provide political arbitrage among these interests. Moreover, the preparation of state and city
action plans for climate change will reinforce the subnational entities’ capacity to address
climate change. Complimentary initiatives such as the analysis of the costs of climate change in
Mexico and the SCCP are expected to further elevate the political profile of climate change and
solidify the emerging national consensus on the need to address climate change, thus reducing
the risk of inaction.

Political risks: Although climate change is a high priority of the current administration, lack of
commitments by other countries may damage support for the reform agenda. Risk mitigation:
By taking early action, Mexico may in fact be able to benefit from incentives such as carbon
finance. Moreover, by leading by example, it will in fact contribute to creating an enabling
environment for further international commitments.

Stakeholder risks: Implementation of adaptation and mitigation measures requires participation
of many stakeholders (e.g., in case of changes in land and water uses). However, climate change
and responses to climate change will affect the various stakeholders differently, which may
create tensions and slow down implementation of the Strategy. Risk mitigation: The
implementation of the NSCC and the SCCP is expected to provide opportunities for public
consultation to shed light on, discuss, and reduce these tensions.
7. Poverty and Social Impacts and Environment Aspects
18.
It is broadly accepted that the poorest countries and the most vulnerable communities
in developing countries will bear a disproportionate brunt of the hardship associated with
climate change. Climate change can cause or compound poverty in a variety of ways, including: (i)
damage to livelihood assets, including homes, water supply, health and infrastructure, undermining
peoples’ ability to earn a living; (ii) reduced crop yields, affecting food security; (iii) changes in
natural resources, infrastructure, and labor productivity, reducing income opportunities and
affecting economic growth; and (iv) social tensions over resource use, potentially leading to
conflict, destabilizing lives and livelihoods, and forcing communities to migrate. Given that climate
change could hinder the development gains achieved by many developing countries, it is important
to integrate adaptation to climate change in development planning to mitigate this risk.
19.
Adaptation measures that could result in positive social outcomes include improved
management of water availability, a shift to drought resistant crops, and strengthening health
services to prevent vector and waterborne diseases. In addition, adaptation should ensure that
communities’ traditional knowledge and capacity in managing climatic changes is recognized and
further strengthened.
20.
Although it is generally accepted that early action on adaptation will render positive
social and economic benefits in the long run, specific measures for adaptation and mitigation
could lead to negative impacts. For example, improved land use planning to adapt to climate
change could lead to the relocation of investments in less flood prone areas, which in turn may
produce employment losses in some areas and employment gains in others. Adaptation could also
impact agricultural and forestry activities, which may have to be limited at certain times of the year
in some areas.
21.
The operation is expected to have significant, positive impacts on the environment and
natural resources. The operation is precisely designed to reduce the adverse environmental
impacts of climate change on Mexico and the rest of the world by reducing GHG emissions and
GHG concentrations. The operation supports the government’s efforts under its National Climate
Change Strategy, in particular the reduction of GHG emissions on a voluntary basis. Moreover,
reducing GHG emissions will also contribute to reducing the emissions of local pollutants.
Therefore, in the short term, no environmental costs are expected from the implementation of the
National Climate Change Strategy.
22.
It is possible, however, that in the medium to long term, certain mitigation and adaptation
measures might have indirect impacts on the local environment due to the need for relocating
infrastructure or agricultural activities, e.g., building new roads and other infrastructure to support
the relocation of human settlements, factories or tourism resorts, or the irrigation of new land to
develop additional or alternative agricultural land. These costs will be justified by the paramount
objective of protecting the infrastructure or agricultural potential in the first place. Environmental
assessments for the corresponding investments will be conducted in due course so that any indirect
environmental costs of climate change (i.e., those costs that are incurred as a response to climate
change) can themselves be mitigated.
8. Contact point
Contact: Benoit Bosquet
Title: Sr Natural Resources Mgmt. Spec.
Tel: (202) 458-0923
Fax: (202) 614-1190
Email: [email protected]
9. For more information contact:
The InfoShop
The World Bank
1818 H Street, NW
Washington, D.C. 20433
Telephone: (202) 458-4500
Fax: (202) 522-1500
Email: [email protected]
Web: http://www.worldbank.org/infoshop