Mexico to cap and trade up to 80pc of emissions

OREANDA-NEWS. September 14, 2016. Mexico is set to launch a pilot cap-and-trade carbon market in November, part of its efforts to meet commitments under the Paris Agreement that is currently awaiting ratification by the Senate.

Some 60 local and international companies drawn from the transport, energy, cement, steel and paper industries will participate in the year-long pilot program, Alba Aguilar, a director at MEXICO2, the platform that will manage the pilot in conjunction with the energy ministry, told Argus today.

"We want the pilot program to capture between 70pc and 80pc of total carbon emissions in the country. We are talking about 70mn TCO2 each year," said Aguilar.

The names of participating companies will not be made public, but they have been selected based on their involvement in US and European carbon markets, as well as minimum emission levels of 25,000t CO2/yr, the threshold for mandatory registration in the environment ministry's national emissions registry.

The cap-and-trade system sets a limit on a company's emissions, the "cap" which the energy ministry will fix when the pilot is launched, and allows companies to sell any excess allowance in a secondary market, "trade".

While the Mexican government has yet to commit to a mandatory carbon market, the pilot will serve as a preparatory phase for training and trouble-shooting, a process that has been fruitful in other countries that have transitioned to mandatory carbon markets, Aguilar says.

Further regulation would be required to implement a fully functioning carbon market.

The pilot program is part of Mexico's efforts to meet its Paris Agreement pledge to cut greenhouse gas emissions by 22pc by 2030 and 50pc by 2050 against a 2005 base line.

The Senate climate change commission issued renewed calls for ratification yesterday and Aguilar expects the agreement to be ratified before the next climate change conference for November in Morocco.

Some 28 countries representing around 42pc of total global emissions have officially signed on to the agreement, including Brazil.

Mexican efforts to reduce emissions have gathered speed in recent months with the publication of a draft clean energy transition strategy that seeks to source 35pc of all electricity from "clean energy" sources by 2025 and an agreement with the Canadian provinces of Quebec and Ontario to collaborate on developing carbon pricing mechanisms.