The Ministry of the Environment and Natural Resources (Secretaria de Medio Ambiente y Recursos Naturales) (SEMARNAT), has submitted to the National Commission for Regulatory Improvement (Comisión Nacional de Mejora Regulatoria) (CONAMER), a draft of the Preliminary Guidelines for the Test Program of the Emissions Trading System.

The main purpose of the proposed guidelines is to implement a test program prior to the commencement of the Emissions Trading System (ETS) contemplated in article 94 of the General Law on Climate Change (Ley General de Cambio Climático). The guidelines delineate the features of such test program, including its effective term, its guiding principles, the scope of authority of SEMARANT in the context of the test program, monitoring and evaluation mechanisms, the industrial sectors and greenhouse gases covered by the test program, the obligations of the participants, the creation of a multidisciplinary advisory committee, and the operation mechanisms of the program.

The test program will be effective for 36 months and it will applicable to those facilities whose annual emissions are equal to or greater than 100 thousand tons of direct emissions of carbon dioxide from fixed sources in the following sectors and sub-sectors:

Energy sector

  • exploitation, production, transportation and distribution of hydrocarbons, and
  • generation, transmission and distribution of electricity.

Industrial sector

  • automotive industry;
  • cement and cement industry subsector;
  • chemical industry;
  • food and drinks industry;
  • glass industry;
  • steel industry;
  • metallurgical industry;
  • mining industry;
  • petrochemical industry;
  • pulp and paper industry, and
  • other industrial subsectors that generate direct emissions from fixed sources.

Initially, the participants will be the facilities whose annual emissions have been reached or exceeded 100 thousand tons of direct emissions of carbon dioxide in any of the years 2016, 2017 or 2018. The facilities whose emissions reach or exceed this threshold during 2019 or afterwards will be considered new participants.

Beginning in 2020, participants will be subject to: (i) emissions reporting and verification obligations with respect to their emissions during the previous year, and (ii) obligations related to the delivery of emission rights (allowances), also with respect to their emissions during the previous year. However, the test program is not intended to have economic effects, which means that there will be no fines in case of default and the allocation of emission rights will be at no cost for the participants.

The amount of emission rights to be issued by SEMARNAT and allocated to the participants will be determined based on the historic information reported by the participants to the National Emissions Registry (Registro Nacional de Emisiones), Mexico's National Determined Contribution pursuant to the Paris Agreement and the emission reduction goals set forth for each sector under the General Law on Climate Change. Moreover, the proposed guidelines provide that clean energy certificates cancelled with the Energy Regulatory Commission (Comisión Reguladora de Energía) pursuant to the Electric Industry Law (Ley de la Industria Eléctrica) will be counted towards compliance with the emission reduction goals of the electricity generation subsector.

In addition to the allocation of emission rights to the participants, the test program includes mechanisms for the allocation of compensation rights representing emissions reductions resulting from eligible projects or mitigation activities undertaken in sectors not covered by the test program. Likewise, the test program provides for the creation of a mechanism implemented and managed by SEMARANT whereby participants will be required to open accounts for the deposit of emission rights and compensation credits, and will be able to undertake transactions with other participants to transfer emission rights and compensation credits, and participate in the auctions called by SEMARNAT for the allocation of emission rights.

The test program is aimed at testing the operation of a new ETS, generating more and better information regarding greenhouse emissions in Mexico, developing technical and administrative capabilities, familiarizing the participants with the operation of the proposed ETS, and identifying areas of opportunity to improve the proposed ETS. Likewise, this test program is intended to promote measurable, reportable and verifiable emission reduction efforts at the lowest possible cost, towards the achievement of Mexico's emission reduction goals, while generating value for the emission allowances and the compensation credits used in the proposed ETS, contributing to establish a carbon price.

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