Mexico is Waiting for the Results of a Pilot ETS

Mexico is a valuable case study in developing an Emissions Trading System (ETS) for a middle-income nation. While a full-fledged program isn’t operational yet, the pilot program offers insights into potential benefits and challenges. By building on these lessons and addressing future considerations, Mexico can potentially establish a successful ETS that promotes cost-effective emission reductions while fostering a sustainable and low-carbon economy.

On January 1, 2020, a three-year trial program got underway. The trading scheme is open to operators of the facilities involved in the exploration, extraction, transportation, and distribution of hydro. This system would be a market-based approach to tackling climate change. Here’s the gist:

  • Companies get permits: Imagine factories as “polluters.”
  • Each receives a permit (allowance) for the pollution they can emit.
  • Total pollution limited: The government sets a cap on total emissions, gradually reducing it over time.
  • Trading occurs: Companies emitting less than their allowance can sell extra permits to those exceeding their limit.
  • An incentive to reduce: Companies face a financial push to reduce emissions to comply or buy permits.

Mexico’s program is still in development, but the idea is to create a market where reducing pollution becomes profitable. This could lead to cleaner industries and a greener Mexico.


Mexico’s Evolving Experience with Emissions Trading Systems (ETS)

Mexico’s journey with ETS involves exploration and piloting rather than full-fledged implementation. Here’s a breakdown:

  1. System Design:
  • Type: While not mandated, Mexico’s General Law on Climate Change allows for a cap-and-trade ETS. This system would likely involve carbon pricing.
  • Coverage: The pilot program targeted the energy and industrial sectors with facilities exceeding 100,000 tonnes of CO2 emissions annually. Geographical coverage was national.
  • Links with other countries: The design considered potential future links with other ETS programs, but this wasn’t part of the pilot.
  1. How it Works (Example):

Imagine Factory A emits 120,000 tonnes of CO2 and is allocated 100,000 allowances (permits to emit) by the government. Factory B emits only 80,000 tonnes but needs 90,00 allowances. Here’s what could happen:

  • Factory A has extra allowances (20,000). It can:
    • Reduce emissions to comply with its allocation.
    • Buy allowances from Factory B (if B is below its allocation).
  • Factory B needs more allowances. It can:
    • Invest in cleaner technologies to reduce emissions.
    • Purchase allowances from Factory A or the government (if available).
  1. Management and Monitoring:

The Ministry of Environment and Natural Resources (SEMARNAT) would likely manage the ETS. Monitoring would involve:

  • National Emissions Registry (RENE, for its letters in Spanish): Tracks emissions data from covered facilities.
  • Verification: Independent bodies would verify emission reports.
  • Trading platform: A platform for buying and selling allowances could be established.
  1. Success and Impact:

As the program was a pilot (2019), measuring emission reduction or carbon price success is difficult.

  1. Lessons Learned:
  • Institutional capacity: Building expertise and infrastructure for robust ETS implementation is crucial.
  • Gradual approach: Following a “learning by doing” approach with a pilot phase is recommended.
  • International cooperation: Learning from established ETS programs like the EU ETS can be beneficial.


Current Status:

The pilot program’s status is unclear, and a full-fledged ETS hasn’t been implemented yet. However, Mexico’s experience highlights the ongoing policy discussions and efforts to explore market-based mechanisms for curbing emissions.

Despite initial ambitions, Mexico’s ETS hasn’t launched its entire operation yet in 2024. A pilot program testing the system with non-monetary allowances ran from 2020 to 2021, but the official rollout initially planned for 2024 faces delays. Regulatory hurdles, combined with a lack of clear political will and execution capacity within the environmental ministry (SEMARNAT), are cited as reasons for the postponement. There are some glimmers of hope, however. A limited pilot phase with non-monetary allowance allocation reportedly began in late 2023, and policy discussions regarding carbon pricing mechanisms like the ETS continue. While Mexico’s ETS isn’t fully operational yet, these developments suggest the country remains committed to exploring market-based solutions to curb emissions.

This Post was submitted by Climate Scorecard Mexico Country Manager Pablo Necoechea Porras.


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