The project’s objective is to create the necessary institutional preconditions and technical capacities of both public and private actors for establishing and implementing an Emissions Trading Scheme (ETS) in Mexico and works along three lines to achieve it. First, the project delivers scientific analyses and political recommendations, e.g. on sector coverage, emissions thresholds and economic impacts, to inform and support Mexican decision-making processes. Second, it supports stakeholders (ministries, companies, financial institutions) through capacity building and stakeholder management processes, so that they can assume their roles and responsibilities in the market. Third, it facilitates learning through international dialogue and exchange with jurisdictions that have already implemented an ETS. At the same time, lessons learnt in the Mexican context will be disseminated at the international level.
Implementing Climate Targets through Emissions Trading: The Mexican Case
In the context of the Paris Agreement, countries defined national targets for reducing greenhouse gas (GHG) emissions in order to keep global warming well below 2° degrees. Mexico has set a national target to reduce GHG emissions in 22% by 2030 (compared to a reference case without climate action). In addition, this target could rise up to 36%, given the sufficient international support and financing. These goals were confirmed in the update of the Nationally Determined Contributions (NDC) presented by Mexico in December 2020.
The country is currently looking at opportunities and costs for emissions reductions in order to define well-suited policies and measures for achieving these targets. The energy and industrial sectors play an important role in reducing greenhouse gas emissions, therefore finding cost-effective mitigation instruments for these sectors is crucial to promote low-carbon development, reduce emissions, and at the same time promote economic growth, that is, decouple emissions from growth.
German-Mexican exchange of experiences
Since 2017, the German-Mexican bilateral project “Preparation of an Emissions Trading System in Mexico (SiCEM)”, implemented by the Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) funded by the International Climate Initiative (IKI) on behalf of the Federal Ministry for the Environment, Nature Conservation and Nuclear Safety (BMU), assists the country in developing and implementing a Mexican ETS. On October 1st, 2019, the Mexican Environment and Natural Resources Secretariat (SEMARNAT) published the Preliminary Bases for the ETS Pilot Program. This program will contribute to the compliance of the Mexican sectorial commitments for low-carbon development.
Germany has over ten years of experience with Emissions Trading and Emissions Reports. Therefore, the collaboration’s objective is to benefit from German and European lessons, in order to learn from best practices, but also to avoid mistakes that might have been made in Europe.
Why Emissions Trading in Mexico?
An Emission Trading Scheme is a market-based instrument based upon the principle of “cap and trade”. A limit of overall emissions in one or more economic sectors is defined and reduced year by year. Within this limit, companies can decide to buy and sell emissions’ allowances as these are needed in order to comply with the limit. Through this mechanism, companies have the flexibility to minimize their emissions in the most cost-efficient way and where it is cheapest. The instrument, therefore, contributes to changing the behavior of producers, consumers and investors in order to reduce emissions. At the same time, the inherent market mechanism provides flexibility to decide who takes actions, when, and which actions to take. Simultaneously the cap assures that a country like Mexico achieves its emissions’ reductions targets.
The European ETS remains the world’s biggest scheme. Having been the first of its kind, it inspired and continues to inspire the development of other national or regional schemes. Mexico is not alone in its endeavor. There are currently 21 ETS in the world that regulate around 9% of GHG emissions worldwide. The jurisdictions with an implemented ETS account for 42% of the world’s Gross Domestic Product (GDP)..
Germany has already assisted Mexico in setting up a National Emissions Registry (RENE), a database that collects information on GHG emissions from all major GHG emitting sectors, like energy, industry, transport, and others, particularly from entities with emissions over 25,000 tons of CO2eq. Since 2014, Mexican companies are obliged to annually report their emissions. This data can now be used in order to make informed decisions about the ETS main elements, such as its scope and the establishment of a ‘cap’.
Several workshops, trainings and study trips have been organized in order to promote experience exchange among experts and governmental representants (including the Federal Ministry for the Environment, Nature Conservation and Nuclear Safety (BMU), the German Emissions Trading Authority (DEHSt) and relevant Mexican actors). Additionally, international experience from other parts of the world has also contributed to the ETS establishment in Mexico, as is the case of California. International exchange guides Mexican authorities towards the establishment of the country’s own ETS.
The private sector’s early involvement, through their participation in several trainings coordinated by the SiCEM project, was key in the ETS development process. Also, under SEMARNAT’s leadership, the private sector formed a Working Group on Emissions Trading that held continuous meetings to discuss different aspects of the ETS, specially its regulatory framework.
Since its launch in 2017, SiCEM has fostered the following:
Commissioned by: Federal Ministry for the Environment, Nature Conservation and Nuclear Safety (BMU)
Implementing Partner: Mexican Secretariat of Environment and Natural Resources (SEMARNAT)
Duration: 2017 – 2023