Costa Rican Regulatory Approach Towards COP 26 Agenda and Climate Change

This is an Insight article, written by a selected partner as part of Latin Lawyer's co-published content. Read more on Insight

Why COP 26 is particularly important

COP 26 is probably the most important international conference there has been on climate change since COP 21, held in 2015, where the Paris Agreement was adopted. The Paris Agreement was the first time the international community agreed on the common goal of keeping climate change well below 2ºC above pre-industrial levels and doing everything possible to keep it below 1.5ºC.[2] According to Article 4 of that agreement:

Each Party shall communicate a nationally determined contribution every five years in accordance with decision 1/CP21 and any relevant decisions of the Conference of the Parties serving as the meeting of the Parties to this Agreement and be informed by the outcomes of the global stocktake referred to in Article 14.

Owing to the pandemic, the opportunity for countries to analyse the outcome of the pledges made in 2015 and to propose even more ambitious targets was delayed by one year,[3] so the next event was postponed to 2021. This delay made the event even more relevant, as it allowed the international community to assess, through the experience acquired because of the pandemic, the macroeconomic effects that a catastrophe of global scale can have on the economies of countries, especially developing ones. Precisely for this reason, the final output of the conference of parties ‘notes with concern the growing needs of developing country Parties, in particular due to the increasing impacts of climate change and increased indebtedness as a consequence of the coronavirus disease 2019 pandemic’.[4]

COP 26 agenda

After analysing the results of international efforts to address climate change, the COP 26 concluded with the approval of the Glasgow Climate Pact, whose main focus is to keep the pledge regarding 1.5ºC alive and to finalise the outstanding elements of the Paris Agreement.[5] The Glasgow Climate Pact defines the COP 26 agenda, which focuses on the following key elements.

  • Science and urgency: based on the contributions of the Intergovernmental Panel on Climate Change (IPCC) and the World Meteorological Organization, the pact recognises that human activities have already caused around 1.1ºC of warming and that the carbon budgets for achieving the Paris Agreement temperature goal are decreasing. It also recalls the principle of common but differentiated responsibilities in the light of different national circumstances and stresses the urgency of increasing efforts in relation to mitigation, adaptation and finance.
  • Adaptation: foreseeing that climate, extreme weather events and their impacts on people will increase along with the rising temperatures, the pact urges that adaptation be integrated into local, national and regional planning. Importantly, COP26 adopted the Glasgow-Sharm el-Sheikh work programme, which will take place between 2022 and 2024. Its main goal is to help improve assessment of progress toward the adaptation goal and to enable its implementation, through regular workshops and work on methodologies to assess progress.[6]
  • Adaptation finance: noting that the provision of climate finance for adaptation remains insufficient to respond to climate change impact, the pact urges to developed countries to at least double their collective provision of climate finance.
  • Mitigation: the pact reaffirms the Paris Agreement commitment of holding the increase in the global temperature to well below 2ºC and limiting the temperature rise to 1.5ºC. It also emphasises:
    • the need for parties to increase the reduction of emissions;
    • urgently states the need to design strategies towards a just transition to net zero emissions by mid-century; and
    • specifically calls upon parties to accelerate the phasedown of unabated coal power and the phase-out of inefficient fossil fuel subsidies.
  • Finance, technology transfer and capacity building for mitigation and adaptation: parties noted that the goal given to developed countries to jointly mobilise US$100 billion per year by 2020 has not been met and urged those countries to fully deliver on that front by 2025. Regarding technology transfer and capacity-building, parties agreed that this process will take into account the needs and priorities of developing countries, recognised the need to continue to support developing countries to identify capacity-building gaps and find solutions to resolve them[7] and invited the Technology Executive Committee and the Climate Technology Centre and Network to strengthen their collaborations.
  • Loss and damage: parties acknowledged that the changing climate has already and will increasingly cause loss and damage; they reiterated the need for more finance, technology transfer and capacity-building to tackle loss and damage. They also agreed the functions and funding arrangements for the Santiago Network, which will arrange and fund technical assistance for parties to help avert, minimise and address loss and damage.[8]
  • Implementation: parties made the clear statement to move swiftly with full implementation of the Paris Agreement. Towards that purpose, the pact finally agreed on the Paris Agreement Rulebook, which sets the guidelines that will help parties to cooperate to meet their intended emission reductions and adaptation goals through market mechanisms. These include the transfer of mitigation of emissions between countries, from the country that achieved the reduction to the country that will acquire that reduction; and non-market mechanisms where countries are enabled to work together to achieve mitigation and adaptation, as well as sustainable development and poverty reduction.[9]
  • Collaboration: parties recognised the important role of non-party stakeholders, including civil society, indigenous peoples, local communities, youth, children, local and regional governments and other stakeholders, in contributing to progress towards the goals of the Paris Agreement.[10] They agreed a new 10-year Glasgow work programme on Action for Climate Empowerment, focused on advancing climate education, training, public awareness, public participation, public access to information and international cooperation.[11]

Costa Rica is a developing country, so most of the regulatory efforts made to fulfil the COP 26 agenda are focused on mitigation and promoting a collaborative adaptation agenda. However, it has also issued regulations that allow the country to make climate-related investments in projects with a positive environmental footprint, as explained below.

Costa Rica and the COP 26 agenda

Climate change mitigation in Costa Rica

As indicated above, climate change mitigation is focused on action to reduce greenhouse gas emissions. Costa Rica has clear challenges in this area, associated with its dependence on fossil fuels for transportation; however, it also has great potential to stand out globally as a leader against climate change due to a regulatory framework and environmentally protective public policies that have produced concrete results in mitigating climate change.

Dominance of renewable energy

Ninety-eight per cent of the energy consumed in Costa Rica comes from renewable sources,[12] so greenhouse gas emissions related to the production and consumption of electricity are quite low compared to other countries.[13]

Regarding this achievement, it is worth noting that Costa Rica has a geographical advantage; as explained by the US International Trade Administration:

its high concentration per capita of rivers, dams, and volcanoes allow for a high renewable energy output. In addition, Costa Rica is the fourth highest nation in terms of rainfall per capita: it receives an average of 2,926mm of precipitation per year.[14]

However, the country also has adopted a regulatory framework that has ensured that energy emission sources remain free of greenhouse gas emissions:

  • Law 449 created the Costa Rican Energy Institute (ICE), which dominates the country’s electricity generation. Since its conception, said Law establishes that the ICEs objective is to produce energy by taking advantage of and protecting the country’s renewable energy sources. In particular, Section 1 of Law 449 establishes ‘to channel the use of hydroelectric energy’ as a fundamental objective of ICE, while Section 2 orders ICE as follows.

    Pursue the rational use of natural resources and put an end to the destructive and wasteful exploitation thereof. In particular, it shall seek to promote the domestic use of electricity for heating, replacing fuels obtained from national forests and imported fuels, and shall promote the use of wood as an industrial raw material.

    Preserve and defend the hydraulic resources of the country, protecting the basins, sources and riverbeds and watercourses, a task in which they shall assist the National Electricity Service[15] and the Ministries of Agriculture and Public Works, by means of a mutual cooperation program.

  • Oil exploitation is expressly banned in Costa Rica under Section 1 of 36693-MINAET, which establishes a moratorium on all oil exploration and exploitation activities until 2050.
  • Law 10086 set the framework for distributed generation of electricity from renewable sources. This Law allows individuals and private companies to generate renewable energy for self-consumption and contribute the surplus to the national grid. The Law then allows persons who supplied energy (to the national grid) that they did not use at the moment of generation to take up to 49 per cent of that energy later in the same month.

Dramatic increase of forest coverage

The protective policies taken by the Costa Rican governments since the 1980s have made Costa Rica the first tropical country to have stopped and reversed deforestation.[16] As a result, ‘close to 60% of the land is once again forest and the landscape is home to around half a million plant and animal species’.[17] This achievement is the result of several public policies and regulations that prevented human activities from reducing forest cover, promoted the conservation of forest ecosystems and allowed the recovery of former forest areas.

The Forestry Law stands out among these regulations. For decades, it has established provisions that are the backbone of the forest resources protection in the country:

  • The State Natural Heritage: according to Article 13 of the Forestry Law, forest areas belonging to any public institution[18] will automatically come under the administration of the Ministry of Environment and Energy, will be considered protected, inalienable, unseizable and the action to vindicate them is not subject to any statute of limitations. On this basis, no forest under the public domain can be diminished[19] and the state has actively litigated to recover properties with forest coverage that were wrongly allocated to individuals as private property, although these processes have generated serious concerns on the part of third parties acquiring such lands in good faith, who on occasion have seen their property diminished without any type of compensation.
  • Forest irreducibility: the conservation principle of forest irreducibility was incorporated as a legal standard in Costa Rica decades ago. Article 19 of the Forestry Law establishes that, even on private property, the owners may only carry out a limited list of developments, must seek prior authorisation from the Ministry of Environment and Energy and such development must not exceed 10 per cent of the forest area located on the property.
  • Protected areas: Costa Rican regulations understand that forest and water resources are closely tied; therefore: (1) Article 33 of the Forestry Law declares that areas surrounding natural water bodies are protection areas where almost no type of intervention is allowed; and (2) Article 148 of the Water Law establishes the obligation of landowners crossed by rivers to reforest the forests that serve as shelter for the rivers.
  • Payment for environmental services system: Costa Rica has the first‘payment for environmental services (PES) programme in the region.[20] Section 22 of the Forestry Law creates a reward for environmental services provided to forest landowners for preserving the forests on their properties. Importantly, Article 69 of said Law states: ‘One third of the amounts collected from the selective excise tax on fuels and other fossil fuels will be allocated annually towards compensation programs for owners of forests and forest plantations, for the environmental services of mitigating greenhouse gas emissions and for the protection and development of biodiversity.’ Therefore, the PES programme seeks to fulfil the dual function of (1) promoting forest conservation on private lands and (2) discouraging the use of fossil fuels.

Reduction of fossil fuels

Costa Rica’s major challenge in mitigating climate change is its dependence on fossil fuels in the transportation sector; in fact, transportation is responsible for 42 per cent of the country’s greenhouse gas emissions.[21] To decarbonise the transportation sector, the country has taken certain local policies such as the reinforcement of public transportation and the promotion of bicycle lanes; however, the steep topography of most urban areas and frequent rainfall[22] in the country generate substantial barriers to these initiatives.

From an economic regulation standpoint, two regulatory initiatives stand out:

  • Incentives for electric mobility: the use of electric vehicles in Costa Rica would have a real impact in decarbonising the country’s transportation sector, as electric energy also comes from renewable sources. To encourage the transition to electric vehicles, Law 9518 establishes a series of tax incentives for the purchase of electric vehicles, including a preferential VAT rate, and a staggered exemption on import customs tariffs and on the annual tax on vehicle ownership.
  • Fuel tax: the Glasgow Climate Pact calls upon parties to phase out fossil fuel subsidies. In this regard, Costa Rica has a fuel consumption tax; according to Section 69 of the Forestry Law, one third of the revenues from this tax are used to finance the PES programme that has promoted reforestation in the country.

Costa Rican adaptation and collaboration towards climate change

As a Central American country, Costa Rica lies within the Dry Corridor, a tropical dry forest region stretching from southern Mexico to Panama, which is considered one of the most vulnerable areas to climate change globally.[23] Therefore, the country urgently needs to apply the adaptation efforts pointed out in the Glasgow Pact.

Faced with this need for adaptation, Costa Rica has adopted a comprehensive approach, where efforts to decarbonise the economy and encourage inclusive leadership and public-private partnerships are all adaptation initiatives included in the National Policy on Adaptation to Climate Change 2018–2030.

This comprehensive approach is derived from the overall objective of the Policy:

Transition towards a resilient development model for a Costa Rican society that avoids human losses and moderates material damages generated by the adverse effects of climate change, contributes to the quality of life of the most vulnerable populations, and takes advantage of opportunities to innovate and transform the productive sectors and ensure the continuity of public services.[24]

The Adaptation Policy was made a mandatory regulation by Decree 41091-MINAE, which in Section 2 indicates that all public sector agencies will be responsible for its implementation. This obligation implies that the national authorities have a duty to act in accordance with the guiding principles of the policy, which include the following:

  • Resilience: defined in the policy as ‘the capacity of human and natural systems not only to face adversity and overcome contingencies, preserving and restoring basic structures and functions, but also to be positively transformed by adverse events’. Regarding this duty, Section 7 of Decree 41091-MINAE urges public institutions to promote adaptive actions based on the ecosystems and ancestral knowledge of indigenous peoples to solve the problems posed by climate change.
  • Continuity of business and services: institutions should focus their actions on maintaining or resuming productive activities and commercial or public services after an interruption attributable to extreme weather events.
  • Participation and inclusion: the state must take affirmative action to ensure gender equity and the inclusion of groups that are particularly vulnerable to climate change. Likewise, it should promote deliberative spaces with representatives of organised civil society and members of vulnerable communities to discuss and contribute to the implementation of public policies and adaptation plans.

Climate finance in Costa Rica

As a developing country, Costa Rica’s participation in the climate finance component of the COP 26 agenda involves directing funds received from developed countries to projects that have a real impact on tackling climate change.

Within the financial framework for climate adaptation projects, the United Nations Green Climate Fund recently sent funds directly to the Costa Rican government to finance the payment of reforestation initiatives and to the authorities of the Ministry of Environment and Energy to prevent forest fires.[25]

Costa Rica also has Law 10051, which promotes financing and investment in climate projects through the use of publicly offered securities, known as green bonds, which raise funds from diverse actors in the public and private sectors.[26]

To ensure that the resources obtained from green bonds will be used for projects yielding environmental improvements, Section 2 of Law 10051 states that the projects must be approved by an auditing team to ensure that they have a positive impact on the Sustainable Development Goals and the National Climate Change Strategy.

Issuing green bonds has enabled the financing of projects directly related to climate change mitigation, such as energy generation through the gasification of solid waste and the construction of photovoltaic energy parks in regions with lower rainfall.[27]

From the text of the Glasgow Pact resulting from COP 26, there is a clear concern that many of the objectives proposed in the Paris Agreement are far from being achieved. The term ‘urges’ is repeated on multiple occasions as a reflection of the urgency of the need to tackle climate change in all aspects.

Even before this call for urgency, Costa Rica has created a series of policies and issued regulations to reduce the effects of climate change, limiting its emissions and focusing on resiliency planning. However, the greatest global challenge of the twenty-first century also presents specific challenges for Costa Rica, and there is no doubt that the coming years will come with new regulations that reflect the increasing need to address those challenges.


Footnotes

[1] Luis Palacios is a director at BLP.

[2] ‘COP 26: The negotiations explained’, UK Government (2021). Retrieved from: https://ukcop26.org/uk-presidency/negotiations/.

[3] ‘COP 26 is postponed because of Coronavirus pandemic’, World Meteorological Organization. Retrieved from: https://public.wmo.int/en/media/news/cop26-postponed-because-of-coronavirus-pandemic.

[4] Glasgow Climate Pact, Paragraph 41. The Conference of the Parties serving as the meeting of the Parties to the Paris Agreement (2021).

[5] See footnote 2.

[6] ‘COP26: Key Outcomes From the UN Climate Talks in Glasgow’, World Resources Institute (2021). Retrieved from: https://www.wri.org/insights/cop26-key-outcomes-un-climate-talks-glasgow.

[7] COP 26: The negotiations explained. UK Government (2021. Retrieved from : https://ukcop26.org/uk-presidency/negotiations/See footnote 2 .

[8] See footnote 2.

[9] ‘COP26 Outcomes: Market mechanisms and non-market approaches (Article 6)’, United Nations Framework Convention on Climate Change (UNFCCC). Retrieved from: https://unfccc.int/process-and-meetings/the-paris-agreement/the-glasgow-climate-pact/cop26-outcomes-market-mechanisms-and-non-market-approaches-article-6.

[10] Glasgow Climate Pact. The Conference of Parties to the Paris Agreement. Paragraph 88.

[11] See footnote 2.

[12] ‘Costa Rica – Renewable Energy’, US International Trade Administration. Retrieved from: https://www.trade.gov/energy-resource-guide-renewable-energy-costa-rica.

[13] ‘CO₂ and Greenhouse Gas Emissions’, Published online at OurWorldInData.org. Retrieved from: https://ourworldindata.org/co2-and-other-greenhouse-gas-emissions.

[14] See footnote 12.

[15] Now the Water Department of the Ministry of Environment and Energy.

[16] ‘Accounting reveals that Costa Rica’s forest wealth is greater than expected’, The World Bank, 2016. Retrieved from: https://www.worldbank.org/en/news/feature/2016/05/31/accounting-reveals-that-costa-ricas-forest-wealth-is-greater-than-expected.

[17] ‘How Costa Rica Reversed Deforestation and Became an Environmental Model’, Earth.Org, 2021. Retrieved from: https://earth.org/how-costa-rica-reversed-deforestation/.

[18] Except for properties that serve as collateral for credit operations with the National Banking System and become part of its assets.

[19] Except for qualified projects declared of national convenience.

[20] ‘Payments for Environmental Services Program | Costa Rica’, United Nations Framework Convention on Climate Change (UNFCCC). Retrieved from: https://unfccc.int/climate-action/momentum-for-change/financing-for-climate-friendly-investment/payments-for-environmental-services-program.

[21] ‘Transportation generates 42% of Costa Rica’s greenhouse gas emissions’, Costa Rica Climate Change Directorate, 2022. Retrieved from: https://cambioclimatico.go.cr/transporte-genera-el-42-de-las-emisiones-de-gases-de-efecto-invernadero-en-costa-rica/.

[22] See footnote 12.

[23] ‘How climate change risks further destabilizing Central America’, International Institute for Strategic Studies (IISS), 2021. Retrieved from: https://www.iiss.org/blogs/analysis/2021/11/how-climate-change-risks-further-destabilising-central-america#:~:text=Around%2030%25%20of%20Central%20America’s,areas%20to%20climate%20change%20globally.

[24] ‘Política Nacional de Adaptación al Cambio Climático 2018–2030’, Gobierno de Costa Rica, 2018. Retrieved from: https://cambioclimatico.go.cr/wp-content/uploads/2019/01/Politica-Nacional-de-Adaptacion-al-Cambio-Climatico-Costa-Rica-2018-2030.pdf.

[25] ‘UNDP transfers $23.9 million from Green Climate Fund to MINAE’, Presidency of the Republic of Costa Rica (2022). Retrieved from: https://www.presidencia.go.cr/comunicados/2022/01/pnud-transfiere-23-9-millones-del-fondo-verde-del-clima-a-minae/.

[26] Law 10051, Section 2.

[27] ‘Green bonds gain momentum with two millionaire projects in Guanacaste’, La Nación, 2022. Retrieved from: https://www.nacion.com/el-pais/politica/bonos-verdes-toman-fuerza-con-dos-proyectos/SDOKWZVWXZG7NFYPAEBVRZFIKA/story/.

Unlock unlimited access to all Latin Lawyer content