Carbon platform director says Mexico cap-and-trade staying on track

• Mexico facing more pressure on clean energy
• Cap-and-trade program could incentivise renewables
• Mexico finishing first year of three-year pilot cap-and-trade program
• Program still on track for 2023 official cap-and-trade start

By: Sunny Roe, ICIS Carbon

HOUSTON (ICIS)–The incoming US administration could mean additional pressure for Mexico to produce clean energy as the country closes the first year in the three-year federal pilot cap-and-trade program, according to Eduardo Piquero, the director of Mexico2, the Mexican stock exchange (BMV)’s carbon platform.
According to Piquero, Mexico remains under pressure to implement a federal Emissions Trading System (ETS) despite the renewed focus on oil and gas from Mexico’s president Andres Manuel Lopez Obrador (AMLO) since taking office in December 2018. Additionally, the incoming Biden administration in the US could add to the mounting pressure for Mexico to produce cleaner energy after it pushed through controversial regulatory changes that hampered electricity produced by renewables.
“If there is one policy that they [Mexican Administration] continued, it is the ETS,” said Piquero. “With the Biden administration, perhaps the United States will pressure Mexico on adoption of clean energy from Mexico and with this administration [Mexico’s], the oil and gas plans are somehow getting blurred.”
AMLO’s administration has channeled federal funding to “rescuing” state-run producer Pemex through ambitious plans to boost crude production that have yet to prove fruitful.
Mexico is nearing the completion of the first year of a three-year pilot cap-and-trade program, and although there have been delays, the program is still on schedule for a 2022 auction in the pilot phase and a 2023 official cap-and-trade start date. The allocation of allowances was scheduled for October 2020 but has now been postponed until the first quarter of 2021 with the second-year allocation scheduled for October 2021 as the registry for allowances is still underway.
During the second year of the pilot program, the registry is expected to be completed, and the auction regulation will continue to be drafted as compliance entities and the financial system continue capacity-building. Additionally, offset protocols are under consideration.
The first two years of the program serve as a foundational period to familiarise entities with market procedures while the third year, 2022, will serve as a transitional year to prepare participants for an operational program that includes economic impacts.
The pilot program consists of roughly 300 entities and 70 companies within the energy and industrial sector that produce at least 100,000 mtCO2 per year, covering more than 700 mtCO2e. Although there are no economic impacts on regulated entities, a penalty for noncompliance will be enforced. For every allowance not submitted, the entity will be deducted two allowances during the operational period.
The pilot program provides a pathway to reach Mexico’s emission reduction targets of 22% below greenhouse gas (GHG) baseline by 2030 and 50% below year-2000 GHG levels by 2050. According to Piquero, the threshold limits of 100,000 mtCO2 will be reduced during the operational period to include more compliance entities, as well as a possible expansion into other sectors.
Despite the emission threshold differences between Mexico and California-Quebec’s cap-and-trade program, a linkage is technically possible, and Mexico remains interested in a potential future linkage with California-Quebec.

By: Sunny Roe, ICIS Carbon