Friday, 22 March 2013 11:35

The Carbon Rush documentary trailer

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The Fourth Latin American Carbon Forum, hosted by the Panamanian National Environmental Authority (ANAM), starts tomorrow in Panama City. More than 400 local, regional and international participants from the private and public sectors are expected to attend.

The LACF is a regional platform established to promote knowledge and information sharing while facilitating business opportunities among the main carbon market players. The LACF is organized on a yearly basis in a joint effort by the World Bank, the International Emissions Trading Association (IETA), the Latin American Energy Organization (OLADE) and the UNEP Risø Centre.

The core objective of the LACF is to bring together the carbon market actors (e.g. National CDM offices, Investment Promotion Agencies and Designated National Authorities) in order to share experiences on the process of CDM projects, learn about the latest developments of emission trading schemes and the future of the CDM, analyze national and international climate change mitigation policies and facilitate the negotiation of emissions.

Highlights from the World Bank’s State and Trends of the Carbon Market 2009

Carbon price:

The World Bank report comments that the average price of a Certified Emission Reductions (CERs) in 2008 was €11.46 (US$16.78), up 16% over the average price in 2007. The average price reflects high prices paid in the first part of the year before the financial crisis began to bite, compared with much lower prices in the few transactions in the remainder of 2008. In the midst of the crisis, financial institutions and investors largely exited the market.

Geographical share:

The CDM pipeline now consists of over 4,500 projects in about 80 countries. However, in 2008 China dominated with a whopping 84% market share. With 4% and 3% market share each, India and Brazil rank second and third, respectively, with the rest of Latin America accounting for a weedy 2%.

Over haul of CDM required urgently:

The biggest contribution of the CDM has been to help change the mindset of governments and companies in developing countries to view climate change mitigation as an opportunity instead of a constraint to growth. Its has also provided experience and lessons on what has worked well and what could improve if markets are relied on in the future.

However, the possibility of achieving large potential volumes of CERs at present is contingent on overcoming myriad regulatory constraints of the CDM. Scaling up offset markets will require improving CDM efficiency and governance, starting with urgent attention to expanding alternative, conservative and simpler approaches to additionality.

Increasing the participation of developing countries will involve consideration of programmatic CDM and sector-based crediting, as well as including reducing emissions from agriculture and from deforestation and land degradation. Even though the greenhouse gas (GHG) mitigation potential in the agricultural sector is considerable, feasible and cost-competitive, under the CDM agricultural land management is not eligible (as a stand alone).

CDM Registration Process

Since April 2007, roughly 300 projects underwent review for registration, with hydro, waste gas/heat utilization, biomass energy and wind being the most frequently reviewed. In the same period, biomass energy, energy efficiency, waste gas/heat utilization and hydropower projects were the most frequently rejected, accounting for about three-quarters of the 90 projects that were rejected. Although there are fewer cement projects in the pipeline, they were rejected at a much higher rate than other projects due to the project developer failing to demonstrate additionality convincingly enough.

CDM & Development

CDM projects are expected to reduce emissions in a way that contributes to the host country’s sustainable development. CDM regulatory tools have focused single-mindedly on the carbon side by trying to precisely account for every ton of emission reductions. The potential to contribute to sustainable development has been sidelined.


Latin America was instrumental in developing the CDM, particularly Brazil. However, we should not assume their interest was necessarily based on environmental objectives but rather on securing another avenue for the region’s development and wealth creation.

There is a risk that if the CDM and carbon markets continue to under perform and fail to live up to expectations, Latin American enthusiasm for mitigating climate change and low carbon development may take a hit.
Tierramérica’s Emilio Godoy argues that this year’s World Environment Day host, Mexico, is lagging behind in developing renewable energy sources:
Despite its great potential for renewable energy, Mexico has not taken advantage of the Kyoto Protocol’s Clean Development Mechanism (CDM). The most recent available official data on greenhouse gas emissions indicates Mexico released 643 million tons of carbon dioxide per year: 61 percent from the generation and consumption of energy, 22 percent from industry and 14 percent from deforestation. Mexico could make better use of CDM projects to develop wind, solar and geothermal sources, energy efficiency and fossil fuel substitution, which would allow the country to cut its emissions by some 130 million tons, according to the Mexican Carbon Fund (FOMECAR). However, "the CDM has turned into a way of marketing the credits, and has not met the objective of promoting sustainable development," criticized María José Cárdenas, energy and climate change coordinator for the environmental group Greenpeace-Mexico. In Mexico, "there is great potential for energy efficiency. A great deal of energy is consumed and there is a lot of waste," said Miguel Breceda, researcher for the Energy Program at the Autonomous University of Mexico City. The World Bank report, "State and Trends of the Carbon Market 2009," estimated that in 2008 there were 705 million dollars in transaction, with certificates equivalent to 123 million tons of carbon. Latin America represents just four percent of that market. A credit issued in Mexico is traded on the international carbon markets at 11 to 14 dollars, about a third of the value it had in July 2008. In this country, only 45 companies voluntarily reported their carbon emissions and 27 trade their reductions on the market. The evolution of the CDM depends on the negotiation of a Copenhagen treaty that will replace the Kyoto Protocol after it expires in 2012. "The CDM will have to remain for the countries that are not as developed, the smaller ones, not like Mexico, which can no longer play at being a country in transition," said Cárdenas, who proposes an emissions reduction program for the most polluting sectors, like the petroleum, electrical and cement industries.
The World Bank's 2009 flagship report on Latin America and the Caribbean (LAC), investigates the exposure of the region to climate change and what it can do to meets those risks and opportunities head on, both by itself and internationally, through a climate agreement being negotiated in December this year.

Crucially, emphasis is placed on the need for good adaptation policies to climate change which are complementary to the region’s development. LAC is well placed to move ‘ahead of the pack’ and take advantage of international cost-sharing mechanisms for deploying low-carbon technologies and build new comparative advantages. Interest in acting decisively now could ensure a faster recovery from the current economic slowdown and improve competitiveness.

The report entitled, Low Carbon, High Growth: Latin American Responses to Climate Change, urges the international community to look to Latin America for innovative solutions and leadership to avoid a climate crisis. The region is not the main source of emissions driving global warming, due to its clean energy matrix and its innovative policies to promote low carbon growth. Latin America produces only about six percent of global energy-related greenhouse gas emissions, or 12 percent of emissions from all sources, including deforestation and agriculture.

The region has piloted new technologies and approaches to reduce emissions:

• Mexico’s 2007 National Strategy on Climate Change adopts long-term, nonbinding targets. In the energy sector, the strategy identifies a total mitigation potential of 107 million tons of greenhouse gasses by 2014, a 21 percent reduction from business as usual over the next six years.

• Brazil is moving towards energy independence through the expansion of alternative energy sources such as hydroelectricity, ethanol, and biodiesel. Its sugar-based ethanol production is financially and environmentally sustainable without diverting land from food crops.

• Public and environmentally friendly public transport policies demonstrated by Curitiba (Brazil) and expanded in Bogota (Colombia) are now underway in dozens of cities in the region.

• Costa Rica has received worldwide recognition for its successful initiatives on payments for ecosystems services.

• Argentina is moving forward with renewable energy in rural areas, which provides affordable and reliable electricity to communities and has an impact on productivity and jobs.

Despite these innovations, LAC has been moving to a higher carbon growth path. Based on current trends, from 2005-2030 the projected growth of per capita CO2 energy emissions in the region is 33 percent (above the world average of 24 percent).

Therefore, a global climate agreement will be useless unless developing countries sign up to emission reductions, particularly the larger middle-income countries, such as Brazil and Mexico. Even if high-income countries acknowledge their historical responsibility for the majority of emissions and reduce them to zero, effectively becoming carbon neutral, this would still not be enough to keep the stock of greenhouse gases below “dangerous” thresholds. A strong Latin American presence at Copenhagen leading other developing countries is therefore imperative.

The report also documents some of the critical impacts of climate change in the region if the international community fails to act:

• By 2100, agricultural productivity in South America could fall by 12 percent to 50 percent.

• Climate-related natural disasters (storms, droughts and floods) cost, on average, 0.6 percent of GDP in affected countries.

• Hurricane damages will increase by 10 percent to 26 percent for each 1oF warming of the sea.

• The Amazon rainforest could shrink by 20 percent to 80 percent if temperatures increase by 2 to 3oC

• Many Andean glaciers will disappear within the next 20 years placing 77 million people under severe water stress by 2020.

• Caribbean corals will bleach and eventually die. Since the 1980s, 30 percent of corals already have died, and all could be dead by 2060.

• Increase in risk of dengue, malaria and other infectious diseases in some areas.

The study finds that keeping LAC on a high-growth and low-carbon path will require a coherent policy framework on three levels:

1. An international climate change architecture that creates enough momentum and is friendly to Latin America’s specific features, including: clear financial incentives to reduce deforestation; the expansion of carbon trading mechanisms to sectors; mobilization of financial flows to Latin America to facilitate deployment of “green technologies;” and the creation of a global market for sustainable bio-fuels, removing tariffs and other barriers.

2. Domestic policies to adapt to the inevitable climate change impacts on the region’s ecosystems and societies, incorporating climate-related threats into the design of long-term infrastructure investments, improving weather monitoring and forecasting, enhancing social safety nets so as to allow households to better cope with climate shocks, and improving the functioning of land, water and financial markets.

3. Domestic policies to exploit mitigation opportunities to make Latin America part of the global climate change solution. Many of the actions needed for mitigation are also good development policies. For example, reducing deforestation has social and environmental benefits; improving public transport can reduce congestion and local pollution with impacts on health, productivity and welfare; and expanding off-grid renewable energy can help reach rural populations without access to electricity.


The report reflects the difficulty of LAC countries embarking on a path to low carbon development. There may be a number of ‘low hanging fruit’ such as improving energy efficiency, which the region can utilize to reduce its emissions and adapt, but unless the region undergoes a fundamental shift across all sectors and government departments, these changes will be incremental at best. The report therefore fails to deliver a compelling narrative that challenges the current development paradigm.

Trade: the absence of any discussion on trade is notable given the commodities boom of recent years that has fueled the region’s economy, especially in the carbon intensive sectors of mining and hydrocarbons. As the region recovers from the economic crisis, a conversation on how climate change and a potential treaty will affect the region’s exports market is needed immediately. To stabilize greenhouse gas emissions concentrations to avoid dangerous climate change, over 50 percent of global mitigation potential would be located in developing countries. In the cases of industry, agriculture, and forestry, almost 70 percent of that mitigation potential is also in developing countries. This has the potential to hit Latin America’s export sectors hard.

Cities: LAC is the most urbanised region in the developing world with 77% of its people living in cities. According to the UN by 2030 the region’s urban population may surpass 600 million. The report focuses primarily on the advances and remaining potential in the transport sector in urban areas. However, it fails to link raising sea levels and the risk to urban areas located on the coast. This omission seems out of sync with the Bank’s World Development Report 2009, which argues that cities and towns will continue to act as dynamos in the global economy. As countries become richer, economic activity b ecomes more concentrated in urban areas. However, if we take into account the revisions for sea level raises this century, the longevity of Lima, Buenos Aires and others may be in doubt and questions the validity of this statement in LAC.

LAC civil society and think tanks: The report fails to mention civil society, which seems at odds with the avalanche of social movements and civil society groups that rocked the political status quo in the wake of the redemocratisation process. Any discussion of responses to climate change void of considering the role of civil society is too blinkered. Secondly, a quick skim of the report’s bibliography reveals no references to Latin American research institutes or other organizations. Rather it is dominated by World Bank literature and academic journals, the majority of which are only published in English.
Back in February we posted an announcement about the Carbon Markets Americas Event running this week in São Paulo, Brazil. In the run up to the event, New Carbon Finance’s Camilo Terranova has answered a few questions:
1. What do you consider to be the key factors which will affect the growth of the Latin American Carbon Market? The defining factor is the global financial turmoil, which is weakening demand for international credits from both companies in the EU-Emissions Trading Scheme (ETS) and governments with lower prices. The lowering of oil prices may further undermine the prospects for renewable energy, the core of projects in this region. Obama’s policies on climate and renewable energy are the best hopes for positive news in these two sectors. Though not impossible, it is hard to see any of this coming through quick enough during this year. 2. How could the policy and regulatory environment be improved in your country to aid the carbon markets? There is a lot Latin America countries could do to improve the general policy and regulatory environment for clean technologies, energy efficiency and renewable energy. Mexico and Brazil have attempted to answer the complaints of the developed world about the responsibilities of developing countries during Poznan talks, particularly in relation to Measurement, Reporting and Verification actions. Though interesting these pledges as they might be, the ball is very much in the developed world court and so far there are little signs for high demand for international credits. The region’s ability to negotiate pales in comparison to China. In this scenario, the role of Latin America governments to significantly influence this market is very limited. 3. Can you make a prediction for the pricing of Latin American CERs in 2009? With weakening demand from the EU-ETS and a recession in all major developed economies, there is very little price support for CERs. The further lowering of oil could see the secondary market approaching historical primary market prices, which in any case will remain low, unless some major changes occur in the shape of the economy. Though the short-term looks somewhat bleak for the price of CERs, during Poznan the support for the Clean Development Mechanism (CDM) has been strong making the overall outlook for CDM beyond 2012 more positive, even though this will not reflect on higher prices anytime soon. Other factors being equal, New Carbon Finance forecast 2009 should see the peak for CER prices pre-2012 at an average of 15 Euros/ton. 4. What types of projects do you see being developed and which type do you think will grow in future? Renewables, particularly hydro, wind and biomass form generally speaking the bulk of opportunities in the region. Once REDD mechanisms are defined, the forestry potential of the region could be finally unleashed, even though Brazil, where the largest forestry potential is found, does not favour market mechanisms for the protection of its forests. Though relying on the good will of governments and companies may well prove unsustainable, deforestation in Brazil seems to be much more a problem of adequate policies (carrot and sticks) than something that solely throwing money at it can solve.
From the 23rd-24th April 2009, the Brazilian city of São Paulo will host the Carbon Markets Americas event. The aim is to provide a base for all players in the carbon market value chain, to network with project developers and meet potential clients from the region to unlock Latin America’s carbon market potential. The organiser’s website points out that:
Latin America occupies a unique position in the carbon market as the largest generator of CERs (Carbon Emission Reduction Credits) per capita in the world. Whilst there is a lot of activity in Brazil and Mexico, there is a considerably smaller flow of projects in Argentina, Chile, Colombia, Honduras, Ecuador, Peru and Guatemala. Countries such as Venezuela and Belize have yet to discover their potential. Big technological barriers have been overcome and expertise has grown in the favoured project areas, such as landfill methane and agricultural. However as the low hanging fruits have been harvested, project developers are now looking elsewhere to generating their credits and renewable energy projects are on the rise.
The event will cover both the opportunities for the compliance market under Kyoto’s Clean Development Mechanism (CDM) and the global voluntary carbon markets in Latin America. According to the latest CDM pipeline compiled by the UNEP Risoe Centre, Latin America currently has 849 registered projects compared to Asia which eclipses that figure with 3436 projects. In Latin America the distribution of projects is: Brazil – 41% Mexico – 24% Chile - 8% Argentina – 4% Colombia – 4% Ecuador – 3% Honduras – 3% Perú – 3% Guatemala – 2% Others – 8% Latin America’s slice of the CDM action is quite respectable yet concerted efforts will be needed to increase the region’s competitive edge by diversifying the scope of its CDM projects. A greater number of projects in the energy, waste management, transport and forestry sectors will be required, whilst ensuring poverty and sustainable development considerations are advanced simultaneously. Global carbon markets are already worth over $100 billion. A number of carbon finance analysts predict that this figure could reach trillions of dollars over the next decade or so. However, the potential for Latin America to cash on this expanding market is reliant on two broad factors. Firstly, whether Latin American countries are willing to push for a strong climate deal in Copenhagen, which would not only help to create the market conditions to accommodate an expanding carbon market, but would also send out positive signals that the region was open for low carbon business. Secondly, the region’s governments, business leaders and civil society need to address some of the technical, political, institutional and legal potholes that are hampering progress to ensure transparent, equitable and sustainable negotiations and project development. Given the experience of a number of Latin American countries dealing with various CDM projects, it would be of great use to the region as a whole if far more collaboration could occur in addressing the obstacles and sharing best practices for success. For those interested in attending the Carbon Markets Americas event or the CDM in Latin America generally please see below for more information: *Contacts details and addresses for Latin America’s Designated National Authorities that evaluate, approve and market CDM project proposals. *A useful guide to how Latin America’s Designated National Authorities were established.