Mexico publishes cap for its ETS pilot phase

On 27 November 2019, the Mexican Ministry of Environment and Natural Resources (SEMARNAT) announced the cap for the upcoming pilot phase of its ETS.

The 2020 cap is set at 271.3 million emission allowances. For 2021, the cap is set at 273.1 million. This represents a reduction of about 1% and about 0.3%, respectively, of the CO₂ emissions reported to the National Emissions Registry (RENE) in 2016 by the entities covered by the ETS.

The annual sectoral distribution of allowances is:

• electricity generation (138.1 million for 2020 and 2021)
• oil and gas (35.3 million for 2020 and 2021)
• cement (30.2 million for 2020 and 2021)
• oil refining (17.8 million for 2020 and 2021)
• iron and steel (14.7 million for 2020 and 2021)
• food and beverage (7.7 million for 2020 and 2021)
• chemicals (7 million for 2020 and 2021)
• petrochemicals (5.7 million for 2020 and 2021)
• glass (2.7 million for 2020 and 2021)
• paper (2.3 million for 2020 and 2021)
• mining (2.1 million for 2020 and 2021)
• lime (0.6 million for 2020 and 2021)
• others, which consists of sectors for which there is only one installation (7 million in 2020 and 8.8 million in 2021).

The final regulations for the pilot ETS also establish three allowance reserves that come on top of the cap for regulated entities: a new entrants reserve equal to 10% of the cap, a 5% auctioning reserve, and a 5% general reserve.

The Mexican ETS pilot will cover direct CO₂ emissions from approx. 300 entities with annual emissions greater than 100,000 tCO₂, corresponding to approximately 45% of national emissions. Entities will receive free allowances corresponding to the emissions in the year (between 2016 and 2019) in which they first crossed the 100,000 tCO₂ mark. An adjustment allocation will be carried out from the general reserve for participants whose verified emissions in that year are higher than the free allocation received.

The pilot system is designed to pose no economic impact on regulated entities but rather to test system design, build capacity in emissions trading, and generate an indicative value for emission allowances and offsets for the operational phase. The system will run for three years: two years of a pilot phase and one year of a ‘transition’ phase into the fully operational ETS, which is scheduled to start in 2023. Regulations for the transitional phase have not yet been published. Regulations for the operational phase of the Mexican ETS are to be published in 2022.