THE POLITICS OF CLIMATE IN DEVELOPING COUNTRIES: THE CASE OF MEXICO

A Dissertation submitted to the Faculty of the Graduate School of Arts and Sciences of Georgetown University in partial fulfillment of the requirements for the degree of Doctor of Philosophy in Government

By

Hilen G. Meirovich, M.A.

Washington, DC April 10, 2014

Copyright 2014 by Hilen G. Meirovich All Rights Reserved

ii THE POLITICS OF CLIMATE IN DEVELOPING COUNTRIES: THE CASE OF MEXICO

Hilen G. Meirovich, M.A.

Thesis Advisor: R. Kent Weaver, PhD.

ABSTRACT

The 2014 Climate Change Performance Index Climate indicates that no country is doing enough to prevent dangerous climate change. Climate action is apparently a challenge for bureaucracies to implement. However despite holding no international obligations to undertake action on climate change Mexico has adopted domestic policy options that have decreased its

GHG emissions trajectory slightly and in doing so has become a major recipient of international climate funding.

I argue that this case contradicts common assumptions about climate policy being a single policy sector. Rather, climate policy is a construct of climate-sensitive actions that are taken within different sectors, driven by dynamics specific to those sectors. I examine these dynamics in the forestry, electricity generation, and transportation sectors. I employ qualitative techniques, including process tracing, to examine the adoption of climate-sensitive policy options, comparing these processes between cases, and testing hypotheses generated from previous literature. I synthesize the findings in a general framework that explains the conditions that produce climate-sensitive options in developing countries, as well as the role played by IFIs.

I find there may be a variety of paths within a single country that may lead to climate- sensitive actions, and that these paths share two common characteristics: a) these actions respond to domestic problems and not necessarily to international commitments; b) they may not be the options with the greatest GHG emissions reductions, often because leaders seek to avoid blame

iii for slowing development or imposing concentrated losses on specific groups. Additional conditions that affect the type of path are the level of authority at which the policy will be implemented, the use of international resources and need of legislative politics. Finally, national leaders promote the packaging of actions as an overall climate policy when they see an advantage to such action internationally and no costs at the domestic level. The findings not only contribute to a better understanding of the multiple forms that climate-sensitive policies and the politics of those policies can take, but also highlights possibilities for improving the policies of both domestic actors and IFIs to respond to the challenge of climate change.

iv Acknowledgements

As previous graduate students have done before me, I would like to thank the ‘village’ that supported me throughout these years of intellectual discovery.

My dissertation advisor, Kent Weaver, who had the patience to accompany me all these years until I found my theoretical voice, knew when to push me and when to tolerate my absence, while I was busy engaging with climate policy. Without his insistence on me writing, I would still be doing research. I will be forever thankful. To John Bailey and Matthew Carnes, my committee members for reading my drafts and give feedback about ways to shape and strengthen the argument.

I could have not done this project without the institutional support from the Inter-

American Development Bank as it allowed me to spend the last few months on leave of absence to finish writing this dissertation. I especially thank Alexandre M. Rosa and Walter Vergara, from IDB for this invaluable opportunity. To Georgetown University for granting me the initial funding and allowing me to continue the research until today.

The fieldwork and interviews I did were essential in putting together the story of climate policy presented in this dissertation. To the interviewees themselves, my profound gratitude for the time dedicated to me. Also, I thank Gabriel De Luca for helping me with some parts of the research.

To my editor, Jacob Bathanti, who reviewed my drafts in detail and was accommodating to my needs and changing time schedule that I had for completing this project.

To my co-workers and friends Amal-Lee Amin, Alberto Barreix, Raul Delgado, Ramon

Espinasa, Gmelina Ramirez, and Ramiro Rios who patiently explained the ins and outs of each sector responding to all my incisive and returning questions with patience.

Equally important, Gerard Alleng, Juan Carlos Gomez, Marcela Penaloza, Ana Rios,

v Rosi Rodriguez, Luisa Fernanda Rodriguez merit special thanks as my commiserators during the most difficult months of writing. I especially thank Jennifer Doherty-Bigara, she buoyed me in my hardest time in these last years of research, accompanying me every weekend and always finding a source, an article or interesting data that I should not miss. My ‘policy girls’ Stella

Chang, Laurie Choi, Meral Karan, Maria Saenz and Eulynn Shiu, who served variously as inspirations, exemplars, and sounding boards. Finally, I would like to thank the continuous and caring support of my friends Zayra Romo, Julian Casal, Sara Hormigo, Juan Marin, Jaime

Garcia, Zoe Couacaud, Ana Maria Saiz, Ana Lucia Blanco, Joaquin Mercado, Michelle Farrell,

Federico Brusa and Alejandra Ciuffolini.

Throughout my life, my extended family “los Montrull,” and my brothers, Claudio and

Ioni, and sister, Yael as well as my brother and sisters in law Mark, Gaby and Carina were steadfast in their support. My nieces and nephew, Maia, Dana, Sigui, Livi, Ilana and Alon are the reasons for seeking answers that can help us protect our planet, the only home we have.

My parents, Carlos and Hilda, all words are insufficient to thank them for opening the world to me, instilling in me the intellectual curiosity and for inspiring me and pass on to me a strong sense of perseverance to accomplish my goals. Carlitos, Hilda, I owe you everything.

Finally, I thank my partner, Juan Pablo, whose companionship, at times coaching, and always caring support during the last years turned the most daunting part of my education into the most exciting and wonderful one as well.

HILEN G. MEIROVICH

vi CONTENTS

Chapter 1: Introduction ...... 1 The Problem ...... 2 My Argument in Brief ...... 9 Theories and Approaches Explaining Action and Nonaction on Climate Change ...... 11 Explanatory Framework and Hypotheses ...... 30 Research Design ...... 35

Chapter 2: Mexican Climate Policy ...... 42 Mexico in Comparative Perspective ...... 43 Climate Change Policy in Mexico and Climate Sensitive Actions ...... 48 Mexico’s Climate Results ...... 56

Chapter 3: Mexico’s Political System and Climate Change ...... 59 The Mexican Policy Making Process ...... 62

Chapter 4: The International Dimension of National Climate Action ...... 83 The Climate Regime Complex ...... 87 Evolving Trends in Climate Finance ...... 94 Financing Reducing Emissions from Deforestation and Forest Degradation (REDD) ...... 104 Mexico’s Actions within the Climate Finance Regime ...... 106 Conclusions ...... 111

Chapter 5: Climate and Forest in Mexico: Avoiding Deforestation to Alleviate Rural Poverty 114 Context of Forestry Policy in Mexico ...... 115 The Growth of Climate Change Concerns in Forestry Policy ...... 126 The First PAN Administration and Forest Policy ...... 128 The Calderon Administration and the Branding of Forestry as Climate Change ...... 143 Conclusions ...... 148

Chapter 6: Climate and Electricity Generation in Mexico ...... 153 Context of the Mexican Power Sector ...... 154 Vicente Fox’s Energy Security and the Role of Renewable Energy Sources ...... 164 The Calderon administration and the 2008 energy reforms ...... 175 Conclusions ...... 189

Chapter 7: Climate and Transportation Sector in Mexico ...... 193 Context of the Mexican Transportation Sector ...... 194 The Politics of Subsidies to Fossil Fuels and Automobile Fuel Efficiency ...... 201

vii The First PAN Administration and the Transport Policy ...... 210 The Calderon Administration, the Infrastructure Development Program, and Climate ...... 231 Conclusions ...... 236

Conclusions: Implications for Climate Policy Making In Developing Countries ...... 241 Variety of Pathways to Climate Sensitive Policies and Climate Policy ...... 242 Application of the Framework to a New Administration in Mexico ...... 251 Application of the Framework to Other Countries ...... 259 Lessons for International Financial Institutions ...... 274

Appendix A: Climate Policy Index Components ...... 280

Bibliography ...... 281

viii List of Tables

Table 1.1 Policy outputs and outcomes per sector under study ...... 36 Table 1.2 Political Dimensions Impacting Change...... 38 Table 1.3 Distributions of Interview Participants ...... 40 Table 3.1 Composition of the Mexican Congress, 2000-2012 ...... 64 Table 3.2 Bills introduced and approved by governing body 1994-2012 ...... 69 Table 3.3 Bills Introduced and Approved in the Chamber of Deputies by Parties 2000-2012 .... 71 Table 3.4 Percentage of Control of Governorships by Party ...... 72 Table 4.1 Resource allocation to major emerging economies ...... 106 Table 5.1 Allocation of PES resources by state, 2003-2005...... 137 Table 5.2 Reforestation and deforestation rates in Mexico: 1990-2010 ...... 149 Table 6.1 Private sector participation schemes ...... 158 Table 6.2 Percentage of inputs for electricity generation by fuel ...... 161 Table 6.3 Main differences in energy reform proposals, 2008 ...... 179 Table 7.1 Governmental Division of Powers in Mexico’s Transportation Sector ...... 195 Table 7.2 Resources assigned by FIEF per State, 2003-2006...... 213 Table 7.3 City populations and party in government in 2000-2006 ...... 220

ix List of Figures

Figure 1.1 Greenhouse gas concentrations in the atmosphere ...... 3 Figure 1.2: Budget income as percentage of GDP ...... 7 Figure 1.3: Flow diagram of the climate change policy making in Mexico ...... 34 Figure 2.1: Mexico GHG emissions trajectory change 2006-2012 ...... 43 Figure 2.2: Climate change performance index 2008-2014 ...... 45 Figure 2.3: Climate policy in Latin-American countries 1997-2012 ...... 46 Figure 2.4: International climate funds allocated by country, Latin-America, 2012 ...... 47 Figure 2.5: Advances meeting the GHG mitigation targets: 2009-2012 ...... 57 Figure 3.1: Principals-agent structure in democratic Mexico ...... 75 Figure 4.1: Regime complex for climate change ...... 89 Figure 5.1: Overexploited aquifers in Mexico ...... 129 Figure 5.2: Relationship between water availability and population. 1950-2007 ...... 130 Figure 5.3: Municipalities with critical rorestation zones by state ...... 138 Figure 5.4: Reforested area 2000-2011 (in ha) ...... 144 Figure 6.1: Average electricity sector tariffs (c/kWh, 2007 prices) ...... 162 Figure 6.2: Average fall in oil production 2000-2012 ...... 164 Figure 6.3: Real domestic hydrocarbon prices (2011$/mWh) ...... 168 Figure 6.4: Percentage of per-state population in overall poverty in 2005 ...... 172 Figure 6.5: Electricity generation from gas and oil products 2000-2011 (% of total) ...... 176 Figure 6.6: Cumulative wind capacity by expected year of operation (MW) ...... 184 Figure 6.7: Levelized cost of electricity, h1 2014 ($/mWH) ...... 184 Figure 7.1: Growth of vehicle fleet and projected growth 1980-2030 ...... 200 Figure 7.2: Comparison between prices in Mexico and the United States 1993-2009 ...... 203 Figure 7.3: Gasoline prices in Mexico and United States 2008-2011 ...... 204 Figure 7.4: Energy subsidies as a percentage of GDP ...... 206 Figure 7.5: Automobile industry: production, national components and exports ...... 207 Figure 7.6: Number of car sales in Mexico, 1988-2008 ...... 208 Figure 7.7: Mitigation actions and potential of reducing GHG emissions 2020-2050 ...... 209 Figure 7.8: Total amount of public investment in four administration (1989-2012) ...... 211

x Abbreviations

AFOLU Agriculture, Forestry and Other Land Use BAU Business as usual BRT Bus Rapit Transit CDM Clean Development Mechanism CFE Comisión Federal de Electricidad CIF Climate Investment Funds CONAFOR Comisión Nacional Forestal COP Conference of the Parties CRE Comisión Reguladora de Energía CTF Clean Technology Fund EU European Union FCPF Forest Carbon Partnership Facility FIEF Fondo de Inversión de Entidades Federativas FIP Forest Investment Plan FONADIN Fondo Nacional de Inversión GDP Gross Domestic Product GEF Global Environmental Facility GHG Greenhouse Gas GIZ Deutsche Gesellschaft für Internationale Zusammenarbeit (German Coorperation Agency) IEPS Impuesto Especial a Productos y Servicios IFI International Financial Institution IPCC Inter-gubernamental Panel on Climate Change KFW Kreditanstalt für Wiederaufbau (German Governmnet Development Bank) LFC Luz y Fuerza del Centro ( Center Electricity Company) LULUCF Land Use Change and Forestry MDB Multilateral Development Bank

MtCO2e Million metric tons of carbon dioxide equivalent MW Megawatts NAFTA North American Free Trade Agreement NGO Nongovernmental Organization OECD Organization for Economic Co-operation and Development PAN Partido Acción Nacional PECC Programa Especial de Cambio Climático

xi PEMEX Petróleos Mexicanos PES Payment for Environemental Services PIDIEGRAS Pasivo con Impacto Diferido en su Registro PR Proportional Representation PRD Partido Revolucionario Democrático PRI Partido Revolucionario Institucional PROCYMAF Programa de PRONARE Programa de Reforestación PROTRAM Programa de Transporte Masivo PT Partido de Trabajadores PTTU Programa de Transporte Urbano PVEM Partido Verde Ecologista de México REDD Reducing emissions from deforestation and forest degradation REDD+ Reduce emissions from deforestation and forest degradation, and foster conservation, sustainable management of forests, and enhancement of forest carbon stocks SCT Secretaría de Comunicaciones y Transporte SEMARNAP Secretaria de Medio Ambiente Recursos Naturales y Pesca SEMARNAT Secretaría de Medio Ambiente y Recursos Naturales SENER Secretaria de Energía y Minas SHCP Secretaria de Hacienda y Crédito Publico SMD Single Member District SRE Secretaria de Relaciones Exteriores UN United Nations UNFCCC United Nations Framework for Climate Change

xii

Chapter 1: Introduction

Two decades ago, in Rio de Janeiro, Brazil, the world seemed united in the effort to halt unchecked exploitation of natural resources and ready to revisit the idea that unrestricted economic growth should be considered healthy development. The result was the landmark Rio

Declaration, which emphasized the need to seek sustainable development. It established a series of commitments to conserve biodiversity, control climate change, and combat desertification, with countries committing to specific goals intended to move forward sustainable development, and ensure an economically, socially, and environmentally sustainable future. Among the commitments in the Rio Declaration intended to make sustainable development a reality, were important chapters on climate change that formed the United Nations Framework Convention on

Climate Change (UNFCCC). This Convention urged countries to “cooperatively consider what they could do to limit average global temperature increases and the resulting climate change.”1

Climate change, however, has not been comprehensively addressed by any country since the Rio

Declaration, but rather in a piecemeal fashion through an array of disjointed actions. According to the Climate Change Performance Index of 20142 no country is doing enough to prevent dangerous climate change; thus, no country received a 1-3 ranking.

This study attempts to shed some light on why policies addressing climate change, a serious and apparently urgent problem presents a challenge for bureaucracies to implement and speculates on what might allow us to predict forthcoming action in this arena. It focuses on the

1 UNFCCC, "Essential Background," Essential Background, Introduction, accessed April 01, 2014, https://unfccc.int/essential_background/items/6031.php. 2 Germanwatch E.V. The Climate Change Performance Index 2014, November 2013, accessed January 23, 2014, https://germanwatch.org/en/7677. Produced by the think tank Germanwatch, this index will be discussed in more detail in Chapter 2.

1 case of Mexico, which was ranked among the top 15 countries of the world in its climate change policies, taking the top spot in the Latin American region.3

This study is structured around the following questions: Which factors have driven the various policy developments in Mexico, leading the country to exceed expectations on climate policy, changing its emissions trajectory and indeed becoming a world leader in the field by passing a climate-change law that limits its capacity to emit greenhouse gases (GHG) into the atmosphere? Has change occurred evenly across different sectors? If not, what might account for the differences? What was the role of international actors in this process?

The Problem

Climate change has become an issue of considerable salience in the global political agenda of recent years. A clear signal of its importance was the fact that the 2007 Nobel Peace

Prize was awarded to the Intergovernmental Panel on Climate Change (IPCC) and Al Gore for

“their efforts to build up and disseminate greater knowledge about man-made climate change”4

Despite their salience, though, the commitments made in 1992 are far from becoming a reality.5

In 2012, the Rio+20 Meeting Declaration voiced the “profound alarm that emissions of greenhouse gases continue to rise globally” and urged the “parties to the United Nations

Framework Convention on Climate Change and parties to the Kyoto Protocol to fully implement

3 Ibid. 4 Richard A. Del Kerr and Eli Kintisch, Nobel Peace Prize Won by Host of Scientists and One Crusader, October 19, 2007, accessed February 23, 2008, http://www.sciencemag.org/content/318/5849/372. 5 All three main United Nations Conventions created in Rio have failed to show progress. Biodiversity loss is thousand times higher than average rate during the preceding 65 million years, desertification levels have worsened and greenhouse gas emissions have increased to levels where climate change predictions are reaching dangerous levels according to scientific agreement (to a 2 degree C°).

2 their commitments, as well as decisions adopted under those agreements.”6 Twenty years have passed since 192 countries first established an international framework for action, but there is very little to show for it. In fact, global emissions have increased globally at a faster pace than earlier projections indicated. As shown in Figure 1.1 the trend has been a continuous increase in the concentration of GHG in the atmosphere. 7

Figure 1.1. Greenhouse gas concentrations in the atmosphere. NASA, "Global Patterns of Carbon Dioxide : Image of the Day," Global Patterns of Carbon Dioxide : Image of the Day, accessed April 01, 2014, http://earthobservatory.nasa.gov/IOTD/view.php?id=82142. In part, the explanation for this failure to halt emissions lies in the lack of a binding international agreement, which many countries have cited as a precondition for action. Since its conception as a policy issue, climate change was defined as an issue in need of an international agreement that would limit all countries in their GHG emissions before governments enacted and

6 United Nations, The Future We Want, by United Nations Conference of Sustainable Development, A/CONF.216/L.1 (United Nations, 2012), 36. 7 IPCC, "IPCC Synthesis Report: Risks And Rewards Of Combating Climate Change," ScienceDaily, section goes here, accessed March 24, 2014, http://www.sciencedaily.com/releases/2007/11/071119122043.htm. Greenhouse gas (GHG) emission levels have risen considerably since 1992. At a global level, the concentration of GHG has increased to 398 ppm in 2013. According to the Inter-Governmental Panel on Climate Change Fourth Assessment Report, eleven of the twelve years, within the period of 1995 to 2006, rank among the twelve warmest years in the instrumental record of global surface temperature. Moreover, the rate of growth of CO2-eq emissions was much higher during the recent 10-year period of 1995-2004 (0.92 GtCO2-eq per year) than during the previous period of 1970-1994 (0.43 GtCO2-eq per year). That is, even when countries had identified the need to take actions, and the international framework was established, not only progress was not achieved, but also conditions have worsen.

3 translated these principles into national policies.8 However, much of the debate about how to respond to the commitments established at the Earth Summit within the United Nations

Framework Convention on Climate Change (UNFCCC) springs from an ideal9 of common, but differentiated, responsibilities and respective capabilities established in Article 3 of the

Convention. Unresolved debate over the following questions has delayed reaching an agreement:

Who is responsible for past emissions? Who is responsible for current emissions? Who has to pay? Inability to reach answers that could be satisfying for all countries has delayed reaching an agreement.

In this context, unilateral action is irrational,10 in a context of addressing shared problems, because an actor’s best option would be to wait until others act as well.11 The rational option is to take part in international negotiations, waiting for others to shoulder the costs and

8 Thomas Bernauer, "Climate Change Politics," Annual Review of Political Science 16, no. 1 (2013), doi:10.1146/annurev-polisci-062011-154926. 9 The United States, with the support from other industrialized nations, opposed the definition of this idea as a principle during the creation of the UNFCCC. Today, this article is referred as the principle that guides developing countries’ commitments. For more details on this principle see Kelly McManus, "The Principle of ‘common but Differentiated Responsibility’ and the UNFCCC," Climatico Analysis, November 2009. http://www.climaticoanalysis.org/ and Christopher D. Stone, "Common but Differentiated Responsibilities in International Law," The American Journal of International Law 98, no. 2 (2004), doi:10.2307/3176729. 10 Robert O. Keohane, After Hegemony: Cooperation and Discord in the World Political Economy (Princeton, NJ: Princeton University Press, 1984). Rational-choice institutionalists accept that actors, in this case, countries seek to do what is in their best interest. But unlike pure rational-choice logic, rational-choice institutionalists argue that actors’ choices are limited by a number of factors: partial information, bounded rationality, partial knowledge, and institutional constraints. Following Keohane (1984), it is assumed that actors perceive interest based on heuristics and not necessarily on strict optimization, that is, decision makers are cognitively incapable of rationality as described by processing all available information, quite apart from uncertainties and complexities inherent in the external world. Most people satisfy, rather than maximize, meaning, they search for information only until they find a course of action that falls above a satisfactory level. 11 Robert O. Keohane and David G. Victor, "The Regime Complex for Climate Change," Perspectives on Politics 9, no. 01 (2011), doi:10.1017/S1537592710004068.

4 assume risks by seeking equally binding actions for all states that contribute to worsening the climate-change effect on the environment.

In line with this principle, most of the pressure for action has been, until recently,12 on industrialized countries to mitigate GHG emissions. Developing countries, on the other hand, have been responsible only for reporting their emissions and actions in the National

Communications required by the UNFCCC,13 with no limits on their emissions, no timelines for taking action, and no pressure to pledge financial resources for climate action.

Students of climate policy, however, have recognized that many actions are happening at the domestic level, which suggests that focusing on the peculiarities of international negotiations may obscure the nuances of development occurring at the national level and across diverse sectors.14 In this context, Mexico presents an interesting case. Since 2007 the country has managed to carry out some of the boldest commitments of any nation to limit climate change.

Although many countries have established domestic climate regulations, Mexico is only the second nation, after the United Kingdom, to make tough national targets legally binding.15

Moreover, it has managed to implement action reducing GHG emissions and change its

12 International positions started to shift in 2007 during the Conference of the Parties in Bali when the agreement reached stressed the need for all countries to act on mitigating GHG emissions to prevent climate changes of more than 2 degree Celsius. For that reason, they call all nations to “enhance national/international actions” on mitigation of climate change. UNFCCC, "Bali Road Map Intro," Bali Road Map, accessed March 24, 2014, https://unfccc.int/key_steps/bali_road_map/items/6072.php. 13 The National Communications are reports that developing countries deposit in the UNFCCC describing their GHG emissions inventories and the climate actions that are underway. 14 Kathryn Hochstetler and Eduardo Viola, "Brazil and the Politics of Climate Change: Beyond the Global Commons," Environmental Politics 21, no. 5 (2012), doi:10.1080/09644016.2012.698884. 15 Other countries have followed suit. Brazil, Guatemala and Costa Rica in the Latin American region have adopted national climate legislations, limiting GHG emissions. For more details see Columbia Law School, "Center for Climate Change Law | Columbia Law School," Columbia Law School, accessed March 24, 2014, http://web.law.columbia.edu/climate-change.

5 emissions path trajectory in the last 5 years, abating a around of 52 MtCO2e in 2012 or a total of

84.16 MtCO2e between 2011 and 2012.16 Mexico not only has actively sought to reach an agreement internationally, but has also pledged to reduce emission nationally. Given the cost associated with this option, this choice requires explanation. Why would a country be willing to make unilateral commitments to reduce climate change emissions in a context of international gridlock? Why did Mexico convert those commitments into national legislation, including the adoption of a carbon tax?

Mexico’s decision is all the more puzzling when one bears in mind that Mexico is an oil- producing Organization for Economic Co-operation and Development (OECD) country, whose government budget benefits substantially from transfers from its petroleum production. Emission reductions could impact it’s own income structure. As shown in Figure 1.2, between 25% and

35% of budgetary income, approximately 6% - 8% of Mexico’s gross domestic product (GDP), comes from oil revenues.

16 The PECC established a target of 129.03 MtCO2e in five years of which 50.65 MtCO2e would be only in 2012. According to SEMARNAT, by the end of 2012 Mexico had abated around 52 MtCO2e. The evaluation of the results was done in 2012 taking into account the results of 2011 and 2012 only. For details see Instituto Mexicano Para La Competitividad, "Evaluacion Del Programa Especial De Cambio Climatico," IMCO, December 2012, http://imco.org.mx/medio_ambiente/evaluacion_del_programa_especial_de_cambio_climatico/ and SEMARNAT, Programa Especial De Cambio Climatico 2009-2012 (Mexico City: SEMARNAT, 2009).

6 25.0%

20.0%

15.0%

10.0%

5.0%

0.0%

1990 1998 1991 1992 1993 1994 1995 1996 1997 1999 2000 2001 2002 2003 2004 2005 2006 2007

taxes nontaxes parastatal oil income

Figure 1.2. Budget income as percentage of GDP. Edgar Magar, Vidal Romero and Jeffrey Timmons, “The Political Economy of Fiscal Reforms in Latin America: Mexico,” IDB, September 2009. Moreover, one of the main explanations for countries taking action on climate change action appears to be the pressure of public opinion;17 yet, as it will be show in greater detail below the current perception of climate change urgency has declined between 2009 and 2012 from 90% of the Mexican population considering it a very serious problem18 to 41% of Mexicans considering it a very serious problem in 2012.19 In addition, change in policy requires coalition building across different actors, both within and outside the administration. A stronger Ministry for the Environment in terms of political clout, technical staff, and resources might have the

17 Andrew Emory. Dessler and Edward Parson, The Science and Politics of Global Climate Change: A Guide to the Debate (Cambridge, UK: Cambridge University Press, 2006), 26. 18 World Bank, Public Attitudes Towards Climate Change: Findings From a Multi-Country Poll, 2010, Mexico, http://siteresources.worldbank.org/INTWDR2010/Resources/Background-report.pdf. 19 Market Variance, "Estudio Nacional De Percepción En Material De Cambio Climático" (unpublished report prepared for CECADESU, Mexico City, December 2009); Bodil Andrade Frich, "Percepción Rural Del Cambio Climático En La Region Sureste De México: Elementos Para La Participación Ciudadana" (unpublished report prepared for CECADESU, Mexico City, December 2010); Market Variance, "Evaluación De La Percepción Social En Material De Cambio Climático" (unpublished report prepared for CECADESU, Mexico City, September 2012).

7 leverage to promote a specific policy option in a government’s coalition.20 In Mexico, however, the balance of power of the different ministries seems to have remained the same within the executive branch. The Ministry for the Environment (SEMARNAT), which is in charge of providing the guiding principles for climate policies, has not increased its salience in the executive branch relative to sectoral ministries and the Ministry of Finance.21 Nonetheless,

Mexico has managed to set targets and accomplish results in the first years of implementation of its Special Climate Change Program (Programa Especial de Cambio Climatico; PECC). It has also achieved greater mobilization of international resources through different mechanisms of climate financing combined than any other developing country, as it will be shown in more detail in Chapter 4.22

In this thesis, I have addressed the dynamics that induced the government of Mexico to take actions that appeared to present more costs than benefits in the short term, in which and where the constellation of interests and bureaucratic politics (e.g., the strong state oil company of

Petróleos Mexicanos, [PEMEX], and the Federal Comision of Electricity, [Comisión Federal de

Electricidad], counterpoised to the relatively weak SEMARNAT) seemed to prevent climate

20 For example in the case of Brazil, the Ministry for the Environment increased its political clout when Marina Silva, became a political asset to Lula’s administration, and was nominated Minister for the Environment. As representative of the northern part of Brazil, one of the most problematic, but electorally important, areas of the country in 2003, she helped reduce resistance toward Lula’s government. Her political clout gave her financing and human resources that she was able to leverage to introduce a very successful reforestation program, reducing deforestation by 50%. For details on this and other changes in Brazil’s climate policy see Kathryn Hochstetler and Eduardo Viola, "Brazil and the Politics of Climate Change: Beyond the Global Commons," Environmental Politics 21, no. 5 (2012), doi:10.1080/09644016.2012.698884. 21 OECD, "Environmental Performance Review: Mexico 2013," 2013, Highlights, http://www.oecd.org/env/country- reviews/EPR%20Highlights%20MEXICO%202013%20colour%20figures.pdf. 22 Centro Mexicano De Derecho Ambiental, "La Arquitectura Financiera Del Cambio Climático En México," Financiamiento Climatico - CEMDA, July 2013, accessed February 26, 2014, http://www.cemda.org.mx/08/presentan-analisis-sobre-el-financiamiento-para-el-cambio-climatico-en-mexico/.

8 action at a time when no formal international commitments existed to do anything in the area of climate change.

My Argument in Brief

My thesis rests on two main points: First is the recognition that not all developing countries are alike. Not all countries are waiting for an international agreement to be reached before acting,23 nor do all developing countries have the same level of resources allocated internally or available via access to international resources. While the climate change discourse has shown a tendency to divide industrialized and developing countries, there is a need to recognize variations within these groups, where emerging economies play a different role in the global context. Second, in this paper I recognized that emissions-path change and emissions reduction are likely to be the result of policy outputs across a variety of sectors, and not the results of a single sector’s actions. Many of these actions may have been adopted independent of concerns for climate change, as the example of the different sectors under study in Mexico has shown. However, many of the actions adopted by policy processes with their own dynamics happened to share a common by-product: emissions reduction.

Proceeding from these assumptions, I argue the following about climate policy in developing countries, with no existing commitments under the UNFCCC framework to reduce

23 Finus, Kotsogiannis and McCorrison (2013) contend, as many others before them, that the main problem thus far of reaching such agreement is free-riding. Countries benefit from the emission reductions that other countries do, while incurring in saving on abatements costs. However, this claim may be overlooking difference between developing countries. See Michael Finus, Christos Kotsogiannis, and Steve Mccorriston, "The International Dimension of Climate Change Policy," Environmental and Resource Economics 56, no. 2 (2013): 151, doi:10.1007/s10640-013-9724-1. See a recount of the literature on the difficulties of achieving global agreement in Thomas Bernauer, "Climate Change Politics," Annual Review of Political Science 16, no. 1 (2013), doi:10.1146/annurev-polisci-062011-154926.

9 GHG emissions: First, climate-sensitive policy making domestically (i.e., policies that have a recognized potential to contribute to GHG emissions reductions) is determined by the interaction between political actors at different levels of government (national, state and local) and different branches of government, responding to multiple objectives and organizational missions. These policymakers act strategically, without necessarily having climate change mitigation as an objective. Thus, coalitions for climate-sensitive policy options can emerge as a by-product of political decisions. These political decisions are the result of the specificities of the perceived problems that a country faces, the ideas that seem to govern a sector (for example, the state monopoly of the energy sector in Mexico), the number of actors involved (who may potentially act as veto-players), and also of the available resources. Second, international factors are not exogenous to domestic policymaking, but are a matter of negotiation that involves multilevel dynamics across different instances of a climate regime complex. I will come back to defining what regime complex is in chapter 4, a concept coined by Keohane and Victor (2011). Here, I should mention briefly that regime complex refers to the multiplicity of actors at the international level who deal with climate-change actions.24 Such international factors can exert their influence domestically through resource allocation, which is guided toward specific actions by domestic preferences. Third, these climate-sensitive policies might become part of the country’s climate policy by branding those actions as climate policy: that is, justifying a policy as a climate change response while originally set to respond to a domestic problem. Then, all these climate-sensitive actions are integrate into a climate policy framework when there is a gain to be had by doing so

(e.g., available international funds or reputation), and the gains may go beyond the specific policy sector.

24 Robert O. Keohane and David G. Victor, "The Regime Complex for Climate Change," Perspectives on Politics 9, no. 01 (2011), doi:10.1017/S1537592710004068.

10 In sum, the main arguments presented in this thesis revolve around the following three clusters of explanations: (a) climate-sensitive policy making in the domestic arena is determined by interactions between political structures and decision makers; (b) each policy sector has a certain constellation of interests determining the plausible policy outputs that can be enacted, some of which are climate sensitive; and (c) international factors are not exogenous to domestic policy making, but are a matter of negotiation involving multilevel dynamics across different

“instances of a regime complex.”25 These international factors assert their influence domestically through resource allocation, which can help bring together coalitions and promote the development of a climate-policy framework.

Theories and Approaches Explaining Action and

Nonaction on Climate Change

A general overview of the existing theoretical and empirical literature on climate-change policy making indicates that scholars have been theorizing about climate-change actions for quite some time, mainly at the international level. The literature has addressed the questions of when countries develop a climate policy, why they do so, and how they go about developing climate policies. These studies also reflect the methodological variety of approaches applied thus far to the study of climate policy. The studies can be divided into different streams depending on their particular theoretical focus, either on the international or the domestic level, or on discovering the determinant factors that will allow policy change (e.g., when are countries prone to act on climate issues?) or the ways climate policy change takes place (e.g., is there a specific dynamic of the climate policy process in evidence? Or why do politicians act on this issue?).

25 Ibid.

11 The next sections will present a brief overview of what is known through the existing studies by focusing, first, on the domestic dimension of climate policy and, then, on what can be learned by studying the international dimension. Then, I will explain what contribution I have attempted to make to both bodies of literature with the current study.

Domestic Dimension

The history of the last two decades and the lack of progress in reducing GHG emissions have led scholars to focus on explaining the domestic dynamics of climate policy. The body of studies on domestic climate policy is not as extensive as the literature on international climate negotiations. The studies are devoted either to the effect of public perception of climate change and its relationship with the framing of policy issues (as an explanation of when action may take place) or to domestic politics (explaining how action may come to pass) or to institutional forces leading to policy adoption (discussing when and why). Until recently, studies have been restricted to industrialized countries, finding that political institutions such as democracy26 and,

26 Among studies that examined what determines policy change at the national level, two stand out, and both have arrived at similar conclusions. Neumayer (2002) and von Stein (2008) applied across-countries analyses, using statistical methods to explain either international ratification of the UNFCCC or the Kyoto Protocol as indicators that policy might change nationally. These studies used explanatory factors such as political regime, a country’s income level, and regional ratifications among others to determine the likelihood of ratification or signing of international agreements. These researchers concluded that democracies have stronger commitments to environmental agreements and are more susceptible to pressure from international social networks and domestic pressure from nongovernmental organizations (NGOs) than nondemocracies. Eric Neumayer, "Can Natural Factors Explain Any Cross-country Differences in Carbon Dioxide Emissions?," Energy Policy 30, no. 1 (2002), doi:10.1016/S0301-4215(01)00045-3; J. Von Stein, "The International Law and Politics of Climate Change: Ratification of the United Nations Framework Convention and the Kyoto Protocol," Journal of Conflict Resolution 52, no. 2 (2008), doi:10.1177/0022002707313692. A more recent study by Fredriksson and Neumayer (2013) included developing countries in its analysis and studied climate-change policy in industrialized as well as in developing countries, controlling for per-capita GDP and per-capita CO2 emissions. Fredriksson and Neumayer argued that countries’ historical experience with democracy, called the democratic capital stock, rather than the

12 among parliamentary systems, the development of coalitions after an external event (Chernobyl or the fall of the Berlin wall) or the emergence of the green parties are factors that contribute positively to the development of climate policies.27 The reason for such case selection has been, arguably, the absence of limitations on GHG emissions under the Kyoto Protocol by non-Annex

1 countries, which is a list comprising all developing countries.

Some lessons can be drawn from the existing literature. Some studies examined why certain democracies move toward climate policy choices, when they do so, and how they do it.28

A group of scholars focusing primarily on industrialized countries led by Harrison and McIntosh

Sundstrom (2010), presented a theoretical framework to study why countries act. This framework incorporates electoral and political incentives, policymakers’ commitments and beliefs, and the political institutions within which politicians act as part of the mix of conditions that contribute to policy change, paying attention both to the effects that such conditions have on international commitments and to domestic policies and programs.29

These studies clarified factors that allowed for climate-policy making and the kinds of conditions that favor the introduction of certain policy instruments. These studies generally current levels of democracy, determines the existence of climate-change policies. Based on their analysis, they concluded that recent transitions to democracy are unlikely to have short-term positive effects on environmental policies addressing climate change (p. 19). Per G. Fredriksson and Eric Neumayer, "Democracy and Climate Change Policies: Is History Important?," Ecological Economics 95 (2013). 27 See Roger Karapin, "Explaining Success and Failure in Climate Policies: Developing Theory through German Case Studies," Comparative Politics 45, no. 1 (2012), doi:10.5129/001041512802822879; Rie Watanabe, Climate Policy Changes in Germany and Japan: A Path to Paradigmatic Policy Change (Abingdon, Oxon: Routledge, 2011); Kathryn Harrison and Lisa McIntosh Sundstrom, Global Commons, Domestic Decisions: The Comparative Politics of Climate Change (Cambridge, MA: MIT Press, 2010); 28 These studies assumed, moreover, a direct linkage between ratification of international agreements and domestic climate-policy making. 29 In these studies, outcomes were defined as international commitments, domestic programs, and the implementation of those programs.

13 measured climate policy as ratification of international agreements as indicators that domestic action would follow. This last assumption holds true mainly for Annex 1 countries, the group of countries with emission-reduction commitments under the Kyoto Protocol. Harrison and

McIntosh Sundstrom (2010) suggested that presidential systems such as the United States are less likely to take action on climate change, because the range of interests and values represented in such a system is smaller and more focused on the median voter than in a parliamentary system, and have larger amount of veto points.30 The focus of these studies was on factors that led politicians to pass legislations, creating programs and plans. Harrison and McIntosh

Sundstrom concluded that electoral interests (understood as strong public-opinion support) led to ratification of international commitments, whereas the high costs of action could work against ratification. These two factors were thought to be conditional on the politicians’ beliefs.

Harrison and McIntosh Sundstrom (2010) did not, however, pay attention to the dynamics of framing issues as climate change. They held that the definition of an issue as climate was based solely on beliefs or ideology, and did not account for “branding” responding to other motives such as, in the case of developing countries, access to resources or, in developed countries, achievement of commitments under the Kyoto Protocol to comply with the European

Union laws. 31

30 Kathryn Harrison and Lisa McIntosh Sundstrom, Global Commons, Domestic Decisions: The Comparative Politics of Climate Change, 4. 31 From the 194 members to the United Nations Framework Convention for Climate Change, only 41 countries had until recently the obligation under the convention to reduce their GHG emissions with little or no enforcement mechanisms. The European Union passes a law in 2002 adopting the Kyoto protocol as mandatory for all member countries. UNFCCC, "UNFCCC and the Kyoto Protocol | Climate Change," UN News Center, accessed March 24, 2014, http://www.un.org/climatechange/the-negotiations/unfccc-and-the-kyoto-protocol/; European Commission, "Kyoto Emissions Targets: Joint Fulfillment, 'burden Sharing' and Base Years," - European Commission, accessed April 01, 2014, http://ec.europa.eu/clima/policies/g-gas/kyoto/index_en.htm.

14 Beyond the framing of actions as climate related, it remains unclear whether other variables such as beliefs, politicians’ incentives, and institutional frameworks are relevant to developing countries. A developing country’s government that holds values favoring a climate international agreement needs to prioritize climate-change-sensitive actions or low-carbon- development actions above other policy options. This is difficult task for two reasons, given that such a country does not necessarily act as a result of an international obligation. First, domestically, climate change policies can be conceived of as a threat to economic development when those might threaten to restrict growth (e.g.; for instance, if the policies require the use of new and more expensive technologies, making domestic industries less competitive). Second, climate change policies require resources that could be otherwise be spent on education, health, or security, presenting additional tradeoffs. Thus, any government pushing for such an agenda nationally will soon recognize that climate action involves a myriad of actors, interests, challenges, and opportunities, all of which need to be mapped out when considering moving toward a low-carbon economy.

As Kaufman and Nelson (2004) suggest when analyzing the case of health and education reforms in Latin America, the path to reform involves different types of actors and interests that will vary depending on the role that proponents, opponents, and uninvolved actors play in the process of reform.32 This literature also points out that the actors that initiate a reform in the cases of health and education may be national or international specialists from the specific sector, the ministry of finance, and in some cases from the president or high-level officials. As defined here, national climate action may be the result of climate-sensitive programs that

32 Robert R. Kaufman and Joan Marie Nelson, Crucial Needs, Weak Incentives: The Politics of Health and Education Reform in Latin America (Baltimore (Md.): Johns Hopkins University Press, 2004).

15 originate in different sectors. The proponents of these policies therefore are of a wider variety than those described before for other sectors.

Moreover, previous climate studies did not inquire how policy change could occur in the context of divided party government in a developing country.33 Mexico has been a divided government for most of the last 12 years, and yet, it has make progress in the climate change agenda, as described above. These studies’ assumptions may be useful as a starting point for understanding the case of developing countries with presidential systems, where often coalitions among parties and between executive and legislature must be formed.

Finally, there are differences within the government. There may be competing interests regarding who should claim credit for an action, beyond simply partisan differences, between the executive and legislature. Also, within the bureaucracy, there are different organizations with specific missions, which may at times conflict with one another. The underlying logic therefore is that these differences increase the complexity of the constellation of interests to be accounted for.

The building of coalitions around contentious issues such as climate change may be facilitated when certain conditions exist. Kingdon’s (1984) framework for agenda setting can shed light on those conditions. Kingdon’s theory of agenda setting is not concerned with climate change per se, but it presents a general framework that permits us to study what elements should be considered when analyzing policy processes. Kingdon’s model suggested that, in order for an issue to become part of the policy agenda, three streams need to coincide: the problem, the policy, and the political streams. The problem stream refers to the recognition of a problem as

33 Period of divided government is defined as a period when one party controls the executive and others control the legislative body (one or two chambers). Unified periods are those when the same party controls both the majority of the seats in Congress and the executive branch.

16 needing a solution; the policy stream refers to policy options available to respond to the problems; and the political stream refers to political incentives that allow for the building of consensus around a policy option.34

These three streams may converge to open a window of opportunity for a political entrepreneur to act on an issue.35 Policy change, then, can result from the combination of policy options developed, problems that require solutions, and political actors who are able to recognize both. Thus, the policy instruments under consideration for a specific problem will vary depending on the problem at hand, the policy options available, the politics of the specific sector, and the political system as a whole.

The final selection of the policy option, however, will depend on the option’s specific characteristics. Because politicians seek to maximize their prospects of political advancement,36 they will pay attention to the impact those policy options could have on their or their party’s electoral connection with constituents, refraining from adopting options that could generate blame. Following the electoral connection framework, a policy option will be most likely adopted if it strengthens the elected officials’ reelection interests by either allowing credit claiming or blame avoidance.37 Mayhew (2004) described legislators in the United States as

“single-minded reelection seekers”38

34 John W. Kingdon, Agendas, Alternatives, and Public Policies (Boston: Little, Brown, 1984). 35 Once the choices are set in the agenda, they will survive only when certain conditions exist: The options presented are technically feasible, are not against society’s values, and both the costs that society must absorb and the politicians are tolerable. 36 R. Kent Weaver, "The Politics of Blame Avoidance," Journal of Public Policy 6, no. 04 (1986): 373, doi:10.1017/S0143814X00004219. 37 Ibid. 372. 38 David R. Mayhew, Congress: The Electoral Connection (New Haven: Yale University Press, 1974), 5.

17 Mexico, however, is a different political environment than the United States. It does not have immediate reelections; however, the significance of elected official’s interests must be considered. Elected officials in the legislature have political careers, and they seek to gain support from their constituents and their party. An alternative conceptualization of the electoral connection framework and the search of blame avoidance for the Mexican case include a parallel logic, which governs both parties and politicians’ political careers.39 Part of the Congress is elected by proportional representation, the PR system. Some seats are controlled by the national parties through a closed-list electoral system. However, 60% of the legislators are elected in single-member districts (SMD); they must win plurality races and thus are interested in running successful campaigns and being close to their constituents. This dynamic creates incentives for politicians who seek to advance their careers by taking into account the electoral and the partisan connection.

This dynamic means that politicians will promote those policy outputs that provide them with electoral or party support or, as Mayhew (2004) suggested, they will engage in credit claiming or taking positions on issues that are likely to be of interest to a wider audience. At the same time, as Weaver (1986) suggests they will avoid blame for concentrated losses or for a general economic downturn, limiting the type of policy options that can be adopted.

Langston (2010) described the relationship between governors and deputies, showing that politicians will support the adoption of policy outputs that are aligned with the party’s main figures (i.e., the president, governors, or party leaders) or, in the case of opposition parties, with outputs that will improve the probability of the party’s success in gaining office (on the local,

39 Within the Mexican political system, being in Congress represents a stepping-stone toward other political postings of greater political importance, which are dependent on the support of the party. See Joy Langston and Javier Aparicio, Legislative Career Patterns in Democratic Mexico (Mexico City: CIDE, 2008).

18 state, or federal level). Politicians who work toward this kind of success are rewarded with new postings and thus advance their political career.40

Coalition building to support certain policy options can be facilitated by utilizing different strategies that can align overlapping interests across diverse members of the coalitions.

For instance, a politician may implement policy change by using administrative (programs or plans) or legislative instruments (by passing laws). Depending on how these programs are designed, they can also provide resources for distributive politics, which are useful for achieving other politicians’ objectives to advance their party and their own political career.

I take into account this electoral motivations and political careers to show why certain policy outputs are adopted and which ones are avoided, even in a non-reelection context.

Especially in a context of divided party government, policies that tend to be adopted are those that can be carried out either by using only administrative measures (e.g., decrees or executive branch programs) or by enacting specific legislation that includes elements of distributive politics, that provide resources for strengthening electoral connection with constituencies, and thus ensuring a inter-party support. Also, the policy options adopted are those that will avoid blame for slowing development or imposing concentrated losses on specific groups.

40 For more details of the Mexican dynamic see Joy Langston, "Governors and “Their” Deputies: New Legislative Principals in Mexico," Legislative Studies Quarterly 35, no. 2 (2010), doi:10.3162/036298010791170132; Benito Nacif, "The Fall of the Dominant Presidency: Lawmaking under Divided Government in Mexico," in The Oxford Handbook of Mexican Politics, by Roderic A. Camp (Oxford: Oxford University Press, 2012); Agustina Giraudy, "The Politics of Subnational Undemocratic Regime Reproduction in Argentina and Mexico.," Journal of Politics in Latin America 2 (2010); Luis C. Ugalde, "Relaciones Entre Partidos, Congreso Y Poder Ejecutivo En Mexico: El Caso De La Disciplina Partidaria," in Después De La Alternancia: Elecciones Y Nueva Competitividad, by Espinoza Valle Víctor Alejandro and Rionda Ramírez Luis Miguel (México, D.F.: Universidad Autónoma Metropolitana, Unidad Azcapotzalco, 2005);

19 A final element to consider when analyzing policy adoption is the role of policy entrepreneurs that can be present in all levels of government, including within the bureaucracy.

According to Grindle and Thomas (1989) these entrepreneurs will be critical for seizing the window of opportunity that the three streams (policy, problem, and politics) may offer for policy change.41 This study also takes into account this dimension when analyzing adoption of climate- sensitive policies.

Domestic Climate Policy

The described principles of policymaking and coalition building take on specific characteristics when applied to climate policy. Previous studies have conflated defined climate- change policy more general environmental policies. This assumption is understandable, given that most of the time climate change regulations come from within Ministries for the

Environment. However, actions may fall under multiple sector ministries because of the crosscutting nature of the problem. That is why analyzing climate change solely within the environmental sector may prevent the full depth understanding why actions are adopted. While recognizing that Ministries for the Environment generate the norms and directives, the actions being taken are the responsibility of different sectors, which respond to their own dynamics.

Moreover, treating climate policy as a single policy case may be missing the nuance of how climate policy comes into being and hinder the identification of successes and failures within the same country during coalition building for climate-sensitive policies (i.e., policies that may be developed to tackle a given problem and, as a by-product, help reduce GHG emissions). Here, climate policy is understood not as a single-sector policy within the environment, but as loosely connected actions across different sectors that, incidentally, also help to reduce emissions.

41 Merilee S. Grindle and John W. Thomas, "Policy Makers, Policy Choices, and Policy Outcomes: The Political Economy of Reform in Developing Countries," Policy Sciences 22, no. 3-4 (1989), doi:10.1007/BF00136320.

20 Leaving behind the assumption that climate policy equals environment policies can help to explain the specificities that may transpire across different sectors of policy making and attempting to understand the incentives that lead to the production of a fame for actions as a unified climate policy, in a bottom-up process.

In this thesis, I attempt to compare different sectors within the same country, where processes and the constellation of interests and “coalition opportunity”42 seemed to vary within the same institutional configuration. The assumption was that the institutional configuration

(e.g., divided party government) would set the rules for all processes, including how consensus could be obtained to effectuate policy change. However, it was also important to make comparisons across subsystems to understand how relationships were formed across different interest groups.

The argument presented here suggests that, in developing countries, climate policy may be defined as a sum of the actions of different sectors. Each sector may be addressing problems specific to the sector, adopting the policy options that either grants electoral advantages or avoid electoral losses, while climate concerns are not the main force driving those policy choices. With this thesis, I seek to lay open the specific dynamics that climate-change policy making exhibits across different sectors, given the constellation of interests that form around each sector. For example, opportunities provided by the practice of distributive politics or the salient interests of international organizations, as well as the ability to act using solely administrative measures (and avoid the complex bargaining process required to move legislation through Congress) vary across sectors. In this study, I examined the policies of three different sectors—Forestry,

42 Christopher M. Weible and Paul A. Sabatier, "Coalitions, Science, and Belief Change: Comparing Adversarial and Collaborative Policy Subsystems," Policy Studies Journal 37, no. 2 (2009): 354, doi:10.1111/j.1541- 0072.2009.00310.x.

21 Electricity Generation, and Transport—to identifying what sets of conditions seemed to facilitate climate-sensitive policy options, that were ultimately branded as climate change action.

I examine the process through which these actions drawing from different sectors of the government (e.g., energy, agriculture, or transportation among others) become branded as part of a general climate policy. Since the apparent overall success of achieving emission-reduction targets may conceal a number of successes and failures (e.g., policy options that could have resulted in greater GHG emissions reduction, but were not adopted) within different sectors, comparing different sectors can also shed light on which sectors were more amenable to becoming part of a climate policy. In addition, some sectors have drawn on sources of international resources at the beginning of the policy process, while others have used them toward the end of the period.

The extant literature is incomplete and could, potentially, fail to recognize the causes that may lead to national action to varying degrees across sectors, and thereby produce overall changes in its emissions path and the adoption of relevant as well as adopt legislation to that effect. This is especially applicable to developing countries where the reasons for framing actions as climate relate to international climate resources available, as it will be discussed below.

International Dimension

Another element that makes climate policy different from other policy areas is that most of the construction of climate-related international negotiations revolve around creating funds that will help developing countries to change their business-as-usual; those funds, however, come with conditions. One problem with the existing literature is that it does not examine whether financial resources came from domestic or international sources; thus, an important

22 dynamic is being overlooked. In this study, I have endeavored to identify cases when the needed resources came from international sources. To make this distinction with respect to the origins of financial resources is important because, as climate policy has an international dimension, this has led to a multiplicity of organizations getting involved in setting conditions on funding and influencing the development of a country’s policy processes. These international actors play a considerable role in national climate-policy processes. However, their role has not been studied in great detail or to any depth. Much of the existing literature address international climate issues by focusing on international negotiations and rules, when agreements were reached, if the voting process affected the parties’ ability to reach an agreement, how countries negotiated and why they did so, and similar issues. For instance, the initial studies done by Sprinz and Vaahtoranta

(1994) presented an interest-based explanation to policy change at the international level. The authors divided countries into four categories: bystanders, pushers, draggers, and intermediates, depending on their vested interest in the international negotiations, measured by their ecological vulnerability and the economic cost of actions. They conclude that countries with higher costs for action will throw up obstacles to international agreement, while those that have higher vulnerability will become insistent on action. The focus, however, was on the international negotiations and the relationship between the different states in the negotiating process of an international binding agreement.43

Sprinz and Vaahtoranta (1994) recognized that change in value preferences, domestic interest representation of political attitudes, and industry lobbying could shift the dominating interest and alter a country’s negotiating position. This framework has been applied when explaining the position of the European Union (EU) as one of the main supporters of an

43 Detlef Sprinz and Tapani Vaahtoranta, "The Interest-based Explanation of International Environmental Policy," International Organization 48, no. 01 (1994), doi:10.1017/S0020818300000825.

23 international binding agreement on climate change. Costs were high, but values in support of environmental concerns across public opinion and the rise of green parties played a key role in changing the EU position. 44 In line with this framework, and considering the divide between developed and developing countries, international negotiations included some mechanisms to aid this policy change through the transfer of resources and technologies that could change the costs for industries (by creating the Clean Development Mechanism [CDM] and other grant-funding facilities linked to the UNFCCC).45 However, these funding sources have not been enough to facilitate actions nationally to reduce global emissions in the last 20 years, let alone reach a binding international agreement, as shown by the GHG emissions data shown above.

As a result of the lack of progress within the UNFCCC, in the last few years, a multitude of initiatives have sprung up in parallel to the international negotiations. Studies by Keohane and

Victor (2011) depict this process of producing international climate policy that is moving beyond the formal climate negotiations.46 Keohane and Victor present a framework that analyzes all institutions (within as well as outside the United Nations, multilateral and bilateral agencies, IFIs and ‘Clubs)’ that are active today in the climate arena and in the emerging set of what Elinor

Ostrom called “collective action arrangements.”47 Keohane and Victor (2011) have suggested that climate change actions are better understood when analyzed as a regime complex, an international theory construct that helps understand the multiplicity of levels and relationships

44 Urs Luterbacher and Detlef F. Sprinz, International Relations and Global Climate Change (Cambridge, MA: MIT Press, 2001), 68. 45 Charlotte Streck, "New Partnerships in Global Environmental Policy: The Clean Development Mechanism," The Journal of Environment and Development 13, no. 3 (September 2004), doi:10.1177/1070496504268696. 46 Keohane and Victor, "The Regime Complex for Climate Change." 47 Elinor Ostrom, The Challenge of Self-governance in Complex, Globalizing Economies: Collection of Revised Papers of a PhD Seminar ; 17th to the 26th of April 2007 in Freiburg (Freiburg, Br.: Inst. Für Forstökonomie, 2007).

24 that need to be considered when explaining actions. This climate change regime complex seeks to impose rules and regulations to facilitate action on responding to the challenge. Regime complexes are a loosely connected complex of specific regimes.48 This complex has developed from a diverse landscape of interests, powers, information, and beliefs that are difficult to arrange into one single agreement. Keohane and Victor explain international cooperation as stemming from shared norms and interests emanating from the international regime.

These regimes, in turn, form coalitions with domestic actors, sharing beliefs and forming transnational advocacy networks49 or transnational policy networks50 depending on if they include government actors or not. These also help promote policy adoption domestically and apply financial resources across multiple domestic levels of governments and sectors in order to advance policy change.

Yet acknowledgment of the link between those international and domestic levels of the climate policy process has been very limited in the literature thus far. Exceptions are the studies by Hochstetler and Viola (2012) and Kasa (2013), both focusing on the case of Brazil. These authors suggested that the drivers of domestic action are local beliefs and norms as well as available international resources, which shape the domestic policy preferences and influence adoption of local policies.51 Both studies show that international resource availability for

48 Keohane and Victor, "The Regime Complex for Climate Change." 49 Margaret E. Keck and Kathryn Sikkink, Activists beyond Borders: Advocacy Networks in International Politics (Ithaca, NY: Cornell University Press, 1998). 50 Judith Teichman, "Multilateral Lending Institutions and Transnational Policy Networks in Mexico and Chile," Global Governance 13, no. 4, Poverty Alleviation and Human Development in the Twenty-First Century: The Role of the World Bank (October 01, 2007), accessed February 23, 2014, http://www.jstor.org/stable/27800682. 51 Hochstetler and Viola, "Brazil and the Politics of Climate Change: Beyond the Global Commons;" Sjur Kasa, "The Second-Image Reversed and Climate Policy: How International Influences Helped Changing Brazil’s Positions on Climate Change," Sustainability 5, no. 3 (2013), doi:10.3390/su5031049.

25 mitigating action allows for changing interests in a specific sector due to concerns about how changing international norms could potentially impact the domestic interests as, for example, levels of trade.52 In turn, the combination of norms, international resources, and internal shifts of coalition resources (particularly within the governing coalition) jointly affect available domestic policy instruments, urging the policy sectors to adopt those instruments.

The questions that remain unanswered by these studies are whether these variables of local beliefs and norms as well as available international resources are relevant to all developing countries and how these international forces play a role in determining when a country will act on climate policy at the national level.

Recent studies have suggested that economic wealth in countries increased resource allocation, showing that a bargaining effect may play a role in assigning resources across countries.53 Mexico has tapped into funds established to support countries attempting to reduce emissions, while other developing countries have not benefited as much. I examined in particular one dimension that differentiates developing countries, namely their access to international resources and the role of international financing institutions in the described process of accessing international funds for climate change mitigation.

As suggested in this thesis, the place of a specific country in the international climate arena, in terms of its contribution to reducing GHG emissions, can impact the drive of international institutions such as the World Bank or the Inter-American Development Bank, to get involved. However, this desire to get involved in a country does not guarantee that the

52 In the case of Brazil, these authors cited biofuel production and Amazon agriculture production. 53 Patrick Bayer, Christopher Marcoux, and Johannes Urpelainen, "When International Organizations Bargain Evidence from the Global Environment Facility," Journal of Conflict Resolution, February 27, 2014, doi:10.1177/0022002713520533.

26 government will approve this involvement. I argue that in negotiations for resource allocation, the size and impact exercised by the recipient country on the global public good, leads to a two- level negotiating process: on the one hand, the IFIs generally seek involvement, and, on the other hand, the recipient country may determine the timing and conditions set for receiving those resources.54 Sectoral differences exist because the negotiations depend on how the different domestic actors might use the financial resources to change a policy and also how well aligned the policy options are with the interests (or expertise) of the IFIs. They also vary within each sector according to capacity to generate information needed to access international resources.

Branding and Individual Rewards

Access to funds is not a sufficient condition to explain Mexico’s actions. China and India have benefited to a greater extent from these funds; yet, they have not reached the levels of policy outputs seen in Mexico, including a general climate change law, suggesting that other dynamics may be at play domestically as mentioned in the previous section, but also the dynamics of branding of actions as climate by justifying their continuation or adoption on climate grounds.

Since I argued that climate policy is made up of various sectoral actions and initiatives, it is important to recognize what the incentives are to bundle all the actions into a general framework, especially given the fact that these countries do no have the cover of international commitments to reduce emissions thus far. Climate policy may involve different policy actors and comprise an array of instruments, which can amount to an encompassing national framework

54 Mark Purdon, "Neoclassical Realism and International Climate Change Politics: Moral Imperative and Political Constraint in International Climate Finance," Journal of International Relations and Development 13 (2013), doi:10.1057/jird.2013.5; Robert D. Putnam, "Diplomacy and Domestic Politics: The Logic of Two-level Games," International Organization 42, no. 03 (1988), doi:10.1017/S0020818300027697.

27 as in a law, or remain fragmented into climate-sensitive actions within individual sectors. The incentives to act, however, amount to more than mere belief in the need to act in the area of climate change.

This study suggests that the decision to build an encompassing climate policy, combining all the sectoral policies into one low-carbon policy, relate to the national leader’s incentives to pay attention to the international agenda – at least for the sake of international political reputation if not for changes in outcomes. In that sense, institutional conditions, such as the no- reelection stipulation, leads to differences in the path a president’s political career may take after he leaves office. Specifically, the national executive has the incentive to take such actions because he may gain an international reputation, and possibly also gain resources to advance his own political agenda nationally. These gains can occur in a broad range of realms, such as government legitimacy, international reputation, or electoral gains. As my interviews showed,

Felipe Calderon focused on climate change for two reasons: a personal commitment to the issue and the need to boost his legitimacy after the close results of the elections.55 Indeed, his quest for an international role was successful, as Felipe Calderon became a major international climate figure after leaving office. He is currently leading a UN Global Commission on Economy and

Climate, to be launched in September 2014. Following these incentives, this individual leader, the president, has the ability to push for the branding of the sectoral policies as climate-sensitive policies due to his place within the bureaucracy.

In addition, because climate actions have an international dimension, in which international attention to national initiatives can bring resources to the country and project someone who promotes those actions as a climate leader on the international level, the result of

55 Interview member of Office of the President, March 21st 2013. All interviews were confidential; the names of interviews are withheld by mutual agreement.

28 such actions may be greater than the sum of the parts. When these actions are integrated into a general climate framework, in a variety of forms such as a national program or a law, international resources may flow into the country as it becomes eligible for climate funding. This influx of resources is often strengthened as new goals are achieved creating what I call a virtuous cycle of climate financing for a country. A country that is able to show actions first can acquire resources, and these resources will in turn enable the country to take further action. This virtuous cycle is facilitated further by forum-shifting across the climate regime complex, and in the particular case of countries like Mexico, this included the participation in different clubs such as the G-20 and the OECD, jointly with the multilateral development banks (MDBs). Thus, politicians seeking to gain reputational benefits or seeking to attract more financial resources to fund their domestic political agenda may undertake branding exercises and combine all actions into a climate policy output (e.g., a national plan for climate change).

Additionally, the influx of international resources and the virtuous cycle of climate finance have an impact on the country’s international position. This policy drive to brand current actions internally could also affect these countries’ position internationally and more broadly the international regime. The actions and resources manifest a country’s capacity, for example, to achieve a target of reducing emissions, even if they were the result of branding current actions as climate-related actions, taken due to other problems. For example, Mexico’s noteworthy progress on climate policy, which included bundling all sectoral actions into a climate policy framework has propelled Mexico into a favorable position to make an important contribution to the international climate regime: the proposing within the UNFCCC of the creation of the Green

Climate Fund.56 In sum, the two incentives for branding current actions as climate policy—

56 Interview member of the Ministry of Foreign Relations, May 20th 2013.

29 namely that the new policy product (e.g., a law or a program) can provide individual legitimacy as well as increase the availability of resources from climate funds—have resulted in a virtuous cycle of funding and action that has increased legitimacy in the international regime complex.

Explanatory Framework and Hypotheses

With this study, I seek to answer a series of related questions. What explains Mexico’s progress with climate policy? How can the differences of results in various sectors be explained?

What led certain policy outputs to become part of the Mexico’s climate policy of Mexico?

Lastly, what is the role of international resources in this process? The next section will present the general explanatory framework and the hypotheses set forth in this study.

Based on the assumptions presented in the previous section, I have developed and tested a series of hypotheses for the Mexican political system and three of its policy sectors—Forestry,

Electricity Generation, and Transport—in terms of Mexico’s overall climate policy development.

The interest here is to identify recurring conjunctions of mechanisms, and recognize the pathways that these mechanisms take to lead to emissions reduction and a change in the emissions trajectory of a country with no international commitments.

The starting point is the assumption that the decision-making process within different sectors does not depend on the decisions of individuals, but rather on the interactions of actors within a constellation of interests. Each policy sector has a different set of actors whose main challenge it is to translate their policy preferences into government programs. The decisions therefore are made within sectors, responding to specific conditions and problems. In this context, the first hypothesis states that:

1. Climate sensitive actions are adopted as a result of domestic dynamics of the

policy process in different sectors. Climate negotiations and international

30 commitments associated with those negotiations may not be sufficient to explain

climate actions in a country.

These dynamics are governed by actors who interact within a specific political context

(divided or unified party government), and have political interests that include avoiding blame for policy options that could create economic downturns or concentrated losses. Therefore the second hypothesis states:

2. Higher impact actions (i.e., larger reductions of GHG emissions) may not be

adopted when they are perceived as either contrary to economic development or

possibly linked to electoral costs, which governments will try to avoid;

Additionally, the case of Mexico shows differences across sectors in terms of the timing of policy adoption as well as impact on GHG emission reductions. This variation in the levels of

“success” achieved by policies that seek to reduce GHG emissions is described in Table 1.1.

While the forestry sector shows a reduction of GHG emissions during the period under study, the transport sector shows increased GHG emissions (see Table 1.1). I contend that this variation across sectors is the result of a conjunction of mechanisms between the type of policy adopted

(Hypothesis 2) and the levels of government authority at which implementation of these policy options takes place. Thus, the third hypothesis states that

3. In contexts with a multiplicity of actors, who depend on the existence of divided

party government (local vs. federal levels or legislative vs. executive), and

divisions within the bureaucracy, the timing of the adoption of climate-sensitive

actions, as well as relative GHG emission reductions, depend on two factors: the

level of authority for implementation and whether or not progress in a particular

31 sector can be made by undertaking administrative actions with domestic

resources.

An additional hypothesis linked to the domestic mechanisms that has not been included in prior studies of climate policy is the implications for policy adoption in a divided party government. Similar to what occurs with other policies, the path to adopting legislation favoring climate-sensitive actions will tend to involve the use of “tools” by the executive, including distributive politics (creation of funds) to favor governors or party leaders who instruct legislators’ voting. My fourth hypothesis states that:

4. When legislative support is needed, the proposing political actors will employ

distributive politics whenever possible, which will benefit the political interests of

those managing the legislative support.

The status of being developing country allows Mexico to access funds, which differs from previous accounts on of climate policy. This availability of funds allows politicians to seek international financing to implement decisions that were taken by the administration. Such resources, in turn, could catalyze further support for a policy option by allowing politicians to serve as brokers between different levels of government as well as by attracting more resources.

5. The federal government can use international resources to influence domestic

policy dynamics and, eventually, policy change: When it appears that resources

can be gained by branding sectoral policies as climate change actions, the latter

will be branded as such, in order to harness resources from international funds and

secure international legitimacy.

Finally, different sectoral actions with potential to reduce GHG emissions will be combined into an overarching climate policy when this process is identified as a winning strategy

32 at the international level, because it provides gains, such as legitimacy and a good reputation on the international level, which will in turn attract additional resources from international sources, while carrying no additional costs, since the domestic sector policies in question are already under way. This will particularly be the case in a context where the domestic political career of a president may conclude with the end of his term, in a context of no-reelection. Therefore, my sixth hypothesis states that:

6. National leaders promote the packaging of actions and branding as climate policy

when they see an advantage to such action internationally, and essentially no costs

at the domestic level.

Figure 1.3 shows the underlying model I attempt to test in this study. The argument I develop here holds that the microdynamics of domestic policy making are important for determining the timing and the extent of actions that may differ by sector. The international context was a facilitating factors, which may change the distribution of resources across groups, but it was not the main driver for Mexico to act domestically. The combination of new domestic developments within the institutional conditions of the Mexico’s political systems generated a national party and governors search for creating an electoral connection with their constituencies that changed the arena in which the sectoral coalitions acted. This political change, combined with changes in the policy stream as well as the problem stream, led to the enactment of policies, some of which produced, as a by-product, climate-change mitigation. Lastly, I analyze the dynamics that led to the inclusion of certain policies as climate policies.

33

34

Figure 1.3. Flow diagram of the climate change policymaking in Mexico. Author’s Elaboration

Research Design

The point of departure is a single case based on Mexico’s outlying characteristics – its progress on climate policy and its impact on emission trajectory – which are presented in greater detail in Chapter 2.57 It is a specific type of case study that seeks to identify common patterns and serve as a heuristic case58 or building block case59 that will serve to identify causal paths for climate action.

Within the case, I carried out a multi-case analysis60 looking at different facets of

Mexico’s climate policy or different policy options that are climate-sensitive and had some variation in terms of outcomes. In this scenario, the analysis focused on the different levels of progress in each sector, as depicted in Table 1.1. This comparison focuses on understanding, by using process-tracing, what led to this definition of those policy options in each sector in the first place. At the second stage, I examined the specific incentives that led to the inclusion of all those policies into the climate policy framework.

57 This is a single case when compared to the perspective of wider comparative analysis of large N studies. The case study method is justified in this instance as it is the best technique to explain a deviant case where new variables and hypotheses can be generated. 58 Arend Lijphart, "Comparative Politics and the Comparative Method," The American Political Science Review 65, no. 3 (1971): 683, doi:10.2307/1955513. 59 This study examined information that cannot easily be quantified, yielding a comprehensive understanding of factors that may escape studies with a large number of participants. Among the advantages of the case method are achieving high conceptual validity regarding when and how policy change comes about, while allowing for discovering possible equifinality, or the different combinations of factors that lead to policy change. In focusing in depth on this case, I was able to dig deep into key processes, deriving new hypotheses and variables that numerical data might have missed. Alexander L. George and Andrew Bennett, Case Studies and Theory Development in the Social Sciences (Cambridge, MA: MIT Press, 2005), 75. 60 David Collier, "Understanding Process Tracing," PS: Political Science & Politics 44, no. 04 (2011): 823, doi:10.1017/S1049096511001429.

35

Table 1.1 Policy outputs and outcomes per sector under study

Economic Output/ Outcome Sectors of the Economy under Study

Policy Outputs General Policy Climate Forestry Policy Renewable Energy (RE) capacity Transport Policy

Vicente Fox 2000-2006: no target adopted 2000-2006: 600,000ha in PES 2000-2006:100MW installed 2000-2006: no target was linked to (output) capacity from wind energy emission reduction policies (2000-2006)

Felipe Calderon 2006-2012: Change trajectory 2006-2012: 2006-2012: 1200MW 2006-2012: support to local sustainable

(2006-2012) -51MtCO2e 2.6 million ha in PES (output) installed capacity from wind energy transport projects through financing

Implementation CO2 Emission reductions per Deforestation Rate % of Renewable Energy Capacity in Number of Sustainable Transport Results since ’00 to period the Energy Matrix from 0.9% to Projects: 9 2000-2005: -235,000 ha

36 ‘12* 4.51% (including wind, small CO2 Emissions: 2000-2006: (outcome) hydros and geothermal) +72 MtCO e Average Annual Growth rate: 3.21% 2 2006-2010: 2006-2012: change trajectory in - -155,000ha

51 MtCO2e (outcome)

Emissions Decreased Somewhat decreased Increased Trajectory

Sources: SEMARNAT, Programa Especial de Cambio Climatico 2009-2012, SEMARNAT, October, 2009; SENER, "Sector Electrico Nacional," Estadisticas E Indicadores Del Sector Electrico, 2010, http://egob2.energia.gob.mx/portal/electricidad.html; CONAFOR, "Biblioteca Forestal," Biblioteca Forestal, 2012, http://www.conafor.gob.mx/portal/index.php/temas-forestales/biblioteca-forestal; FAO, "Global Forest Resources Assessment," Global Forest Resources Assessment, 2010, Mexico, http://www.fao.org/forestry/fra/en/; OECD, "Reducing Transport Greenhouse Gas Emissions, Trends and Data," International Transport Forum, 2010, www.internationaltransportfoum.org.

The policy instruments studied here were adopted from 2000 to 2012 in different sectors.

They range from national programs with a federal level of implementation, to federal programs that need to be implemented by local authorities, to local programs. The instruments I used in this analysis, per sector, included those actions that have been recognized as producing emissions reduction and changes in the emissions trajectory by the independent evaluation of the PECC, but had different impact of the emissions trajectory. They are as follows:

 In the forestry sector, my analysis considered the adoption and implementation of

payment for environmental services and the creation of a pilot project to avoid

deforestation under the guidelines of the UNFCCC jointly with institutional and

legal changes that allowed for these programs to be put into place.

 In the energy sector, my analysis focused on alternative sources of energy used

for electricity generation by the CFE as well as private sector developments

jointly with the institutional and legal changes that allowed for these programs to

be put into place.

 In the transport sector, I focused on policy options that reduce time travel,

congestion and fossil fuel use for passengers in light and heavy-duty vehicles,

along with the institutional and legal changes that allow for these programs to be

in place.

Each sector differed in the number of actors from different levels of government that were involved in defining the actions. For example, the transport sector and its potential mitigating actions fall under local and state jurisdiction as well as national jurisdiction, increasing the number of actors involved, as described in Table 1.2.

37 Table 1.2 Political Dimensions Impacting Change

Sectors of the Economy

Political Dimensions Impacting Change Forestry Energy Transport

Level of implementation Federal Federal Local

Scope for administrative discretion without HIGH LOW HIGH legislation

Opportunity for distributive politics HIGH LOW HIGH

Entrenched/stronger opposition coalition to LOW HIGH HIGH policy change

Availability of International Financing HIGH HIGH HIGH

Actions adopted YES, 1st YES, 2nd YES, 3rd

Emission Trajectory/ Impact decreased Somwhat increased decreased Source: Author’s Elaboration.

Table 1.2 shows the relationship between the institutional characteristics governing each sector and the two dependent variables under analysis: adoption of climate-sensitive policies, which have as a byproduct emission reductions, and the overall impact on GHG emission reductions in the last 12 years. The factors that seem to matter for the timing of adoption as well as for the impact of emissions reductions are the level of authority at which implementation takes place and the presence or absence of entrenched opposition. Therefore the analysis of the different sectors will pay special attention to the interaction of these two factors with the dependent variable within the process under study.

38 The analysis of each case was carried out in two interrelated steps. Step 1 was a careful description of each sector’s problems, policy options, and politics. According to Collier (2011) this is a crucial building block that serves as a basis for uncovering causal paths within each sector.61 Step 2 consisted of process-tracing, paying close attention to the sequence of the independent variables (actors’ interests, beliefs, and institutions), intervening variables (IFI involvement) and dependent variable (adoption and implementation of climate-sensitive policies and their inclusion in Mexico’s climate policy) to assess the validity of the hypotheses set forth by contrasting the information gathered through interviews and secondary documents with the hypothesis.

Two main methods were used to collect information: The first method consisted of interviews with former public officials representing different organizations, who had participated in the policy-making process in Mexico, as well as experts who were not directly involved in policy-making but worked on climate change issues in Mexico. To choose the interviewees I first delimited each policy sector. Each sector was characterized by a substantive policy area and featured participants who sought to influence policy.62 The participants in this research represented different types of organizations; they included public officials, agency officials, interest groups, and think tanks, NGOs, IFIs and policy experts. I interview members in each sector who were part of the policy change with a special attention to how international resource flowed for such policies options. The distribution of the interviews and participants is shown in

Table 1.3.

61 David Collier, “Understanding Process Tracing,” PS: Political Science & Politics 44, no. 04 (2011), 823 doi:10.1017/S1049096511001429. 62 Weible and Sabatier, "Coalitions, Science, and Belief Change: Comparing Adversarial and Collaborative Policy Subsystems."

39 Table 1.3 Distributions of Interview Participants

Environment Forestry Energy Transport Total Public Officials and Staff 2 2 1 2 7 Legislators and Staff 1 1 1 1 4 Researchers and observers 4 2 2 3 11 Private Sector 1 1 2 International Organizations 3 3 3 3 11 Office the President n/a n/a n/a n/a 3 Total 10 7 9 9 38 Source: Author’s elaboration

The second method was analysis of policy documents, speeches of public official, legislative bills, scholarly publications, and other documents that provided substantial evidence for the sequence of policy development and the national conditions that made such policies viable. These documents were analyzed to corroborate or correct interview data and establish the chronological sequence of each process. Additionally, as climate change research has become more in vogue, numerous reports are being produced by climate experts and think tanks in the

United States and Europe, which provided rich data on the emergence of various of low-carbon development models and policy options. However, the major contribution to my fieldwork came from elite interviews and my analysis of those interviews.

The dissertation follows the following structure. Chapter 2 will present the Mexican climate policy. Chapter 3 will present the political stream in Mexico from 2000 to 2012. Chapter

4 will describe the international dynamic s around climate change policy, and its relationship to

Mexico’s national agenda. Chapters 5, 6 and 7 present the sector case studies where the problem facing of each sector as well as the development of different policy options will be discussed.

Chapter 8 concludes presenting the general lessons that can be drawn from Mexico’s climate

40 policymaking process, and the lessons that can be applied to developing countries more generally as well as the future work of IFIs.

41 Chapter 2: Mexican Climate Policy

According to an independent evaluation of the Special Program of Climate Change

(PECC), Mexico has managed to shift its emissions path from business as usual (BAU) toward a lower carbon development pathway.63 I seek to explain how domestic climate policy evolved in this direction. The dependent variable of the general case study is the approval and implementation of a national climate change policy and its impact on the emission trajectory.

The within case analysis allows to evaluate the case under different facets, which in here are defined as the policy changes that led to changing the GHG emissions trajectory in Mexico in three sectors: forestry, transport and energy. The emphasis is on understanding the causal mechanism by tracing the process from one trajectory of emissions (BAU) to policies leading to flattening of the GHG emissions trajectory within each policy sector. Graphically, this means uncovering how Mexico changed from its BAU scenario (red line) to the proposed green line in the PECC, shown in figure 2.1.

In other words, this research examined Mexico’s overall climate policy and how it benefited from those actions adopted by the forestry, electricity generation and transport sectors, which some reduced emissions at different degrees as a by-product of their adoption, while others had potential to reducing emissions, but the outcome was increased emissions (transport sector). First, I present Mexico’s climate policy and climate sensitive policy in comparison with developing countries, in particular in Latin-American. Then, I turn to the climate policy adopted in Mexico with particular emphasis on the establishment of GHG emission reduction targets in

63 Instituto Mexicano Para La Competitividad, "Instituto Mexicano Para La Competitividad A.C.," IMCO, December 2012, accessed February 26, 2014, http://imco.org.mx/medio_ambiente/evaluacion_del_programa_especial_de_cambio_climatico/.

42 Mexico in the PECC 2008-2012. Finally, I briefly present the outcomes that these outputs have accomplished thus far.

Figure 2.1. Mexico GHG emissions trajectory change 2006-2012. SEMARNAT, Programa Especial de Cambio Climatico 2009-2012, p. 49

Mexico in Comparative Perspective

In the area of climate policy, progress is being made within different countries using an array of policy instruments, including the production of national plans for climate change mitigation, adopting voluntary mitigation programs, and executing public expenditures for research and subsidies. Many countries’ actions in the last few years show that national and subnational actions have been more dynamic than the advances in international negotiations,

43 demonstrating that local actions are not dependent on the international resolution of a legally binding agreement for all countries.64

The literature on climate change has measured policy outcomes by looking at various different programs aimed at reducing GHG emissions. When comparing across countries, the measures used have varied from countries’ ratification of international agreements, to the recently created Climate Change Performance Index, produced by a German Think Tank called

Germanwatch. This index focuses on three dimensions: emission trends indicators by sector, including transport, energy, residential and industry; emission levels indicators, including CO2 per primary energy unit, ration of primary energy unit to GDP, and primary energy units per capita; and climate policy indicators that measured by national climate policy and international climate policy. This Index was started only recently, following the Bali negotiations in the 13th

Conference of the Parties (COP 13), in 2007. Mexico has ranked among the top performers worldwide since the inception of the index; at the same time it has shown a trend of improvement in the last five years, only registering a slight decline in 2013.65 In Figure 2.2 on the following page, note also that Brazil’s position on the index has dropped in the last three years.

Since this index was created to oversee the world’s largest economies, it only includes three Latin-American countries. An alternative measure, the Climate Laws, Institutions and

Measures Index (or CLIMI) developed by the European Bank for Reconstruction and

Development (EBRD) measures the efforts and commitments made by 95 government toward

64 Germanwatch E.V., "The Climate Change Performance Index 2014;" Elinor Ostrom, "A Policentric Approach for Coping with Climate Change," World Bank Policy Research Working Paper Series, October 1, 2009, http://ssrn.com/abstract=1494833. 65 Germanwatch change the scale by which they measure policy performance. For that reasons the years 2006 and 2007 are excluded.

44 climate change mitigation in 2011. In this ranking, Mexico received a score of 0.49 points, only surpassed by Costa Rica with 0.51 points. All other Latin American countries included in the study (Argentina, Bolivia, Brazil, Peru, Venezuela, and Uruguay) received a score of 0.45 or less.66 In addition to these measures, in 2011 Globe International, an association of legislators from around the world, introduced a new measure of climate legislation, in partnership with the

Grantham Research Institute at the London School of Economics. The Climate Legislation Study ranks 66 countries on the basis of their legislation to promote climate change mitigation actions.

Mexico received the top ranking at the top in 2013 and 2014 reports.67

80

70

60

50 Mexico 40 Argentina 30 Brazil

20

10

0 2008 2009 2010 2011 2012 2013 2014

Figure 2.2. Climate change performance index 2008-2014. Own Elaboration based on Climate Change Performance Index 2008-2014. I have constructed a more specific index for Latin America that takes into account national programs, strategies and plans that countries have prepared to curb climate change as well as the international commitments made by countries in the region. Figure 2.3 shows on the

66 Alexander Teytelboym, Franklin Steves and Daniel Treisman, Political Economy of Climate Change Policy, EBRD, June 2011 67 GLOBE International, "The GLOBE Climate Legislation Study," Climate Legislation Study, February 27, 2014, section goes here, accessed March 04, 2014, http://www.globeinternational.org/studies/legislation/climate.

45 x-axis the number of international instruments that different countries in the region have deposited as UNFCCC requirements; these include the ratification of the UNFCCC, ratification of the Kyoto Protocol, preparation of National Communications, and adherence to the

Copenhagen Accord and the Doha and Cancun Agreement. The values range from 0 to 10 actions internationally. On the y-axis the graph shows the types of climate mitigation policy actions adopted per country in the Latin American region, based on a survey of climate policies across the region. These include, but are not limited to, national mitigation plans, voluntary GHG emission reduction programs for industry, specific norms and regulations (e.g. establishing requirements for blending of gasoline and bio-fuels), renewable energy promotion, and reforestation programs that have a climate dimension.

9 8 Mexico 7 6 Venezuela Argentina 5 El Salvador Uruguay Brazil Peru Costa Rica 4 Panama Guatemala Colombia Chile Ecuador 3 Bolivia Nicaragua

Climate Climate Policy Outputs 2 Honduras Paraguay 1 0 0 1 2 3 4 5 6 7 International Climate Ouputs Figure 2.3. Climate policy in Latin-American countries 1997-2012. Author’s elaboration. Annex 1 presents a list of programs included in this analysis This graph shows that, as of 2012, Mexico seems to be an outlier in the region, moving forward at both the international and national front. This fact may very well be the result of branding that Mexico has carried out in the last five years, an aspect consistent with this research’s hypotheses.

46 Since national action on climate change can generate interconnection between seemingly unrelated policies coordination within the government will enable the branding of policies. In the case of Mexico, the Office of the President plays an important role in such coordination process.

Thus, policies that are adopted in other policy sectors, to address a problem specific to that sector

(i.e., not climate change), are then recognized as climate sensitive policies and branded as such.

In interviews, sources confirmed that this approach was “bring the most resources to Mexico.”68

The result of this branding can be seen in the allocation of resources to Mexico. Each year, about US$8b is allocated globally to assist with climate change mitigation activities.69 In

2012, Mexico received the largest amount of resources in the Latin American region, amounting to US$ 611 million. Figure 2.4 shows the allocation for Latin American countries.

Panama Peru Uruguay Venezuel Argentina Paraguay a Bolivia Nicaragua

Brazil

Chile Mexico

Colombia Costa Ecuador Rica Honduras El Guatemal Salvador a

Figure 2.4. International climate funds allocated by country, Latin America, 2012. Author’s elaboration using Climate Funds Update data, http://www.climatefundsupdate.org/country-pages

68 Interview with member of the Office of the President Staff, November 16th 2012. 69 Little Climate Finance Book: A guide of financing option for forest and climate change, Global Canopy Programme, p 8, 2009.

47 In sum, Mexico is not obligated to commit to a reduction target nationally according to the international agreements established in the UNFCCC as well as the Kyoto Protocol.70

However, Mexico stands out in the number of instruments linked to climate change (including being one of the first developing countries to set a target nationally), in receiving a large share of international climate resources, and in showing a positive trend on the Climate Change

Performance Index. All these characteristics make Mexico an interesting case to analyze.

In addition, Mexico is the first country in the region, and the second in the world to have a climate change bill approved by Congress, which proposes to build a national carbon market as well as a national green fund to finance climate change activities.71 Since Mexico was the first country in the region of Latin-America to establish such commitments, understanding how climate sensitive policies developed in different sectors and how they were integrated into an overarching climate policy, can shed light on how developing countries may advance climate policy.

Climate Change Policy in Mexico and Climate Sensitive Actions

While in the last five years Mexico has positioned itself internationally as a leader in the

Latin American region, Mexico’s climate-sensitive policy actions predated international

70 UNFCCC, "UNFCCC and the Kyoto Protocol | Climate Change," UN News Center, accessed March 24, 2014, http://www.un.org/climatechange/the-negotiations/unfccc-and-the-kyoto-protocol/. 71 It is important to note that Brazil approved a national climate policy, similar to the Mexican PECC, in 2009. However, due to itsthe institutional setting, Brazil required congressional approval for the law it to become binding. Mexico did not have to send its bill to Congress to approve and make the PECC binding. The General Climate Change Law was more comprehensive setting a national carbon market, a national climate fund and the institutionalization of climate change as a sector that every administration would have to include into each sexenio development plan with a linked PECC each time. See database from Columbia Law School, "Climate Change Laws of the World;" Soledad Aguilar and Eugenia Recio, "Climate Law in Latin American Countries," Ius Gentium: Comparative Perspectives on Law and Justice 21 (2013).

48 negotiations on climate. For example, the energy efficiency program (led by the Fideicomiso para el Ahorro de Energía Eléctrica or FIDE) was presented by Mexico in the mid-1990s as proof of the country’s commitment to international negotiations. This program started in 1990 as an initiative of the Comisión Federal de Electricidad (CFE). The CFE, faced with a possible electricity shortage,72 promoted measures to reduce energy demand. This program originally did not reference climate change mitigation. Later, other programs, to promote fuel substitution and reduce deforestation, were presented internationally as actions that Mexico proposed to reduce

GHG emissions and combat climate change. This meant that the government was announcing internationally its action in sectors responsible for 60 percent of Mexico’s GHG emissions with the goal of obtaining financial resources to “bring back resources to the country.”73

The process of branding and integrating all the action that have mitigation potential into a single climate policy however, has not been a process without disagreements and conflicts between the Ministry of Environment and other line ministries. Initially, there was little resistance to this approach and the Foreign Affair Secretary (SRE) and SEMARNAT led most of the international negotiations. Only a few officials in each ministry were involved in the issue.

The role that Mexico had in those negotiations was limited to voicing opposition to developing countries being obliged to set national reduction target74 and at the same time working to channel resources to Mexico.75

One of the first thing that occurred domestically in Mexico, as in many countries in the region, was the process of information-gathering for the National Communications that Mexico

72 A detail description of these trends will be presented in chapter 7. 73 Interview member of the Ministry of Foreign Relations, May 20th 2013. 74 SEMARNAT, Cambio Climático: Una Reflexión Desde México (México: Secretaría De Medio Ambiente Y Recursos Naturales, 2012). 75 Interview member of the Ministry of Foreign Relations, May 20th 2013.

49 was required to deposit in the UNFCCC Secretary. The United States financed this process through its Country Studies Program.76 The Country Studies Program included representatives of the scientific community nationally and international as a way to stimulate research in Mexico.

Among the organizations that were called upon for this initial stage were members from the

Instituto Nacional de Ecología (INE), the Instituto Mexicano del Petróleo, the Instituto de

Investigaciones Eléctricas, the Instituto Nacional de Investigaciones Forestales y Pecuarias, the

Instituto Nacional de Tecnología del Agua and several specific research centers from the

Universidad Nacional Autónoma of México (UNAM). At the scientific level, little controversy arose, but once this group was converted into an inter-ministerial dialogue including

SEMARNAT, SRE, Ministry of Energy (SENER) and Ministry of Economy (SECOFI) disagreement became apparent. Not only was the idea the sectors had to change business as usual controversial, but the initial positive attitude towards the topic was lost due to the amount of work that the issue required.77

Moreover, as the negotiations developed and the Kyoto Protocol was introduced as part of the negotiations, Mexico experienced an open inter-ministerial power struggle. According to the report Mexico ante el Cambio Climático from the Ministry of Environment, Natural

Resources and Fishery (1998) the ministers of agriculture and rural development, communications and transport, energy, and social development all increased their interest and involvement in the climate change agenda.78 Interview sources described the tense relationships

76 For information on the US Country Studies Program see http://www.gcrio.org/CSP/webpage.html. For information on the National Communications see www.unfccc.int 77 Interview with INE staff member, December 8th 2011. 78 SEMARNAP, Mexico Ante El Cambio Climatico (Mexico City: Secretaría De Medio Ambiente Y Recursos Naturales, 1998). Mexico prepared its first GHG emissions inventory during 1994-1998, taking the 1990 as a base year, an exercise that required the participation of many government agencies, generating awareness as well as

50 that were established between ministries, as they worked on this issue. A staff member from the

Instituto Nacional de Ecología (INE) said “ the sectors first saw the climate negotiations as foreign to them. Only when doing the work for the [national] communications, we started talking about Kyoto and [GHG] inventories, and some didn’t like it.”79 Particularly, the Minister of

Energy in particular was very concerned with the Kyoto negotiations and sent for the first time a representative of SENER to the Conference of the Parties in 1997 as part of the Mexican delegation. 80 SENER prepared a series of documents stating the concern that the Kyoto Protocol could have negative effects on Mexico’s oil economy, similar to the position of other oil producing countries.81

Some analysts define the Fox’s administration as a stop-and-go period for climate change politics, with the issue not granted a high profile.82 However, a closer look at this period, as the case studies will illustrate in chapter 5-7, shows the emergence of the policy dynamics that led to today’s climate policy framework. At a more general level, in 2001, Mexico prepared the Second

National Communication, which, like the first one, required convening sectors and gathering information for an updated GHG inventory. In 2003, the Climate Change Office responsible for authorizing CDM projects was created within SEMARNAT. Two years later the Comisión

Intersecretarial de Cambio Climático (CICC) as well as a climate change commission within

resistance on what this inventory may mean for their future policies. See Simone Pulver, "Climate Change Politics in Mexico," in Changing Climates in North American Politics: Institutions, Policymaking, and Multilevel Governance, by Henrik Selin and Stacy D. VanDeveer (Cambridge, MA: MIT Press, 2009). 79 Interview with INE staff member, February 27th 2013. 80 Pulver, "Climate Change Politics in Mexico," 34. 81 SENER, Climate Change and Energy Sector (Mexico City: Secretaria De Energia, 1998). 82 Ibid.

51 SENER were created to coordinate the agenda on climate change. Thus, this period set the institutional basis for further developments during the Calderon administration in 2006-2012.

In December 2006 a new administration took office in Mexico. This new administration had to face many challenges in the first year of taking office (from legitimacy questions to flooding in the south of the country (Tabasco and Chiapas)). Some have pointed out that the damaging floods may have spurred President Calderon, with an already existing sensitivity to environmental concerns, to find a solution to Mexico’s apparent increased vulnerability to these sorts of extreme whether events. According to one interview “he was trying to position Mexico and himself internationally and get this agenda for Mexico.”83

Following the publication of the 2007-2012 Development Plan, the Office of the

Presidency dictated SEMARNAT to lead the process of preparing a Climate Change Strategy, and later on, a Climate Change Special Program (PECC), with its corresponding budget.

SEMARNAT reported to the Office of the Presidency with progress as well as setbacks on getting the PECC completed. Due to the cross-sectoral nature of the topic, and based on previous experience, early on SEMARNAT pointed out problems with receiving inputs from different sectors that did not consider this a priority.84 This led the Office of the Presidency to seek a greater role in the planning process. The Office of the Presidency called upon all the ministries to contribute with actions that could be included in the PECC. Technical staff within the ministries defined which programs could be included in the PECC, but, according to interviews received little guidance on to how “things were going to be measured and tracked,” nor “what was the

83 The interviewee mentioned that Brazil had already position itself as the owner of the agenda of sustainability with Rio+20 and Colombia was pushing for leading the new UN development goals. This race to position the countries internationally was referenced as something that Calderon had very present when pushing for this agenda nationally. Interview with staff from Office of the President, March 21st 2013 84 Interview with INE staff member, December 8th 2011

52 baseline.85” From the point of the Presidency assuming greater control and pushing more on this issue SEMARNAT was responsible for the development of the final document with the inputs and targets from all the Ministries.86

The directives to include all ministries in planning were also received by the Ministry of

Finance (SHCP). SHCP joined the conversation when they saw that climate change could have an impact on the economy worldwide, a conclusion drawn from a United Kingdom funded study called the Stern Report, which came out in 2006.87 A member of the SCHP told me that, “ we started slowly getting into the topic, when we saw the numbers of the Stern Report my boss told me to start learning about it and we started from the ABC of climate.”88 The involvement of

Finance was a critical step due to the budgetary implications any special program like PECC has in Mexico’s annual budget.89

The CICC played an important role in validating the document with government agencies and through public consultations, including civil society and private sector actors. The PECC was approved in 2009, after a close revision from the President himself.90

The PECC included the definition of initiatives and the responsible agencies within the government that should carry out those initiatives. As previously mentioned, most of the programs included in the PECC were drawn from the work already being done within ministries.

These initiatives focused on all sectors of the economy, distinguishing between short-, medium- and long-term actions. In the short term these targets are to reduce by 2012 a total of 50.66

85 Interview with CONAFOR staff member, July 2nd 2012 86 Interview with staff from Office of the President, March 20th 2013 87 Chapter 4 included a more detail description of the process that led to the generation of that study. 88 Interview with SHCP staff member, March 15th 2013 89 Interview with SHCP staff member, March 15th 2013 90 Interview with INE Staff member, December 8th 2011.

53 Million tons of CO2equivalent per year (MtCO2e/year) or MtCO2e 129.03 in five years. The plan sets a progressive approach to achieve this target in the 2009-2012 period. Of that amount,

36% of the reduction is expected to come from the energy sector; 30% from agriculture, forests, and other land uses; and 23% from the transport sector. Among the short-term actions contemplated are the national programs dealing with energy efficiency and transport (a sector not included in previous climate policy documents)91 as short- and medium-term actions, and avoiding deforestation programs, agriculture, forestry and other land use change programs (or

ALOFU activities as has become know in the literature of climate change) 92 as a long-term action.93

In the long run, the government has committed to an ‘indicative’ target of reducing emissions by 50% of their 2000 volume by 2050.94 In other words, if business as usual leads

Mexico toward 1089 MtCO2e by 2050, the targets translate into the need to avoid emitting a total of 750 MtCO2e by 2050. Such a target requires changes now in the way Mexico produces,

91 The transport sector had no national program seeking to promote transport projects until 2007, as it will be discusses in chapter 7. 92 AFOLU sector is characterized by methodological limitations, lack of data or low reliability of data. Methodologically, the limited understanding of the carbon dynamics and the limitations of experts to monitor and report carbon removals or ‘sinks’ as well as the stability of those carbon removals have generated constants tensions within the international negotiations. Also, from a political point of view, this area has been one of great tension within the negotiations since not all countries have a AFOLU sector that allows for them to abide their commitments. Furthermore, tensions persist between those who believe that climate change mitigation has to be achieved through overall reducing emissions and not sinking carbon. See Claudio Forner, LULUCF and Climate Change, a Field for Battles?, working paper (2004). 93 SEMARNAT, Programa Especial De Cambio Climatico 2009-2012. 94 The government of Mexico calls these “indicative” targets given the fact that they depend highly on what the international agreement will be after the Kyoto Protocol expires in 2012, and depending on the creation of financial mechanisms that will grant resources and technology transfer from developed countries. In addition, given the slow pace progress of emission reductions, all targets tend to be either for 2030 or 2050.

54 consumes, and uses energy; manages its natural resources; and develops and uses land in order to shift the business as usual trajectory. In the long term, the government has committed to achieve a positive balance between reforestation and avoiding deforestation, and to develop a national planning system based on the criteria of de-carbonizing the economy and minimizing vulnerability to climate change.

In addition, Mexico set itself as an international player during the 15th and 16th

Conferences of the Parties. In both instances, Mexico helped overcome the stalemate during the negotiations. In Copenhagen in 2009 it achieved this by calling a meeting of high emitting developing countries (Brazil, China, South Africa and India) to support the British proposal of the Copenhagen Accords. During the negotiation of the Cancun Accords at the 16th COP,

Mexico pushed for a middle ground on the creation of the Green Climate Fund, by endorsing the a transitional period until the creation of such fund, giving room for discussion of the details during 2011.95

Finally during this period Mexico produced three National Communications, making it the only developing country to have prepared a total of five. The elaboration of these documents is time consuming, because it requires collecting information from all sectors and it is also expensive, because of the amount of data required, which many times needs to be produced.

These factors have reduced the number of national communications that countries have prepared so far.96 For that reason, Mexico’s submission of three within the same administration is

95 UNFCCC, "The Cancun Agreements," Cancun Agreements, 2010, accessed April 17, 2014, http://cancun.unfccc.int/. 96 In the last few years of climate negotiations, a recurrent topic on the agenda has been simplifying the requirements for national communications to change this pattern. See UNFCCC, "Recent Developments," UNFCCC, November 2012, COP18, SB37, accessed February 28, 2014, http://unfccc.int/national_reports/non- annex_i_natcom/recent_development/items/6922.php.

55 evidence of the high degree of commitment that this administration had to the climate change agenda.

Mexico’s Climate Results

In 2012, an evaluation of the PECC targets was carried out by the Mexican Institute for

Competitiveness (Instituto Mexicano de Competitividad, IMCO) and showed some levels of success in achieving the targets. According to this evaluation, it was possible to say that the

PECC had reduced 50.66 MtCO2e with an 80% confidence. In March 2012, SEMARNAT published estimates that Mexico had reduced 44.51 MtCO2e, suggesting that by the end of the year it would reach 52.76 MtCO2e.97 Figure 2.5 presents the sectors and the mitigation results by year. It includes four sectors: energy generation, energy consumption (including electricity use and transport), AFOLU (Agriculture, Forestry and Other Land Use) and waste. This figure shows that from 2008 to 2012, energy generation and AFOLU had large GHG emission reductions in comparison to energy consumption and waste. This is confirmed by the case studies in chapter 5 to 7. Electricity tariffs are still subsidized in Mexico and the transport sector has only recently seen the implementation of a reduction of subsidies to gasoline. Additional evaluations estimated that Mexico had achieved a yearly total emission reduction of 48.07 by June 2012.98

All evaluations concur in showing some levels of achievement, while not surpassing the original target. The main question that many experts had at the end of this period was how the new administration, under a new party, starting in 2013, was going to approach the PECC prerequisite and specific targets. According to interviews to international and national experts working in

97 SEMARNAT, Climate Change Actions in Mexico. 98 OECD, “Special Climate Change Programme (PECC): Main mitigation measures to 2012 and achievements,” OECD Environmental Performance Reviews: Mexico 2013, OECD Publishing, doi: 10.1787/9789264180109-en,

56 Mexico, these gains could be lost , reverting to BAU if the new administration does not show the same levels of commitments.99

Figure 2.5. Advances meeting the GHG mitigation targets: 2009-2012. SEMARNAT, Climate Change Actions in Mexico. The Calderon administration sought to make permanent the PECC’s achievements by translating the commitment to develop and implement a PECC in each successive administration into a general climate change law in 2012. This law originated within the Senate and was proposed by PAN member Alberto Cardenas. This bill combined several other initiatives, some elaborated in the lower house, others in the Senate by various parties. According to interviews there was a strategic decision taken to put the bill forward in the Senate because the PAN party had the majority. One interview source said “the Executive had too many initiatives on the table, including the labor reform…if it originated within the Executive there would have been resistance from monopolies [PEMEX] and it would never have passed to the Congress.”100 The interview also pointed to the fact that most parties had a proposal because it was a “hot topic”

99 Interviews to international funding agency, November, 6th 2013 and interview to Mexican think tank May 15th 2013. 100 It is required a nonobjection by all executive branch institutions for any bill to pass for Congress. In this case, PEMEX would have the ability to stop it. Interviews with staff from Office of the President and members of the legislature, September 21 2012

57 and “everyone that wanted to be in touch with young people needed to be talking about climate change.” The decision therefore was to move with this proposal at the end of the administration, to “protect” what was achieved, “to leave a legacy.” The law was approved unanimously in

April 2012.

In March 2013, the new administration announced the formulation of the new Climate

Change National Strategy, based on the climate laws mandate, setting a commitment to formulate a new PECC for 2013-2018 period. The government’s actions so far indicate that the new administration intends to continue Mexico’s commitment to green growth. The new strategy was approved in June 2013 and the PECC is expected for April 2014. Also, climate change has emerged as a crosscutting budget consideration since 2013, requiring all Mexican public offices to report to the Ministry of Finance and Congress the amount of resources spent on mitigation and adaptation to climate change (Centro Mario Molina, 2013). However, the level of relevance of this agenda has decreased compared to the Calderon’s administration, as it is not included in the current National Development Plan.

58 Chapter 3: Mexico’s Political System and Climate Change

As with any policy, climate change policy and climate sensitive policies in forestry, transport and electricity generation in Mexico need to be studied within the context of an evolving Mexican political regime and each sector needs to be contextualized in the broader governing system. Countries vary substantially in their policymaking style; whereas in some countries policies are adopted through a bargaining process taking place in the legislature, in other countries the executive branch decides policies unilaterally, while in other countries policymaking can combine both branches. These differences in institutional configuration determine the way that reform will take place in these specific contexts. For instance, reform may be the result of negotiations between governors and the federal government or may be decided within political parties depending on the importance of political parties, whether the legislatures have strong policymaking capabilities and expertise, the level of independency of judiciary, and if there is a well-developed civil service system. Thus, understanding how the policy process takes place in Mexico can shed light on how actors, within each sector have been able to promote or prevent climate sensitive actions.

Previous work has shown that all these formal institutions play crucial roles in determining the capacity of countries to enact and implement effective public policies.101 It is

101 Carlos Scartascini, Ernesto Stein, and Mariano Tommasi, "Political Institutions, Intertemporal Cooperation, And The Quality Of Public Policies," Journal of Applied Economics 16, no. 1 (2013), doi:10.1016/S1514- 0326(13)60001-X; Carlos G. Scartascini, Ernesto Stein, and Mariano Tommasi, How Democracy Works: Political Institutions, Actors, and Arenas in Latin American Policymaking (Washington, D.C.: Inter-American Development Bank, 2010); D. Altman and A. Pérez-Liñán, "Assessing the Quality of Democracy: Freedom, Competitiveness and Participation in Eighteen Latin American Countries," Democratization 9, no. 2 (2002), doi:10.1080/714000256. R. Kent Weaver and Bert A. Rockman, Do Institutions Matter?: Government Capabilities in the United States and Abroad (Washington, D.C.: Brookings Institution, 1993), among many others.

59 within that context that the different groups in a policy sector interact, form alliances and coalitions and adopt certain policy measures using resources at their disposal.

My research complements the literature on institutional context and resources for policy implementation in developing countries. In order to better understand how different groups form coalitions in developing countries there is another resource at their disposal: financial resources that come from international financial institutions.102 The role that such resources play in the different subsectors in relation to climate change will be addressed in more detail in chapter 4.

Furthermore, within each sector it is important to look at not only formal institutional structure but also informal institutions.103 Informal institutions can be defined as “socially shared rules, usually unwritten, that are created, communicated and enforced outside officially sanctioned channels”.104 These institutions together with formal ones, determine the way in which politics are carried out in Mexico. This chapter aims at describing the policymaking process in Mexico since 2000, and how its elements have interacted with the different constellation of interests within sectors in favor of, and opposed to, climate sensitive actions to allow for policy change in the area of climate change. The following pages will lay out the framework in which the decision-makers in each sector operate, by looking at the political

102 See Judith A. Teichman, "The World Bank and Policy Reform in Mexico and Argentina," Latin American Politics & Society 46, no. 1 (2004), doi:10.1353/lap.2004.0011; Sjur Kasa, "The Second-Image Reversed and Climate Policy: How International Influences Helped Changing Brazil’s Positions on Climate Change," Sustainability 5, no. 3 (2013), doi:10.3390/su5031049. 103 Lorena G. Buzon Perez, "President, Congress, and Budget-Making in Argentina and Mexico: The Role of Informal Institutions" (diss., Georgetown University, 2013); Paris Rodrigo Velázquez López Velarde, "Buying Discretion in Mexico's New Democracy: Patronage in Bureaucratic-Legislative Relations" (diss., The University of Texas at Austin, 2010). 104 Gretchen Helmke and Steven Levitsky, Informal Institutions and Democracy: Lessons from Latin America (Baltimore: Johns Hopkins University Press, 2006), 5.

60 stream that allow for the inner working of climate sensitive actions and climate policy change in

Mexico.

The argument I present here is as follows: politics in Mexico revolve around parties, and the party’s interest to remain in government. Given the fact that there are no immediate reelections permitted for any public office, the politician’s career depends on his or her relationship to the party, and the possible positions he or she will have within the party structure or within the different levels of government the party holds office. Because party and party bosses are the ones influencing a politician’s career, there is less of a constituent effect.105

A context of divided government, with high party discipline, makes it difficult for the executive to form a legislative coalition, and in such a context the incumbent party will resort to administrative resources (decrees, rules of operation of programs, policy directives between federal agencies, etc.) to act on climate sensitive problems whenever an opportunity presents itself. If legislative support is needed, then the design of the new programs will tend to contain elements of distributive politics to ensure that party leadership (either governors or the president of national-level party) will ask legislators to approve a bill nationally. These policies will then be branded as related to climate when there is a potential gain in doing so: international reputation for national leaders or additional financial resources that incentivize agreements between different levels of government. This logic explains why while climate change has dropped in importance for Mexican public opinion; actions were carried out during the period under study.

105 See Francisco Cantú and Scott Desposato, "The New Federalism of Mexico Political Party System," Journal of Politics in Latin America 4, no. 2 (2012): 3, http://journals.sub.uni-hamburg.de/giga/jpla/article/view/538; Langston, "Governors and “Their” Deputies: New Legislative Principals in Mexico." For an alternative analysis see Jose Fernandez-Albertos and Victor Lapuente, "Doomed to Disagree? Party-voter Discipline and Policy Gridlock under Divided Government," Party Politics 17, no. 6 (2011): 802, doi:10.1177/1354068810376780.

61 The Mexican Policy Making Process

The President

Mexican scholars have noted that during Mexico’s period of single party rule, the state had great capacity to shape policy, to the point of making “dramatic” changes that created

“policy shocks,”106 as in the case of nationalization of the banking system in 1982. The president had great latitude to advance substantive change, with Congress serving as a rubber stamp for proposals originating in the executive branch. The president was the cornerstone of any policy change, and the system was very responsive to the president’s preferences.107 This description of the political regime in Mexico would suggest that during the old regime, climate policy changes culminating in a climate law could have been predicted if the idea came from the president and his team and the situation was considered critical (as with the economic crisis in 1982).

However, as described in the previous chapter, interviews suggested that this degree of executive dominance over these processes do not exist anymore.

Two factors differ from prior cases of policy change. First, major climate impacts are projected to occur in the future detracting from a sense of urgency. Second, and most importantly, since 1997 Mexico has moved toward greater democratization expanding political competition while decentralizing many of the “metaconstitutional”108 powers that characterized

106 Nacif, "The Fall of the Dominant Presidency: Lawmaking under Divided Government in Mexico," 236. 107 This is not to say that all ideas came from the president himself. Scholars have shown that those preferences were formed within a small group that surrounded the president, and the president had the power to convert those preferences into policy. For a deeper discussion see Roderic A. Camp, The Making of a Government: Political Leaders in Modern Mexico (Tucson, AZ: University of Arizona Press, 1984); Judith A. Teichman, Policymaking in Mexico: From Boom to Crisis (Boston: Allen & Unwin, 1988). 108 Meta-constitutional powers comprise the hegemonic control of one party (PRI) over all others, high levels of party discipline, the president as head of that party, the mechanism for selecting the next president as a prerogative

62 the presidency under the previous hegemonic party system.109 In fact, Mexico has had divided government since 1997, a new dynamic to which political actors have needed to adapt.110

In 2000, Vicente Fox governed with a minority in Congress, the first Mexican president to do so since the establishment of government under the Contitution of 1917. He held only 37% of the seats in the Senate and 41% of the seats in the Chamber of Deputies from 2000 to 2003, and 37% of the Senate seats and 30% of the Chamber of Deputies seats from 2003-2006. While this situation of divided government changed in the first three years of Felipe Calderon’s administration, it was re-established after the midterm election in 2009. Data are presented in

Table 3.1.

of the president considerable control over unions and other social actors. See Jeffrey Weldon, "Political Sources of Presidentialism in Mexico," in Presidentialism and Democracy in Latin America, ed. Scott Mainwaring and Matthew Soberg Shugart (Cambridge: Cambridge University Press, 1997). 109 Nacif, "The Fall of the Dominant Presidency: Lawmaking under Divided Government in Mexico;" Joy Langston, "The Dinosaur That Evolved: Changes to the PRI's Gubernatorial Candidate Selection, 1980 to 2009," in The Oxford Handbook of Mexican Politics, by Roderic A. Camp (Oxford: Oxford University Press, 2012); Velázquez López Velarde, "Buying Discretion in Mexico's New Democracy: Patronage in Bureaucratic-Legislative Relations;" and Jeffrey Weldon, "Political Sources of Presidentialism in Mexico." 110 There are three major parties in Mexico: the Institutional Revolutionary Party (PRI), which ruled Mexico for most of the twentieth century and has an inclusive centrist ideology; the National Action Party (PAN), which is center-right and represents the Catholic Church and business interests; and the Party of the Democratic Revolution (PRD), a center-left party with ties to peasant organizations and some unions. A few smaller parties, including the Green Party and the Workers’ Party, also have representation in the national legislature.

63 Table 3.1 Composition of the Mexican Congress, 2000-2012

Vicente Fox (PAN) Felipe Calderon (PAN) Senate Lower Senate Lower Senate Lower Senate Lower House House House House PRI 46% 42% 46% 44% 26% 21% 26% 48% PAN 37% 41% 37% 30% 41% 41% 41% 28% PRD 13% 11% 13% 19% 20% 25% 20% 13% PVEM 4% 3% 4% 3% 5% 4% 5% 4% Others 1% 3% 1% 3% 9% 9% 9% 6% Total 100% 100% 100% 100% 100% 100% 100% 100% Source: Author’s elaboration based on data from CIDAC, Base de Datos Electorales

This change in government dynamics meant that policy process reverted to the constitutional prerogatives of granting the president only one instrument to influence policy outcome: a package veto power, making the Mexican president one of the least powerful in Latin

America.111 With no agenda-setting powers, nor an instrument to make Congress approve initiatives introduced by the executive branch, the president of Mexico is far from the most influential actor for policy outcomes. However, saying that the president has no power is also far from reality. The president maintained the capacity to set priorities within parts of the executive branch and within his party. This is so, for two reasons. Within the executive branch, the president still has the authority to steer the government programs to his priorities and he can

111 Shugart and Haggard review the constitutional powers presidents have in the region and rank countries from the most powerful -those where the president has decree authority, package veto, partial veto, and exclusive initiation of legislation- to the least powerful , those countries where presidents hold only package veto powers, such as the case of Mexico. For more details see Matthew Shugart and Stephan Haggard, "Institutions and Public Policy in Presidential Systems," in Presidents, Parliaments, and Policy, by Stephan Haggard and Mathew D. McCubbins (Cambridge, UK: Cambridge University Press, 2001).

64 authorize financial and human resources towards those programs that he considers a priority. 112

The budgetary process begins within the different ministries, is compiled by the ministry of treasury and approved by the president before it is send to Congress.113 The president is an enabling actor for those programs that are in line with his priorities. Second, Mexico’s high party discipline is one of the features that have remained stable in the system, where the main currency is assigning nominations.114 The president’s role in granting postings within the administration to loyal party members has also remained an incentive to promote ideas and policies advance by the president. Today, the president has a close relationship with his own party leadership, which directs the voting in the legislature.115 Since the party leader or governors will instruct legislators to vote for those bills that party leaders consider to reinforce the party’s success the legislative contingent will support the president’s initiatives when those initiatives do not run against other party interests. And as long as the president reinforces support for his party, he has

112 These resources can be assigned as special programs, the creation of specific programs and funds funded with oil reserves (or reassigning existing funds) or by general administrative resources within the budget divided in budget lines. 113 Mexico has two budget laws each year. One is called the Income law and the other is referred to as the spending law. 114 According to recent measurements of the Rice Index the three main parties (PRI, PAN and PRD) had values above 0.95. The Rice Index measures party discipline by estimating the difference of the minority percentage and the majority percentage for each party on each vote. Its values go from 0 to 1, where values close to 0 represent low discipline and values close to 1 represent high discipline. See Luis C. Ugalde, "Relaciones Entre Partidos, Congreso Y Poder Ejecutivo En Mexico: El Caso De La Disciplina Partidaria," in Después De La Alternancia: Elecciones Y Nueva Competitividad, by Espinoza Valle Víctor Alejandro and Rionda Ramírez Luis Miguel (México, D.F.: Universidad Autónoma Metropolitana, Unidad Azcapotzalco, 2005). 115 This high party discipline will be explained when describing the functioning of the Congress.

65 at his disposal the party organization, and with it, a disciplined set of legislators who respond to party leaders when voting.116

Evidence of this change in dynamics is the fact that the number of bills initiated by the executive has dropped since the advent of divided government in Mexico, decreasing from 135 during 1991-94 under unified government to 36 during 2006-2009 under divided government, suggesting that the president only will risk sending a bill to Congress when probability of getting it approved is high.117 A closer look at informal institutions at work in the executive-legislature relationship, and corroborated by the interviews, suggests that this may be only partly true. 118

Underlying these dynamics is the fact that the electoral rules favor party-focused versus constituency-focused voting within Congress, with political parties remaining a cornerstone of policy-making. The actors determining the preferences within the parties however, have multiplied, from the president alone to governors and party leadership, and from one hegemonic party to three main parties. In addition, as this research finds, other informal mechanisms which include the ability of the president to provide legislators with highly trained political operatives, in order to pass certain legislation from within the legislature, may be masking the real originating point of bills. 119

116 Langston, "Governors and “Their” Deputies: New Legislative Principals in Mexico," 117 Nacif, "The Fall of the Dominant Presidency: Lawmaking under Divided Government in Mexico." 118 Public servants and legislators mentioned during the interviews conducted in 2011 and 2012 that a lesson from the first PAN period was the reluctance of Congress to approve legislation that came from the President himself. A new strategy carried out during Calderon’s administration was that the president might not present a piece of legislation as his own. The president’s party would present it and the president would retain control over it by assigning his own staff to work with legislators. The real negotiations on what legislation would be presented and the content of it would occur in informal arenas, before presenting the Bill to Congress. 119 Interview with member of Office of the President. November 16 2012.This topic is very interesting but goes beyond the scope of this work and is left for future research.

66 Finally, the President has the ability to create national programs and direct funds to specific sectors within the approved budget with a high degree of discretion, which grants him an additional mechanism to obtain support for his policies. In fact, as Velazquez suggests the executive and his bureaucracy may autonomously decide how and where to allocate state resources once the budget is approved. Since politicians rely on clientelistic networks and state resources for patronage purposes, this control over resources allows the president to influence legislators even further.120

In sum, the president’s role in policy making in Mexico has changed from the prevailing model during the period of PRI hegemonic rule. Today, the president needs to bargain with other powerful players and in that bargaining he may utilize informal mechanisms to promote policy changes as suggested by recent scholarship through the usage of distributive politics (clientelism) and control over nominations121 or through mechanisms not yet studied, like staffing legislators.

Thus, within each sector, climate sensitive policies can be reinforced by the mechanisms discussed here (creating programs and funds, executing federal resources in a discretionary fashion, or including in legislation distributive politics mechanisms such as funds that can latter support certain states) when the president supports those actions.

The reasons why a president supports those individual actions may go beyond climate concerns. But a president may have at his disposal these instruments to further integrate different actions into a climate policy framework to enhance his political reputation and project him internationally after his administration, even if it does not bring about changes in outcomes that bring additional international resources.

120 Velázquez López Velarde, "Buying Discretion in Mexico's New Democracy: Patronage in Bureaucratic- Legislative Relations." 121 Ibid.

67 The Congress

If the president’s powers have shifted somewhat, opening the policy process to new strategies, Congress has also been transformed with recent regime changes. Congress now shows greater levels of competition for influence on policy making, increasing their influence on policy change,122 as opposed to Linz’s argument suggesting that in presidential systems the opposition lacks incentives to form lawmaking coalitions.123 Table 3.2 shows the number of bills introduced and approved depending on the governing body. The number of legislative proposals introduced by either chamber of Congress has more than ten times from the level of 266 bills in 1994-1997

Congress, to reach a total of 3631 bills introduced in the last legislature under Calderon,

Congress LXI.124

As mentioned, the situation of divided government has made the approval of the executive’s agenda more difficult. In fact, the contributions initiated by opposition parties to the total volume of legislation enacted by the Chamber of Deputies have become quantitatively more significant since the advent of divided government than that of the president and his party taken together. The last three legislatures show a decrease in the number of bills presented by the president to the Chamber of Deputies, suggesting that the president will only risk sending certain bills when, based on prior negotiations with the legislature, he feels that they are assured a high

122 Nacif, "The Fall of the Dominant Presidency: Lawmaking under Divided Government in Mexico." 123 Juan J. Linz and Arturo Valenzuela, The Failure of Presidential Democracy (Baltimore: Johns Hopkins University Press, 1994). 124 I focus here on the Chamber of Deputies to illustrate the new dynamics between the executive and legislature. The analysis for the Senate also yields similar results. For an analysis of both chambers see Nacif, "The Fall of the Dominant Presidency: Lawmaking under Divided Government in Mexico."

68 chance of approval. 125 Overall, the pattern that emerges from the data is that the legislative

venue is now dominated by Congress, and that the president may be using alternative ways of

introducing bills (through the party) and/or using alternative venues of policy making.

Table 3.2 Bills introduced and approved by governing body 1994-2012

LVI LVII LVIII LIX LX LXI 1994-1997 1997-2000 2000-03 2003-06 2006-09 2009-12

Sponsor I A I A I A I A I A I A Deputies 164 29 566 121 1060 210 2677 487 2595 472 3387 420 (24) (56) (55) (86) (86) (91)

Senators 0 0 38 25 112 65 65 39 127 27 133 8 (12) (18) (7) (5) (2)

Executive 91 90 69 63 61 50 36 21 37 34 32 28 (75) (30) (22) (4) (6) (6)

State Legislature 11 1 32 6 86 15 113 16 93 13 79 3 (1) (2) (5) (3) (3) (1)

Total 266 120 705 215 1319 340 2891 563 2852 546 3631 459 Source: Author’s elaboration based on data from http://sitl.diputados.gob.mx/cuadro_iniciativas_origen_status_con_ligas.php and http://gaceta.diputados.gob.mx/ Note: I: Initiated. A: Approved. The number between parentheses indicated the percentage of approved bills. Additionally, Mexico’s mixed electoral system provides incentives for more than two

parties to form, because not only do parties run for part of the seats on national closed lists for

seats assigned by proportional representation principles jointly with SMD seats as well, but also

the threshold for access to seats is very low (only 2 percent of the national vote is required for a

party to gain representation in the Congress). As a result, since 1997 no party has had a majority

in the national legislature. The divided government makes it difficult for the any legislation to

get through Congress. On important point to note is that from all the different small parties

125 Velázquez López Velarde, "Buying Discretion in Mexico's New Democracy: Patronage in Bureaucratic- Legislative Relations;" Nacif, "The Fall of the Dominant Presidency: Lawmaking under Divided Government in Mexico."

69 emerging, three – the Partido del Trabajo (PT), Convergencia/ Movimiento Ciudadano126 and the

Partido Verde Ecologista de Mexico (PVEM)- have managed to stay in Congress in the last 12 years. These three parties show an increasing level of legislative work since 2000 (see table 3.3).

Remy (1975) asserts that in a context of divided government in parliamentary systems, there is a tendency to have a “pivotal party” that is needed to form a majority and pass or oppose legislation. Either opposition or incumbent parties will seek this party’s support. Remy analyzed this phenomenon in Europe noticing that smaller parties could have greater power than their allotted representation in Congress because they became necessary to pass any legislation.127

In the case of Mexico, interviews pointed out that PRI became the “pivotal party” during the PAN administrations. While this is not a small party, it is possible that part of the explanation for the PRI becoming this party has to do with the position of the party in the left-right spectrum as suggested by Nacif (2012) and Magar and Estevez (2012). An additional factor that could explain why this was the case may be that many of those coalitions are formed once the governors instruct their legislators to vote in a certain way.128 Since most of the governorships are PRI (see table 3.4), utilization of federal administrative allocation of resources allowed the presidency to gain support from PRI governors, who would then instruct legislators on how to vote. In the case of the PRD, the PAN could not resort to such a strategy. However, the involvement of governors in the legislative process is limited to specific cases where resources are available for states. The next subsection addresses this specific relationship between governors and legislators in a context of high party discipline and divided government.

126 Convergencia (Convergence) was a party formed in 1999; in July 2011, it was reformed as the Movimiento Ciudadano (Citizens' Movement). 127 Dominique Remy, "The Pivotal Party: Definition And Measurement," European Journal of Political Research 3, no. 3 (1975), doi:10.1111/j.1475-6765.1975.tb00782.x. 128 Langston, "The Dinosaur That Evolved: Changes to the PRI's Gubernatorial Candidate Selection, 1980 to 2009;"

70 With no one party having the majority in Congress, and with a series of smaller parties to dilute support from the major parties and further reinforce the lack of single-party majorities, voting patterns in Mexico shows a tendency toward forming ad hoc coalitions.129 This pattern of ad hoc party alliances shifts based on the particular issue under discussion, and does not necessarily facilitate the emergence of a stable coalition.130 In this context, because new legislation requires building a specific coalition, increasing transaction costs, any policy change will tend to rely on administrative actions.

Table 3.3 Bills Introduced and Approved in the Chamber of Deputies by Parties 2000-2012

LVIII LIX LX LXI 2000-03 2003-06 2006-09 2009-12

Sponsor I A I A I A I A PAN 265 65 543 95 600 146 698 108 PRI 306 54 956 203 657 118 1213 138 PRD 294 45 474 74 650 96 468 37 Convergencia/ Mov. Ciudadano 6 0 173 20 148 22 75 3

PVEM 74 14 434 77 203 25 232 58 PT 41 6 72 9 45 6 288 15 Nueva Alianza n/a n/a n/a n/a 137 19 309 34

Alternativa n/a n/a n/a n/a 52 3 n/a n/a Conjuntas 42 25 16 9 83 37 77 23 Alianza Social 13 0 n/a n/a n/a n/a n/a n/a Soc. Nacionalista 8 0 n/a n/a n/a n/a n/a n/a Sin Partido 11 1 9 0 20 0 27 4

Total 1060 210 2677 487 2595 472 3387 420 Source: http://sitl.diputados.gob.mx/ cuadro_iniciativas_origen_status_con_ligas.php and http://gaceta.diputados.gob.mx/ Note: I: Initiated. A: Approved.

129 An analysis of voting patterns can be found in Francisco Cantú and Scott Desposato, "The New Federalism of Mexico Political Party System." 130 See for example how coalitions form in the process of budget approval . See Buzon Perez, "President, Congress, and Budget-Making in Argentina and Mexico: The Role of Informal Institutions"

71 Table 3.4 Percentage of Control of Governorships by Party131

Year PRI PAN PRD Total Number of States 2000 62.5 21.9 15.6 32 2001 56.3 25.0 18.8 32 2002 56.3 25.0 18.8 32 2003 56.3 25.0 18.8 32 2004 56.3 28.1 15.6 32 2005 53.1 28.1 18.8 32 2006 53.1 28.1 18.8 32 2007 53.1 25.0 21.9 32 2008 53.1 25.0 21.9 32 2009 53.1 25.0 21.9 32 2010 53.1 28.1 18.8 32 2011 53.1 31.3 15.6 32 2012 56.3 28.1 15.6 32 Source: Andrew D. Selee, Decentralization, Democratization, and Informal Power in Mexico (University Park: Pennsylvania State University Press, 2011) and own elaboration based on data from CIDAC, Base de Datos Electorales

Governors

Why do governors matter in adopting climate sensitive policies? Part of the answer relates to their role in Congress. Because of Mexico’s electoral rules, with the no-reelection rule, and having a system where 60% of the seats are allocated from a SMD system, 132 governors can

131 While many of the governorships have resulted from coalitions between larger and smaller parties; this table simplifies the data presented here by identifying the party controlling the state governorship as the main party. 132 The result of the new electoral laws was an increased level of competitiveness in SMD. The increased competitiveness of legislative races, measured by the number of parties that compete in federal deputy SMDs, shows that through the 1990s and into the 2000s the number of hegemonic districts decreased from a total of 242 hegemonic districts to 23 hegemonic districts in 2003. Joseph L. Klesner, "Electoral Competition and the New Party System in Mexico," Latin American Politics & Society 47, no. 2 (2005), doi:10.1353/lap.2005.0021. These rules rewarded parties that could win a majority of the vote in single-member districts, but, at the same time, rewarded minority parties with seats from multi-member districts. One important point to stress in this regard is the fact that

72 affect a politician’s careers by granting state resources for increasingly competitive congressional races and also provide the legislator with the next political posting after moving on from the legislature.133 Recent scholars have shown that governors have the capacity to ensure votes from SMD legislatures, based on their ability to control legislators’ future political careers as well as campaign funding.134 In the time that legislators are in Congress their actions will determine possible rewards in the form of future postings at the local, state or national level.135

The party plays a direct influence on those legislators that were elected by the PR system

(40% of the lower house). In this context, as noted by Langston and Aparicio, “PR deputy candidates do not run electoral campaigns; if they are placed high enough on the closed list, they will enter the Chamber”.136 On the other hand, since senators depend on the PR system as well as on obtaining a relative majority in each state, which creates a focus on party rather than constituency focus, the party controls those nominations directly. These members of Congress respond directly to the party leadership.

the no-reelection clause in Mexico broke the link between electorate and their representatives, and works to strengthen the link between representatives with the party, the entity responsible for granting continuation to political careers. See Luis C. Ugalde, "Relaciones Entre Partidos, Congreso Y Poder Ejecutivo En Mexico: El Caso De La Disciplina Partidaria," A noticeable shift in party politics, however, throughout the democratization process, has been a shift from a monopoly of the national party in determining political careers towards a sharing of such prerogative with governors and regional bosses. Langston, "Governors and “Their” Deputies: New Legislative Principals in Mexico." 133 An elected official to Congress will occupy office for a period that can range from 2 to 6 years 134 Governors discipline SMD deputies towards their goal. Now SMD legislators have an additional leader who was not part of the policy process previously. The governors control a set of resources that make the deputies loyal to their instructions. First, they control the possibility of their political career at the state level, as a member of the state executive or the state legislature. These positions are highly dependent on the state governor’s endorsement. Moreover, the governors have financial resources and staff that can also help candidates for deputy to win. 135 Ibid. 136 Langston and Aparicio, Legislative Career Patterns in Democratic Mexico, 8.

73 This capacity to influence legislators’ votes converts governors into legislative brokers and key partners for legislative coalition making, each one controlling anywhere from 2 to 33 copartisan deputies. Governors can ensure delivery of congressional support to presidents.137

Langston (2010) suggests, however, that governors tend to make deals with party and legislative leadership in order to gain more fiscal advantage from central government. They coordinate with other governors to pass legislation that matters to them the most. For example, the governors created CONAGO (National Conference of Governors) to help coordinate their positions when negotiating on the national budget, as a way to leverage their position vis-à-vis the executive. As such, CONAGO has served as a platform for garnering governors’ support, and in turn, those deputies and senators who answer to them.

The rest of the time, when resources are not negotiated, governors rely on legislative leaders and party leaders when enacting other bills.138 Party leaders in turn know that they need to keep governors happy, so they work to promote state interests when there are discussions over resource allocation. This dynamic leads to high party discipline, that if looked alone may obscure the governors high level of influence in Congress.

Thus, while party discipline is a constant in the Mexican system, and party structures continue to affect politicians careers, including the ability of the president to use this control over nominations as an informal rule shape the relationship with the legislative power, the principal- agent structure has changed from having one main principal (the president) to having three principal that might or not coincide in their interest. Therefore, contrary to what occurs in

Argentina or Brazil where governors control legislators, reducing party discipline, by competing

137 Giraudy, "The Politics of Subnational Undemocratic Regime Reproduction in Argentina and Mexico.,” 61. 138 Langston, "Governors and “Their” Deputies: New Legislative Principals in Mexico."

74 with party leaders and voters,139 Mexico’s system shows that two to three principals have an important relationship with legislators. The president, governors and party leaders are in a position to decide other politicians’ careers, due to the electoral rules to be elected to Congress

(see Figure 3.1). At the individual level, politicians will adjust their behavior to the preferences of these three principals in order to ensure their career.

Party Leadership

Legislators President

Governors

Figure 3.1: Principals-agent structure in democratic Mexico Governors are also important to undertaking climate sensitive actions, because they have the authority to execute programs. The president can use federal funding for to obtain support from governors and their legislators, but he can also use these resources to increase his party’s electoral support. Previous studies have demonstrated this relationship, showing that national politicians in Mexico allocate a wide variety of federal resources and programs in a discretionary manner to meet their political strategic needs.140 The president is in a privileged situation in this

139 John Carey, Legislative Voting and Accountability, Cambrindge, UK: Cambridge University Press 140 Alberto Díaz Cayeros, Federalism, Fiscal Authority, and Centralization in Latin America (Cambridge: Cambridge University Press, 2006); Ricardo Velazquez Lopez Velarde, "Realidades Mexicanas: El Efecto De La Democratización En Las Relaciones Congreso-burocracia," Foro Internacional 52 (2012); Gibson, Edward L., and Julieta Suarez-Cao, "Federalized Party Systems and Subnational Party Competition: Theory and an Empirical Application to Argentina." Comparative Politics 43, no. 1 (2010): 21-39. doi:10.5129/001041510X12911363510312.

75 sense because he has the ability to create national programs and direct funds to specific sectors within the approved budget.

The way these resources are allocated has been studied previously. Some of the literature has focused on studying the linkage between resource allocation and governors’ control over number of seats in the legislature.141 Other authors have suggested that resources will be allocated exclusively depending on the presence of the same party as the president in charge of the subnational unit. 142 Finally, another strand of literature has focused on how an ongoing electoral race is the central element driving the levels of government investment, whether it is centered on their own strongholds or in breaking a tie in a constituency.143

This research tested these ideas by looking at how national programs’ funds were allocated by state in the different sectors under study. Findings from interviews suggested that the president might decide to use federal resources to obtain electoral support from the electorate in a specific sector (forestry) or to obtain legislative support from governors in other sectors

(transport). Therefore, the president’s ability to use funding allows him to refrain from using legislative actions and focus on adopting administrative actions instead. When legislative actions are necessary, those bills will tend to include a distributive component to have greater of approval.

141Giraudy, "The Politics of Subnational Undemocratic Regime Reproduction in Argentina and Mexico." 142 See for example S. Khemani, "Party Politics and Fiscal Discipline in a Federation: Evidence from the States of India," Comparative Political Studies 40, no. 6 (2007), doi:10.1177/0010414006290110. 143 See Matz Dahlberg and Eva Johansson, "On the Vote-Purchasing Behavior of Incumbent Governments," American Political Science Review 96, no. 01 (2002), doi:10.1017/S0003055402004215.

76 This dynamic has changed the PAN party itself. The panistas were in principle against using public resources for clientelist exchanges.144 Being in office changed this principle: as interviews suggested the party’s political needs which drove them to increasingly draw on clientelist modes included helping its state level organization to win office as well as getting closer to the voter.145

An important element that has not been considered in previous studies is the complexity of executing federal resources, which may end up affecting the end result (i.e., addressing the political need). Due to the rules of operations of national programs, accessing resources will depend on state level expertise. Because not all states have the same level of expertise to apply for federal funding even if a program was designed with one political goal in mind (i.e., increasing support for national party), the final allocation could still be different from the one intended. The forestry case demonstrates this point in chapter 5. The main lesson is that while the original intention of the Payment for Environmental Services program (PES) was to get closer to rural votes for the PAN, the PRI states gained the most and obtained greater access to resources.

144 Yemile Mizrahi, From Martyrdom to Power: The Partido Accíon Nacional in Mexico (Notre Dame, IN: University of Notre Dame Press, 2003). 145 Interview with member of Congress, September 21st 2012. Historically the PAN had restricted its membership, which impacted the relationship with the population. They tried creating municipal sub-committees in 2001 to avoid using PRI patron-client practices. See Langston, "Legislative Recruitment in Mexico," in Pathways to Power: Political Recruitment and Candidate Selection in Latin America, by Peter Siavelis and Scott Morgenstern (University Park, PA: Pennsylvania State University Press, 2008); Selee, Decentralization, Democratization, and Informal Power in Mexico.

77 Other Actors: Alliances Between Political Actors, Unions and Businesses

The policy process has allowed for multi-parties to impact policy-making, as described above. These parties represent corporatist groups, non-governmental organizations, and urban sectors, as was the case during PRI rule, but also rural interests, due to the fact that around 183 districts of the 300 SMDs are either totally rural or mixed.146 Unions and Businesses traditionally played a role in the policy-making process in Mexico.147 However their relevance and strategies changed with the coming of democracy. Additionally, civil society and environmental groups have increased their influence in Mexico’s policy process. A green party has emerged and seeks to articulate these groups’ interests. The level of success enjoyed by this party, however, has been limited. I present here a small explanation of each group and how they are expected to impact the adoption of climate sensitive actions across sectors.

Mexican unions have been a key player in the policy making process historically. Since the beginning of the PRI party, ties with unions have served as a corporativist mechanism to articulate workers’ interests into the ruling party, while simultaneously being used to prevent mobilization of large-scale opposition.148 The unions controlled seats in Congress and served as a control over resource allocation. However, the representation of those unions in Congress has declined from to 91 labor representatives in 1979 to 36 representatives in 2009, and only one group has increased its representation the National Education Workers’ Union (SNTE), from 12

146 Mixed means that a large number of voters are rural voters. See for a detailed analysis Joseph L. Klesner, "Electoral Competition and the New Party System in Mexico." 147 Fabrice Lehoucq, Why Is Structural Reform Stangnating in México? Policy Reform Episodes from Salinas to Fox (México, D.F.: Centro De Investigación Y Docencia Económicas, 2007). 148 Roderic A. Camp, Politics in Mexico: The Democratic Consolidation (New York: Oxford University Press, 2007).

78 delegates to 18 delegates.149 Overall unions’ representatives declined from representing 22.8 percent of all federal deputies to becoming only 7.2 percent. Moreover, after democratization the fragmentation of membership into different union groups reduced further their strength.

However, to say that unions were not a group that could impact the climate sensitive actions may be erroneous. Union leaders can affect policies by mobilizing rank-and-file members to show discontent with a specific policy while the government could use administrative techniques such as refusing to certify the election of a union leader as a mechanism to control those unions. In that sense unions are one more player to consider when adopting policies.150 While not the main source of opposition to climate sensitive policies, as long as labor conditions and labor reform were part of the changes, any proponent of policy change should consider unions, in its strategy, as a source of additional support for change. The specific cases of energy and transport in

Chapters 6 and 7 show when and under what circumstances those unions were part of the negotiating strategy, by either eliminating a source of conflict when dealing with the energy reform affecting Comision Federal de Electricidad and Luz y Fuerza del Centro (when Calderon dissolved the latter) or delaying the adoption of climate sensitive policy, which occurred in the case of the transport sector due to the strong influence of certain groups that oppose the adoption of Bus Rapid Tranport Systems.

Another actor that is relevant to analyze when dealing with oppositions or support for climate sensitive policies is the business sector. Businesses have always had direct access to the ruling party. However, their influence increased after democratization took place. Their lobbying

149 For an explanation of why this particular union retained and increase representation See Graciela Bensusán and Kevin J. Middlebrook, "Organized Labor and Politics in Mexico," in The Oxford Handbook of Mexican Politics, by Roderic Ai Camp (Oxford: Oxford University Press, 2012). 150 Ibid.

79 capacity increased due to the resources that they can contribute to political campaigns as well as the resources they have available for lobbying in Congress.151 In general, business interests will pursue policies that allow for larger margins of profits. Within the business sector, however, it is possible to identify different types of actors including business associations, individual businesspeople, and some businesses that have formed cartels to oppose any changes. All of these could affect policies directly through lobbying congress, or the executive, or using other tactics with varying degrees of success. Finally, the influence of this sector has become apparent, as some members of the business sectors have become politicians. In general, the business sector will oppose climate sensitive policies that can reduce its profit margin of profits (e.g., adopting vehicle efficiency standards) or can support climate sensitive policies that could open up business possibilities in areas where private investment was restricted, as in the renewable energy investments. Therefore, the business sector is included in the constellation of interests that may favor or oppose climate sensitive actions. Their position varies by each sector under study.

Finally, environmental groups and civil society have had an increasing role in Mexico’s policymaking process.152 The strategies used by these groups differ, from raising awareness, to advocating for rural and indigenous communities, to advising administrations through providing policy inputs to SEMARNAT. However, these groups have not organized themselves into a political party. In fact, these groups do not recognize Mexico’s green party (PVEM) as a

151 Strom Thacker, "Big Business, Democracy, and the Politics of Competition," in The Oxford Handbook of Mexican Politics, by Roderic A. Camp (Oxford: Oxford University Press, 2012). 152 Jordi Díez, Political Change and Environmental Policymaking in Mexico (New York: Routledge, 2006).

80 legitimate voice for environmental groups within Congress. According to Díez (2006) “all of the environmentalists stated that they did not have any relationship with members of the PVEM”153

The PVEM was founded in 1987 and has been led by one family ever since, as Jorge

Gonzalez Torres was followed by his son, Jorge Emilio González Martínez. This party was aligned with the PAN in 2000 elections in opposition to the PRI, but this coalition was temporary. The PVEM has allied itself more frequently with the PRI since the 2003 midterm election. While the name could suggest that this party would be in favor of all climate sensitive policies, this party lacked a clear platform throughout the years to the point that the European

Green Party withdrew its recognition as green party in 2010.154 This party has not necessarily supported climate sensitive actions, as it was the case in other countries.155 The PAN’s leadership saw a potential source of support in young votes linked to the green agenda, a group the PVEM was not capturing.156 Thus, the PAN started to redefine itself as the party of climate change suggesting that the party, and not only the president, saw a strategic gain to addressing climate change as an overall policy.

These general dynamics between politicians and their party, between president and congress and between unions, businesses and civil society, are the backdrop in which Mexican climate policymaking process has taken place. Each policy sector responds to these dynamics in a specific way given the levels of implementation of their policies. Before analyzing the specific

153 Ibid., p. 37. 154 European Green Party, "EGP Withdraws Recognition of Mexican Green Party as Part of the Green Family," European Greens, March 5, 2010, accessed March 04, 2014, http://europeangreens.eu/news/egp-withdraws- recognition-mexican-green-party-part-green-family. 155 See the cases of Germany and Japan in Roger Karapin, "Explaining Success and Failure in Climate Policies: Developing Theory through German Case Studies;" Watanabe, Climate Policy Changes in Germany and Japan: A Path to Paradigmatic Policy Change. 156 Interview with member of Legislature, September 21st 2012.

81 insight of each sector, a final element to review is the dynamic with the international context, the goal of the next chapter.

82 Chapter 4: The International Dimension of National Climate Action

Mexico’s developments across sector and the creation of its climate policy, including the passing of a climate change law, occurred within an international context that is evolving constantly. This context has influenced the domestic policy realm through interactions between international experts and national policymakers and national advocacy groups, and through the participation of members of national governments in the international negotiations.157 Initially,

157 The first mechanism to responding to the climate challenge was pursuing an international agreement within the United Nations. As with any UN convention the foreign affairs ministry of each country was present, while the technical aspect of the negotiations have been led by the environment sector. International negotiations around climate change have sought over the last twenty-two years to reach a binding agreement. The type of agreement was originally inscribed in prior success within the international negotiations of the Montreal protocol in reducing the usage of substances considered responsible for the ozone depletion. Climate change was to be tackled by generating an international agreement and protocols that would press for joint commitments and actions – or commitments to refrain from acting in a certain way – from all parties involved (Barrett 2007). However, the initial proposal did not get enough traction across the different countries to reach the development of a protocol to promote action. Rather, the agreement reached in 1992 relies solely on countries’ willingness to act on it. After two years of negotiations, governments across the world signed the UNFCCC, in the context of the Earth Summit. Countries set a general basis and framework to tackle climate change, with no clear enforcement mechanism attached to it. This convention recognized the need to continue its work yearly, and established the Conference of Parties (COP) to be held yearly to continue negotations in light of new data and information. In the years that followed, and with some negotiating camps in continuous pursuit of a binding instrument, it became clear to the different parties that climate change could not be resolved in the same fashion as the ozone depletion problem, since dealing with climate change involved dealing with many greenhouse gases instead of one. In 1997, the Kyoto Protocol was added to the UNFCCC, establishing binding caps on emissions for 37 industrialized countries and the European Community, in an average of five percent against 1990 levels over the five-year period 2008-2012. Developing countries were not committed by this protocol to reduce emissions. Stabilizing climate, a global public good, became the desired outcome of many years of negotiation. Adherence to the UNFCCC, an agreement with no binding mechanism, has increased, while adherence to the Kyoto protocol has decreased and GHG emissions have continued to increase since 1994. See Farhana Yamin and Joanna Depledge, The International Climate Change Regime: A Guide to Rules, Institutions and Procedures (Cambridge, UK: Cambridge University Press, 2004).

83 climate change was an intellectual concern.158 Most of the discussion between international experts and country representatives revolved around defining and measuring the climate problem. Today, there is consensus among experts that a problem exists,159 and policymakers engage with international experts seeking solutions and resources to implement them.160

This new focus in the relationship between international community and domestic policy makers has had two effects. First it has led to a multiplicity of initiatives originating from different types of international organizations that seek to interact with policymakers at the national level proposing ideas of what should be done, generating what Keohane and Victor

(2011) call a regime complex. Second, it has led to a growing specialized literature on climate finance, measuring the amount of resources needed for effective mitigation, possible instruments and their effectiveness, trying to understand the space for private sector and how donors define priorities assigning resources to the multiplicity of venues available. Little attention has been

158 The origins of climate change as a policy issue can be traced to developments within the environment sector in the 1980s, when a series of scientific conferences slowly built consensus around the evidence that, human emissions of GHG lead to global warming, which in turn produces detrimental effects on human life. As a result of one of the warmest decades on record policymakers started to identify a possible area of state action. In late 1988, some governments, through the United Nations’ organizations, established the Intergovernmental Panel on Climate Change (IPCC), whose mandate was to assess the latest scientific, technical and socio-economic literature produced worldwide relevant to the understanding of the risk of human-induced climate change, its observed and projected impacts and options for adaptation and mitigation. 159 The scientific community had provided ample evidence that climate change is anthropogenic in nature, only in 2006, when the fourth report of the IPCC was launched (AR4), the level of confidence that climate change was a human-created problem has increased to 95%. The 2007 United Nations Climate Change Conference in Bali was important from the standpoint of climate change negotiations because industrialized and developing countries acknowledged that evidence for global warming was unequivocal, and that humans must reduce emissions to reduce the risks of “severe climate change impacts,” and proposed a clear action plan for the years to come, the Bali Road Map. 160 Alex Evans and David Steven, Climate Change: The State of the Debate (London: London Accord, Center for International Cooperation, 2007), 38.

84 given, however, to the dynamics governing resource allocation from the perspective of developing countries seeking to attract resources, in the context of that multiplicity of actors.

How do those dynamics affect domestic actions and the international climate regime? What is the role of International Financial Institutions (IFIs) 161 and the transnational policy networks created with national policy makers in this process? What is the impact of those actions on the overall goal of GHG mitigation?

Some work on these issues has been done by Hochstetler and Viola (2012) as well as

Kasa (2013), both focusing on the Brazilian case.162 These authors identify international resources as one of the drivers for action entering into the domestic policy sphere and changing policies. Mexico may not be subject to the same dynamics, however, particularly as it is an oil producing country. Nonetheless, Mexico has managed to set targets and accomplish results in the first years of implementation, as described in Chapter 2. Understanding the Mexican case can shed light on some peculiarities of developing countries and how their positioning within the international system may affect their tendencies toward policy change.

This chapter examines these dynamics and how they impact domestic action. It starts by defining the concept of regime complex and transnational policy networks. It then presents the trends within climate finance resources, and discusses how the criteria to allocate those resources

161 Countries interact with different sets of international actors such as donors, IFIs, and within those MDBs, and other international organizations. One possible way of differentiating these organizations is by looking at the voting structure. According to the literature, it is possible to differentiate between those that are power-based organizations such as the Multilateral Development Banks, where not every member has the same level of influence based on their number of shares, and those with egalitarian international organizations such as the United Nations, where the principle of one country, one vote rules the organization. This will be explained in greater detail below. 162 Hochstetler and Viola, "Brazil and the Politics of Climate Change: Beyond the Global Commons," Kasa, "The Second-Image Reversed and Climate Policy: How International Influences Helped Changing Brazil’s Positions on Climate Change."

85 creates what I call here a virtuous cycle of climate finance: climate front-runners and large emitters receive a larger amount of resources, a tendency that is reinforced when additional actions are taken in those countries. In turn, this cycle creates an incentive to rebrand current development actions to further increase the resources that they receive.

At the same time, another process takes place. The increased action-resources-actions- resources cycle sparks a new position within the international regime, legitimizing a country to propose ideas of what should be done on climate. Mexico used this legitimacy to strengthen its hand when presenting options, such as the green fund, at the international negotiations. In a world that is characterized by a complex landscape with a multiplicity of actors playing prominent roles,163 as opposed to the hegemonic post-Cold War period during which the

UNFCCC was created, many countries seek to be the owner or leader of issues regionally or globally. The climate change agenda is one of the high profile issues on which countries seek to exercise leadership role.164

This chapter shows the role of IFIs in this dynamic, in particular the MDBs. An existing, well-established literature has described how resource conditionality imposed by international institutions like the World Bank or the Inter-American Development Bank can promote policy change.165 Previous literature has provided either detailed information on the relationship between states and transnational policy networks in economic reform programs or a game theoretic model using a GEF dataset to show how economic wealth in countries increased

163 Luis Gomez-Echeverri, "The Changing Geopolitics of Climate Change Finance," Climate Policy 13, no. 5 (2013): 639, doi:10.1080/14693062.2013.822690. 164 Interviews with staff member of the Office of the President Staff, March 21st 2013. Interviews mentioned this as one of the reasons for Mexico to position itself strongly on climate change. 165 Bayer, Marcoux, and Urpelainen, "When International Organizations Bargain Evidence from the Global Environment Facility;" Judith A. Teichman, "The World Bank and Policy Reform in Mexico and Argentina."

86 resource allocation, and arguing that a bargaining effect may play a role in assigning resources across countries.166

This chapter will highlight how the negotiation of resource allocation is carried out in the area of climate change, what the incentives are that lead IFIs to pursue the issue of climate change, and how it compares to other sectors where IFIs have played an important role in policy reform. This chapter will include an analysis of how Mexico has used its membership in different organizations within the regime complex to get favorable results for itself in terms of climate financing. This chapter will outline how these international climate resources and their delivery channels (IFIs, Climate Funds (CIFs, GEFs, bilateral programs and international mechanisms like Clean Development Mechanisms)) are part of the regime complex, and show how their interactions moderate the interplay between national and international forces to either produce new actions on climate, or label as climate-sensitive existing actions whose byproduct is changing GHG emission trends.

The Climate Regime Complex

The IPCC report in 2007 presented increased certainty of the magnitude of problem with more than 95% confidence.167 The lack of progress in the international negotiations, meanwhile, has led to an array of actors getting involved in climate change policymaking. All of these actors have developed groups of rules and rights, processes and standards, creating what Krasner

(1983) called a regime or “institutions possessing norms, decision rules, and procedures which

166 Bayer, Marcoux, and Urpelainen, "When International Organizations Bargain Evidence from the Global Environment Facility." 167 See Intergovernmental Panel on Climate Change, Climate Change 2007 – Impacts, Adaptation and Vulnerability. (Cambridge: Cambridge University Press, 2007).

87 facilitate a convergence of expectations” that operate in a given area of international relations.168

As Keohane and Victor (2011) suggested, there is a continuum between a fully integrated regime and highly fragmented institutions in which the parts are not linked to each other but solely converge on the area they address. Regime complexes fall in the middle of that continuum: there are connections between different parts, but they lack an overall architecture or hierarchy.

Regime complexes allow for forum-shifting where actors move from one organization to the next seeking to maximize their returns (i.e. receive more climate resources) from the different organizations within the regime. Climate change is a regime complex in the sense that the institutions are loosely connected, and there is no clear hierarchy, yet there is a recognized complementarity, and sometimes competition, between all institutions working on climate change.

Figure 4.1 depicts this regime according Keohane and Victor. The boxes show the main institutional initiatives that are part of the regime complex.169 Within the large oval are initiatives that seeks to generate rules (e.g., defining mitigation actions, who can access resources for those actions, how they do so, and how progress is measured); outside the oval are initiatives that have generated specific norms to comply with the more general rule of addressing climate change.

The focus here is on the initiatives inside the oval; that is, those that generate rules.

Mapping this landscape is a complex undertaking, as there are many institutional efforts to respond to the challenge. An indication of such complexity is the proliferation of climate funds and agencies involved in climate change actions. A recent UNDP report estimates there are

50 public funds and 6000 private equity funds, and more than thousand financing instruments

168 Stephen D. Krasner, International Regimes (Ithaca: Cornell University Press, 1983), 2. 169 Keohane and Victor, "The Regime Complex for Climate Change."

88 (e.g., special funds, guarantees, debt swaps, etc.), created for climate change actions. The World

Bank lists around 230 multilateral agencies working on climate change. 170

Figure 4.1. Regime complex for climate change. Keohane and Victor, "The Regime Complex for Climate Change .“ Each one of these organizations, within a regime, generates initiatives to address climate change, given the high salience of the issue. However, within each initiative and across them, there may be competition that prevents the consolidation of all the initiatives into an encompassing one. This competition may occur because each initiative comes from a diversity of interests, powers, information and beliefs that are difficult to arrange into one single agreement. As Keohane and Victor suggest, interest diversification –to which I would add the need for institutional or personal prominence and self-assurance— leads to fragmentation of initiatives and path-dependence and the organizational practices of different countries and

170 Kemal Derviş et al., Aiding Development Assistance Reform for the 21st Century: Brookings Blum Roundtable 2010 (Washington, D.C.: Global Economy and Development at Brookings, 2011).

89 sectors leads to the construction of partial institutions that suit those purposes. While the

UNFCCC is the most visible effort, thus far, after decades of negotiations, the United Nations has begun to lose credibility and none of the different initiatives within and outside the UN have taken the lead in solving the climate change problem. On the other hand, IFIs, and particularly

MDBs, increased their influence, especially, in the area of resource distribution, as described below. The “clubs,” on the other hand, include presidents of countries and represent an increasingly salient forum for setting the policy agenda providing guidance in many policy areas.

In fact, many of the discussions within these clubs determine policy directives and areas of reforms both for individual countries and international organizations including IFIs. Thus, this regime complex has different balances of interest and leverage within component parts.

The ways in which countries access these institutions is either representatives of their governments participating in the organization’s meetings (UNFCCC, Montreal Protocol, clubs) or through the generation of transnational policy networks as applied by Teichman (2007), whereby representatives of the organizations carry out missions to the countries and establish direct relationship with national decision makers (MDBs, UN agencies, bilateral initiatives).

Bayer, Marcoux and Urpelainen (2014) further specify the type of relationship between these organizations and the states by differentiating between power-based organizations and egalitarian organizations. Power-based international organizations, such as IFIs, are defined as organizations for which members voting rights depend on the amount of financial contribution they have granted to the organization – the “one dollar, one vote” structure. Egalitarian organizations, alternatively, set their membership principle as “one country, one vote.”171 For that reason, not

171 Bayer, Marcoux, and Urpelainen, "When International Organizations Bargain Evidence from the Global Environment Facility."

90 all developing countries are in the same bargaining position to secure favorable terms and conditions for financial resources from international organizations.

In the specific case of the climate regime complex two additional distinctions, which do not appear in previous literature, are added when looking at the relationship between states and transnational policy networks within the climate regime complex. The international climate community looks at big emitters such as China, India, Brazil, South Africa, and Mexico closely because their actions today can prevent a dangerous climate in the future. For that reason, special funds such the Climate Investment Funds have been created to take into account these countries’ needs, which demonstrate that their bargaining power is quite different from that of other developing countries. Finally, being part of the OECD, as well as their membership in other

“clubs” or negotiating forums such as the G-20, NAFTA, or WTO increase these countries’ visibility in the global arena. This visibility in turn provides countries with additional leverage and legitimacy when proposing new ideas at the international negotiations. As one interview corroborated “Mexico could propose ideas, and people listened because we always could say

‘We are doing something at home, what are you doing?’”172

The intricacy and variation across this regime complex as well as the specific characteristic of a country (shares within a power based organization, membership in high visibility ‘clubs’ and being big emitters) leads to some countries benefiting more than others just because they know how to access and leverage each institution, as shown om Figure 2.4 for the

Latin-American region.

This regime complex serves as a vehicle to bring about ideas and solutions to policy makers nationally. As an interviewee suggested “we all know who is out there, we know what

172 Interview with staff member of the Ministry of Foreign Relations, May 20th 2013.

91 door to knock and for what purposes, and that is what I think the GCF is trying to simplify for all countries.”173 But the specific policy options that financed by the international organizations are selected in a two-level game, following the concept originally presented by Putnam (1988) to explain the interconnectedness of international and domestic policy-making spheres. According to this framework, these two policy realms are entangled. There are forces that operate at the national level to influence the state leadership where domestic groups pursue their interests by pressuring the government to adopt certain policies domestically. At the international level, the negotiator seeks to maximize her ability to respond to domestic interest groups while minimizing adverse consequences in the international arena. In analyzing two-level games, we focus on the political leader who plays both games simultaneously.

The policy options therefore financed by IFIs are part of what are considered possible options domestically. But different climate-sensitive policies options within a developing country may be supported or downplayed by an IFI or any other climate-funding source. A large amount of literature has looked at the role different MDBs have played in policy areas such as structural adjustment, health, and social security.174 From all the different international actors that attempt to influence policy-making in the countries, MDBs have shown the greater amount of influence given their particular characteristics of counting not only with technical expertise but also different instruments to allow countries to carry out policy change. At the same time, their link to government structures (the governors of the MDBs are countries’ ministers of finance) allows them to have greater access to government officials.

173 Interviews with international funding agency staff member, November, 6th 2013. 174 Mitchell A. Orenstein, Privatizing Pensions: The Transnational Campaign for Social Security Reform (Princeton: Princeton University Press, 2008); Judith A. Teichman, "The World Bank and Policy Reform in Mexico and Argentina."

92 Something that the literature has largely not examined so far is the incentives within the

MDBs to propose certain policy options. As mentioned above, all MDBs created climate change programs between 2005 and 2009 in an effort to adapt to current problems.175 These programs, however, were new initiatives that required being “mainstreamed” in the banks’ operations. Each institution took a different approach from forming specialized operational units, to creating a knowledge anchor to generate state of the art knowledge on climate policy actions.176 Career advancements, higher scores before approval, and institutional support to lending targets were granted to those whose operations included climate change considerations. However, the process of programming and approving loan operations is very much linked to what the counterpart needs, which means that if the government perceives that these new considerations could delay the approval of a project, these considerations will not be included. Therefore,

MDBs serve as facilitators of ideas but not drivers of change, even when the effects of the action directly affect the international sphere. In contrast to what happened at the height of pro- liberalization reforms in the 1990s, on climate change MDB typically present principles, or suggest programs but do not offer specific model solutions. This keeps the political cost lower than adopting a specific model, like the Washington Consensus,177 which can increase policymakers’ responsiveness to these actions.

175 For more details see the websites of major MDBs: www.iadb.org, www.worldbank.org; www.adb.org, www.ebrd.org, www.afdb.org. 176 Jonathan Lash and David Runnalls, "The World Bank, MDBs, and Low Carbon Development," World Resources Institute, April 23, 2010, accessed March 06, 2014, http://www.wri.org/blog/world-bank-mdbs-and-low-carbon- development. 177 Judith A. Teichman, Social Forces and States: Poverty and Distributional Outcomes in South Korea, Chile, and Mexico (Standford: Standford University Press, 2012).

93 In addition, to the spread of ideas, the IFIs play another role. From the case studies, a concept gleaned from the domestic climate literature served to explain the role of international actors: the role of a broker who helps to find a middle point between different actors. Ingold

(2011) explains the advancement of Swiss climate policy, having examined the role of policy brokers in reaching agreements where a stalemate had existed.178 Ingold found that actors situated between coalitions had the capacity to broker a policy solution. In contrast to Kingdon’s

(1984) multiple streams and windows of opportunity, where new policy options emerged when there was an alignment of policy, problem, and politics, Ingold (2011) emphasizes that policy brokers often change their policy preferences to find middle-point solutions between opposing coalitions. This concept is important in the context of climate policy because IFIs can become that broker thanks to the resources and technical assistance they provide. IFIs, as the specific case of Mexico’s transportation sector will show in Chapter 7, can facilitate the adoption of policy options between different levels of government from opposing parties. Before describing the role Mexico has played in the international regime complex, I present a brief account of the evolution of climate finance.

Evolving Trends in Climate Finance

The international climate framework is built on the principle of common but differentiated responsibilities, stated in Article 3 of the UNFCCC. This principle has two implications. First, in line with this principle, since the majority of GHG emissions in the atmosphere today come from industrialized countries, most of the responsibility for action to mitigate GHG emissions has been put on industrialized countries. However, reduction of GHG

178 Karin Ingold, "Network Structures within Policy Processes: Coalitions, Power, and Brokerage in Swiss Climate Policy," Policy Studies Journal 39, no. 3 (2011), doi:10.1111/j.1541-0072.2011.00416.x.

94 emissions is a public good prone to free riding. Even if industrialized countries reduce their emissions, and incur the associated costs, these actions may be canceled out by growing emissions from other countries. Tackling climate change requires every country’s commitment and action, which brings about the second most contentious issue under negotiation: the need for additional179 financial resources to cover the additional costs of low carbon development for developing countries. Recognizing this need for resources, but without a clear idea of the magnitude of the resources needed, the UNFCCC established in 1992 a funding mechanism, the

Global Environmental Facility (GEF),180 to support developing countries institutional capacity in countries to measure climate change impacts and develop GHG inventories. This fund helps developing countries fulfill their main responsibility of reporting their emissions in the National

Communications, but without limiting their emissions, and without imposing timelines to act or pressure to pledge resources for climate action. With the establishment of the Kyoto Protocol, industrialized countries established an additional mechanism through which they could transfer resources to developing countries on a project by project basis through the Clean Development

Mechanism (CDM).181

179 Long discussions occupied the negotiations in COP-15 regarding the additional resources needed and to avoid simply the relabeling of ODA assistance. 180 This mechanism not only served the UNFCCC but also the Biodiversity and Desertification conventions. This mechanism is funded by countries’ contributions to the three conventions and has also been funded by industrialized countries’ contributions. 181 The Kyoto protocol established incentives for climate change policy making domestically by creating three mechanisms to reduce GHG emissions: 1) emissions trading among Annex 1 countries; 2) joint implementation by Annex 1 countries to share costs for cutting emissions among developed countries and; 3) the “Clean Development Mechanism” (CDM) through which Annex 1 countries can earn carbon credits towards their emissions reductions by investing in projects within developing countries.

95 The Kyoto Protocol entered into effect in 2005. The Latin American region has used this resource to some extent. CDM resources have fluctuated between a high of US$7.5b in 2007 and a low of US$1.5b in 2010, due to the fall in value of carbon credits from $25 to less than US$5 in 2010.182 Out of these resources, the flow to the Latin America region depends on the amount of projects presented to the UNFCCC. As of 2012, the two major recipients in the region were

Brazil, with 35% of the projects and Mexico with 18% of the global allocation of resources.183

However, the concentration in few countries (China and India), and in types of projects (mainly dealing with industrial processes that eliminated HFC and N2O) led many scholars to raise concerns about the effectiveness of this mechanism in promoting low carbon technology adoption by developing countries.184 The mechanism’s ability was also questioned, since the rate of GHG emissions increased as seen in Figure 1.1.

This reality led the international community, with a prominent role of UK Prime Minister

Gordon Brown, to move in three tracks. A first track was a quantification of how much was needed for low carbon investments. Prime Minister Brown commissioned Nicholas Stern, a former Chief Economist of the World Bank, and at the time Lead Economist for the British

Government, to produce what later was known as the Stern Review: The Economics of Climate

Change. This report quantified the impacts of climate change on the economy, and echoed not

182 World Bank, “Mobilizing Climate Finance; “UNEP Risoe, "CDM Projects by Host Region," UNEP Risoe CDM/JI Pipeline Analysis and Database, March 1, 2014, accessed March 06, 2014, http://cdmpipeline.org/cdm- projects-region.htm#4. 183 Ibid. 184 Some of the lessons from the CDM process are described in Emily Boyd et al., "Reforming the CDM for Sustainable Development: Lessons Learned and Policy Futures," Environmental Science & Policy 12, no. 7 (2009), doi:10.1016/j.envsci.2009.06.007.

96 only within the environmental community, but more importantly with the finance ministries around the globe.

The report had an additional effect on the regime complex. The multiplicity of actors and sectors impacted by the climate, as presented by the Stern report, highlighted the need to create a programmatic approach for actions to be effective, and this programmatic approach should include all the sectors of the economy.

Second, Prime Minister Brown invited for the first time to the 2005 G8 Summit in

Gleneagles the big emitters: Mexico, South Africa, Brazil, China and India. Prime Minister

Brown believed that any discussions on climate change mitigation action needed to include these countries if an actual solution was to be pursued. This meeting was the first non-UN organized meeting where climate change was discussed as area of action. As a result of this meeting the

Clean Energy Investment Framework (CEIF) was announced, as a political commitment with no initial resource allocation.185 These meetings sought to create pressure on these five countries to act, even if they had not made formal commitments on the international stage. From then onwards, any large international meeting of climate action included almost without exception a reference to Mexico, South Africa, Brazil, China and India, albeit without referring to any international lybinding commitment to reduce emissions.186

185 Interviews suggested that Brown asked the World Bank to implement the CEIF, but the World Bank said they could only implement with concessional finance. Later, when the UK secured some funding, these resources were channeled through the Climate Investment Funds (CIFs). Interviews to international funding agency staff member, November, 6th 2013 186 For example, meeting by MDBs on Climate, the G20 Meetings, the World Economic Forum and its climate initiative G2A2, Global Green Growth Forum, to name a few. Note that all of these countries have presented non- binging and conditional emission reductions as a result of the Copenhagen Accord and Cancun Agreements.

97 After a few years, that pressure migrated into the formal climate change negotiations.

Initially there were some informal meetings during the COP 13 in Bali. This COP was the first to include a High Level Event for Ministers of Finance. This meeting was replicated in Poland in

2008 and by other initiatives such as the World Bank Bali Breakfast, which was only for

Ministers of Finance to allow for candid discussion on the impacts of climate on their public fiannces, as well as the Asian Development Bank and Inter-American Development Bank

Annual Meetings where climate change was included in the governors’ agenda.187 While this is not the main result of the Bali Conference from a climate negotiation perspective, it is important to point it out, since it was considered a critical juncture for merging two agendas: the development agendas thus far led by ministries of finance and IFIs and the climate change agenda led by UNFCCC.

Finally, a third area of action taken by the international community in the last five to seven years that defined today’s climate finance framework was the recognition that IFIs could serve as an important channel for delivering climate finance to developing countries, going beyond the Kyoto Protocol. An increased role for IFIs was seen as essential for two reasons: one was the lack of progress in negotiations, and the second was the uncertainty of what would happen after the Kyoto Protocol ended in 2012.188 As a result, new mechanisms were created

187 The Governors of the Development Banks are the Ministers of Finance of the Region. They choose what topics to include in their annual agenda in conversations with the Administrations. Including climate change into their annual meetings agendas is a clear sign of the recognition that climate change could have implications for development and economic growth in developing countries. 188 Interviews with international funding agency staff member, November, 6th 2013 According to an interviewee close to Prime Minister Brown, Brown wanted to convert the World Bank into a “Climate Change Bank,” before the financial crisis of 2008. This idea of the relevance of IFIs as channel of climate finances was once again endorsed by the G20 meeting in September 2011. See World Bank, Mobilizing Climate Finance: A Paper Prepared at the Request of G20 Finance Ministers, report (Washington DC: World Bank, 2011).

98 within and outside the Convention, over the last five years. The first mechanism was the Climate

Investment Funds (CIFs), a response to the Gleneagles meeting. Fourteen countries pledged to allocate USD 6.5 billion for transformational change in 2008. The CIFs are divided into four specific funds: the Clean Technology Funds, the Forest Investment Plan, the Small Renewable

Energy Program and the Pilot Program for Climate Resilience. The CIFs eligibility criteria were focused on big emitters’ needs, demonstrating the previous point of how recipient countries’ characteristics are very important when explaining the relationship between the international regime and domestic climate actions. Mexico is eligible to receive money from the first two funds.

The CIFs took into account some lessons from existing mechanisms. First, by 2006, the

CDM programmatic instrument of the Kyoto Protocol was acquiring greater importance. After a few years of approving methodologies based on single projects, the Executive Board of the CDM recognized the need to have umbrella programs that could stimulate project developers to include clean technologies to reduce GHG emissions (e.g., providing additional finance to cover the additional costs) in areas that otherwise would be left out of the mechanism given their scale, such as public lighting or housing.189 Such a change in programs was recognized by the creators

CIFs as a better planning tool than project-by-project access to funds.190 A second lesson vis-à- vis the GEF was the need to include as focal point the Ministers of Finance as the counterpart of the funds. The GEF has relied on ministers of environment who lacked the overall planning vision of a country. As a result, their activities were not integrated with other actions in the

189 As such, a social housing developer could apply for carbon credits by designing neighborhoods with energy efficiency technologies. Before the CDM programmatic instrument existed, a housing developer would not take such a risk give the costs associated with the process. 190 Interviews with international funding agency staff member, November, 6th 2013.

99 country.191 The CIFs also chose the MDBs as their implementing agency, and to promote coordination, it required the participation of two MDBs in each country.192 Therefore, the CIFs requested the MDBs to present programs by country approved by Ministries of Finance. This condition increased the standing of IFIs in the climate regime complex, as MDBs became the only executing agency for these resources.

The CIFs put a lot of emphasis on actions that were “transformational.”193 Part of the difficulty for countries in accessing CDM resources was the need to show “proof this project was only going to be done if it received resources”194 or what in the CDM methodologies is called additionality. This requisite created an additional difficulty for countries to justify the high transactions costs that involved the CDM process. The CIFs, recognizing the idea that countries needed to change their development path to a low carbon growth, suggested the criteria of transformational action. This allowed countries to include in CIF investment plans actions that were already under way and planned in national development plans. Moreover, it fostered the branding of current actions as climate actions, as the case of Mexico shows.

Other events that occurred at the same time that these funds were being created, and that should be mentioned, are the financial and energy crises in 2008 and 2009. The financial crisis

191 Shally Venugopal et al., Public Financing Instruments to Leverage Private Capital for Climate-Relevant Investments: Focus on Multilateral Agencies, technical paper (Washington DC: World Resources Institute, 2012), 14, http://www.wri.org/search/site/MDB. 192 Interviews with an international funding agency staff member, November, 6th 2013. The interviewee recognized that this request of joint MDBs was grounded in good intentions but made the practice of working in the countries a lot harder, where competition became a constant threat to project execution. 193 Transformation is defined by the CIFs as those actions that will change a country’s development path to a low carbon development growth path. See more in https://www.climateinvestmentfunds.org/cif/content/cif-annual- report-2013 194 Interview with CDM board member 2001-2003, December 12th 2012.

100 allowed for the identification of possible co-benefits of climate change actions, including in what was referred to as green stimulus packages. The energy crisis was one that many countries faced given the high volatilities of fuel prices, impacting directly their energy security and the fiscal stability of countries. Alternative sources of energy began to be seen as a possible way to guard public finances against external shocks. When the financial crisis struck in September 2008, the

US took its first steps with the new administration linking different crises –energy security, climate change and the financial crisis— by pushing financial stimulus packages with a “green” component. Many European countries followed suit, introducing for the first time a clear link between economic growth and climate change. These measures had two direct but conflicting impacts. First, these measures showed the co-benefits of mitigation actions for economic growth, and increased the awareness of ministries of finance, leading toward defining climate change actions as a possible solution to more than just an environmental problem. Second, adopting these measures reduced the available international resources from industrialized countries, which in the face of the 2009 commitment to find a post-Kyoto agreement,195 created tensions among industrialized and developing countries over who should finance climate change actions.

The CIFs were designed in a contentious environment in which Parties of the Convention voiced opposition to this mechanism. Some of the UNFCCC members saw the CIFs as competition to the UNFCCC structure and could be drawback in reaching international binding agreement. Interviews during the COP 15th in Copenhagen in 2009 –after the CIFs were created— pointed to the dilution of resources as a major threat to the UNFCCC mandate. “We think resources should be channeled to already existing channels, not create new ones, that will

195 The Bali road map established that COP 15 was supposed to be the meeting where the countries would define the post-Kyoto framework. A lot of attention was given to this event (COP 15), which had high visibility in part because presidents attended for the first time, although no agreement was reached.

101 only delay actions.”196 This opposition stemmed from the fact that the CIFs were attracting limited resources available for climate action internationally. The parties to the Convention feared the dilution of resources into many mechanisms that could result in less action. As a defense, the CIFs’ administration refers to this mechanism as a pilot, a transition mechanism until the newly created Green Climate Fund (GCF) was operational. The GCF would, under this scheme, absorb the funding as well as the lessons from the CIF in 2015.197

These trends were complemented by changes at the level of international negotiations.

The Copenhagen Accord (2009) and the Cancun Agreements (2010) were the first statements, in the context of the United Nations, to push for developing countries to assume commitments towards resolving a global responsibility. For the first time there was recognition that in order to achieve a solution there was a need for developing countries to adopt low carbon strategies. The

Copenhagen Accord stated that

We agree that deep cuts in global emissions are required […] We should cooperate in achieving the peaking of global and national emissions as soon as possible, recognizing that […] in developing countries and bearing in mind that social and economic development and poverty eradication are the first and overriding priorities of developing countries and that a low- emission development strategy is indispensable to sustainable development Non-Annex I Parties to the Convention will implement mitigation actions […] (The Copenhagen Accord, 2010)

196 Interview with Argentina’s negotiating staff member, Copenhagen, December 5th 2009. In addition, ministries of environments and NGOs oppose the CIFs because these funds were structured in a way that meant these ministries no longer would have control of the climate finance resources as they currently do with GEF reosurces. 197 Interview with CIF Staff member, January 15th 2013.

102 A year later, in Cancun, the members of the UNFCCC signed The Cancun Agreements encouraging the participation of all countries in reducing these emissions, and opening the discussion for national targets in developing countries (UNFCCC, 2010).

But these actions needed resources. Fast Start Financing, a Copenhagen commitment to allocate USD 30 billion for the 2010-2012 period was created as a transition to a 2020 commitment of 100 billion per year. During the COP16, Mexico proposed the creation of a

Green Climate Fund, an umbrella fund that would make the process of accessing resources transparent to all. Such a fund would reduce the transaction costs of accessing climate funds.

This was the first time in the history of the Convention that countries were discussing the idea that resources would come from both industrialized and developing countries. This idea has been later modified from the original idea where all countries paid a fee to the fund, but it represented a success for Mexico

The proliferation of funds and actors created the regime complex we see today. In fact, many new initiatives have been created just in the last few years to mobilize the Fast Start

Financing. As an example, UK created the International Climate Fund (ICF) in 2011 to comply with the commitment of fast start allocation. Creating the Green Fund seeks to simplify the regime complex, giving developing countries a “one stop shop” for climate financing. We will only be able to evaluate if this was effective in a few years’ time. For now, since COP 15, the regime complex has increased its size.

While for many years the formal negotiations put most of the responsibility on developed countries, the fact that by 2012 the target of stabilizing emissions has not been met showed that developing countries, especially the bigger economies, had to act and assume responsibilities by setting national targets to GHG emission levels. Many countries have in fact assumed voluntary

103 targets supported by a diverse set of actors and initiatives that form a variety of regimes. Mexico is, as shown in Chapter 2, one of the leading countries in that area. If the negotiations after 2015 reach a global binding agreement where all countries need to establish emission reduction targets, we can expect to see similar processes to those present in Mexico, of branding and bundling sectoral actions into a climate policy.

Financing Reducing Emissions from Deforestation and Forest Degradation (REDD)

Before concluding this section on climate finance there is a need to mention developments in the specific case of reducing emissions from deforestation and forest degradation (REDD), or carbon stocks financing. When countries negotiated the areas of applicability of the Kyoto Protocol, actions related to forest conservation, recovery and forest extension, or denominated “carbon sink activities,”198 did not end up fully incorporated into the

CDM. Land Use Change and Forestry (LULUCF) is one of the main sources of emissions in

LAC, and this exclusion restricted the available resources for the region.199 Brazil sought to limit the inclusion of LULUCF in the areas of carbon emissions reductions that were eligible for CDM resources. The reason for this position had to do with the assumption that opening the option of forestry activities as recipients for the CDM resources would translate into developed countries

198 The area of Land Use and Forestry has received several acronyms within the international negotiations as scientific knowledge has advanced and the methodologies for accounting for mitigation actions needed adjustments. Thus, initial negotiations and methodologies for GHG accounting referred to LUCF, including Land Use Change and Forestry (1996), it later developed into LULUCF to include the emissions from land uses distinguishing between wetlands, grassland, cropland and settlements (2003), and later developed into AFOLU which specified different emissions from agricultural activities (2006). For more information, please see Simon Eggleston and Nalin Srivastava, 2008. Here I will use the terms interchangeably, depending on what is being explained and the timing of the international negotiations. 199 The main deterrent for the inclusion of this has to do with the methodology for measuring carbon sinks associated with forest conservation.

104 infringing into Brazil’s sovereignty over the Amazon, something Brazil would not accept.200 In the last five to seven years, Brazil and the BASIC group, (with South Africa, India and China) started to change their positions, committing to actions voluntarily but opposing international oversight of the implementation of those actions. This change of position, and advancement in methodologies to count for avoided GHC emission through carbon sinks brought to the international climate regime the need to foster actions and financing for REDD and REDD+, reducing emission + sustainable forestry.

Similarly to the technology deployment funds like CIFs, within the forestry area new initiatives emerged. Within the CIFs funds, a fund was targeted to forest, the Forest Investment

Funds. Additionally, donor countries created the Forest Carbon Partnership Facility (FCPF). The goal of this facility is to assist developing countries in their efforts to reduce emissions from deforestation and forest degradation and to foster conservation, sustainable management of forests, and enhancement of forest carbon stocks (REDD+) fostering a change in perspective in countries towards providing value to standing forests. This fund seeks to help countries get ready to access existing (FIP) or new financing mechanisms (GCF). The criteria, similar to the CIF, are to work within already programmed domestic policy outputs (strategies, programs,, plans) finding gaps that this fund helps close, and once again allowing the branding of current and ongoing activities.

The multiplicity of actors and funds has created a fertile environment for forum shifting to obtain the best conditions and amount of resources. As Bayer et al (2014) suggest, however, the country’s characteristics and role within power based institutions influence the end result.

200 Hochstetler and Viola, "Brazil and the Politics of Climate Change: Beyond the Global Commons."

105 Mexico is a case of a country has leveraging the regime complex to its advantage. The next section will briefly discuss this and introduce the material presented in the three case studies.

Mexico’s Actions within the Climate Finance Regime

Mexico has been one of the major recipients of funds from the Global Environmental

Facility as well as the Clean Development Mechanism. Within CIFs and Bilateral Fast Start- financing, designed as a transition to the Green Fund, Mexico has also been one of the major recipients thus far. In fact, since 2003, Mexico has received, yearly, double the amount of climate-driven resources of Brazil (US$614 million vs. US$330 million). According to CEMDA, in 2012 Mexico had US$2.62 billion under implementation; 27% of those resources were directly linked to the UNFCCC; 45% from multilateral sources and 28% from bilateral resource allocation.201

Table 4.1 Resource allocation to major emerging economies

Clean Development Climate Funds yearly Mechanism Resources Allocation since 2003 (Percentage of total amount of Issues CERs) Brazil 6.4% US$ 330m China 61.8% US$ 294m Egypt 0.8% US$ 523m India 13.5% US$ 490m Mexico 1.6% US$ 614m South Africa 0.01% US$ 536m Total 84.11% Source: Author’s elaboration. Data from www.climatefundsupdate.org; http://www.cdmpipeline.org/cdm-projects- region.htm

201 Centro Mexicano De Derecho Ambiental, "La Arquitectura Financiera Del Cambio Climático En México."

106 If we compare Brazil and Mexico there is a striking difference between access to CDM resources and climate funds. This large variation is due to the rules applied to each mechanism.

The CDM requires the presentation of specific methodologies and projects that demonstrate additionality of CDM funds –that is, that the project would not be possible without the CDM resources. The burden of proof is on the private projects’ developers to develop a methodology to count emission reductions, and will take on the process of approving such methodology at the

UNFCCC. This is a costly process in terms of time and financial resources. Also, certain gases have a larger global warming potential (GWP).202 Projects that address the gases with larger

GWP have the same costs as ones with smaller GWP, but receive a larger amount of resources.

For example projects that implemented technologies to reduce the emissions of nitrous oxide or

CFCs, such as industrial changes, received the largest amount of resources. China’s main focus was on these types of resources. In fact, project developers that had a government’s support in generating methodologies and presenting them to UNFCCC, as in the case of China, benefited the most from CDM resources.

Brazil created an office within the Ministry of Environment to support project developers, and this alliance with agro-industrial business associations led to the majority of the projects presented being focused on agriculture and waste management projects, which seek to reduce methane and nitrous oxide from the atmosphere.203

202 The six gases regulated n the Kyoto Protocol are water vapor (H2O), carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O), Ozone (O3), and CFCs. Each one of these gases has a different global warming potential (GWP) and persists for a different length of time in the atmosphere. The IPCC expresses each GWP as a factor of carbon dioxide. Methane is 25 times more powerful than CO2 and nitrous oxide is 298 times more powerful. See IPCC Second Assessment report. 203 Daniele Agosto, Paola Bombarda, and Francesca Gostinelli, Climate Change and Kyoto Protocol Implementation, report, 2013, http://www.worldenergy.org/documents/p001027.pdf.

107 On the other hand, climate finance funds relied on negotiating directly with the different agencies within the climate regime complex, many times including the possibility of international verification of emission reduction. Brazil was until recently reluctant to accept international verification, which explains the limited access to the climate funds thus far.204

Those resources flowed to countries where this condition could be met.205 Mexico accepted this condition and also used a variety of different international forums to secure funds. It is to this point that I turn below.

Since 2006, Mexico’s domestic decision makers, starting with the president himself, have participated in climate-focused transnational policy networks that strongly influence choices at the national level and engage in cooperation and rule making at the international level.206 In addition, international organizations went through a restructuring process for the MDBs, by assigning more financial resources to climate as a specific financing area. MDBs created specific funds for allocating grants for climate action, creating an initiative with specialists in that area, as well as assigning staff performance indicators linked to activities related to climate. Having a clear priority, and mobilizing the resources assigned to that activity, led various MDB staff to seek opportunities to identify potential countries that could benefit from such a priority, as well as to recognize possible solutions to countries’ crises. These new incentives led international staff to seek to “persuade,” “push,” and “affect” governments in adopting policy options or ideas

204 This status is expected to change given the recent shifts in Brazil’s international position on climate finance. More details will be presented in the concluding chapter. 205 Hochstetler and Viola, "Brazil and the Politics of Climate Change: Beyond the Global Commons." 206 Peter M. Haas, "Introduction: Epistemic Communities and International Policy Coordination," International Organization 46, no. 01 (1992), doi:10.1017/S0020818300001442; Thomas Risse-Kappen, "Ideas Do Not Float Freely: Transnational Coalitions, Domestic Structures, and the End of the Cold War," International Organization 48, no. 02 (1994), doi:10.1017/S0020818300028162.

108 they advocate.207 At the same time, within the climate policy arena, there was no specific list of actions to follow, as it was the case of the Washington Consensus. Faced with this lack of explicit guidance and precedent the international staff took learning by doing approach.208

At the domestic level, led by the Ministries of Foreign Affairs and Environment, Mexico positioned itself internationally as a receptor of resources for climate change action. SHCP remained at the margin of Mexico’s international climate positions. These positions changed at the time that the international dynamics described above were developing, and the SHCP saw that international negotiations could affect the reception of MDB loans, or commitments within the G-20 or G-8+5 clubs. But at the same time, SHCP was well aware of their own leverage within MDBs209 and the different clubs, and that Mexico was not simply a recipient of resources under donors' conditions.210

SRE and the Office of the President were aware that within the G-20 meetings and the

OECD they could define the policy standards and rules that would be applied and pursued by the

World Bank or Inter-American Development Bank. Mexico used multiple international memberships to reinforce funding for domestic decisions in what becomes a virtuous cycle of climate finance.

Mexico used the G20 to install climate change as part of the agenda, and give greater salience to climate change action, triggering a specific group that would look at green growth

207Michael N. Barnett and Martha Finnemore, Rules for the World: International Organizations in Global Politics (Ithaca, NY: Cornell University Press, 2004); Judith A. Teichman, "The World Bank and Policy Reform in Mexico and Argentina;" Kurt Weyland, Learning from Foreign Models in Latin American Policy Reform: (Washington, DC: Woodrow Wilson Center Press, 2004). 208 https://www.climateinvestmentfunds.org/cif/content/cif-annual-report-2013 209 Mexico is on of the larger shareholders at the IDB, for instance. 210 Interview SHCP Staff Member, May 15th 2013 and Interview member of the Ministry of Foreign Relations, May 20th 2013.

109 options internationally (the G2A2). The latter proposals were part of Mexico’s desire to be the owner of the climate change topic in the region, and thus demonstrating an instance where domestic policy adoption seeks to be consolidated or legitimized internationally, which at the same time affects the international climate regime.

The international donors including, including GIZ and the UK government, as well as multiple MDBs, decided once they saw the initial signs from the government to set up Mexico as an example, gearing financial and technical resources to generate policy advancements.211 These resources in turn opened up the possibility of funding for newly created funds: the CIFs. As donors confirmed in the interviews initial actions can provide encouragement to these same donors to provide more resources “we all wanted to bet on a winning horse and showing industrialized tax payers the impact of scarce resources’ (especially in period of fiscal crisis).”212

Within the international negotiations Mexico managed to position itself as a developing country aligned with the developed countries, a “exemplary child” that should be a recipient of funds that would cover the costs of climate change actions. But what brought more resources to

Mexico were its actions, and its close relationship with donors across different “clubs.”

Mexico’s domestic actions also increased its international legitimacy, affecting the international regime. Mexico set itself up as an international player during the 15th and 16th

Conference of the Parties (COP). In both instances, Mexico helped overcome the stalemate during the negotiations. In Copenhagen in 2009 Mexico called a meeting of high emitting developing countries (Brazil, China, South Africa and India) to support the British proposal of

211 Interviews with donors from German and UK governments as well as IDB and World Bank officials suggested that the selection was guided by the amount of GHG emissions. Another country that received this similar attention was Brazil. Interviews carried out between May 2011- June 2013 to representatives of GIZ, UK embassy, World Bank and IDB dealing with Mexico’s Portfolio. 212 Interview with staff member of the UK embassy in Mexico, November 12th 2012.

110 the Copenhagen Accords. The close relationship with UK was established within the G8+5 and had later developed further, following the Stern Report, granting support for quantifying the impacts of climate change in Mexico. Mexico’s legitimacy was increased by having launched its voluntary targets, which opened the option for Mexico to host the following meeting. During the

16th COP, Mexico pushed for a middle ground option regarding the creation of the GCF, by endorsing as part of the Cancun Accords a transitional period until the creation of such fund, allowing space for discussion of the operational details during 2011. All these efforts have been recognized by CCPI as fourth country in the context of international climate policy.213

Finally, the way new funds were structured and the type of criteria adopted created an incentive for branding as climate change related on-going development actions, to bring more resources to the country. As a result, Mexico ensured that it would receive resources by participating in different venues and “clubs,” where there were different ministries involved

(environment/ foreign affairs/ finance), and where coherence was ensured because it was a mandate of the president.

Conclusions

While Keohane and Victor doubt that the current climate change regime complex will allow for achieving the needed emission reductions globally, they argue that regime complexes might prove to be advantageous under certain circumstances, especially with regard to their adaptability and flexibility. When the international negotiations are stalled and no progress is being made, adaptability and flexibility are assumed to create opportunities and room for

“innovation clubs” to find new ways to tackle climate change (pp. 17-8). One example of these new innovation clubs are the launch in September 2013, of the Global Commission on the

213 Germanwatch E.V., "The Climate Change Performance Index 2013."

111 Economy and Climate, led by Nicholas Stern and Felipe Calderon, which saw a joining of forces by the UN, policymakers, research institutes and MDBs to provide an alternative venue for climate policy action.

The main lesson that can be drawn from this description is that focusing only on the

UNFCCC structure may slant the analysis of Mexico’s bargaining on climate policy making and implementation, and in turn, its commitments nationally. However, Mexico has leverage in defining the terms and conditions for implementing its own climate policy making, through its participation and bargaining in specific “clubs” such as the G-8, G-20, and the OECD, as well as the bargaining carried out in bilateral negotiations that are established with international agencies or donor countries. The literature on these types of relations suggests that Mexico is not a simple recipient of resources under donors’ conditions.214 Rather, it is a player in a multi-level negotiation in which Mexico uses its membership in selected groups as a bargaining position to get resources under the best conditions possible for its development in exchange for specific actions. These international factors are not exogenous to Mexico’s domestic policymaking, but rather are part of the multiple spheres where action on climate policy is taken, a point that I develop further in the next chapters. Developing countries have been recipient of international resources to finance climate action while tapping into developmental problems that go beyond an international commitment to climate change mitigation. In other words, the reasons underlying policy action may be far from being rooted on climate change concerns.

The regime complex asserts its influence domestically through resource allocation, which is guided toward specific actions by domestic ideas and priorities. Mexico's changes in the domestic political structure in the last decade, as well as its positioning within the international

214 Bayer, Marcoux, and Urpelainen, "When International Organizations Bargain Evidence from the Global Environment Facility."

112 negotiations on climate, have created a unique situation where Mexico is not a simple recipient of resources under donors' conditions. Moreover, as countries interact with a different set of actors internationally (donors, international financial institutions, and international organizations) that are power-based organizations, such as the Multilateral Development Banks, and with egalitarian international organizations, such as the United Nations, the understanding of how policy is developed may vary from those accounts presented previously, where the focus was primarily on domestic political institutions. Action and access to resources will lead to a virtuous climate finance cycle, in turn generating greater legitimacy in the international regime and positioning a country as a leader in a subject. This is important in the new international context where there is not one power block but a growing complexity, where each country wants to position itself as leader, at least regionally.

113 Chapter 5: Climate and Forest in Mexico: Avoiding Deforestation to Alleviate Rural

Poverty

This chapter presents the first case study of this research. It shows the dynamics of a specific sector and its relationship with Mexico’s climate change policy. This chapter is about how climate change considerations became part of Mexican forestry sector policymaking.

Although one could assume that forestry should be related to climate, being part of the environmental sector, this case study shows that forestry policy during the last twelve years originated as a response to issues of water availability and poverty alleviation, rather than climate change concerns. Globally, forest policy concerns have been part of the environmental policy agenda in many countries for many years; only by mid- 2000s had deforestation and forest degradation been linked to international problems such as sustainability, biodiversity loss and climate change. In fact, the latter GHG emissions inventories show that deforestation and forest degradation account for around a fifth of the global greenhouse gas emissions.215 This turn in the international negotiations, from the Rio Summit in 1992 onwards, has given greater visibility to this policy sector, and has generated a series of incentives and programs to help developing countries take action domestically.

In Mexico this sector differs from energy and transport in the constellation of interests: it includes private interests, old regime party politics, and high-level civil society involvement and indigenous communities. The interaction between these three groups conditioned the mechanisms used by the national executive branch to promote watershed protection and poverty

215 Bert Metz, Climate Change 2007: Mitigation of Climate Change: Contribution of Working Group III to the Fourth Assessment Report of the Intergovernmental Panel on Climate Change (Cambridge: Cambridge University Press, 2007), http://www.ipcc.ch/publications_and_data/ar4/wg3/en/contents.html.

114 alleviation in rural Mexico through reforestation and payment for environmental services programs.

The argument is twofold. First, it shows how new developments in the forestry area occurred in order to strengthen the PAN party’s connection with rural Mexico in a context of changing administrations. The reform relied on using distributive politics that in practice favor the traditional PRI clienteles. PAN politicians’ belief in the intrinsic value of standing forest as well as the possibility to brand this program as climate-related and gain political reputation explains why policies were sustained even after the favoring of PRI. Second, it shows that international resources for climate were not utilized at the beginning of the policy reform.

Rather, the case of forest policy in Mexico demonstrates that international climate resources entered Mexico when domestic political actors decided it was beneficial to them. Then, all actions related to forestry underwent a process of labeling as climate policies, or framing of forest policy as part of an overall mitigation policy, in order to use climate international resources. Forestry policy has managed to reduce greenhouse gas emission more than other sectors in Mexico discussed here, and it has done so mainly through funds and programs created by the executive branch that were conceived for an entirely different political purpose: strengthening the relationship with the rural population.

Context of Forestry Policy in Mexico

The evolution of this policy sector has been analyzed in several studies that include works by Del Angel-Mobarack (2012), Moreno Sanched and Torres Rojo (2010) Klooster (2003) and Veruette (2001).216 These studies emphasized how during the 20th century, Mexico’s forestry

216 Christopher R. Boyer, "Social Landscaping in the Forests of Mexico: An Environmental Interpretation of Cardenismo, 1934-1940," The Hispanic American Historical Review 92, no. 1, Environmental History (February 01,

115 policy was dominated by a tension between the idea of productive forest, as a source of income from forestry products (timber harvesting including forest over exploitation), and the need to clear land for agriculture.217 Neither of these ideas, however, considered the forest itself as having value and needing to be conserved in a sustainable manner.218 For most of the 20th century, sustainably managed forest was not conceived as input for economic development with an impact on Mexican GDP; rather the opposite was true, in that logging by private or state owned companies and extending the agrarian frontier were the guiding aims for state policy intervention. 219 Different presidential administrations differed only in the importance (measured by the amount of land reserved) that they provided to timber products vis-à-vis agriculture. Also, the state differed during the different administrations in its answer to who should benefit from logging and agriculture and cattle ranching production: the state, private companies, or local

2012). Gustavo A. Del Angel, La Comisión Nacional Forestal En La Historia Y El Futuro De La Política Forestal De México (Mexico City: CIDE, 2012); Rafael Moreno Sanchez and Juan M. Torres Rojo, "Decision Support Systems for Forest Management in Mexico," in Decision Support Systems in Agriculture, Food and the Environment: Trends, Applications and Advances, by Basil Manos (Hershey, PA: Information Science Reference, 2010). Dan Klooster, "Campesinos and Mexican Forest Policy During the Twentieth Century," Latin American Research Review 38, no. 2 (2003), doi:10.1353/lar.2003.0018; Jesus Veruette Fuentes, La Economía Mexicana Y La Po•lítica Pública Forestal (1880-•1994), diss., Colegios De Posgraduados, 2001. 217 According to UNEP, 70 percent of total global deforestation in 1990s is attributed to agriculture expansion. UNEP, 2003 Global Environmental Outlook, by UNEP (UNEP, 2003). 218 The FAO defines sustainable forest management as ”the stewardship and use of forests and forest lands in a way, and at a rate, that maintains their biological diversity, productivity, regeneration capacity, vitality and their potential to fulfill, now and in the future, relevant ecological economic and social functions, at local, national and global levels, and that does not cause damage on other ecosystems” FAO, Towards National Financing Strategies for Sustainable Forest Management in Latin America: Overview of the Present Situation and the Experience in Selected Countries., by FAO (2009), 25. 219 According to scholars looking at this specific period, this alliance, however, was not linked to the big economic interests in the PRI and was in many cases inefficient and dependent on import protections. Eduardo Silva, "The Political Economy Of Forest Policy In Mexico And Chile," Singapore Journal of Tropical Geography 25, no. 3 (2004), doi:10.1111/j.0129-7619.2004.00186.x.

116 communities. For the most part, even when timber production was seen as a source of income for the state, forestry policy was an afterthought of national policy, a secondary level policy that required minimal State resources.220

This tension was apparent in a very specific land tenure scheme, inherited from the agrarian reform: community property. This community property in turn could be based on indigenous rights and those granted in the form of ejidos221 covering between them, nearly eighty percent of the forests in Mexico.222 The usage of those lands replicated the agriculture versus forestry tension at different times and places. In some periods some communities favored agrarian activities due to state policy. 223 They responded to existing state incentives that

220 Dan Klooster, "Campesinos and Mexican Forest Policy During the Twentieth Century." 221 Indigenous communities were granted management over land that they had historically held. The Mexican revolution instilled the principle that poverty and inequality were related to concentration of land in the hands of a few. The Agrarian reform distributed property rights using a particular property structure that granted peasants communities the right of usage and usufruct of the natural resources in the land because everyone should be in charge of agricultural production on their lands. The new units of land division, beside the indigenous communities, were the ejidos. Ejidos are communities formed by people, often coming from widely different parts of Mexico who have agreed to manage land in common. This scheme limited the actions and interventions that the state or the private sector could carry out in those territories. This reform was expected to have positive effect on economic development and poverty eradication. Small farmers were to become the engine to economic development in the rural areas. Thus, the federal government promoted the welfare of rural sectors through granting land as a source of income to the population. In theory, any intervention the state proposes in these territories needs to take into account the interests of these communities. This was far from the reality, as it will be described below. 222 David Barton Bray and Peter Klepeis, "Deforestation, Forest Transitions, and Institutions for Sustainability in Southeastern Mexico, 1900-2000," Environment and History 11, no. 2 (2005), doi:10.3197/096734005774434584. 223 Evidence of this principle is found in the fact that during the presidency of Lazaro Cardenas (1934-1940), when the Agrarian reform took place, agriculture expansion took precedence over any other policy concern, and the security of property rights in land was related to making the land productive, which fostered deforestation in favor of agriculture production. For that reason the forest administration was assigned to the Ministry of Agriculture. In the Luis Echeverria era, due to increased peasant discontent, a new distribution of land started and the administration pursued the formulation of the first National Forest Plan 1965-1970. The aim of that plan was to generate new

117 considered that the “proper” use of the land meant clearing it for agriculture and cattle ranching.224 In some areas, particularly in the southern parts of the country, communities had little choice over their lands were dedicated to forestry exploitation. The reason was that even if they knew that they had theoretical claims to the forests on their lands, the government claimed rights to the disposition of forest resources, giving out logging concessions in these areas to private companies and state-owned enterprises. In fact, in some communities alliances formed between the ejidos leadership, the Federal Forest Service, state governors and timber companies where usufruct was concentrated in a few hands, which not only promoted deforestation practices but also increased poverty levels by reinforcing clientelistic relationships between campesions and the state and its governing party, the PRI. 225 In both cases the tension described here led to increased deforestation.

population centers in Tabasco, Veracruz, Campeche and Quintana Roo that would be dependent on land for agriculture and cattle ranching activities, including the creation of a national program for land-clearing (Programa Nacional de Desmonte, or PRONADE). See Gustavo A. Del Angel, La Comisión Nacional Forestal En La Historia Y El Futuro De La Política Forestal De México; Heidi Cedeño Gilardi and Diego R. Pérez Salicrup, "La Legislación Forestal Y Su Efecto En La Restauración En México," Instituto Nacional De Ecología, 2007, http://www2.inecc.gob.mx/publicaciones/libros/467/cedenoyperez.html; 224 When communities were asked why they chose agriculture activities versus forest conservation, the answers refer to the need to “show” that the land was being used “properly,” and make sure that it was not perceived as if the land was left idle. Interview with CONAFOR staff member, July 2nd 2012. 225 The way concessions were set up practically excluded the local communities from the usufruct of their land. Private and state companies took the income generated from the forest outside the communities. They had no obligation to share profits with the communities, except for a small portion or very low stumpage fee. This led to “illegal” and informal access to the forest by the communities that had right over the land. The law governing the ejidos aggravated this situation. The agrarian legislation granted the land property right to only one member of the family. When that member died, the right was not inherited automatically, nor was it possible to split the right between heirs. This restriction increased the number of landless peasants, which in turn led to informal forest access (invading either state, federal or private lands). FAO, La Reforma Agraria Mexicana: Una Visión De Largo Plazo, by Arturo Warman, vol. 2 (FAO Economic and Social Development Department, 2003).

118 In the mid-1970s, however, new members in the government, combined with grassroots mobilizations and academia reshaped governmental forestry policy, moving toward the introduction of community management of forests for the commercial production of timber. This was the first shift in forest policy towards sustainable management of forests. The de la Madrid’s presidential administration ended concessions for timber exploitation and passed the Forest Law of 1986, which strengthened the peasants’ rights over the forest. This law eliminated the concession system and gave control of the land back to peasants, who could also purchase public forest enterprises.226 This law, however, continued to view the forest, and its exploitation as a source of income for the rural communities, including ideas of reforestation or forest plantations as a source of temporary employment. The idea of conserving, protecting, and restoring the forest that we see today, and even the role of forests in mitigating climate change, started to take root only in the following decade.227

These winds of change however did not last for long. During the Salinas de Gortari government, alliances with timber interests, Mexico’s entry into the GATT, and the signing of

NAFTA were all drivers to push for regulatory policy change and the rewriting of the forest law

226 The Forestry Law of 1986 established the basis for the phasing out of concessions and the development of independent ejido forestry cooperatives. It was the result of intense conflict between the concessions and the ejidos. The economic benefits for the ejido had been minimal during prior decades, which led to those communities pressuring the government not to renew concession agreements as they approached their expiration. See FAO, La Reforma Agraria Mexicana: Una Visión De Largo Plazo, by Arturo Warman. 227 In 1983 the Constitution was emended in its article 25th to include the notion of conservation of natural resources which led to the first federal law aiming at protecting the environment enacted in 1984. In 1987, protecting the environment and restoring the ecological equilibrium was elevated to a constitutional level (article 27 and 73), which granted Congress the ability to pass laws on the subject. These were the initial regulations that set the basis for a future conception of the forests in Mexico. For a complete review of the development of the environmental policy in Mexico see Jordy Micheli, "Politica Ambiental En Mexico Y Su Dimension Regional," Region Y Sociedad 14, no. 23 (2002); Jordi Díez, Political Change and Environmental Policymaking in Mexico (New York: Routledge, 2006).

119 (the 1992 Forest Law). This law extended government incentives for plantation forestry, in contrast to community forestry, increased the maximum size of land holdings and created incentive to attract foreign investments. During the same year the administration also pushed for another regulatory change to a constitutional right of the ejidos land tenure system (Article 27).

This change allowed the ejidos to sell land and to create partnerships with the private sector for agricultural land and other uses in addition to forest management.228 Again, the main focus of these regulatory changes was the exploitation of resources rather than conserving the forest.

One thing that continued with force from 1980s was the involvement of civil society groups.229 During Salinas’ government, new peasantry organizations appeared who used public spaces to try to redesign forestry policy.230 These policy proposals sought to foster the conservation of natural resources and recovery of degraded land. At this time, the forestry issue generated growing interest and specialized knowledge by different academic groups, who jointly with international actors after the 1992 United Nations Sustainable Development Conference in

Rio, worked constantly to keep these problems on the policy agenda setting for rural areas.231

228 In a way, this change simply created a legal framework for those actions that had already being happening on the ground. 229 For a detailed description of the civil society evolution in Mexico see Jonathan Fox, "How Does Civil Society Thicken? The Political Construction of Social Capital in Rural Mexico," World Development 24, no. 6. 230 These organizations generated several seminars dialogues, forums where policy makers and different stakeholders redefined the problem for policy making in the forestry area. Some of these organizations include the Mexican Network of Peasantry Forest Organizations (or Red MOCAF), National Unity for Communal Forestry Organization (UNOFOC); the National Union of Regional Autonomous Peasantry Organizations (UNOR-CA), and several organized ejidos. In Gustavo A. Del Angel, La Comisión Nacional Forestal En La Historia Y El Futuro De La Política Forestal De México. 231 Some of these organizations included the National Institute for Research of Biotic Resources (later integrated to the National Ecology Institute), and the UNAM. For a detailed review see Julia Carabias, Javier De La Maza, and Enrique Provencio, "Evolucion De Enfoques Y Tendencias En Torno a La Conservacion Y El Uso De La

120 These organizations were also involved in climate change negotiations internationally, and brought back to Mexico the idea of the potential linkage between climate mitigation and forestry.

Civil society focused on the environment was not a uniform group; rather, this constellation included World Wildlife Fund (WWF), The Nature Conservancy (TNC),

Greenpeace, Conservation International, the Mexican Center for Environmental Law, Mexican

Fund for Conservation, and several regional level organizations like GAIA in Oaxaca, GEA in

Guerrero, and GIRA in Michoacán,232 among other.233 These organizations differ in the beliefs and principles they promote (conservation versus sustainable forest production, community forestry, or subsidized commercial plantations). Some organizations represent constituencies in rural areas and focus on working with the communities; others are activists with a broad membership and focused on increasing awareness. The leadership in these organizations forms the environmental network in Mexico. This is not a community but rather a loose coalition whose constituent groups are sometimes at odds with one another.234 Two broad camps exist within this network: those that seek pro-market solutions to protecting the environment (set a price to environment) and those that rely on community protection of the environment. The common characteristic among all of these members was the lack of perceived credibility of the

Green Party as part of the environmental network. A small group of those organizations interacted with government closely, to the point that the Ministry of Environment drew staff

Biodiversidad," in Capital Natural De Mexico., by José Sarukhán (Mexico City, Mexico: Comisión Nacional Para El Conocimiento Y Uso De La Biodiversidad, 2009). 232 GAIA stands for Autonomous Group for Environmental Research; GEA stands for Group for Environmental Studies; GIRA stands for Interdisciplinary Group of Appropriated Rural Technology. 233 Hubert C. De Grammont, "Campesino and Indigenous Social Organizations Facing Democratic Transition in Mexico, 1938-2006," Latin American Perspectives 36, no. 4, PEASANT MOVEMENTS IN LATIN AMERICA: LOOKING BACK, MOVING AHEAD (July 01, 2009), JSTOR. 234 Jordi Díez, Political Change and Environmental Policymaking in Mexico.

121 from these groups when it was created under Zedillo in 1994. This relationship was institutionalized during the Fox and Calderon administrations.235

Finally, this section cannot conclude without mentioning the role of indigenous communities and their demands in the 1994 Zapatista Revolt in Chiapas. The Zapatista revolt was focused on two central questions: Who controls the land, and what do they use it for? For many years, indigenous groups felt ignored by a state that favored private sector exploitation.

The Constitutional Reform and the entering into effect of NAFTA reinforced the perception of exclusion by the indigenous communities, leading the Zapatistas to rise up against the government.236 While this conflict has continued over the years, its origins emphasize that new policy proposals for rural areas needed to consider these actors in their design.

As this section shows, this sector comprising many stakeholders shows which interests led to policy changes through the last century. Among them are the different levels of government (federal, state and municipal levels), rural communities, private companies, private plantations, academia, civil society organization and international organizations. During most of the twentieth century, the stakeholders with the greatest influence in the formulation of public policies were those whose interests lay in expanding the agricultural frontier and clearing land

(deforesting).237 As such, Mexico’s administrations until 2000 considered any impact on the forest cover change as either a necessary negative externality (the need to increase agricultural land necessitated clearing the forest) and/or a poverty effect (the lack of employment and income in the rural areas led to cutting the forest and planting crops as a source of income and

235 Jordi Díez, Political Change and Environmental Policymaking in Mexico, 162. 236 See more at: http://www.culturalsurvival.org/publications/cultural-survival-quarterly/mexico/ecology-zapatista- revolt#sthash.FnWrUAzI.dpuf 237 Jesus Veruette Fuentes, La Economía Mexicana Y La Po•lítica Pública Forestal (1880-•1994).

122 energy).238 When other stakeholders managed to be heard, mainly environmental group from civil society, the solutions provided were mainly regulatory (the introduction of laws that regulated the use of the forest). Different pieces of legislation were created for protection of the forest,239 recognizing the forest’s intrinsic value on its own: that the forest provided ecosystem services to the population including water, soil conservation, floods prevention, and more recently, carbon sequestration. In practice, the legislation on forestry that opposed economic interests was seldom enforced: no additional resources were assigned to states or to the federal government to hire forest rangers or implement monitoring technology to track forest cover. No federal resources where tied to the changes in law. Since forest areas and woodland covered 72% of Mexican territory in 2000 (or 141.7 million ha), of which 40% was temperate forest and rainforest, enforcement relied on a large number of municipalities that required federal resources to enforce the law. Many municipalities lacked the resources to enforce changes in legislation,240

238The pressure of poverty on the forest has a direct effect on deforestation and degradation, mainly through two drivers: forest becomes a source of income, and forests represent a source of energy for the impoverished communities. With respect to the first driver, the opportunity costs of alternative land uses other than forest management (raising livestock, farming, subsistence agriculture, renting of land for agriculture, logging of precious woods) creates a direct pressure for land use change. The lack of financial services and technical assistance, lack of infrastructure for forest management, lack of capacity of forest owners, high transaction costs in obtaining forest permits, compared to other economic activities such as agriculture and livestock, and the prevalence of agriculture subsidies and livestock promotion programs all are push factors towards land use change to livestock or agriculture in other areas. Also, the poverty levels put pressure on the forests as a source of energy, increasing the demand for firewood and charcoal use to supply household consumption, and to meet the demand of the small local industry (brick kilns, bakeries, leather processing plants and spirits). 239The mean life expectancy of every law was of about 9.5 years. See Gustavo A. Del Angel, La Comisión Nacional Forestal En La Historia Y El Futuro De La Política Forestal De México, 65. 240The lack of capacity of the authorities to control the application of the agrarian and forest legislations in the entirety of their territory meant weak surveillance and no application of the forests and environmental legislation at the local level. For example, while in the 1970s Mexico established forest prohibition that sought to conserve forest by banning the conversion of natural forests to plantations the enforcement rate was almost null.

123 and were unable to control the increases in informal or illegal practices such as leasing, sale of standing timber, and sharecropping, among others. Any changes in forest legislation reverted back to allowing the extension of the agricultural frontier soon thereafter, demonstrating that the priority policies were rural development, agriculture and cattle breeding practices. Forest policy assumed a secondary, if not tertiary, place in the list of priorities.

As a result, Mexico had lost fifty percent of its forests covers (falling from 113 million ha to 56.8 million ha), by the year 2000 according to some estimates.241 Another author calculated that Mexico had lost 8,407,100 ha in the period 1976-1993,242 for an estimated rate of 1.3 percent per year.243 This rate was reduced between 1990 and 2007 to an average of 248,882 ha, or 0.36% per year.244 In total, between 1990 and 2007, Mexico lost 6.13% of its forest cover, or around

4,231,000 ha, due to deforestation and degradation. Different types of forests are affected

241 Jennifer Alix-Garcia et al., An Assessment of Mexico's Payment for Environmental Services Program, technical paper, August 2005, Forest and deforestation in Mexico, accessed November 6, 2012, http://are.berkeley.edu/~esadoulet/papers/FAOPESreport.pdf. 242 Mexico has published data on deforestation from late 1970s onwards. 243 Alejandro Velasquez et al., "Land Use Cover Change Processes in Highly Biodiverse Areas: The Case of Oaxaca Mexico," Global Environmental Change 13, no. 3 (2003). 244 Measuring deforestation has proven to be very complex, and many of the measures today differ in method and objective; as a result the range of estimates runs from 75,000 to 2 million ha lost each year. In Silvia Céspedes- Flores and Enrique Moreno-Sánchez, "Estimación Del Valor De Pérdida De Recurso Forestal Y Su Relación Con La Deforestación En Las Entidades Federativas De México," Investigación Ambiental 2 (2010). This paper uses the data produced by the Food and Agriculture Organization (FAO) and focuses on loss of forest cover excluding other wooded land. FAO. "Global Forest Resources Assessment." Global Forest Resources Assessment. 2005. Http://www.fao.org/forestry/fra/en/.

124 differently, as the behavior of this sector shows that deforestation rates during 1976 to 2000 are estimated at 0.76% for tropical rainforest and 0.25% for other types of forests.245

From 2000 to 2005, this rate decreased to 0.4% of forest cover and from 2005-2010, the rate of deforestation has slowed down to an average of 0.24% for all types of forests.246 The changes in rates of deforestation were the result of changes in the policy dynamic that began in the late 1990s and were consolidated in the 2000s. First, during the Zedillo administration pro- community forestry programs were once again instituted. Federal programs (with assigned funds) were created to implement these changes. In 1995 the administration created a program called PRONARE (Programa Nacional de Reforestacion) to reduce deforestation, focused on reforestation by establishing tree plantations in strategic points around the country. According to interviews, the definition of what was considered strategic for PRONARE responded to poverty levels more than to deforestation levels. Many times, it was associated with steering resources to areas where other programs, like PROCAMPO, had been introduced as a response to NAFTA and its attendant need to modernize agriculture.247 The idea behind tying these two programs together was that modernization of agriculture practices might impact jobs in already impoverished areas, and therefore additional resources were needed to help those areas

245 Jean-François Mas, Alejandro Velázquez, and Stéphane Couturier, "La Evaluación De Los Cambios De Cobertura/ Uso Del Suelo En La República Mexicana," Investigación Ambiental 1, no. 1 (2009): 25, http://www2.inecc.gob.mx/publicaciones/gacetas/604/evaluacion.pdf. 246 According to the Evaluation of World Forest Resources, Mexico had an average deforestation rate of 314 thousand hectares per year, in the 2000-2005 period. In FAO, "Global Forest Resources Assessment," Global Forest Resources Assessment, 2005, accessed March 24, 2014, http://www.fao.org/forestry/fra/en/. 247 Peter Klepeis and Colin Vance, "Neoliberal Policy and Deforestation in Southeastern Mexico: An Assessment of the PROCAMPO Program," Economic Geography 79, no. 3 (2003): 222, doi:10.1111/j.1944-8287.2003.tb00210.x.

125 recover.248 In reality PRONARE became a form of a subsidy to rural populations, reinforcing the

PRI’s support, and which was complemented in the following years with additional programs.

When the new forestry law was passed in 1997 it included new provisions for community forestry. It did so by creating subsidies for forestry development (PRODEFOR) as well as for the development of forestry plantations (PRODEPLAN). The main issue the government was trying to address was the creation of incentives to help producers adjust to the economic changes that

NAFTA created. In line with this idea, in 1997, the federal government invited the World Bank to help them design a program that would reinforce other programs. The Bank approved a loan of US$18 million that focused on strengthening community development and social capital in forestry communities. The program was called PROCYMAF, or Program for Conservation and

Forest Management.249

The Growth of Climate Change Concerns in Forestry Policy

PROCYMAF did not use resources from any climate finance source. In fact, internationally, forestry was yet to be included as an area eligible for international climate resources. However, this program did respond to the logic that prevailed in other sectors:

Mexico’s government decided when and who will assist them with a specific policy area.

At this time, the international community was initiating the discussion of climate change actions, and Mexico presented the proposal to avoid some deforestation as its contribution to the

248 No specific allocation of PRONARE funds per state was found publicly available. Reports from SHCP on PRONARE’s levels of execution more broadly and interviews with CONAFOR personnel confirm that allocation followed a political directive to assign resources to high poverty areas. 249 For a discussion on the relationship between PRODEFOR, PRODEPLAN and PROCYMAF see Dan Klooster, "Campesinos and Mexican Forest Policy During the Twentieth Century."

126 climate problem.250 As described in previous chapters, these actions were excluded from the

Kyoto protocol as possible measures to reduce GHG emissions due to the assumption that these actions would be a cheap way for developed countries to avoid reducing emission.251 As the negotiations evolved, and as a result of inventories showing the greater impact of land use, land use change and forestry (LULUCF) on global GHG emissions, during the Marrakech accord in

2001, reforestation and afforestation were included as possible actions to reduce GHG emissions, with the caveat limiting the amount of credits that could count towards industrialized emission reduction targets. Conservation of forest was perceived and valued in what was later called

“ecosystem services.”252

In the case of Mexico, the inclusion of climate change in national forestry policy was left at a theoretical level with no specific program addressing this linkage. As mentioned in Chapter

2, between 1995 and 2000, the government utilized resources from the US Country Study

Program to create a working group with members from different ministries to discuss issues related to climate and the discussion focused on forest conservation. Members of the different

Mexican environmental organizations mentioned above were part of those meetings.253 These discussions did not foster new programs to increase carbon sequestration or reduce deforestation.

In stark contrast to the policies developed domestically in the forest sector, Mexico’s international position during the 1990s led by SEMARNAT and SRE was to promote emission

250 OECD, Environment Directorate, Institutional Capacity for Climate Change Mitigation in Mexico, by Fernando Tudela (Paris: OECD, 2003). 251 For more information see Sebastian Thomas et al., "Why Are There so Few Afforestation and Reforestation Clean Development Mechanism Projects?," Land Use Policy 27, no. 3 (2010), doi:10.1016/j.landusepol.2009.12.002. 252 Gretchen C. Daily, Nature's Services: Societal Dependence on Natural Ecosystems (Washington, DC: Island Press, 1997). 253 Alix-Garcia et al., An Assessment of Mexico's Payment for Environmental Services Program.

127 reductions based on avoiding deforestation, looking at the great potential for emissions reductions in Mexico, with carbon stock estimates of 24 billion tons of carbon, or the equivalent of three years of global energy related emissions. This rhetoric however did not enter the domestic forestry sector until the mid- 2000s.

The First PAN Administration and Forest Policy

By the 2000s, additional problems in rural areas started to become apparent. Government officials’ were concerned of growing scarcity of water: 66% of the most important aquifers in

Mexico were being overexploited, with an average extraction of 190% above the replacement rate affecting the quality and quantity of water.254 In Figure 5.1 it is possible to see the location of all aquifers that are overexploited, shown in red. Forty percent of the population is concentrated in the areas of water overexploitation. These areas also produce 51 percent of the

GDP.255 For the last fifty years the relationship between population growth and water availability has been inverse, as shown in Figure 5.2, due to the lack of a policy to protect water supply and its main mechanism of recharging the aquifers: protecting the forest.

In this context, other impacts of deforestation, while important, were considered secondary. Some of these impacts include overexploitation of land and degradation, soil erosion, sedimentation in lakes and rivers, loss of soil yields, and loss of biodiversity. Also, the impact of increased rains due to climate change, where forest loss has not being able to serve as a retention

254 Felipe I. Arreguín Cortés, Mario López Pérez, and Humberto Marengo Mogollón, "Mexico’s Water Challenges for the 21st Century," in Water Resources in Mexico: Scarcity, Degradation, Stress, Conflicts, Management, and Policy, by Ursula Oswald (Heidelberg: Springer, 2011), 25. 255 Inter-American Development Bank, Sectores Clave Para La Economía Verde En México, by Carlos A. López Morales (Washington, D.C.: IDB, 2012).

128 mechanism, led to flooding, costing Mexico around US$13 billion from 1970 to 2000 or around

US$ 220 million annually.256

Figure 5.1. Overexploited aquifers in Mexico. CONAGUA, Estadísticas Del Agua En México, by Comisión Nacional Del Agua (Mexico City: SEMARNAT, 2011). Under these pressures, water quality and availability became one of the drivers of policy change. A second driver for forest policy changes had a political dimension. Nearly 25% of

Mexico’s population was living in rural areas in the year 2000, with more than half of them living in conditions of extreme poverty. These prevalent poverty levels in rural areas represented a challenge for the PAN: addressing the demands of the population living in rural areas, and being capable of articulating the interests of these groups through public policies, represented a major challenge to the party’s quest to become a viable governing option. The PAN party, however, had no roots in the rural areas. The PAN had been characterized by a centralized and

256 Protecting the forest helps recharges aquifers by intercepting as much as 25 percent of total rainfall in dense forests. This water returns to the atmosphere by evaporation or is filtered into the soil to recharge underground aquifers.

129 elite-driven structure, and won the 2000 election drawing support primarily from the urban, educated middle class.257

20000 125

16000 100

12000 75

m

m3/p/y 8000 50

4000 25

0 0 1950 1960 1970 1980 1990 1995 2000 2005 2007

Figure 5.2. Relationship between water availability and population measured in millions of inhabitants and cubic meter, per capita, per year (m3/p/y), 1950-2007. Inter-American Development Bank, Sectores Clave Para La Economía Verde En México. The PRI had a clear understanding of the need to connect with rural sectors. For that reason, and in line with the structure that maintained this party in power in its hegemonic period, early on the PRI created the National Peasantry Confederation (Confederacion Nacional

Campesina - CNC) as a way to connect the population to the party organization. This organization acted as a control and support mechanism for the PRI. Other mechanisms used to control the rural areas were the granting of land use permits to the ejidos structure through

Presidential Decree.258

257 Steven Wuhs, "Holding Power: The PAN as Mexico's Incumbent Party," in The Oxford Handbook of Mexican Politics, by Roderic A. Camp (Oxford: Oxford University Press, 2012), 167-186; Joseph L. Klesner, "The July 2006 Presidential and Congressional Elections in Mexico," Electoral Studies 26, no. 4 (2007): 803-808, doi:10.1016/j.electstud.2007.04.002. 258 The president had the authority to approve the membership and activities of an ejidos. This authority led to a situation where communities did not have complete control over the land they had received. In practice this meant that if someone died, the family did not directly inherit the right to the land, and it needed to be endorsed by the

130 The PAN was faced with the challenge of answering the rural sector but it needed to move away from mirroring the structure that the PRI had created for two reasons. First, the party’s platform was to break with old patterns of clientelism and corporativist interest representation. Also, the growth of civil society organizations presence in the policy arena – both international and national organizations- demanded an active role in public policy design, especially in the rural areas. The PAN believed that the best available option was to act on the forestry sector. But it had to work breaking all patterns (not creating an association to articulate interests) and by including civil society ideas and policy suggestions.

Vicente Fox’s first measure in the environment sector was to appoint Victor Lichtinger

Waisman as minister of environment; Lichtinger was respected by the environmental network and who had an established environmental record in Mexico.259 Lichtinger had relations with the environmental group Grupo de Reflexion 25 (G-25), which had been involved in preparing environmental reforms proposals that were later included by the PAN in its campaign platform in the 2000 election. Unlike the left-leaning groups that headed the environment ministry during the

Zedillo administration (led by Julia Carabias) this group’s ideas revolved around on market- based policies that established a price for environmental services. As such, this group advocated

presidential decree. Also, any development of the land that a community wanted to undertake needed to be authorized by the federal government. These are examples of how in practice the peasantry was subordinated to state interests, and through the state to those with greater clout within the federal government, and more explicitly within the ruling party. FAO, La Reforma Agraria Mexicana: Una Visión De Largo Plazo, by Arturo Warman. 259 Fox’s choice had a political consideration. While he won the election in coalition with the Green Party the environmentalists publicly considered that the Green Party didn’t have the credential to lead the ministry (Reforma, July 5, 2000). For such reason Fox decided to nominate someone respected by the environmentalists that could also be accepted by the Green party, as not belonging to the mainstream environmental groups. See Diez, Political Change and Environmental Policymaking in Mexico, 152.

131 policy options that included decreasing water subsidies and payments for using national parks, among other things.

The G-25, Lichtinger, and the transition team defined environment policy priorities for the next few years. In the area of forestry, Lightinger and the G-25 analyzed the policy options within a complex institutional setting inherited from past administrations, taking into account two inputs. First, the World Bank (1995) suggested that the forestry sector’s institutional framework one of the deterrents to advancing in the forestry area. Also, during the last year of the Zedillo administration, the government initiated an effort to generate a long-term plan for

Mexico, looking forward to 2025. This plan, the 2025 Strategic Forest Plan (PEF), was financed with resources from the IDB and the government of Finland, and contained no mention of climate change or the forest’s potential for climate change mitigation. It did underline the need for a more centralized organization that could operate more effectively in this area, the need for restructuring of all the forestry programs, and the need to increase resources allocated to that end, as well as increasing the salience of forest policy by granting it a greater salience in the institutional hierarchy, from a desk task within the Ministry of Environment, to a Directorate in charge of the forestry policy agenda.260 Under this plan, the issue of conserving natural resources was a major priority, and deforestation represented one of the highest threats to that goal.

While the Ministry of Environment initiated the process to implement the PEF recommendations, soon the forestry portfolio was removed from SEMARNAT. A specific institution, the National Forest Commission (CONAFOR), was created, and became responsible for implementing the PEF recommendations. A new law was passed in 2003 that sought to

260 SEMARNAT, "Programa Estratégico Forestal Para Mexico 2025," Programa Estratégico Forestal Para México 2025 (PEF 2025), June 2001, accessed February 25, 2013, http://www.conafor.gob.mx/portal/index.php/acerca-de- conafor/programa-estrategico-forestal-2025.

132 promote Sustainable Forest Development. The Strategic Forest Plan as well as the Sustainable

Forest Development Law, cite poverty and marginalization as the main causes for policy action.261 CONAFOR’s mandate was developing, promoting, and carrying out activities related to the productivity, conservation and restoration of forests. The mission statement of

CONAFOR, however, stated that it seeks to “contribute to raise the quality of life of all

Mexicans” 262 showing the focus on poverty alleviation in rural areas.

The dynamics, and ultimate decision, that led to excluding forestry from the environmental sector were political. The PAN was seeking to reinforce the ties to the rural population, and the leaders of the PAN handling this issue – Vicente Fox, Alberto Cardenas and

Felipe Calderon—, valued the forest for itself. As interviews with political players at the time of building CONAFOR suggested in the PAN leadership Vicente Fox, Felipe Calderon (chair of the

Deputies Block that authorized the Budget in 2001 for CONAFOR) and Alberto Cardenas

(Governor of and latter Head of CONAFOR) were the three players who decided to follow the recommendations of the PEF and defined the establishment of CONAFOR.263 They were all men that understood the value of forest, coming from three states with extensive forest cover, and represented the interior of the center of the country, not the capital. Michoacán and

Jalisco have large tracts of forest lands, Jalisco being among the five states with the greatest extension of forests264 and Michoacán being among the states with greater forest production in the country. 265

261 Ibid. 262 CONAFOR, Estatuto Orgánico De La CONAFOR 2001, 2001, Mission, http://www.conafor.gob.mx:8080/documentos/ver.aspx?grupo=4&articulo=309. 263 Interview with member of the Office of the President Staff, November 16th 2012. 264 Lucia Madrid et al., "La Propiedad Social Forestal En México," Investigación Ambiental 1, no. 2 (2009). 265 Mexico, 2014, raw data, Instituto Nacional De Estadística Y Geografía (INEGI), Mexico City.

133 Moreover, Alberto Cardenas had created a state-level forestry fund during his tenure as governor of Jalisco (1995-2001) that granted employment for reforestation programs, but also income to those conserving standing forests.266 Cardenas’ experience with the forestry fund had shown the impact such action had on employment, as well as on garnering support for the PAN’s reelection in the state, and these were part of his rationale for promoting this action nationally.267

However, these reasons were combined with a deep belief that the forest sector needed to be addressed in a different manner than simply viewing the forest as a negative externality of agriculture production; this issue was one that he continued to pursue during his time as Senator, when he led the passing of the climate change law in April 2012.268

Felipe Calderon, then the majority leader within Congress, held similar personal beliefs, and also stressed a window of opportunity for positioning the PAN as an environmentally friendly party. His father had been a prominent environmental advocate in Mexico, and Calderon mentioned him as a source of inspiration of his work in this sector. The three men worked closely with the secretary of treasury as well as Congress to establish the Payment for

Environmental Services (PES) program.

That the forestry agenda had a political dimension and was not solely a commitment to the environment is suggested by the fact that Fox had a negative relationship with environmental policy more generally. Fox perceived environmental regulation of industry (what is generally called a brown agenda) as detrimental to economic development and growth. Fox dismissed

Lichtinger and his team by mid-2003 and appointed Alberto Cardenas as Minister of

266 Fiprodefo (Trust Fund for the Administration of the Forest Development Program of Jalisco) was created as a mechanism for creating a long term forest development program in Jalisco. 267 Since Cardenas won Jalisco in 1994, the PAN has continuously held the governorship of the state. 268 According to interviews carried about with close advisors, this deep belief comes from Alberto Cardenas’ father’s work with reforestation in Jalisco.

134 Environment, sending the signal to the private sector that environmental policy would promote investment.269 Fox declared in 2004 a regulatory moratorium on all policy areas, with the intention of fostering competitiveness and increasing investment. This moratorium was in effect for two years until April 2005.270 In contrast, the forestry portfolio was strengthened with a new institution and allocation of additional resources. This administration continued the two programs started in the previous years, PRODEPLAN and PRODEFOR, increasing their budget and receiving additional resources from the World Bank to extend PROCYMAF to other regions of the country. In 2002, PRODEFOR’s budget was around US$27.6 million, or greater than the budget it received in the previous four years combined.271

The Implementation of the Payment for Environmental Services

The PES program goal was to prevent deforestation in poor and marginalized areas. The applicants would receive a five year contract with CONAFOR and receive a payment each year for the forest that was conserved. The Mexican Forest Fund, a mechanism created in the new

General Law or Sustainable Forest Development, finances this program.272 The rules of operations initially (until 2006) allowed for the funds to be distributed on a first-come-first- served basis. In contrast to the principle of marginalization and curbing deforestation, stated in the program design, the execution of the PES allowed for any rural organization, including lands under timber harvest, to apply for funding. Climate change mitigation was not part of this design

269 Reforma, Mexico City, September 4, 2003. 270 Angelica Enciso L., "México: Errónea, La Moratoria Del Gobierno Federal En Materia De Medio Ambiente," B I O D I v E R S I D a D, June 3, 2004, section goes here, accessed February 25, 2014, http://www.biodiversidadla.org/layout/set/print/content/view/full/9227. 271 David B. Bray, Leticia Merino-Pérez, and Deborah Barry, The Community Forests of Mexico: Managing for Sustainable Landscapes (Austin: University of Texas Press, 2005). 272 Alix-Garcia et al., An Assessment of Mexico's Payment for Environmental Services Program.

135 until Calderon’s administration. As a result, many of the forest lots enrolled, and granted funding in the program did not have a large deforestation risk.

As seen Table 5.1 the states that have received the greatest amount of resources, as measured by allocation per capita, did not respond to a technical logic of high deforestation or a low human development index (except for Oaxaca). As confirmed by interviews, the allocation responded to political directives that the technical staff received in each CONAFOR state office.273 The process originated with individual applications at each state, reviewed at the state level CONAFOR office. These reviews determined which application reached the national level revision and final resources allocation.

Interviews suggested, that although each year CONAFOR published rules of operation establishing specific criteria,274 there was a self-selection bias in the process, because only those that had the technical capacity to apply to the program would do so. For that reason, it is not surprising that in the initial years Durango received the largest amount of resources: this state has the highest production of timber in the country (around 1.7million m³r in 2009), most of

Mexico’s timber companies are located there, and thus companies have the information availability necessary to apply for the program. This fact reduced the effectiveness of the program by allocating resources based on first-come-first-served basis, rather than on deforestation risk.

An additional dynamic –favoritism—increased the complexity of reaching the main goals. When state governors saw that applicants needed technical expertise, they assigned teams

273 Interview with CONAFOR staff member, July 2nd 2012. 274 While this mechanism was sought to provide transparency in the resources allocation because the rules of operations are decided in a public forum, different authors have questioned the effective applicability of those rules. See for example Alix-Garcia et al., An Assessment of Mexico's Payment for Environmental Services Program.

136 of experts to help applicants they knew, and “misplaced” those applications that belong to different parties. An interviewee said: “In some states we knew that applications were put in a draw (cajoneadas) while others moved to the top of the pile.”275

Table 5.1 Allocation of PES resources by state, 2003-2005

State PROFEPA Expectation Allocation 2003- Allocation State HDI Critical Zones of 2005 per capita Governor’s with HIGH Allocation Party in Deforestation Between (municipalities) 2004- 2006 Aguascalientes 0 (0) NONE $ 918,000.00 0.97216 PAN 0.7483 Baja California 3 (2) LOW $ 5,252,710.10 2.11176 PAN 0.7697 Baja California 4 (4) MEDIUM PRD 10.93553 0.7904 Sur $ 4,637,114.61 6 (5) MEDIUM PRI 2.93733 0.7281 Campeche HIGH $ 2,028,783.00 6 (40) MEDIUM PRD 3.32835 0.646 Chiapas HIGH $ 13,050,082.35 Chihuahua 2(9) LOW $ 22,897,771.70 7.50032 PRI 0.7535 Coahuila 5 (14) MEDIUM $ 11,745,283.10 5.11093 PRI 0.7553 Colima 0 (0) NONE $ 5,609,126.09 10.33698 PRI 0.759 Distrito Federal 1 (5) LOW $ 8,946,888.00 1.03970 PRD 0.8272 Durango 3 (3) LOW $ 38,897,354.12 26.85056 PRI 0.718 Guanajuato 0 (0) NONE $ 2,727,206.43 0.58486 PAN 0.7041 6 (31) MEDIUM PRD 1.13747 0.6677 Guerrero HIGH $ 3,503,000.00 Hidalgo 3 (17) LOW $ 103,087.83 0.04611 PRI 0.7073 Jalisco 3 (23) LOW $ 23,629,777.95 3.73770 PAN 0.7393 6 (24) MEDIUM PRI 0.37467 0.7383 México HIGH $ 4,906,994.48 Michoacán 5 (21) MEDIUM $ 13,811,110.96 3.46519 PRD 0.6873 Morelos 3 (3) LOW $ 4,544,702.61 2.92208 PAN 0.7445

275 Interview with CONAFOR staff member, January 23rd 2013.

137 Nayarit 3 (7) LOW $ 7,499,157.17 8.14962 PRI 0.7315 Nuevo León 3(6) LOW $ 3,414,829.57 0.89064 PRI 0.7847 Oaxaca 5 (15) MEDIUM $ 55,906,490.50 16.25772 PRI 0.6675 6 (31) MEDIUM PRI 2.25659 0.6977 Puebla HIGH $ 11,456,003.26 Querétaro 2 (8) LOW $ 6,494,590.17 4.62477 PAN 0.7493 Quintana Roo 3 (4) LOW $ 239,261.74 0.27345 PRI 0.7506 San Luis Potosí 3(18) LOW $ 15,126,977.40 6.57878 PAN 0.7109 Sinaloa 2 (10) LOW $ 8,478,646.96 3.34220 PRI 0.7528 Sonora 4 (8) MEDIUM $ 4,016,345.22 1.81164 PRI 0.772 Tabasco 0 (0) NONE $ 377,400.00 0.19949 PRI 0.7242 Tamaulipas 0 (0) NONE $ 6,078,539.13 2.20779 PRI 0.7529 Tlaxcala 0 (0) NONE $ 608,250.00 0.63185 PAN 0.7159 Veracruz 9 (63) HIGH $ 22,867,663.73 3.30985 PRI 0.6985 Yucatán 1 (1) LOW $ 4,631,840.87 2.79328 PAN 0.7227 Zacatecas 3 (11) LOW $ 888,983.22 0.65675 PRD 0.7057 Total $ 259,283,594.92 Source: Author’s elaboration using date from CONAFOR, PROFEPA 2002, INEGI 2002

Figure 5.3. Municipalities with critical rorestation zones by state. SEMARNAT 2002 http://www.paot.org.mx/centro/ine-semarnat/informe02/estadisticas_2000/informe_2000/

138 Even when Fox, Calderon, and Cardenas viewed the program as a political tool, the later design and implementation did not yield the results expected. As seen in Table 5.1 those states that received the largest amount of resources were under PRI rule, and the lack of progress in reducing deforestation led to local civil society groups questioning the programs and requesting the Supreme Audit Institution to review the use of the funds.276 The design accomplished one of the goals, but also led to support for legislative action in a context of divided government. While the PAN leaders wanted the PES to generate an electoral connection with rural populations, an additional goal for the PAN was to be able to pass legislation and approve yearly budgets. The

PES resource flows to PRI states helped the PAN by providing governors, and their legislators’ support in Congress.277

From a technical point, deforestation was still a priority within SEMARNAT. An additional program was launched to attempt to curb the rather limited results of the PES in curbing deforestation. PROCOREF (Conservation and Restoration of Forest Ecosystem

Program) was established in 2004, a successor of PRONARE. This program under the supervision of CONAFOR, was aimed at reforestation as a subsequent program to the old

PRONARE. The program’s goals were not achieved since the targets this program had (170,000 hectares per year) were overly ambitious, set at half CONAFOR‘s estimation of the rate of deforestation (367,224 hectares per year).278 In addition, CONAFOR’s evaluation of this

276 R. Garduño and E. Méndez, "Auditarán Plan De Reforestación Por Supuesto Desvío De Recursos," La Jornada, June 19, 2008, section goes here, accessed February 25, 2014, http://www.jornada.unam.mx/2008/06/19/index.php?section=sociedad&article=043n1soc. 277 Interview with member of the Office of the President Staff, November 16th 2012. 278 Silvia E. Céspedes- Flores and Enrique Moreno- Sánchez, "Estimación Del Valor De La Pérdida De Recurso Forestal Y Su Relación Con La Reforestación En Las Entidades Federativas De México," Investigación Ambiental 2, no. 2 (2010): 9, http://www2.inecc.gob.mx/publicaciones/gacetas/641/estimacion.pdf.

139 program found that the rate of survival of planted trees was 55%279 making a clear case that a revision of these programs was in order if Mexico wanted to reduce deforestation.

Beyond the level of success of the forestry programs, the Fox administration marked a breaking point with previous administrations. The federal government considered for the first time policy options that placed value on standing forest as a way to respond to issues of water availability. It analyzed the option of payment for environmental services to protect water supplies. This program was designed under the assumption that land use change could be prevented if conservation could become a source of income for individuals, increasing the opportunity cost of informal logging. In promoting conservation two goals were pursued: increasing income levels and reducing deforestation. The initial program was focused on hydrological environmental services, emphasizing the quality of watersheds. CONAFOR took over the final design and implementation once it was created in 2001, and it was finally launched in 2003. By 2004, carbon capture was incorporated in the program, marking the first time that climate change mitigation was a consideration in the design of a forestry program in Mexico.

The results achived by the FOX administration were mixed. As seen in data from FAO, deforestation continued to be prevalent. However, the Fox administration was pivotal in creating sufficient knowledge and institutional capacity to start tackling the problem with tools and relevant information that were rooted in a different conception of the forest. The monitoring and evaluation capabilities of Mexico, housed within CONAFOR, increased during these years, setting the basis for a policy that would take into account technical information on drivers of

279 As a reference point, Brazil has managed to obtain a 77% rate of survival in reforestation programs. See Gustavo A. Del Angel, La Comisión Nacional Forestal En La Historia Y El Futuro De La Política Forestal De México, 140; Betina O. Bruel, Márcia C. M. Marques, and Ricardo M. Britez, "Survival and Growth of Tree Species under Two Direct Seedling Planting Systems," Restoration Ecology 18, no. 4 (July 2010): 414, doi:10.1111/j.1526- 100X.2009.00634.x.

140 deforestation and effective design of reforestation programs. A policy design governed by a political dynamic was slowly replaced in the following years by a knowledge-driven policy design.280 In terms of political drive for these decisions, Fox seemed to have been more concerned with improving the PAN’s political position in rural areas.

However, while deforestation had declined slightly, reforestation also decreased during these years, even when a new program was implemented and resources were dedicated to this end. Poverty levels continued to be prevalent, and the PAN did not gain much support in the rural areas for the 2006 elections. Its base continued to be drawn from urban and industrialized areas. From a rational standpoint, it would have made sense to continue pursuing these goals, but giving the slim success in terms of outcomes of the PES, it would not continue investing heavily on this area. However, the Calderon administration chose a different path of action, as his administration more than doubled the resources allocated to this sector. In fact, he launched the

PROARBOL initiative as an umbrella program for all forestry programs and promised to reforest.

From the international perspective, although climate change mitigation, (or in the specific case of forestry, carbon sink) was not part of the original driver for the decision making process to create CONAFOR and all the programs within the Commission, the administration did consider the effect that deforestation would have on the quality of the environment, including

GHG emissions, as one of the elements included in the justification for action since 2004.281 The role of the international climate community however, was only to come into play during

280 As it will be pointed out later on, a fact that demonstrated this shift is that the head of CONAFOR was designed by its knowledge of the forestry sector rather than on political ground in 2009. 281 Jorge L. Chagoya and Leonel I. Gutiérrez, "Esquema De Pago Por Servicios Ambientales De La Comisión Nacional Forestal, México," CATIE, section goes here, accessed February 2013, http://orton.catie.ac.cr/repdoc/A3827e/A3827e.pdf.

141 Calderon’s years. Until then, international funding for these actions was minimal. None of the

MDBs or international organizations were directly involved in the creation of CONAFOR, aside from small contributions from the IDB, the Finnish Cooperation Agency, and Fundación Chile.

According to interviews “the sector didn’t want to deal with the hassle” and “they didn’t see any additional value to using resources from these institutions.”282 The ideas and design of the funding mechanism came from the party itself and from the groups in the environmental network that were aligned with the PAN.

The policy measures that were adopted, including the allocation of federal fiscal resources, sought to conserve the forest as a source of key environmental services mainly related to water quality and availability, leaving aside any consideration of potential international co- benefits such as carbon sequestration. The logic behind the focus on local impacts (water availability) was that it would be easier to charge a price to recipients of the environmental services for services they are receiving. The original idea of how to constitute the PES fund was that the funding would come from users of the water that forest produce and protect.283 A by- product of these actions was the mitigation of GHG emissions contributing to reaching the climate targets. Calderon recognized that and took advantage of existing programs to position

Mexico as an exemplary case and an excellent recipient for the new instruments being created for international climate funding of forests.

282 Interview with SHCP staff member, March 15th 2013. 283 Alix-Garcia et al., An Assessment of Mexico's Payment for Environmental Services Program.

142 The Calderon Administration and the Branding of Forestry as Climate Change

Calderon took office in the midst of controversy, with electoral results that only favored his victory by 0.58%.284 This slim margin of victory was a driver to seek legitimacy internally and internationally. At the same time, deforestation levels continued at a rate of 0.4% yearly,285 despite CONAFOR’s reforestation programs. This fact, together with the allegation of misuse of public funding for political reasons, led Calderon to restructure the forestry programs into one new umbrella: PROARBOL. The rules of operations published by the administration incorporated different criteria from 2007 onwards. The new allocation criteria followed a point system, in which all the applications were graded and sorted accordingly.286 Allocation would begin with those applications that received the highest number of points, and continue down the list until the budget has been expended. The points related to the potential of poverty reduction and/or reduce deforestation received the highest weight. In this way, the administration tried to reduce the degree of discretion exercised (and abused) under the previous system. The administration increased the Mexican Forestry Fund’s budget to ten times the initial budget

(from around US$20 million in 2001 to US$117 million in 2006). The overall budget of this program was increased more than 16 times, totaling more than US$520 million by 2011.287

CONAFOR’s programs reforested a total of 250,000 ha in 2007 with 2.5 million trees planted reaching the set target of the Plan Nacional de Desarrollo 2007-2012. On the other hand,

284 Mexico, 2014, raw data, Instituto Federal Electoral (IFE), Mexico City. 285 Jean-François Mas, Alejandro Velázquez, and Stéphane Couturier, "La Evaluación De Los Cambios De Cobertura/ Uso Del Suelo En La República Mexicana," Investigación Ambiental 1, no. 1 (2009), http://www2.inecc.gob.mx/publicaciones/gacetas/604/evaluacion.pdf. 286 Helena Garcia Romero, "Field Actions Science Reports," Payments for Environmental Services: Can They Work? 2012, accessed December 4, 2012, http://factsreports.revues.org/1711. 287 Forest Investment Program (FIP), Mexico Investment Plan (Climate Investment Funds, 2011).

143 the Program of Payment for Environmental Services helped avoid deforestation in around 3.27 million hectares since its creation in 2003. These PROARBOL accomplishments where included in the National Climate Change Strategy as well as included as part of the PECC commitments in the 2009-2012 period.

As interviews suggested, when the administration designed the PECC it asked all sectors to include those actions that had shown success, and would continue implementation in the years to come. Within CONAFOR officials were doubtful of the actual emission reduction that the program would have, give the past problems with targeting the program to high risk of deforestation. However, they were requested to include and design a methodology to calculate potential GHG emission reductions. In the words of one staff member “ we had to search for numbers that would validate emission reductions, we didn’t know what we were doing.”288

400,000

350,000

300,000

250,000

200,000

150,000

100,000

50,000

0

2001 2011 2002 2003 2004 2005 2006 2007 2008 2009 2010 2000

Figure 5.4: Reforested area 2000-2011 (in ha). Instituto Nacional De Estadística Y Geografía (INEGI).

288 Interview with CONAFOR staff member, January 23rd 2013.

144 Many of the problems of implementation remain unaddressed, hindering the achievement of the initial target of 50 million ha to be protected,289 and while an increase of the rate of reforestation was achieved in 2008, this rate of reforestation has tended to decline in recent years, as shown in Figure 5.4. In addition, trees planted by the reforestation programs continue to have a rate of survival of around 50% until 2009. However, in 2009, Calderon designated a new director of CONAFOR, Dr Torres Rojo, instructing him to redefine the goals of the programs toward a primary emphasis on reducing deforestation over poverty reduction. This way, the constant tension between these two principles was resolved for CONAFOR’s administration.

Torres Rojo focused the subsidies linking them to methodological criteria for deforestation risks, adding to the PES programs rules of operations a new administrative program document called: Focalization, Protocol and Methodology, which would serve as the yearly basis for identifying priority areas of work. In this way, the director sought to shield the program from favoritism in the allocation of resources.290

PROARBOL and the Virtuous Cycle of International Resources

This reorientation of the forestry programs occurred within a changing international climate regarding emissions reduction from GHG emissions. The issues of deforestation, forest degradation, conserving and enhancing forest carbon stocks and sustainably managing forest

(REDD+) started to emerge as central to the international climate negotiations since the

Marrakech accords in 2001. Only when industrialized countries like Norway committed specific

289 Jorge L. Chagoya and Leonel I. Gutiérrez, "Esquema De Pago Por Servicios Ambientales De La Comisión Nacional Forestal, México," CATIE, accessed February 2013, http://orton.catie.ac.cr/repdoc/A3827e/A3827e.pdf. 290 CONAFOR, Protocolo De Focalizacion 2011 (Mexico City: CONAFOR, 2010).

145 resources for the forestry sector and REDD in 2007, did the issue of REDD+ take root in concrete actions and programs around the world.291

The Calderon administration saw an opportunity in the international developments related to REDD+ and worked to tap into all the different instruments related to forestry, based on the accomplishments of PROARBOL 2007. The opportunity Calderon saw was to bring additional resources to the country and position him as a global leader on the climate agenda.

Calderon ordered his team in the Ministry of Environment to work towards preparing a

REDD+ National Strategy, by branding actions already in place as part of an overall goal to reach zero net emissions related to land use change and make important reductions in degradation rates by 2020. The background studies were presented in the COP 16 in Cancun as evidence that Mexico was committing to reducing GHG emissions from LULUCF.

The fact that Mexico showed results with PROARBOL were crucial to Mexico being part of all the different mechanisms being created in the last five years. For instance, Mexico’s successes granted it access as a member of the Forest Carbon Partnership Facility (FCPF), where

Mexico could access up to US$5 million in grant resources for planning activities around

REDD+. It became a UN-REDD partner country, where as a policy board observer, it participated in defining the criteria applied to developing countries. Under the FCPF, its

Readiness Plan Idea Note was accepted in 2008 and its Readiness Preparation Proposal was evaluated and approved by the FCPF in 2010, to use grant resources.

Finally, in 2011 other resources that Mexico was able to access, due to its accomplishments with PROARBOL, included concessional funding from the Forest Investment

Plan (FIP), a financing window of the CIFs. The FIP committee chose only three countries in

291 Esteve Corbera and Heike Schroeder, "Governing and Implementing REDD," Environmental Science & Policy 14, no. 2 (2011): 90, doi:10.1016/j.envsci.2010.11.002.

146 the Latin-American region: Brazil, Peru and Mexico. Mexico was able to secure US$50 million of concessional financing for community forestry that fostered carbon sequestration.

Thus, international climate resources linked to forestry actions started to flow to Mexico as a result of an initial investment and actions by the government, and thereafter the different climate regime complex actors seeking involvement in Mexico further reinforced the virtuous cycle of international climate finance. At the same time, the government used all the possible venues to take the most advantage of multiple actors, and used forum-shifting from FCPF-FIP-

UN-REDD to increase resources flow to Mexico under the best conditions possible.292

The case of the forestry sector highlights one possible dynamic in reaching climate- sensitive policies. Today one of the main contributors to changing Mexico’s emissions path is the combination of reduced deforestation rates and increased reforestation targets. Mexico initiated its action in the forestry sector following a belief that rural poverty and water quality were policy problems that needed to be addressed. The policy output, payment for environmental services, created in 2003, was funded with domestic resources, under the belief that such mechanism would contribute to solving multiple domestic problems (decreasing rural poverty and ensuring the protection of clean water supply). The availability of resources that either proponent and opponents groups of this policy option were domestic in nature, and international financing was not seen as adding value to the forestry agenda initially293 or as possibly aiding (or indeed, being necessary for) the construction of alliances across different groups, as seen in other sectors. These actions responded to domestic policy negotiations in Congress, where formal legal authority (the administration establishing a Forestry Institution, CONAFOR), capacity to establish financial resources for this policy output (national funds), information and skillful

292 Interview with member of the Ministry of Foreign Relations, May 20th 2013. 293 Interview with SHCP staff member, March 15th 2013

147 leadership played an important role. Only when international resources could complement what started with CONAFOR (2003) and later revamped with the reforestation program called

PROARBOL (2007), and increased it salience nationally within the National Climate Change

Plan (PECC), in 2009, did Mexico start accepting international support (2011) for forestry actions as a way to ensure the continuation of policies that served the pro payment for environmental services coalition and positions Mexico as a leader in climate change actions, under the PAN administration.

Conclusions

One of the main contributors to reaching a change in business as usual emission levels is the forest sector. The expected mitigation level, the change in emission levels Mexico should undertake according to the PECC, was calculated at 51 MtCO2 by 2012. This mitigation would be a result of implementing 86 targets, with 22 of those targets representing almost 80% of the

GHG emission reductions. From those major targets, analyzed in the independent evaluation, six are related to the forest sector and one institution is responsible for reporting on those targets: the

National Forest Commission (CONAFOR). These targets represent more than 30% of the mitigation targets set for Mexico in 2008.

In 2012, the independent evaluation found that Mexico mitigated above the established target, reaching a total of 52.76 MtCO2 or 104% of its set objective.294 In other words, Mexico managed to mitigate and change its emission levels in the four years of the PECC implementation, of which almost a 33% was attributed to the actions in the AFOLU sector, which include agriculture practices, forestry, and land use change. Alternatively, reports on

294 Instituto Mexicano Para La Competitividad, "Evaluacion Del Programa Especial De Cambio Climatico;" SEMARNAT, Climate Change Actions in Mexico.

148 reforestation efforts show that Mexico has managed to recover almost 2.1 million ha through reforestation programs and reduced deforestation from 354,000 h, between 1990 and 2000, to

155,000 ha in 2010.295

Table 5.2 Reforestation and deforestation rates in Mexico: 1990-2010

Yearly National Deforestation Yearly National Rate Reforestation Rate 1990-2000 354,000 ha 192,000 ha 2000-2005 314,000 ha 180,412 ha 2005-2010 155,000 ha 246,454 ha Source: FAO. "Global Forest Resources Assessment". Global Forest Resources Assessment. 2005. Http://www.fao.org/forestry/fra/en/; FAO, "Global Forest Resources Assessment," Global Forest Resources Assessment, 2010, Http://www.fao.org/forestry/fra/en/; SEMARNAT, Cambio Climático: Una Reflexión Desde México. These numbers raise the question of what had led to such a successful outcome and whether international factors as well as climate change commitments contributed to it. Analyzing what lessons can be drawn from the Mexican case –for example, what are the micro-dynamics that explain this seeming success— can shed light on whether and how climate change policy can be composed of, or complemented by, ongoing policies.

Analyzing the evolution of this sector, these changes reflect new challenges faced in the rural areas, the entry of new actors into the policy arena and the changing international context.

The PRI’s policy decisions can be explained by their seeking continuation of support to the governing party, by fighting poverty, seeking to generate employment and their ties to the agriculture and timber interests that did not perceive intrinsic in value in the forest. While some of these programs were used by Mexican negotiators internationally with regard to mitigation actions (the reforestation programs for instance), the ideas promoting such interventions had little to do with climate change and more to do with community strengthening as a vehicle to

295 SEMARNAT, Cambio Climático: Una Reflexión Desde México.

149 fight poverty, by generating employment, income and development of human capital. In particular, the policy did not hurt strong interest, but rather helped maintain the support of existing bases of the PRI. In the 2000s, the PAN used these policy options as a way to increase rural support. Curbing climate change became a positive, but unintended consequence, of forestry policy; to use economic terminology, this was a positive externality of forestry policy.

Recalling the hypotheses tested, it is possible to see how well they apply with the forestry sector case:

Climate-sensitive actions, which result in GHG emissions reduction, are adopted as a result of domestic dynamics of the policy process in different sectors rather than as a consequence of climate negotiations and international commitments associated with those negotiations. In the case of forestry, actions were taken to respond to problems of rural poverty, water quality, and deforestation. The PES program was a measure to increase available income of the rural population, while conserving standing forest. Carbon sinks and climate change mitigation potential were only included later in the program’s mission: only when GHG mitigation was perceived as helping ensure resources to execute the program, was climate change included in the program criteria.

As hypothesis 2 argues, the adoption and implementation of these actions were not based on the potential for larger GHG emission reduction. In fact, the selection criteria of areas and plots eligible for the program were less related to the risk of deforestation and more to prevalent poverty levels. Higher impact could have been achieved if the targeting of the program was done to curb deforestation; but in this case, such targeting was abandoned when these measures were perceived as counter to poverty reduction. In fact, many times the execution responded to political rationales.

150 Hypotheses 3 and 4 refer to the types of actions (administrative vs. legislative) that a government uses in the context of divided government. The hypotheses argue that the solution to problems that rely on local actions may be delayed because joint jurisdiction increases the complexity of climate-sensitive actions. However, this case shows that the original intent not only responded to a domestic problem but also a political problem: increasing the PAN electoral connection at a national level. As such, the timing of this action runs counter to the hypothesis, being the first of the three sectors to reduce GHG emissions. Also, it quickly relied on legislative actions, again due to its political dimension. Nonetheless, the proposed legislation included the ability to apply distributive politics. The new law included the establishment of the Mexican

Forest Fund and granting the use of the PES resources in a highly discretionary way. This mechanism allowed for distributive politics benefiting the parties in state government, rather than the national government.

Once the political gains were domestic , then the new Calderon administration continued to promote reforestation, creating an umbrella program, , PROARBOL, that could grant better results by establishing stricter criteria for implementation. The changes were carried out through administrative decision (yearly PROARBOL rules of operations), making legislative support unnecessary.

Finally, this sector did not present a lot of organized resistance, but rather showedwider support. Mexico did not include international climate resources at the beginning of the program to influence the different actors and groups within the forestry sectors to promote reforestation and PES programs. There was no need to convince the “opposition.” The environmental groups differed on how to protect the environment, but not on the principle of protecting the environment. Therefore, at the beginning of the process there was no necessity for international

151 climate finance. When it appeared that resources could be gained by branding forest policies as climate change related, and those resources could position Mexico as a leader in this agenda, the government initiated the process of including these actions as part of Mexico’s commitment to reduce GHG emissions, and branded PROARBOL as such, harnessing more international resources from new funds such as CIFs and REDD+.

Finally, Felipe Calderon promoted PROARBOL as part of the overall climate policy because he saw the climate policy as a platform to increase his standing internatioanlly with no political costs at the domestic level.

152

Chapter 6: Climate and Electricity Generation in Mexico

This chapter aims to explain the motivation for opening the Mexican electricity sector to renewable energy sources, the strategies that allowed this, and its connection to climate policy.

The focus is on the mechanisms used by the executive branch to promote a gradual energy reform as a result of a domestic problem: increasing energy demand within fiscal shortages.296 It will also consider the effects of organized interests such as unions and parties on the pace of reform. It will show that the limitations on private investments in energy and electricity generation embedded in the Mexican constitution created a dilemma; how to overcome projected energy demand without creating political resistance. As such, renewable sources of energy were initially promoted as a response to a growing demand for energy, with the additional incentive of accessing concessional financial resources. While having only marginal impact on the fulfillment of real energy needs, renewable energy opened up the possibility to help position

Mexico as a leader on climate change actions, further reinforcing the virtuous cycle of international resources. However, in terms of climate change mitigation this strategy falls short of tackling the main source of GHG emissions from the energy sector in Mexico: the inefficiencies of the state oil company Petroleos Mexicanos PEMEX.

296 This chapter will not address policies and measures for energy efficiency. While these measures have contributed to decoupling economic growth from GHG emissions, they are less interesting politically, as there are no constellations of interests opposing such measures. In fact, these measures are considered the low hanging fruit that all countries should adopt to initiate the process of GHG emission reductions. For a description of the impacts of energy efficiency measures in reducing GHG emissions, see Luis Miguel Galindo, "Short- and Long-run Demand for Energy in Mexico: A Cointegration Approach," Energy Policy 33, no. 9 (2005), doi:10.1016/j.enpol.2003.11.015. For the role of energy efficiency in GHG emission reduction see Michael P. Vandenbergh, Jack Barkenbus, and Jonathan Gilligan, "Individual Carbon Emissions: The Low-hanging Fruit," UCLA Law Review 55, no. 6 (August 2008).

153 In addition this chapter will show that the always contentious blame generating policies surrounding the constitutional status of the oil industry, the interests of the workers, and the struggle for power under divided government and federalism provided limited openings for action by IFIs. A change in this dynamic was the national leader’s drive for international recognition, which allowed for increased involvement of international climate resources.

The overall pattern shows that during the 1990s the executive branch was able to reform the energy sector slightly, by linking these reforms to international agreements (NAFTA), and by using the privileged position of a unified government to reduce resistance to reform by organized interests such as CFE, PEMEX, and the unions linked to those companies. Political changes in

1997 and 2000 created a new dynamic between parties, a government split between Congress and the executive that led initially to an increased use of administrative resources, which opened new possibilities for using new sources of energy for electricity generation. When legislative changes became necessary to overcome the resistance of entrenched monopolies, the new legislation included a component of distributive politics that allowed state governors to tap into additional resources. These reforms towards renewable energy sources were in turn utilized as a means to position Mexico internationally as a front-runner in low-carbon development.

Context of the Mexican Power Sector

The Mexican power system in the 19th century was originally privately owned, organized in vertically integrated monopolies. With the Mexican revolution in 1917, electricity supply started to be associated with the concept of sovereignty. The PRI created the Comisión Federal de Electricidad (CFE), the regulatory entity which governs any investment in energy in energy, as part of the process of consolidating the party’s power over the whole of national territory.

Electricity was vital to the government and to the PRI, for the services provided as well as the

154 union linked to this sector. In 1960s a constitutional amendment to Article 27 nationalized the electricity industry, giving the government “exclusive responsibility” for generating, transmitting, transforming, and distributing electricity. It reserves the ownership and exploitation of domestic hydrocarbons for the Mexican state. The government also created the Compañía Luz y Fuerza del Centro (LFC) as the electricity supplier for Mexico City and the centeral region.

With the introduction of these two companies, the government excluded the private sector completely.

Electricity supply to cities and rural areas became a political goal which left economically efficient fee structures aside. The state set up CFE and LFC to operate inefficiently, as low tariffs for end users reinforced the PRI, these companies, and their unions’ political power. These companies were part of the state patronage system installed by the PRI, used to political appointments and a source of political support by the population.

In 1975 the Law of Public Service of Electricity (LSPEE) was passed, completing the nationalization of the electric industry in Mexico. This law established that CFE and LFC were the sole public suppliers of electricity, justifying this because only the state was seen as able to deliver electric services equitably.

Electricity demand was growing in tandem with the growing population and annual GDP; investments in generating capacity investments were up to the challenge until 1970s. The SHCP authorized infrastructure investments and subsidized lower tariffs. In fact, it is likely that seems that capacity was over built since reserve margin297 were greater than 30% throughout the period from the 1970s to 2002.

297 Reserve margin is defined as available capacity over and above the capacity needed to meet normal peak demand levels. Reserve margin and reserve capacity are synonymous. For a producer of energy, it refers to the capacity of a producer to generate more energy than the system normally requires. For a transmission company, it refers to the

155 By the 1980s, however, this model became financially unsustainable. Implicit subsidies to retain lower fees in the power sector were around US$1.5 billion per year between 1974 and

1989. The debt crisis in 1982 was the initial sign of needing to stop the drain on public finances, while the financial crisis of 1982 reinforced the urgent need for reforms in the public budget and reducing costs, including the subsidies to the power sector. In the early 1980s the electricity sector was running a deficit of 2.4% of GDP. CFE, LFC, and the unions responded to discussion of much need reforms with steadily increasing opposition. These interest groups’ leverage was evident in the fact that electricity and oil seemed to be immune to privatization. In fact, any argument for opening space to private investors was fiercely rejected as a betrayal of the country’s sovereignty to favor foreign investments.298

Successive financial crises in the early 1990s, the negotiating of the Trade Liberalization

Agreement with the US and Canada (NAFTA) in 1992 and the World Trade Organization (1994) restricted the level of debt state-owned enterprises could take on. This limited CFE’s ability to expand its capacity to keep with raising demand. It also had few options: it could not raise fees, and it could not lower costs, because this could mean shrinking its size, an option to which the unions were opposed. It could and did tap onto already existing plants, such as geothermal

capacity of the transmission infrastructure to handle additional energy transport if demand levels rise beyond expected peak levels. Regulatory bodies usually require producers and transmission facilities to maintain a constant reserve margin of 10-20% of normal capacity, as insurance against breakdowns in part of the system or sudden increases in energy demand. Definition extracted from Energy Vortex, an electronic source from the Association of Energy Engineers, Energy Vortex, "Energy Dictionary," Home - EnergyVortex, Reserve Margins, accessed March 26, 2014, http://www.energyvortex.com/pages/index.cfm?pageid=1. 298 David Jimenez and Eduardo Ortega Castro, "Mexican Energy Reform," Law and Business Review of the Americas 14, no. 4 (2008): 863; Rolando Jimenez Dominguez, Energía, Desarrollo Y Globalización : Los Dilemas De La Soberanía (Mexico City: Instituto Politécnico Nacional, Centro De Investigaciones Económicas, Administrativas Y Sociales, 2010), 65.

156 sources that had been discovered in the 1950s and built during the 1960s, and whose costs of production fell dramatically after all the initial investment had been made.299

The trade agreements also pushed for promoting private investments in capacity expansion and the creation of an independent regulatory body the Comisión Reguladora de

Energía (CRE) as part of the agreements. Since any private sector involvement in electricity supply was considered to contravene the 1975 Law of Public Service of Electricity, a middle ground option was included in the 1992 Amendment. This new law allowed for private participation under different schemes, such as independent power producer (IPP), cogeneration, and self-supply (See table 1). These options gained support within the ruling party because they were considered a small price to pay compared to the benefits they would gain from the trade agreements. The power sector interests (CFE, LFC, and the unions) saw this concession and accepting the debt limits as small compromise, because their projections suggested the economy was going to fall into a recession, which would reduce the demand for power and limit the use of the new schemes.300 Table 6.1 describes the different private sector participation schemes included in the law.

299 Geothermal energy is considered one of the cheapest energy sources once the initial exploration costs and investments have been done. This source of energy has not been fully developed in Mexico due to lack of a regulatory framework and financing mechanisms that allow for this type of high risk investments. For more information see Hector Gutierrez Puente and Marco Helio Rodriguez, "28 Years of Production at Cerro Prieto Geothermal Field," in Proceedings World Geothermal Congress 2000, proceedings of World Geothermal Congress, Kyushu, Tohoku, Japan; Mexico, SENER, Iniciativa Para El Desarrollo De Las Energias Renovables En Mexico: Energia Geoterminca, by PwC (2012), 9. 300 Victor G. Carreon-Rodriguez, Armando Jimenez San Vicente, and Juan Rosellon, "The Mexican Electricity Sector: Economic, Legal and Political Issues," in The Political Economy of Power Sector Reform: The Experiences of Five Major Developing Countries, ed. David G. Victor and Thomas C. Heller (Cambridge: Cambridge University Press, 2007), 125.

157 Table 6.1 Private sector participation schemes

Scheme Description Self-supply Generation of electricity to meet an industrial facility’s own energy needs. Refers to power plants owned and operated by private companies or by individuals. Cogeneration Electricity generated simultaneously with steam or other type of secondary thermal energy to be use in an industrial process or the generation of electricity from the surplus of thermal energy of an industrial process Independent Power plants with installed capacity larger than 30MW built and operated by power producer private companies. All generated power needs to be sold to CFE under a (IPP) power purchase agreement Imports and Electricity generated under cogeneration, IPP, or small scale generation. Exports Imports refer to electricity to be used for self-supply Small-scale Refers to power plants with an installed capacity equal or smaller than generation 30MW build and operated by private companies. This electricity is to be sold to CFE. Source: Author’s Elaboration based on the Ley de Servicio Public de Energia Electrica (LSPEE) retrieved from www.diputados.gob.mx CFE and LFC did include in the amendment to the law a requirement that CFE purchase power for public supply at the lowest possible cost, generally interpreted as the lowest cost per kWh delivered. In practical terms, during the 1990s that meant that costs needed to be around 3.8 cents per kWh delivered.301 This condition meant that fuel oil, the main fuel used for electricity generation, could continue to be the fuel of choice, as in previous decades, if the levelized costs of electricity generation remain constant.302

Table 6.2 presents the change in percentages of the different energy sources as an input to electricity production in Mexico. Around 33% of the energy supply is allocated to electricity

301 Javier C. Palacios et al., "Levelized Costs for Nuclear, Gas and Coal for Electricity, under the Mexican Scenario.," SciTech Connect:, 2004, Levelized Costs, http://www.osti.gov/scitech/servlets/purl/840500. 302 Levelized costs of electricity generation is the term used to define a characteristic unit cost of electricity generation (in $/ MWh) over the life of a power plant.

158 generation.303 Since oil was provided by PEMEX, managed as part of the government and

Hacienda (Ministry of Finance), CFE and LFC had a guaranteed oil supply at around 30% of its opportunity cost. Alternative sources would be possible when costs of production declined, but also when it became necessary to increase oil exports to even the balance of payments. During the 1980s, increased availability of cost-effective gas turbines paved the way for the ongoing

PEMEX investments in gas as the main fuel for electricity production, ensuring compliance with the 1992 Amendment to the Law of Public Service and Electricity.

At the time when the 1992 law was approved domestically, at the international level the

UNFCCC was being drafted and signed. However, the impact of the international negotiations on climate remained separate from the domestic challenges of increased energy demand. As

Table 6.2 shows that when the costs of electricity generation using natural gas decreased, its use in electricity generation increased, showing that the electricity production was not driven by climate concerns, but rather costs of production.304

The case of geothermal energy is also worth mentioning. While this is a highly risky endeavor, Mexico, and CFE in particular, was capable of justifying investments in geothermal energy due to particular reasons. The initial investment was carried out in 1958, before the law establishing the requirement for lowest possible cost. Mexico found, by “chance,”305 a field in

303 Ramon Espinasa et al., Dossier Energetico: Mexico, vol. 07 (Washington DC: Banco Interamericano De Desarrollo, 2013), 15. 304 The need to keep costs down also opened up the possibility for nuclear inputs to electricity generation. The nuclear option became a viable policy option as means to diversify the electricity matrix and thus shield electricity prices from the price fluctuation. See Javier C. Palacios et al., "Levelized Costs for Nuclear, Gas and Coal for Electricity, under the Mexican Scenario;" World Nuclear Association, "Nuclear Power in Mexico," World Nuclear Association, 2013, accessed March 26, 2014, http://www.world-nuclear.org/info/Country-Profiles/Countries-G- N/Mexico/. 305 Interview with Mexican geothermal expert, July 25th 2013.

159 the State of Baja California, Cerro Prieto, which is still functioning today. This field is the second largest geothermal plant in the world, with a potential of 720MW, a rare condition to find in a single site (only Italy has similar capacity in a single site). 306 The likelihood of finding such a potential in other geothermal fields in the same or other countries is very low.307 Overall

Mexico’s installed capacity from geothermal sources of energy is around 3% of the total potential capacity. Overall, there are only 4 fields being exploited, which represent about 10 percent of Mexico’s electricity potential from this technology.308 All of the fields are operated by

CFE to produce electricity (thus the higher percentage of geothermal input to electricity generation compared to its share in the overall Mexican energy matrix). This discovery created capacity and know-how on geothermal energy production in Mexico, which has converted

Mexico in the world’s 5th largest producer of geothermal electricity.309 Further developments have not been pursued to this point because of the high financial risks involved in exploring geothermal fields. Because the investments were already done for the four extant plants, this

306 Hector Gutierrez Puente and Marco Helio Rodriguez, "28 Years of Production at Cerro Prieto Geothermal Field," in Proceedings World Geothermal Congress 2000, proceedings of World Geothermal Congress, Kyushu, Tohoku, Japan, 855. 307 Interview with IDB staff member, July 23rd 2013. 308 The geothermal electricity potential has been calculated in at least 8,000 MWe. This has been the result of several exploratory studies of geology, geochemistry, and geophysics which helped identify areas of high, medium, and low enthalpy geothermal potential interest. While the information of possible filed[?] exists, the financial risks and lack of credit has prevented public and private sector to follow up on this endeavor. For more details see, Magaly Flores Armenta and Luis Gutierrez Negrin, "Geothermal Activity and Development in Mexico," proceedings of Short Course on Geothermal Drilling, Resource Development and Power Plants, UN-GTP and La Geo, Santa Tecla, Exploration. 309 Inter-American Development Bank, Climate Change and Sustainability Division, Rethinking Our Energy Future, by Inter-American Development Bank (Washington, D.C.: IDB, 2013), 15.

160 seemed a good option for diversifying the matrix.310 In fact, the costs of electricity production were estimated at 25 to 30% cheaper than nuclear.311 Thus in a context of diversifying the electricity matrix, the turn to a renewable energy source was again a result of internal dynamics rather than a concern with climate change.

Table 6.2 Percentage of inputs for electricity generation by fuel

Oil Natural Hydro- Geothermal Coal Solar Biofuels Nuclear Fuel Gas generation & Wind 1971- 55% 23% 20% 2.0% 0.7% n/a n/a n/a 1974 1984- 64.1% 11% 9.2% 11.3% 4.0% n/a n/a n/a 1987 1999- 44.9% 21.0% 5.4% 10.2% 11.5 0.005% 1.9% 5.0% 2002 % 2005- 24.4% 38.9% 5.0% 11.4% 13.3 0.03% 2.0% 5.1% 2008 % 2009 19.8% 44.4% 4.3% 10.8% 13.4 0.2% 2.1% 5.1% % Source: Author’s elaboration based on Ramon Espinasa et al., Dossier Energetico: Mexico, vol. 07(Washington DC: Banco Interamericano De Desarrollo, 2013). One important element for understanding developments in the electricity sector has to do with how electricity tariffs were applied. The Ministry of Finance established the fees, and these were not sufficient to make the power sector self-sustaining. The cost of a kWh delivered was around 3.8 cents, while tariffs were set below that cost.312 The Ministry set tariffs for public purposes, with high subsidies for agriculture and residential services, two important sources of

310 Interview CFE staff member, April 10th 2013 311 Miguel A. Gonzalez Gonzalez, "Geotermia Como Alternativa Energetica En Mexico, ¿Es Realmente Viable?," Impacto Social, Impacto Ambiental, http://www.geociencias.unam.mx. 312 See Javier C. Palacios et al., "Levelized Costs for Nuclear, Gas and Coal for Electricity, under the Mexican Scenario."

161 support of the PRI. Fees for other consumers, including industry and commercial consumers, remained well above world levels (see fig. 6.1), which could be explained by the fact that these groups that were not power bases for the PRI.313 Figure 6.1 shows the evolution of real tariffs in the Mexican electricity sector between 1990 and 2010. In fact, the Ministry of Finance’s fee structure was designed in a complex way, making it difficult to establish an exact relationship between costs and tariffs, and creating room for hidden subsidies to the main PRI constituencies.314 In the case of the industrial and commercial sectors, this evolution shows a constant growing trend. In the analysis below, the values of the corresponding tariffs for the commercial and industrial sectors are the highest in the whole period. By contrast, those for services, domestic and agricultural, are the lowest.

Figure 6.1. Average electricity sector tariffs (c/kWh, 2007 prices). Author’s elaboration based on data from Comision Federal De Electricidad, and Camara De Diputados, Centro De Estudios Sociales Y De Opinión Pública.

313In the 1980s, during the period of hyperinflation, the Hacienda’s strategy to control the inflation was to increase the price of oil paid by CFE while it reduced commercial and industrial tariffs and kept residential and agriculture tariffs low. The industrial and commercial tariffs were later raised in the following years. 314 Official figures estimate that during the 1990s Mexico granted in subsidies US$ 5 billion a year because of residential and agriculture tariffs.

162 A second element to consider when analyzing the incentives that led to changes in the electricity sector was the projection of future oil production by PEMEX, one of the main inputs for electricity generation. PEMEX production relied heavily on one major oil reservoir: Cantarell field. Most projections showed than by mid 2000s, oil production would decline (see figure 6.2), and in fact that was the case; production had increased from 500,000 barrels per day, peaking in

2004 at 4 million barrels per day. Predictions estimated that demand for energy would grow at a

4.8% annually towards 2016 while oil reserves would decline at 3.3% rate.315 Between 2004 and

2009, oil production in Cantarell fell from 3.4 to 2.6 million barrels daily. According to field interviews, this decline in production could have been prevented with investments in new explorations or process improvements, a route that was limited by debt restrictions established in

315 Rolando Jimenez Dominguez, Energía, Desarrollo Y Globalización : Los Dilemas De La Soberanía (Mexico City: Instituto Politécnico Nacional, Centro De Investigaciones Económicas, Administrativas Y Sociales, 2010), 65; Gerardo Gil Valdivia and Susana Chacon Dominguez, comps., La Crisis Del Petroleo En Mexico (Mexico City: Foro Consultivo Científico Y Tecnológico, A.C., 2008), 113.

163 the trade negotiations in the 1990s. 316

3,500

3,000

2,500

2,000

Thousandbarrels per day 1,500

1,000

2008 2001 2002 2003 2004 2005 2006 2007 2009 2010 2011 2012 2000 Figure 6.2. Average fall in oil production per day 2000-2012. Source: Inter-American Development Bank, Energy Perspectives Mexico, Central America and the Caribbean, by Ramon Espinasa (Washington DC: IDB, 2014), 3.

Vicente Fox’s Energy Security and the Role of Renewable Energy Sources

In 1994, the recently elected President Zedillo, recognizing Mexico’s energy needs, set out to promote an energy reform opening the sector to private investment. Once again, the two main interests, CFE and PEMEX, presented resistance, arguing that a threat to Mexico sovereignty. Ernesto Zedillo sought Congress’ support in 1995 to open up to private investments in two underdeveloped sectors (gas and petrochemicals), while creating a mechanism to allow for public investments in specific stages of the energy cycle: transportation, storage, and distribution of natural gas. Production remained excluded. President Zedillo was able to take advantage of the unified government to reduce resistance from the two interest groups to private

316 The high oil prices between 2000 and 2006, however, tamed the urgency of new investments. However, according to the interview the fall in production was due to “inadequate field management.” Interview with IDB staff member, July 23rd 2013.

164 sector involvement, and Congress approved a change to the law regulating Article 27 of the

Constitution.

Later that year President Zedillo proposed, and Congress approved, changes in the public debt law that established the possibility of development of long-term infrastructure projects that would impact the public budget in the future, known as PIDIREGAS. This scheme allows for private companies to be hired by public entities to do specific public works. This new mechanism would allow, for example, investments in CFE or PEMEX, and in other public companies, such as airlines. The private company would have to finance the investment, with the state promising to pay back the private investment with the yields from operating the new construction.317 This way, PEMEX and CFE would not need congressional approval to acquire debt, a beneficial scheme that managed to reduce, to some extent, opposition to energy reforms from the major interest groups.318

The reforms in the early 1990s only started to be implemented in the early 2000s, and have evolved rapidly since then. Between 2000 and 2002, half of the new capacity came from

IPPs and self-suppliers seeking to lock-in long-term power contracts at lower prices than those charged by CFE. Only one third of the new capacity was directly built by the public sector. The majority of this capacity was fueled by natural gas.

Despite these efforts, investments were not enough to meet the growing demand and new reforms followed during the 2000s, opening the opportunity to consider alternative sources of

317 OAS, Departamento De Sustentabilidad Democrática Y Misiones Especiales, Marco Institucional Y El Desempeño De Las Empresas Estatales Productoras De Petróleo, by Ramon Espinasa (Washington DC: OAS, 2008). 318 According to the field interviews, this was the mechanism through which PEMEX was able to finance itself, because the government expropriated all of PEMEX’s current revenues. Interview IDB staff member, March 5th 2014.

165 energy such as wind and solar. However, due to the high costs associated with investing and producing electricity from renewable sources, these technologies were considered unviable in the

1990s. Even when a 1997 reform to LSPEE regarding the definition of costs included the economic costs,319 the methodologies to include environmental externalities into the calculus of costs were not available. This created a bias towards fossil fuel energy sources, especially natural gas.

While there was an opportunity for private investments due to the 1992 amendments, the change in the energy matrix towards less intensive carbon sources, such as the substitution of natural gas, restricted the expansion to renewable sources of energy such as wind or solar.

Electricity production by natural gas had reduced its costs of production due to technological changes during the 1980s, 320 and made this technology attractive to public and private investments. From the public point of view, CFE was required by law to purchase power at the lowest possible cost, which also translated to investing in those technologies at the lowest costs available. From a private sector perspective, the higher rates of return required by private electricity generators and the short term vision that characterized private investments punishes upfront capital intensive investments (which tend to increase when financial risks increase) and reward less intensive initial investments, as in the case of proven technologies.

The potential of natural gas as the main alternative to oil fuel, with less intensity in carbon emissions than oil, was reflected in Mexico’s international position at the UNFCCC in the1990s. In this way, already ongoing national actions were presented internationally as mitigation commitments. Mexico committed to reduce emissions setting programs to promote

319 Economic costs include the financial costs of the electricity as well as the potential externalities. 320 Technological changes during 1980s reduced further the costs of natural gas production including advances in horizontal drilling, four dimensional seismic imaging and software modeling, and hydraulic fracturing or “fracking.”

166 energy efficiency, fuel substitution, and abating some deforestation. By 2000, the Mexican government estimated it had reduced 5 million tons of carbon per year in the energy sector, a 2% shift from the BAU baseline.321

The majority of capacity built or contracted by the public sector during the period 2001-

2010 was provided through combined cycle gas turbines, resulting in gas-based generation accounting for 52.1% of total electricity generation by 2010, up from 21% in 2001, while conventional thermal generation (fuel oil based) will reduce its contribution from 44.9% to

13.8% in 2010. However, under a BAU scenario, with the demand for electricity growing at

6.3% annually, national consumption of electricity was expected to grow to 209.7 TWh in 2008 and to 281.5 TWh in 2017, representing an increase of 71.8 TWh of electricity generation, equivalent to about 14 GW of additional generating capacity.322 Mexico was expected to need to import 25 percent of its natural gas in the next decade.323 Finally, the price volatility (figure 6.3) determined the domestic problem as a problem of insufficient electricity supply in a context of unpredictable impacts on the fiscal accounts (as electricity tariffs were independent from actual costs) and impacts on the balance of payments. These estimations raised questions about energy security in Mexico.

321 and Omar Masera, "Mitigating Carbon Emissions While Advancing National Development Priorities: The Case of Mexico," Climatic Change 47 (2000): 261; OECD, ENVIRONMENT DIRECTORATE, Institutional Capacity for Climate Change Mitigation in Mexico, by Fernando Tudela (Paris: OECD, 2003), 16. 322 It in fact grew at a faster pace. By 2011 the electricity demand reached 294 TWh. Ramon Espinasa et al., Dossier Energetico: Mexico. 323 Rolando Jimenez Dominguez, Energía, Desarrollo Y Globalización : Los Dilemas De La Soberanía, 68.

167 All things being equal, renewable sources of energy had small possibilities of development. In the early 2000s, renewable sources had higher upfront costs324 compared to traditional sources of electricity. However, a shift in ideas in the leadership of the energy sector

(a new director was appointed to CFE in 1999), within a new context of increasing price volatility with a concern on energy security, generated a space for renewables that was later capitalized upon during the Calderon’s administration.

60 50 The upward tendency of 1990s pushed for 40 30 diversification 20 10

0

Jul00 Jul03 Jul06 Jul09

Oct 11 Oct

Oct 99 Oct 02 Oct 05 Oct 08 Oct

Apr 01 Apr 04 Apr 07 Apr 10 Apr

Jan 11 Jan

Jan 99 Jan 02 Jan 05 Jan 08 Jan

Diesel Fuel oil Gas

Figure 6.3. Real domestic hydrocarbon prices (2011$/mWh). Bloomberg New Energy Finance, Latin American Insight Services, Arriba! End of Siesta for Renewables in Mexico, 4. Diversification of the CFE generation mix was seen as a crucial factor to protect against price and supply disruptions and ensure sustainable economic growth. The country had a broad

324 For example, wind tower equipment and solar panels were more expensive per unit of electricity generated than new investments in expanding fossil fuel production. As an example, a recent study estimated that the costs of electricity using solar panels dropped from 30 cents per kWh in 2007 to 20 cents per kWh in 2012. Bloomberg New Energy Finance, Latin American Insight Services, Arriba! End of Siesta for Renewables in Mexico, by Roderick Mckinley (Mexico City: Bloomberg, 2012), 4. Other studies suggest a similar drop in levelized cost of electricity of solar has dropped to around 15 cents per kWh in 2014. See Inter-American Development Bank, Climate Change and Sustainability Division, Rethinking Our Energy Future, by Inter-American Development Bank (Washington, D.C.: IDB, 2013).

168 array of renewable energy potential included in many studies financed by World Bank, Inter-

American Development Bank, and United Nations Development Program. Groups within CFE, however, were wary of investing in new technologies. These groups saw the mission of the organization to be a strict adherence to its constitutionally based mandate to procure powr at the lowest cost possible. As a result, they favored a concentration in conventional fossil generation

(most recently combined cycle gas), and had limited recognition of potential portfolio diversification that could be achieved by developing a broad portfolio of renewable resources.

The new director of CFE, Arturo Elias Ayub (whose tenure lasted from 1999-2011), did, however, believe that renewables could help reduce Mexico’s dependence on foreign sources of energy.325 A new coalition slowly took root across the administration, including SENER and

CRE, which favored renewable energy sources as an additional manner to diversify the energy mix. SENER joined the Mexican delegation to the UNFCCC, which made them aware of the commitments to reduce GHG emissions. CRE, on the other hand, sought to position itself as a regulating entity vis-a-vis CFE. The CRE itself was a creation of the trade agreements of the

1990s, and was directed in the 2000s by Dionisio Pérez-Jácome, an economist trained in ITAM and in the US who believed in having private sector involvement in energy generation. Perez-

Jacome believed that renewable sources of energy should be promoted, and could be an entry point for private sector investments.326

On the opposite side there were unions and consumers who benefited from electric tariff subsidies. They feared that private electricity generation would put an end to high subsidies for

325 Interview with GIZ Staff member working in Mexico, July 3rd 2013. This belief was rooted in CFE’s own experience. CFE had started in the 1990s two small demonstration wind projects with a total 2.3MW. See Center for Clean Air Policy, Case Study: Mexico’s Renewable Energy Program, by Stacey Davis, Mark Houdashelt, and Ned Helme (Washington DC: CCAP, 2012). 326 Interview with SENER staff member, April 11th 2013.

169 electricity rates. The coalition was composed of the union members of the Sindicato Único de

Trabajadores Eléctricos de la República Mexicana (SUTERM) at CFE and Sindicato Mexicano de Electricistas at LFC, together with consumers from the agriculture, residential, and large industrial sectors, as well as the PRI and PRD parties, which could stop any reform from passing in Congress.

The alliance between SENER and CRE, combined with a new leader at CFE who believed in diversifying the energy mix, allowed for setting policy directives to push CFE to invest in wind energy, using administrative actions. Additionally, CFE’s director could reduce long-term resistance within CFE by bringing international resources from the Clean

Development Mechanisms, the World Bank, and the Global Environmental Facility (GEF) in an effort to level the playing field for renewable investments in terms of costs. This way, a combination of change of leadership in CFE, which shared similar ideas with SENER and CRE regarding diversification of the energy matrix, and international resources, opened the window of opportunity to invest in renewable energy in Mexico. Climate change considerations were only part of the discourse as an additional element when dealing with international actors.

SENER issued a policy directive requiring CFE to finance its own wind power generation in 2002. This mandate allowed CFE to proceed without having to show that it provided power at least cost. CFE launched a bidding process for constructing the wind farm and the interconnection to the grid using the PIDIREGAS scheme, but extended the bidding to training personnel as well. The project started in 2005 and became operational at the end of 2006. The project became the first large-scale wind project in Mexico, generating 83.3 MW, and the first wind project that received carbon credits through CDM in Mexico. It served as a demonstration project to increase knowledge about i) how to merge wind power technology into the national

170 electrical system, ii) to gain confidence on operation and maintenance issues (CFE feared the intermittence of these sources), iii) to assess direct and indirect benefits, and iv) to learn about various technical issues that Mexico had little experience with.

The incentives for the World Bank to engage with Mexico’s government in developing a project that had potential to reduce GHG emissions stem from the commitment by this institution to serve as a broker to donor countries (Annex 1 countries). The World Bank received grant resources from Spain, the Netherlands, and others to help donor countries identify possible projects to reduce GHG emissions. Donor countries expected the World Bank to serve as a broker that would buy those verified emission reduction credits on their behalf, facilitating their commitment with the Kyoto Protocol. At the same time, from the perspective of World Bank staff, putting those resources in the mix of financial options for the country made the financial package more attractive for the country. With a double incentive in place, the World Bank provided financial support with an agreement to purchase the verified emissions reductions from the project on behalf of the Spanish Carbon Fund and the Bio Carbon Fund. From the point of view of Mexico’s government, these options helped reduce the levelized costs of electricity, bringing additional resources in the form of grants, which would reduce public costs of production,327 a major concern of certain groups in CFE. Therefore, by including climate considerations in a project that originated in finding solutions to electricity demands (by counting potential GHG emission reductions), SENER was able to reduce resistance from CFE to a wind project. Climate and domestic concerns coincided.

Finally, the location of the wind resource also contributed to its development. Most of the wind resources in Mexico are found in the Isthmus of Tehuantepec in the state of Oaxaca (97%

327 From US$ 53.43 per MWh (or 0.053 cents kWh) to US$ 50.90 per MWh, still higher than the US$ 36.72 MWh incurred with a natural gas combined cycle plant.

171 of wind energy production today is in Oaxaca). This state was a traditional PRI state; the PAN did not receive much support in there in the 2000s. For a state is characterized by one of the lowest human development index in the country in 2005 (UNDP, 2005), dependent on agriculture production through ejido structures, wind energy could offer a vital potential source of income and employment,328 boosting support for the industry in the state. Thus, an additional domestic concern (low human development), together with political interests, also aligned with the climate dimension.

Oaxaca

Figure 6.4. Percentage of per-state population in overall poverty in 2005 CFE structured the development of the wind project, La Venta II, taking into account the local community. The project developer was required to build support for the project from local landowners. La Venta II was located in an ejido, and the Mexican government agreed to compensate the inhabitants though direct payments to landowners (doubling their average

328 Initial studies by the National Renewable Energy Lab (NREL), a US-based organization, had estimated that employment could be three times that generated by the same level of spending on fossil fuels (IDB, 2013). These studies were presented to the Mexican government in [by?] US government missions, as well as the World Bank mission to develop the project.

172 incomes). 329 The government also established a fund to pay for public lighting, pave roads, buy computers for schools, and create a job agency for the local population to work at the wind farm.330

But for renewable energy source to take root as a viable option that went beyond a demonstration project, other changes needed to occur. SENER, CRE, and CFE leadership worked together to reduce CFE’s internal reluctance to include wind in its portfolio. However, the new electric capacity needed in Mexico was coming from IPP’s construction of natural gas combine cycle units. Private sector investors lacked the experience to develop wind farms, or any renewable energy source for that matter. While La Venta II was owned and operated by CFE,

SENER, CRE, and even Elias Ayub believed that the private sector needed to get involved in developing this source of energy, using already existing schemes such as self-supply and IPPs.331

SENER again tapped into international resources to help overcome domestic resistance.

SENER and the World Bank forged a new alliance at the administration level. Mexico was approved to use Global Environmental Facility332 resources using the World Bank as an implementing agency. The government (SENER) issued additional instruction to CFE to contract renewable energy capacity that would be financed with US$70 million of grant resources from

329 For more details see project document World Bank, "Mexico – Wind Umbrella (La Venta II) Carbon Finance Project," World Bank, 2011, http://web.worldbank.org/external/projects/main?pagePK=64283627&piPK=73230&theSitePK=40941 &menuPK=228424&Projectid=P080104 . 330 These original proposals hit some complicating issues during implementations, such as lack of records on property ownership. The negotiations with communities have become one of the most challenging elements for private investments in the region. 331 Interview with World Bank Energy Specialist, August 26th 2013. 332 The GEF assigns a quota of resources to each country, and it is a country’s choice who will act as an implementing agency. In this case, Mexico chose the World Bank.

173 the GEF. This grant would serve as an incentive for IPP (a feed-in tariff scheme such as the one used in Europe) of up to 1.1 cent per kWh. CFE estimates indicated that this grant would lower costs incurred by CFE for 100MW to marginal costs of generation, satisfying the least-cost purchase requirement. The result of this additional grant was that CFE gained experience working with IPPs to develop renewable energy projects and, most importantly, was convinced of the advantages of wind power.

It is important to note that during President Fox’s term the coalitions were formed within the different elements in the energy sector in the administration. In fact, Vicente Fox attempted to pass a new energy bill in 2002, including privatizing electricity generation and sale, and a proposal for privatizing PEMEX in 2005, but neither proposal was successful, due to the context of divided government. Many analysts have suggested that President Fox was not able to manage a divided government333 as well as President Zedillo or later President Calderon.334

The changes that did take place during this period, which required congressional support, were those related to tariffs and tax incentives for machinery and equipment for power generation using renewable energy.335 These ideas originated in SHCP as part of its negotiating

333 In 2000, PAN won 47 seats in the Senate, while PRI and PRD had 75 senators, controlling 58.6% of the Senate. In the lower house the PAN had the second-largest minority until 2003. After that, PAN only controlled 29.6% of the lower house. 334 Roderic A. Camp, The Oxford Handbook of Mexican Politics. 335 The first reform dealt with tariffs, proposed changes in the structure of electricity tariffs in 2002 and included those changes in the 2002 Budget. These reforms focused on reducing the subsidy for residential consumers with high consumption. The reforms did faced opposition from CFE and the unions as well as consumers. The coalition between SUTERM at CFE and Sindicato Mexicano de Electricistas at LFC together with consumers made changes to the original proposal by differentiating between states. Northern states had a stronger opposition to this reform, and thus were less affected by the changes. The tax incentive reform was part of an agreement with the World Bank. The reduced income from the changes in the Income Tax Law (2005), dealing with an accelerated depreciation for

174 loans with the World Bank. The World Bank used its bargaining position to request from SHCP some changes within the tax code that would promote the use of low carbon technologies, and thus reduce the higher costs associated with these technologies. SHCP accepted those conditions as minor conditions for access to funds from the World Bank. However, the idea of climate change, its challenges and possible benefits only took root in the SHCP during Calderon’s administration.336 SHCP was responsible for negotiating those changes with members of

Congress while defining the yearly budget. As personnel from the Ministry of Finance stated

“Hacienda continued to be a PRI stronghold, which facilitated gaining PRI and PRD support in

Congress.”337

In sum, two incentive structures (national and international) coincided to promote initial renewable energy projects in Mexico: new leadership in the energy sector and new resources to tap internationally. These demonstration projects broke the resistance within CFE creating different factions. This situation extended to CFE’s union, one of the stronger opponents of changes in the energy sector. Opposition within LFC, however, was never overcome. This could have contributed to the subsequent dissolution of this public company during Calderon’s presidency.

The Calderon administration and the 2008 energy reforms

In 2006, when Felipe Calderon took office, the country’s oil reserves had been reduced by 54.8% in just seven years. Oil production was falling and 40 percent of the gasoline used in

investment with environmental benefits, was promoted by the Hacienda as the local counter-part to a World Bank donation of GEF funding. 336 Interview with SHCP staff member, May 14th 2013. 337 Interview with SHCP staff member, May 15th 2013.

175 the country was imported. Some estimates suggested that Mexico would become a net oil importer by 2020, with some estimates projecting this taking place as early as 2016.

As presented in Figure 6.3, fuel oil prices were increasing in 2008 and the Mexican strategy at that point had been pushing for natural gas to replace fossil fuel as the main fuel for electricity generation (figure 6.5). However, this time, the higher costs of gasoline and its price volatility, instead as serving as a source of additional income for the Hacienda (as was the case in the 1970s and even in the early 2000s), had a negative impact on the economy: the federal government relied on taxes from PEMEX's falling profits for roughly 40 percent of the total national budget, from which it funded not only PEMEX itself but also national development priorities.

Gas 50%

40%

30% Fuel oil & 20% diesel

10%

2011

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2000 Figure 6.5. Electricity generation from gas and oil products 2000-2011 (% of total). Bloomberg New Energy Finance, Latin American Insight Services, Arriba! End of Siesta for Renewables in Mexico, 3. In this context, the Calderon administration began worl on an energy reform on an energy reform. The reforms (a package that included new laws and reforms to existing laws) aimed mainly to give PEMEX greater budgetary authority, update its statist corporate structure, and allow the company to contract foreign firms to improve production and exploit untapped

176 resources in the depths of the Gulf of Mexico – where most of the country's hydrocarbon deposits lie.

Felipe Calderon’s experience in Fox’s administration as Secretary of Energy had provided him with some lessons in how to possibly avoid gridlock within a divided government.

As mentioned in Chapter 3, the number of bills initiated by the executive dropped from 135 during 1991-94 to 36 during 2006-2009 under divided government. The president only presented a bill to Congress when support had been negotiated prior to sending it. President Calderon knew he needed to negotiate the proposal for energy reform before he brought it to the floor. However, in this particular case, interviews with PAN legislators suggested that an additional reason why

President Calderon presented this bill to Congress was his personal commitment to the energy reform.338 During interviews conducted in 2011 and 2012, public servants and legislators mentioned that a lesson from the first PAN period was the reluctance of Congress to approve legislation that came from the president himself. A new strategy carried out during Calderon’s are was that the president might not present a piece of legislation as its own; instead, the president’s party would present it, while the president would maintain control over it by assigning his own staff to work with legislators. The real negotiations on what legislation would be presented and its content would occur in informal arenas, before presenting the Bill to

Congress.339

To ensure coherence with the initial proposal, President Calderon staffed PAN legislators with highly trained political operators, in order to aid in passing legislation from within the

338 Interview with member of Legislature, September 21st 2012. 339 Interview with member of the Office of the President Staff, November 16th 2012.

177 legislature.340 The PAN and parts of the PRI (mainly in the Senate) were in favor of the reform.

The energy crisis that Mexico faced in 2008, with soaring oil prices, the slowing down of the economy, and a need to attract private investments, played an important part in creating a sense of urgency around the reform. But the PRD, the more leftist section of the PRI (mainly in the lower house), and Convergencia were against the energy reform’s proposals in terms of private sector involvement, arguing that this was a breach of the Constitution.

As a strategy to garner support for the reform, the PAN organized workshops within the

Senate, identifying areas of concern across senators, and also possible concessions to legislators that could strengthen the coalition for passing the reform. These forums and the way President

Calderon was managing the process were criticized by the PRD, PT, and Convergencia to the point of opposing a vote on the bill. This left the PRI and PVEM as the main allies of the

PAN.341 One interviewee mentioned, “Calderon believed in renewable energy, he was a true believer, but he was left to the mercy of PRI…the original idea was changed many times to see if it pleased the PRI”342

In order to gain support from the PVEM, two new laws were added to the reform, which were directly linked to GHG emission reductions. One was a law to foster renewable energy sources and promote further development of renewable energy in the country. The other law focused on reducing the demand for energy. Fieldwork corroborated this point. As an interviewee noted “it was not a surprise that Calderon wanted an energy reform, he used to be

Secretary, but these two laws [referring to the energy efficiency and renewable energy laws]

340 This strategy was used on other occasions, which may be masking where bills are originated. This topic is very interesting, but goes beyond the scope of this work and is left for future research. 341 The alliance of the Green Party with the PAN was not new. Vicente Fox’s campaign was a coalition between the PAN and PVEM. 342 Interview with SENER staff member, April 11th 2013.

178 were not in the original package”343 As a result of these laws, a policy framework was established for renewable energy development.

Table 6.3 Main differences in energy reform proposals, 2008344

Proposals Different perspective on the role of Private sector involvement in PEMEX PAN This proposal sought to give PEMEX greater budgetary autonomy and strengthen the regulatory apparatus. It’s chief provisions were to allow PEMEX to hire private contractors for the distribution and storage of refined products. And it would enable private contracting of refining. PRI This proposal changed the open private contracts options within the PAN proposal for options that were closer to the PIDIEGRAS schemes were private contractors would be paid for a specific work. Left Parties Alliance (PRD, PT, This proposal excluded the option of PEMEX Convergencia) assigning contracts to private sector. Source: Author’s Elaboration.

The PRI also prepared a counterproposal. PRI requested that the PAN give stronger support to governors (larger transfer of funds to the states) and more subsidies to the campesinos, the PRI’s support base. Table 6.3 shows the difference between the different initiatives regarding the role of the private sector in PEMEX.

At the end of this process, development of renewable energy sources once again seemed to have won ground. The political gain of the renewable energy law had to do with garnering

343 Interview to member of Legislature, April 14 2013. 344 The reform included other areas not included in this table such as the creation of the National Commission of Hydrocarbons, the role of the Secretary of Energy in defining the energy policy, and changes the roles of the CRE as an autonomous body from the Secretary of Energy.

179 support for the PEMEX reform put forward by the executive, and the bill’s proponents engaged in a climate conscious campaign after the fact. Before presenting how Mexico capitalized on this reform in the international arena, to attract climate resources, a short summary of the new regulations that relate to renewable energy sources is presented below.

While not all the PRI concessions were granted, the new laws did regulate both the use of renewable energy and cogeneration activity not devoted to public supply, and it established the structure of a fund for sustainable energy (Fondo para la Transición Energética y el

Aprovechamiento Sustentable de la Energía),345 including an inter-ministerial technical committee that would oversee activities to promote renewable energy and energy efficiency.

This fund could be accessed by all states, but once again a state’s capacity would be the final determinant of how resources were used.

The 2008 laws represented a positive development in terms of enhancing governmental authority to support renewable energy. But they shifted responsibilities between CFE, SENER, and the CRE, leaving some gray areas that could be exploited by groups opposed to renewables within the energy sector. Prior to this, CFE needed to act based on SENER’s policy directives and CRE’s approved all new regulations. From 2008 onwards, CFE did not depend on SENER to promote renewable energy sources of electricity. Rather, the law promoted private investment

345 Domestic resources assigned in the annual budget funded this fund. Similar to the case of the PES, this fund is required to publish rules of operation every year, establishing the criteria guiding each year’s assignment. The inter- ministerial technical committee defines these criteria. The states and municipalities, as well as the different agencies of the federal government, are eligible to apply to the fund. The practice thus far has been one of first come first served, partly because there are not a lot of projects that are structured well. In contrast to the forestry sector, this fund has an additional complexity, in the form of the involvement of Banobras, one of the national development banks, in the process. According to an interview, BANOBRAS itself has reduced capacity to analyze the feasibility of renewable energy projects, which has limited the use of these funds. Interview with Banobras staff member, Washington DC, February 12 2014.

180 in renewable energy by empowering CFE to pay higher prices for energy from renewable sources. In Article 15, the law requires CFE to include direct and indirect positive effects and relative risks of renewable generation in the context of energy transition as a criterion when determining dispatch order across sources to meet demand. Such a system overcomes one of the major hurdles so far when CFE is buying electricity: the provision to dispatch the lowest cost possible. As a consequence this new provision could lead to dispatch electricity from renewable energy sources, and avoid electricity produced at lower financial price that does not include environmental damages as part of the cost. The law also gives CFE the authority to experiment with market-like mechanisms that incorporate carbon emissions into internal decision-making procedures. All these provisions are pro-renewable sources deployment if CFE agrees to buy higher cost electricity. However, if the opposition to renewable energy sources within CFE were to gain power (i.e., a change in the Director of CFE), SENER and CRE would not be able to instruct CFE to promote this source as in the past.

A way that SENER could guide CFE towards increased reliance on renewables is establishing a target within the energy policy strategy, which depends on SENER. It has the authority to publish national programs that include renewable energy deployment. But this mechanism is relatively weak, since SENER has not published a strategy since 2008. According to interviews, the division in charge of generating such strategy within SENER is the planning unit, which is different from the renewable energy unit: the planning unit favors taking into account oil prices for planning a strategy, while the renewable unit favors the use of prices that consider externalities. The disagreement between the two units has paralyzed the publication of the SENER strategy.346

346 Interview with IDB staff member, July 23rd 2013.

181 The new laws granted CRE and SENER the authority, jointly with the Hacienda, to establish the rules for the fees and other costs paid by CFE to private producers prices. SENER is responsible for defining the prices, but the area within SENER that establishes such fees continues to take as reference oil and gas costs (as this is a responsibility of the planning area of

SENER instead of the renewable energy area).

The law promoting renewable energy was modified in 2011 by an administrative decree to resolve some ambiguities in the original laws. A first change mandated the inclusion of environmental externalities in the process of estimating the difference sources of energy that should be included in the grid. Second, the decree mandated a schedule of decreases in fossil fuels in electricity production. According to the decree, electricity from fossil fuels should not be more than 65% in 2014, 60% in 2035, and 50 % in 2050. In 2009, Mexico’s electricity matrix depended 77.6% on fossil fuels. These changes were the result of international negotiations with bilateral donors to secure additional climate-based financial resources, as will be described below.

A last element to consider in the deployment of renewable energy in Mexico has to do with the role of LFC. Once implementation of the new laws started, LFC remained one of the main opponents of the energy reform in general, and showed no support for renewable energy sources. In 2009, President Calderon closed down LFC, a decision that was carried out for fiscal and political reasons rather than reducing GHG emissions. In his decree, he justified its closure for financial considerations.347 However, this paved the way for the development of renewable sources of energy in order to sell electricity to the center of the country. CFE, on the other hand,

347 The fact that LFC was created by a decree and not Congress gave Calderon the option of closing the organization with the same administrative act. For decree text see Mexico, Secretaria De La Gobernacion, Diario Oficial De La Federacion, October 11, 2009, http://www.dof.gob.mx.

182 saw its mission as producing at lowest cost, and therefore started to change its position towards renewables as levelized cost came down.

Climate Change Mitigation and Renewable Energy Deployment in Mexico 2008-2012

The results of the new laws in terms of increased capacity of renewable energy in Mexico are shown in Figure 6.6. This graph shows that wind capacity during the 2005-2013 period used mainly IPPs and self-supply schemes, which were originally included in the Mexican electricity system with fossil fuel production in mind. In 2009, from the additional 14GW needed towards

2017, 3.5 GW were already under construction or planned, the majority using combined-cycle gas-turbine technology (with lower GHG emissions associated). The remaining 10.5 GW will come from new projects. An opportunity therefore existed for supplying a reasonable portion of the uncommitted 10.5 GW of new capacity using Mexico’s wind energy resource. Part of this new capacity was actually projected to utilize wind energy because an additional process was taking place at a global level: the lowering of prices.348 The changes in worldwide-levelized costs of electricity also contributed to the focus on wind energy (see figure 6.7 the comparison of the different technologies). In fact, technological advances in turbine efficiencies, and measurements, occurring in the mid-2000s, and coinciding with oversupply of wind turbines in

Europe (after the crisis) made wind energy sources the most profitable renewable source of energy vis-à-vis fossil fuels.

348 According to the 2012 plans, CFE was planning on obtaining around 4 GW from wind. Interview with IDB staff member, July 23rd 2013.

183 2,000 1,800 1,600 Self 1,400 supply 1,200 1,000 IPPs 800 600 400 CFE 200 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 Figure 6.6. Cumulative wind capacity by expected year of operation (MW). Bloomberg New Energy Finance, Latin American Insight Services, Arriba! End of Siesta for Renewables in Mexico, 8.

Marine - wave 1037 Marine - tidal 844 Wind - offshore STEG - parabolic trough STEG - LFR STEG - tower & heliostat Biomass - gasification PV - thin film PV - c-Si PV - c-Si tracking Geothermal - binary plant Biomass - incineration Municipal solid waste Wind - onshore Geothermal - flash plant Landfill gas Biomass - anaerobic digestion Large hydro Small hydro Natural gas CCGT Coal fired CHP Nuclear 0 100 200 300 400 500

Regional scenarios Q2 2013 central H1 2014 Fossil technologies: US China Europe Australia Figure 6.7. Levelized cost of electricity, h1 2014 ($/mWH). Inter-American Development Bank, Climate Change and Sustainability Division, Rethinking Our Energy Future.

But there are other cost differences around the world. Energy experts use the tem “soft costs” for those associated with installation costs, permits, insurance, and how much it costs to get money (i.e. financing). The technology itself, may cost the same, but the soft costs are variable, and in some cases this difference is quite significant.349 For example, soft costs in

349 Interview with member of international think tank, September 30th 2013.

184 Germany are $2500/kw, whereas in Latin America this cost is $4000/kw. The new laws in

Mexico are expected to reduce the soft costs.

By 2011, total renewable energy production in Mexico, including wind, solar, and geothermal, amounted to 2.54 GW, positioning Mexico at 18th place worldwide in terms of installed renewable capacity.350

Renewable energy was not the main concern of this and previous energy reforms.

However, even unintentionally, the changes in the energy sector, jointly with the increasing use of natural gas, and reduced oil production from Cantarell contributed to potentially reducing

GHG emissions by 15% of the total target set for the 2009-2012 period.351 Reviewing the projections made by the government in the year 2000 and the new estimations of GHG emissions from the energy sector in the year 2010, we can see that the changes described above in the energy sector had an impact on the emissions path for GHG emissions in Mexico. According to

Sheinbaum (2008), the 2000 projections for 2010 GHG emissions for Mexico in the energy sector were 20% higher than the 2010 actual estimates.352 This is not to say that GHG emissions did not increase in this period, but rather their projected increase compared to their actual

350 Inter-American Development Bank, Climate Change and Sustainability Division, Rethinking Our Energy Future; Energici, "Mexico Renewable Energy Profile," ENERGICI, 2012, Introduction, accessed July 8, 2012, http://www.energici.com/energy-profiles/by-country/norther-america/mexico. 351 Actual reductions are only possible to determine once GHG inventories are updated and presented in the National Communication. The last National Communication that Mexico presented to the UNFCCC was in 2012 using 2008 numbers. See SEMARNAT, México Quinta Comunicación Nacional Ante La Convención Marco De Las Naciones Unidas Sobre El Cambio Climático, (Mexico City: SEMARNAT, 2012). 352 These numbers are estimates of the National Communication presented by Mexico in 2012. Ibid.

185 increase differ. As mentioned above, these changes occurred as a result of domestic dynamics rather than a commitment to international climate negotiations. 353

As the Figure 2.5 in Chapter 2 shows, the Programa Especial de Cambio Climático

(PECC) achieved, according to government estimates, a reduction of 52.72 MtCO2e/ year by the end of 2012.354 From those emission reductions that were planned and executed, 36% came from the energy production sector, for a total of 18 MtCO2e. In terms of magnitude, several studies estimate that the potential for reduction in the energy sector is closer to 146MtCO2e in the 2008-

2030 period, and measures that are capable of reducing 6 MtCO2e per year are considered high impact measures.355 In that sense, the reductions achieved in the 2009-2012 period are considered by experts as important initial steps towards transforming Mexico’s economy to a low-carbon economy.

But, these PECC numbers may be overestimation. According to an independent report the lack of information regarding how the measures were carried out, what the assumptions were, and the base year made the traceability of the PECC results questionable.356 In fact, some interventions (reinjection of sour gas to Cantarell) seem to be responsible for 30% of all PECC interventions (12MtCO2). The analysis suggests that emission reductions have occurred in

353 Claudia Sheinbaum and Guillermo Robles, "Energy Consumption and Greenhouse Emissions Trends in Mexico," in New Orleans Conference Proceedings, proceedings of United States Association of Energy Economics Conference, New Orleans (New Orleans: USAEE, 2008); SEMARNAT, México Quinta Comunicación Nacional Ante La Convención Marco De Las Naciones Unidas Sobre El Cambio Climático. 354 Alternative measures estimated a total of 50.66MtCO2e in 2012. The PECC established a target of 50.7MtCO2e in 2009. See Instituto Mexicano Para La Competitividad, "Evaluacion Del Programa Especial De Cambio Climatico." 355 This is a rough estimate since the emission reduction process is not necessarily linear. A particular measure could change the direction of emission reductions. However, in order to standardize and plan ahead, the PECC defined high impact measures as those measures that could reduce 3MtCO2. 356 Ibid.

186 Mexico according to the numbers reported to UNFCCC, but not at the level estimated by the

Calderon administration when reporting to the PECC. Partly, these overestimations had a clear target: the international climate finance community. It is to this point that I now turn.

Mexico as a Leader on Renewable Energy: Attracting More Resources

The case of the energy sector is an example where the government of Mexico decided to allow entry of the international climate regime complex as a way to help reduce resistance or help build alliances within the sector. As mentioned above, the initial incursion of the international climate funds in Mexico in this sector was through the World Bank’s support to the renewable energy pilot. These resources helped SENER gain support within CFE for renewable energy. Once this pilot was up and running, this became an example of the virtuous cycle of climate finance described in Chapter 4. Proposals within SENER and the World Bank’s commitment to help industrialized countries buy carbon credits both served as the initial point of the cycle. Once resources started flowing, many other organizations within the regime complex started to pay attention to energy and climate in Mexico. For example, GIZ, the German aid agency, as well as the British Embassy started to engage with public policy officials to find avenues for collaboration to promote renewable energy further.357 The increased flow of resources occurred in tandem with the design and approval of the PECC and the new energy laws, around 2007-2008. The World Bank and the IDB approved two large policy-based loans in

2008 (almost US$1 billion dollars) when the policy matrix reinforced actions that were already

357 Interview with GIZ Staff member working in Mexico, July 3rd 2013; interview with UK embassy in Mexico staff member, November 12th 2012.

187 planned by the government.358 The main focus of these loans was geared toward Mexico in an effort to show contributions to climate change mitigation. Once the policy base loans were approved, and with the creation of the Climate Investment Funds, the previous work served as the basis to select Mexico as one of the first countries eligible for the CIFs. The selection was justified in the fact that Mexico was one of the larger countries, with a concrete commitment to

GHG emission reductions.359 The renewable energy law’s approval was perceived as further ratifying Mexico’s commitment. In 2009 the Fund’s Board approved the first CIF Investment

Plan. Mexico was the first investment plan presented to the CIF, including targets for renewable energy and transport.360

The investment plan was prepared in less than a month, taking into accounts most of the information provided by the PECC, and previous works done by the IFIs, the GEF, GIZ, and the

British Embassy. After the CIF came into play, once again new actors from the regime complex approached Mexico in an effort to be part of the activities in Mexico. The German Development

Bank, KfW, and other bilateral donors were also interested in being part of Mexico’s experience.

USAID and NREL provided additional funding once they saw commitments from the government of Mexico to support renewables. The donors suggested some changes to already- approved laws, which Mexico adopted by adjusting the renewable energy law through administrative decree in 2011. In fact, receiving the benefits of increased resources in the past

358 See projects policy areas in http://www.worldbank.org/projects/P110849/mexico-climate-change-development- policy-loan?lang=en and http://www.iadb.org/en/news/news-releases/2008-11-11/idb-supports-climate-change- agenda-in-mexico,4861.html 359Interviews with international funding agency staff member, November, 6th 2013. 360 IDB led the energy section, while the World Bank the transport section.

188 reduced resistance from CFE, CRE, and SENER to the 2011 decree.361 Recipients of these resources were CFE, SENER, and CRE.

This energy case study shows how Mexico managed to position its renewable energy actions on climate change as accomplishments worthy of further international financial resources. As emphasized by the Mexican contingent at the COP 17 in Durban, Mexico’s voluntary commitments were divided into those carried out with its own resources and those geared toward seeking opportunities for international cooperation for support. In fact, in 2012

Mexico was declared by Climate Funds Update the top country to receive funds in that year, totaling US$2.6 billion under implementation, with an average of US$611 million per year.362

Eight percent of those resources were directed to the energy sector.

Conclusions

The evolution of this sector confirms the hypotheses of this study. The first hypothesis proposes that climate sensitive actions, which result in GHG emissions reduction, are adopted as a result of domestic dynamics of the policy process in different sectors rather than as a consequence of climate negotiations and international commitments. As this chapter shows, the main driver for action in the electricity generation sector was a domestic problem: insufficient energy supply to meet increasing energy demand, in a context of fiscal shortages.

Solving this problem was bounded by the concern of keeping costs down so as not to adversely affect development (for example by slowing economic growth and leading to inflation). The electricity monopolies (CFE and LCF) saw their mission as producing energy at

361 According to an interview with a former staff member from the office of the president, in order to be able to sign a decree that changed the regulation of a law, the president needs the legal opinion of the administrations’ agencies involved in the matter. The additional international resources help in obtaining the different agencies approval. 362 See discussion in Chapter 4.

189 the lowest costs, and opposed wind energy sources when the levelized costs of this electricity were high. Climate sensitive actions were taken to address a domestic problem once wind energy sources were perceived as helping the overall problem of electricity supply, and it was in this way that climate change becomes part of this sector’s agenda. The fact that the activities chosen have less transformational potential for the reduction of emissions attests that concern for climate change is not the driving force for these activities. Moreover, higher impact actions (i.e., larger reductions of GHG emissions), such as the removal of electricity subsidies or improving PEMEX efficiencies to reduce losses, were not considered, 363 as they were perceived as harmful to development, and opposed to the rhetoric and viewpoint of state-owned energy companies, as well as being unpopular policies with a potential electoral cost associated with them. They adopted climate sensitive actions towards the end of the period, after the opposition was cleared out and electricity-levelized costs had reduced globally.

The third hypothesis suggested that in contexts of divided government (which in this case refers mainly to different parties controlling the legislature and the executive), the timing of the adoption of climate-sensitive actions initially relied on administrative actions. However, these actions were limited in their ability to obtain results related to energy supply.

363 A real transformation of the economy would be to set the right incentives for pricing carbon, and to reduce waste in the oil industry. Since today the industry is subsidized to the consumer, the state budget relies heavily on the income of PEMEX, and PEMEX lays out a cost structure that is distorted and contains numerous inefficiencies. PEMEX tried to install a program creating an internal carbon market, an initiative that stemmed from the company’s managers. This initiative, however, had limited impact on the overall operations of the company. The current scheme does not foster efficiencies. A solution would be to remove subsidies, and cover the costs of exploiting gas or oil. This would pay the costs and could create a fund for dealing with the impacts of climate change. However these measures were not included in the PECC, nor are they viable from a political point of view. For that reason, Mexico is not tackling the main sources of GHG emissions in the energy sector.

190 When the government sought to leverage legislative politics, this study contends that in a divided government the political actors advancing a proposal will use distributive politics whenever possible, which will benefit the political careers of those managing the legislative support (governors and/or party leaders). The new renewable energy laws approved in 2008 therefore included a national fund that would provide additional resources to the states for their use. Again, as in the case of forestry, the use of those funds depends on states’ expertise and ability to utilize them. The generation of these actions, and the use of funds locally, resulted in the PAN and PVEM winning the state of Oaxaca in 2010.

Finally, hypotheses five and six deal with Putnam’s idea of a two-level game. Locally, the federal government used access to international resources (from GEF) to influence the domestic policy dynamics within CFE, SENER, and CRE. This initial influx of resources helped reduce internal resistance, which in turn opened the possibility for further resources from new funding mechanisms such as CTF and KfW. By that time, the sector actors had realized that resolving a domestic problem (electricity supply) with a climate change brand would increase the flow of international resources, which they did when developing the 2008 renewable energy law.

The international community perceived this law as having taken steps in the right directions and channeled additional resources to Mexico.

At the international level, Felipe Calderon promoted those climate sensitive actions, which again originated in responding to a domestic problem, as part as an overall climate policy.

He saw that this branding and packaging of those actions into the PECC (approved in 2009) would position him as a world leader on climate actions, and doing so did not incur political costs at the domestic level. The PECC included actions that had been already planned across

191 sectors. The elaboration and approval of the PECC required only coordination efforts, which

Calderon himself took on as his responsibility.

192 Chapter 7: Climate and Transportation Sector in Mexico

This chapter aims to explain the motivation and strategies of Mexican transportation policy and its relationship to climate change policy. It argues that GHG emission reductions were not at the front and center of the transportation policy decision-making process. Indeed, they were marginal factors, while the unpopularity and possible negative electoral impact of changing gasoline prices, a climate-sensitive issue, constituted a major concern for the government. Thus, the actions included as part of the climate policy were those that had already been adopted for political reasons. The focus here is on the mechanisms used by the national executive branch to promote the development of transportation measures responding to the country’s connectivity and urban transportation problems in large cities. It will show that the structure of the sector includes public and private actors, and sub-national and national governments, creating a more fragmented process and variegated outcomes. Similar to the energy sector, it will also consider the effects of organized interests, such as the automobile industry, public bus unions, and political parties, on the selection of those measures. This array of actors contributed to a dilemma: how to respond to projected transportation demands leveraging public and private funding without losing political clout at the local or state level, especially when the opposition was in office. As such, the national government created several funding mechanisms for sub- national governments. Some cities used those funds to carry out Bus Rapid Transport (BRT) programs as a response to growing mobility demands. While not the main intention, the actions taken included as a by-product GHG emission reduction. These types of programs opened up the possibility of positioning Mexico as a leader on climate change actions, while reinforcing the virtuous cycle of international resources discussed in previous chapters.

193 The evidence suggests, however, that climate considerations were not initially, nor are they currently, part of the rationale for action within the sector, weakening the virtuous cycle of international finance seen in other sectors. This lack of commitment has led to approving climate change programs that are not executing as planned, impacting negatively the emissions reductions expected by the PECC.364 In terms of climate change mitigation, the adopted strategies have high visibility, but fall short of tackling the main sources of GHG emissions from the transport sector in Mexico: the lack of fuel efficiency in the automobile industry and ongoing price setting and subsidies for fossil fuel use.

Context of the Mexican Transportation Sector

In Mexico, in contrast to what happened in the energy sector, the Constitution considers the transportation sector a Priority sector. Priority activities are categories where the government may choose to include the private sector in its development.365 The Constitution reserves certain tasks related to transportation exclusively for the federal government, and others exclusively for the state and local level.366 Thus, the institutional framework allows for road transportation interventions at three levels of government: local, state, and federal. The institutional responsibility for the design and administration of federal transportation policy rests with the Secretaria de Comunicaciones y Transportes (SCT).367 At the same time, each state has

364 SEMARNAT, Programa Especial De Cambio Climatico 2009-2012. 365 Strategic and Priority sectors of the economy are exempted from the anti-monopoly provision and are not legally considered monopolies. Article 28 in the Constitution deals with the classification of strategic and priority activities. 366 There is a predominance of road transportation, which accounts for 85.7% of all cargo and 98.3% of passenger movement. This chapter focuses primarily on road transportation. 367 It is also important to note that other parts of the government are involved in setting transportation policy. For example, the Secretaria de Desarrollo Social (SEDESOL) is mainly responsible for transportation planning,

194 its own ministry of transportation which is directly responsible for planning, design, operation, and control of transportation systems at the local and state level. State transportation planning activities are supposed to be carried out in coordination and agreement with the corresponding federal entities and are coordinated by the General Directorate of Planning at SCT’s head office.

Most municipalities are limited in their authority to traffic control activities, public security, and maintenance of local road networks.368

Each one of these levels defines mostly different aspects of the transportation policy. But there are some areas where federal and state government share jurisdiction such as transportation planning, (i.e., route planning), and there are areas that are shared with the municipal level as well, as Table 7.1 describes.

Table 7.1 Governmental Division of Powers in Mexico’s Transportation Sector

Areas of Intervention Management and Investment and Capital Current Expenditures Urban Planning Tenure regulation M Land Use Control M Transport Urban Transport F, S, FD F, S, FD Urban Roads M M Highways F, S F, S Turnpike Motorways F, S F, S Railways F F Source: OECD, Regulatory Reform in Mexico, by OECD (Paris: OECD, 1999). Note: F = Federal; S = State; M = Municipal; FD is the Federal District.

specifically focusing on areas with lower human development index. SEMARNAT is responsible, for example, for generating impact evaluations for infrastructure invetsmnets. 368 The exceptions to this rule are the states of Baja California, Coahuila, Guanajuato and Quintana Roo, where the states have assigned to cities the responsibility for planning public transportation.

195 This overlapping of responsibilities, a framework inherited from the period of single- party hegemony, has created incentives for different levels of government to favor or oppose programs depending on which party is in office at different levels. For instance, if the PRI is the party in charge of a state, while the federal government is under a PAN administration, this joint jurisdiction may cause the failure of transportation projects. These types of projects, where financing depends on accurate estimates of traffic flows, the design of routes (under state jurisdiction) that favor or hinder passenger flows can lead to failure to secure financing in the private capital market or international financial institutions, or may even lead to granting a concession that could sue the national government for breach of contract. Alternatively, when traffic flows and routes are defined at state level project, lack of resources for guarantees or subordinated loans can hinder further deployment of private investment in a state. That is, in practice, this overlapping of responsibilities has come down to granting an additional political tool from parties to use at the state or federal level. Opposition states are able to resist federal policy by undermining federal government projects, while the federal government can decline to grant federal resources to a state that is ruled by the opposition party.369 This point will be elaborated in greater detail below by describing a project that had significant potential to reduce

GHG emissions, but was hindered by the non-cooperation of the state government: the case of the suburban train in Mexico City.

At the same time, the transportation system has relied since the 1980s on the participation of the private sector. This participation has not always been very successful, as the failed privatization process of the 1990s illustrates. But it has increased the number of actors involved in the development of this sector. In 1993, the federal government enacted the Law of Roads

369 Interview SCT staff member, February 12th 2014.

196 (Ley de Caminos, Puentes y Autotransporte Federal),370 before the North American Free Trade

Agreement (NAFTA) entered into effect. This law regulates the development of highway infrastructure, defining which roads would be assigned to state jurisdiction and which would be the responsibility of the federal government. The law also set guidelines for the use of concessions, defining areas that would be subject to concessions (transport provision) and areas that would not (route design). It did not, however, define and set the framework for private sector involvement in the design of where the road should go.371 This limitation hindered the attractiveness of certain projects in road construction and operation for private investments.372

The SCT underwent multiple internal administrative restructuring programs, evolving over the years to include oversight of the private sector’s involvement in operating transportation infrastructure, and oversight of the state governments’ plans. While some of these functions started to change in 1980s, in the 1990s the privatization process was completed with the enactment of the 1993 federal law. Over the following years, the SCT developed technical expertise in transportation design, as well as in public-private sector schemes which was lacking at the state level.

370 A separate body was created by the 1993 law, Federal Roads and Bridges (Caminos y Puentes Federales, CAPUFE), which manages some of the tolled roads and bridges. 371 A new law was approved in 2012 allowing for broader PPP to take place, including in road design. 372 The idea of private involvement in road development instilled in the law was not new. Mexico’s system for financing infrastructure was reliant on general revenues, which are heavily dependent on PEMEX, and which have waxed and waned based on global oil prices. Since the 1980s, after the 1982 crisis, several reforms were carried out in the sector which demonstrated the interest of the federal government in seeking private sector involvement through concessions, using for instance Build-Operate-Transfer (BOT) schemes. Under this framework, the government would be mainly responsible for defining the laws, national plans, and organizations that frame all transport projects in the country. The private sector would build roads (both intercity and urban) and operate them (intercity only). This was not to say that the government did not invest; there was always a level of initial investment that the federal or state government needed to carry out, especially in areas where the risk for the private sector was higher.

197 As a result of the institutional framework in place, Mexican states with different levels of technical capacity have different levels of road development and urban development, depending on their state budgets (largely defined by the co-participation received from the federal government) their technical capabilities, ability to secure technical assistance from national or international agencies, and ability to attract private investments.373 The result was wide variations in road quality and urban transportation quality, as well as lack of prioritization of network interconnections.

The federal government started to get more involved in regional and local transportation problems 1990s. Several financial crises in 1990s led the federal government to take over previously privatized highways, redefine concessions rules for inter-urban roads, and structure funds to promote transportation development.374 As a result of these crises, the level of investment in transportation infrastructure (including interurban roads, airports, and rail infrastructure) was limited, compared to the energy sector.375 The volatility of investment in transportation infrastructure shows that investment in transportation has usually been determined as a residual of the total amount of infrastructure investment after investments on the oil and gas

373 As the interviews suggest, the private sector will tend to invest in those areas where the influx of traffic is estimated to be high (close to borders). Also, the private sector typically prefers brownfield projects, where the companies have only to improve existing roads and where the risk is small. 374 The severe liquidity and solvency problems faced by private toll road companies after the 1994–95 financial crisis led to a government rescue effort in August 1997. This was achieved through the use of a trust fund established within the National Bank of Public Works and Services (Banco Nacional de Obras y Servicios Públicos, BANOBRAS), called the Trust for Supporting the Recovery of Licensed Highways (Fideicomiso de Apoyo para el Rescate de Autopistas Concesionadas, or FARAC). FARAC acquired both the assets (the toll roads and the income stream generated by the tolls levied) and the liabilities of the toll road companies. 375 Of all modes of transport, road investment received about 74% of the investment. Inter-American Development Bank, Mexico: Transportation Sector Note (Washington, D.C.: IDB, 2013).

198 are carried out.376 This fact is not surprising, given the high percentage of federal revenues that comes directly from the sale of oil and gas. However, this lack of investment has led to higher logistics costs and inventory levels, which has impacted competitiveness and productivity.377

Another consequence of the lack of investment during the 1990s, as well as the overlap in responsibilities, was evident locally: cities became heavily populated but undertook limited investment in transportation infrastructure. This urban growth has tended to extend the urban footprint in a disorderly fashion, without proper planning of urban services, including the design of public transportation systems. This fact, together with low fuel prices and the availability of inexpensive vehicles on the market, led to increased numbers of vehicles, in particular of private cars, as described in figure 7.1. The increase in the vehicle fleet almost tripled in ten years (1996-

2006).378 More than half of that increase is composed of cars more than 10 years old, imported from the United States. This is relevant to fuel consumption and GHG emissions because of the

376 For example, from 1980 to 1990, the average public investment in infrastructure was 2.35% of the Gross Domestic Product GDP, with a substantial share going directly into the oil and gas sector given the continuing monopoly of the federal government in hydrocarbon production. From 1990s to 2000s, this investment declined to 1.72%376 of GDP to later increase to 3.2% of the GDP in the period 2000 to 2006. Oil and gas consistently accounted for almost 50% of total infrastructure investment, while investment in the transportation sector moved in a range between 24 and 40%. Infrastructure development was also limited when compared to other middle income countries. Chile, for instance, invested close to 5.8% of its GDP. 377 By 2006, Mexico was projected by several international agencies to be the fifth-largest world economy by 2050. See Goldman Sachs Global Research Centers, Global Economics Paper No: 153, by Dominic Wilson and Anna Stupnytska, 2007, https://portal.gs.com. Those projections were conditional on increasing its competitiveness, which was ranked 64th out of 124 in the 2006 World Economic Forum Competitiveness index. 378 Road transportation in turn can be divided by fuel, with diesel producing 26% of CO2 emissions. Instituto Nacional de Estadísticas y Geografía. www.inegi.gob.mx

199 lower fuel economy of these older cars.379 According to Solis and Sheinbaum (2013), in the

1990s average fuel economy was 10.11km per liter and only increased to 10.33 km per liter by

2010, or 2.2% in 20 years. This is largely due to the older cars on the road in Mexico, as newer light vehicles averaged 13.1 km per liter. In comparison, South Korea increased its fuel economy to 14.7 km per liter by 2010.380

70 60 50 40 30 20 10 0 Total Total fleet [Million vehicles] 1980 1990 2000 2010 2020 2030

Motorcycles Passenger cars SUVs Buses Taxis Light duty vehicles Heavy duty vehicles

Figure 7.1. Growth of vehicle fleet and projected growth 1980-2030. World Bank, Low-Carbon Development for Mexico, by Todd Johnson, Claudio Alatorre, Zayra Romo, and Feng Liu (Washington, D.C.: World Bank, 2009). In a country where nearly 75% of the population lives in cities, any local problem in these dense and highly populated cities could have national consequences. Due to the direct election of the president, these local problems could even impact an election result. In other words, any local problem could have national impacts in government’s stability and therefore he government believed that it needed to address to stay in power. Before analyzing how

379 Juan Carlos Solís and Claudia Sheinbaum, "Energy Consumption and Greenhouse Gas Emission Trends in Mexican Road Transport," Energy for Sustainable Development 17, no. 3 (2013): 282, doi:10.1016/j.esd.2012.12.001. 380 The International Council on Clean Transportation, Mexico Light-Duty Vehicle CO2 and Fuel Economy Standards, July 2013, International Context, www.theicct.org.

200 transportation policy under the last two administrations has attempted to address the challenges described above, a word on subsidies and the automobile industry lobby is in order. Many analysts have pointed to these two factors as predetermining urban mobility challenges. In what follows, this chapter will present a brief mention of fossil fuel subsidies and the vested interests that exist around the automobile industry in Mexico.

The Politics of Subsidies to Fossil Fuels and Automobile Fuel Efficiency

Subsidies on fuel prices represent a major barrier to reducing GHG emissions.381 It incentivizes the use of private vehicles instead of public transportation, increasing GHG emissions per capita. Worldwide, it is estimated that removing fossil fuel subsidies could reduce

382 nearly 1.7 Gt of CO2 by 2020. Mexico could reduce around 10% of its GHG emissions by

2050 if fossil fuel subsidies were removed.383

The removal of subsidies on fossil fuels, however, is a politically charged issue, not only in Mexico but worldwide. In the case of Mexico, some salient features make their removal particularly complicated. First of all, the “gasoline subsidy” is a result of how gasoline prices are set in Mexico in the domestic market. The origin of this practice is rooted in attempts to isolate

Mexico’s economy from external shocks, after the 1970s oil crisis, by setting a price internally that would not fluctuate as randomly as in the international market. Therefore, the government

381 Until 2003 it was estimated that $60 billion dollars globally were expended annually on subsidies to fossil fuel. By 2010, this figure reached nearly $250 billion. This increase reflected the rise in international gas prices in 2007 and 2008. See International Monetary Fund, Petroleum Product Subsidies: Costly, Inequitable, and On the Rise, by David Coady, Robert Guillingham, Rolando Ossowski, John Piotrowski, Shamsuddin Tareq, and Justin Tyson, February 25, 2010, https://www.imf.org/external/pubs/cat/longres.aspx?sk=23584.0. 382 International Energy Agency, World Energy Outlook 2011, November 9, 2011, International Energy Agency, World Energy Outlook 2013, November 12, 2013, http://www.worldenergyoutlook.org/publications/weo-2011/. 383 OECD, "Environmental Performance Review: Mexico 2013," 2013, http://www.oecd.org/env/country- reviews/EPR%20Highlights%20MEXICO%202013%20colour%20figures.pdf.

201 artificially created a difference between the international price (using for reference, the price paid in Texas) and the domestic price. This is done by the government determining monthly the gasoline and diesel prices which are then implemented through PEMEX.384 First, the Energy

Secretary establishes the price to produce gasoline and diesel.385 Then, the Secretary of Economy and SHCP establish the retail price taking into account a series of variables,386 which may result in a lower price than the imported price that PEMEX pays;387 as a result of this process, consumers may be paying a tax or a receiving a subsidy. In other words, a set formula provides an estimate of PEMEX’s production, distribution and retailing costs, but the government can choose a different price if it desires. International experts see these subsidies as implicit subsidies since there is no particular budget line that is assigned to subsidizing gasoline.388 Also, in

Mexico a second layer of subsidy is added. Within that price, it is included a tax, a percentage of the price, as a mechanism to correct the difference between the market price and the price that the public paid, called the special tax on products and services or IEPS. Once the price is set, which creates already a subsidy (following a price-gap approach), the government will charge to consumers or “pay” to PEMEX the IEPS.389

For the most part, during the 1990s and 2000s, the price was set above international prices, and the tax was in fact a tax collected by the Federal government though PEMEX. Parts

384 PEMEX has the monopoly for producing and selling gasoline and diesel. All service stations are PEMEX. 385 This price takes into account the opportunity cost to sell it in the international market. 386 Including the reference price, quality adjustments, cost of transportation and domestic cost of production. 387 In 2010, around 46% of Mexico’s internal consumption is imported gasoline. 388 International Monetary Fund, Petroleum Product Subsidies: Costly, Inequitable, and On the Rise. 389 In fact, the subsidy is absorbed by PEMEX increasing the already exiting inefficiencies of the State owned company.

202 of those funds were directed to state governments.390 But when the international price of gasoline started to increase rapidly internationally in mid 2000s, the government of Mexico decided to set the price domestically at a lower rate to protect the Mexican economy from a possible inflationary processes. Higher oil prices increased production and import costs for PEMEX for gasoline and diesel. Mexican retail prices, however, have not kept up, leading to a de facto subsidy since 2006.

Next Page: Figure 7.2. Comparison of Gasoline Prices between Mexico and the United States 1993-2009. Inter- American Development Bank, A Structural Fiscal Balance Rule for Mexico, by Gerardo Esquivel and Williams Peralta, July 2013, http://idbdocs.iadb.org/wsdocs/getdocument.aspx?docnum=37951034.

390 Before the 2008 reforms, any state could receive 10% of the income generated by the IEPS on fuel tax. However, states give away their rights to obtain this percentage after they sign a co-participation agreement. This agreement specifies that in order to be eligible to receive direct transfers from the federal government, states forgo their rights to receive specific percentage amounts of different taxes levied in their territories in favor of receiving a transfer that come from the general revenue fund. In other words, states ensure that 20% of all the general government tax revenues are distributed back to these states. This includes all levied taxes as well as oil and mining extraction license revenues. The agreement established a formula to allocate resources between the states: 45.17% are apportioned strictly as a proportion of their population. Another 45.17% are allocated through several formulas taking into consideration social development objectives, and indicators. The remaining 9.66% is apportioned in inverse proportion to the states’ population. After the reform carried out in 2007 and implemented in 2008, states were eligible to receive an additional 9/11 of the total income, and it varied by state dependent on population and number of vehicles registered in a state. For more details see Texas Department of Transportation, An Evaluation of Mexican Transportation Planning, Finance, Implementation, and Construction Processes, by Lisa Loftus-Otway, Nathan Hutson, Alejandra Cruz-Ross, Rachel Niven, Leigh B. Boske, and Jolanda Prozzi, October 2009, http://www.utexas.edu/research/ctr/pdf_reports/0_5985_1.pdf.

203

Figure 7.2 shows the price per liter from 1993 to , the US, and Houston, and figure 7.3 shows an example between 2008 and 2011. Both graphs show that prices in

Mexico have remained stable while US prices have fluctuated. Before 2006, while prices remained stable, gasoline was consistently taxed (see graph 7.4). Since the increase in international prices, gasoline prices have been largely subsidized. The gasoline subsidies have averaged 1.2 pesos per liter per year since 2006 (about 40 U.S. cents per gallon); 1.8 pesos for diesel (59 cents per gallon).

Figure 7.3. Gasoline prices in Mexico and United States 2008-2011. Inter-American Development Bank, Sectores Clave Para La Economía Verde En México, 103.

204 This subsidy generated a strong fiscal pressure on Mexican public finances in general, and on PEMEX in particular. However, there was great resistance to changing it. Since a reform needed congressional approval, having governors support such a reform, as well as party leaders that would instruct the legislators becomes key in the Mexican context. Keeping the structure as it was represented no cost for state governments, which continued to receive part of the IEPS through the co-participation agreement, regardless of the price being under or over the international price. For party leaders, it avoided electoral backlash from raising fuel prices.

Changing the price could spark, some argued, an inflationary process. At the same time, some estimates suggest the costs of keeping this price structure have represented up to 5.8% of

Mexico’s GDP during the years 2006-2012.391 On the other hand, the lower gasoline and diesel prices were considered an incentive to purchase a car, increasing GHG emissions. When discussing the administration of Felipe Calderon, the dynamics of reforming the IEPS will be discussed. In fact, since 2008 there has been a slight increase in gasoline and diesel prices, but de facto subsidies remain, affecting the transportation sector in Mexico by generating incentives for automobile use.

In addition to the distortion of gasoline and diesel retail prices, there are also fuel tax credits available for the agriculture and fisheries sector, for commuters, for commercial vessels, and for certain uses of diesel beyond transportation. Most of these credits benefit diesel fuel.

They are provided on top of the regulated prices that are set below import prices, as explained above. In these categories we find a general diesel tax credit was implemented in 2003 to

391Inter-American Dialogue, Redistributive Impact and Efficiency of Mexico's Fiscal System, by John Scott, January 2013,http://www.commitmentoequity.org/publications_files/CEQWPNo8%20RedistImpactFiscSystMexico%20Jan %202013.pdf; Mexico, INECC, Re-distribución De Los Subsidios a Los Combustibles: Oportunidades De Reforma, June 2012, http://www.inecc.gob.mx/descargas/eventos/ensenanza_rio20_pres_jscott.pdf.

205 promote the use of vehicles using diesel. These could be used either by public or private vehicles. Also, in 2003, Mexico created a diesel tax credit for commuters, which helped commuters purchase diesel fuel.

3.5 3 2.5 1.8 2 1.5 0.1 0.7 1 0.4 0.4 1.2 1.2 0.5 1 1 1 0.9 0.9 0.9 0 0.01 0.1 0.1 0.08 0.1 0.22 0.1 0.2 -0.6 -0.5 -1.2 -0.2 -1 -1.5 2002 2004 2005 2006 2007 2008 2009 2010

Gas LP Electricidad Gasolinas y diesel

Figure 7.4. Energy subsidies as a percentage of GDP. Inter-American Development Bank, Sectores Clave Para La Economía Verde En México, 102. Another source of Mexico’s automobile-friendly policies is the powerful position of the automobile industry, which plays a major role in the Mexican economy and is one of the major groups lobbying the Mexican government.

Due to its predominant role in the country’s industrial development process, with its relationship with other basic industries (steel, glass, petroleum, aluminum, etc.) the automotive industry received special treatment during most of the twenty century in Mexico.392 Since 1925, a series of decrees were issued in Mexico to protect the national automobile industry. National production of cars increased from 21,500 units in 1950 to 600,000 in 1980 However, the debt crisis of the 1980s impacted this industry, which fell back to 250,000 units in 1982,j slowly recovering to produce 550,000 units by 1990. Under NAFTA, Mexican tariffs to foreign

392 Juan Carlos Moreno Bird, Mexico's Auto Industry after NAFTA: A Successful Experience in Restructuring? (Notre Dame, IN: Helen Kellogg Institute for International Studies, 1996), 20.

206 components were reduced progressively over 10 years, allowing US and Canadian companies to export materials to assemble cars in Mexico. Today the industry is predominantly American with the Big Three (Chrysler, Ford, and General Motors) holding the majority of the market. Graph

7.4 shows the number of units produced annually since 1999, including the percentage of national components and the levels of exports (nearly 80% of Mexican production). While today

Mexico is the 4th biggest exporter of automobiles, after Germany, Japan and South Korea, it is also highly dependent upon the US economy.

Figure 7.5. Automobile industry: production, national components and exports. Inter-American Development Bank, Sectores Clave Para La Economía Verde En México. NAFTA not only led to increased capacity of auto plants, in absolute terms of national production, it also created a dynamic Mexican market. The open market has tended to reduce prices domestically, making automobiles more accessible to the population, which lately has also increased the demand for imported cars. Graph 7.6 shows this trend by presenting the total number of sales in the Mexican market.

207

Figure 7.6. Number of car sales in Mexico, 1988-2008. Inter-American Development Bank, Sectores Clave Para La Economía Verde En México. The automobile industry’s position as one of the main export industries in Mexico grants it considerable leverage – for instance, the industry can determine where certain infrastructure investment is done. Much of the investment created after the NAFTA was done in the north of the country, seeking better access to the ports of Manzanillo, Veracruz, and Lazaro Cárdenas. In addition, some analysts have described this situation as highly detrimental for the Mexican government to control or regulate this sector. 393According to Gachíz Maya, after NAFTA the bargaining power of the Mexican state against multinational companies has been reduced.

Evidence of this is the fact that the Mexican domestic market has been growing, but with a lower cost structure due to less stringent regulation for national sold vehicles (the national market requires lower standards than cars for export). In this context it is clear that a policy to regulate fuel efficiency nationally would be highly opposed by the sector, and not included in the PECC as a measure to reduce GHG emissions within the transportation sector. Indeed, while the

National Institute for Ecology (INE) had defined fuel efficiency standards as one of the most

393 Juan C. Gachuz Maya, "The Impact of the North American Free Trade Agreement (NAFTA) on the Automotive Industry in Mexico: An Analysis in Political Economy." (Saarbrucken: VDM, 2004).

208 cost-effective measures for the Mexican economy to reduce GHG emissions, with potential to

394 reduce 20 MtCO2eq in 4 years (as seen in the graph 7.7), this measure was left out of the plan.

Figure 7.7. Mitigation actions and potential of reducing GHG emissions 2020-2050. Centro Mario Molina and McKinsey, Low Carbon Growth: A Potential Path for Mexico (Mexico City: Centro Mario Molina, 2008). In this graph the width of the bars represents the mitigation potential. If they are below the 0 line they represent monetary savings. Those measures above the 0 line represent actions that have an additional cost. Note that public transportation, while represented by a wide bar, has additional costs for society. Fuel efficiency standards for light and heavy vehicles represent savings to the economy and have a large mitigation potential.

This fact illustrates that transportation policy was not defined by climate change, but rather climate change mitigation was a by-product of transportation policy implementation. The next sections will explain how these two policies interacted during the 2000s.

394 SEMARNAT, Programa Especial De Cambio Climatico 2009-2012.

209 The First PAN Administration and the Transport Policy

When the PAN took office in 2000, it was confronted with inadequate investment in roads across the country, which impacted Mexico’s connectivity and competitiveness. Locally, urban mobility problems impacted up to 75% of the population. Mexico has a centrally controlled system for transportation planning, development, and financing. States have had little authority to raise taxes for infrastructure development, and most of the financing comes from oil revenues. States were often not involved in the planning of major corridors. This section will explain how since 2000 some funding mechanisms were developed to promote infrastructure development at the state level. Together with the new political map, the problems associated with this funding mechanism, notably overlapping jurisdiction in urban transportation policy, have hindered the development of low carbon emissions transportation projects in Mexican cities.

Vicente Fox considered both areas national roads and urban transportation to be in need of private investment flows, which required a stable institutional framework. In order to respond to these transportation needs, Fox’s administration launched a national infrastructure plan that sought to reinstate the importance of infrastructure development within the National

Development Plan, including every sector.395 Since the Tequila crisis of 1995-1995, investment had dropped to 125 billion pesos, with the major investments only going to the energy sector.396

The plan sought to set the basis for Mexico to grow at 7% annually, reaching investment of at least 2% of GDP annually.

395 Joel Rendon, "The Best Laid Plans," Business Mexico 11, no. 7 (July 2001). 396 México Evalúa Centro De Análisis De Políticas Públicas, El Gasto En Infraestructura En Mexico: Evaluación De Avances Del Programa Carretero 2007-2012, by Fausto Hernández Trillo (Mexico City: México Evalúa Centro De Análisis De Políticas Públicas, 2011).

210 300,000

250,000

200,000

150,000

100,000

50,000

0 1989-1994 1995-2000 2001-2006 2007-2012

Figure 7.8. Total amount of public investment in four administrations (1989-2012). México Evalúa Centro De Análisis De Políticas Públicas, El Gasto En Infraestructura En Mexico: Evaluación De Avances Del Programa Carretero 2007-2012.

Carretero 2007-2012. However, this plan had no financing mechanism. In a divided government, where Fox’s ability to win approval of laws he favored was limited, the only funding mechanism that Fox was able to negotiate with Congress was the creation of a fund for the states, called the Trust for State

Infrastructure (Fideicomiso para la Infraestructura en los Estados – FIEF). This trust was created in 2003 and was to be financed by higher oil revenues.397 This fund could be used not only for transportation, but for any other type of infrastructure, including hospitals, water and sanitation, security, and public buildings. According to the rules of operation, this fund was accessed by the states by applying for specific projects. Funding levels were not related to the population of a state. Interestingly, as was the case of other funds in other sectors, decisions to

397 ITDP, Diagnostico De Fondos Federales Para Trasnporte Y Accesibildiad Urbana, by Javier Garduno Arredondo (Mexico City: ITDP, 2012).

211 fund projects were at the discretion of the executive, without Congressional approval.398 The executive is required to publish the rules of operations each year, and based on such rules, projects are selected. The selection of this type of mechanism was considered transparent because rules of operations need to be debated in public forum. However, the practice of defining the rules of operation has received a lot of criticisms in Mexico.399

Looking at the number of resources assigned by state from 2003-2006, one could expect, based on the Infrastructure Plan, that such resources would be used to improve the conditions of those states where infrastructure was lacking. However, there was no correlation between infrastructure needs (measured by HDI) and the amount of resources allocated. In fact, the states with higher HDI received higher per capita allocations than those with lower HDI, except for

Chiapas. The highest assignment per capita per state during this period was in the amount of

2,350 pesos, allocated to the state of Tabasco. The assignment of resources to Tabasco does not come as a surprise. The PRI became a pivotal party during the first PAN administration, where any new legislation that Vicente Fox wanted to approve, needed the PRI’s endorsement,

398 Beyond this specific fund, the amounts allocates for infrastructure investments in Mexico have been subject to congressional approval and modifications. According to a report from Mexico Evalua, Congress has tended to modify by up to 50% the total amounts requested by SHCP during the budget cycle. This responds to political and electoral criteria more that technical criteria. Each state and local government lobbies Congress directly to modify the budget bill. For more detail, see the report from México Evalúa Centro De Análisis De Políticas Públicas, El Gasto En Infraestructura En Mexico: Evaluación De Avances Del Programa Carretero 2007-2012. 399 For an evaluation of this mechanism see Jef L. Leroy, Marie Ruel, and Ellen Verhofstadt, "The Impact of Conditional Cash Transfer Programmes on Child Nutrition: A Review of Evidence Using a Programme Theory Framework," Journal of Development Effectiveness 1, no. 2 (2009), doi:10.1080/19439340902924043. The reason why this mechanism was adopted in Congress was not possible to uncover. Possibly, it could be assumed that this selection was adopted on the basis that the PRI could return to power, and therefore they could use what John Hudak has called “Presidnetial Pork”. See John Joseph Hudak, Presidential Pork: White House Influence over the Distribution of Federal Grants (Washington, D.C.: The Brookings Institution, 2014). Further research needs to be done on this topic to better understand these dynamics.

212 including the annual budget law. The PRI responded to its president’s order to vote on any legislation. Note that Roberto Madrazo, the PRI presidential candidate in 2006 and president of the party from 2002 to 2005, was from Tabasco.400

Table 7.2 Resources assigned by FIEF per State, 2003-2006

States Human Amount of Party from Multiparty system or Development Resources per 2000-2006 (if One Party Rule Index Capita 2003- two, listed the (from 1999 until 2006) 2006 one from 2003 onwards) Chiapas 0.646 914 PRD Multiparty system Oaxaca 0.6675 600 PRI One Party Rule Guerrero 0.6677 624 PRI Multiparty system Michoacán 0.6873 587 PRD Multiparty system Puebla 0.6977 650 PRI One Party Rule Veracruz 0.6985 750 PRI One Party Rule Guanajuato 0.7041 670 PAN One Party Rule Zacatecas 0.7057 730 PRD Multiparty system Hidalgo 0.7073 668 PRI One Party Rule San Luis Potosí 0.7109 670 PAN Multiparty system Tlaxcala 0.7159 880 PAN Multiparty system Durango 0.718 751 PRI One Party Rule Yucatán 0.7227 760 PAN Multiparty system Tabasco 0.7242 2350 PRI One Party Rule Campeche 0.7281 1,327 PRI One Party Rule Nayarit 0.7315 890 PRI One Party Rule México 0.7383 790 PRI One Party Rule Jalisco 0.7393 785 PAN One Party Rule Morelos 0.7445 790 PAN Multiparty system

400 One alternative hypothesis explaining the large amount of resources assigned to Tabasco could be that these resources were responding to the reconstruction needs of the state, one of the most vulnerable to the impacts of climate change. However, the floods occurred in 2007 and the large amount of resources identified here were transferred in the period 2003-2006.

213 Aguascalientes 0.7483 947 PAN Multiparty system Querétaro 0.7493 1010 PAN One Party Rule Quintana Roo 0.7506 1330 PRI One Party Rule Sinaloa 0.7528 820 PRI One Party Rule Tamaulipas 0.7529 830 PRI One Party Rule Chihuahua 0.7535 790 PRI One Party Rule Coahuila 0.7553 828 PRI One Party Rule Colima 0.759 1,159 PRI One Party Rule Baja California 0.7697 937 PAN One Party Rule Sonora 0.772 940 PRI One Party Rule Nuevo León 0.7847 950 PRI Multiparty system Baja California 0.7904 1,337 PRD Multiparty system Sur Distrito Federal 0.8272 1,035 PRD One Party Rule Source: Own elaboration. Data from the Instituto Nacional De Estadística Y Geografía (INEGI), Secretaria de Hacienda y Credito Publico (SHCP) and Instituto Federal Electoral (IFE). One possible explanation for this allocation has to do with the higher capacity found at those states to prepare and present proposals to the SHCP. Interviews confirmed that state capacity to develop projects is limited in all states except for the Distrito Federal. However, interviews also pointed to the fact that some states received preferential treatment in the allocation performed by SHCP, but those instructions were given “under the table.” According to interviews, they would receive phone calls or a personal visit indicating who to assign resources.401

The states that received the highest amounts per capita are: Distrito Federal, Baja

California Sur, Colima, Campeche, Quintana Roo, Queretaro, and Tabasco. Analyzing this allocation, Colima, Campeche, and Quintana Roo stand out of cases that are a priority for the country. Colima has one of the most important ports in the country, Manzanillo. Campeche

401 Interview with Banobras staff member, February 12 2014 and Interview with SHCP staff member, March 15th 2013.

214 contains the largest oil field in Mexico, Cantarell, but also, together with Quintana Roo, represents a possible tourist destination that requires investment on infrastructure. Tourism played an important element in Vicente Fox’s 2001-2006 National Development Plan, and was defined as one of its priorities. 402 Explaining the other states becomes more complex. Queretaro is one of the first states to be governed by the PAN and was a stronghold for the party. No clear explanation was found for Baja California Sur.

In practice, this fund responded to infrastructure needs, but also became, to a lesser extent than the forestry funds, a resource for distributive politics. It granted resources to the state of

Roberto Madrazo, president of the PRI. As the first administration of the PAN Party was in office in a divided government, the evidence suggests that the logic behind assigning resources responded to the PAN seeking support from PRI governors and legislators to pass legislation.

As a result of lacking strong financing mechanisms, and in a context of a divided government, in this time period no large infrastructure project was undertaken at the federal level, while many smaller projects where carried out at the state level. Public investments in infrastructure averaged around 1.7 % of GDP in this period. The majority of resources were allocated to communications, transportation, and roadways (48.9%) followed by investments in regional development, water, and sanitation (17.2%). Since transportation projects are more expensive, an additional element to consider was the number of projects per type of investment.

402 In fact, as a result of these investments undertaken during Fox’s administration, Quintana Roo was classified the ninth most competitive state in Mexico from 2003-2006 due to its high levels of investment in infrastructure. See Instituto Mexicano Para La Competitividad, "Quintana Roo: Analisis De Competitividad 2010," Competitividad Estatal 2010 :: La Caja Negra Del Gasto Público, 2010, accessed March 28, 2014, http://imco.org.mx/indice_estatal_2010/PDFS/23.Quintana_Roo.pdf. The National Development Plan defines tourism as a potential mechanism for mobilizing public policies towards economic growth in Mexico in this period. Derived from the previous Plan emerges National Tourism 2001 - 2006, which shows the economic benefits that tourism will have on Mexico.

215 Again, transport, communications and roadways has the larger amount of projects (1,441) followed by rural development (1,256).

Within the communication, transportation, and roadways investments, the main recipient sector was roads, along with investments related to use of the automobile. In fact, as mentioned above, one of the states that received the most resources was Colima, home of a major port that exported automobiles. Construction, expansion, and repairing of roads used about 80% of the resources, while public transportation only received 20% of the total amount of resources.

According to a study carried out by ITDP (2012) the trend of favoring investment related to the automobile continued until 2011.403

In terms of the impact on GHG emissions, at the international level Mexico signed the

Kyoto Protocol in 2000, and was outspoken regarding the need to curtail emissions. It embraced actions around energy efficiency, fuel substitution towards natural gas, and reforestation.

However, the national-level data suggest that investment had not changed its focus from the automobile to alternative modes of transportation such as Bus Rapid Transit or light rail that could be more efficient. The result of these years’ transportation policy was an increased number of cars on the roads, and investments that continued to foster that kind of behavior in the population by equating car ownership and use with higher status. In fact, national and local level politicians have used the figures of increased traffic flow in Mexico as proof of modernity and progress. Fuel subsidies added yet another layer to the already high reliance on the automobile as the main mode of transportation. During the Fox administration, there was a clear disconnect between international commitments to which Mexico was party, and the national actions implemented.

403 ITDP, Diagnostico De Fondos Federales Para Trasnporte Y Accesibildiad Urbana.

216 Some actions taken at city levels, however, are worth mentioning. These actions were not motivated by climate concerns, but because of the availability of international resources and the direct involvement of IFIs, some of these actions were later branded as climate actions. One local case stands out: the suburban train. A project with great potential for reducing GHG emissions was not a subject of branding, (keeping in mind that branding occurs when there is an alignment of IFI proposals with those of the national government). Before illustrating the cases, the next section presents the ideas governing actions at the local level. Then, it presents the three cases showcasing how the process of branding occurred, and finishes with a summary of the dynamics at play in local level transportation projects.

Changing ideas: Urban Development, Trains and Bus Rapid Transport Systems

The increased need for transportation within large cities generated two acute problems in cities (where three of every four Mexicans live): congestion and pollution. The mobility problem for the large population living far away from their jobs and lacking efficient public transportation impacted the amount of cars on the roads, increasing congestion, local pollution, and time spent travelling, and creating a need for infrastructure development and increased oil consumption. It also increased gasoline and diesel imports. In 2008, 43% of the gasoline and 18% of the diesel consumed in the country was imported; by 2010 those numbers increased to 46% of gasoline and

29% of diesel. The effects on the balance of payments of continuing with a model based on the promotion of the automobile impacted the views of the government nationally, especially the

Ministry of Finance. The increased congestion, pollution, and time spent in traffic became a local issue for large municipalities and, due to the institutional arrangement and jurisdictions discussed previously, became a problem that needed attention from state governors.

217 The lack of planning at the city level meant that an additional actor had to be taken into account: the concessionaries of city routes. 404 State governors or municipalities in some cases assigned these routes. The concessions are granted for 30 years and the number of permits is restricted. Due to the lack of government investment in public transportation, the fast-growing demand resulting from urbanization made the sector highly profitable: permit holders rented or sold their permits allowing new market participants to enter by adding more and more units and routes and keep up with demand. They did so without much order or regulation. This scheme fosters “single man owned buses,” referred to in Mexico as the model “hombre-camion.” In this model, the opportunity to join the market is relatively low, with an initial low investment. The result has been a transport service formed by a group of individuals operating together, but not as a firm. These informal groups have hardly any incentives to exploit economies of scale and create larger transportation projects. In fact, one individual may have five or six buses under the

404 For a better understanding of the effects that rapid urbanization had on the quality of life of individuals, in a context of poor transportation planning, it is useful to consider briefly the history of “peseros” in Mexico. During the 1970’s the so-called “taxi colectivo” (collective cabs) model started to develop. These cabs were bigger cars with more or less fixed routes which would pick-up as well as drop-off passengers at any point of the route. Passenger capacities were limited to those of a large car (usually up to six people plus a driver). Being cheaper than a proper taxi and allowing the flexibility to cover routes that were not feasible for larger buses or other forms of public transport allowed fast growth both in numbers and in size of vehicles. By the 1980’s, pesero owners started using Volkswagen Microbus. This choice enlarged their capacity to twelve passengers or even more if necessary. By the mid 1980’s most peseros were even larger “microbuses.” The new form of microbuses was capable of carrying between 22 and 50 sitting passengers, or even more. In the mid 1990’s an explosive growth of peseros started. In the valley of Mexico specifically, following the bankruptcy of the government run transport company “Ruta 100” in 1995, the government largely opened the transport sector to the market. This included the outsourcing of route design. The result was that the microbus became the reigning transport mode. In 1986, 42% of the daily trips in Mexico City were performed by middle capacity vehicles. By 2000, this category shrunk to 9% of trips while microbuses increased to 55%. In 2007, after BRT systems were implemented in Leon, , and DF this number decreased to 46%. While the size of public transport vehicles used became smaller, the number of routes multiplied. Interview with Mexican Transport Specialist World Bank, February 15th 2014.

218 same permit, and hire drivers for those buses. Each driver gets paid by the number of passengers he takes on, resulting in a competition between buses to get passengers. Many accidents are the results of this scheme. But it is almost impossible to convince transport operators to modernize their systems since they feel a real threat of displacement from the market. The outcome has been a highly inefficient public transport system. Reforming this system has proven politically costly. Opposition to any projects that attempt to replace buses have failed to take root when the bus owners are not included in the new schemes, as the case of the initial lines design for the

Mexico City show.

In addition to the bus owners, the institutional framework described above conditions the options for reform. The design of new public policies to improve transport systems is not addressed at any specific level of government, requiring the alignment of the three levels to take action. The state government is directly responsible for the planning, design operation, and control of transportation systems but its budget depends heavily on transfers from the federal government. The federal government has limited participation in the design of a new policy, but has politically a lot at stake in major cities that account for 75% of the national population (see table 7.3). One option that the federal government has for addressing the urban mobility problem is granting more financial resources. The difficulty is that this action could be credited to the state governor, which is problematic if he is of the opposing party. Municipal government authority is restricted to traffic control activities, public security, and maintained of roads.

However, given the visibility of the transportation system for citizens, the actions, or lack of

219 action, can impact the image of a mayor and his political career, even at the national level, as the case of Lopez Obrador attests.405

Table 7.3 City populations and party in government in 2000-2006

City Population Party in Municipal Party in State Federal Government Government government San Luis de Potosi 1.041m PRI-PAN PAN Queretaro 1.097m PRI PAN Torreón-La Laguna 1.216m PRI PRI Ciudad Juarez 1.328m PAN-PRI PRI León 1.610m PAN PAN Tijuana 1.751m PAN-PRI PAN PAN Toluca 1.847m PAN PRI Puebla-Tlaxcala 2.668m PAN-PRI PRI Monterrey 4.080m PAN-PRI PRI Guadalajara 4.434m PRD-PAN PAN Mexico City 20.137m PRD Source: Author’s elaboration. Data from Instituto Nacional De Estadística y Geografía (INEGI).

The complexity does not mean no actions have been taken. Three cases from the period of the Fox administration showcase the difficulties and opportunities of these types of projects: the Case of the BRT in Leon, the BRT in DF, and the suburban train in the Valley of Mexico.

These cases are highlighted in Table 7.3 where a list of the largest cities in Mexico is presented together with the ruling party at the different levels of government.

405 Manuel Lopez Obrador was the Mayor of Mexico City from 2000 to 2006. During his tenure as a mayor he engaged in major transportation projects, including the Mexico City BRT, which increased his positive image as a political candidate who would be able to respond to the citizenry’s demands.

220 The Integrated Transport System (SIT-Optibus)

The Optibus is the mass transportation system of the city of Leon, in Guanajuato. The native city of Vicente Fox, during 2000 to 2006 it was governed by the PAN at the local and state level. This was Mexico’s first Bus Rapid Transit. The system has five main routes, while the feeder routes (where the state has jurisdiction) were integrated into the system, and are operated by regular buses. The plan for this system is to serve more than 500,000 people.

According to recent studies done by EMBARQ (2011), this system has reduced accidents by 30 percent and reduced diesel consumption by 2 million liters per year.406

Resources from the city and the state financed this project jointly with technical assistance from the World Bank. The federal government was directly involved in facilitating this city’s access to the World Bank.407 Before the financing was in place, other elements changed, creating what Judith Teichman calls a conjuncture, referring to join term of coyuntura and “critical juncture.” While the second term refers mainly to temporal sequence and institutional political outcomes, the first term is a reference to changes in social forces.408 Leon experienced certain changes at the business and social levels of the bus owner, organizing into a civil society group first, and then into a business corporation because political change was occurring at the state level.

The origin of this bus rapid transit system was a change in business practices by the bus owners in Leon. In 1994 a group of buses owners decided to unite in order to strengthen their

406 World Resource Institute, Embarq, Perspectives from Mexico to Achieve More with Less: Alternative Transport Modes and Their Social and Environmental Benefits, by Adriana Lobo, David Uniman, and Aimee Aguilar (Mexico City: CTS Mexico, 2011). 407 All the support given by International Financial Institutions required the non-objection of SHCP. 408 Judith A. Teichman, Social Forces and States: Poverty and Distributional Outcomes in South Korea, Chile, and Mexico (Standford: Standford University Press, 2012).

221 bargaining position and keep from losing their permits to the possible new state government if the PAN candidate, Vicente Fox, took office. Leon’s private bus operators formed themselves into a monopoly consortium, called the Coordinadora de Transporte, a partnership between 13 bus companies, which have since then organized their operations into four large companies.

They initially called it a civil society organization, but later became a business company. Vicente

Fox took office in June 1995.409

While Vicente Fox was in office, he signed agreements with the municipalities to transfer state resources in decentralization effort which was applied to several areas of government, including transportation. This decentralization and the associated changes in business practices, together with the international assistance from the World Bank, allowed the city to resolve the urban mobility problem they were facing (Leon was growing at double the national growth rate) by adopting a BRT in Leon.

Several actions led to this decision. First, the city drafted an agreement between the city and the Coordinadora de Transporte in 1998, creating a trust fund that would be funded at

US$35 per day per unit to change the units when needed. Second, the city started designing the

BRT system. The consortium at first resisted the option of a BRT program, undermining the bargaining power of the city. With the help of the World Bank, the city was able to negotiate with the consortium, and ensure the monopoly over operations in the entire system to the

Coordinadora de Transporte with no specific time limit. Afterwards, the city created the

Integrated Transport System (TIS), a commission with representatives from the city and state

409 The election victory by Vicente Fox as in an extraordinary election in 1995 followed a series of events after the initial election was declared fraudulent, details that go beyond the scope of this work. For more details see Andrew Reding, "The Next Mexican Revolution," World Policy Journal 13, no. 3 (October 01, 1996).

222 government. This commission was responsible for buying the initial buses, and with the trust fund resources the consortium was able to secure bank financing to procure modern buses.410

One key element of success for this project was the inclusion of the feeder lines in the design.

The Coordinadora de Transporte also owned the feeder lines. The city viewed the project as a whole system from feeder routes to the specific BRT routes. The alignment between city and state governments belonging to the same party allowed the city to design the system and implement it as planned by negotiating the main and feeder routes with the state government.

The end result was a successful project that has since incorporated new BRT routes.

The case of Leon is interesting on its own. However, in relation to climate change policy in Mexico, it shows that its design did not include climate concerns. In fact, climate mitigation potential was only included in the project justification in 2010, when new lines for the BRT were being implemented. Moreover, there is no mention of the Leon BRT system as a mitigation action until the Fourth National Communication, the country’s survey of climate change actions, in 2010.411

Other local projects had similar mitigation potential to Leon’s project, but were branded as climate actions, as in the case of the BRT in Mexico City. In this case the role of IFIs in such branding was instrumental.

410 The Coordinadora de Transporte consortium owns and operates the feeder buses as well as other buses in the system. In a way it has become a model of privatizing a transport system operation and design. The influence that the City and the State have over the regulation of the system is through a Technical Committee of the Coordinadora de Transporte. 411 The lack of climate focus was also confirmed by two interviews carried out with Leon representatives.

223 Metrobus system in Mexico City

In the early 1990s, air pollution was a big concern for Mexico City. As a result, the city developed a series of Transport and Quality Management plans. These plans were intended to improve air quality, reduce large emissions of pollutants, such as NOx , PMs, and VOCs, where transportation played a major role. The level of air pollution in Mexico City in the 1990s caught the attention of the international community, and Mexico’s growing civil society showed concern. As a result, the city, and the federal government, requested assistance from World

Bank. In its discussion, the World Bank supported the development of several programs, including elements such as the “Today you don’t drive” (Hoy No Circula) campaign. These programs targeted the reduction of local contaminants that exceeded local and international standards by limiting the number of vehicles on the road, while increasing the information available to inform the decision making process. The transport Air Quality Management Project, approved in December 1992, for a total amount of US$220 million, financed mainly fleet modernization and measures to reduce VOCs and PM emissions.

At the same time that these plans and programs were implemented locally, at the international level the UNFCCC was signed and new environmental funds were designed, including the Global Environmental Facility (GEF). The GEF designated the World Bank as its trustee and opened up the application process to implementing agencies. The World Bank rapidly became the initial implementing agency and as such the main user of the GEF funds.412 As

412 The GEF had six focal areas: biodiversity, climate change, international waters, ozone depletion, land degradation, and persistent organic pollutant.

224 interviews suggest, the World Bank was able to utilize the GEF funding as a “hook” for future loans.413

While the dialogue with Mexico City on air quality was initiated before the climate funds were created, once the funds were operational, the World Bank convinced the city to apply for funding from the GEF facilities in the late 1990s. The World Bank assisted the city in producing a local pollutant inventory and GHG inventory and also carry out actions that went beyond the climate impacts: assessment of avoided health costs and air quality modeling tools.414 In 2002 when the Bank prepared a second loan for the city, to implement the BRT called METROBUS, it utilized the GEF funds as grant resources to finance the development of policies and measures that assisted in a long-term modal shift toward the BRT.415 In other words the GEF, with its climate focus, provided grant money for carrying out all the pre-investments studies for the new project. These funds were also complemented with additional trust fund resources from other sources in the World Bank. As stated in the GEF document, the Mexican authorities had a strong

413 Interview with SHCP staff member, May 14th 2013. 414 Walter Vergara, Improving Air Quality in Metropolitan Mexico City: An Economic Evaluation (Washington, D.C.: World Bank Latin America and the Caribbean Region, Environmentally and Socially Sustainable Development Sector Unit, 2002). 415 The BRT systems had existed since 1970s. However since the early 2000s the IFIs saw in this model an ideal mitigation strategy for the transport sector. In contract to electric trains, they required less upfront investments and would not impact the fiscal sustainability of countries. Costs range from $10.2 million per mile in a BRT to $128.2 million per mile in a heavy rail system. See World Resource Institute, Embarq, Perspectives from Mexico to Achieve More with Less: Alternative Transport Modes and Their Social and Environmental Benefits; Mark A. Miller, "Bus Rapid Transit, Institutional Issues Related to Implementation," Transportation Technologies for Sustainability, 2013, doi:10.1007/978-1-4614-5844-9_495. As a result of these high costs, according to the OECD, most train systems around the world are subsidized. As a result, in early 2000s the World Bank hired transport specialists that knew and could promote BRT as a policy option. See for example the latest suggestion by the OECD in OECD, "New Export Credit Rules Will Boost Railway Development and Help Countries Achieve Greener Growth, OECD Says," OECD, January 2014, http://www.oecd.org/tad/xcred/new-export-credit-rules-will-boost-railway- development-and-help-countries-achieve-greener-growth-oecd-says.htm.

225 commitment to implement the Metropolitan Transport Corridors even in the absence of Bank funding.416 However, the combination of different sources of grant funding facilitated the shift to a BRT system.

In addition to these resources, once the design of the BRT was concluded, one element that remained unresolved was the role of the bus owners in the new system. The climate focus of the BRT served once again to provide funding and attracts private investments. The city negotiated with bus operators to transform the “hombre-camion” structure into a company that would benefit from operating this new transportation system and would receive additional funding from the World Bank. The World Bank generated a transportation methodology that proved emission reductions, in order to apply to the Clean Development Mechanism (CDM).

Once the methodology was approved in 2006, the project would be eligible to obtain carbon credits to sell to developed countries and obtain additional carbon finance. These funds could be leveraged with local resources to cover the additional costs, including those that private sector needed to cover by changing to newer transport vehicles. While the project started operations in

2005, and only received a CDM certification in 2011, the promise of future carbon credit allowed the transport operators to access better financing terms.417

The Metrobus BRT included a reform to conventional public transportation in Mexico. It annually transports 80 million passengers. It is estimated that it reduced 46,000 metric tons of

416 GEF, "MEXICO-Air Quality Management and Sustainable Transport Project," GEF - All Documents, 2003, section goes here, accessed March 29, 2014, http://www-wds.worldbank.org/. 417 The financing structure of the CDM projects goes beyond the scope of this thesis. For details on how this financing was carried out see the UNFCCC register project document 4945, at UNFCCC, "Recent Developments," UNFCCC, November 2012, accessed February 28, 2014, http://unfccc.int/national_reports/non- annex_i_natcom/recent_development/items/6922.php.

226 418 CO2 equivalent per year. Recent studies, however, have questioned the real impact on emission reductions of this project. According to these studies the prohibitions on medium and heavy trucks in the BRT corridors have impacted the congestion, emissions, and travel time for the trucks within the city.419 One the other hand, the travel time for citizens, air quality, and congestion problems, which initially led to the design of the project, have in fact been improved.420

Since this project was implemented in the largest city in Mexico, it has become a model for other cities in Mexico and the rest of the region. This is an example where transportation policy was designed to respond to local problems, and was adjusted to respond also to concerns about climate. As such, it was able to access resources from several funding sources, including being the first project to use carbon finance resources. This case also illustrates how the World

Bank’s support helped turned a transport program into a climate program, branding current actions as mitigation actions. The origin was local, but the impact was global.

A final point to consider in this example is the fact that there was a different party in office at the local and federal levels, but it seems that this did not affect the implementation of the project. While one could argue that the focus on climate actions praised internationally could

418 World Bank, Transport and Climate: Lessons from the Partnership between Mexico City and the World Bank, by Walter Vergara and Seraphine Haeussling (Washington, D.C.: World Bank Latin America and the Caribbean Region Sustainable Development Department (LCSSD), 2007). 419 Texas Department of Transportation, An Evaluation of Mexican Transportation Planning, Finance, Implementation, and Construction Processes, by Lisa Loftus-Otway, Nathan Hutson, Alejandra Cruz-Ross, Rachel Niven, Leigh B. Boske, and Jolanda Prozzi, October 2009, http://www.utexas.edu/research/ctr/pdf_reports/0_5985_1.pdf. 420 World Resource Institute, Embarq, Perspectives from Mexico to Achieve More with Less: Alternative Transport Modes and Their Social and Environmental Benefits,.

227 have promoted this project to be implemented,421 a closer look at this case shows that this was not a response to the country’s international position on the climate negotiations. We cannot extrapolate what occurred in Mexico City to other cities in the country due to its role as capital city; it is the main city, with the largest population in Mexico, and is also the host of the federal agencies. Interviews suggest that the federal government will not deny a request from the city to get international funding and assistance, as it can with other cities or states. The city government has the ability to impact the federal government functions by closing streets or access to federal agencies. At the same time, the involvement of the international organization becomes an instrument for finding common ground between federal and local level governments. The IFIs have the incentives to approve their project, making the international specialist willing to play a broker role between two levels of government.

In sum, the case of Mexico City shows that alignment of local problems with IFIs’ incentives and funding sources internationally can coincide to foster climate actions. In other words, while transport policy is designed to resolve local problems, the availability of funds and the technical assistance provided by international agencies can lead to the consolidation of a transport policy that is sensitive to climate concerns. This involvement in turn helps with the relationship between two levels of government that are administered by opposition parties.

A final example is now presented. This case is an example of how possible climate actions can be downplayed, not included in the national climate policy, and left without access to resources internationally, if these actions do not accord with the preferences of IFIs. In addition,

421 The Mexican National Communication of 2006 presents this as a national response to climate change, which could be interpreted as a direct coordination between the national and local governments. In practice the relationship between local and federal government was limited to the federal government allowing the World Bank to work at the local level, and serving as a sovereign guarantee to the World Bank loans.

228 this example will show how the difference in jurisdiction can play against the success of a project when two parties control different levels of government at the federal and state levels.

Suburban Train in Mexico Valley Metropolitan Area

This project sought to build an electric train to complement Mexico City’s existing metro system and was expected to resolve a mobility demand of around 100 million passengers annually. An electric train would reduce GHG emissions by promoting a shift in modes of transport to a lower emission option. However, the jury is still out regarding the cost benefit analysis of these measures, taking into account the total emission reduction they can reach.422

Most climate experts consider the train an optimal option for freight transportation, but question the cost benefit of implementing this measure for passenger transport, with the additional element that no emissions reductions are guaranteed if there are what experts call emission leakages in the system.423

Since the early 1990s, both the World Bank and the IDB have moved away from promoting passenger rail in the region, due to its high costs and efficiency problems, while they

422 The estimation of how many GHG emissions are potentially reduced will depend on how many GHG emissions emit the modes of transport that are displaced vis-à-vis the new mode of transportation, and on the electricity matrix of the area where the train would operate. If the electricity matrix is not clean, then the emission reductions may not occur. Emission reductions also depend on the technology that will be adopted (improving efficiency on existing trains or adopting new electric technologies that include a self-generating mechanism within the train). These estimations, however, were not done for this project. No inclusion of a climate component was found in the project. 423 Leakages are the events that make efforts to reduce emissions in one place simply shift emissions to another location or sector where they remain uncontrolled, as a result of which the GHG emissions are not reduced. For supporting evidence of emission reductions brought about by passenger trains see Laurent Dartois article on passenger transport options in Mexico in USAID, Final Report to the USAID-Support to the National Climate Change Plan for Mexico, ed. Claudia Sheinbaum, by Laurent Dartois, Instituto De Ingeniería Report 6133 (Mexico City: UNAM, 2000). For an alternative view see World Bank, Low-Carbon Development for Mexico, by Todd Johnson, Claudio Alatorre, Zayra Romo, and Feng Liu (Washington, D.C.: World Bank, 2009).

229 promoted the privatization of freight rail. The lack of a clear methodology to demonstrate that this measure could reduce GHG emissions reinforced already existing policy preferences. In fact, the IFIs experts believed that BRTs were the best option because they use dedicated bus lanes and other efficiency measures to get the benefits of metro train lines and subways, without the higher cost.

When Mexico federal government promoted this project in 2005, during Fox’s administration, no international agency was involved in providing assistance designing or carrying out the pre-investment studies, as it was the case with the Mexico’s city case. The funds for this project were 100% national funds, included in PROTRAM, a fund created during

Calderon. The lack of international involvement responded a to lack of prioritization of these types of projects, according to interviews.

Today the train only serves around 1 million passengers per year. While it is privatized, the contract with the company included a minimum level of demand, which has not been met.

This has led the private company (CAF) to sue the government to end the concession and the national government to give CAF 40% more than what was approved originally in 2003.

The lack of success in the project is not necessarily due to lack of international involvement. But the absence of international actors may have resulted in lacking a third party broker between different levels of government. According to interviews, the original estimations of passengers’ flows were correct, but the division of ruling parties at the federal (PAN), state

(PRI), and local (PRD) levels has created a zero-sum game. Part of the design of the system relied on the state of Mexico rerouting several feeder bus routes, as well as building bridges and access roads to facilitate the use of the train. Although the government of the state of Mexico, the city, and the federal government signed an agreement in 2005, the agreement has not been

230 executed. The agreement was to be executed by leadership belonging to different parties at each level: Felipe Calderon (PAN) at the national level, Enrique Pena Nieto (PRI), and Marcelo Ebrad

(PRD).

A final point that is important to mention is the role of the private sector. In this case, the private sector was involved after the project was designed, as opposed to the previous two cases.

There was no major opposition to the projects by bus companies because the routes were different from those of small buses. But the politics of the institutional design and jurisdictions has limited the success of the project, increasing the public’s opposition as well as decrease the private sector’s willingness to participate in future light train projects in Mexico.424

These three examples show different levels of involvements of the IFIs, private sector, and levels of governments. It demonstrates how projects originate as a response to local problems and that they will only be conceived as climate related actions when two factors coincide: a) resources are to be gained from such branding and b) it is aligned to IFIs incentives.

Climate policy was a by-product of the transport politics, when these two conditions aligned.

The Calderon Administration, the Infrastructure Development Program, and Climate

President Felipe Calderón has made infrastructure investment and development a cornerstone of his agenda since he took office in 2006. He requested his team to lay out an aggressive national infrastructure plan, including a financing strategy that could mobilize resources from the private sector. The Plan was presented in 2007, and estimated an investment of 5.5% of GDP from 2007 to 2012. The success of this plan, however, depended on the inclusion of the private sector, potential tax reforms (approved partially in December 2007), and

424 It is interesting to note that in recent months Pena Nieto’s federal government has been suggesting the constructions of three more train lines.

231 a restructuring of PEMEX, which were not fully implemented. The actual investment in this administration was of about 4% of GDP as depicted in figure 7.8.425

Regarding transportation in particular, the plan outlined the need for investing on road constructions and maintenance, ports, airports, sub-urban trains, and freight railways. The plan laid out the creation of a fund for investing in national infrastructure called FONADIN, funded by integrating two funds into the new fund: a) FARAC (Fideicomiso de Apoyo para el Rescate de Autopistas Concesionadas) and b) FINFRA (Fondo de Inversion en Infraestructura). The initial endowment was US$ 4 billion. This fund would be housed within the National Bank of

Public Works and Services (BANOBRAS) and would provide grants, loans, and guarantees to implement the National Infrastructure Plan seeking to mobilize 42% of public resources and 58% of private investments.426

In this National Infrastructure Plan, and within the rules of operation of FONADIN, there is no mention of climate change, even though it was produced at the time the Mexican Climate

Change Strategy was being developed. Moreover, there is no mention of city problems of urban mobility or the role of BRTs in responding to urban transportation problems. In fact, even after a

Federal Support for Mass Transit Program (PROTARM) and Program for Urban Transport

Transformation Program (PTTU) that included climate considerations into PROTRAM were created within FONADIN, the allocation of resources continue to be focused on road development (79%) and water and sanitation (11%). Only 5.8% was allocated to PROTRAM.427

425 México Evalúa Centro De Análisis De Políticas Públicas, El Gasto En Infraestructura En Mexico: Evaluación De Avances Del Programa Carretero 2007-2012. 426 BANOBRAS, PROTRAM Federal Mass Transit Program & Urban Transport Transformation Project Mexico, by Carlos Mier-y-Teran (BANOBRAS, 2009). 427 A series of funds were created during this period, in addition to FONADIN, for States and Municipalities to use. These included the Metropolitan Fund (FM) (2006), the Fund to Municipal Pavements (FOPAM) (2009), and the

232 PROTRAM was created as a special program within FONADIN to provide financial and technical support for mass transit infrastructure projects. This program originated as a response to SHCP’s request to the World Bank to define a mechanism to help states and cities invest on urban mobility. During 2007, while FONADIN was created, the federal government was in the process of implementing the sub-urban train project, launched by Vicente Fox. Soon it became clear to the federal administration that FONADIN needed to contain a program for urban transport system, if it was to fiancé the sub-urban train. States and municipalities had no resources for large investments and SHCP realized they required additional help to structure and finance transport projects. The World Bank received the request from the Mexican government by the end of December 2007. The initial request included the study of the suburban train option by the World Bank. But as mentioned before, the Bank’s priorities and policy preference determined that the role of light rail as a solution was downplayed. 428 PROTRAM was created during 2008 and started to finance projects for cities over 500,000 inhabitants. The program focused on creating a Mass Transit Program that promoted investment in public transport, attracting private investments and seeking local co-financing. The program provided resources for studies, 50% of investments and guarantees financed by FONADIN resources. Additional resources could be obtain from BANOBRAS. SCT provided technical assistance, utilizing World

Bank expertise. PROTRAM has worked with local and state governments, and until 2012

Fund for Accessing Public Transportation by Persons with Disabilities (FATP) (2011). In addition, there are other funds that existed to support regional and local governments. An analysis of all funds available to municipalities and states show that most of those resources went to automobile investments. ITDP, Diagnostico De Fondos Federales Para Trasnporte Y Accesibildiad Urbana. 428 From all the projects reviewed by the PROTRAM thus far, only one train was considered: the Federal initiative described above.

233 PROTRAM has reviewed 45 projects, of which 2 are operating now and 7 are under construction.

While PROTRAM was being created for its own merits, within the climate change agenda several events were unfolding nationally and internationally. Internationally, new funds were being created. The Climate Investment Funds, described in Chapter 3, was launched in

September 2008, and Mexico became the first country that prepared an investment plan for those funds. In the same year Mexico was also in the process of preparing the Programa Especial de

Cambio Climatico. This program underlying studies of economics of climate change suggested that Mexico could lose from 5 to 20% of GDP from the impacts of climate change, while acting on mitigation action would cost 2% of GDP with the increase flow of international resources. In the transport section, this program included the policy options that PROTRAM could finance stressing the BRT as the major areas of actions. As mentioned before, studied had suggested that fuel efficiency for light and heavy-duty vehicles would be the optimal options (see figure 7.7).

The new studies on the economics of climate change and the financial crisis of 2008, together with the soaring energy prices of the same year, and the G-20’s 2008 Meeting, which focused on climate change, all increased the awareness of the Minister of Finance, Agustin

Carstens, of the existence of the climate problem. Mexico requested from the World Bank and the IDB policy-based loans based on climate actions. These loans were approved in 2008 and

2009. The program from the World Bank included transport sector actions, in particular the work on PROTRAM. Once again, climate policy was a by-product of the transport sector.

234 Another area that made sense to include as a climate policy option was gasoline subsidy reform, but this reform was not included in the policy matrix.429 In fact, removing those subsidies was not included in the PECC. Agustin Carstens started to consider proposing that the president reform the structure of fossil fuel pricing because of the financial crisis. By mid-2008 the federal government was able to change the price on gasoline, justified by the idea that the financial crisis required extra resources for the states. The additional IEPS resources would be directed to the state’s participation on the resources. The federal administration decree established that annually the gasoline magna would increase 0.36 cents per liter, the gasoline premium 0.4392 cents per liter, and diesel would increase 0.29 cents per liter. This increase benefited the state governments, which would receive 9/11 parts of the increase. At the end, the decision within

SHCP took into account the information about potentially reducing GHG emissions, but as interviews suggest, the main drivers were the fiscal pressures and the financial crisis. Once these reforms were approved by Congress, their implementation was immediately postponed by the

Office of the President until later in 2009, sending mixed signals at the international level of

Mexico’s commitment to a climate-sensitive transportation policy.

Climate Change Mitigation and BRTs: Mexico a leader attracting more resources?

In the mist of preparing the investment plan for the Clean Technology Fund, a funding window of the CIFs, the World Bank proposed using those highly concessional resources for projects that would reduce carbon emissions in cities. Within the Investment Plan, the World

Bank would be responsible for transportation projects, while the IDB would focus on renewable energy. This decision made sense given the background work the World Bank had already

429 Generally, these loans include actions that are under the administration’s jurisdiction and changing the gasoline subsidies required congressional approval.

235 developed in Mexico. A new project within PROTRAM was born called he Urban Transport

Transformation Project (PTTU for its Spanish initials). This project added the climate variable to an existing priority. As interviews pointed out, PROTRAM responded to an urban mobility problem. It only included climate change considerations because “the World Bank was giving resources if we were to include that component into the loan and investment plan.”430 This new project received US$ 200 million in highly concessional resources, and jointly made use of a

US$150 million loan from the World Bank, which was targeted to cities and states that adopted low carbon mass transit projects showing emission reductions. Given the fact that an already tested methodology existed for proving emission reduction in BRTs and together with the World

Bank’s expertise, most of the projects proposed thus far within this PTTU have been BRTs.

However, Mexico’s cities were not ready to comply with all the information prerequisites, and lacked technical expertise to design the projects as well as the ability to comply with all the environmental safeguards that World Bank requested. SCT had the technical capacity to review projects, but not the capacity to respond to requests for designing projects. As a result, while the resources were approved for climate change, the implementation of these projects has been lagging, with a direct impact on those targets that sought to reduce GHG emissions in the transport sector. 431

Conclusions

Transportation is the largest and fastest-growing sector in Mexico with regard to energy consumption and greenhouse gas emissions. The overall transport sector is responsible for

430 Interview with SHCP staff member, June 14th 2013. 431 From the initial US$ 200 million available from CTF and the resources form the World Bank loan, Mexico has been able to use only 7% of these resources in 4 years of implementation, with three more years to go. The PTTU had included a target of funding 18 BRT projects in the country. Thus far it has only been able to finance 2 projects.

236 around 42% of total GHG emissions in the country (2010), with road transport making up the majority (92%) of emissions from the sector.432 This share of GHG emissions is expected to grow to 46% by 2030 if current development trends continue.433

The evolution of this sector confirms the hypotheses of this study. The first hypothesis proposes that climate-sensitive actions, which result in GHG emissions reduction, are adopted as a result of domestic dynamics of the policy process in different sectors rather than as a consequence of climate negotiations and international commitments. As this chapter points out, the main driver for actions in the transportation sector was a domestic problem: traffic congestion and its impact on urban mobility. Part of the problem originated in the urbanization process that Mexico has undergone over the past 60 years, while part of it relates to the place the motor vehicle industry has held in Mexico’s industrialization strategy, being one of the sectors with the greatest leverage within the political elite. These two forces together have played a key role in maintaining road transportation prominence and fossil fuel subsidies in place.

This sector has one of the highest degrees of potential to reduce its energy demand if sustainable transport initiatives were to be adopted (for instance, including vehicle emissions standards, promoting the use of public transportation, implementing electric vehicles, disincentivizing the use of cars, removing gas subsidies, putting taxes on car ownership).

However, since domestic actions respond to a domestic problem and not climate change concerns, solving this problem did not initially include removing gasoline subsidies and promoting public transportation. These measures, while not hostile to development (i.e.,

432 Road transport was followed by aviation (5%) shipping (2%) and rail (1%). See Juan Carlos Solís and Claudia Sheinbaum, "Energy Consumption and Greenhouse Gas Emission Trends in Mexican Road Transport. 433 International Energy Agency, World Energy Outlook 2013, November 12, 2013, http://www.worldenergyoutlook.org/publications/weo-2013/.

237 economic growth) risked creating social unrest, and many suggested they could spark inflation.434 Therefore climate sensitive actions were restricted to BRTs with lower emissions reduction potential. By contrast, low vehicle taxes, low fuel efficiency standards for the automobile industry,435 and tax credits on gasoline and diesel are all elements that have reduced incentives to improve energy efficiency in the sector. These policies have run counter to a shift to smaller, more efficient, and lower emission vehicles.436 The political decisions seem to balance out the practical need of improving transport systems with the cultural status of the car and not using public transportation. Therefore, in this sector some climate-sensitive actions have been taken, but their impact on GHG emission reductions have not counterbalanced increases in car ownership.

It is clear that many times development and climate change mitigation collide. Emissions reductions in the energy sector or the forestry sector were a by-product of policies that needed to address a developmental issue (poverty in rural areas and the contamination of water resources, or a problem with energy availability). In the transportation sector, the main problem was the need to connect the different parts of the country to help economic development (i.e. more roads would connect the different parts of the country and allow exports and economic growth) or increase mobility in urban areas reducing congestion and pollution. In theory these policy options do not need to collide with emission reduction options. In practice they have. Urban

434 This was not the case in reality. Once the taxes were increased, inflation occurred only the first couple of months. However, the fear of inflation stopped reform earlier. 435 Note that a new regulation on fuel efficiency was passed in July 2013. The implementation started January 2014. 436 In addition, the use of public funds has focused on expanding highways and roads, even at the cost of investing in public transportation systems. For instance, in Mexico City the local government decided to build a second level highway over two main traffic arteries, Viaducto and Periferico, instead of investing in a better transportation system.

238 mobility around the car has become a symbol of economic advancement, and any politician that would want to show that the economy is doing better, and hence the population is doing better, had an incentive to promote car ownership. In this context, this sector is a paradox since it could help reduce GHG emissions in a substantial way, but doing so would require a change of mind, and a change in public understandings of what development means. For that reason, the actions adopted have not been able to change the emissions trajectory at a national level as much as in the other sectors.

Hypothesis 3 refers to the relationship between levels of government in a context of divided government. It argues that actions, even administrative actions, will be delayed due to the different jurisdictions involved in the implementation. When legislative changes are needed, it will utilize distributive politics to get congressional approval. For the most part, in the transport sector, the focus is on the relationship between federal, state, and local, more than the relationship between legislative and executive branches (although this relationship is also important). While most of the federal actions relied on administrative actions (with the creation of a program like PROTRAM), joint jurisdiction made it difficult to implement climate sensitive actions, especially when there are different parties in government. The reliance on local and state level actions has impacted the timing of action, delaying the adoption of climate sensitive policies.

As hypothesis 4 suggests, distributive politics aided the passing of fossil fuel price changes that required congressional approval. When the federal government addressed the issue of fossil fuel subsidies, mainly as a response to fiscal crisis rather than a climate concern, congressional approval was assured by including a change in the allocating formula of the IEPS, increasing the amount of resources to be allocated to the states.

239 Finally, hypotheses five and six and the idea of a two-level game also played a role in the transport sector. Locally, the National Infrastructure Plan did not include climate or urban considerations at the beginning, but it included a financing arm (FONADIN) to help states respond to transportation needs. Specific programs financed with international climate resources

(GEF and CDM funds), accessed with the help from IFIs, reduced resistance from unions and bus owners. At the same time, IFIs played an instrumental role in overcoming party differences at different levels of government. These resources established certain conditions and promoted the inclusion of climate considerations. First PROTRAM and then PTTU (using CIF resources) resulted from the direct involvement of IFIs in Mexico’s programs. This provides further evidence that transport actions are adopted because they have a local impact (improve health, reduce traffic), but are branded as climate change to tap onto international resources. The lack of commitment of the actors, however, has hindered the execution of those resources, and consequently affected reaching GHG emissions reductions in the sector.

At the international level, similar to the other two sectors, Felipe Calderon promoted

BRTs and reducing fossil fuel subsidies as part as an overall climate policy. He included these actions within the PECC (approved in 2009), which helped position him as a world leader on climate actions, especially within the G20, which promoted the removal of fossil fuel subsidies.

This did not incur additional political costs, with some steps already taken, and costs already incurred, by trying to respond to the domestic fiscal crisis.

240 Conclusions: Implications for Climate Policy Making In Developing Countries

In this study I explore how a developing country, despite holding no international obligations to undertake action on climate change has adopted domestic policy options to change its GHG emissions trajectory slightly, and in doing so has become a major recipient of international climate funding. Given the continuous rise in GHG emissions worldwide, and increased destabilization of climate with concurrent increased impacts there is a new urgency underlying the need to understand this seemingly counterintuitive outcome. This requires forsaking common assumptions about climate policy being a single policy sector. Rather, climate policy is a construct of climate-sensitive actions that are taken within different sectors, and respond to dynamics specific to those sectors. I examined these dynamics in the forestry, electricity generation and transportation sectors in Mexico. I believe that my findings not only contribute to a better understanding of the multiple forms that climate-sensitive policies and the politics of those policies can take, but also highlights possibilities for improving the policies of both domestic actors and IFIs to respond to the challenge of climate change.

I employed qualitative techniques, including process tracing, to examine the adoption of climate-sensitive policy options in three sectors, comparing these processes between the processes between cases, and tested hypotheses generated from previous studies from comparative and international relations literatures. This allowed me to synthesize a general framework about the conditions and pathways that produce climate-sensitive options in specific types of developing countries, those that exert leverage on the international climate change regime complex, as well as the role played by IFIs in that process.

My conclusions are divided into four sections. First I review the lessons from the cases comparing and contrasting the six hypotheses presented in chapter 1, delineating the general

241 framework. Second, I extend the analysis to the current Mexican administration and test the explanatory power of the framework for new fiscal and energy policy reforms approved in 2013.

Third, I explore the applicability of this framework beyond Mexico by briefly looking at the cases of Brazil and Colombia with the intention of demonstrating the framework’s usefulness in understanding dynamics in other countries and testing the empirical generalizibility of this study.

Finally, I touch on the normative implications of this study for the future work of IFIs and consider how this framework can help these organizations work more effectively.

Variety of Pathways to Climate-Sensitive Policies and Climate Policy

A series of six hypotheses were tested in this study to look at how countries act and why they do so. The hypotheses revolve around three clusters of explanations (presented in the introduction) that help identify conjunction of mechanisms that favor climate action. The clusters and hypotheses are as follows:

Domestic political institutions and decision makers’ interests

Hypothesis 1: Actions will be taken to address a domestic problem. Climate sensitive actions are adopted as a result of domestic dynamics of the policy process in different sectors.

Climate negotiations and international commitments associated with those negotiations may not be sufficient to explain climate actions in a country.

Hypothesis 4: When legislative support is needed, it will be obtained by including components of distributive politics in the legislation;

Constellations of interests determining the type of plausible policy output and outcome

Hypothesis 2: Higher impact actions (i.e., larger reductions of GHG emissions) may not be adopted when they are perceived as either harmful to economic development or linked to electoral costs, which governments will try to avoid.

242 Hypothesis 3: In contexts of a multiplicity of actors, that depend on the existence of divided party government (local vs. federal levels or legislative vs. executive), and divisions within the bureaucracy, the timing of the adoption of climate-sensitive actions as well as relative

GHG emission reductions depend on two factors: the level of authority for implementation and whether or not progress in a particular sector can be made by undertaking administrative actions with domestic resources.

International Factors

Hypothesis 5: The federal government can use international resources to influence the domestic policy dynamics and, eventually, a policy change; when it appears that resources can be gained by branding sectoral policies as climate-change actions, the latter will be branded as such, harnessing more international resources.

Hypothesis 6: National leaders promote the bundling of policy actions into an overall climate policy when they see an advantage to such action internationally, but no costs at the domestic level.

The first general lesson drawn from this study, looking jointly at the first two cluster of hypotheses together, is that there may be a variety of paths that lead to climate-sensitive actions nationally sharing two common characteristics: these actions respond to domestic problems and they may not be the options with the greatest GHG emissions reductions. All three sectors covered in this dissertation has a perception of a domestic problem to address: for the forestry sector the problem being targeted was poverty water quality, and deforestation in rural areas; for the electricity generation sector, this problem was insufficient electricity supply to the increasing energy demand, in a context of fiscal shortages; and for the transport sector, it was congestion in urban areas and its impact on urban mobility. The measures adopted by these sectors had impact

243 on emission reductions as a by-product: PES, private wind farms and BRTs. These climate- sensitive actions were adopted as a result of domestic dynamics of the policy process in different sectors rather than as a consequence of climate negotiations and international commitments.

Two sectors also show that the menu of policy choices left out options that were perceived as harmful to development in an effort to avoid blame. In the case of the energy sector the policy option with greatest potential for reduction of GHG emissions would have focused on the removal of electricity subsidies or improving PEMEX’s efficiencies and reducing it’s GHG leakages, by using new technologies. However this can only be achieved if new financial resources are available by breaking its monopoly and bringing in private sector. Yet, as seen in chapter 6 showed these options were not considered, as they were believed to pose a threat to development and it was feared that these unpopular measures would cause the government to suffer electoral losses. In the case of the electricity subsidies, removal could have affected the segments of agriculture production that rely heavily on electricity subsidies, impacting the population and sparking inflation. In the case of PEMEX, the opening up of the monopoly ran counter to the rhetoric of the energy monopoly being a symbol of national sovereignty.

In the transportation sector, the actions with largest potential to reduce GHG would have been to remove all gasoline subsidies and promote public transportation by shifting away from policies that promote individual vehicle use. These options were not fully included as possible options because were considered to have high political costs, running counter to the notion of personal advancement in the Mexican society and risking public backlash. In Chapter 7 I suggest that the idea of removing gasoline subsidies completely was a politically charged option that many within the administrations feared would create social unrest, and which many suggested could spark inflation. By contrast low vehicle taxes, low fuel efficiency standard for

244 the automobile industry and tax credits on gasoline and diesel reduced incentives to improve energy efficiency in the sector. The political decisions seem to balance the practical need of improving transport systems with the cultural status of the car and reluctance to use public transportation.

Alternatively, policies had lower impact than expected when implementation was guided by the goal of strengthening the electoral connection of the party. For instance, in the forestry sector the PES could have effected a larger reduction in GHG emissions if the implementation criteria had selected eligible plots of forested land at risk of deforestation. The initial criteria, however, focused on plots with high poverty levels. As a result, many experts and organizations questioned the overall GHG emission reduction target.437 Only recently, with the appointment of

Dr. Torres Rojo to head of CONAFOR, has the tension between two principles of deforestation and poverty reduction been resolved in favor of the former. Interviews corroborated this resolution: “before when we didn’t know who to assign the resources to, the income of the family mattered, now what matters where the plot is.”438

The number of actors involved in adoption and implementation, the use of international resources and whether or not legislative politics is brought into play in turn specify this initial pathway to climate policy and its level of relative GHG emission reduction. Each one of

Hypotheses 3, 4, and 5 propose to describe out the process by which climate policy is produced.

The presence of a multiplicity of actors in terms of levels of implementation authority, divided party government, as well as divisions within the executive branch suggests that there are many divisions within government that are a conditioning climate actions. As Harrison and

437 See for example Jean-François Mas, Alejandro Velázquez, and Stéphane Couturier, "La Evaluación De Los Cambios De Cobertura/ Uso Del Suelo En La República Mexicana," 438 Interview with CONAFOR staff member, July 2nd 2012

245 McIntosh Sundstrom (2010) find, the horizontal diffusion of authority (as in the case of a presidential system) are likely to promote status quo. These authors also find that the effect of vertical diffusion of authority on climate policy depends on its interaction with public opinion.

However, looking only to the institutional design in terms of presidential or parliamentary system may conceal certain differences across sectors, especially in terms of policy execution.

The case of Mexico makes clear that vertical diffusion of authority, as well as differences within the bureaucracy, matters when explaining the timing of climate actions. In that sense, within the executive branch there are generally different organizations that favor certain policy options based on their organizational mission. The speed of adoption of administrative measures, however, will be conditioned by how many organizations and missions within the executive branch negotiate on these measures.439

In that sense, the evidence from the within-case analysis suggests that actions that fall under sectors with federal jurisdiction, and under one organization instead of several, will show greater progress, as in the case of forestry with CONAFOR. The electricity sector is federal but it also has a multiplicity of organizations and missions (CFE, SENER, CRE, PEMEX) and progress can be expected to depend on the administration overcoming organizational differences.

The transportation sector lags behind in terms of its relative GHG emission reduction due to its decentralized implementation.

An important contribution of this study to the climate policy literature is the analysis of policy content in the context of divided party government. When legislative action is required, this research contends that climate sensitive policy will have increase its likelihood of approval if includes in its design distributive politics. As mentioned in chapter 3, in Mexico legislators have

439 Kaufman and Nelson, Crucial Needs, Weak Incentives: The Politics of Health and Education Reform in Latin America.

246 several principals to which they must answer: the president, the party leadership and the governors. Distributive politics allows for gaining support from those principals that control the legislative support, and three of my cases show a distributive politics dynamic when going to the

Congress for approval. In the forestry sector, the PES was designed as a program that would utilize domestic resources. These resources and programs were approved by Congress and then included within the national budget. Access to funds was devolved to state governors, who could use those funds to gain support from the rural areas. However, the case study shows that regardless of PAN leadership’s original intent to increase the party’s linkage to the rural areas, the implementation and use of those funds depends on states’ expertise and capacity to mobilize resources locally to generate PES applications. The governors that understood this reality were able to secure larger amount of resources for their state. It is not surprising that states controlled by the PRI, a party with a long tradition of using state resources for political reasons, are the states that have taken greater advantage of these resources.

In the case of the energy reform, the inclusion of a specific fund within the new renewable energy laws approved in 2008 also opened the possibility for states to access additional resources. However, according to interviews, this fund’s rules of operations require states to have experts that would know how to structure renewable energy projects and this condition is not met in all states. While no data are available to compare access to this fund among states, as in the case of forestry, the list of projects that have been supported this far have been mainly from federal agencies. How can we explain these differences between design and implementation? One very plausible explanation is that legislative negotiators may not be aware of the difficulties of implementation in each particular sector when designing a new law.440

440 This is a very interesting topic that requires future research.

247 Finally, in the transportation sector, multiple studies, as well as my own interviews, have shown that distributive politics are part of the dynamic of the sector, and climate sensitive policies are no exception. When the fiscal deficit became a threat to the stability of national accounts, the government thought to change fossil fuel prices, which required congressional approval. Congressional approval was assured by including a change in the allocating formula of the IEPS, increasing the amount of resources allocated to the states.

In sum, my investigation into the Mexican case and within case analysis of the three sectors confirms the hypothesis of the use of distributive politics to garner legislative support for approving or reforming legislation. As mentioned in chapter 3, the existing literature has proposed that governing parties using distributive politics could follow different objectives. For instance, a governing party could assign resources to states based on the number of seats a governor controls, or to states governed by the same party, or based on how the governing party could increase the party’s electoral connection to the population. This study adds to that literature by suggesting that implementation of a policy may mask the original political intention.

The final two hypotheses address specific mechanisms at play in developing countries.

As mentioned in the research design section, the case of Mexico serves as a heuristic case for identifying subtypes of cases, with casual processes leading to climate action in addition to those described in the existing literature. This study presents contingent generalizations on the conditions under which international actors interact with domestic actors and such interaction facilitates domestic climate policy, looking in particular at the interaction of domestic policies with IFIs.

Hypothesis 5 stated that in the cases where there is horizontal and vertical diffusion of authority and when there are several organizations within the administration with a variety of

248 missions, the federal government could use international resources and IFIs as brokers and financial incentive to influence domestic policy dynamics across all those actors and, eventually, a policy change. Thus, in the context of increase climate funds, when it appears that resources can be gained by branding sectoral policies as part of the country’s climate change policy, the latter will be branded as such, harnessing more international resources. The within case analysis of Mexico, by looking at the three sectors in this research, shows a variation of the way that international resources are used across sectors. This variation is explained by the preferences of domestic actors and the difficulty of building alliances for policy change.

The forestry sector, as mentioned above has fewer actors and organizations involved, making it less difficult to approve policy options. In this context, domestic actors did not see a gain from the use of international resources and brand actions as climate early on in the process of PES design. Only when resources could complement what started with CONAFOR (2003) and later revamped with PROARBOL (2007) did the federal government begin to accept IFIs offering of climate resources, and brand their policy initiatives as climate policy. The gains from these funds were to ensure the continuation of policies and position Mexico as a leader in climate change actions.

In contrast, the federal government used access to climate international resources to influence the domestic policy dynamics within CFE, SENER, and CRE. The resources therefore allowed for alliances to form between SENER and CRE and sectors of CFE around renewable energy options that could resolve the domestic problem of electricity shortage. The initial resources were allocated to Mexico by branding those actions as responses to the challenge of climate change. The actions taken by the government sparked a virtuous cycle of climate financing and more climate resources from new funding mechanism (like the CIFs) were

249 allocated to Mexico as a result of initial climate sensitive actions. As a result, the climate change brand increased the flow of international resources.

Finally, in the case of the transportation sector, tapping into international climate resources serve to reduce resistance from unions and bus owners in the process of adopting the

BRT systems locally by bringing new and additional resources from the CDM mechanism. Also,

IFIs played an instrumental role in overcoming differences across levels of government. Due to the multiplicity of actors and levels of government involves, the timing of IFI involvement in this sector then facilitated actions similar to what occurred in the energy sector than the forestry sector. But similar to all of the sectors, the initial actions branded as climate sparked additional resources from new climate mechanisms.

Thus, it is possible to confirm a difference across sectors in the use of resources. The question that remains is if this condition holds for all developing countries. As described in

Chapter 4, there are differences within developing countries; those that can harness more international resources will be those with greater amounts of GHG emissions, and members of a larger number of “instances of the regime complex.”441 In this way, this specific type of developing country will be able to perform forum shifting across members of the regime complex, aiming at securing the largest amount of resources at the lowest possible cost for the country.

Lastly, the sixth hypothesis stated that national leaders promote the packaging of actions as overall climate policy when they see an advantage to such action internationally with essentially no costs at the domestic level. The three cases confirm this hypothesis. Felipe

Calderon used existing initiatives such as PES, Wind Energy and BRTs and reducing fossil fuels

441 Keohane and Victor, "The Regime Complex for Climate Change."

250 subsidies to become as part of an overall climate policy. He included these actions within the

PECC (approved in 2009), which helped position him as a world leader on climate actions without bringing domestic repercussions or additional political costs.

These two hypotheses confirm two necessary conditions for harnessing more international climate funds: the place of the country in the regime complex and the branding of ongoing actions as climate actions. Other developing countries, such as Brazil, have these conditions, but have not secured international resources to the extent that Mexico has, as described in Chapter 4. The evidence from the interviews indicate that this difference has to do with the institutional rules in place for political advancement after a president has left office, barred from reelection Mexican presidents must consider their next move, including to the international stage, in a way their Brazilian counterparts must not. Thus, the search for a career outside Mexico after the presidency seemed to drive the direct involvement of the president in this agenda, and, as a result of the dynamic described in hypothesis 5, his emphasis on securing resources for Mexico.

In sum, the explanatory framework presented here confirms that climate policy may be the result of previously identified variables in the literature, in conjunction with new variables applicable to the specific subclass of case studied here: climate policymaking in developing countries. In order to test and confirm if these mechanisms operate beyond the period under study, the next section tests the hypothesis in the context of a new administration in Mexico: the

Pena Nieto administration.

Application of the Framework to a New Administration in Mexico

In 2012 Mexico held general elections to elect a president, 500 members of the lower house and 128 members of the Senate. Enrique Pena Nieto won the presidential race with 38.2%

251 of the vote, bringing the PRI back to power after 12 years in the opposition. In contrast to the

2006 elections, the difference between the first place and second place candidates (Andres

Manuel Lopez Obrador from the PRD) was over 6 percentage points. The PRI managed to secured 42.4% of seats in the chamber of deputies and 44% of seats in Senate. Since the PRI’s formula included a formal pre-electoral coalition with the PVEM, by including the number of seats secured by the PVEM, the PRI held a 48.2% of the seats in the lower house and 47.6% in the Senate.442 These results gave the new government greater leverage, although within a still divided party government, compared to the PAN period, and conferred greater legitimacy than had the previous election, despite some alleged irregularities.

Pena Nieto promised to bring peace and prosperity back to a country after Calderon’s war on drugs produced limited results and slow economic growth. In a context of divided government, the PRI’s increased leverage from the PRI generated a new political dynamic. Pena

Nieto used his political capital and bargaining leverage to create what he called for the ‘Pact for

Mexico’, which parties signed the day after the presidential inauguration. According to interviews with Mexican political analysts and members of Pena Nieto’s staff within the Office of the President, the PAN endorsed the pact for two reasons. First, after 12 of being in power, with increased criticism from the population in terms of the capacity to govern, PAN leaders saw endorsing the Pact as a way to demonstrate their intention to be part of the government. Second, they demanded that the Pact include an electoral reform to reform the national electoral body ( the Instituto Federal Electoral, IFE) and allow for reelections, a reform they were not able to achieve during the Calderon years. From the PRD perspective, Lopez Obrador’s questioning of the election results, and his later fall from the position of party leader, left the PRD in a need of a

442 Instituto Federal Electoral, "Las Elecciones Del Primero De Julio: Cifras, Datos, Resultados.," IFE, 2012, accessed March 19, 2014, http://www.ife.org.mx.

252 confirmation of their commitment to democracy. Signing the Pact for Mexico gave the opportunity to do so. Thus, all political parties gained something from endorsing the Pact.443

The pact included 95 measures, some of which would necesitate legislative reforms.444

These concentrated around six major reforms in six key areas: education, fiscal policy, energy, financial institutions, telecommunications, and political institutions (including the option for reelection of senators and congresspersons). All six reforms were passed in 2013.445 The cases of the energy and fiscal reform relate directly to the climate agenda through inclusion of a carbon tax and reducing the role of renewable energy sources. I will use the framework tested in this study to explain the dynamics of these reforms within the new administration.

The Energy Reform

The framework presented in this study would suggest that the energy reform would include climate sensitive policy options when they are seen as resolving a domestic problem. In other words, fundamental shifts away from the current fossil fuel economy would not be launched, but incremental changes towards a lower carbon economy could make it onto the agenda if the selected policy options have GHG emission reductions as by-product.

Alternatively, if policies that raise GHG emissions were found to resolve the domestic problem that option would likely be adopted rather than the climate-sensitive options. The case of the

443 Interview with a member of the Office of the President, March 21st 2013. 444 For more details about this pact see Jose Merino, "La Viabilidad Del Pacto Por Mexico," Adnpolitico.com, December 12, 2012, accessed March 11, 2014, http://www.adnpolitico.com/opinion/2012/12/11/jose-merino-la- viabilidad-del-pacto-por-mexico. 445 The telecommunications reform was approved on June 10th 2013; the education reform was approved on September 10th; the fiscal reform was approved on October 18th 2013,the financial institutions reform was approved on November 27th 2013; the political reform was approved on December 13th 2013; the energy reform was approved on December 20th 2013. Most of these laws still require secondary legislation to be approved ion order to be fully implemented.

253 energy reform in 2013 confirms this prediction. The reform was focused on allowing the private sector to invest in energy production jointly with PEMEX, in a profit-sharing arrangement similar to Norway’s energy model. The reform process was accompanied by a large campaign aimed at changing public perception around the reform by promising cheaper electricity bills; this electricity would be mainly produced by fossil fuels such as gas and oil (i.e. promoting consumption and GHG emissions). Climate change considerations were not part of the rhetoric of the reform. On the contrary, tax incentives for renewable energy sources adopted in the last 12 years were eliminated. Before that repeal, companies had an incentive to get involved in power generation using renewable energy because they could deduct up to 100% of total investment associated with the technology. Currently, however, the cost of electricity has changed to make renewable energy electricity more expensive and favor non-renewable sources. Thus, hypotheses one and two are confirmed by this new reform process: domestic problems guide policy adoption, and within the array of options, those perceived as reducing emissions the most were not be considered, arguably because they run counter to development or other concerns, - as in this case, they ran up against the need to improve fiscal accounts.

Hypotheses three and four deal with the sector’s number of actors and its impact on the timing of policy change as well as the mechanisms used to pass policy reforms in context of divided party government. As a federal level reform that falls under the jurisdiction of the federal government, and within several organizations in the bureaucracy it is expected that such reform would require great political leverage to align all the organizations and missions. A new administration has the amount of political leverage require doing so. It is therefore expected to see this type of reform passed in the early months of Pena Nieto’s administration.

254 The entire Pact for Mexico included broad guidelines of the areas to be reformed, all of which are federal in nature. The reform used legislative measures supported by the PRI and PAN and distributive politics seem not to have been part of the dynamic, at least not in the form of creating specific funds linked to the reform. For the PRI it was easier to use legislative measures than under the PAN, with the PRI greater number of seats and governorships. PRI had a larger legislative block than PAN did during its tenure, and the PAN’s bargaining power was more closely related to private sector involvement, and less with electoral support for governors. In fact, PRD left the Pact as a result of the increased role for the private sector in the energy reform.446 The case of the energy reform in Mexico helps specify the hypotheses presented in the framework that refer to the role of the president in aligning the different actors towards policy change by including the level of government legitimacy and political leverage as conditioning the capacity of the executive to pass policy reforms. Therefore, it is expected that the claims on the timing of policies and use of distributive policies are contingent on the level of government legitimacy and political leverage.

Finally, international climate funds and branding have not been part of the reform. The framework presented here would suggest that tapping into international climate resources would occur when the federal government needs to align the different actors involved in a reform. And because those resources are climate change specific, the government will pursue a branding strategy. However, as explained above, the government did not require international resources to help align different organizations as it had enough political leverage to do so. It follows that branding of actions was not necessary either.

446 Mauricio Torres, "El PRD Deja El Pacto Por México Por El Tema De La Reforma Energética," CNN, November 28, 2013, accessed March 19, 2014, http%3A%2F%2Fmexico.cnn.com%2Fnacional%2F2013%2F11%2F28%2Fel- senado-entra-en-su-recta-final-con-el-destrabe-de-la-reforma-politica.

255

IFIs have not changed their emphasis on the climate issue. Availability of resources is expected to increase as industrialized countries pledge 100 billion per year from 2020 onward channeled through the newly created Green Climate Fund.447 Mexico, however, has not use those resources as a way to build alliances for the energy reform, as in Calderon’s years. The alliances were formed regardless of international resources, by responding to the demands of the different parties; in the case of the PAN, the most important principle was greater involvement of the private sector.

This is not to say that Mexico has changed its international commitments to climate change; in fact Mexico prepared its new PECC for the period 2013-2018 as required by the climate change law. But across sectors, domestic problems, politics and availability of certain policy options seem to be the drivers of actions. The energy sector within the new administration seems to have reverted to less climate sensitive options, setting a goal of producing 16% of its energy from renewable energy sources by 2020, after an initial goal of

35%.448 This reform confirms that even when IFIs have an interest in advancing an agenda (in this case climate change), the preferences of the domestic actors will determine the possibility of

IFIs involvement in a specific sector.449

447 For more details see the Green Climate Fund website http://www.gcfund.org/home.html 448 La Opcion De Chihuahua, "Recaudaran 22 Mil Mdp Por Impuesto Sobre Emisiones De Dioxido De Carbono," La Opcion De Chihuahua, September 25, 2013, accessed March 20, 2014, http://laopcion.com.mx/noticia/7799. 449 A recent US-Mexico Presidential Meeting, in February 2014, called for working on ‘clean energy,’ referring mostly to natural gas development and trade. This piece of evidence confirms that domestic needs drive energy policy options rather than the belief of fighting climate change.

256 The Fiscal Reform

The fiscal reform was included as part of the Pact of Mexico as a way to increase revenues to match the expected increased expenditure of the new proposed social programs. As part of the package, the reform included changes to existing taxes and adoption of new ones, in total covering 14 taxes. One of the tax options included was the adoption of a carbon tax as one measure to collect additional taxes. This tax is estimated to bring in 20 million pesos per year and has no specific earmarked program.450 The total amount is very small. The idea of the tax was included in the climate change law of 2012, enacted under Calderon, but this may not be enough for explaining its inclusion in the reform. The discussion of the different tax options included other possibilities such as taxing college tuition, but its coverage was limited to 8.7% of the population,451 while the carbon tax would be applied to everyone. The final decision came from the President’s office, who according to his advisors saw this option as “progressive option that killed two birds with one stone” 452 by responding to the requirement of the 2012 law and bringing in much needed revenue.

Applying my framework, it is possible to explain that this tax was formulated to address a domestic problem (fiscal needs) and was not the result of a climate concern. In fact, the climate change agenda was not included as a major area of intervention in the National Development

Plan 2013-2018. The carbon tax is applied federally but around 80% of its revenues will be

450 Interview with Mexican think tank staff member, May 15th 2013. 451 Interview with fiscal expert, IDB Staff, February 12th 2014. 452 Interview with member of the Office of the President Staff, January 16th 2014

257 distributed to states, as it is included as a subtype within the IEPS.453 However, the way the tax was structured, set at a very low price compared to other countries’ taxes,454 experts suggest it will not change the way people consume fossil fuels, limiting its transformational impact. In fact, this tax will coexist with current fossil fuel subsidies.

The reform passed with the legislative support of PRD. Surprisingly, the PAN, the party the promoted climate actions the previous years, opposed the reform because it created more taxes to businesses. This is consistent with the argument of this dissertation that the climate agenda was closely linked to Felipe Calderon’s agenda of positioning himself internationally.

Once he left, the PAN reverted to its core ideals.

Finally, IFIs were involved supporting the overall fiscal reform, as in previous opportunities during any fiscal reforms. In fact, fiscal and macroeconomic stability agenda is a dominant priority within IFIs. However, no climate international funds were allocated, as there was no international branding of this action, while discussion of the reform was underway.

Because there are many areas still undefined regarding how the tax would be implemented,

SEMARNAT and several environmental groups including CEMDA and CESPEDES are trying to tap into international climate resources to help them convert this initial tax into a genuine climate policy, by presenting alternative mechanisms to direct those resources to renewable energy sources. This study’s finding would suggest that the possibility of attaining this result would depend on how alliances are formed in each sector, and if and how those international resources can facilitate climate-sensitive options.

453 As explained in chapter 7 the IEPS includes the gasoline tax as well as other taxes that are then redistributed to states. Calderon’s administration increased that proportion as a way to secure legislative support for the changes in gasoline prices. 454 CESPEDES, "Propuesta De Impuesto Al Carbono," CESPEDES, September 17, 2013, accessed March 20, 2014, http://www.cce.org.mx/.

258 In sum, these two reforms confirm that each sector follows its own particular dynamics and will include climate considerations only when there is an alignment of climate and sectoral goals. Consistent with the Fox Calderon period, we can see that Mexico’s climate policy is not a single policy sector, but a composite of several actions in which GHG emission reductions emerge as a by-product.

Application of the Framework to Other Countries

To further test the validity of this framework, this section carries out a short cross-case comparison to explore whether it helps us to understand the dynamics of climate actions in two additional developing countries in Latin America: Brazil and Colombia.

Before discussing each country in more depth, a general overview of status of GHG emissions in each sectors studied in this dissertation is presented for both countries. Brazil experienced an overall increased in carbon intensity for the economy between 1994 and 2007. It increased its proportion of electricity produced from fossil fuels from 11 to 15 per cent and emission from energy consumption and production rose 50%. Part of this increase is linked to the transportation sector. There has been a rise in diesel consumption, associated to vehicles that increase traffic congestion in cities and major roads. On the other hand, Brazil has been able to show impressive results regarding deforestation, especially from 2005 onwards, when the rate of deforestation decreased 50%.455

Colombia’s levels of GHG emissions do not compare to Brazil and Mexico, globally contributing only 0.24% of GHG emission while Mexico and Brazil contribute between 1.3 to

1.4% of the global emission. However, Colombia has experienced an increase in the carbon

455 Eduardo Viola and Matias Franchini, "Social Transformation and Climate Policy in Brazil," in Feeling the Heat: The Politics of Climate Policy in Rapidly Industrializing Countries, by Ian Bailey and Hugh Compston (Houndmills, Basingstoke, Hampshire: Palgrave Macmillan, 2012), 177.

259 intensity of its economy in the last few years driven mainly by increased deforestation rates, which more than doubled between 2010 and 2012 years from about 0.5% yearly to the rate close to 1.4% and in some areas to 3.68% yearly.456 Colombia electricity sector emissions are already low compared to other countries in the world, because 78% of Colombia's electricity is derived from hydropower. Finally in the transportation sector, emissions have tended to rise, similar to all other countries in the region, rising from 16.86 MtCO2 in 1994 to 22.08 MtCO in 2008.

The next subsections analyze each country’s political dynamics, the policies of climate and climate-sensitive actions that were adopted and their link to the main hypotheses of this dissertation.

Brazil

The framework in this study considers two main independent variables, the political and bureaucratic institutions and the political actors’ interests (avoiding blame, credit claiming), as which condition the pathways for climate action. Therefore, the comparison starts by describing the institutions in place in Brazil.

Brazil has a federal presidential system (27 states), with electoral rules based on open- listed proportional representation. The national executive (who remains in office for a 4-year term with one consecutive reelection possible) has strong legislative powers. In contrast to

Mexico, the Brazilian president can generate provisional decrees, initiate and veto legislation, propose and execute the budget, and has ability to appoint a cabinet and to manage bureaucratic patronage, among other features.457 It is been categorized as an extremely powerful executive.

456 Nelly Rodríguez et al., "Patterns and Trends of Forest Loss in the Colombian Guyana," Biotropica 44, no. 1 (2012), doi:10.1111/j.1744-7429.2011.00770.x; Joe Kuper, "Colombia," The REDD Desk, 2013, accessed April 07, 2014, http://theredddesk.org/countries/colombia. 457 Amorim Neto, “Presidential Cabinets, Electoral Cycles, and Coalition Discipline in Brazil.”

260 The Brazilian president is able to garner legislative support to pass such legislation by using a set of “tools,” that allow him to align his interest with those of the legislature. One of such tools is the formation of large cabinets that represent large coalitions.458

Brazil has a bicameral Congress with a multiparty system categorized as weak and ideologically polarized system with low party discipline. According to Samuels (2002), state and local politicians, mainly governors are the ones controlling nomination processes for the legislature. Despite that, the coalitions are formed in Congress, and the support that they give to the President, have been possible because of the executive’s own strength and use of different

‘tools’ to ensure legislative support. The use of pork barrel politics has been a recognized feature of policy making to build support in the legislature.459 The literature suggests that presidents in multiparty systems such as Brazil would use pork barrel strategies to gain legislative support, when the adoption of a policy requires doing so (i.e. a policy is intended to be applied nationwide).

A final feature to bear in mind is that Brazil is decentralized federal country. The states tend to be highly autonomous; hence, local authorities concentrate elevated degrees of resources and power, increasing the number of actors involved in policy adoption and implementation.

458 For more details see Raile, Pereira, and Power, "The Executive Toolbox: Building Legislative Support in a Multiparty Presidential Regime." 459 Gubernatorial influence on political careers and the use of oversize cabinets have also been recognized in the literature as means to address the problem of low party discipline. See Eric D. Raile, Carlos Pereira, and Timothy J. Power, "The Executive Toolbox: Building Legislative Support in a Multiparty Presidential Regime," Political Research Quarterly 64, no. 2 (2011): 331, doi:10.1177/1065912909355711; Leslie Elliott Armijo, Philippe Faucher, and Magdalena Dembinska, "Compared to What?: Assessing Brazil's Political Institutions," Comparative Political Studies 39, no. 6 (2006), doi:10.1177/0010414006287895; Carlos Pereira, Timothy J. Power, and Lucio R. Rennó, "Agenda Power, Executive Decree Authority, and the Mixed Results of Reform in the Brazilian Congress," Legislative Studies Quarterly 33, no. 1 (2008), doi:10.3162/036298008783743309.

261 Therefore, the framework presented in this study would tentatively conclude that Brazil’s climate-sensitive actions respond to the perception of specific domestic problems in specific sectors, and those policy options adopted are those that are in line with the political interest of avoiding blame for concentrated losses or economic downturn, or claiming credit for solving a domestic problem, rather than those that hold higher GHG emissions reduction potential.

The institutions in place diffuse authority horizontally, having a latent possibility for divided government and falling into legislative gridlock, comparable to Mexico. But the fact that the executive branch has strong legislative powers, and several additional tools at its disposal, lessens the impact of this institutional characteristic on the ability to carry out action in Brazil. 460

However, this institutional characteristic will condition the content of policy, which generally includes pork barrel mechanism.

Thus, for these climate-sensitive actions to enter into an encompassing climate policy, 461 the framework suggests that the executive should gain something from this integration or

460 Actually, several studies have addressed the powers of the presidency as being the main feature of Brazilian politics. See David Samuels, “Progressive ambition, Federalism, and Pork-barreling in Brazil” in Morgenstern, Scott and Benito Nacif. Legislative Politics in Latin America, (Cambridge University Press, UK, 2002), p. 315 – 340; Octavio Amorim Neto, “Presidential Cabinets, Electoral Cycles, and Coalition Discipline in Brazil” in Morgenstern, Scott and Benito Nacif, Legislative Politics in Latin America, (Cambridge University Press, UK), 2002. p. 48 – 78; Lee J. Alston and Bernardo Mueller “Pork for Policy: Executive and Legislative Exchange in Brazil” in The Journal of Law, Economics and Organization, Vol. 22, No. 1, November 2005. p. 87 – 114; the majority of the authors mention pork and patronage as the ultimate bargaining tool. 461 Brazil’s levels of decentralization would require any national policy to be adopted first through legislative action for it to have a countrywide impact, as was the case for the PECC in Mexico. According to Ward, Wilson and Spink the level of decentralization in Brazil is such that policy measures would require national legislation for them to be applied across the territory. This is so because subnational governments have some degree of autonomy or discretion over formation and implementation of public policy, and in decisions concerning resource allocation. In Brazil the adoption of a new arrangement expanding roles and responsibilities of states occurred along with a transferred of resources. In Mexico, however, while similar changes occurred regarding roles and responsibilities, the level of

262 branding exercise, either international reputation or political leverage domestically as he brings international resources to the country to advance his own political agenda.

Brazil’s current climate policy includes measures that respond to domestic problems. The measures included actions on the forest, electricity and transport sectors, similar to the Mexican case. They focused on increasing energy efficiency, leading to a projected decrease in electricity consumption by 10 percent in 2030, compared to 2010 levels; maintaining its high percentage of renewable sources (77%) within Brazil’s electricity supply; continuing the increased use of biofuels in the transport sector and supporting the development of a sustainable international market for biofuel; continue reducing de-forestation rates, particularly in the Amazon region.

The origins of these policies can be traced back to domestic problems and decisions even before the consolidation of the climate change agenda. For instance, the large investments in renewable energy sources (mainly hydroelectricity) energy efficiency programs (called

PROCEL) and the increase in biofuel production are all programs dating back to the military governments that prioritized energy security and sought to find alternative sources or reduce demand to protect Brazil’s energy sovereignty.462 The emphasis on reducing deforestation, and its impressive results between 2005-2010, was a result of a combination of technological

transfer of responsibility for resource-collection has been limited and is still dependent on the fiscal coordination system by which states give up their rights to obtain income from taxes in order to be eligible to receive direct transfers from the federal government. See Peter M. Ward, Robert H. Wilson, and Peter K. Spink, "Decentralization, Democracy and Sub-national Governance: Comparative Reflections for Policy-making in Brazil, Mexico and the US," Regional Science Policy & Practice 2, no. 1 (2010), doi:10.1111/j.1757-7802.2010.01018.x. 462 With regards to biofuels development see Paula M. Meyer, Paulo H. M. Rodrigues, and Danilo D. Millen, "Impact of Biofuel Production in Brazil on the Economy, Agriculture, and the Environment," Animal Frontiers 3, no. 2 (April 27, 2013), doi:10.2527/af.2013-0012; in relations to energy efficiency and renewable energy see Gilberto De Martino. Jannuzzi, Recursos Energéticos E Consumo De Energia (Campinas, SP: Núcleo De Estudos E Pesquisas Ambientais NEPAM, 1998).

263 developments to control forest extensions, together with a political crisis within the president’s party and the increase in social tensions in the Amazon region, all of which gave great political clout to the new minister of environment Marina Silva, whose background and political agenda lay in conserving and recovering forests. Her emphases on reducing deforestation jointly with the increase in human and financial resources received by the ministry as a “payment for her support to the government” were the final components for Brazil’s success in reducing deforestation.463

The policy options adopted did not appear harmful to development or represent an electoral cost to the government. A counterfactual to this statement are the changes President

Luiz Inancio Lula da Silva made to the original national climate policy. Lula vetoed part of the original national policy by eliminating the language that call for a “gradual abandonment” of the use of fossil fuels. The Ministry of Mines and Energy restricted the reach of the plan due to new oil field discoveries off shore and the realization that Brazil’s future economic growth would rely increasingly on fossil fuels if they were unable to expand hydropower or even maintain current levels due to impacts of climate change. This veto resolved a tension, between Brazil’s climate concerns and the planned extraction of its recently discovered offshore deep-water oil reserves, in favor of a solution that led to a lesser impact on emissions reduction.

Brazilian law requires that any program similar to the PECC needs legislative approval for it to be applied nationwide and cannot be simply passed by an administrative act.464

Therefore, the existence of such legislation is not sufficient evidence that Brazil was committed

463 Interview with staff member from the Brazilian Ministry of Planning, Budget and Management, July 27th 2012. 464 The reason for that is a highly decentralized system, compared to Mexico, where actions across different states require a law. For more details see Federative Republic of Brazil, “New Decree Details Brazil’s National Policy on Climate Change”, Press release, December 15, 2010. Available from www.brasil.gov.br/news/history/2010/12/10/new-decree-details-brazil2019s-national-policy-on-climate-change (accessed 25 January 2014).

264 to the climate agenda. Looking at this indicator on its own, it may lead one to conclude that climate policy has advanced more than it actually has, because it responds to the institutional configuration of Brazil. Therefore, the Brazilian case serves as a warning on the type of indicators used to analyze climate policy, such as national laws, and restricts the applicability of such indicators to cases where levels of decentralization are lower. In cases where decentralization is high, national climate policies in the form of legislation may exist, but the causal mechanisms described in hypotheses 3 and 4, predicting when an executive would rely on legislative or administrative support, may differ from those of countries like Mexico.

It does, however, show that distributive politics is an important part of this process. The national climate policy included a national fund that was targeted to Amazon states. Thus, the

Brazilian case helps confirm that that policies that require legislative support in divided party governments will tend to rely at least on an element of distributive politics, if not additional

“tools,” which is in line with existing literature.

Finally, the last two hypotheses relate to the international dimensions of climate policy: the role of international climate funds and IFIs and the branding of current actions as a coherent climate policy as a way to position national leaders internationally and reducing resistance domestically. As presented in chapter 4, Brazil has been a large recipient of CDM resources, based on its capacity to present specific projects for carbon credits, but has lagged behind in bringing resources from other international climate sources. Partly this relates to the required international verification of results included in climate funds, and Brazil’s long tradition of opposing such international verification.465 As interviews pointed out, Brazil had the opportunity to access CTF funds in 2009, but declined the offer due to its rejection of international

465 Kathryn Hochstetler and Margaret E. Keck, Greening Brazil: Environmental Activism in State and Society (Durham: Duke University Press, 2007), 143.

265 controls.466 This position however has changed in the last few years as Brazil has taken on domestic targets, chose a timeframe and selected the means to do so, allowing some international consultation and oversight.467 According to Hochstetler and Viola (2011) Brazil started to change its position internationally when the decrease in deforestation levels showed Brazilian elites that reducing deforestation (and emissions) was a feasible goal.468 As mentioned above the increased resources needed to achieve this goal, as well as the technology to do so, where given to the

Minister of Environment in exchange for her political role in supporting Lula’s government. In addition, private sector companies saw the possibility of new investment flows, which they did not want to miss. Thus the change in Brazil’s international position came as a result of domestic dynamics, which, in line with this study’s findings, in the regime complex context will trigger a specific type of relationship with the international climate funds and IFIs. In the case of Brazil, this translates into a decision to engage in global climate politics in partnership with other emerging powers.469 Finally, Lula’s administration saw the branding of ongoing actions as climate-related as a way to connect to the newly elected Obama’s administration, and the expected US climate policy.470 When the US House of Representatives passed the Waxman-

Markey Bill in 2009,471 it spurred a response within Brazil, from the public and private

466Interview with international funding agency staff member, November, 6th 2013. 467 Hochstetler and Viola, "Brazil and the Politics of Climate Change: Beyond the Global Commons." 468 Ibid. 469 Ibid. 470 Interview with Staff member from the Brazilian Ministry of Planning, Budget and Management, Washington DC, July 2012 471 This bill sought to establish a cap and trade system setting a limit on the total GHG emissions allowed. The initial cap would then be reduced overtime. The bill was approved in the House of Representative by 219-212 votes on June 26 2009, but defeated in the Senate.

266 sectors.472 Lula sought to become a regional leader in global politics, including climate politics, and saw the strengthening of the US-Brazil relationship as a way to do so.473 The domestic dynamics within sectors, especially the forestry sector, as well as the pressure from the private sector to act on climate,474 reduced the costs for Lula to brand policy actions as climate-sensitive, which he promoted in the COP 15th in Copenhagen. As Hochstetler and Viola conclude “Brazil was simply saying publicly to an international audience what it already begun to do.”475

This case serves to specify some of the conditions under which the hypotheses presented in the framework hold. The main sector studied thus far in Brazil for its surprising results is the forestry sector. A more in-depth analysis of differences across sectors could further uncover the pathways for climate actions in Brazil.

Colombia476

Colombia represents some variations on the political process presented above, which serves to test this framework and extend it to non-federal states. Colombia is presidential system with a bicameral Congress. The electoral system, based on PR, has produced a as a two party-

472 For a description of the private sector actions see Hochstetler and Viola, "Brazil and the Politics of Climate Change: Beyond the Global Commons," and Kasa, "The Second-Image Reversed and Climate Policy: How International Influences Helped Changing Brazil’s Positions on Climate Change." 473 Cristina Pecequilo, "A New Strategic Dialogue: Brazil-US Relations in Lula's Presidency (2003-2010)," Revista Brasileira De Política Internacional 53 (2010): 137, doi: 10.1590/S0034-73292010000300008. 474 See Hochstetler and Viola, “Brazil and the Politics of Climate Change: Beyond the Global Commons," for more details. 475 Ibid.,16 476 This section has been taken almost entirely from a previous work entitled “Colombia Case Study” prepared for The 2014 Green Growth Best Practice Report, http://ggbp.org/.

267 system,477 with the caveat that the electoral cycle made it prone to divided government,478 and together with undisciplined parties and high party fragmentation, this has often reduced cooperation between the executive and legislature.479 With the 2003 electoral reforms the party fragmentation was somewhat lessened by introducing reforms to reinforce intra-party cooperation.480 However, the effects of the reform are said to have been limited to reducing party fragmentation (particularly in the Senate) but not necessarily fostering the creation of disciplined and/or cohesive parties with stronger party organizations.481

Thus, although Colombia, together with Brazil, is one of two Latin American countries with the highest levels of decree authority granted to their presidents, the lack of party discipline

477 Erika Moreno, "Whither the Colombian Two-party System? An Assessment of Political Reforms and Their Limits," Electoral Studies 24, no. 3 (2005): 487, doi:10.1016/j.electstud.2004.08.001. 478 Scott Mainwaring and Matthew Soberg Shugart, "Conclusions: Presidentialism and the Party System," in Presidentialism and Democracy in Latin America, ed. Scott Mainwaring and Matthew Soberg Shugart (Cambridge: Cambridge University Press, 1997), 395. 479 In fact the electoral rules based on personal lists proportional representation, where parties tend to be labels for varieties of lists presented intraparty, thus becoming ‘catch all’ parties. The pre-2003 rules allowed for multiple lists per party, but restricted pooling votes across lists of a single party, with distribution of seats through the Hare method of largest remainders led politicians to cultivate personal votes. This system resembles the workings of the single non-transferable vote. For more details see Mainwaring and Soberg Shugart, "Conclusions: Presidentialism and the Party System." According to Moreno, the rules of registration of new movements since 1991 reform has led to a proliferation of new actors within catch all parties. In combination with other rules the state and local politicians, were the ones running the show. See Moreno, "Whither the Colombian Two-party System? An Assessment of Political Reforms and Their Limits." 480 For instance it introduced vote pooling though single party lists and rewarding vote accumulation with the D’Hondt electoral formula. It also included an electoral threshold of 2% to reduce the proliferation of ‘new actors.’ Moreno, "Whither the Colombian Two-party System? An Assessment of Political Reforms and Their Limits.” 481 Juan Albarracín and Juan Pablo Milanese, "The Impact of the Colombian Electoral Reform in Congressional and Sub-national Elections," in LASA, proceedings of 2012 Congress of the Latin American Studies Association, San Francisco, California, San Francisco, May 2012, accessed March 22, 2014, ftp://ftp.icesi.edu.co/jpmilanese/Sistemas/Clase%209/Albarracin%20y%20Milanese.pdf.

268 and the electoral rules that lead to voting based on personal traits rather than party identification, the result is a large number of effective parties (if each intra party list is considered a different party), with which the president will need to form coalitions in Congress.482 These two countries also have among the strongest clientelistic networks, according to Archer and Shugart (1997) reinforcing the practice of pork barrel and distributive politics, which in the case of Colombia is distributed to the regions. Undisciplined parties have led to the frequent inability of Colombian presidents to accomplish policy agendas that are nominally endorsed by their own parties.

Presidents find it difficult to enact their policy agendas because presidents have low partisan powers due to internal party fragmentation. The use of distributive politics is the main tool to gain legislative support.483

In addition, Colombia, although not formally a federal state, has undergone a process of decentralization towards the local level authorities. This process has been considered as an integral process that devolved political fiscal and administrative powers to local governments, increasing federal transfers from 13% in 1973 to about 50% of government revenue in 2000s.484

However, despite the increase in transfers to departments and municipalities, there has been surprisingly little “real” decentralization in functions yet, especially to the intermediate levels.

The role of intermediate level governments remains controversial. The main real function of departments is to administer national programs. Departments have some capacity to collect

482 The executive branch remains in office for a 4-year term with one consecutive reelection. Colombia has a bicameral Congress with four years terms and possible reelection. Latest studies have addressed the powers of the presidency and the need to form coalitions as being the main feature of Colombian politics. See Royce Carroll, and Monica Pachon, "The Unrealized Potential of Presidential Coalitions in Colombia," (Manuscript, Rice University, 2014) http://www.owlnet.rice.edu/~rc6/papers/Carroll_Pachon_Colombia_chapter.pdf. 483 Ibid. 484 Olga Lucia Acosta and Rochard M. Bird, "The Dilemma of Decentralization in Colombia," ROTMAN, December 16, 2003, http://190.116.32.75/contenidos/pol_econ/documentos/columbia.pdf.

269 revenue but it is limited. They do not create for the most part their own programs, although there is some variation across departments.485 This hybrid situation allows for the central government to create programs that would not require legislative approval, as opposed to the Brazilian case, but such programs, once created, have to be reinforced with a revenue transfer to the departments.

In this context, climate policy could benefit from administrative acts and, if necessary, legislative support. Both cases would require resource allocation to the departments or to the legislators’ districts.486 However, the Colombian case shows that when other conditions are not present (no domestic problem that can be solved with a climate-sensitive policy option, nor a national leader promoting a climate agenda), the costs associated with distributive politics would not be applied to climate change policy making. In other words, following the framework presented here explains why no legislation on climate has been passed in Colombia yet, under current conditions.

Until 2006, Colombia had a national climate change policy developed in 2002 that had little effect making real changes in terms of the expected influence on sectoral (agricultural, energy, transport etc.) and territorial (i.e. land use planning instruments) decisions.487 It did not resemble the PECC or the Brazilian climate policy, serving as a warning on how to

485 Ibid. 486 In fact, even when administrative programs are executed, the literature suggests, and interviews confirm that Colombia resource allocation appears to be largely arbitrary and subject to strong political pressures. For more details see Juan Echavarría, et al., “Bailout of territorial entities by the Central Government in Colombia”, (Working Paper No. 14, Fedesarrollo, 2000); Interview National Planning Department staff member, June 10th 2013 487Interview with a member of the environment sector, June 10th 2013.

270 operationalized climate policy and implementation.488 Since 2006, staff within the ministry of environment convinced staff from the National Planning Department to include in the 2006-2010

Development Plan a component for a National Climate Change Policy and a National Action

Plan. In this sense, this process seemed to mirror the process that Mexico underwent when designing the PECC. However, this process lacked the commitment and national leadership endorsement from national leadership that Mexico had. While it had been included in the

National Plan, which meant there was an obligation to produce such policy within the period of the 2006-2010 administration, the President himself did not see climate change, or any international problem for that matter, as a priority.489 The intervention of the President in this process was limited to acceptance of its inclusion in the Development Plan. Neither President

Uribe nor President Santos took climate change as their main areas of interventions. In fact, for

President Santos taking action on climate change had the potential to go against his

“Locomotoras de desarrollo” (meaning development motors, which include increasing investment in housing, infrastructure, mining, agriculture). One possible explanation of why in

Colombia the presidents did not engage with the international aspects of climate politics could be that the political calculus is different from Mexico because presidents have the possibility of reelection. The political career paths in Colombia in the last decade show for example that after leaving office, Alvaro Uribe focused on domestic politics and became a Senator. In the case of

488 Observers and policy makers considered the root of the problem to be in part the institutional origins of those policy guidelines as well as lack of resources for policy implementation. Approved by the National Environmental Council, a body chaired by the Ministry of Environment, this policy was inserted within the national environmental system, and was perceived as lacking influence and force to effectively mainstream climate change into sectoral decisions: “it did not have economic and social content for the priority sectors to apply them.” Interview with National Planning Department staff member, June 10th 2013 489Ibid.

271 Brazil, reelection is also possible, but Brazil has shown a long tradition of seeking international predominance at the regional and international level, which explains the attention that Brazilian presidents do pay to the climate complex regime.490

Nevertheless, the Colombian administration staff followed the commitment of producing a national policy in the form of a CONPES Policy Documents.491 The scope and content of the document was limited to analyzing what might be the best institutional design for the climate agenda. There were no targets or specific programs included in the document. Different sectors provided inputs on the results of the different studies, with National Planning Department playing a coordinating role and adjusting the content of the CONPES document accordingly. It did not include the priorization of strategies, because it was assumed the sectors would do so later on. The goal of the CONPES was to “facilitate and promote the design and implementation of policies, plans, programs, projects and methodologies on climate change, including the climate variables as part of the design and planning of development projects, by developing a

490 For more details on Brazil’s international ambitions see Cornel Ban, "Brazil's Liberal Neo-developmentalism: New Paradigm or Edited Orthodoxy?" Review of International Political Economy 20, no. 2, Dreaming with the BRICS? The Washington Consensus and the New Political Economy of Development (April 01, 2013), accessed March 30, 2014, http://www.jstor.org/stable/10.2307/42003295?ref=search- gateway:ba1f9d19fee06385375f63b986ce5125. 491 The highest policy body in the administration in Colombia is the National Council for Economic and Social Policy (CONPES - Consejo Nacional de Política Económica y Social). This body approved CONPES Policy Documents, and engages with the Office of the Presidency, the National Planning Department and the Ministry of Finance, among others. The CONPES are the policy documents per excellence in Colombia. The CONPES are used by the National Audit Office to monitor and evaluate the work of an administration. Technical experts, within the administration, proposed the idea of mainstreaming climate change and environmental concerns into development by the production of CONPES as the guiding policy instrument.

272 cross-sectorial mechanism.”492 While the goal was ambitious, the CONPES did not include a budget allocation or a creation certain funding mechanisms, as the cases from Mexico and Brazil.

Hypotheses one and two suggest that action would take place when a domestic problem exists and possible solutions with a climate sensitive aspect are considered for addressing those problems. During the 2000s, Colombia’s climate actions remained in the realm of rhetoric, and did not penetrate in sectors with specific solutions to their problems. In fact, as the case of energy sector shows, the technical staff as well as policymakers within the Ministry of Energy and Mines, have not included low carbon considerations in their energy matrix projections; the ministry is not obligated to do so nor does it see the benefits of doing so, showing that climate- sensitive policy actions are not perceived as possible options.493

The major exception was the adoption of BRTs in Bogota, accessing CDM resources.494

However, these actions were not branded or packaged into an overall climate policy with set targets in the climate change CONPES. This is so because there was no perceived political gain to doing so by national leaders. International climate funds (CIFs) and IFIs (policy based loans)

492 CONPES 3700 “Institutional Strategy for the articulation of policies and actions in Climate Change,” July 14 2011 493 Interview with IDB Staff member, July15th 2013. 494 The mayor of the city of Bogota initiated the process of designing BRTs as a way to solve a congestion issue and local pollution issue. Later, international actors (IFIs), members of the Ministry of Environment and private sector actors (Transmileno) saw the potential to seek CDM resources for these actions. The additionality criteria, imposed by the UNFCCC to access CDM resources, established that projects need to demonstrate that without the CDM resources the project would not be completed. This condition was difficult to reach, and the project was denied CDM resources the first time around. In 2006 the developers presented once again the methodology, to the UNFCCC, this time ensuring that the project complied with the additionality criteria. The main change was a national CONPES to reform the 310 Law of 1996 where the federal government had committed itself to fund 70% of the mass transit projects in cities. The CONPES 3465 established that funding would come form national funds and other sources, including CDM. The methodology was approved in December 2006. Interview member of Environment sector, June 10th 2013

273 did allocated resources to Colombia based on the initial signals received by the Uribe’s administration staff within National Planning Department and the Minister of Environment that they would give climate a high priority. However, as the framework suggested, resources from the international community will only have an impact in those sectors, and on the overall climate policy when domestic actors’ preferences allow for it. In fact, there may be actions occurring at local levels, but these actors will not be able to attract and leverage international climate resources if national government is not willing to do so.

In sum, these two cases specify and demonstrate the usefulness of the framework for understanding other cases in the region, and developing countries more generally, with an international ambition to play a role in global politics. From these short analyses in addition to the Mexican case, it can be tentatively concluded that multiple interactions between institutions and the interests of domestic actors, in particular the president and IFIs, generate paths to climate-sensitive policies that will be bundled and branded as an overall climate policy when political gains exist. Further cross-sector analysis could help further define when these mechanisms can be extrapolated into a generalization for understanding the politics of climate in developing countries.

Lessons for International Financial Institutions

The effectiveness of aid has been an issue for the international community in general, and

IFIs in particular since their inception. In 2002, at the International Conference on Financing for

Development in Monterrey, Mexico, the international community agreed to increase its funding for development and acknowledged that money was not enough, declaring that a partnership, rather than a one-way relationship between donor and recipient, was needed. In practical terms this means that each side recognized the other to have legitimate interests, and declared their

274 willingness to negotiate the terms of the relationship.495 Several meetings followed, under the coordination of the OECD, where the focus was on giving recipient countries ownership of policies to be adopted. In 2005, donor and recipient countries signed the Paris Declaration on

Aid Effectiveness in an attempt to change the way donor and developing countries do business together, based on principles of partnership.496

Much of the debate around aid effectiveness has revolved around how to work with developing countries and build well-functioning local institutions so that they are able to manage their own development and reduce their dependency on aid. But as this study suggests not all developing countries are the same. In the past decade, the aid environment has changed.

Emerging economies (China, India, Korea, Turkey, Brazil, Venezuela, and Mexico), are still receiving aid, but have also become donors themselves. Interaction with these countries has changed, as they do not feel compelled to conform to traditional donors’ norms.497 They not only can access private markets for funds (in 2010 the private markets provided around US$280 billion dollars to Latin America, while the IDB provided around US$ 18 billions), but are also creating their own financial institutions to financing development.498 These countries are capable of questioning the demands for conditionality in return for assistance, and are able to play their memberships in different ‘clubs’ to their favor.

495 For more details see United Nations, "Financing for Development, United Nations Department for Economic and Social Affairs," UN News Center, 2002, Documents, accessed March 24, 2014, http://www.un.org/esa/ffd/. 496 For more details see OECD, "Aid Effectiveness - OECD," Aid Effectiveness - OECD, 2005, Paris Declaration, accessed March 24, 2014, http://www.oecd.org/dac/effectiveness/parisdeclarationandaccraagendaforaction.htm. 497 Kang-ho Park, "New Development Partners and a Global Development Partnership," in Catalizing Development: A New Vision for Aid, ed. Homi Kharas, Koji Makino, and Woojin Jung (Washington DC: Brooking Institution Press, 2011). 498 James Politi, "The Future of Development Banks," Financial Times, September 24, 2014, FT Special Report ed.

275 This reality sparks different levels of actions and success across sectors. For instance, the members of the Paris Declaration created a specific partnership (the International Health

Partnership) in the health sector to overcome possible noncooperation and conflicts. This partnership calls on national governments, development agencies, civil society and others actors in to support a single, country-led national strategy in a well-coordinated way.

The climate change and the aid effectiveness agendas were rarely linked until 2011, when a specific panel on climate change was included in the Fourth High Level Forum on Aid

Effectiveness in Busan. Climate change had to this point been running parallel to the aid effectiveness meetings, mainly because these two goals seem to be somewhat at odds with one another. The goal of international climate finance was to support the transition to low carbon development, a process that was costly and would not be willingly adopted by developing countries. The goal of aid effectiveness was for donors to align with a country’s priorities outlined in its national development strategy and plan. In this sense, one agenda was pushing countries to act differently from what they had already decided as a priority while the other agenda sought to support the country’s own development decisions. The actions on the ground from some developing countries, as this study shows, may show a different story, one in which the differences in the principles of these two agendas may have started to vanish, as countries brand climate-sensitive development actions as part of an overall climate policy in order to access international resources reserved for climate action.

This study presents some lessons on how to combine both agendas, particularly for IFIs.

Aid effectiveness in climate, the combination of international climate finance with ownership of the agenda nationally, and a possible pathway to low carbon development, will be possible when taking into account certain conditions. First, governmental actors in each sector may vary in

276 terms of their potential to contribute to GHG emission reduction, most importantly in their willingness/need to utilize international resources and technical assistance. Recognizing this fact will lead to a different type of country dialogue, where selection of sectors as well as policy options are jointly agreed upon, and not merely a one way relationship from donors to recipient countries.

A possible venue to change perceptions towards low carbon actions is through regional networks, either created by the IFIs or already in existence. These networks can help promote dialogue at the sectoral level to help policymakers learn from the experiences of their peer countries, a recognized path for policy diffusion.499 Since one of the key actors for policy change is the ministry of finance, IFIs’ main comparative advantage vis-a vis other convening actors within the climate regime complex is their close relationship with Ministers of Finance, as they are the IFIs’ board members.

Second, while most of the decision-making requires information gathering and feasibility costs, not every decision is led by economic rationale. Making an economic case for climate sensitive policies is not enough. As Kaufman and Nelson (2004) show for the case of health and education reform economics helps understand the problem and the financial needs around implementing the changes, but the political dynamics will tell us whether those changes will be adopted and maintained. Within the dialogue with countries, the IFIs need to recognize other dynamics and multiple interests at play to be able to engage those actors, build coalitions and networks with different stakeholders and thus advance and sustain the climate agenda.

Third, working from the environment sector alone may not “trickle down” to other sectors. The IFIs’ climate specialists that provide policy options need to identify counterparts

499 Kurt Weyland, Learning from Foreign Models in Latin American Policy Reform.

277 within the bureaucracies who can explain how alliances are build within each sector and that can push further for climate sensitive policy options. This is because the opposition to climate action may not be perceived from the environment ministry alone. As the cases examined here have shown, the intricacies of each sector require sectoral knowledge of the technical, political or information barriers for actions. Staying outside each sector can lead to lowered effectiveness by overlooking implementation requirements that may prevent the execution of projects that have been approved, as in the case of transport sector in Mexico shows.

Finally, the way IFIs structure cross-cutting work for climate action within the organization, allowing for understanding sectors’ needs, challenges and possible solutions may require different types of specialists who have the technical skills to present low emission solutions to domestic problems (housed either in a single unit or across sector units) but also staff that can reach to high level policy makers be able to show the benefits of the branding. IFI management could help demonstrate the benefits of bundling climate sensitive actions as one single policy to national leaders. This requires, however, not only the building of coalition and networks but also training at all levels of the organizations to recognize the opportunities for such action when leading high level dialogue with the countries.

Today, climate policy seems to involve primarily incremental and non-comprehensive responses. This study adds to existing literature that suggests that this may be the case due to the difficulties in garnering support initially for climate action.500 As Compston and Bailey (2012) suggest, starting slow and increasing actions later can help the process of learning by doing, as well as build up constituencies for policy change. This research has attempted to build a simple framework for understanding when such policies have become a reality in a specific type of

500 Hugh Compston and Ian Bailey, Climate Clever: How Governments Can Tackle Climate Change (and Still Win Elections) (London: Routledge, 2012), 6.

278 developing countries: middle income countries with increasing GHG emissions. Further elaboration of the model will require testing these ideas to other types of developing countries.

279 Appendix A: Climate Policy Index Components

National International

National Policy actions included in the Index International policy actions included in the Index

Legislation for renewable energy promotion, energy Ratification of UNFCCC, Kyoto Protocol, efficiency, climate change with targets, carbon tax, Copenhagen Accords, Cancun Agreements, Durban climate funds Platform

National and Sectoral Mitigation Strategies, Plans, Delivery of National Communications

Reforestation Programs, Transportation programs

280

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