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Environmental action as a source of revenue

The 1997 Kyoto Protocol to the United Nations Framework Convention on Climate Change, which takes effect on Feb. 16, brings Latin America and the Caribbean an opportunity to link sustainable economic development with environmental protection. Under the Kyoto Protocol, roughly 30 of the world’s industrialized nations have agreed to reduce greenhouse gas emissions below 1990 levels by the year 2012. The Protocol includes an innovative feature, known as the Clean Development Mechanism (CDM), which allows these countries to meet their obligations either through domestic activities or by financing renewable energy development projects in other countries and purchasing greenhouse gas “emission reduction credits.” As the market for greenhouse gas reduction credits develops, Latin America and the Caribbean can participate in greenhouse gas mitigation activities and benefit from a new source of revenue at the same time, says IDB environmental finance specialist, Michael Toman.

The existence of low-cost options for mitigation of greenhouse gas emissions in Latin America and the Caribbean is undeniable, according to a recent IDB-supported study titled Policy Studies on Greenhouse Gas Mitigation and Economic Development: Synergies And Challenges, by Richard D. Morgenstern. About 30 percent of the emission reductions purchased through the World Bank’s Prototype Carbon Fund in 2003 were from Latin American and Caribbean nations, he illustrates, adding that the example clearly indicates “the opportunities for synergies between greenhouse gas reduction and sustainable development in the region.”

Morgenstern includes case studies on solid waste and landfill management, urban transportation restructuring, and reforestation as three possibilities for greenhouse gas reduction in the region. These case studies point out the need for local capacity building in areas, such as strengthening skills in project preparation, marketing and negotiating emission reduction agreements. “International support can be an important source of funding for capacity building activities,” he concludes. For industrial and forestry projects alike, such support can advance both economic development and greenhouse gas reduction.

“There is no doubt that our region has more CDM expertise than any other in the world,” says environmental specialist on climate change and international environmental policy, Christiana Figueres. However, she adds, “the region’s participation in the CDM tends to be more of an opportunistic enterprise than a strategic effort.” A recent IDB supported study, co-authored by Figueres, titled Institutional Capacity to Integrate Economic Development and Climate Change Considerations, discusses the opportunities and challenges in using the CDM for individual projects and systemically pursuing less greenhouse gas-intensive economic development.