Eduardo Piquero
MEXICO2 Carbon Platform
View from the Top

Carbon Platform Reinforces Climate Change Fight

Wed, 02/19/2014 - 11:51

Q: What were the main reasons the Mexican Stock Exchange launched the MEXICO2 Carbon Platform?

A: This project can be divided into two important milestones. In 2011, the Mexican Stock Exchange launched its Sustainability Index, which allows companies that have sustainable practices to be rated more highly than others. Having those practices is appreciated by investors and consumers alike. We also have the General Climate Change Law that came into force in October 2012. These two events were the main reasons that led to the creation of the platform in November 2013, after receiving financial support from the British Embassy. An additional boost came in the form of the Fiscal Reform. It introduced the carbon tax, which will be enforced in 2014. We want to provide carbon credits for this tax. Even though we have been frustrated by the failure of the global carbon market, some of its initiatives are still quite healthy.

Q: What are the main reasons that account for the failure of the global carbon market?

A: There are three different reasons. Globally, the UN created the Clean Development Mechanism (CDM) but it came into force very late. Registering projects involved a lot of bureaucracy and the issuance of carbon credits was quite expensive. The financial crisis was another big problem, as were the failures of the issuance of allowances for carbon credits. Those allowances enable companies to emit greenhouse gases, but the EU did not cope very well with the expectations for the current phase of the carbon market, which runs until 2016. They issued more allowances than were actually needed so prices plummeted in a matter of months. We also had a strong supply from large Chinese and Indian projects that were issuing too many credits. So we had an oversupply while prices fell, which proved to be a deadly combination. Nevertheless, at a national level we have very efficient carbon markets, comparative to those in California, New Zealand, Canada and South Korea.

Q: Why is the MEXICO2 Carbon Platform viable in the Mexican market?

A: MEXICO2 is a trading platform that represents the first step towards a Mexican carbon market. It is viable because the Mexican government supports market mechanisms to help lower emissions. No other country in Latin America has the level of government support that we have. We have the General Climate Change Law, and we have the carbon tax. In the future, we will see a certain level of demand for carbon credits among those companies that have to pay the carbon tax. Beyond that we have to create some extra demand. Companies, both listed and non-listed, are already demanding offsets for their emissions to either increase their rating on the Sustainability Index, or to strengthen their corporate sustainable responsibility. The MEXICO2 Carbon Platform is making history in the fight against climate change, as well as in its stock exchange. This is the only stock exchange to have a platform for carbon credits in the Americas.

Q: What were the main challenges you faced when establishing the methodology behind the MEXICO2 Carbon Platform?

A: The largest obstacle is educating large corporations about climate change. Even though the stock exchange has a sustainability committee, there is still a lot of work to do. We are working on educating the demand base on what carbon is and on what products are suitable for one company or another. As for the Treasury, we are setting up a mechanism whereby carbon credits go from projects to the purchasing companies and then to the Treasury. This is the first time a mechanism has been structured in such way in a developing country.

Q: What are the direct benefits that this new platform will bring to energy-intensive industries?

A: If companies are interested in the direct offsetting of carbon emissions, they can buy carbon credits without giving much importance to their origin. We also promote the idea of sustainable development, so that energy- intensive industries will comply with the carbon tax and help Mexico’s sustainable development. To secure a very transparent price and get carbon credits quickly, we will connect the supply and demand sides of the market while also conducting auctions. There is no better place than this platform for companies to buy carbon credits and secure the best deal for all sides.