Renat Huberger
South Pole Carbon
View from the Top

Mexico’s Clean Development Mechanism Potential

Wed, 02/19/2014 - 11:45

Q: What are South Pole Carbon’s flagship emission reduction programs, and what are the main green technologies you are relying upon to make these projects successful?

In Mexico, South Pole Carbon has always had the vision of being a leader in developing new concepts. We have about 250 projects worldwide, but it is very tiring to go through the UN approval procedure for every single project. Back in 2007, there was a new concept invented by the UN called the CDM (Clean Development Mechanism). It was a game changer, as from then on an entire program could be registered at once, instead of through a case-by- case basis. We thought this would be a fantastic solution because it saves transaction costs and it makes everything much faster.

We see Mexico as one of the biggest adventures that we have ever undertaken. We began with a range of activities covering the entire renewable energy space. From now on, whichever renewables sector you are in, wind, hydropower, solar or tidal, you can easily apply and get the carbon credits through our platform with a small effort. This is a very efficient way of channeling carbon finance. We are quite proud of our success in Mexico because it is probably the most important country in Latin America. Since the global economic crisis, we are experiencing very low carbon prices and the incentive to go for carbon finance has been relatively low. Nevertheless, the infrastructure is in place. Renewable energy, energy efficiency, and waste management projects are South Pole Carbon’s flagship programs.

Q: What are the optimal roles of the public and private sector to ensure the success of the CDM?

A: The public sector needs to take the next step. The private industry has used the CDM to channel a lot of investments, and its involvement in projects has been very successful. US$200 billion have come through the CDM in the past few years, which is a massive amount of money leveraged in a very short time. The problem is that governments around the world are currently unable or unwilling to agree on more ambitious reduction targets. Mexico is not among these, but many others are hiding behind figures instead of rising to meet the challenge. Without emission reduction targets, the CDM does not work nor does cap and trade. Nothing works if there is no political ambition to reduce emissions.

Q: What do you see as the main opportunities for emission reduction projects to be conducted here in Mexico?

A: Mexico has a very high potential for renewable energy. We are talking about a wind potential greater than 40GW, and a hydro potential of about 53GW. But surprisingly little has been done so far. In 2011, the share of electricity produced with renewable sources in the public sector was 16%. On the other hand, generation licenses for renewable sources are still rare. If the country could generate a system where the government and large power companies cooperate and pay a higher tariff, combined with a carbon benefit that could be sold internationally, Mexico could transition to a much higher fraction of renewables. Due to the country’s economic growth and the increase in resource consumption, this could be a very attractive cash flow.

Q: How do you think the carbon credits that are already being generated through wind, solar and energy efficiency projects in Mexico could be optimized?

A: The biggest problem and the reason why carbon markets are not moving so quickly is because there is limited demand. Only countries that have signed the Kyoto Protocol are providing that demand. In order to improve the use of carbon credits, we could start to generate a Mexican domestic demand for carbon offsets. A growing number of cities and countries around the world are doing just that. For example, São Paulo announced that it wants to offset its carbon footprint. China allows domestic Chinese credits for its emissions trading scheme. A trading scheme where Mexican domestic offsets can be used would be a great way to increase demand for carbon credits. For example, South Pole Carbon is sitting on a panel which is discussing how to integrate Mexican forest projects into the Californian trading scheme. Mexico could very well be a provider for international offsets.

Q: What are the key projects that South Pole Carbon wants to develop in Mexico in the coming years?

A: At the moment, we are working on two key projects. One is a wind project that fits well into our program. We see a lot of potential in wind farms and we see a lot of activity in the wind energy sector. The second is related to other renewable energy types such as hydropower stations, solar or even tidal and wave power. However, the latter three involve projects that are at a pilot stage and are installed on a much smaller scale. Wind is number one, hydro is number two.

Q: You were named Best Project Developer in a carbon market survey in 2011, 2012 and 2013. What sets you apart from your competitors?

A: Two things have given us our competitive advantage. The first is that we have always focused on high quality projects. We never got involved in big industrial gas projects because we anticipated that people might not always want to buy carbon credits from such projects. From the beginning, we focused on renewables – solar and biogas – and on projects which provided an additional benefit for society. Our second advantage is that we are also very active in the voluntary market. It is a market where companies, such as banks or consumer goods companies, reduce emissions not because they have to but because they want to contribute to protecting the environment. We happen to be a very large player in that active market. This is why we are in such a healthy position as compared to our competitors.