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🇲🇽 Mexico regional protagonism: ETS, federal and subnational carbon taxes. And VCM.

Today is Thursday, February 29, 2024.

According to the World Bank "State and Trends of Carbon Pricing 2023" as of April 2023, there are 73 carbon taxes or ETS in operation.

"The vast majority of carbon taxes and ETSs are located in high-income countries in Europe and North America ... while some countries in Latin America and the Caribbean and South Asia have carbon taxes, Mexico is the only one to have implemented an ETS."

In fact its more than that. Mexico is the only country in the Latin American and Caribbean region that has three types of carbon pricing instruments in implementation, simultaneously:

  • an emissions trading system (ETS);

  • a tax federal carbon tax; and

  • a series of subnational carbon taxes.

Let's see.

About the subnational carbon taxes in Mexico, given its protagonism in Latin America, that World Bank report from April 2023 included a specific chapter titled "Using Carbon Pricing as a Fiscal Tool: Mexico Submationals Case Study", from where we quote:

"Mexico ... operational subnational carbon taxes—eight states have introduced a green fiscal reform with carbon pricing elements. Zacatecas led the way in 2017 ... Measures adopted include new taxes that provide incentives to invest in green, low-carbon technologies and infrastructure, as well as to finance government-sponsored climate change adaptation measures ... The carbon tax rates are equivalent to or higher than those in several high-income countries. The five states that apply a carbon tax as of April 2023 ... have placed an average carbon price of around MXN 266.6 (USD 14.78)/ tCO2e. The highest rate among the Mexican states, Querétaro’s, is above USD 30/tCO2e, a significant rate for a developing economy. Legislators’ ... desire to enhance fiscal space at the subnational level due to spending pressures ... Supreme Court ruling in favor of the plaintiffs, presents a cautionary tale regarding the complexitiesof subnational green fiscal reform efforts. The Mexican federal government and a group of regulated entities successfully argued that, according to the Mexican Constitution, only the federal government can implement a tax on fuels (the tax applied to emissions generated by the consumption of gasoline and diesel). This ruling could in the future limit the power of local legislators to establish taxeson the carbon content of gasoline and other oil products".

About the Mexican ETS (in Spanish, Sistema de Comercio de Emisiones, SCE), after a pilot phase with 100% free allocation, in January 2023 its operational phase began.

The pilot phase of the SCE covered only facilities that carry out activities in the energy and industry sectors, whose annual direct emissions are above 100 thousand tons. As such, 90% of tje total Mexican emissions were coveraged.

More specifically and according to the provisions of the Regulations of the National Emissions Registry (RENE), here are the sectors:

  • energy: exploitation, production, transportation and distribution of hydrocarbons; and generation, transmission and distribution of electricity.

  • industry: automotive; cement and lime; chemical; food and beverage; glass; steel; metallurgy; mining; petrochemical; pulp and paper; and other industrial subsectors that generate direct emissions from fixed sources.

And interestinly, sectors that are not directly regulated can participate indirectly in the emissions trading system. "This is achieved through offset credits, which are emissions reductions developed under specific protocols that have their origin in projects from sources or sectors other than the industrial or energy sector, in order to reduce their emissions or increase the capture of the carbon."

The pilot phase is well explained in this press release "Programa de prueba del sistema de comercio de emisiones" from October 2021. It includes great additional references and studies, several developed together with the German Government, such as:

And guides and training materials, among which a monitoring plan tool (in Excel). Give a look.

The Mexican Ministry of Environment and Natural Resources (SEMARNAT) is expected to publish the regulations of the operational phase of the ETS soon. Click here for its portal, with a short video in Spanish explaining very well how a "cap and trade" ETS system works.

In addition to the SCE, there is the Voluntary Carbon Market (VCM). Currently, the sector that contributes the most projects and emissions reductions to the VCM is forestry (87.5%), however, projects in the energy sectors (5.6%), industry (1.2%) and waste management (4%) could also benefit from these schemes. The value of the VCM in Mexico for 2030 is estimated at approximately 2 billion pesos.

About the Mexican VCM, we selected and listed below a three press releases (all in Spanish) from the website of the SEMARNAT:

The first one above caught our attention for dealing with the duration of the carbon credits projects contracts, a legal topic hardly highlighted, but well noted by the Mexican Government:

"Due to its private nature, the development of mitigation projects or activities of the communities that participate in the voluntary market, as well as the emission exchange mechanisms, are not currently regulated by the Mexican State. However, the accelerated and almost inadvertent development of the VCM in the country now demands the attention of the Mexican Government and the definition of a policy on the matter, especially since it has become known that some developers (individuals, "ejidos" or communities ) are being subjected to unfair terms of trade, where unfair contracts are signed with intermediaries (which in the case of forestry could be up to 30 years in accordance with the Law). In this sense, as a first effort, on June 28, a historic meeting was held between the environmental sector and the International Standards that certify mitigation projects or activities in Mexico for the VCM."

Important point indeed, which demonstrates the commitment of the Mexican government with the issue.

About the federal carbon tax based on the amount of CO2 on fossil fuels - except natural gas and paraphin production - in spite of being in force since January 2014, its proposed tax base reduction through the use of offset units has not yet caused sufficient economic incentives to broadening the purchase of offsets. Pricing - and discounts - seem to the overshadowing the final objective of tons of carbon emissions reduced in projects.

Click at the image below for Mexican Government document "La Estrategia de Movilización de Financiamiento Sostenible" from September 2023, where you can read more about these and other developments.


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“Nothing in life is to be feared, it is only to be understood. Now is the time to understand more, so that we may fear less.”

“I am among those who think that science has great beauty”

Madame Marie Curie (1867 - 1934) Chemist & physicist. French, born Polish.

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