Towards an emissions trading system in Mexico : rationale, design and connections with the global climate agenda : outlook on the first ETS in Latin-America and exploration of the way forward

This Open Access book provides detailed information about the incoming Mexican Emissions Trading System, including an analysis on why the system was implemented, how the system was designed, how it operates, how it could work, and how it could be strengthened by 2023 when it will be formally launched. This document is aimed at those who want to understand how an ETS can operate in an emerging economy. Although it has been written for experts and non-experts, this book does not provide the underlying theory of market-based instruments and emissions trading systems in general. The book can be read from start to finish, but can also be used as a reference for specific components of regional ETSs. The book draws upon a meticulous study of background documents and fieldwork from different authors to tell the story of how a Mexican ETS, the first of its kind in Latin America, can be set in the country. The emissions trading system cover many greenhouse gas emissions and has been hailed as one of the cornerstones of the Mexican climate policy. The book also examines and explains how the ETS is designed and implemented. Foreword by William Acworth Foreword by Dr. Dirk Weinreich Introduction: Setting the Stage for the Emission Trading System in Mexico Contents Editor and Contributors Acronyms Part I Emissions Trading and Mexican Climate Policy: National and International Perspectives 1 Key Theoretical, Policy, and Implementation Experience Considerations for the Mexican ETS: Toward an Equitable and Cost-Effective Compliance Phase Environmental Regulation: Conventional and Alternative Market-Based Approaches Conventional Environmental Regulation Market-Based Environmental Policy Carbon Pricing, Markets, and Innovation Carbon Tax Emissions Trading Systems Creating Global Environmental Commodity Markets EU ETS North American Developments California California ETS Mexico The Mexican ETS: From Learning-Phase to Compliance Mechanism Implementation Challenges Ahead Concluding Remarks References 2 Bringing Emissions Trading Schemes into Mexican Climate Policy Introduction Background The Regional Greenhouse Gas Initiative (RGGI) The European Union (EU) California China The Definition of ETSs in Mexico A New Relationship with Industry Conceptual Framework and Analysis Conclusions References 3 The Political Economy of Regulation: An Analysis of the Mexican Emission Trading System Introduction Theory and Hypothesis Method The Pilot Emission Trading System in Mexico Lessons Learned and Concluding Remarks References 4 Moving Towards an ETS in Mexico: The Case of International Cooperation Introduction The International and National Context of Market-Based Mechanisms International Cooperation to Develop an ETS in Mexico Mexico’s Regional Pivotal Role Moving Towards Implementation Conclusion References Part II Legal Frameworks and Design Perspectives for a Mexican ETS. Building the Blocks 5 The International Influence of the Emissions Trading System in Mexico International Instruments Mexico’s NDCs and Other GHG Mitigation Mechanisms in Line with the 2015 Paris Agreement The Legal Framework of the Pilot Phase of the ETS in Mexico Under the Cap and Trade Principle The European Union Experience in the Emissions Trading System (EU ETS) Conclusion References 6 Particularities of the Legal Framework for the Mexican Emissions Trading System Introduction International Legal Basis The Objective of the UNFCCC The Quantified Commitment of the Kyoto Protocol and Its Link to Economic Instruments The Paris Agreement NDCs Article 6 of the Paris Agreement Article 6(2) of the Paris Agreement Article 6(4) of the Paris Agreement National Legal Basis Economic Instruments in the LGEEPA The Economic Instruments in the LGCC The Emissions Trading System in the LGCC The Importance of a Reduced Cap Free Allocation and the Polluter Pays Principle Legal Nature of Emission Allowances Conclusion References 7 The Political Economy of Carbon Pricing: Lessons from the Mexican Carbon Tax Experience for the Mexican Cap-and-Trade System Why Is It so Difficult to Implement Effective Climate Change Policies Based on Carbon Pricing? A Brief History of Climate Change Policy in Mexico Before the Carbon Tax Was Passed Lack of Resources and Oil Dependency in Mexican Public Finances Design of the Proposed Carbon Tax Political Pressures and Modifications to the Proposed Carbon Tax Bill Political Economy Lessons from the Mexican Carbon Tax Conclusions References 8 Carbon Finance and Emission Trading in Mexico: Building Lessons from the CDM Experience and FOMECAR (Mexican Carbon Fund) Introduction: The Stages of the Carbon Markets. Evolution and Lessons Learned The “Golden Era” of the Carbon Markets: 2005–2011 The Fall of CDM and Market Fragmentation (2011–2015) From the Paris Agreement to the Present and Towards the Global Stocktake (2015–2024) The Global Financial Architecture for Supporting Carbon Markets and ETS Lessons from and for Mexico: The Creation of the Financial Funds for Technical Assistance and Financing of CDM Projects (FOMECAR) The Experience of FOMECAR and the New Emissions Trading System in Mexico Conclusions References 9 Emission Trading System and Forest: Learning from the Experience of New Zealand Introduction Forestry and the NZ ETS Forestry in New Zealand NZ ETS and Forest Participation and Impacts Forest and Climate Change Policy in Mexico Forestry in Mexico Forest Carbon Policy in Mexico Integration of Forestry into the Mexican ETS Strengths in the Mexican Scheme Weakness in the Mexican Scheme Potential Impacts Conclusion References 10 Non-additionality, Overestimation of Supply, and Double Counting in Offset Programs: Insight for the Mexican Carbon Market Introduction Overview of Offset Programs Worldwide Characteristics of Offset Programs and Projects Critiquing Offset Programs Problematic Issues: Non-additionality, Overestimating Supply, and Double Counting Non-additionality Overestimating Supply Double Counting MexiCO2 ETS and Offset Program Mexican Offset Program and Problematic Issues Conclusions and Recommendations Annex 1 References 11 Capacity Development Associated with the Implementation of Emissions Trading System in Mexico Introduction International Environmental Governance National Environmental Governance Policy Instruments National Registry of Emissions Emissions Trading System Corporate Governance Capacity Development for the Emissions Trading System in Mexico Analysis of Results and Conclusions References Part III Mexican ETS Connected Issues with the Broader Climate Agenda 12 The Environmental Justice Dimension of the Mexican Emissions Trading System Introduction Environmental Justice and Emissions Trading Systems Mexico ETS Context and Inequality Data Sources Analysis GHG Emissions in Mexico and Covered Entities Characterization of GHG Emissions and Environmental Justice Simulation of Mexico’s ETS and Environmental Justice Conclusion and Discussion References 13 Blue Carbon in Emissions Markets: Challenges and Opportunities for Mexico Introduction Blue Carbon in the World and Mexico Climate Change and the Ocean Blue Carbon Blue Carbon in Mexico Carbon Storage Sustainable Development Mechanism (SDM) of the Paris Agreement Blue Carbon in North America: Assessing the Role of Coastal Habitats in the Carbon Balance of the Subcontinent California Cap-and-Trade Program The Mexican Emissions Trading System Pilot Program Case Study: El Vizcaino Biosphere Reserve Conclusions References 14 Relationship Between Emissions Trading System and the 2030 Agenda for Sustainable Development Introduction ETS Background 2030 Agenda for Sustainable Development SDGs Link with ETS The Case of Mexico ETS Pilot Programme Mexico’s Approach to the 2030 Agenda Comments/Conclusions Annex 1—Sustainable Development Goals of the 2030 Agenda Annex 2—ETS-Related SDGs and Targets References