Queretaro’s Carbon Tax Boosts Business Competitiveness

In a world where sustainability is no longer an option but a necessity, Querétaro has taken a leading role by implementing one of the highest carbon taxes in Latin America. With a rate of approximately $27 USD per ton of CO₂ emitted, this tax is part of a broader effort to reduce greenhouse gas emissions and promote economic and environmental sustainability. This initiative, led by key figures such as Marco Antonio del Prete, the Minister of Sustainable Development of Querétaro, and supported by entities like MEXICO2, seeks to balance economic activity with environmental responsibility. 

Since its implementation, Querétaro's carbon tax has generated MXN 267 million, which has been allocated to policies that encourage emission reductions and electric mobility. Despite legal and economic challenges, this tax has been designed to increase the competitiveness of the state's businesses by incentivizing them to adopt more sustainable practices. Compared to other countries, Querétaro positions itself as a model to follow, demonstrating that sustainability can also be profitable. 

How Is the Tax Calculated? 

The carbon tax in Querétaro is calculated based on the amount of carbon dioxide (CO₂) emitted by businesses. This tax specifically applies to companies that emit more than 25,000 tons of CO₂ annually, thus covering large industrial and commercial emitters. 

Emission Determination 

To determine the amount of CO₂ emitted, companies must keep detailed records of their emissions using the methodology approved by SEDESU. 

These methodologies include: 

• Monitoring and Reporting Direct Emissions: Companies must monitor and report direct emissions from sources such as boilers, furnaces, and industrial processes (Scope 1). 

• Conversion of Fuel Consumption Data: Fuel consumption data is converted to CO₂ equivalents using specific emission factors for each type. For example, gasoline is 2.31 kg CO₂/liter, diesel is 2.68 kg CO₂/liter, natural gas is 2.75 kg CO₂/m³, propane is 1.51 kg CO₂/liter, and coal is around 2.86 kg CO₂/kg. 

Reporting 

Companies subject to this tax must periodically report their CO₂ emissions. These reports must be submitted either in person or online to the Secretariat of Sustainable Development of Querétaro (SEDESU). The specific steps include: 

1. Report Preparation: Companies prepare a detailed report of their annual CO₂ emissions using the aforementioned methodologies. 

2. External Verification: Reports must be verified by certified external auditors to ensure accuracy and transparency. 

3. Submission to SEDESU: Verified reports are submitted to the Secretariat of Sustainable Development of Querétaro, which is responsible for tax collection and regulatory compliance. 

Collection and Oversight 

SEDESU is the entity responsible for collecting the tax and ensuring that companies comply with the established regulations. This includes: 

• Fund Collection: The funds generated by the carbon tax are collected and used to finance environmental and electric mobility projects. 

• Regulatory Compliance: SEDESU ensures that companies comply with reporting and payment regulations, imposing sanctions in cases of non-compliance. These fines can reach millions of pesos. 

Environmental and Economic Impact 

The carbon tax in Querétaro has had significant environmental and economic impacts. In terms of emission reductions, a clear objective has been set to mitigate 25% of the CO₂ emissions produced by the industrial sector. This has been partly achieved through compensation mechanisms based on the conservation of regional forests, allowing the absorption of large amounts of carbon. 

Economically, while some companies have faced additional costs, many have found incentives to adopt cleaner technologies and practices, improving their competitiveness in markets that value sustainability. This is one of the key objectives of carbon taxes: to become productivity and competitiveness drivers in the long term, promoting efficiency and renewable energy. 

International Comparison 

Compared to other carbon taxes worldwide, Querétaro’s rate would rank 14th. Below is a table with the country, tax rate, and relevant notes. 

Criticisms of the Tax 

The implementation of the carbon tax in Querétaro has faced several challenges, including initial resistance from some companies viewing the tax as an additional burden and the belief that it could discourage foreign or domestic companies from entering the state. Additionally, the mechanisms for monitoring and verifying emissions require investment and coordination to be refined. Some critics argue that this tax could particularly affect the competitiveness of companies operating with reduced profit margins or in losses. It is crucial to consider these concerns and find solutions, such as grace periods to support the most vulnerable companies. 

Moreover, many companies are uninformed about how the tax works. Specifically, they do not understand how it is calculated, how it can be reduced, and important details like the existence of a discount for early payment. This lack of knowledge can be an obstacle to the tax’s spirit. 

Future Prospects 

Plans are being developed in Querétaro to expand the scope of the carbon tax. This includes the possibility of increasing the tax rate and including other sectors not currently covered. However, it is essential to first address the challenges faced by industries with low margins. Additionally, it is crucial to radically improve communication and education about the tax's details. 

At Finsolar, we have experienced both sides of the carbon tax. At the end of 2023, we added a significant industry in Querétaro specialized in manufacturing ingredients for the food industry. The tax was the trigger for them to invest in solar panels with us. This shows that without the tax, this industry might have taken longer to advance in its decarbonization. However, throughout the process, there was uncertainty about how on-site solar generation would specifically impact the tax amounts, whether certificates were needed, for what periods they would impact, or if they would be accepted. 

Due to this uncertainty, the Finsolar team undertook the task of contacting the State Energy Agency, SEDESU, and other authorities and organizations to understand the tax in detail. In the end, we managed to reduce the tax, clearly communicate it to the client, and generate a next stage where the company will increase its investment in renewable energy since the benefits go far beyond tax reduction. 

Querétaro’s experience can and should be an inspiration for other states and countries. This case demonstrates that the future of the global economy is inextricably linked to sustainability and that well-designed policies can boost business competitiveness and environmental responsibility. 

Sources: 

• World Bank - State and Trends of Carbon Pricing 2023 

• Tax Foundation - Carbon Tax Rates in Europe 2023 

• Statista - Global Carbon Taxes by Country 2023