Reducing greenhouse gas emissions by means of emissions trading

Project description

Title: Preparation of an Emissions Trading System (ETS) in Mexico
Commissioned by: German Federal Ministry for the Environment, Nature Conservation and Nuclear Safety (BMU)
Country: Mexico
Partner: Mexican Ministry of Environment and Natural Resources (SEMARNAT)
Lead executing agency: Mexican Agency of International Cooperation for Development (AMEXCID)
Total duration: 2017 to 2023

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Context

The Paris Agreement requires signatory states to set national targets for reducing their greenhouse gas emissions. Mexico aims to reduce its emissions by 22 per cent compared to a ‘business as usual’ scenario by 2030. In 2020, the country reaffirmed this target and updated its nationally determined contributions (NDCs) to climate change mitigation.

Mexico is currently defining appropriate strategies and measures to meet these NDCs and reduce its greenhouse gas emissions. The energy and manufacturing sectors have an important role to play here, so it is crucial to identify cost-efficient savings measures in these sectors to promote low-carbon development, reduce emissions and promote economic growth. Against this background, the Mexican and German governments have signed an agreement to work together to develop an emissions trading system (ETS).

Emissions trading systems set a cap on greenhouse gas emissions by individual sectors. Within the set limits, companies are able to buy and sell emissions certificates entitling them to emit specific amounts of greenhouse gases. This instrument results in behavioural changes by producers, consumers and investors and provides an incentive for them to reduce their emissions. It also gives them the freedom to decide which measures they take and when.

Objective

The institutional and technical preconditions for an emissions trading system in Mexico are in place.

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Approach

The project is supporting the Mexican Secretariat of Environment and Natural Resources (SEMARNAT) with setting up the ETS pilot phase. In October 2019, SEMARNAT published the preliminary regulations for the pilot programme. This collaborative project is benefiting from methods and experience from Germany and Europe, where emissions trading has been practised for over 10 years.

The project focuses on the following fields of action:
Scientific analysis and policy recommendations: Decision-makers receive the necessary information to design and implement an emissions trading system. The project is drawing up the technical analyses and studies.
Capacity-building and stakeholder engagement: Relevant ministries, businesses and financial institutions, members of civil society and academia need to fulfil their market role and responsibilities. Training courses and workshops are provided to this end.
International dialogue: The project promotes exchange with countries that already operate a similar system, including by deploying experts to Mexico and running study trips to Germany for Mexican stakeholders.

The pilot phase of the emissions trading system in Mexico began in January 2020. The Mexican Government allocated a number of emissions allowances (known in Spanish as DEMs) to the plants concerned free of charge and on the basis of previous emissions.
Only industrial and energy plants declaring emissions of more than 100,000 tonnes of CO2 between 2016 and 2019 are taking part (around 300 plants).

SEMARNAT has developed an operational tracking system to keep track of DEM transactions. Each plant also has to draw up a monitoring plan based on a standard format and guidelines. The aim is to create a fair and transparent trading system.

Results

Since 2017, the project has achieved the following results:

  • A statutory framework has been created for the pilot phase of the emissions trading system.
  • The project has produced more than 30 legal and technical studies to help SEMARNAT draw up the ETS regulatory framework and implement the pilot programme.
  • Technical knowledge has been enhanced for leading companies from a variety of sectors. For example, representatives from companies that together produce around 70 per cent of the country’s total steel and cement (Ternium, Cemex, Holcim) have received training.
  • An academic book on ETS in the Mexican context is to be published shortly.

Last update: May 2021