The management teams of the Ría Lagartos Biosphere Reserve and the Yum Balam Flora and Fauna Protection Area were trained in climate change, adaptation and ecosystem-based adaptation.
The objective of the workshop was to strengthen the participants’ capacities and knowledge on issues related to the management of natural protected areas (NPAs) in a climate change context, as well as about the institutional mandate for implementing CONANP’s Climate Change Strategy for Natural Protected Areas.
Photo: Alejandra Calzada Vázquez Vela. Workshop assistant participating in an exercise on climate change concepts.
In addition, the workshop was designed to ensure that participants learned about the anticipated results of the Costas Listas project and were involved in its implementation, particularly in their role as liaisons with local communities that rely on the ecosystem services provided by NPAs.
As part of the training, participants applied the concepts presented in the workshop in two participatory exercises. In the first exercise, the participants described the local climate and the biological, ecological, social and economic processes that occur throughout the year in each NPA, as well as some of the climate changes perceived in recent years. Later, they identified the ecosystem services that can be harnessed and strengthened to promote climate change adaptation in the communities inside the NPA.
Photo: Valeria Petrone Mendoza. Landscape drawing of the Ría Lagartos Biosphere Reserve that identifies elements of biological, social and economic importance, climate change impacts and the ecosystem services provided by the NPA.
The Costas Listas project is implemented by WWF Mexico and is part of the International Climate Initiative (IKI) of Germany’s Federal Ministry for the Environment, Nature Conservation and Nuclear Safety (BMU). Through its implementation, the project will contribute to the fulfillment of Sustainable Development Goal 14 – Life Below Water. It seeks to manage, protect and restore the region’s coastal ecosystems with the ultimate goal of avoiding the negative effects of climate change.
The workshop was held at the Cuyo field station located in the Ría Lagartos Biosphere Reserve on February 22, 2019.
Photo: Valeria Petrone Mendoza. Participants of the workshop training on climate change and ecosystem-based adaptation for the implementation of the Costas Listas project.
This article belongs to the World Wildlife Fund (WWF). Its content is the sole responsibility of the autor.
The list of climate risks for tourism is long: sargassum plague, loss of beaches, death of coral reefs, hurricanes, floods, water scarcity; and making them known is essential for taking action.
Journalists have an important role in informing actors in the public, private and civil sectors and calling them to action. In January and February, the ADAPTUR project trained 62 journalists from the Riviera Maya, the Riviera Nayarit-Jalisco and San Miguel de Allende on how to develop a communication campaign about the economic risks of climate change in the Mexican tourism sector.
One of the participating journalists commented: “Learning more about climate change helps me understand that I must adapt and, most importantly, discuss the topic.” Thanks to the training, 30 press releases have been published on climate change and tourism in the local media.
As Thomas Schneider, director of the ADAPTUR project, commented: “Climate change is a business risk for the tourism sector, and we must communicate and act to ensure business continuity.”
Notably, Mexico is the world’s six most visited country by tourists, and the tourism industry represents 8.7% of national GDP. Therefore, communicating and acting against the risks posed by climate change helps protect the economy.
The ADAPTUR project provides the tourism sector technical assistance in adopting Ecosystem-based Adaptation (EbA) solutions in Mexican territory and with investment decisions. The project is implemented by the Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH together with the Ministry of Tourism (SECTUR) and the Ministry of the Environment and Natural Resources (SEMARNAT), and receives technical support from the National Commission of Natural Protected Areas (CONANP) and the National Institute of Ecology and Climate Change (INECC).
The Mixteca is one of the poorest regions of Oaxaca and the country; most of its municipalities have high and very high marginalization rates. Although the region has undergone processes of soil degradation and erosion, it conserves a significant level of biological diversity. Since 2013, the “GEF Mixteca Sustentable” project has promoted diverse community initiatives for the conservation and management of territory in the Mixteca Alta region. Project initiatives include participatory community planning processes to identify problems, as well as project ideas and intervention demonstration sites. Since 2019, the project has received support from the Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH through a local grant provided by the Mainstreaming of Biodiversity within the Mexican Agricultural Sector (IKI-IBA) project.
IKI-IBA project. Panoramic view of the Progreso basin in Oaxaca
This locally funded GIZ project is being implemented in the municipality of Santiago Tilantongo, Oaxaca, in the Nochixtlán District, specifically in the towns of San Isidro, Providencia and Progreso. Its objective is to consolidate sustainable land management models in the three towns, which are areas strongly affected by soil degradation. The projects promotes productive activities that facilitate the recovery and maintenance of ecosystem services and biodiversity.
IKI-IBA project. Community committees practice reforestation and water harvesting in nano-basins of the region.
Among the activities carried out include working with the milpa system and the intercropping of fruit trees in hillside areas; the sustainable management of family livestock, which aims to reduce the effects of soil and biodiversity degradation caused by inadequate management; strengthening backyard productive practices to improve the income of families and the sustainability of their land; and promoting the community monitoring of actions to improve soil and humidity conditions, as well agricultural production and biodiversity in the project intervention areas.
IKI-IBA project. Protected backyard agriculture using microtunnels prevents soil degradation and strengthens food security for families.
IKI-IBA project. Reforestation is promoted with local species that favor soil conservation and diversify agricultural production.
IKI-IBA project. The sustainable management of goats in the region decreases their impact on native vegetation and provides income to the communities.
The IKI-funded CIFOR project “From Climate Research to Action under Multilevel Governance: Building Knowledge and Capacity at Landscape Scale” ran from 2014 to 2018 in four countries: Mexico, Peru, Indonesia, and Vietnam. The project aimed to improve the understanding of, and ability to take into account, landscape level trade-offs and the governance and distributive implications of technical decisions and measurement, reporting and verification (MRV) systems. It was aimed at international, national and subnational REDD+ government stakeholders, and other key partners, to improve their ability to reach efficient, effective and equitable (3E) multi-stakeholder agreements regarding the design of REDD+ or other low-carbon development strategies.
Photo: Tim Trench. Subnational workshop on Monitoring multilevel governance in priority landscapes, celebrated with the Junta Intermunicipal Biocultural del Puuc (JIBIOPUUC) in Oxkutzcab, Yucatan. January 2017.
Key themes:
The multilevel governance context and how the relationships between different actors shape land use and land use change (LULUC)
The effects of international regimes, including agriculture, on national LULUC decisions and policy
Multi-purpose MRV, the stepwise approach and subnational MRV
Landscape level tradeoffs, tools and scenario analysis
Innovative multilevel governance initiatives on the subnational level.
Table 1. Study sites in Chiapas and Yucatan, Mexico.
The governance results demonstrate the failure to transmit information both upwards and downwards in a multilevel structure; deficits in personnel, funding and decision-making power at subnational levels; incentives and other decisions shaped by personal and political relationships rather than established criteria; an updated legal framework which faces a lack of monitoring and law enforcement; very different perspectives on priorities, equity, tradeoffs, including issues of rights; contradictions in the state’s own goals (vertically and horizontally); and the need to manage the interests and actions of powerful actors. Despite tensions over roles and responsibilities, subnational governments are engaging in important land-use debates and local decision making as new opportunities and innovations in multilevel governance emerge.
Photo: Martha Torres. Subnational workshop on Monitoring multilevel governance in priority landscapes, celebrated with the Grupo Intercomunitario de Acción Territorial (GIAT) in Jaltenango de la Paz, Chiapas. February 2017.
Greater coordination and collaboration are often presented as a solution but often failing to understand fully the underlying interests and dynamics that prevent such coordination from occurring. The results suggest the need for much greater flexibility in top-down models and particularly the need to understand, respect and integrate bottom-up (grassroots and subnational government) perspectives and approaches.
¿Es REDD+ un instrumento de neoliberalización? Experiencias de Chiapas y Yucatán en el sur de México. Trench & Libert (in press) discuss in this book chapter the ways in which government actors in Mexico moulded the international proposals of REDD+ readiness activities to fit into local realities. Book chapter in Durand et al., Naturaleza y neoliberalismo en América Latina (to be published in 2019).
Mexico’s REDD+ still highly centralized. Fraser 2018 presents in this blog a summary of main findings from CIFOR multilevel governance project in Mexico, which found that sharing governance roles and REDD+ benefits among entities at various levels remains a challenge.
What is REDD+ achieving on the ground? Duchelle et al. 2018 review scientific literature measuring REDD+ outcomes and find that most analyses do not use a counter-factual; the few studies on carbon find moderately encouraging results and the more prevalent well-being studies show small or insignificant results.
The key players of the vanilla value chain in the Huasteca Region of Hidalgo meet to promote the value chain and the integration of the value of biodiversity to increase the product’s added value.
Vanilla (Vanilla planifolia) belongs to the orchid family and is native to Mexico. Until the mid-nineteenth century, Mexico was the only producer of vanilla in the world. Today, however, wild populations of both vanilla and its natural pollinators are in decline.
The Huasteca area in the state of Hidalgo is an ethnically rich region due to its large indigenous population of Nahuatl origin, whose culture, language and handcrafts have left a particular mark on the region. The area is ideal for the production of vanilla through the traditional acahual system (secondary vegetation), which is associated with different crops such as coffee, palmilla camedor (palm species) and cedar.
Photo: Regina Sánchez Sosa. The Huasteca Region of Hidalgo is ideal for the production of vanilla through the traditional acahual system, in which different crops such as coffee, palmilla camedor and cedar are associated.
The Mainstreaming Biodiversity into the Mexican Agricultural Sector (IKI-IBA), implemented by the Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH and the Ministry of Agriculture and Rural Development (SADER), carried out a workshop to promote the vanilla value chain. The objective of the workshop was for key players in the vanilla value chain to create agreements that promote sustainable production practices and increase the product’s added value, thereby improving incomes and product quality along the chain. The workshop used the GIZ ValueLinks methodology to promote value chains and was part of the call published by GIZ and SADER in August of last year: Integration of the Value of Biodiversity and Ecosystem Services in Value Chains of Agrifood Products.
Photo: Marlen Landero. The workshop included participation of key actors from the production, stockpiling, processing and marketing chains; representatives from regulatory institutions at the state and regional level; as well as vanilla experts.
The event was held on February 26, 27 and 28, 2019 in Huejutla, Hidalgo. Key actors participated from the production, stockpiling, processing and marketing chains; representatives from regulatory institutions at the federal, state and regional level also participated, as did vanilla experts from different institutions.
Photo: Marlen Landero. Participants mapped the vanilla value chain of the Huasteca region of Hidalgo, defined a vision for the future and developed a one-year work plan to fulfill that vision.
Over the last decade, Mexico has been an international pioneer in promoting its legal and institutional climate change framework. Its significant progress stand outs in the Latin American region. At the federal level, the country passed the General Law on Climate Change (LGCC) of Mexico and established the National System on Climate Change (SINACC), the National Climate Change Strategy (ENCC) and the Special Program on Climate Change (PECC). At the subnational level, the LGCC requires States to design, implement and evaluate their climate change policies, and Municipalities to promote mitigation and adaptation actions. Despite differences between States and Municipalities regarding their progress towards adopting climate policies and challenges related to implementing actions, there are States that, due to their strong progress and innovative approaches, serve as a national reference.
A good example is the State of Jalisco, which has stood out in recent years thanks to its constant work developing its climate change policy and the institutional arrangements that allow it to address the issue. As of 2019, Jalisco has the Law for Climate Change Action of the State of Jalisco (LACCEJ), published in 2015; its State Program for Climate Change Action (PEACC); and a Monitoring, Reporting and Verification (MRV) and Monitoring and Evaluation (M&E) System that helps monitor 83 measures and 124 actions of the State Government. It also has an Interinstitutional Commission for Climate Change Action and Intermunicipal Environmental Boards that provide technical support on various topics, including climate change. Additionally, in Jalisco, the LACCEJ requires that municipalities develop Municipal Climate Change Programs (PMCCs) before August 2019.
In this context, through the Vertically Integrated Climate Policies (VICLIM) global project, the Ministry of the Environment and Territorial Development (SEMADET) of the State of Jalisco collaborated with the Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH to develop three videos with the objective of publicizing the role of the State and its contribution to Mexico’s international climate change commitments. The videos introduce the PEACC and include success stories about the development of coordination mechanisms, policy instruments and the implementation of mitigation and adaptation actions.
The project “Preparation of an Emissions Trading System in Mexico” (SiCEM) publishes a novel and Mexico-specific study on allowance allocation scenarios in an ETS, as part of an effort to provide solid technical recommendations to support a robust and cost-effective ETS in Mexico.
In light of the upcoming pilot phase of the Mexican ETS, which is set to begin in 2020, the GIZ project “Preparation of an Emissions Trading System in Mexico” (SiCEM) has been conducting a series of activities which include the development of technical studies to inform decision-making with regards to design of the Mexican ETS.
Once the ETS cap is defined, a fundamental stage of the ETS design is distributing emissions allowances within the cap among the individual installations. What is the most appropriate way to do so? To answer this question, a detailed study on the different permit allocation alternatives for the Mexican ETS was developed, including indicative allocation scenarios that put those alternatives into practice.
The scenarios were developed using a flexible allocation tool which allows calculating the allowances to be allocated to each installation based on historical emissions, as well as using energy-based benchmarks. The tool includes built-in data from the Mexican Emissions Registry (RENE) and a few design parameters. Although production data is currently unavailable, the tool is versatile enough to incorporate such data in the future, if the need to calculate production-based benchmarks arose.
There are various allowance allocation logics: allocation may be done through government-organized auctions, or allowances may be distributed among participants for free. If emission permits are allocated freely, this may be done based on historical emissions (also called grandparenting) or based on benchmarks to reward the best-performing installations. These approaches differ in the level of complexity in their implementation, on the government revenue raised, as well as on their level of protection from carbon leakage, their reward for early action, and, most importantly, on the efficiency of carbon price discovery.
GIZ SiCEM. Allowance Allocation.
Although governments usually start by using the grandparenting approach to provide transitional support for carbon-intensive industries, it is recommended to migrate gradually towards a production-based benchmark approach – which will require unprecedented data reporting efforts for the Mexican industries. In the longer term, the recommendation is to increase the share of auctioned allowances. Competitiveness analyses may be used as inputs to determine the sectors deemed at lower risk of carbon leakage.
The upcoming pilot phase provides with an opportunity to test the Mexican ETS allocation approaches explored in the present study. Additional studies covering a variety of technical issues be published in the “IKI-Alliance Mexico” blog in the coming months.
Click on the image below to download the publication:
The Municipality of Puerto Vallarta recognizes the need to develop its Municipal Climate Change Program (PMCC), with the aim of articulating and aligning local and national climate policies and involving the private sector (tourism) in Ecosystem-based Adaptation (EbA) actions.
The Municipal Climate Change Programs are a guiding instrument for local climate change policy that define lines of action focused on reducing greenhouse gas (GHG) emissions and limiting municipalities’ long-term vulnerability to climate change. In this context, on February 1, the Start-Up Workshop for the Elaboration of the PMCC of Puerto Vallarta, Jalisco, was held with the objective of informing and adding the participation of institutions from the public, private, academic and social sectors as a response to the climate challenges faced by the municipality.
Photo: Rafael Gonzáles Franco. Inauguration of the Start-Up Workshop
For the elaboration of the PMCC, the Municipality of Puerto Vallarta receives support from the Ministry of the Environment and Territorial Development (SEMADET) of the Government of Jalisco in collaboration with the Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH, through the projects “Vertically Integrated Climate Policies” (VICLIM) and “Ecosystem-based Adaptation to Climate Change with the Tourism Sector” (ADAPTUR). Puerto Vallarta will be the first municipality in the State of Jalisco to use the Guide for elaborating or updating the PMCC; the Guide is aligned with the state and national policy on climate change.
Additionally, GIZ announced the launch of a follow-up blog for the Puerto Vallarta PMCC that will function as a public platform to support learning and the exchange of knowledge and experiences between municipalities and stakeholders during the development of the plan.
During the workshop, a vulnerability self-diagnosis was conducted where the participants identified and built climate impact chains for the tourism, fishing, urban and infrastructure, and agricultural and forestry sectors. The results of the workshop will be crucial for diagnosing the PMCC’s vulnerability and for the design and prioritization of EbA measures.
Photo: Rafael Gonzáles Franco. Vulnerability self-diagnosis
Finally, in order to corroborate the municipality’s commitment to the international community to develop a climate policy, the Municipal President of Puerto Vallarta signed the Global Covenant of Mayors for Climate and Energy, an international alliance of local and regional governments that combats climate change from the local level.
The results and strong commitment of the attendees suggest that the PMCC will be a key tool for including the population in actions to prevent future climate impacts, building the necessary conditions to reduce the risk of disaster and moving towards a low-carbon and sustainable economy and society.
Photo: Lorena Gudiño. Working tables for the construction of impact chains in diverse sectors
The Biodiversity and Agriculture Initiative in Mexico is presented to highlight the value of nature for the agrifood sector. Actors from different sectors contributed to identifying the country’s priorities regarding the valuation of ecosystem services for agrifood production.
Photo: Regina Cuevas Dobler. Actors from different sectors contributed to identifying the country’s priorities regarding the valuation of ecosystem services for agrifood production.
The Biodiversity and Agriculture Initiative in Mexico: Highlighting the Value of Nature for the Agrifood Sector
In a high-level dialogue with broad participation from more than 30 representatives of various institutions, country priorities were identified for the implementation of the Biodiversity and Agriculture in Mexico (TEEBAgriFood) initiative.
The dialogue began with representatives speaking from the Ministry of Agriculture and Rural Development (SADER), the Ministry of the Environment and Natural Resources (SEMARNAT), the European Union and the Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH. They stressed the opportune timing of the workshop for helping to develop the new government’s national development plan in which the joint work between the agricultural and environmental sector should be promoted. It was highlighted how the increase in food demand has put pressure on the demand for ecosystem services in recent decades. Participants mentioned that projects like this require interinstitutional collaboration and should consider the traditional knowledge associated with agricultural production in Mexico. They explained that although a theoretical basis for initiatives like this already exist, actions must be taken that support decision making and planning for the achievement of concrete results.
Photo: Regina Cuevas Dobler. The high-level dialogue included broad participation from more than 30 representatives of various institutions.
The elements of the Biodiversity and Agriculture initiative in Mexico were presented, as well as the projects involved and their roles. The TEEBAgriFood initiative is a global effort focused on making the value of nature visible. Its objective is to recognize, demonstrate and mainstream the values of biodiversity and ecosystem services, in monetary and non-monetary terms, in the decision making of key public and private sector actors at all levels. The initiative joins the efforts of two projects being implemented in the country: “The Economics of Ecosystems and Biodiversity (TEEB): Promoting a Sustainable Agriculture and Food Sector” (European Union-UN Environment) and “Mainstreaming Biodiversity into the Mexican Agricultural Sector” (IKI IBA-GIZ-UN Environment and FAO).
Next, the participating institutions discussed their views on country priorities and how they connect to the Biodiversity and Agriculture in Mexico initiative. Priority approaches can be summarized in four areas: use of existing experiences and initiatives; the importance of interinstitutional and intersectoral coordination; the basis of legislation and for decision making with robust science and methodologies; and communication and dissemination.
Photo: Regina Cuevas Dobler. The elements of the Biodiversity and Agriculture initiative in Mexico were presented, as well as the projects involved and their roles.
Finally, the workplan for the initiative and the responsibilities of the monitoring committee were presented. The participating institutions appointed a representative to participate in the committee. After this dialogue, a technical workshop was held to identify other key actors to include in the initiative, as well as inputs and thematic and territorial priorities that define the study’s starting points.
This event was held on February 20 and 21, 2019 at the facilities of the SADER’s Center for the Integration of Biodiversity in Mexico City.
The project “Preparation of an Emissions Trading System in Mexico” (SiCEM) publishes a novel and Mexico-specific study on the reciprocal effects and interactions between the Mexican ETS and the existing Clean Energy Certificates quota system, as part of an effort to provide solid technical recommendations to support a robust and cost-effective ETS in Mexico.
In light of the upcoming pilot phase of the Mexican ETS, which is set to begin in 2020, the GIZ project “Preparation of an Emissions Trading System in Mexico” (SiCEM) has been exploring the role and interactions of the ETS within the broader Mexican policy mix.
The 2018 reform to the Mexican General Law on Climate Change (LGCC) established a mandatory Emissions Trading System to support climate change mitigation at the lowest cost possible, including a specific requirement that the ETS design recognizes emissions reductions obtained through Clean Energy Certificates (in Spanish, CEL). Acknowledging that this requirement –if broadly defined– could result in double counting of the emissions reductions resulting from obligations from the CEL quota system or the ETS, a thorough study drawing on international experiences handling similar interactions between instruments was developed. Also, a road map for the effective simultaneous operation of both CEL and ETS systems in Mexico was suggested.
Although the CEL quota system and the ETS serve different purposes they complement each other by providing incentives that support compliance with the other instrument. For instance, a cleaner electricity production –which the CEL quota promotes– results in lower CO2 emissions from the electricity sector. On the other hand, the carbon price resulting from an ETS provides additional incentives for low-carbon electricity generation. Double counting arises if CELs are used as a compliance instrument for the ETS or if emissions reduction within the electricity sector are accepted as offsets, since the CO2 emissions reductions in the electricity sector resulting from clean generation displacing emitting generation at an installation are automatically captured by the emissions reported to the ETS by the same installation. Double counting must be avoided, as it threatens the environmental integrity and the effectiveness of the ETS.
GIZ SiCEM. CEL and ETS interactions with and without double counting.
How can the ETS design consider emissions reductions from the CEL system, without incurring in double counting? The recommendation is to incorporate information on emissions reduction in the electricity sector into the ETS cap design. If, as a result of the CEL quota system, clean electricity generation is greatly increased in such a way that carbon intensive generation is displaced, the cap could be adjusted downwards to avoid an oversupply of allowances and a carbon price of zero. On the other hand, if a comprehensive modelling of the electricity sector shows the CEL system will not incentivize sufficient clean generation, an undersupply and thus increase in carbon prices can be expected – which regulators might want to adjust by fine-tuning the ETS design in advance.
The recommendations stated in the report are consistent with the experiences of two jurisdictions in the United States: the California Cap and Trade and the Regional Greenhouse Gas Initiative (RGGI). The upcoming pilot phase provides with an opportunity to test the Mexican ETS design in this regard. Additional studies covering a variety of technical issues be published in the “IKI-Alliance Mexico” blog in the coming months.
Click on the image below to download the publication:
In order to contribute to Mexico’s climate change goals, an initiative from the Nitric Acid Climate Action Group (NACAG) has begun operations in the country and will be implemented in a joint effort between the Secretariat of Environment and Natural Resources (SEMARNAT) and the German Cooperation for Sustainable Development in Mexico (GIZ).
NACAG is a global proposal that offers financial support for the installation of nitrous oxide (N2O) abatement and monitoring technology in nitric acid production plants, and advises governments and national producers on technological and regulatory issues related to the reduction of emissions. Support is available only for countries that are eligible to receive official development assistance (ODA) and that adhere to the initiative.
Nitric acid is an important product for the chemical industry, as it is used in the production of nitrogen-based artificial fertilizers. However, its manufacturing process emits N2O, a powerful greenhouse gas with a global warming potential 265 times that of carbon dioxide (CO2).
Although emission abatement technologies are available at a comparatively low cost, the N2O generated in the production of nitric acid continues to be emitted into the atmosphere in most countries around the world. This is mainly due to the fact that producers do not have the adequate incentives to make the investment in mitigation technologies, since these technologies do not represent a competitive advantage. Added to this is the lack of mechanisms for regulating emissions in this sector almost globally.
Financial support for nitric acid producers is conditioned on the Mexican government’s commitment to establish policies that ensure N2O mitigation activities continue to be carried out efficiently and sustainably in the long term.
In parallel to the implementation of technology, NACAG will provide advice to the Mexican government on public policies that seek to regulate emissions in the sector. A study has been initiated to evaluate the options of legal instruments that affirm, in the long term, the reduction of N2O in the nitric acid sector, such as incentive mechanisms, regulatory tools, voluntary agreements or domestic carbon markets. The study will also analyze the current situation of the sector at the national level, in order to assess the type of technology to be installed in each of the plants operating in the country without mitigation technology.
During the current year, GIZ will work with SEMARNAT and the relevant actors in the nitric acid sector to present the initiative and initiate the corresponding agreements to finance and install the abatement technology. In this sense, NACAG will contribute to the fulfillment of the national goals for the reduction of emissions established in the Nationally Determined Contributions (NDC).
The NACAG initiative is a project funded by the Federal Ministry of the Environment, Nature Protection and Nuclear Safety (BMU) of Germany. Currently, other donor countries are being sought to increase the number of plants that will receive financing.
GIZ has been commissioned by BMU to perform the functions of the Technical Secretariat of NACAG, being the entity responsible for implementing the initiative in all countries compatible with its objectives.
The project Preparation of an Emissions Trading System in Mexico (SiCEM) publishes a novel and Mexico-specific study on the impacts of an Emissions Trading System (ETS) on competitiveness and carbon leakage, as part of an effort to provide solid technical recommendations to support a robust and cost-effective ETS in Mexico.
In light of the upcoming pilot phase of the Mexican ETS, set to begin in 2019, the SiCEM project of the Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH has been exploring the economic implications of establishing an ETS in Mexico.
After the entry into force of the Paris Agreement in 2016, the Mexican Congress approved a reform to the Mexican General Law on Climate Change in 2018. The reform established a mandatory Emissions Trading System to support climate change mitigation at the lowest cost possible, stipulating that the ETS regulation should not adversely affect Mexico’s international competitiveness.
The legislation acknowledges that an asymmetry in international carbon pricing policies—that is, when some countries have higher prices on emissions than others—can potentially lead to a loss of industrial competitiveness for the countries with the highest carbon prices, since these prices usually increase production costs in the short term. This can cause the phenomenon of carbon leakage, in which firms decide to move their production to jurisdictions with less stringent carbon pricing policies; as a result, the emission reductions achieved domestically may be offset by the higher emissions elsewhere. Overall, global emissions either stay the same or increase.
Carbon leakage risk
The published study addresses these concerns for the particular economy of Mexico—including its sectoral composition and the level of linkage with the global economy—concentrating on its emissions-intensive trade-exposed (EITE) industrial sectors. Up to 2021, the study finds that the Mexican ETS would have only a marginal impact on the country’s economy-wide growth. Importantly, the decision on whether the emissions cap follows the unconditional or conditional targets of the Mexican Nationally Determined Contribution (NDC) has a negligible impact.
A focus on the competitiveness impacts to specific sectors provided a different perspective. Due to their level of interconnection with the global economy, and the carbon-intensive nature of their processes, some sectors are identified as vulnerable to the risk of carbon leakage, particularly the iron and steel, glass, cement and chemical industries, and the pulp and paper industry to a lesser extent. However, this doesn’t mean that these sectors should be excluded from participation in an ETS. Support mechanisms (i.e., free allowance allocation as part of “transition assistance” when setting up an ETS) for vulnerable industries may be established, at least in the initial phase of the ETS. The recommendation is that the allowance allocation gradually evolves towards becoming a mix of output-based allocation and benchmarking, with auctioning progressively introduced as the carbon market matures.
The Mexican ETS pilot program provides for a valuable opportunity to assess the carbon leakage potential of vulnerable industries. Periodic review of the system will allow to determine more appropriate support schemes, as well as to reduce the share of free allowances to increase carbon revenue potential. The present study covers the competitiveness impacts, the results of which provide recommendations for the Mexican ETS design. Additional studies covering a variety of technical issues will be published in the “IKI-Alliance Mexico” blog in the coming months.
