30407 Latin America and Caribbean Region Sustainable Development Working Paper 19 Responding to Climate Change: Proposed Action Plan for the World Bank in Latin America June 2004 Variations in the Earth’s Surface CO2 Stabilization and Temperature: 1000 to 2100 Sea Level Rise 1000 to 2100 Walter Vergara The World Bank Latin America and Caribbean Region Environmentally and Socially Sustainable Development Department (LCSES) Latin America and the Caribbean Region Sustainable Development Working Paper No. 19 Responding to Climate Change: Proposed Action Plan for the World Bank in Latin America June 2004 Walter Vergara The World Bank Latin America and the Caribbean Region Environmentally and Socially Sustainable Development Sector Management Unit Walter Vergara is Lead Engineer in the Environmentally and Socially Sustainable Development Department (LCSES) of the World Bank’s Latin America and Caribbean Regional Office. Mr. Vergara works in several aspects of the climate change program and has participated in development of the carbon finance portfolio as well as initiatives on adaptation to climate change, transport and climate change, air quality, and application of the Clean Development Mechanism (CDM) to wastewater and solid waste management. Mr. Vergara is a chemical engineer and graduate of Cornell University in Ithaca, New York, and the Universidad Nacional de Colombia in Bogota. The findings, interpretations, and conclusions in this document are those of the authors, and should not be attributed in any manner to the World Bank, its affiliated organizations, members of its Board of Executive Directors, or the countries they represent. This working paper series is produced by the Environmentally and Socially Sustainable Development Sector Management Unit of the Latin America and Caribbean Regional Office. Additional copies may be obtained from the author or from LCSES Senior Program Assistant Peter Brandriss (pbrandriss@worldbank.org, or tel. 1-202-473-9379). ii Contents Executive Summary........................................................................................................................v Introduction ....................................................................................................................................1 Climate Change 1 Regional Contribution to the Emission of Greenhouse Gases 2 The Impacts of Climate Change in the Region 3 Climate Change Impacts Are Now Unavoidable 5 Response of the International Community ..................................................................................7 United Nations Framework Convention on Climate Change 7 The CDM Potentially Offers Sizable Net Financial Flows to the Region 8 Proposed Action Plan ...................................................................................................................10 Institutional Capacity Priorities 10 Knowledge and Analysis to Support Adaptation Planning and Financing 10 Potential Opportunities for Carbon Finance and Synergies with Development Priorities in Latin America ..........................................................................12 Transport Sector 12 Power Sector 13 Environment Sector 16 iii Executive Summary Climate change is a very serious environmental challenge that affects prospects for sustainable develop- ment. Since the industrial revolution, the mean surface temperature of Earth has increased an average of one degree Celsius per century mainly due to the accumulation of greenhouse gases in the atmosphere. Furthermore, most of this change was in the past 30 to 40 years, and the rate of increase is accelerating. A change of this magnitude is unprecedented and will result in significant impacts both at a global scale, and for Latin America and the Caribbean in particular. While it is important to reduce greenhouse gas emissions and slow or reverse the warming trend in the long run, it is too late to prevent many of its impacts, so governments, policymakers, and civil society are increasingly concerned with anticipating the effects of global warming and searching for strategies to adapt to and mitigate them. Latin America has much to lose as a result of global warming. Key anticipated impacts include (a) de- creased water availability, (b) lower agricultural productivity, (c) changes in the composition and pro- ductivity of ecological systems, particularly coral reefs and forests, (d) damage and population displace- ment due to rising sea levels and flooding from heavy rainfall events, and (e) higher incidence of heat stress mortality and exposure to vector- and water-borne diseases such as malaria, dengue, and cholera. This paper proposes an action plan for World Bank activities in Latin America that focuses on the following three main initiatives. a) Strengthen institutional capacity to allow regional governments and civil society to play an active and influential role in the international climate agenda by: • cooperating in formulation of policies, standards, and guidelines and enhancing capacity to plan, manage, and monitor those policies; • developing common regional positions and participating vigorously in international forums and negotiations; • supporting effective mechanisms for sharing best practices in climate change assessment, adaptation, and technologies; • promoting equity and fair valuation of carbon emission reductions and developing a portfolio of activities eligible for funding by the Clean Development Mechanism (CDM). b) Improve knowledge and analysis to support planning for adaptation measures and funding by: • strengthening knowledge and documentation on vulnerable ecosystems and human health; • assessing the impacts of climate change and its implications for sustainable development; • analyzing policy options and identifying and supporting priority adaptation measures. c) Increase carbon financing for mitigation actions and maximize the value of funding by seeking synergies and aligning strategies closely with local environmental and social priorities. v Introduction Climate Change Climate is changing rapidly at a global scale. The main cause is the atmospheric accumulation of greenhouse gas emissions from anthropogenic (man-made) activities. For example, the concentration of carbon dioxide (CO2) has risen from 280 ppm to about 370 ppm since the beginning of the indus- trial revolution due to the burning of fossil fuels, other industrial activities, and deforestation. During the same period, the Earth’s mean surface temperature increased an average of one degree Celsius per century, with most of the change concentrated in the last decades of the 20th century. It has been ris- ing at the rate of 2 degrees Celsius per century since 1980. Other gases that contribute to the problem include nitrous oxide (N2O), methane (CH4), hydrofluorocarbons (HFCs), perfluorocarbons (PFCs), and others released as a result of human activity. Seen over the last millennium, this rapid warming represents a strong deviation from the norm (Fig- ure 1). With the continuing emission of greenhouse gases, it is now projected by the Intergovernmen- tal Panel on Climate Change (IPCC) that the mean surface temperature may increase 1.5 to 6 degrees Celsius during the next 100 years. A change of this magnitude is unprecedented and will result in sig- nificant impacts that will be felt at a global scale, potentially disrupting the overall ecosystem (bio- sphere). Climate change is a very serious environmental challenge. Figure 1. Variations in the Earth’s Surface Temperature, 1000 to 2100 • 1000 to 1861, northern hemisphere, proxy data • 1861 to 2000 global, instrumental • 2000 to 2100, SRES projections Source: IPCC Third Assessment Report, 2001 1 2 LCR Sustainable Development Working Paper No. 19 Insular marine habitats are among the most vulnerable. Climate change will affect the physical and biological characteristics of oceans and coastal areas, modifying ecosystem structure and function. Nations that depend on reef and coastal systems are threatened by loss of marine biodiversity, fisher- ies, and shorelines. Wetlands, reefs, atolls, keys, and mangroves are among the ecosystems consid- ered most vulnerable to climate change because of limited adaptive capacity. High mountain ecosystems are another of the most vulnerable areas, with a projected increase in tem- perature of 1°C to 3°C and lower rainfall. These changes would raise the altitudinal limits of the eco- systems between 400 and 500 meters. Glaciers and paramos would continue to shrink.1 This would mean not only a loss of biodiversity but the loss of much of the environmental goods and services provided by these ecosystems, especially water supply, basin regulation, and associated hydropower potential. Regional Contribution to the Emission of Greenhouse Gases The Latin America and Caribbean region has about 15 percent of the world’s population, but accounts for less than 6 percent of global greenhouse gas (GHG) emissions. In addition, the rate of growth of GHG emissions in Latin America is dramatically lower than in all other regions of the developing world except sub-Saharan Africa. This means that the region’s share of the blame for global warming is limited, and that emissions reductions in the region are likely to have only a limited impact on the outcome of worldwide emissions reduction efforts. Figure 2. Comparison of CO2 Emissions in Selected Countries, 1999 6,000 5,495 5,000 4,000 Millions of tons 2,825 3,000 2,000 1,437 1,287 1,155 1,000 439 379 274 138 64 23 0 a a co a r a n n a . . .S ib do n ad tin ai bi pa si i hi ar U ex us Sp om ua n an Ja C C ge M R Ec ol C ./ Source: World Bank Ar C Am tin La 1. For example, the Colombia First National Communication (NC1) estimates that 78 percent of glacial ice and 56 percent of paramos might disappear by 2050. Responding to Climate Change in Latin America 3 The Impacts of Climate Change in the Region On the other hand, the region is very vulnerable to the impacts of climate change and these could se- riously impair the prospects for sustainable development in the continent. Latin America has a large endowment of natural resources, represented by large tracts of primary forests, major reservoirs of biodiversity, substantial freshwater resources, large areas of wetlands and aquatic zones, and a varied climatic and ecosystem composition, all of which may to various degrees be affected by climate change. In other words, the region has a lot to lose. Climate change impacts have been identified by the IPCC and anticipated impacts have been characterized. In the context of the characteristics of the region, these include: Decreased water availability in many water scarce regions, especially in arid and semi-arid lands in the subtropics. Net reduction in rainfall and impacts on water availability are likely to have wide- spread impacts on agriculture and water supply, which may tax an already burdened water system in many nations in the region. Latin America has the second largest reservoir of fresh water; but to a large extent, the watersheds in the region are dependent on the ecology of the Andes. Thus, an in- crease in the desertification of high mountain ecosystems raises serious concerns. Island nations in the Caribbean may also experience a reduction in rainfall in an environment that is already short of fresh water, compounding an already difficult situation. Reduction in agricultural productivity is anticipated (a) in the tropics and subtropics for almost any warming, and (b) in middle latitudes for warming more than a few degrees. These will result from increased surface temperature and increases in the rates of evapotranspiration. Added to the expected net water reductions in some areas, the impacts could be severe and imply an increased dependence on food imports and disruption of economic activity in many agricultural regions. Changes in the productivity and composition of ecological systems, with coral reefs and forests being most vulnerable. For coral reefs in the Caribbean the situation is dramatic. Corals are the nursery of the seas, providing the habitat for many marine species. In additions, these are very pro- ductive ecosystems. However, corals are very sensitive to changes in temperature and their upper thermal tolerance is very near the current sea surface temperature. It is expected that coral reefs will be affected if seasonal maximum temperature sea surface temperatures increase even slightly. In addi- tion, increases in CO2 will affect the ability of reef plants and animals to calcify and thus reduce the ability of reefs to grow vertically and keep pace with anticipated rising sea levels. There is already widespread evidence of a catastrophic collapse. Studies sponsored under a GEF- funded project, Caribbean Planning for Adaptation to Climate Change (CPACC),2 has provided in- formation on the bleaching of corals caused by exposure to high temperature and explored the eco- logical and economic consequences for the economies of the nations in the region. 2. Implementation Completion Report for the Planning for Adaptation to Global Climate Change Project. Report No. 24911. World Bank. 2001 4 LCR Sustainable Development Working Paper No. 19 Specifically, in terms of coastal ecosystems of the Pacific and Atlantic,3 many wetlands will be affected by changes in storm surges. These may result in large-scale translocation of populations in low lying areas. Mangroves and coastal lagoons are expected to undergo rapid change and perhaps be lost alto- gether as functioning ecosystems. Low-lying coastal areas and associated swamps could also be dis- placed by saltwater habitats, disrupting freshwater ecosystems. Such changes are likely to result in dislo- cation of migratory birds and aquatic species that are not tolerant to increased salinity or flooding. Aquatic and wetland ecosystems are very vulnerable to climate change. Increases in water tem- perature are expected to disrupt patterns of plant and animal distribution. Inundation of coastal wet- lands by rising sea levels threatens the viability of coastal wetlands and may alter many ecosystem processes, with potential impacts on fisheries. The combined pressures of sea level rise and coastal development could also reduce the availability of intertidal areas, resulting in loss of feeding habitats and catastrophic declines in wintering shorebirds. Migratory and resident birds and fish may lose important staging, feeding, and breeding grounds that are difficult to replace under competing demands for scarce land. All these may affect commercially important fish species and a cause a shift of marine production toward the poles, seriously affecting the sustainability of fisheries in the Caribbean. Impacts on range and composition of forests. Similarly, while less immediate, impacts are antici- pated for forest composition, with the rate of increase in surface temperature far outpacing the ability of forest species to migrate to more temperate latitudes. This can affect the large tracts of primary forests in the Amazon basin as well as mountain forests in the Andes in ways as yet unforeseen. While, a lot of attention has been focused on corals and specific forest ecosystems, practically all eco- systems will suffer the impacts of climate change, with consequences that are yet to be fully evalu- ated. High mountain ecosystems seem to be particularly vulnerable. High-mountain ecosystems are considered strategic because they are key to the water cycle (regulating water outflow and supplying high quality water for social and economic uses). Thus, one of the most important environmental ser- vices of the high Andean systems is to supply potable water, and water for power generation. High mountain ecosystems offer other natural goods and services such as storage and distribution of nutri- ents, CO2 capture, protection against soil erosion and filtering and purification of pollutants. As tem- peratures increase, the biota in high mountains will have no place to go. In addition, the mountains contain the headwaters of most rivers in the region and a significant fraction of lakes that are the pri- mary source of potable water and hydropower. Global warming will affect evaporation rates and very possibly reduce the net supply of water. Finally, moorlands (paramo), a unique high mountain ecosys- tem, characterized by a high degree of endemism and a known water supply regulator in the region, may be at the greatest danger. Studies in Colombia show that at the current rates of temperature rise, these ecosystems may totally collapse in the course of the century. No one really knows the extent of all the downstream impacts. 3. Interlinkages between biological diversity and climate change. Secretariat of the Convention on Biological Diversity. CBD Technical Series, 2003. Responding to Climate Change in Latin America 5 Increased risk of floods, potentially displacing millions of people, due to sea level rise and heavy rainfall events, especially in small island states and low-lying deltaic areas are expected. These areas are particularly vulnerable to the effects of global climate change because of their limited natural re- sources, fragile and closely linked ecosystems, limited economic bases, and relatively high population densities. Possible impacts of climate change and associated phenomena on insular and oceanic envi- ronments include mean sea level rise, increased mean air and sea-surface temperatures, changes in rainfall patterns, and altered frequency of severe weather events like tropical cyclones and related occurrences. Effects related to climate change will impact environmental aspects like ecosystems pro- ductivity, natural resources (fresh water, soil, flora and fauna, etc.), and biodiversity; infrastructure from public services and transportation systems; economic activities such as fishing, agriculture, and tourism; and social features like food production, human health, and cultural survival of native com- munities. For the countries in the Caribbean, this is a significant challenge. Not only is sea level rise, expected to result in land loss, but also in impacts on water supply, placing an additional burden on already stretched resources. Coastal areas in Latin America are inhabited by millions of people and are the focus of a lot of economic activity. Health Impacts. Global climate change will likely lead to higher heat stress mortality as well as greater exposure to vector-borne diseases such as malaria and dengue and water-borne diseases such as cholera, especially in the tropics and subtropics (Figure 3). Malaria and dengue are becoming progressively more common around the world and particularly in the tropics of Latin America. These diseases are associated with rises in temperature and changes in rainfall, which affect their development and facilitate their dissemination. They are an important cause of high mortality and responsible for loss of technical and financial resources that must be in- vested in diagnosing and treating victims, including economic losses for reduced labor. In recent years these diseases have become a highly significant issue of public health with the number of vic- tims rising far faster than the increase in the population as a whole. Expansion of these vectors repre- sents an additional load to health systems that are already overstretched. Figure 3. Vector (Insect)–Borne Diseases Likelihood of Population altered at risk distribution Disease Vector (millions) Present distribution with warming Malaria mosquito 2,100 (sub)tropics 99 Schistosomiasis water snail 600 (sub)tropics 99 Filariasis mosquito 900 (sub)tropics 9 Onchocerciasis black fly 90 Africa/Latin America 9 (river blindness) African tsetse fly 50 tropical Africa 9 trypanosomiasis (sleeping sickness) Dengue mosquito unavailable tropics 99 Yellow fever mosquito unavailable tropical South 9 America & Africa Likely 9 Very likely 99 Source: Modified WHO, as cited in Stone (1995). 6 LCR Sustainable Development Working Paper No. 19 Climate Change Impacts Are Now Unavoidable Even if drastic actions are taken that would dramatically reduce emissions of GHGs, there is very lit- tle that can now be done to address some of the anticipated trends. For example, consider the impact on sea levels (Figure 4). The increases in global temperatures are expected to result in sea level rises, resulting from melting of ice in the poles and the thermal expansion of the seas. These will continue even if GHG concentrations in the atmosphere were to stabilize immediately. The consequences are long-lasting and illustrate the strategic importance of complementing forceful action in reducing emissions with adaptation measures. In this context, adaptation efforts represent the first priority for climate change work in the re- gion. Planning for adaptation and capacity building to understand and address adaptation issues are therefore the first order activities in the field of climate change. Regrettably, the political will for a strong support of adaptation efforts is still weak, and there is considerable confusion (see below). Yet even under uncertain circumstances, the region should emphasize work in adaptation, focusing on the areas that are the most vulnerable. Climate change cannot been seen as an isolated phenomenon but rather as part of a series of impacts caused by unsustainable practices, with linkages to several other environmental challenges. Changes in land use, for example the elimination of forest cover to make room for extensive cattle raising, a process that has led to the destruction of large tracts of rainforest in the Amazon region, not only leads to biodiversity loss, but also eliminates carbon sinks and thus contributes to a net increase of GHGs in the atmosphere. Likewise, in urban areas air quality has deteriorated from the uncontrolled emission of airborne pol- lutants. Some of these, notably volatile hydrocarbons and nitrogen oxides (NOX), contribute to the formation of tropospheric ozone, which by itself may contribute to global warming. These and other linkages illustrate the complex interactions between different environmental impacts and highlight the need to develop strategic and comprehensive strategies to deal with impacts from climate change. Figure 4. CO2 Stabilization and Sea Level Rise Response of the International Community United Nations Framework Convention on Climate Change The international community has taken steps to address the challenge. At the Rio Conference in 1992, the United Nations Framework Convention on Climate Change (UNFCCC) was signed by most na- tions. Under the Convention, nations commit to reduce the anthropogenic impacts on global climate to prevent “dangerous human interference with the climate system.” The Framework Convention has set guiding principles, including: “The principle of common but differ- entiated responsibilities of states which assigns the financial lead in combating climate change to indus- trialized countries. Other principles deal with the special needs of developing countries, and the impor- tance of sustainable development.”4 Together, these principles translate into specific commitments for industrialized countries. The commitments involve mitigation activities to reduce overall greenhouse gas emissions. They also involve a pledge to developing countries to meet specific obligations under the Convention to meet the costs (in part or in full) of adaptation activities to the adverse effects of climate change, and to promote the transfer and access of environmentally sound technologies (the Clean Tech- nology Initiative, CTI). The corresponding eligibility criteria for funding, cost sharing, and resource mo- bilization mechanisms is an ongoing and evolving process. The Conference of the Parties (COP) of the Climate Change Convention manages that process. While financial mechanisms are already operational for some well-defined activities, others are still in the process of being negotiated and finalized. New financial tools are likely to emerge in the future as the Climate Change Convention continues to evolve. The COP has entrusted GEF with the financial responsibility to provide resources to developing nations to assist them in achieving their duties and responsibilities under the convention (Figure 5). Under the GEF, a series of operational programs have been structured that provide financing for eligible countries to address the root causes of global warming and remove barriers for the development of response actions in areas that include energy efficiency, renewable energy resources, transport, and others. In 1997 the Conference of the Parties adopted the Kyoto Protocol to the Climate Change Convention. The protocol sets specific targets for reduction of domestic emissions of GHGs by industrialized nations. Under the protocol some 40 industrialized nations would be obligated to cut their emissions by an aver- age of 5.5 percent below 1990 levels. Developing countries would not be obligated to cut their emissions until the next round of the treaty takes effect. To help meet these targets the protocol establishes three flexibility mechanisms designed to provide developed countries with market-driven and efficiency- enhancing (cost-minimizing) instruments: joint implementation, emissions or carbon trading, and the 4. Information Sheet #19, Climate Change Information Kit, July 2001, www.unfcc.org 7 8 LCR Sustainable Development Working Paper No. 19 Figure 5. UNFCCC Activities and Financial Mechanisms Adaptation Mitigation Activities Activities GEF LDC Adaptation Clean Development UNFCC Fund Fund Mechanism General Fund Joint Implementation Enabling Activities Carbon Trade Operational Programs Clean Development Mechanism (CDM).5 The CDM allows industrialized countries to implement pro- jects that reduce GHG in non-industrialized countries. Emission reductions generated by the project ac- tivities have to be “certified” to comply with emissions commitments. The United States, the largest GHG emitter, does not participate in the Kyoto protocol and this, besides limiting the size of the market, raises a question of equity in international efforts to address the problem. The CDM Potentially Offers Sizable Net Financial Flows to the Region The market created by the CDM (even in the absence of the United States,), is considerable. Taken together the EU, Japan, Canada, and other industrialized nations, under the provisions of the protocol, create a significant market for carbon reduction transactions that can be worth several billion euros per year. Thus, a sizable source of net financial flows, one that does not involve financial liabilities and that can also be linked to transfers of technology is available to developing nations. The Latin America region can benefit from CDM resources by creating a reliable source of emission reductions. The current commitment period for the CDM (2005-2012) is necessarily just a first step, which in all likelihood needs to be complemented with additional actions. Further ahead, if governments decide to stabilize the atmospheric concentration of carbon dioxide at 550 ppm (about twice the pre-industrial level), global emissions would have to peak by about 2025 and fall below current levels by 2040 to 2070. This would mean that all regions would have to deviate from current trends within a few decades, with significant financial commitments required to achieve the intended targets for emission reductions. “A key challenge would be an equitable distribution of emissions rights, recognizing that most anthropogenic emissions of greenhouse gases to date have 5. Joint implementation allows Annex I countries to implement projects that reduce GHG by sources (or enhance removals by sinks) in the territories of other Annex I countries. Emission trading or carbon trading allows Annex I countries to trade part of their respective “assigned amount” (i.e., target level of emissions during the commitment period) with each other. Responding to Climate Change in Latin America 9 come from industrialized countries, and that even though total emissions from developing countries will soon exceed those from industrialized countries, projected per-capita emissions would still be lower in developing countries.”6 The Adaptation Fund. The Kyoto protocol plans to establish a fund to finance adaptation activities. Resources for the Adaptation Fund are expected to come from a levy on global carbon trade (2 per- cent has been suggested) and additional pledges by industrial countries. This Adaptation Fund will become operational during the implementation period of the Kyoto Protocol. The adaptation fund being proposed under the CDM is also expected to be a source of resources. However, the outset of the adaptation fund has yet to be decided. A first option is that it would be operative with the first commitment period (2008). Alternatively it may operate as soon as the Kyoto Protocol enters into force. This would occur when at least 55 nations representing 55 percent of in- dustrialized countries’ greenhouse gas emissions ratify the treaty. Independent of the availability of CDM funds for adaptation, it is becoming clear that, given the priority character of the issues, funding through the convention’s financial instrument (GEF) dedicated to adap- tation is likely to increase. The region has important pioneering activities in adaptation (such as the CPACC and MACC projects in the Caribbean) and has a strong case for increased funding given the expected permanent impacts from climate change over which it has little control or influence. 6. IPCC, Third Assessment Report. 2001. Proposed Action Plan The action plan proposed for World Bank activities in Latin America focuses on three main initiatives: (a) strengthening institutional capacity to allow regional governments and civil society to play an active and influential role in the international climate agenda; (b) improving knowledge and analysis that sup- ports planning and implementation of adaptation measures and access to funding; and (c) increasing car- bon financing for mitigation actions and maximizing the value of funding by seeking synergies and aligning strategies closely with local environmental and social priorities. The first two initiatives are described below, while the third is discussed in a separate section on page 12 that gives a sector-by-sector analysis of potential mitigation actions, funding opportunities, and synergies. Institutional Capacity Priorities Climate change is a complex issue. Many aspects of the convention, the protocol, and the CDM are engaging, at times controversial, and frequently highly technical. A number of issues or barriers could severely constrain the CDM. Key issues could be negotiated and regulated in ways that may favor market efficiency and maximize investments in the developing world, or they could do the opposite. Institutional development is therefore, very important for countries in the region to: • Cooperate in the formulation of climate change policies, standards, and guidelines that are ap- plicable to the region, and enhance national capacity to effectively plan, manage, and monitor climate change policies; • Develop common regional positions for international negotiations on issues related to the intersec- tion of climate change, emissions and sequestration, energy, land use, and sustainable develop- ment; • Participate vigorously in climate change-related international forums and negotiations to ad- vance the agenda related to the net impacts in the region; • Develop and support effective mechanisms for the systematic transfer of global best practices and capacity in vulnerability assessment, adaptation and mitigation strategies, and techniques and technologies towards clean, sustainable development strategies; • Strengthen the capacity to understand and plan for adaptation to climate change impacts; • Promote the goals of equity and fair valuation of carbon emission reductions; • Identify and promote a portfolio of CDM-eligible activities. Knowledge and Analysis to Support Adaptation Planning and Financing Besides the priorities already outlined for capacity building, there is an urgent need to support planning and capacity building for adaptation. While the adaptation fund is made available, GEF resources for climate change could be tapped for adaptation efforts. The GEF role is to build capacity for the deci- 10 Responding to Climate Change in Latin America 11 sionmaking required to develop and adopt climate change adaptation programs and measures. These activities are framed within decisions taken at the Seventh and Eighth Conference of the Parties (COP7 and COP8) emphasizing the need to focus GEF resources on adaptation issues. Furthermore, COP7 rein- forced these provisions by deciding that the GEF, as an operating entity of the financial mechanism, should provide financial resources to developing country Parties not only for the activities identified in paragraph 7 of decision 5/CP7, but for other activities, including “strengthening the implementation of country-driven state II adaptation activities . . . and supporting the continuation of the ‘country-team’ approach, which enhances the collection, management, archiving, analysis, interpretation and dissemina- tion of data on climate change issues . . .” At the GEF Council meeting of November 2003 and COP9 in December 2003, a business plan was adopted that for the first time recognizes the funding needs of adaptation activities under a pilot window designed to identify policy options and measures that could demonstrate how adaptation to climate change can be implemented. This is a significant development, which for the first time allows GEF re- sources to be invested in the implementation of specific adaptation measures. Independent of the source of financing, adaptation efforts could focus on: a) Strengthening of the knowledge base required to better document global climate change im- pacts on vulnerable ecosystems, and human health issues. Support is required for (i) improving climate monitoring systems, focusing on rainfall, sea level, temperature and surface temperature measurements, and on monitoring key indicators of vulnerable ecosystems such as coral reefs (corals, sea grasses, mangroves) and high mountain ecosystems (sub-paramos, paramos, gla- ciers, endorreic basins); (ii) strengthening the ability to downscale global climate models to de- sign and select climate change scenarios and to interpret results to define expected impacts; (iii) improving the knowledge base for key ecosystems (high mountain ecosystems and coral ecosys- tems) including gathering baseline data, assessing historical development trends, characterizing key ecosystem cycles and identifying environmental services; and (iv) completing a detailed epidemiological assessment for tropical diseases. b) Assessing climate change impacts, including the identification and characterization of the an- ticipated impacts of climate change on vulnerable ecosystems. Also, support of national institu- tions and stakeholders to (i) identify the induced changes on malaria and dengue vectors; (ii) as- sess expected impacts of climate change on high mountain ecosystems, small islands, and coral reefs and associated ecosystems (sea grasses, mangroves), and examine the implications for sus- tainable development; and (iii) assess sectoral impacts on water resources (water supply, hy- droelectric power generation, and agriculture); and c) Assessing policy options and identifying and implementing adaptation measures. In particu- lar, it is necessary to (i) identify policy options; (ii) prepare cost–benefit analysis of applicable policy options; (iii) develop an implementation strategy, including an institutional analysis, legal and regulatory assessments, stakeholder analysis, defining a public awareness dissemination strategy, and developing actions, targets, performance indicators, responsibilities and implemen- tation timeframes; and (iv) support of key pilot adaptation measures that illustrate how these could be put in place to mitigate impacts and adapt the countries to climate change effects. Potential Opportunities for Carbon Finance and Synergies with Development Priorities The Kyoto Protocol and the CDM are potentially very important tools for addressing climate change impacts and simultaneously contributing to local development. Further, it can be argued that the re- sources of carbon financing managed by the Bank should be primarily used as a tool to foster the goals of sustainable development in the context of the local social and environmental circumstances where each project is to take place, contributing to the objectives of country assistance strategies. By linking carbon revenues to local social and environmental indicators, these resources would be re- sponding to the spirit of the Clean Development Mechanism. For example, there are substantial op- portunities for use of the CDM in the region in support of transport priorities as well as a catalyst for renewable energy, improvements in energy efficiency, and even solid waste management and waste- water treatment. Some of the areas of potential include: Transport Sector The transport sector is a major source of greenhouse gases in the region, and certainly the largest in an urban environment. While far less energy-intensive than transport systems in the United States, there nevertheless has been a continuing trend toward higher emissions per capita. Figure 6. Direct CO2 Emissions in the Mexico City Metropolitan Area, by Fuel Type (1996)7 25 41 Electricity Million Tons CO2 (1996) 20 Various 29% 15 Natural Gas 10 19% Diesel Gasoline 5 0.15% 6% 4% LPG 1.5% 0 ic l l l al ra tia ia t n bl or ci io str tu en Pu sp er at ul du sid m an er ic In m en Tr gr Re Co G A ty ci tri ec El Source: Opportunities for harmonization of climate change and air pollution measures. Summary of studies for the preparation of the Mexico: Introduction of Climate Measures in Transport Project. 2001 7. Does not take into account associated fugitive emissions or leaks. 12 Responding to Climate Change in Latin America 13 From a mitigation perspective, transport is not an easy source on account of its diffuse character (many small emitters) and the limited impact that, at current prices, the purchase of emissions has on the overall financing of less energy intensive transport systems. Nevertheless, there is some consider- able potential, in particular in systems that may induce a modal shift from small capacity, private ve- hicles to a system based on larger capacity, energy efficient vehicles, as the example of Transmilenio in Bogota, has already demonstrated. In this context, the CDM can support the goals of an efficient, safe, and environmentally beneficial transport system. While Transmilenio, at least in its initial phases, has not sought carbon finance as a source of funding, several follow-up projects have been proposed that include carbon finance. Investments in Rapid Bus Transit Systems (RBTs) are synergistic with the need to provide better or- ganized, safe, effective, and rationale transport. Carbon finance can, potentially, aid these efforts by providing a limited, yet reliable and long-term financial incentive. However, the long-term viability of investments in RBTs, needs to be predicated in the gains in efficiency and productivity (reduced congestion, increased capacity) and safety of the system. The Carbon Finance Unit, at the World Bank, has agreed to consider a first-of-its-kind project in Mexico City as a follow up activity to an existing, GEF-supported project. The operation is expected to illustrate the difficult issues of how to estimate the baseline (business as usual emissions), and how to document the expected reductions. Under this initiative efforts are being made to develop baseline and monitoring methodologies. Figure 7. Share of Electricity Generation from Thermal and Hydropower in Latin America (excluding Brazil), 1990-99 54 T hermal % Composition Net Electricity Supplied 52 50 48 46 44 Hydro 42 40 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 Source: Elizondo Gabriela (2003) Effects of Regulation on the Dynamics of Power Sector Liberalisation in Latin America, Imperial College London. 14 LCR Sustainable Development Working Paper No. 19 Power Sector The power sector is a large source of greenhouse gases in Latin America. The CDM can support the goals of a reliable, efficient, and diversified power system in the region. In some countries (the An- dean region), the power sector currently is based largely on hydropower and therefore is not a source of GHG. However, the earlier trend toward privatization and the downturn in economic growth has resulted in a tendency toward “carbonization” of the energy sector that favors installation of smaller, fossil-fuel based plants as an alternative to larger and more complex investments in hydropower ca- pacity (Figure 7). Thus, some of the opportunities for GHG reductions have to be seen against a base- line of increasingly energy-intensive practices. The region has a considerable endowment of renewable energy sources. With carbon financing, sev- eral projects are being developed and others are under preparation to foster the development of these resources. Some of the most interesting options include: Run-of-river hydro plants. These units are relatively small, can have limited environmental impacts, and are more suited to address slow increases in demand and local reliability of power systems. Two of these projects have already been approved or are under advanced preparation in the region. Be- cause high mountain ecosystems are particularly vulnerable to climate change impacts, run-of-river hydro can help ensure the sustainability of energy production. Carbon revenues are anticipated to add 1-2 percent to return rates. Yet the true return of these facilities should be sought in the contribution they made to preserve mountain habitats and their inhabitants. There is substantial potential to expand the experience being gained with the Chacabuquito and Amoya projects to the rest of the Andean re- gion. Figure 8. Amoya Positive Sustainability Cycle Conservation of the Paramo + + Carbon Revenues Sustainable Water Cycle + Amoya Positive Sustainability Cycle + Carbon Emissions Long Term Water Reduction Supply + Amoya Project Electricity Generation + Responding to Climate Change in Latin America 15 Furthermore, under the Amoya project,8 a linkage has been established between the revenues for car- bon emission reductions and the protection of the high mountain habitat, which enables the water cy- cle and the generation of renewable power (Figure 8). The project is designed to maximize positive feedbacks that promote sustainable use of the services of the páramo ecosystem in the region. Con- serving the páramo is key to maintain the water cycle in the long term, which in turn makes viable its use for generation of clean energy. The clean energy component is designed to have a minimum eco- logical footprint in the area (underground works, access roads reverting to natural landscape, no res- ervoir). The generation of clean energy helps displace emissions of GHG which are sold in the inter- national market. These revenues make the project financially viable and in turn help finance a social program to improve the welfare of the farmers in the area and involve them in the process of conserv- ing the páramo. Wind energy. Wind energy generation capacity is rapidly increasing (30 percent annually),9 although it still accounts for less than 1 percent of the world total. Yet of all the renewable energy alternatives, it is the source that is likely to best compete with fossil fuels in the short term. Recent trends, such as efforts to strengthen regional generation capacities, trying to reach off-the-grid areas, and increases in the cost of gas, tend to favor wind power. There is a considerable potential for wind generation in the region, mostly along coastal and insular areas, as well as in high mountains and in the southern regions of the continent. Also, frequently the wind regimes are complementary to hydrology cycles, contributing to increase the robustness of power systems. While still marginal economically, the wind option should continue to be pursued with the help of the CDM. Carbon revenues will assist in reducing the gap between rates of return for traditional fossil fuel plants and wind systems, and will promote activities that help gain experience for further market penetration of wind power. Populations in coastal and high mountain areas suitable for wind development should be made part of the benefits from the CDM, as has been done in the Jepirachi project.10 The Jepirachi carbon offset project purchases the emission reductions caused by the operation of a new 15-megawatt wind-farm, located in Wayuu Indian territory in northern Colombia. This specific project illustrates the potential linkages of the CDM with local development issues. Having been taken as a model for the Community Development Carbon Fund, the project invests about 15 percent of the carbon revenues in a social program that includes water supply, education, health services, and other community benefits for the local indigenous population at the site. Jepirachi also illustrates the potential for on-grid renewable energy generation, particularly in countries such as Colombia, México, Brasil, Chile, and Costa Rica, where actions in this area can make a substantive difference to the worldwide agenda for renewables. In other countries, off-grid renewables may help reach poorer populations and extend electrification to unserved communities in remote locations for which least cost technologies frequently are wind, solar, or biomass. 8. Colombia: Amoya River Environmental Services Project. Project Appraisal Document. Report No. 26364- CO. World Bank, 2004. 9. Vital Signs 2001. The Worldwatch Institute, 2001. 10. Colombia: Jepirachi Carbon Offset Project. Project Appraisal Report. Report No. 24913-CO, World Bank. 2002. 16 LCR Sustainable Development Working Paper No. 19 Biomass energy. Carbon revenues have the potential to improve the economic viability of biomass energy systems, which are by nature specially suited for rural and off grid locations. Biomass fuels are still expensive to collect and process, but they are associated to zero emissions. Some opportuni- ties that should be pursued include: Bio-diesel (for power or transport), alcohol fuels, and burning of biomass. In all cases, emissions of local pollutants (particulates, chemical smog) should be avoided. Credits however cannot be claimed for avoided deforestation. Energy efficiency and conservation. The CDM can assist in attaining the goals of improved energy efficiency and conservation through the internalization of global benefits from investments in these areas. Energy efficiency measures are a win-win opportunity where the economic worth of energy savings can be complemented with carbon revenues. The challenge is to identify those that are really additional to the business-as-usual scenario. Environment Sector The emission of GHGs is often associated to the release of local criteria pollutants. Therefore, local environmental goals, such as cleaner water, air, and improvements in solid waste management, can be advanced through CDM-sponsored activities. For example: Wastewater treatment. In Latin America there is an important gap between collection of wastewater and its treatment that has not been bridged because of financial difficulties and the lack of economic incentives for full treatment. In fact, there is a worrisome trend toward de-linking sewage collection from sewage treatment; only a small fraction of sewage is treated. On the other hand, primary and secondary business-as-usual wastewater treatment facilities contribute about 10 percent of global anthropogenic emissions of CH4 (about 40 metric tons/year). N2O emis- sions from facultative lagoons also contribute to global warming. CH4 that is collected from sewage activated sludge can be used for power generation and to process heat, while technology changes can eliminate the formation of N2O. Specifically, anaerobic wastewater treatment systems could provide opportunities for (a) abatement of CH4 from the primary and secondary wastewater treatment through optimization of the capture, collection, and flaring systems of CH4 emissions; (b) abatement and prevention of emissions of N2O from the secondary treatment through modification of exist- ing secondary wastewater treatment, shifting from facultative to permanent or intermittent aerated regime, and inducing reductions in N20 emissions; and (c) displacement of emissions from the gen- eration of power through installation and operation of CH4-fueled, cogeneration power plants. Car- bon revenues could make viable these investments and thus support the development of secondary treatment facilities in developing countries. Solid waste management (landfill gas). Proper solid waste management has long been an issue in the region. Carbon revenues linked to the capture and use of landfill gas can improve the viability of landfill operations by creating an additional source of revenue. Landfill gas is estimated to contribute 10 percent of all methane released to the atmosphere. The region already has one of these units in op- eration, financed through the GEF, and several others are under preparation with the involvement of carbon finance. Carbon revenues can increase the returns of methane units at landfills by 5-7 percent. The favorable financial results could also support carbon sequestration schemes to completely offset carbon emissions, virtually making these units zero-GHG contributors. Responding to Climate Change in Latin America 17 Under the short-term measures window of the GEF, a 7-megawatt methane capture plant has been financed in Monterrey, Mexico. The plant, in successful operation since September 2003, is the first of its kind in the region.11 This project includes a dissemination component that the GEF intended to be used in the promotion of similar activities throughout the region wherever there is strong potential for such a system. Prime candidates are landfill sites that are well managed, with good segregation practices, and proper landfill barrier designs. Many landfills, however, do not meet these require- ments and remedial work may be required before landfill collection is attempted. Table 1. Measures Selected to Illustrate Harmonization Opportunities in the Mexico City Metropolitan Area Global Climate Measure Local Air Quality Issue Change Linkage Bus Rapid Transit The transport sector is the largest user of com- Reduced congestion and modal Systems and bustion fuels and is linked to large emissions shift improve fuel use per pas- introduction of of NOx, VOCs, and PM; advanced bus tech- senger-km and reduce emis- advanced technology nologies combined with efforts to promote sions of CO2. Improved en- buses modal shift can reduce volume of emissions of gines and drive systems reduce NOx, PM, and VOCs per passenger-km trav- emissions of C02 per unit of eled. work delivered. Energy efficiency in Improvements in the use of electricity reduce Improvements in energy use buildings the need for power generation, which itself is leads to reduction of emissions linked to various emissions of criteria local of CO2 and of local criteria pollutants.12 Public buildings offer a homoge- pollutants from thermal power neous target, facilitating replication. generation. Solar-based water Water heating uses primarily LPG in the Use of solar energy would heating systems for MCMA. The concentration of LPG components substitute LPG use and there- households (hydrocarbons with low molecular weights) is fore reduce the generation of high in the local air-shed and contributes to the associated CO2. generation of ozone. Solar energy could substi- tute for some of the LPG and reduce its associ- ated VOC load in the atmosphere. Reducing LPG leaks Reduction of fugitive emissions and leaks Same. and efficiency in would complement the solar water heating ini- domestic installations tiative through improvements in the efficiency of use of the LPG. Reduction of emissions Power plants in the region account for about 12 Reduction in ozone precursors at regional power percent of NOx emissions may reduce generation of tro- plants pospheric ozone 11. Mexico: Methane Capture and Use at a Landfill. Project Appraisal Document, Report No. 22112–ME. World Bank, 2001. 12. Some of these emissions will not accrue in the MCMA, as the power grid draws power from outside the region. 18 LCR Sustainable Development Working Paper No. 19 Air quality. Air pollution is a serious health and environmental concern. Several cities in the region are among the largest metropolitan areas in the world. Many of them are failing to meet adequate air quality standards. A growing percentage of the total population lives in metropolitan and large urban centers and therefore may be exposed to high levels of ozone and particulate matter. Air pollution in urban areas is mostly due to (a) a high concentration of ozone, produced by the reaction of volatile organic compounds and nitrogen oxides in the presence of sunlight; (b) carbon monoxide, nitrogen oxides, sulfur dioxide, and hydrocarbons emitted by vehicles fueled with gasoline and diesel; (c) sul- fur dioxide emitted by industrial processes and commercial services using liquid industrial fuels; and (d) particulate matter (PM) in the form of particles smaller than 10 microns (PM10) emitted by sev- eral sources using diesel and other fuels. Activities that seek air quality improvements should also review opportunities for harmonization of climate change and air pollution measures. This can be done through (a) assessments of the global dimension of air quality issues in urban areas, and (b) assessment of opportunities for reduction of GHGs as an incremental part of programs designed for air quality improvements. A review of pro- grams that could contribute both to improved air quality and reduced emissions of greenhouse gases has been conducted by the GEF in the Mexico City Metropolitan Area (MCMA).13 Table 1 summarizes some of the key measures reviewed. Forestry and land use management. Under the Kyoto Protocol carbon sequestration through land use management and forestry activities continues to be a controversial and unsettled topic. Without further guidance from the convention, it is difficult to comment on the potential long-term implica- tions and opportunities. Nevertheless, the Bank is about to launch a carbon revenue Bio-Fund that would help illustrate opportunities and issues. This opens the possibility of linking climate change issues with the goals of conservation and protection of biodiversity. Projects could also be formulated that promote afforestation and watershed protection. The Bio-Fund provides an innovative tool that could have significant applications in the region. Community development and carbon emission reductions. Earlier this year, the Bank launched the Community Development Carbon Fund (CDCF), which advances the spirit of the CDM in that sus- tainable development at the local level should be promoted as an integral part of the carbon market. The CDCF is designed to stimulate emission reductions at a lower scale, that are tied to improve- ments in social indicators. Thus, the fund could become an important tool to promote rural and social development. While the region has varied and significant needs and opportunities, a program should initially start in a few regions where the potential and impacts are the most relevant. Table 2 summarizes a view of where the activities outlined before could be initially undertaken. Partnerships. The activities outlined here require of a sustained and substantial effort, which will be facilitated through partnerships between the World Bank and third parties. Working examples of the benefits of linking efforts include the commitment of Conservation International in the Amoya project 13. Opportunities for harmonization of climate change and air pollution measures. Summary of studies for the preparation of the Mexico: Introduction of Climate Measures in Transport Project. 2001. Responding to Climate Change in Latin America 19 in Colombia and the National Oceanic and Atmospheric Administration in the United States (NOAA) and the Canadian International Development Agency cofinancing of adaptation efforts in the Carib- bean. However, more can be done and this needs to be pursued in a systematic manner in the Bank’s regional efforts on climate change. Table 2. Summary of Regional Needs and Opportunities Priorities Regional, sector focus Institutional Development All countries in the region, initially with a focus on those with the Assistance highest potential for the use of the CDM, and highest adaptation needs. Adaptation through the GEF Marine and insular areas (Caribbean nations, insular areas of Latin America); high mountain ecosystems (Northern Andes). CDM opportunities: Transport Mexico City, Santiago, Sao Paulo, Lima, Bogota, and other large ur- ban areas. Energy Focus on potential for renewable energy sources in areas with large thermal share of power sector; and energy efficiency opportunities in the industrial sector. Wastewater treatment Large- and medium-scale cities and urban areas; anaerobic wastewater treatment systems; areas with high potential impact on surface waters and aquifers. Solid waste management Focus on Mexico, Colombia, Brazil, and Argentina, and otherwise in landfill sites with potential for gas recovery. Air quality All urban areas in the region. 20 LCR Sustainable Development Working Papers For back issues please contact Peter Brandriss at the World Bank (pbrandriss@worldbank.org) No. Title Date Author 18 Programas de microcrédito y capital social January 2004 Carmen Tene entre mujeres indígenas Guadalupe Tobar Dolores Bolaños 17 Sistema Participativo de Planificación, Seguimiento y January 2004 Gloria Vela Evaluación de Proyectos con Pueblos Indígenas Axel Borchgrevink 16 Good Dams and Bad Dams: Environmental Criteria for November 2003 George Ledec Site Selection of Hydroelectric Projects Juan David Quintero 15 Social Capital as a Factor in Indigenous Peoples August 2003 Jorge E. Uquillas Development in Ecuador Martien Van Nieuwkoop 14 CFC Markets in Latin America December 2002 ICF Consulting / World Bank 13 World Bank Approaches to the Brazilian Amazon: November 2002 John Redwood III The Bumpy Road toward Sustainable Development 12 Microfinance Prospects in Brazil September 2001 Steven N. Schonberger 11 Local Governments and Sustainable Rural Development: December 2000 Maurizio Guadagni The Rural Municipalities Project (Protierra) in Nicaragua and others 10 Strengthening Indigenous Organizations: The World Bank’s December 2000 Jorge E. Uquillas Indigenous Capacity-Building Program in Latin America Teresa Aparicio Gabara 9 La raza y la pobreza: Consulta interagencias sobre November 2000 Proceedings of June 2000 afrolatinoamericanos (available in English) roundtable in Washington 8 Incorporación de aspectos de género y desarrollo April 2000 Caroline Moser en las operaciones del Banco Mundial: Avances (published in Annika Törnqvist y recomendaciones English in 1998) Bernice van Bronkhorst 7 Perceptions of Urban Violence: February 2000 Caroline Moser Participatory Appraisal Techniques Cathy McIlwaine (available in Spanish) 6 Defining Ethnodevelopment in Operational Terms: The January 2000 Martien van Nieuwkoop Ecuador Indigenous and Afro-Ecuadoran Dev. Project Jorge E. Uquillas 5 Violence and Social Capital: Proceedings of the LCSES August 1999 Caroline Moser Seminar Series, 1997-98 Sarah Lister 4 Youth Gangs and Violence in Latin America August 1999 Dennis Rodgers and the Caribbean: A Literature Survey 3 Youth Violence in Latin America and the Caribbean: August 1999 Caroline Moser Costs, Causes, and Interventions Bernice van Bronkhorst 2 A Conceptual Framework for Violence Reduction August 1999 Caroline Moser (available in Spanish) Elizabeth Shrader 1 Environmental Guidelines for Social Funds December 1998 Douglas J. Graham (available in Spanish) Kenneth M. Green Karla McEvoy 21