Mexico Court Annuls State Emissions Tax

A federal court struck down the State of Mexico’s emissions tax, ruling that its methodology amounts to an indirect levy on electricity generation — an area reserved for federal jurisdiction — and ordering judges to grant amparos to affected companies. The decision impacts industrial and energy-intensive sectors subject to the MX$58 per tCO₂ charge and undermines projected environmental tax revenues, reducing the number of Mexican states with active green taxes to 15. The ruling sets clearer limits on state taxing authority and reshapes the regulatory framework for subnational climate policy and environmental fiscal instruments in Mexico.

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A federal court in Mexico ruled that the State of Mexico’s tax on polluting gas emissions is unconstitutional, concluding that it effectively imposes an indirect tax on electricity generation — an area reserved for federal jurisdiction under Mexico’s constitutional framework.

The Administrative and Civil Plenary of the North-Central Regional Circuit published the binding jurisprudence on Jan. 30, ruling against three provisions of the State of Mexico Financial Code. The tax, implemented in 2022, applies to companies whose facilities generate more than one metric ton of carbon dioxide equivalent (tCO₂e) emissions per month and sets a rate of MX$58 (US$3.35) per tCO₂e.

The court found that the tax calculation improperly incorporates electricity consumption as a proxy for “indirect emissions.” According to the ruling, this approach effectively taxes emissions generated during electricity production rather than pollution directly produced by facilities located within the state.

“The tax on polluting gas emissions is calculated using technical parameters external to the local administration,” the plenary said. “It does not tax an environmental externality effectively generated within the State of Mexico, but rather attributes to the local user a theoretical share of pollution derived from electricity production.”

The court added that this structure violates the principle of causal correspondence governing state taxing powers. “The triggering event does not maintain a direct relationship with a fixed source of contamination that can be controlled or verified within the entity,” it stated.

The controversy stems from regulatory changes introduced in April 2022 by then–State of Mexico Finance Secretary Rodrigo Jarque. Updated calculation rules included indirect greenhouse gas emissions linked to electricity consumption from fixed sources. However, this methodology was not explicitly established in the Financial Code itself, creating legal grounds for companies to challenge the tax.

Under the formula, electricity consumption measured in megawatt-hours becomes a factor in estimating emissions. The court concluded that this effectively subjects electricity generation to a state-level tax, even though the activity falls under federal authority through agencies such as the Energy Regulatory Commission (CRE). The jurisprudence now obligates federal judges in the State of Mexico to grant legal protections, or amparos, to companies that challenge the tax in court.

The court’s decision could significantly affect the State of Mexico’s fiscal projections for 2026. Official state data had projected revenue of approximately MX$296 million (US$17.1 million) from environmental levies that year.

According to Marcela Gastélum, Commercial Deputy Director, Énestas, states that do not  implement ecological taxes lose both potential fiscal revenue and policy tools to encourage sustainable practices. “Entities that do not implement green taxes are missing out on a mechanism to promote sustainability in the country,” she said. 

With the State of Mexico’s emissions tax now scrapped, the total number of states enacting ecological taxes dropped to 15: Baja California, Campeche, Coahuila, Durango, Guanajuato, Mexico City, Nayarit, Nuevo Leon, Oaxaca, Queretaro, Quintana Roo, San Luis Potosi, Tamaulipas, Yucatan and Zacatecas. State-level green taxes are primarily divided into four categories: Tax on Extraction of Materials from the Soil, Subsoil, Rocks, and Minerals; Tax on Emission of Gases into the Atmosphere; Tax on Emission of Pollutants into the Soil, Subsoil, and Water; and Tax on Disposal or Storage of Waste.

Nuevo Leon is the state that receives the highest revenue from green taxes, with MX$261.6 (US$15.07) per person, while Nayarit is the entity with the lowest collection, with MX$0.6 (US$ 3.47) per person, as reported by the Center for Economic and Budgetary Research (CIEP). Meanwhile, the green tax with the highest revenue is the extraction of materials from the soil, accounting for 43.2% of the total, followed by the gas emission tax at 30.4%, the pollutant emission tax at 25.9%, and the waste disposal or storage tax at 0.6%.

In addition to the mentioned taxes, CIEP highlights the importance of implementing a green tax on car usage, given that the vehicle fleet grew by 81.3% between 2008 and 2021 nationwide. According to the research organization, it is desirable for these collected resources to be used to mitigate environmental damage and to implement a non-polluting public transportation system.

Gastélum underscored that although their implementation might be seen as a revenue-generating measure, green taxes are regulatory. "This instrument does not seek to increase tax collection, but to create incentives for companies and consumers to adopt more sustainable practices, as well as cleaner technologies and processes," she explained.