Publication
Country Snapshot: Mexico
Publication | October 2015
Content
INDC
On 30 March 2015, Mexico submitted its Intended Nationally Determined Contribution (INDC) and in doing so became the first developing country to publish an INDC ahead of COP21. In their submission, Mexico committed to an unconditional reduction of 25% of its greenhouse gases (GHG) and Short Lived Climate Pollutants emissions (below BAU) by the year 2030. As the submission explains, ‘this commitment implies a reduction of 22% of greenhouse gases and a reduction of 51% of Black Carbon.’
Furthermore, Mexico conditionally committed to increase the 25% reduction to a 40% reduction in GHG and Short Lived Climate Pollutants subject to there being a global agreement addressing a number of important topics. These topics include international carbon pricing, carbon border adjustments, technical cooperation, access to lowcost financial resources and technology transfer.
According to Mexico’s submission,
‘Mexico’s INDC is highly ambitious as it entails unconditional and transformational investments to change our patterns of production and consumption and achieve peak net emissions within the commitment period.’
These commitments are supported by a range of policies and laws including the General Climate Change Law 2012, the National Strategy on Climate Change 10-20-40 years 2013, the Carbon tax 2014, the National Emissions and Emissions Reductions Registry 2014, the Energy reform (laws and regulations) 2014, and the ongoing process for new set of standards and regulations.
These commitments, according to the submission, are ‘fair and ambitious’ and demonstrate that Mexico is a ‘responsible party committed to tackling global climate change’.
The full text of Mexico’s INDC submission can be accessed here.
Market mechanisms
As part of the wider Reforma Fiscal (‘Fiscal Reform’), Mexico introduced in January 2014 a carbon tax on fossil fuels. The rate of tax varies according to the carbon content of the fuel being used. Natural gas, however, is not taxed under this regime, although that could change in the future.
In November 2013, the Mexican Stock Exchange launched a platform, called MEXICO2, for the trading of carbon credits. This platform enables emitters of pollution to offset their emissions with certificates tradeable on the exchange. This exchange platform was only the second carbon trading platform in Latin America, after the start of a similar exchange in Costa Rica earlier in 2013.
Renewable energy
It is a promising time for Mexican renewables. After the energy sector was monopolised by the state electricity company CFE, limiting private participation for more than 75 years, a much awaited constitutional reform law was approved in December 2013 with the aim to liberalise the sector for private investment and transform the power sector into a competitive wholesale market. A comprehensive package of 21 secondary laws were then enacted in August 2014. Accordingly, overall investment in the sector rose in 2014 to $2.4 billion, as reported by the US International Trade Administration.
The US International Trade Administration ranks Mexico fifth on its list of top renewable energy export destinations for 2016, with opportunities projected in every subsector.
Energy efficiency
Energy efficiency, in both consumption and production of energy, is one of the main elements of the National Strategy on Energy, 2013-2027. This strategy emphasises how the use of best practice methods and new technologies would permit reduction in the consumption of energy without impacting growth. Moreover, the National Strategy on Energy acknowledges that such energy savings will require long term efforts in both the policy and investment areas.
In 2014, Mexico’s Ministry of Energy, SENER, began rolling out the Mexico Municipal Energy Efficiency Project. This project, launched with the assistance of the World Bank, aims to work with local institutions so as to incorporate energy efficiency considerations into policy planning, procurement and investment decisions at the municipal level. This programme will form the basis for further investments and efficiency savings in the areas, among others, of public lighting, municipal buildings, and water and wastewater pumping.
Financial support
Mexico has several schemes for development of renewable energy generation including the small power producer, self- supply, co-generation and the IPP scheme. The aforementioned law reforms included the set-up of a clean energy certification scheme to serve as the primary mechanism for encouraging clean energy development.
Tax incentives are provided, inter alia, under Article 40 of the Law of Corporate Income Tax, which provides for accelerated depreciation of 100 per cent for investments in equipment and machinery for electricity generation through renewable sources. The condition is that the equipment/machinery must remain in operation for at least five years following the tax deduction declaration. Further incentives include an exemption from import and export tax and a tax credit.
A funding mechanism was set up under the auspices of LAERFTE; the Fund for the Energy Transition and Sustainable Electricity Use. It aims to further development of studies aimed at achieving the objectives of LAERFTE. The fund is destined for research institutions and excludes private companies. It contains resources of US$538 million and is expected to be a fundamental player in helping Mexico reach its targets. Furthermore, Mexican development bank, NAFINSA, is committed to support the government’s renewable energy ambitions – it financed 50 per cent of the capital for Aura Solar I, the first large scale PV plant in Mexico.
Regulation instruments allow that the excess energy produced from renewable sources is stored (banked) by CFE, so that it can be later used or sold to the CFE at a discounted cost.
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