Current Policy Projections
According to our assessment, Mexico’s current policies will lead to emissions between 724 MtCO2e and 736 MtCO2e excl. LULUCF in 2020. In 2030, the emissions level is projected to reach 810–843 MtCO2e, excl. LULUCF. We estimated a range given the uncertainty in GDP projections (see the Assumptions section for more details). The upper end assumes higher economic growth than the lower end. This scenario suggests that Mexico will neither meet its 2020 nor 2030 emissions targets and will need to implement additional policies to do so.
Historically, Mexico’s emissions have been increasing since 1990. GHG emissions have steadily shifted away from agriculture and LULUCF towards energy-related emissions. While in 1990 agricultural emissions represented 31% of Mexico’s GHG emissions, by 2015 their share had declined to 18%. Over the same time period, energy-related emissions increased substantially—by almost 40%.
The basis for climate policy in Mexico is its ‘General Climate Change Law’ (LGCC)—which was adopted in 2012—translates the overarching targets into strategies and plans, and provides the institutional framework for implementation. The law does not include concrete political instruments, rendering it impossible to quantify its direct effects. Notably, the most recent reform to this law includes the addition of Mexico’s NDC sectoral emission reduction targets for transport, electricity generation, buildings, oil & gas, industry, agriculture and waste sectors.
Part of the institutional framework required by this law includes the development of a National Strategy on Climate Change, providing long-term planning, and a Special Programme on Climate Change (PECC) for the short-term planning. Mexico published its first and second National Strategy on Climate Change in 2009 and 2013 respectively, and its first and second PECC in 2008 and 2014 respectively.
Mexico’s current National Strategy on Climate Change from June 2013 is designed towards a long-term strategic development, but only provides very general guidance. How this will be translated into concrete action remains to be seen.
Under article 66 of Mexico’s LGCC (Cámara de Diputados del H. Congreso de la Unión. Diario Oficial de la Federación, 2012), every incoming administration is mandated to develop a new PECC reflecting an administrations’ six-year planning on climate change. This document is to include short-term mitigation and adaptation goals per sector, as well as a list of concrete actions, budgeting and clear responsibilities at federal and state level to achieve the goals (Cámara de Diputados del H. Congreso de la Unión. Diario Oficial de la Federación, 2012; art. 67). This, while aligning the short-term goals with Mexico’s international climate commitments.
The 2nd Special Programme on Climate Change (PECC 2014–2018), published in 2014, includes the most relevant mitigation measures to 2018. The programme summarises 23 quantified mitigation-relevant measures that lead to a reduction in emissions by 83 MtCO2e in 2018 compared to the baseline presented in the same document.
Mexico’s current administration, in office since December 2018, has – as of November 2019 – not yet developed nor announced the development of a third PECC for the period PECC 2019-2024, as of November 2019. This means that Mexico has currently no short-term climate agenda, making Mexico even less likely to achieve its international climate commitments, let alone be aligned with the Paris Agreement goal.
In 2014, Mexico implemented a carbon tax that is set at approximately at US$3.5/tCO2e differentiated by fuel type (SEMARNAT, 2014). This tax is expected to generate an annual revenue of about US$1 billion. However, its impact on GHG emission reduction is unclear and, given its low rate, a substantial emission reduction is unlikely. At the end of 2017, the regulation for the use of emission reduction credits for compliance under the carbon tax in Mexico came into force. This regulation establishes the allowance of Certified Emissions Reductions (CERs)—from CDM projects in Mexico—as well as Green Certified Emission Reductions—in the EU ETS—as payment means under the carbon tax (Diario Oficial de la Federación, 2017; World Bank Group and Ecofys, 2018).
In 2017, Mexico began a simulation of a voluntary Emissions Trading Scheme (ETS). The General Climate Change Law was amended later that year to make the scheme mandatory as soon as its three-year pilot phase concludes. The ETS will not replace the existing carbon tax. The ETS’ pilot phase—originally programmed to start in August 2018—will begin operation in 2019 (Secretaría de Medio Ambiente y Recursos Naturales (SEMARNAT), 2017, 2018).
A further reform to the LGCC in 2018 lays the foundation for the establishment of the mandatory carbon market by putting in place mechanisms for cost-efficiency, MRV, deadlines and obligations following the pilot-phase (Congreso General de los Estados Unidos Mexicanos. Diario Oficial de la Federación, 2018). In October 2019, the preliminary rules for Mexico’s carbon market were published (DOF - Diario Oficial de la Federación, 2019). The formal start of the ETS—originally planned for August 2021, together with the entry into force of the Paris Agreement—has been delayed to January 2023 (Secretaría de Medio Ambiente y Recursos Naturales (SEMARNAT), 2017, 2018; DOF - Diario Oficial de la Federación, 2019).
The preliminary regulations indicate that the emissions cap for the trial phase will be determined by Mexico’s Ministry of the Environment and Natural Resources (SEMARNAT) at least 30 days before its start based on the reported historical emissions of participants and Mexico’s NDC. Defining the ETS cap on historical emissions puts the programme at risk of not achieving substantial emissions reductions. The cap should instead be set based on ambitious international climate commitments that are in light with the Paris Agreement goal. Between 400 and 700 companies are expected to participate in the market (Santiago and Rodríguez, 2017).
In its NDC, Mexico committed itself to unconditionally reduce GHG emissions from electricity generation and oil & gas by 31% and 14% respectively in 2030 from a business as usual base line (Government of Mexico, 2015). These commitments have been added to the General Climate Change Law in its July 2018 reform.
The Energy Transition Law (Cámara de Diputados del H. Congreso de la Unión. Diario Oficial de la Federación, 2015), published in December 2015, includes clean energy targets for Mexico for the year 2018 (25% of generation), 2021 (30%) and 2024 (35%). Clean energy according to Mexican law includes renewable energy sources, nuclear power, CCS as well as efficient cogeneration (Congreso General de los Estados Unidos Mexicanos. Diario Oficial de la Federación, 2014).
President López Obrador´s campaign did not have a clear position on climate change, focusing instead on the energy sector. In this sector he stressed the need to achieve energy security to replace oil and gas imports from the United States. To achieve this, the president proposed sectoral changes that include fostering national extraction of oil & gas, building a new refinery, remodelling old ones, and increasing electricity production.
To increase electricity production, he proposes three actions: 1. increase the load factor of hydro power plants, 2. avoid the planned retirement of thermal—fossil fuel—power plants (by converting old ones to cogeneration and all units over 150 MW to gas CC) and 3. create programmes to foster energy transition to RE—solar PV, wind and hydro.
Some of these proposals are now materialising, but little is left of the third promise to foster the energy transitions towards renewable energy sources. In December 2018, the new administration published the national budget for 2019, which favoured fossil fuel electricity generation over renewables (Solís, 2018). Most of the budget allocated to the Federal Electricity Company (CFE) will be invested in the “modernisation” of coal, diesel, oil and gas power plants, some of which the previous administration in its long-term electricity plan had planned to retire.
In January 2019—just two months into the new administration—Mexico’s new government announced the cancellation of the 2018 long-term electricity auction (Centro Nacional de Control de Energía, 2019). This auction—originally scheduled for December 2018—was intended to assign contracts for the trading of power, cumulative electric energy and clean energy certificates from 2021 onwards, but was suspended end of 2018 due to the change of government (Centro Nacional de Control de Energía, 2018a, 2018b). Nevertheless, López Obrador has stated that his administration will honour the results of the first three long-term electricity auctions–which took place in 2015, 2016 and 2017 (Karol, 2019).
After fast-tracking permitting process, the construction of the “Dos Bocas” refinery in Tabasco started in June 2019 (Fanny Miranda, 2019). This project, together with López Obrador´s policy to foster fossil fuels in Mexico, has been heavily criticised by environmental groups nationally and internationally (Alberto Nájar, 2019). The criticism refers to concerns about climate change – going in the opposite direction of net-zero emissions – and concerns regarding safety, as the location is prone to hurricanes and flooding, as well as impacts on the local environment (CEMDA, 2019; Forbes, 2019).
These decisions by the Mexican Government bring into question whether Mexico will achieve its clean energy targets and international commitments under the Paris Agreement. While in the National Development Plan for the Electricity Sector 2019-2024 (SENER, 2019), the share of clean energy electricity in 2024 is 35.1% – marginally above the target of 35% – the plan presents no concrete details of how this clean energy goal could be achieved.
As part of the electricity auctions, Mexico is also using clean energy certificates as measures to support clean distributed generation (Secretaria de Energia, 2014). If a plant uses clean energy—including those from fossil fuel sources, namely efficient cogeneration— a “Clean Energy Certificate” (CEL, in Spanish) will be granted for each MWh generated from clean energy. The clean energy certificate scheme includes targets for both electricity suppliers and large consumers (those with a load larger than 1 MW).
Preliminary results are promising, showing that tenders may be especially effective in increasing the share of renewables, especially solar and wind, as a large number of projects were awarded, with record low prices (SENER, 2016; Centro Nacional de Control de Energía, 2017). In January 2019, the Mexican Business Coordinating Council (CCE, in Spanish)—a business sector autonomous organism—announced that 65 clean energy power plans are currently under construction, while 65% of the first round’s tendered capacity, and 18% from the second auction are already in operation (Notimex, 2019).
Some of the tendered projects already in commercial operation include the “Villanueva 3” solar PV park of Enel Green Power Mexico—the first winning project from the country’s first long-term power auction—and “el Cortijo” wind farm from ACCIONA Energía (SENER, 2017a; ACCIONA Energía, 2018).
The status of construction and expected operation start dates of other projects are less clear. Projects have roughly two years to be built after the auction, but according to the tender regulations, the start date of operation for awarded projects is flexible and can be modified free of penalties under certain circumstances (e.g. if the delay can be attributed to governmental authorities or if specified in the contact) (SENER, 2015a). Penalties for missing the start of the operation date include monthly payments of 5% of offered cost, plus an increase of 10% warranty for up to two years.
Our bottom-up calculations on the awarded projects from the first three long-term electricity auctions indicate that if all tendered projects get to operation—at least four years after their respective tendered year—Mexico would reach 33% renewable electricity generation in 2030. If Mexico continues to have annual tenders until 2030 in the same manner that they been happening—and assuming all these projects get built and operate—Mexico will still need efficient cogeneration and nuclear power to achieve its 2021 and 2024 clean energy targets. While our analysis considers the first three long-term electricity auctions, it does not take into account the effect of modernising existing fossil fuel electricity generation plants.
Nevertheless, it remains unclear whether all awarded projects will be realised and if tenders will continue to happen in the future. Similar tender processes in other countries have shown that the award in a tender process does not necessarily lead to the fully timely project realisation.
In its NDC, Mexico committed itself to unconditionally reduce GHG emissions from the forestry sector by 144% in 2030 from a BAU baseline (Government of Mexico, 2015). Unlike the commitments on other sectors this commitment was not included in the July 2018 reform to the General Climate Change Law (Government of Mexico, 2015).
Mexico’s REDD+ National Strategy 2017-2030 (ENAREDD+) established strategic action lines with the aim of promoting continued reduction of LULUCF emissions and achieving 0% net deforestation rate by 2030 (CONAFOR, 2017).
In its NDC, Mexico committed itself to unconditionally reduce GHG emissions from the waste sector by 28% in 2030 from a BAU baseline (Government of Mexico, 2015). This commitment has been added to the General Climate Change Law in its July 2018 reform (Government of Mexico, 2015).
GHG emissions from the waste sector have increased by more than 70% between 1990 and 2015 according to the most recent inventory data, making this sector with the highest emissions increase in this period.