PROGRAM INFORMATION DOCUMENT (PID) CONCEPT STAGE Report No.: AB4911 Operation Name Mexico Green Infrastructure Development Policy Loan Region LATIN AMERICA AND CARIBBEAN Sector Transport (50%); Energy (50%) Project ID P115608 Borrower(s) GOVERNMENT OF MEXICO Ministry of Finance and Public Credit Secretaria de Hacienda y Credito Publico Palacio Nacional, Primer Patio Mariano Piso 3, Col. Centro Mexico, D.F. Mexico 06000 Tel: (52-55) 3688-1153 Fax: (52-55) 3688-1156 gerardo_rodriguez@hacienda.gob.mx Implementing Agency HCP Date PID Prepared July 2, 2009 Estimated Date of July 30, 2009 Appraisal Authorization Estimated Date of September 24, 2009 Board Approval I. Key development issues and rationale for Bank involvement Mexico is one of the first developing countries to commit to a voluntary carbon reduction target to address the challenge posed by climate change. The country has pledged to halve GHG emissions by 2050, based on 2002 levels, and plans to put in place a domestic cap-and-trade system by 2012. The establishment of Mexico’s federal emissions-reduction programs was supported by an IBRD Climate Change DPL in 20081. These programs foresee far reaching reforms in the sectors that weigh most heavily in the country’s carbon footprint, such as transport and energy which account for 18 percent2 and 27 percent of GHG emissions respectively. The Bank has been engaged in a dialogue on Climate Change with Mexico since the mid-1990s. The current Bank program in the country comprises about 25 climate-related activities financed by IBRD loans, GEF grants, carbon finance emission reductions purchase agreements (ERPAs), and other financial instruments. In addition, the Bank and Mexico completed substantial analytical work in FY09 to define and cost a 1 Mexico – Climate Change Development Policy Loan (P110849). 2 Of total GHG emissions by the transport, urban transport accounts for a significant share (National Climate Change Strategy, 2004). low-carbon growth scenario for the country, which examined the energy and urban transport sectors. As anticipated in the Country Partnership Strategy, this DPL constitutes the next step in the Bank’s support for Mexico’s adoption of effective policies to combat climate change and follows-up more specifically on the 2008 Climate Change DPL. The present operation underpins significant reforms in the regulatory, institutional, financial and monitoring frameworks for the Urban Transport and Energy Sectors, which will serve as key elements of a lower-carbon growth path. Support for these policies is provided in the context of a comprehensive sector dialogue between the Bank and the Government of Mexico in Urban Transport and Energy policy. The Government has defined its strategy for emission reductions in its Special Plan for Climate Change (PECC) which is currently in public consultations. The sectoral emphasis of the DPL—on urban transportation, renewable energy and energy efficiency—is consistent with the PECC's priorities. To achieve emissions reductions in transport, Mexico has created the National Mass Transit Program (PROTRAM) with the assistance of the World Bank and a National Urban Transport Transformation Program (UTTP), which supports sustainable urban transport interventions that fall outside of PROTRAM’s purview. The GoM will use PROTRAM and the UTTP to steer development toward a lower-carbon growth path. With regard to Energy, emissions reductions will be achieved through the adoption of a legal and regulatory framework for the development and use of energy from renewable sources and the implementation of an ambitious energy efficiency program. Together with other support provided by the IFIs, this DPL will also contribute to alleviating some of the impacts of the ongoing international financial crisis on Mexico’s public finances. II. Proposed objective(s) The establishment of regulatory, institutional, financial and monitoring frameworks for a low-carbon evolution of the energy and urban transport sectors. III. Preliminary Description Mexico has emerged as a global leader in the climate change arena and has moved quickly to establish a policy framework that could significantly reduce its carbon footprint in the years to come. However, the success of this program is dependent upon the further evolution of regulations, institutions, financing mechanisms and monitoring and evaluation capacity. A national program will detail how emission targets will be pursued in each contributing sector and set intermediary GHG emission reduction objectives. Transport – The Urban Transport actions under this operation support the development of the institutions, policies and incentives needed to consolidate and modernize the Urban Transport Systems of Mexico. These reforms will make Urban Transport more efficient and effective, reducing automobile use and decreasing urban congestion to lower the sector’s carbon footprint. Energy – The Renewable Energy and Energy Efficiency Laws supported under this operation provide the regulatory framework to put in place new incentive structures for the use of renewable technologies in electricity generation and obtain efficiency gains through the avoidance of costs and emissions by lowering electricity demand. Success of these initiatives rests on the adequacy of the legal framework, the effectiveness of the incentives aimed at public and private stakeholders as well as end consumers, a sound implementation program, the availability of financing mechanisms for such initiatives, and adequate capacity to implement and monitor the policy. By supporting the Government’s policy commitment to regulatory, institutional and financial resources as well as monitoring and evaluation capacity, the proposed DPL strengthens Mexico’s objective of launching the urban transport and energy sectors on a low-carbon growth path. As a single tranche operation, the DPL acknowledges the important steps already taken by the GoM to develop Urban Transport and Energy policies that combat climate change and reduce GHG and other emissions. IV. Safeguard Policies that might apply Safeguard Policies Triggered by the Project Yes No TBD Environmental Assessment (OP/BP 4.01) [] [x] Natural Habitats (OP/BP 4.04) [] [x] Pest Management (OP 4.09) [] [x] Physical Cultural Resources (OP/BP 4.11) [] [x] Involuntary Resettlement (OP/BP 4.12) [] [x] Indigenous Peoples ( OP/BP 4.10) [] [x] Forests (OP/BP 4.36) [] [x] Safety of Dams (OP/BP 4.37) [] [x] Projects in Disputed Areas (OP/BP 7.60)* [] [x] Projects on International Waterways (OP/BP 7.50) [] [x] Piloting the Use of Borrower Systems to Address Environmental [] [x] and Social Issues in Bank-Supported Projects (OP/BP 4.00) V. Tentative financing Source: ($m.) Borrower/Recipient 0 IBRD 900 Total 900 * By supporting the proposed project, the Bank does not intend to prejudice the final determination of the parties’ claims on the disputed areas VI. Contact point Contact: Jordan Schwartz Title: Lead Economist Tel: 202-458-0493 Fax: 202-614-1714 Email: jschwartz3@worldbank.org Location: Washington DC