Is Latin America Really a Carbon Market Pioneer?
By María Amparo Lasso*
Latin America could help reduce carbon dioxide emissions by up to 55 million tons through the sale of carbon credits. But this strategy doesn't convince the critics, who ask if the region would foment clean and renewable energy sources or would merely sell cheap carbon credits to the highest bidder from the industrialized North.
MEXICO CITY - Latin America is a big player in the world's carbon market: the region has already negotiated 210.6 million dollars of carbon emissions trading in the context of the Kyoto Protocol, which is to take effect in February 2005 and has rekindled the debate about how to fight global warming.
The region's countries presented 46 projects under the treaty's Clean Development Mechanism (CDM), which could reduce emissions of around 55 million tons of carbon dioxide (CO2), the main greenhouse gas, produced from the combustion of fossil fuels.
Latin America, second only to Asia, is at the forefront of efforts in the developing world to reduce greenhouse gases, which are responsible for global climate change.
But critics ask if the Latin American strategy will foment cleaner, renewable energy sources in the region, or if it will merely be limited to selling cheap carbon credits to the highest bidder from the industrialized North.
The CDM is one of three flexible mechanisms set up by the 1997 Kyoto Protocol that are designed to help industrialized countries meet their goals for curbing greenhouse gas emissions to 5.2 percent below 1990 levels by the year 2012.
The mechanism, which began instrumentation even without the treaty in force, allows companies from industrialized nations to invest in CO2 emission abatement projects in developing countries.
Through carbon credits, these companies can count the emissions reductions as their own in their countries of origin, or trade them on the emissions market.
Such is the case of the French-German corporation Vallourec & Mannesmann (V&M), which plans construction in Brazil of a thermoelectric plant to be run on derivatives of plant carbon produced in reforestation processes.
The plant will generate electricity for the V&M steel factory in Barreiro, in the southeastern state of Minas Gerais, and is slated to reduce emissions of CO2 equivalent by 1.15 million tons in 21 years. The company will claim that reduction as its own.
The principal motivation of V&M ''was not environmental, but rather to limit the risks of interruption in the supply of electricity, which is terrible for the operation of the furnaces in steel production,'' said Eduardo Botelho, a V&M operations executive, in a conversation with Tierramérica.
V&M caused serious ecological harm in Minas Gerais, recalls Maria Dalce Ricas, an activist with the Minas Environmental Defense Association. ''But about eight years ago it improved its environmental policies, and that is why we are giving a vote of confidence for the (Barreiro) project, which is unique because it uses waste as its raw material.''
In Latin America, Brazil has the greatest potential as an exporter of carbon credits, followed by Colombia, Panama, Costa Rica and Peru, according to a study by the Economic Commission for Latin America and the Caribbean (ECLAC). The document reports there were at least 46 CDM projects in the region in March. Several more entered the application process in the last few months.
European corporations like V&M seem to be the most enthusiastic. From Spain alone, the companies Endesa, Unión Fenosa and Iberdrola announced investments worth 850 dollars in CDM projects in Latin America.
But the carbon credits derived from renewable energy projects represent just 10 percent of all credits negotiated in the CDM framework, according to the non-governmental group CDM Watch, based in Bali, Indonesia.
And this is the most recurrent criticism from environmentalists: so far, governments and corporations from the industrialized North have been using the CDM for projects that generate large quantities of cheap carbon credits, focusing on gases like methane and hydrofluorocarbons (particularly HFC-23), which allows them to quickly and comfortably meet the Kyoto Protocol reduction targets.
These are the preferred gases on the carbon market, which traded 64 million metric tons of CO2 equivalent during the first half of 2004. The governments of Japan and the Netherlands, and the World Bank, are the leading buyers.
The CDM, say activists, simply shifts the location where greenhouse gas reductions are recorded, without much environmental or social benefit for the countries involved, and they do not promote changes in energy use and production.
In Colombia, social investment was a requirement for developing a wind-energy plant in Jeripachi, in the Guajira region. It is the country's first CDM project, of 15 being planned.
The project, which would reduce emissions worth 3.2 million dollars in credits, is part of the World Bank's Community Development Carbon Fund, and includes efforts to modernize school and health infrastructure to benefit the Wayuú Indians living in the area.
''When it comes to indigenous lands, the members of those communities must be able to participate as partners'' in CDM projects, Wilder Guerra, a Wayuú and director of the Observatory of the Caribbean, an academic research center.
But there are those who see this type of investment as minor in the larger context, and argue that all CDMs should exclusively involve renewable energy sources.
However, that is unlikely to happen, ''because we are in a transition phase in which we are also using cleaner fossil fuels,'' Carlos Loret de Mora, president of Peru's national environment commission, CONAM, told Tierramérica. Peru is another CDM leader, with 19 projects and investments totaling 935 million dollars.
On Dec. 1, Peru will sign its first sale of carbon credits to the Netherlands, through the Poechos hydroelectric project in the northern city of Piura. It will replace thermoelectric plants that run on diesel and coal, and reduce CO2 equivalent gas emissions by 30,229 tons a year. The company is required to provide electricity to the surrounding community, as well as other social benefits.
The Spanish energy giant Endesa, with operations in Argentina, Peru, Chile and Colombia, will place on the European carbon market credits coming from the planned hydroelectric dam in Callahuanca, outside Lima, which will reduce CO2 emissions by 460,000 tons.
''Callahuanca will be completed despite the uncertainty that still exists with respect to the future price per ton of CO2, which implies a risk. But interest in obtaining experience with CDMs has prevailed,'' said Wilfredo Jara, environment and sustainable development manager for the Endesa affiliate in Chile.
The price per ton of CO2 currently varies between 3.5 and 7.0 dollars -- still considered quite low. And the transaction costs reach 200,000 dollars per project, which does not leave much room for small-scale undertakings.
''In Argentina, the costs and the complexities of presenting a CDM project have hindered participation by small and medium companies,'' Victoria Baláustegui, of the Argentine Health Ministry's clean production division, told Tierramérica.
And there hasn't been much interest in Mexico, which, despite the size of its economy, has registered just four projects, all related to the hydroelectric sector.
The implementation of the Kyoto Protocol in 2005 could catapult the Clean Development Mechanism to the forefront, but its lifespan could be very short. The commitments of the treaty last only until 2012 and, although new climate talks are slated for next year, what happens beyond the Kyoto Protocol is a great unknown.
* María Amparo Lasso is Tierramérica's editorial director. With reporting by Mario Osava in Brazil, Abraham Lama in Peru, and Yadira Ferrer in Colombia.