Soffia Alarcón
Director Mexico
Carbon Trust
View from the Top

Reducing Mexico’s Carbon Footprint

Mon, 02/25/2019 - 17:04

Q: In what activities does Carbon Trust apply its consultancy services?
A: Carbon Trust has a long track record of working with various industries around the world, including the electricity industry. For a long time, in the UK we have focused on environmental responsibility which, over the past few years has been a target area for companies. Because that area is now relatively mature, the environmental component has become more straightforward as there are various methodologies and standards that can be employed nowadays. Our job is to evaluate our clients’ environmental-related data, identify a baseline and propose methodologies to motivate them to make their processes greener.
Q: What is your strategy while working with energy-related companies?
A: There are two different points of view when considering environmental and social responsibility. One is how these aspects are managed internally within the company to comply with regulation, and the other relies on how the company invests externally in its projects. One of Carbon Trust’s main activities is to help companies become qualified suppliers by taking the lead on environmental responsibility via renewable energy generation. To accomplish its goal, we first identify if our client can invest in renewable energy technologies. The next step is to determine the best financial mechanism for the project and explore if the company is eligible to issue green bonds, a CKD, a SERPI or any other relevant financial instrument. As companies usually work with long-term planning schemes, it becomes difficult to disrupt their strategy in the medium or short terms.
Q: What hurdles has Carbon Trust encountered while working with the Ministry of Finance and how have you solved them?
A: Carbon Trust works closely with municipalities and state governments in Mexico. These entities are not eligible to gather funds from international sources if they do not go through the Ministry of Finance first. This process is complicated as some states do not have the required qualifications for applying to these funds. Banks often see these entities as a considerable risk. Two years ago, while facilitating this financing process for a state government, we realized there were not too many instruments these entities could use for this purpose. It took us a year and a half to design a scheme in which banks were completely sure they would be paid by the state because of the existence of a fund that acts as a guarantee. In doing so, states do not have to use the Ministry of Finance as an intermediary anymore.
Q: How would you rate the advancement of the carbon market in Mexico?
A: The carbon market has two channels: the voluntary and the compliance market. The voluntary market is already established, but the main barrier is that there is no demand for carbon credits. A good example of this market is the aviation sector: when traveling by airplane, money can be donated for this purpose. Airlines place this profit in a fund with the objective of buying offsets for various projects.
The compliance market was enacted recently with the amendment to the General Climate Change Law that establishes the implementation of a carbon market. It works under the same concepts as the EU Emissions Trading System (ETS) or the Cap-and-Trade (C&T) in California. With this compliance market, the creation of a cap economy-wide will oblige companies to reduce their GHG emissions by providing market-based instruments or boosting innovation to achieve GHG emissions. In order to comply with the ETS/C&T, companies are obliged to submit annually a GHG inventory report to SEMARNAT under the National Emissions Register framework. This regulation is currently being modified to make sure the amendments of the General Climate Change Law are properly incorporated. The pilot market starts at the beginning of January 2019 and will last for three years. The full implementation of the carbon market in accordance with the Climate Change Law starts in 2021.