Viva México: Savvy Companies Will Benefit From the Country's Strong Ambition on Climate

Viva México: Savvy Companies Will Benefit From the Country's Strong Ambition on Climate
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With the timeline to Paris climate negotiations shrinking by the day, climate change mitigation and an aggressive clean energy generation goal are among the top topics on Mexico's policy agenda. Forward-looking companies are already anticipating its effects on business.

Mexico has recently submitted its Intended Nationally Determined Contribution (INDC) to the UN convention on climate change, vowing to slash greenhouse gas (GHG) emissions 22% below current projections by 2030. Prior to this, in October 2014, the country passed a new GHG regulation, by which regulated entities must calculate and report their emissions for GHGs and short-lived climate pollutants. The deployment of renewable sources has not gone unattended either: The 2014 "Power Industry Law" established a Wholesale Electric Market ("MEM") that will introduce tradable Clean Energy Certificates (CELs) as one mechanism for encouraging clean energy which, along with the General Law of Climate Change, aligns private and public actors to the national objective of reducing emissions.

As the world's 12th largest greenhouse gas emitter, Mexico now faces the challenge of translating the recent emission and energy reforms into action on the ground. The new GHG regulation applies to a wide range of sectors from the energy, transportation, industrial, agricultural, commercial, and services sectors. Companies in Mexico with annual emissions higher than 25,000 tCO2 must start reporting their emissions to fulfill current legislative obligations.

A pertinent question arises for businesses: How do you know whether you fall into the category of mandatory GHG reporting?

As coined by famous management consultant Peter F. Drucker, "what's measured improves". The awareness of any legislative reporting constraints and the development of a corporate climate strategy starts with a solid understanding of a company's greenhouse gas (GHG) emissions.

Although there are presently no reduction commitments outlined in the new Mexican GHG regulation and reporting requirements, the topic is gaining interest among the private sector. This can be attributed to the fact that emissions data will most likely bring scrutiny to high emitters and become a focus of Mexico's active NGO community, but also to recent developments of market-based instruments that will offer an incentive to invest in low-carbon energy. Nonetheless, in order to be successful, such market-based mechanisms need to be built within the context of Mexico's emerging climate change regulation. Ultimately, the smart deployment of market-based instruments can act as a great catalyst for the implementation of the Mexican energy and climate agenda, but also create an incentive for business to invest in low-carbon development as well as energy-efficiency improvement. Work on the design and implementation of carbon markets in Mexico is already underway, led by international experts such as South Pole Group.

A comprehensive corporate GHG footprint accounting is a central building block in the management of climate and corporate performance as well as reputational risk - going beyond simply complying with relevant regulation. Hailing as an example from the Nordic region, Mats Nordenskjold, Head of Public Affairs from leading insurance company If P&C says: "Since we started to measure our climate impact we have been able to put in efforts that have led to a reduction of our emissions, lower costs and increased understanding of the risks and opportunities related to climate change within our company and among our stakeholders." After having conducted a GHG footprint with South Pole Group, If P&C was able to take focused action and save a whopping USD $4.8 million in two years.

A GHG footprint also forms the basis of an internal carbon price for an organization. An internal carbon price can be used as one of the parameters in managing risks of future investments, and established as a smart incentive scheme for reducing GHG emissions within business divisions.

Microsoft, a global company valued at roughly USD $348 billion, is at present publicly broadcasting the results of the first three years of its internal carbon pricing program and a related carbon fee investment fund. Different Microsoft departments have added a budget line item reflecting the financial value of their emissions, which then translates to new capital for sustainability initiatives with the carbon investment fund. The key take-aways from Microsoft's GHG accounting efforts come in the form of USD $10 million in annual energy savings and emissions reductions of 7.5 million tons of CO2.

Solutions to both fulfilling legal obligations and increasing credibility as a sustainable business are already available. Pioneering companies and projects are getting #readyfor2020, looking beyond the outcomes of the Paris climate talks.

The Mexican Energy Reform aims to regulate, among others, the sustainable explosion of available energy, the obligations with regards to clean energy, and the reductions of GHG in the electricity industry. All objectives carry great opportunities, as embodied in the case of solar power plant Aura Solar I: Besides being one of the largest PV solar plant in Latin America, it is also the first Latin American renewable energy plant to be registered under the I-REC Code, a renewable energy certification scheme. The solar power plant meets the energy needs of 164,000 people and replaces fossil fuels for electricity production, which for years was the cause of air pollution in the region of La Paz. Although the construction and commissioning of this plant was not the direct result of the implementation of these policies, it paves the way for an alternative, low-carbon future for the Mexican electricity sector.

Mexico's proactive action on climate and renewable energy policy will very soon be felt by local businesses. Pioneers have begun mapping out potential legislative reporting constraints, GHG emission hotspots across their business, as well as future opportunities. Transparency coupled with a profound understanding of GHG emissions across an organization's value chain build the basis for target-setting and the monitoring of achievements.

With its ambitious reforms, Mexico is stepping to the front lines of the fight against climate change and positioning itself as a leader in the space. Climate regulation is now mandatory for some and an opportunity for others that should not be ignored. Quick, climate-smart companies in Mexico will be the first to reap the benefits and gain a competitive advantage in this new dynamic.

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