SCE Archives - CLIMATE.BLUE

On March 8th, the study “Analysis of Competitiveness and Allocation Mix for the Emissions Trading System (ETS)” was launched. This event aimed to trigger exchange and discussion between the sectors regulated by the Mexican ETS and the Ministry of Environment and Natural Resources (SEMARNAT), with the support of the Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH, through the project Preparation of an Emissions Trading System in Mexico (SiCEM). From the launch event, five technical events emerged, seeking to generate discussion spaces in order to integrate the sectors regulated by the ETS in the development process of the aforementioned study.

The study objective is to identify the level of risk to the competitiveness of the companies regulated by the ETS, also known as the risk of carbon leakage. A carbon leak is generated when the production of a company is transferred from a jurisdiction in which a carbon price has been established to another where there are no such regulations. This effect results in actual emissions not decreasing but moving to another geographic point.

Likewise, the study intends to determine the feasibility of implementing the benchmarking method as a method of assigning emission rights for the ETS. This method consists of determining an optimal carbon intensity value that serves as a reference within a regulated sector for the allocation of its emission rights. To achieve the objectives of this study, and within the framework of this series of workshops, an invitation was extended to four industrial sectors regulated by the ETS to actively participate in the development of the study. The sectors included are: iron and steel; cement; electricity; and oil and gas.

Collaboration with a regulated sector makes it possible to generate a broader perspective of the national context, allowing the results of the study to be useful for SEMARNAT’s decision-making process regarding allocation methodologies for the future phases of the ETS. As long as the chosen measures are suitable for the national sectors, they will contribute more precisely to the efficient operation of the Mexican ETS and therefore to the achievement of the Greenhouse Gas mitigation goals that Mexico has set for itself.

The workshops were held from March 30th to April 6th, 2022 with the collaboration of a consulting team from Ricardo Energy & Environment , Carbon Trust and Öko-Institut.

The development of capacities and the continuous exchange of experiences are part of the necessary actions for the creation of technical and institutional capacities for the implementation of an Emissions Trading System (ETS). For this reason, the Emissions Trading System Academy was held for the third time in 2022, under the slogan “Towards the operation of the Mexican ETS”. The ETS Academy seeks that the actors involved in its development and its potential allies have a broad level of technical knowledge regarding the elements that make up an ETS, through a highly specialised exchange format with experts in carbon price mechanisms and emissions trading systems around the world.

The ETS 2022 Academy brought together more than 70 actors from the Mexican public and academic sector; they all gained knowledge and approached the debates and current issues on the ETS in Mexico and around the world.

Dr. Jürgen Landgrebe, director of the DEHSt, addressed the participants of the Academy and recognized the importance of these spaces to achieve climate objectives / © Inauguration of the SCE 2022 Academy. SiCEM, GIZ México

Each session focused on a theme related to ETS design and operation: central elements of an ETS; engagement with stakeholders; carbon leaks; financial regulation; flexibility mechanisms; MRV, and the relationship of the ETS with Article 6 of the Paris Agreement, among others. In 13 face-to-face and asynchronous sessions, the participants covered the experiences of other jurisdictions in the implementation of their ETS, as well as the main challenges encountered in the process, and listened to the assessments and lessons learned.

The Academy participants also carried out a simulation dynamic that allowed them to discuss and reflect on the elements that make up an ETS and the decision-making processes involved in its implementation. Finally, the closing presented the steps to follow in the development of the Mexican ETS, in order to provide an overview of its future developments.

Schedule of sessions and topics to be addressed throughout the training / ©Academia SCE 2022. SiCEM, GIZ Mexico

The institutions and speakers at the Academy included representatives of the German Federal Ministry for the Environment, Nature Conservation, Nuclear Safety and Consumer Protection (BMUV), the Director of the German Authority for Emissions Trading (DEHSt), Mr. Jürgen Landgrebe, Michael Mehling from MIT, Rajinder Sahota from the California Air Resources Board (CARB), Juan Pedro Searle from the Chilean Ministry of Energy, and Professor Jos Delbeke from the European University Institute (EUI), among many others.

The ETS Academy was held from March 7th to 28th, 2022. This forum, convened by the Ministry of Environment and Natural Resources (SEMARNAT), in coordination with the Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH through the SiCEM project, and in collaboration with ICAP and adelphi, it has become a fundamental space for dialogue and exchange between different key actors for the operation of the Mexican ETS.

Throughout the sessions, he stressed the importance of the full participation of all actors involved in the SCE as they play a fundamental role in ensuring its optimal performance / © Session 12 “Transition from pilot to operational phase in an SCE” of the SCE 2022 Academy. SiCEM, GIZ Mexico

On November 17 and 19, the course on Forest Carbon Capture Projects took place, aiming to generate a greater understanding of this topic and allowing its relevance to be identified within an Emissions Trading System (ETS) by encouraging the reduction of emissions in unregulated sectors.

The GIZ SiCEM project and the 2030 Agenda Working Group on Climate Change organised the course, which focused on showing the challenges and opportunities currently presented by these projects in the national and global context. Specialists from the World Resources Institute imparted the training.

Over the two sessions, participants discussed the status of forestry projects within Mexico as well as the environmental and social co-benefits they provide. The validation and verification of projects of this type were also addressed, based on the provisions of the Forestry Protocol for Mexico of the Climate Action Reserve (CAR). Thus, more than 100 attendees– including verifiers and the private sector –were able to learn in detail about the importance of validation and verification for project development. Likewise, they were able to learn about the process behind this type of project, the documentation necessary and the requirements to become a verifier.

Finally, an analysis was carried out of the processes that make up a forest carbon capture project, emphasising that–although the main objective of these projects is the reduction of emissions and the conservation of biodiversity–it is necessary to keep the communities that own the the land in mind, taking advantage of their social organisation and, above all, favouring their empowerment.

During the sessions, the importance of verifying these projects was reiterated, inviting the attendees to replicate what they learned within their companies. They were also invited to consider the opportunity to be trained to become verifiers, given their relevance within the voluntary and regulated carbon markets.

Sesión 2. Curso: “Proyectos de Captura de Carbono Forestal”. Preparación de un Sistema de Comercio de Emisiones en México (SiCEM). GIZ México

The five virtual sessions that made up this course were held in October and November 2021, with the aim of strengthening technical capacities for the design of marginal abatement cost curves (MACC curves) for industrial sectors, who participate in the Emissions Trading System (ETS).

This event arose as a coordination between the 2030 Agenda Climate Change Working Group and the GIZ SiCEM project, born of the need to highlight the benefits of a correct interpretation of the MACC curves, since these allow– through a graphical representation –the identification of optimal mitigation measures for each organisation, according to their scope and technical-economic limitations.

The theoretical-practical classes had an average capacity of 30 participants from sectors regulated by the Mexican Emissions Trading System, who had the opportunity to immerse themselves in fundamental economic concepts for the correct understanding of the MACC curves, and other practical cases. These sessions also included interactive spaces that encouraged collaboration among attendees, in order to find solutions to the proposed exercises. The course work resulted in very enriching analyses, showing that the participants supported the knowledge brought forward at the event.

The consulting team of Carbon Trust Mexico was in charge of the sessions and, thanks to its expertise on the subject, it was possible to guide the participants in the implementation of the MACC curves, with examples in each of their industrial sectors.

The interest of the industrial sector in this issue reflects the commitment to making well-informed decisions aimed at mitigating GHG within their organisations, as well as the co-benefits that such actions represent.

Session 5. Course: “Strengthening technical capacities in the elaboration of marginal abatement cost curves (MACC curves)”. Preparation of an Emissions Trading System in Mexico (SiCEM). GIZ Mexico

The exchange of experiences on the SCE between companies in the electric power generation sector demonstrates the growing interest in contributing to the mitigation of climate change from their trenches.

On September 10, the fourth and final technical webinar was held as part of a series of virtual sessions aiming to strengthen capacities linked to the importance of the participation of the electric power sector in the Emissions Trading System (ETS). Participants exchanged experiences in theoretical and practical sessions.

One activity involved the identification of projects that could contribute to reducing emissions at their facilities. There were also presentations on the operation of the European Trading System (EU ETS), and other by the government body SEMARNAT on the monitoring plan, differences, and similarities between the ETS and the National Emissions Registry (RENE), and a final session addressing the monitoring system.

These events were organised by the Environmental Protection Management of the Federal Electricity Commission in coordination with the GIZ project SiCEM. Given the type of participants, these sessions set a precedent for collaboration between the public and private sectors of the national energy sector on the ETS. Their participation in these events shows the growing interest in contributing to the mitigation of climate change from their trenches.

These sessions took place between February and September 2021, with about 60 people present. FactorCO2 consultants, who presented various international experiences regarding the implementation of a European ETS, supported this learning network.

This learning network represents the first effort to apply the work methodology in the ETS context; it also shows how joint work between different sectors–including organisers, participants, and authorities–is of great importance for successful ETS implementation in Mexico.

The GIZ project “Preparation of an ETS in Mexico” (SiCEM) provides support to the Ministry of Environment and Natural Resources (SEMARNAT) in the continuous development of capacity-building activities for relevant actors and decision-makers from public and private sectors. The project, which began on January 1, 2020, is carried out within the framework of the Emissions Trading System (ETS) Test Program in Mexico.

In this context, the 2020 ETS Academy was held for the second consecutive year. On this occasion, it was successfully carried out virtually, and focused on the implementation aspects of the Test Program. The course was convened by SEMARNAT and developed with the support of the World Bank’s Partnership for Market Readiness (PMR), the International Carbon Action Partnership (ICAP) and GIZ Mexico.

Between August 18 and September 10, productive space for exchange and networking was generated among around 60 course participants. During these four weeks, learning was strengthened with presentations of the lessons learned, merits and challenges in the implementation of an ETS by national and international experts (China, Quebec, California, European Union, etc.), as well as the use of innovative digital tools and images that captured the key points discussed during the sessions.

Finally, there were two sessions open to the public, attended by Mr. James Grabert, Director of Mitigation of the United Nations Framework Convention for Climate Change (UNFCCC), as well as an exchange session between Latin American countries on carbon price instruments.

Week 1. ETS Architecture, Pilots from Mexico and the World

The first week set the stage for subsequent sessions, introducing the concept of carbon pricing instruments and the opportunities presented by the ETS in order to meet the NDC mitigation climate targets based on the Paris Agreement. Although the international experience has shown that it is a cost-effective instrument, its effective implementation requires clear regulatory frameworks, a national policy that responds to international commitments, and close communication with the actors involved in the process.

Jurisdictions such as China, Quebec, and Spain (as part of the European ETS) shared their ETS experiences in the early phases. They stressed the importance of having a strong regulatory and political framework, creating opportunities for dialogue with the regulated sectors and ensuring the quality and robustness of emissions data. In recent years, Mexico has implemented a legal and institutional framework on the matter based on the reform of the General Law on Climate Change in 2018 and the publication of the Agreement establishing the preliminary bases of the ETS Test Program, in which the figure of the Advisory Committee is also created as a space for dialogue and feedback. It also has a robust MRV framework, reflected in the National Emissions Registry (RENE).

Week 2. Allocation and Market Dynamics. What are the Options?

During the second week, the methods to allocate Emission Allowances (DEM) were discussed. Each jurisdiction chose a method (or combination of methods) to use based on national priorities and ETS objectives, among which the following stand out: incentivizing abatement measures, increasing revenue at the government level, protecting the competitiveness of regulated facilities or manage a gradual transition to an ETS. In the case of Mexico, the Trial Program will start a free scheme based on historical emissions per installation in order to facilitate the transition to the Formal Phase of the ETS; later on, the implementation of a percentage of allocations through auctions is envisaged.

Once DEMs are assigned, they can be traded on the secondary market. In the sessions, actors involved in DEM trading in the European ETS covered the different alternatives that exist for this trade, such as exchanges or stock exchanges, or bilaterally through a mechanism known as over-the-counter, as well as looking at the relevant difference that exists between regulated carbon markets (a public policy instrument with a defined legal framework and jurisdiction to reduce GHG emissions) and voluntary ones (a decentralized initiative to promote the reduction of emissions and facilitate the participation of more actors in mitigation activities).

Week 3. Monitoring, Reporting and Verification Systems (MRV): ETS Challenges and Successes

An effective ETS requires a robust MRV scheme, as this allows designing the top of the ETS and making a better DEM allocation. Also, it ensures environmental integrity and enables compliance monitoring of the covered sectors. It was highlighted that it is crucial to incentivize compliance in an SCE, since otherwise, there is a risk of distorting competition between regulated entities. Jurisdictions such as California, Germany, the Netherlands, and China, shared the mechanisms used to strengthen compliance in their jurisdictions, such as the involvement of the regulated from the early stages of the process so that they are well aware of their obligation, the constant and proactive communication of obligations, listening to feedback, even administrative and economic sanctions.

Week 4. ETS Social and Environmental Benefits and Progress in Latin America. Where are we, and where are we going as a region?

During the last week, the 2020 ETS Academy addressed two topics: offset mechanisms and carbon price instruments in Latin America.

Regarding the first, the ETS includes mechanisms to encourage mitigation actions in non-regulated sectors under the offsets scheme. These contribute to the sustainable development of other sectors and actors indirectly linked to the ETS. Similarly, they allow cost reduction by improving the efficiency of the ETS. With a view to the Operational Phase, a global overview of these mechanisms was presented, as well as an exploration of the possibility of generating offsets for sectors such as forestry, livestock and agriculture, and transportation, within the Mexican context.

On the closing, the 2020 ETS Academy culminated with the exchange of experiences in the Latin American region. The participants had the opportunity to learn about the different advances in the area based on carbon prices. In this regard, countries such as Chile, Peru, and Colombia have implemented a tax on carbon or fossil fuels, while Brazil is analyzing the most cost-effective instrument for the country. Mexico is positioned as the first country in the region to have both a carbon tax and an ETS, so it will be of great interest to learn about their valuable experiences during the design of the ETS and the implementation of the Test Program.

For more information on this topic, please contact us at: Comercio.Emisiones-MX@giz.de

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