Mexico: Climate Finance from State to Municipal Level

Fulfilling Mexico’s ambitious NDC depends largely on the ability of subnational entities to mitigate climate change. Emily Castro explains how the country approaches its goals.

Policy Framework

Mexico has an ambitious NDC. Its fulfillment depends to a great degree on the involvement of its subnational entities (federal states, cities, municipalities i.a.). However, specific goals other than for the central state (excluding those for most vulnerable municipalities) are not mentioned in the NDC.

Many Mexican federal entities (i.e. States) implement mitigation projects and some assist their lower levels to do so as well. The State of Jalisco has created a framework to provide funds to municipalities as well as to associations of municipalities to implement climate protection projects. As well, an environmental fund exists which opens up further financing opportunities for climate change projects by municipalities. The fact that the State regularly puts aside money for mitigation projects and that municipalities match this money with own funds is in itself a success. However, meaningful assignment of funds in order to achieve best leverage is still a challenge for Jalisco.

Enabling Factors

Since 2012 the General Climate Change Law provides the main guidance for the implementation of climate policy on national and subnational levels. In this regard, the function of Mexico’s 32 federal States is to develop, conduct, and evaluate the state-level climate change policy, implement mitigation and adaptation actions, develop and implement their own climate change programs, and integrate their emission source data into the National Emissions Inventory and the State Risk Atlas4. Jalisco passed its State climate change law in 2015. It determines that all its municipalities within one year after publication of the State Climate Change Programme (i.e. before October/November 2018) should pass their respective municipal climate change programmes. Thus, national climate legislation trickles down to the smallest (the municipal) level in Mexico and, at least on paper, it is assured that all State governance levels contribute to Mexico’s NDC fulfilment.

However, several innate obstacles still remain, which have to be addressed by the Nation State: though municipal climate change programmes should incorporate a long term planning time frame (15 years or longer), they have to be updated at the start of every new municipal administration, meaning every three years. This tends to make them volatile. Mayors can be reelected only once (as of 2018), leaving thus little room for meaningful long-term mitigation projects that do not hunt for short-term visibility and results.

In Mexico, neighbouring municipalities can link up and form a legal entity to carry out environmental projects. Those associations enhance horizontal as well as vertical cooperation: not only do they carry out environmental projects of several municipalities, but they are steered and overseen by representatives of municipalities, the State government and even the national government. Summing up, from the legal-institutional side the integration and connection of different levels of government (national, state, local) in Mexico is being developed.

Stakeholders, Actors and Irreplaceable Drivers

Climate change projects (be they about mitigation or adaptation) in Jalisco are induced in various different ways: either through legal obligations (as described above), through personal interest from decision makers e.g. in municipal administrations or through international, national or state funding. Ideally, all three converge in one project. There are plenty of stakeholders and drivers for climate change projects in the federal state. A lot of positive energy to work against climate change and for the best possible adaptation to it can be felt in the state and its municipalities. An enabling legal framework that sets obligations for municipalities surely helps to channel this energy.

As well the fact that the state of Jalisco for nine years now has reserved funds for climate projects by municipal councils helps channel energy and bring about projects. Yet, there are shortcomings as well, as has been indicated by state and local officials, which hinder development and/or implementation of climate change projects: limited knowledge on the necessary implementation steps of projects or weak monitoring and/or communication of the project results, in some cases low priority of climate change projects with decision makers, scarce facts on climate change in the local context or lack of knowledge on existing studies on climate change and its impact on the local level.

Lack of knowledge on tools and instruments (e.g. how to quantify CO2eq. or how to project the impacts of measures) hampers project implementation as well. In spite of a relatively favourable institutional setting, continuity of projects is still too often at risk after an administration changes, as officials relate. And while the vertical cooperation of projects often works well, the horizontal one is still deficient, leaving institutions out of a project that should participate.

Financing Approach

Financing is a major catalyst of successful projects, lack of it can hamper widespread action on climate change. Dedicated municipal budgets on climate change do not yet exist.

Municipalities in Mexico earn only a minor fraction of their budget themselves and get assigned budgets by the state. They therefore have less flexibility to implement climate change action. Planning is harder as well when it is not clear, how much money they can earmark for climate change projects. Until now only 10% of federal states in Mexico have earmarked money to spend on climate change projects (GIZ, 2017) which in some cases will be channeled to municipalities.

In the case of Jalisco, the state government provides financial support for climate change projects to associations of municipalities, which have the purpose of managing the municipalities’ territory and protecting the environment. It does this in form of a call for proposals, where councils apply with ideas, mainly taken from their climate action plans. Such a process is a good option if the state wants to trigger climate actions at local level; however, it has to be well designed to spend the money effectively.

Part of a good design is e.g. to have clear criteria on what to fund and what not; how much funding is available individually – this allows applicants to tailor their project according to the available funds; communicate clearly how a well written project should look like (concept, goal, milestones, timeframe, budget etc.); communicate priority sectors for the state, which in turn should be addressed by the municipalities etc. The German development cooperation GIZ currently assists the organisation of the call for proposals and the review of incoming projects for the years 2017 and 2018.

Challenges

The example here described shows on the one hand successful vertical harmonisation of climate policies from the highest level to the lowest. On the other hand, in order to ensure local climate projects that align local priorities with federal state as well as national ones, a clear political guidance is necessary. This begins with knowledge exchange (e.g. according to officials on different governance levels, the Mexican NDC is little known by subnational decision makers), capacity development on basic facts of climate change and how municipalities can and should deal with it (adaptation as well as mitigation wise), and the communication of good practices and innovative projects implemented in other municipalities (either in Mexico or elsewhere). Besides, capacity development guidance for municipal projects can (and does) happen through funding guidelines. (Projects not chosen for funding could be assisted by providing information on further funds.)

However, funding guidelines help to set up good projects, but do not follow up on implementation. Since project funding in the case of Jalisco means one-off disbursement at the beginning of the project, there are no financial mechanisms to sanction deficient project implementation. Due to budgetary reasons, funding cannot be spread over several years. One option to counter this one-off logic is to offer a follow-up funding (with new funds) the next year, on the condition that project implementation is satisfactory. This assessment should be carried out in the due process of project reporting. Reporting is key to ensure that the federal state together with its municipalities not only acts on climate change but let the Nation State know it so that those projects enter national reporting.

Scaling-up Approach

Since so few federal States in Mexico disburse funds for municipal action on climate change, the example of Jalisco is well worth disseminating. Federal States should be encouraged by the Nation State to reserve some budget for climate action. The organisation of a contest for municipalities can thereby lead to better project quality and more ownership on the municipalities’ side. A combination of federal State’s funds with national funds could be considered as well.

Steps for Further Ambition

Often, the available money for climate change projects is not sufficient for an entire project cycle. Third party financing should be sought by municipalities as well. This should be encouraged by the national or by federal States. Furthermore, climate change should be much more mainstreamed into (non climate specific) laws, regulations and financing instruments, so that it becomes a constant factor in planning and spending. A long term perspective, spanning several administrative terms could be assisted by this as well. Guarantees (either cemented by law or given by the State) are a suitable instrument for this.

Emily Castro Prieto

Emily Castro Prieto

Emily Castro Pietro is a specialist in climate change and has worked on various GIZ projects since 2012, mainly in the areas of mitigation, monitoring, reporting and verification mechanisms, as well as urban environmental management and waste-to-energy. Currently, she coordinates the VICLIM Project in Mexico to strengthen the role of subnational actors in the achievement of the national climate objectives. Trained as a chemical engineer, Emily holds a Master’s degree in Engineering for Sustainable Development from the University of Cambridge.
Emily Castro Prieto

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