Eduardo Piquero
Anna Asikainen
Anna Asikainen
Commercial Director

Toward Latin America's First Carbon Market

Wed, 02/22/2017 - 16:17

Strengthening its role as a regional leader in the climate change arena, Mexico launched a pilot program for emissions trading in November 2016. The pilot will run for 12 months, with a full system expected to be ready for operations by 2018. The ultimate goal is to have a program in line with those of Canada and the US, opening the door for Latin America’s first Emissions Trading System (ETS) and a potential North American carbon market. “We have invited over 200 companies and the expected uptake is at least 100 companies. The invited corporations are the biggest GHG emitters in Mexico and include both national and international firms,” says Anna Asikainen, Commercial Director of MÉXICO2, the independent platform in charge of overseeing the ETS at the Mexican stock exchange, BMV.

“The platform itself is digital. The pilot will be implemented directly in the BMV and we will build on it to launch the national ETS. Its advancement will rely on the existence of market rules,” says Eduardo Piquero, Director of MÉXICO2. “The Energy Transition Law appointed the Ministry of the Environment to regulate GHG emissions in the electricity sector so the development of the ETS’ regulatory framework would be its responsibility. Once the rules are defined, we will implement them in the stock market,” he says. Mexico has demonstrated its environmental commitment before this initiative. It was one of the first countries to pass climate change legislation and the first developing country to submit its Intended Nationally Determined Contributions to the last Conference of the Parties (COP21) held in Paris in 2015.

Mexico and Chile are the only Latin American countries with a carbon tax in place. The approval of the 2012 Climate Change Law, which mandated the creation of a National Emissions Trading Register (RENE), set the basis for the ETS that Mexico plans to open in 2018. “The RENE launched in 2014 is playing a key role at this initial stage as it has allowed us to start the pilot with an accurate emissions track,” Asikainen says. “According to the Climate Change Law, companies emitting over 25,000 tons of CO2e are obliged to register, according to SEMARNAT’s guidelines.”

“The next phase will be focused on GHG reduction,” Asikainen adds. “Companies are then expected to implement projects and policies to lower their GHG emissions. If a company is not able to lower their emissions to the permitted level it will have to purchase emissions permits to fill the gap. These permits have to be purchased from other companies or industries that have reduced their emissions to a lower level than the established threshold. In summary, the steps are to measure, reduce or buy allowances to reach the established limit.”

Some companies argue that putting a carbon market in place will harm their international competitiveness but Piquero says this idea is driven by misinformation. “We have not heard of any company leaving a country or limiting their production due to ETSs. On the contrary, they have motivated companies to enhance their processes, make green decisions and plan ahead.”

According to the World Bank, 35 countries across four continents already have ETSs in place and more are expected to join as climate change awareness increases worldwide. “ETSs have proven to be the most costeffective tool to reduce GHG emissions. Countries that have implemented this system before have experienced many benefits, so there is no excuse for Latin America not to follow this trend,“ Piquero says.

“Mexico can learn a lot from California’s experience, particularly as the country is looking to match its ETS with that of the US state to open the possibility of a future bilateral market. Mexico’s carbon market will be the first of its kind in Latin America, positioning the country as a regional leader in the fight against climate change. Mexico’s government expects to have a fully functioning market by 2018, an ambitious but doable goal,” he says.

The role of Mexico in the Paris negotiations was crucial to reaching the historic agreement, particularly considering it is the 13th largest GHG emitter globally. Now, the country is taking a step forward in moving to a low carbon economy by launching its first cap-and-trade market pilot.