BGV&GB © Bryan, Gonzalez Vargas & Gonzalez Baz, S.C CARBON BONDS Mexico Bryan, Gonzalez Vargas & Gonzalez Baz, S.C. Lic. Judith Wilson BRAMEX CONFERENCE Sao Paulo, Brazil October 10, 2008

BGV&GB © Bryan, Gonzalez Vargas & Gonzalez Baz, S.C BACKGROUND United Nations Framework Convention on Climate Change ( UNFCCC), 1992 –Conference of the Parties, First Session in Berlin, 1995 Kyoto, Japan, December 1997 –Commitment from developed countries to limit or lower emissions by 5.2% from 1990 levels –Took effect as of February 16, 2006

BGV&GB © Bryan, Gonzalez Vargas & Gonzalez Baz, S.C MEXICO, NON-ANNEX I PARTY TO THE KYOTO PROTOCOL Mexico signed the Kyoto Protocol on June 9, 1998, - Ratified it on September 7, 2000 and - Became effective on February 16, In 2004 the Mexican Committee for Emission Reduction Projects and Capture of Greenhouse Gases was created which is the Designated National Authority under the Climate Change Commission (Comision Intersecretarial de Cambio Climatico). As an emergent economy, Mexico has the primary obligation of reporting its greenhouse gases by inventories denominated National Communications and up to 2006 it was the only country to have submitted three National Communications. BGV&GB

© Bryan, Gonzalez Vargas & Gonzalez Baz, S.C KYOTO MECHANISMS Emissions Trading (also known as “the carbon market“) – Article 17 Trading Unit: Assigned amount units (AAU) Joint Implementation (JI) – Article 6 Trading Unit: Emission Reduction Units (ERU) Clean Development Mechanism (CDM) – Article 12 Trading Unit: Certified Emission Reductions (CER)

BGV&GB © Bryan, Gonzalez Vargas & Gonzalez Baz, S.C EMISSIONS TRADING Parties with commitments under the Kyoto Protocol (Annex B Parties) have accepted targets for limiting or reducing emissions. These targets are expressed as levels of allowed emissions, or “assigned amounts” over the commitment period. The allowed emissions are divided into “assigned amount units” (AAUs). Emissions trading allows countries that have emission units to spare - emissions permitted them but not "used" - to sell this excess capacity to countries that are over their targets.

BGV&GB © Bryan, Gonzalez Vargas & Gonzalez Baz, S.C JOINT IMPLEMENTATION (JI) This mechanism allows a country with an emission reduction or limitation commitment under the Kyoto Protocol (Annex B Party) to earn emission reduction units (ERUs) from an emission-reduction or emission removal project in another Annex B Party, each equivalent to one tonne of CO2, which can be counted towards meeting its Kyoto target. Mexico is not involved in any JI Project

BGV&GB © Bryan, Gonzalez Vargas & Gonzalez Baz, S.C CLEAN DEVELOPMENT MECHANISM (CDM) Under the Clean Development Mechanisms (CDM), greenhouse gas emission reduction projects in development countries can earn saleable emission offset credits, called Certified Emission Reductions (CERs), each equivalent to one tonne of carbon dioxide. Countries with an emission reduction or limitation commitment under the Kyoto Protocol can use the Certified Emission Reductions (CERs) to meet a part of their obligations under the Protocol. A CDM project must provide emission reductions that are additional to those without the project. The projects must qualify through a rigorous and public registration and issuance process. So far, CDM projects have generated more than 135 million Certfified Emission Reductions (CERs).

BGV&GB © Bryan, Gonzalez Vargas & Gonzalez Baz, S.C TRADING UNDER CDM Buyer Annex I country (Governments, Individuals, Companies, any Legal entity, Funds) Excess Emissions Limit of Emissions Authorized Emissions without a project CERs Seller Non-Annex I Parties to the Kyoto Protocol (Development Countries) Emissions with a project

BGV&GB © Bryan, Gonzalez Vargas & Gonzalez Baz, S.C Clean Development Mechanism SELLERS IN MEXICO has been launched by the UNFCCC to facilitate exchange of information among buyers, sellers and service providers engaged in the Kyoto Protocol’s Clean Development Mechanism (CDM). TÚ TRANSFORMAS –Sectoral scopes: landfill gas, energy efficiency, renewable energy, industrial gases abatement. GIRA –a Mexican non-governmental organization which objective-related activities are conducted on three areas: 1) rural energy; 2) agroecology; and 3) community forestry Ejido of Felipe Carrillo Puerto, Mayan zone of Quintana Roo State –Forest management and reforestation and efficient cookstoves

BGV&GB © Bryan, Gonzalez Vargas & Gonzalez Baz, S.C CDM PROJECT CERTIFICATION PROCEDURE 1.Design 2.Validation 3.Registration 4.Implementation 5.Operation a.Monitoring b.Reporting 6.Verification 7.Issuance of CERs No Objection Letter

BGV&GB © Bryan, Gonzalez Vargas & Gonzalez Baz, S.C Slide on Chart taken from the UNFCCC

BGV&GB © Bryan, Gonzalez Vargas & Gonzalez Baz, S.C PARTIES INVOLVED Designated National Authority: Comisión Intersecretarial de Cambio Climatico Blvd. Adolfo Ruiz Cortines 4209, Cuarto Piso, Ala A, Jardines en la Montaña, Delegación Tlalpan, C.P México, D.F. Designated Operational Entity: either a domestic legal entity or an international organization accredited and designated, on a provisional basis until confirmed by the CMP by the Executive Board (EB). Project developer/ Operator CDM Investor/ CER purchaser CDM Executive Board

BGV&GB © Bryan, Gonzalez Vargas & Gonzalez Baz, S.C CDM PROJECT TYPES Energy efficiency Methane recovery (landfills and water treatment plants) Industrial process changes Cogeneration (use of waste heat from electric generation) Transport (efficiency improvements, fuel substitutes) Agricultural sector (reduction of any category of greenhouse gas emissions) Land use (afforestation and reforestation)

BGV&GB © Bryan, Gonzalez Vargas & Gonzalez Baz, S.C BIOGAS FROM LANDFILL The installation of a methane collection system, involves the following: Collection facilities – vertical and horizontal gas wells Vacuum and yielding systems - pipes and vacuum fans Measure/analysis system – measures biogas to be burned/analyzes amount of methane Energy production system – in Mexico it is commonly used for Municipal’s own consumption Alternatively, incineration: wellheads, blowers and gas cleanup equipment. Flares collection facilities.

BGV&GB © Bryan, Gonzalez Vargas & Gonzalez Baz, S.C Abbreviated Landfill Authorization Process Appointment with local Authorities Presention of the Project before Municipal authorities and Mayor Undertake preliminary feasibility studies Negotiate Concession Contract Registration of the CDM Project with the UNFCCC Development of the Project

BGV&GB © Bryan, Gonzalez Vargas & Gonzalez Baz, S.C GHG MEXICO The GHG Mexico Program is a voluntary national program of accounting and reporting Green House Gases (GHG) and also a program to generate emission reduction projects. The program arises from the initiative as a response of the industrial sector to adopt voluntary actions to fight the climate change. Under the affirmation of "which is not measure, cannot be controlled", the program focuses in developing the technical capacity for the quantification of GHG emissions because if you can know the concentrations and the emissions sources, it is possible to identify opportunity areas, thus, reduce these emissions and develop reduction projects. GHG Mexico Program is focused in two aspects: Corporative GHG inventories and Promotion of GHG emission projects GHG Mexico Program is coordinated by SEMARNAT and the Commission of Studies of the Private Sector for the Sustainable Development (CESPEDES), with technical support of the World- Resources Institute (WRI) and World Business Council for Sustainable Development (WBCSD).

BGV&GB © Bryan, Gonzalez Vargas & Gonzalez Baz, S.C Objectives GHG Mexico Program’s objective is to develop corporate capacity for: a) Preparing effective corporative GHG inventories b) Quantifying and documenting projects for emissions reduction. The program provides a portfolio of resources and services including the qualification and tools of calculation, it facilitates the effective management of GHG as corporative scale as to project scale; what allows the participant: - To evaluate the risks and opportunities related to GHG - To identify measures of efficiency and preservation; and - To evaluate projects of GHG reduction. GHG Mexico Program helps participants to position themselves at a competitive level in a world more and more restricted in GHG emissions, helping them in the management of these emissions and with its participation in carbon markets through an action and learning process. At the same time, the Program helps to increase the related institutional capacities for the climate activities at the governmental organizations and nongovernmental organizations, as well as to increase the disclosure of information required from the stockholders and other members of the entity.

BGV&GB © Bryan, Gonzalez Vargas & Gonzalez Baz, S.C Mexico leads in the implementation of donations from the Global Environment Fund (GEF), and in carbon funds administered by the World Bank, which generate additional financial income through the sale of non- emitted carbon emissions by creating clean energy projects. COOPERATION BETWEEN MEXICO AND THE WORLD BANK

BGV&GB © Bryan, Gonzalez Vargas & Gonzalez Baz, S.C This operation builds on the Bank's engagement in the energy and natural resources sectors in Mexico, and on the climate change activities already supported by the Bank in Mexico. Activities started back in the mid-1990s. Now comprises 26 active initiatives, financed by: -International Bank for Reconstruction and Development (IBRD) loans, -Global Environment Facility (GEF) grants, -Carbon finance emission reductions purchase agmts -Grants for capacity building in the carbon finance area, -Grants for economic sector work and knowledge products. Objectives of the Engagement: (a) Support for adaptation (b) Policy development and institution building (c) First-of-a-kind mitigation projects and programs, and (d) Identification and promotion of short-term and long- term mitigation options. COOPERATION BETWEEN MEXICO AND THE WORLD BANK

BGV&GB © Bryan, Gonzalez Vargas & Gonzalez Baz, S.C COOPERATION BETWEEN MEXICO AND THE WORLD BANK Washington, DC October 2, 2008—The World Bank Board of Directors approved a loan for US$ million to assist the Mexican government in its effort to better integrate sector policies in order to achieve a balance between socioeconomic development and environmental protection and improvement. The amount is complementary to previous loans –US$ Million approved last April for climate change, among others– and seeks to establish the considerations on the subject of environmental integration in public policies. The project is a part of the new Country Partnership Strategy that the World Bank signed with Mexican authorities last April, in line with the five pillars of the National Development Plan 2007 – This is a US$ million fixed spread loan with a 15 year grace period and a total repayment period of 15 years. The front end fee is equivalent to 0.25 percent of the loan and capitalized.

BGV&GB © Bryan, Gonzalez Vargas & Gonzalez Baz, S.C ADVANCES IN CLIMATE CHANGE National Emissions Inventory (INEGEI -2002) 3 rd National Communication National Strategy on Climate Change CDM Projects Mexican Carbon Fund (FOMECAR) GHG Mexico Program: 45 participating entities, 30 emissions reports of 89 million tons of CO 2 in 2005 Educational Programs Promotion on Research, incentives, sponsorship and support by various governmental programs

BGV&GB © Bryan, Gonzalez Vargas & Gonzalez Baz, S.C ADVANCES IN CLIMATE CHANGE Mexico generates 2.0% of the emissions per capita of greenhouse gases, however, it states in place 13 on what respects to the quantity of carbon dioxide emissions worldwide. National Ecology Institute, in compliance with the commitments by the Mexican Government, created a website to provide public updated information on climate change.

BGV&GB © Bryan, Gonzalez Vargas & Gonzalez Baz, S.C

BGV&GB © Bryan, Gonzalez Vargas & Gonzalez Baz, S.C Mexico is getting profit from the opportunities that the Kyoto Protocol provides through the marketing of carbon bonds. Up to now, Mexico has authorized 97 projects that would allow the reduction of approximately 6.4 million tons of carbon dioxide yearly, which positions Mexico in fourth place with more projects registered on the Clean Development Mechanism. Mexico can receive up to 150 million dollars annually by the sale of carbon bonds if it shows that greenhouse gas production has been controlled. Mexico has a potential for emissions mitigation of 80 million tons of carbon dioxide yearly, amount that could be reached by the use of aeolian, solar, or mini hydraulic energy. CONCLUSIONS

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