With the entry into force of the Test Program of the Emissions Trading System in Mexico (ETS), the project “Preparation of an Emissions Trading System in Mexico” (SiCEM) of GIZ is supporting SEMARNAT in the design of the various components, with one highlight being the design of the auction scheme for the Mexican ETS.
The preliminary bases of the Test Program state in its 20th article: “As of the second year of the pilot phase of the Test Program, the Ministry may implement an auction scheme for the emission rights deposited in the auction reserve without economic effects, depending on the behavior of the emissions market.”
Therefore, the study “Design of Auctions for the Emissions Trading System in Mexico” was carried out. This study is a first effort to establish scenarios that show what an auction scheme could look like for Mexico.
The analysis presents an overview of international best practices, the necessary elements in auction design, as well as technical and operational decisions that must be considered in the design process. For this purpose, four guiding principles were taken as a reference that include a broad review of the institutional structure in Mexico:
- Efficiency: Efficient allocations and prices while maintaining low transaction costs for participants.
- Simplicity: Reduction of administrative barriers for regulated participants, avoiding unnecessary complexity and achieving the qualification of a wide range of participating entities.
- Credibility: Operation through a regulatory financial framework that safeguards effectiveness against inappropriate market behavior.
- Compatibility: Compatibility with a broad design and objectives of the ETS including, but not limited to, future pricing prefeasibility, as well as international links.
Likewise, a preliminary analysis of the Mexican regulatory and institutional context was carried out, preliminarily identifying the relevant actors that would play a role in the implementation of the auction scheme and the regulations that could potentially to be adapted as a result of the implementation of the four proposed scenarios. These scenarios are mainly based on the following elements:
- Monitoring auctions using existing government agencies (regulators) or outside vendors (independent).
- Using the infrastructure of existing stock exchanges or use a new personalized platform.
Each of the proposed options represents advantages and disadvantages that will have to be further analyzed, but at the moment it is possible to list a series of recommendations for the design and subsequent operation of auctions guided by the aforementioned principles.
The presentation was carried out through a virtual session on August 10. This meeting was held within the framework of the project “Preparation of an Emissions Trading System in Mexico (SiCEM)” developed by GIZ and commissioned by the German Government in support of SEMARNAT. The session was attended by highly relevant institutions such as the Ministry of Finance and Public Credit (SHCP), the Mexican Stock Exchange (BMV), the National Banking and Securities Commission (CNBV), the Mexican Banking Association (ABM), Mexico2 and Laguna Sustentabilidad and Law. The study was developed by the Vivid Economics consulting team.
For more information on this subject, please contact us at: comercial.emisiones-MX@giz.de
