CO2 TARIFFS AND THEIR INFLUENCE ON TOMORROW’S HOME FOR FUTURE

GENERATIONS: THE CORPORATE APROACH IN LATIN AMERICA

Professor: Lígia Pinto

Author: Marcela Alexandra Atehortua Ropero e9997

GENERATIONS: THE CORPORATE APPROACH IN LATIN AMERICA

Carbon Footprint and its effects on economics

“The carbon footprint refers to the amount of greenhouse gas emissions that

humans produce when manufacturing a product or while carrying out their daily activities”

(Eguren, 2004). These greenhouse gases are, among others, the cause of global warming

and are produced in most of the usual activities that humans carry out in day-to-day life. In

short, it is the environmental impact that is generated on the planet, and it is measured in

tons of CO2 emitted. It has an impact in all the activities carried by humankind, including

economic activities and the development of business all along the world.

The corporate world is nowadays the most marked by the greenhouse effect and,

for this reason, there is more investing in sustainability and reduction of energy used.

Employers have become aware of the importance of managing energy sources and the

consequences that this can entail. Investing and developing energies that guarantee greater

sustainability allows adequate management of the companies that use them, since they

thoroughly examine the impact of their carbon footprint, and this allows them to reduce it.

Part of the global challenge is also to define responsibilities for the generation of

Greenhouse Gases. The level of influence and control that each company has over its

emissions.

It is classified by scopes:
 • Scope 1: direct emissions from own or controlled sources.

• Scope 2: indirect emissions from power generation, purchased electricity, heat and

steam.

• Scope 3: all indirect emissions (not included in scope 2) that are issued along the

value chain of the company that presents the report. This includes upstream and

downstream emissions (upstream and downstream).

Global Carbon market

The carbon market or the reduction of gas emissions greenhouse effect arises from

the need to take measures given the evidence that human activity is influencing a process

of accelerated global warming due to the concentration of greenhouse gases, with the

consequent negative impacts on the health of human beings, their food safety, the

economic activity, water, other natural resources, and physical infrastructure.

This market was born from the need that the nations of the world felt to sign a

framework agreement in which they would commit to stabilizing gas emissions. This

convention, signed in 1992 under the name of the United Nations Framework Convention

on Climate Change, has as its fundamental principle that countries should take

precautionary measures to anticipate, prevent or minimize the causes of climate change.

In 1997, the Protocol of Kyoto was proposed as the result of subsequent meetings,

this protocol defines the architecture of the carbon market establishing quantified emission
reduction targets for developed countries as well as market mechanisms designed to lower

the cost of its implementation. One of these mechanisms, the Clean Development

Mechanism (CDM), allows investment projects made in developing countries can obtain

additional economic income through the sale of carbon credits called “Certificates of

Reduced Emissions” (CER), by mitigating the emission of greenhouse gases or by

sequestering carbon dioxide from the atmosphere.

However, the most polluting countries, the United States and Russia, have not yet

ratified the Protocol and therefore, it cannot yet come into force. This has caused the

carbon market to remain in a contracted situation, expectant and with low prices. The

economic benefits of Russia to ratify the Protocol of Kyoto due to its offer of carbon credits,

would make it imminent to ratify the protocol, launching the Kyoto carbon market.

Despite the uncertainties of this market, the global carbon market has emerged due

to the perception that in the future the restrictions on GHG emissions will be greater. On

the short term, these restrictions are reflected in the Kyoto Protocol, which in turn

encourages international entities, governments and corporations take proactive measures

on the matter.

The global carbon market is getting stronger and is unlikely to disappear. There is a

conviction and market infrastructure too advanced to paralyze the process to develop a

market for reducing GHG emissions. The USA government’s refusal to participate could be

irrelevant in the long term, as American corporations would have to be homogenized to the
global trend of efficient technologies of low carbon intensity or being left out of the

international market.

Carbon market in Latin America

“In Latin America, the 1990s were characterized by a process of profound economic

reforms, which included the restructuring, liberalization, and privatization of the energy

sector. This reform process began with the privatization of the electricity companies in Chile

in the late 1980s, followed by the liberalization and restructuring of oil, electricity, and

natural gas industries in countries such as Argentina, Bolivia, Brazil, Colombia, Ecuador and

Peru” (Lutz, 2001)

In this context, Latin America has become the region of developing countries more

active in this emerging market with around US $ 210.6 million of carbon credits in

negotiation under the Clean Development Mechanism and has shown optimism based on

in the conviction that this market can be a useful tool to promote the sustainable

development of the region. In a product, the way to know the carbon footprint is to analyse

the complete life process: the raw materials that are used for its manufacture, their origin,

and the transport they have needed, their use and consumption in the same, and its

management as waste.

What is the importance of measuring tariffs to reduce Carbon footprint?

equity to corporations no matter the context in which they function, allowing to improve

competitiveness. In (Carbon Footprint Taxes, 2013), McAusland and Najjar, state that if

domestic policy raises production costs, local firms will be less competitive than rivals from

unregulated economies. As market share shifts to foreign producers, overseas output—and

emissions—will rise, offsetting some of the emission reductions achieved locally. With

setting of the measuring of Carbon footprint tariffs, the need of reducing it arises.

To reduce the carbon footprint in companies, it is necessary to carry out adequate

measurements. These should be based on a good methodology, define their scope, collect,

and analyse both direct and indirect data. When collected, the final reports and

certifications will be prepared, and an effective action plan can be established in which the

reduction objectives are detailed through concrete actions. Some of the measures may

involve changes in the habits of the workers, reorganize the spaces and adjust to the new

measures of efficiency and technologies.

Companies have developed a set of strategies focused on emission reduction, which

main objective is to reduce the impact on the climate. These strategies can be projects,

programs, business decisions or other actions that contribute to reduce emissions. They all

focus on reducing the activities that generate the emissions, reduce the GHG intensity of

those activities, or both.

These strategies can include: innovation in the business model, by setting a price on

carbon, increasing useful life of products, and increasing logistic efficiency; involving the
stakeholders, so they also look for decreasing their emissions, ideally monitoring regularly

the advances fulfilled and creating incentives; designing more efficient products and

services; involving clients through collaboration or compensation; or investing in projects

and companies which are low in emissions, as abandoning investments in fossil fuels to

accelerate transition to a low carbon economy.

These initiatives are interdependent and work together, allowing companies

opportunities for collaboration and innovation. The efforts made on various fronts have the

potential to create a cycle in which each company works to reduce emissions on its value

chain, and benefits from the efforts of other companies. This also generates data on which

objectives can be based and allows monitoring of the performance of companies. In the

same way, it helps create innovative solutions built on a perspective of the value chain.

Latin American companies and Carbon Footprint tariffs

Latin America is already suffering the direct effects of global warming, with

droughts, thaws, floods, and extreme weather events. All of this will have a serious impact

on agriculture, food security, water supply, public health, quality of life and ecosystems. It

seems essential then to take more seriously:

i) investments in efficiency energy and non-conventional renewable energies,

ii) contain deforestation, particularly in tropical forests and

iii) properly manage biofuel crops to avoid the desertification and damage to

biodiversity.
 Finally, the challenge lies in developing a model of more sustainable production and

consumption, characterized by clean energy and green jobs.

The carbon footprint is not only a threat. It can also be a source of opportunities due

to competitiveness. During the project that the Economic Commission for Latin America and

the Caribbean is developing on “Carbon footprint and food exports”, it has been perceived

that for entrepreneurs in countries that participate in the project (Colombia, Ecuador,

Nicaragua, Dominican Republic, Argentina, Peru and Uruguay), the agenda of climate

change points to the sustainability of business. When defining business strategies, it is as

important designing the business model as contemplating the risk of having to face possible

barriers and environmental requirements in the markets of the industrialized countries.

In Latin America, the 1990s were characterized by a process of profound economic

reforms, which included the restructuring, liberalization, and privatization of the energy

sector. This reform process began with the privatization of the electricity companies in Chile

in the late 1980s, followed by the liberalization and restructuring of oil, electricity, and

natural gas industries in countries such as Argentina, Bolivia, Brazil, Colombia, Ecuador, and

Peru.

Reforms in the oil sector have introduced greater investment incentives both in the

upstream and downstream segments and have removed barriers to market entry. While

the privatization of the oil companies was part of the reforms in Argentina, Bolivia, and

Peru, in other countries such as Brazil, Colombia Ecuador and Venezuela have maintained

state ownership, allowing private companies to enter the market under certain schemes.
 Research shows that in most cases, seriously addressing the footprint of Carbon

improves business sustainability, reducing or slowing the effects of change climate;

inefficiencies in production processes are detected and corrected, efficiency improves

energy, waste management, water management, traceability, and a plus of competitive

differentiation in the most demanding markets, raising the unit price of the good exported.

All this improves the possibilities of participating in more demanding value chains or move

up the hierarchy of the links in such chains, improving competitiveness.

The restructuring and privatization of the energy industries in Latin America have

made a major contribution to the increase in Foreign Direct Investment in the region.

Attracting private foreign capital has been a major reason for the restructuring of the energy

sector in Latin America, with some contrast to Europe, where Common market and

competition aspects have played a predominant role.

Eguren, L. (2004). El mercado de carbono en América Latina y el Caribe: balance y perspectivas.

Medio ambiente y desarrollo CEPAL.

Lutz, W. F. (2001). Reformas del sector energético, desafíos regulatorios y desarrollo sustentable en

Europa y América Latina. Santiago de Chile: Proyecto CEPAL/Comisión Europea

"Promoción.

McAusland, C., & Najjar, N. (2013). Carbon Footprint Taxes. Springer.