Mexico: Mexico Passes Climate Change Legislation

By Hana Vizcarra¹

On April 19, the Mexican Congress passed a climate change bill that sets greenhouse gas emissions reduction targets for the country, outlines goals for a national climate change policy, and specifically creates the authority to institute a cap-and-trade program in the future. The comprehensive law emphasizes public participation and education and the promotion of renewable resources. The law establishes structures for implementing climate change adaptation and mitigation goals and builds on previous legislative efforts to combat climate change in Mexico. Passed in the Cámara de Diputados by vote of 128 to 10 and in the Senado by a vote of 78 to 0, the law did not engender the political divisiveness surrounding climate change issues in the United States. President Calderón signed the bill on June 5, and it was published in Mexico's Federal Register (Diario Oficial de la Federación) on June 6. The bill goes into effect on September 4, 2012.

Under the Kyoto Protocol, Mexico is a non-Annex I Party, meaning that it does not currently have binding GHG emission reduction targets. As a non-Annex I Party, Mexico hosts numerous projects under the Clean Development Mechanism (CDM), generating certified emission reduction credits that can be used by other Kyoto Parties to achieve their emission reduction targets. The Kyoto regime's flexibility mechanisms, including the CDM, are premised upon the idea that emissions reductions in non-Annex I countries go beyond those that will happen in a business-as-usual scenario and are therefore "additional." The general test for additionality under the CDM requires the project sponsor to demonstrate that the emission reductions created by the process are not legally required and would not happen without the incentives provided by the availability of carbon credits.² Therefore, non-Annex I countries that choose to develop climate legislation are faced with the challenge of how to do so without the resulting law defeating the additionality requirement of the CDM. If a reduction is mandatory under the law, or a project would have happened without the CDM process due to other incentives, it would not be eligible to receive carbon credits.

Mexico's law largely focuses on establishing general policy goals and voluntary reductions, and also requires the adoption of monitoring, measurement, and reporting requirements for yet-to-bedetermined industrial sectors. The law provides authority for incentive programs to encourage voluntary emission reductions and even a cap-and-trade program. The law also leaves open the possibility that the government could impose binding emissions reductions limits sometime in the future. Depending on how the government chooses to implement the law, it could pose a risk of defeating additionality requirements and therefore CDM eligibility.

The Ley General de Cambio Climático (General Law on Climate Change)³ sets the "aspirational goal" of reducing emissions thirty percent as compared to a hypothetical baseline of emissions that would otherwise occur by 2020 and fifty percent below 2000 levels by 2050.⁴ The law creates the Fondo para el Cambio Climático (Climate Change Fund) to pull together public, private, national, or international financial resources for implementing climate change related programs. It also establishes an "aspirational goal" that 35% of the electricity generated by the Federal Government shall come from renewable sources or clean energy by the year 2024, a task that is to be coordinated by the Federal Energy Commission⁵ (Comisión Federal de Electricidad) and the Federal Commission for the Regulation of Energy (Comisión Reguladora de Energía).⁶ The government may consider economic and fiscal incentives and instruments such as stimulus efforts, financial instruments such as credits and insurance, and market instruments such as concessions, authorizations, licenses, and cap-and-trade mechanisms to incentivize compliance with the climate change objectives.⁷ The law specifically authorizes the creation of a voluntary emissions reduction market linked to international emissions reduction markets.⁸

The new law identifies the following climate change policy principles and goals:

• Sustainability;
• Shared responsibility between the Federal, State, and Municipal governments and society for mitigation of and adaptation to the adverse effects of climate change;
• Precaution, which is defined as not allowing a lack of total scientific certainty to postpone mitigation or adaptation measures when there is a threat of grave or irreversible harm;
• Prevention;
• Adoption of production and consumption standards for the public, social, and private sectors to transition to a low carbon economy;
• The development of incentives to promote the use of clean energy and renewable energy sources, including the gradual phase out of fossil fuel subsidies;
• Requiring mandatory emissions reporting for specific sources and sectors that generate greenhouse gas emissions and making coordinated efforts to merge other federal or local reporting systems;
• Incentivizing the use of clean public transportation in the Country;
• Taking advantage of methane and other gases generated in waste management;
• Integration, coordination, and cooperation;
• Public participation in the formation, execution, monitoring, and evaluation of the National Strategy;
• Environmental responsibility;
• Use of economic instruments to incentivize the protection, preservation, and restoration of the environment and the sustainable use of natural resources;
• Transparency and access to information and justice;
• Ecosystem conservation and biodiversity; and
• Commitment to the economy and national economic development to achieve sustainability without harming economic competitiveness.⁹

Responsibility under the law is divided between the Federal, State, and Municipal governments, with the bulk of the responsibility placed on the federal government.¹⁰ The federal government must, with public participation, draft a National Strategy on climate change (to be revised every ten years) and update or amend the Special Climate Change Program to implement this strategy. It is given regulatory authority to implement mitigation and adaptation actions envisioned in the law and to regulate emissions. Additionally, the law calls for the promotion of scientific research and education related to climate change issues.

The Federal government must create an emissions reporting system (Registro)¹¹ and transmit information to the public through the Sistema de Información sobre el Cambio Climático (System of Information about Climate Change).¹² The government is to establish in its National Strategy document which sectors will face mandatory GHG reporting requirements. Previous governmental policy documents indicate that these are most likely to include the transportation, waste management, electricity, energy, and forestry and agricultural sectors.

The law calls for the development of both adaptation and mitigation policies to achieve its reduction goals. The law outlines the types of objectives that fall within each category. The adaptation section focuses on risk and disaster planning and resource and infrastructure development while the mitigation section focuses on emissions reductions and preserving the environment.¹³

Emissions reductions are to be assessed on a sector-by-sector basis. The law specifically provides that policies that add costs to the private sector or society that will not be financed by international funding sources or other funds may be implemented in a dual-phased approach—initially through a voluntary program and then by establishing specific reduction goals.¹⁴ However, it is unclear if that second phase, creating binding emission reduction targets, will be implemented.

The law outlines particular policy promotion goals for some economic sectors and prioritizes sectors with the highest potential for reductions.¹⁵ For example, it calls for such wide-ranging initiatives in the transportation sector as investing in the creation of bike lanes and non-motorized transportation infrastructure, developing public transportation systems, and promoting working from home or carpooling.¹⁶ In a section addressing reducing emissions in the energy industry, the law specifies including externalities in the decision making process regarding electricity generation, promoting energy efficiency practices, and incentivizing renewable energy development, among other approaches.¹⁷

The law creates various entities to implement its initiatives and provides broader authority to those that already exist. For instance, the law grants broader authority and tasks to the Comisión Intersecretarial de Cambio Climático (Inter-secretarial Commission on Climate Change), created by the Federal government on April 25th, 2005,¹⁸ for the elaboration of climate change policies. It will be responsible for promoting coordination between agencies, establishing national policies for mitigation and adaptation, approving the National Strategy, proposing research and regulatory instruments, as well as developing national positions for international climate change forums, among other responsibilities. The law specifies the creation of additional working groups for the Commission, including working groups addressing issues such as emissions reductions, Reducing Emissions from Deforestation and Forest Degradation (REDD), and international negotiations. Additionally, the Consejo de Cambio Climático (Climate Change Council) will advise the Commission and work with INECC (described below) to develop the National Strategy.

A new entity within the Ministry of the Environment and Natural Resources, Institute Nacional de Ecología y Cambio Climático (National Institute of Ecology and Climate Change or INECC), will be responsible for the technical work necessary to develop policy recommendations. Among other things, INECC will be responsible for:

• Estimating annual emissions;
• Coordinating scientific and technical research;
• Creating and promoting criteria, methodologies, and technologies for conservation and sustainable use of natural resources;
• Helping develop qualified individuals to work in these fields;
• Collaborating in the creation of strategies and programs for sustainable development, the environment, and climate change;
• Conducting sectorial analysis and analysis of the future costs of climate change and the benefits of proposed actions;
• Evaluating goals and actions in the National Strategy to ensure they comply with the adaptation and mitigation objectives outlined in the law; and
• Proposing policy recommendations regarding mitigation and adaptation actions.

Over the next year, the Mexican government will establish the gubernatorial bodies envisioned in the law and begin the process of developing regulations and implementing the law's initiatives. As it does so, entities interested in participating in credit-producing projects should monitor the development of the specifics of the incentive programs, monitoring and reporting requirements, and any reduction requirements for their potential impact on additionality determinations. Mexico may become an active market for emissions reduction technology even if the changes resulting from this law limit the ability to garner credits from emissions reduction projects. Although the national reduction goals are "aspirational," the programs and regulations developed in order to reach them will place real requirements on industry. Certain sectors will be bound to annually report their greenhouse gas emissions and subject to fines if they do not comply or submit false information, and binding reductions limits remain a possibility in the future. However, the tenuous status of the Kyoto Protocol and the possibility for its renewal as well as the currently depressed price for the CDM's Certified Emissions Reduction units begs the question of how important maintaining additionality for the sake of Kyoto may be.

Much work remains following the President's signing of the bill. The Federal government must work closely with states and municipalities to develop the National Strategy and regulations without duplicating or contradicting local and regional climate change efforts. Many details were left undecided in the law as passed and will require a coordinated effort among Federal agencies. Although an historic bill, the specifics of what impact the climate change bill will have on industry, technology, and emissions reductions projects remain to be seen.

Footnotes

1 A special thanks to Miguel Ángel Mateo Simón and Jeanett Trad Nacif at BSTL Abogados in Mexico City for their review and consultation on this article.

2 See EB39 Report Annex No. 10, Tool for the Demonstration and Assessment of Additionality, available at http://cdm.unfccc.int/EB/archives/meetings_08.html#039.

3 Ley General de Cambio Climático, passed by the Congress on April 19, 2012, available at "http://www.senado.gob.mx/sgsp/gaceta/61/3/2012-04-19-1/assets/documentos/ cambioclimatico_corregido.pdf" .

4 Artículo Transitorio Segundo.

5 Mexico's National State Utility.

6 Artículo Tercero Transitorio inciso (e).

7 Art. 93.

8 Art. 94 and 95.

9 Art. 26.

10 Art. 5o-12.

11 Art. 87 through 90.

12 Art. 76 through 79.

13 See Art. 27 through 37.

14 Art. 32.

15 Id.

16 Art. 34.

17 Id.

18 For further information, please visit the official site http://www.cambioclimatico.gob.mx/ index.php/politica-nacional-sobre-cambio-climatico.html#comision_intersecretarial

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