Blue Carbon in Emissions Markets: Challenges and Opportunities for Mexico

Mangroves are ecosystems made up of trees or shrubs that develop in the intertidal zone and provide many vital environmental services for livelihoods in coastal areas. They are a habitat for the reproduction of several marine species. They afford protection from hurricanes, tides, sea-level rise and prevent the erosion of the coasts. Just one hectare of mangrove forest can hold up to 1,000 tons of carbon dioxide, more than tropical forests and jungles. Mexico is one of the countries with the greatest abundance of mangroves in the world, with more than 700,000 ha. Blue carbon can be a novel mechanism for promoting communication and cooperation between the investor, the government, the users, and beneficiaries of the environmental services of these ecosystems, creating public–private-social partnerships through mechanisms such as payment for environmental services, credits, or the voluntary carbon market. This chapter explores the possibilities of incorporating blue carbon in emissions markets. We explore the huge potential of Mexico’s blue carbon to sequester CO2. Then we analyse the new market instrument that allows countries to sell or transfer mitigation results internationally: The Sustainable Development Mechanism (SDM), established in the Paris Agreement. Secondly, we present the progress of the Commission for Environmental Cooperation (CEC) to standardize the methodologies to assess their stock and determine the magnitude of the blue carbon sinks. Thirdly, as an opportunity for Mexico, the collaboration with the California cap-and-trade program is analysed. We conclude that blue carbon is a very important mitigation tool to be included in the compensation schemes on regional and global levels. Additionally, mangrove protection is an excellent example of the mitigation-adaptation-sustainable development relationship, as well as fostering of governance by the inclusion of the coastal communities in decision-making and incomes.

The International Influence of the Emissions Trading System in Mexico

This article aims to give an overview of the international influence of the Emissions Trading System (ETS) in Mexico. It is divided into three parts. First, it briefly examines both the international Climate Change regime through the description of such instruments as the 1997 Kyoto Protocol and the 2015 Paris Agreement, and the national regime by reviewing as the 2012 General Law on Climate Change (LGCC), the National Emissions Registry (RENE) and its Regulations, as well as other instruments regarding mitigation from carbon tax and clean energy. Second, it analyzes the legal framework of the pilot phase of the ETS in Mexico (under the cap and trade principle) which seeks to reduce carbon dioxide emissions (CO2) only in the energy and industry sectors whose emissions are greater than 100 thousand direct tonnes of CO2. In doing so, it also explains the relevance of implementing an ETS as a cost-effective mitigation measure to achieve the Nationally Determined Contributions (NDCs) in order to reduce 22% greenhouse gas (GHG) emissions by 2030 (increasing to 36% if there is international support and financing) and 50% by 2050 as a developing country. Third, it focuses on the European Union Emissions Trading System (EU ETS) experience and shows that all its phases must be done gradually by adopting the learning-by-doing approach.

Relationship Between Emissions Trading System and the 2030 Agenda for Sustainable Development

With the Paris Agreement and through Nationally Determined Contributions, nation-states have agreed to reduce their emissions of greenhouse gases. Some of them have approached this aspect by setting emission trading systems. In some cases, it is in the regional and sub-national levels where these types of developments are taking place. The relevance of this market-based instrument is increasing over time, to the point of being regarded as a cornerstone of climate change mitigation strategies, despite the lack of global agreement on the matter. The importance of emission trading systems, however, can be observed when assessing their relevance for achieving the 2030 Agenda for Sustainable Development. Implementing them can, and should, assist in reaching diverse targets of different Sustainable Development Goals. This is the case of the goals related to energy, economic growth, inclusive industrialization, sustainable cities, sustainable production and consumption patterns, marine and land life, as well as the climate itself. Then, the relevance of emission trading systems can be observed throughout the whole 2030 Agenda. It is thus in this context that this contribution aims to assess the manner in which this relationship takes place in the global fora and in Mexico. A key argument is that there should be the participation of a wider set of sectors and actors.

Non-additionality, Overestimation of Supply, and Double Counting in Offset Programs: Insight for the Mexican Carbon Market

Mexico utilizes an emissions trading system as one of its carbon pricing instruments. Mexico’s planning, like that of other countries, includes flexible mechanisms such as offsets. Offsets allow market participants to compensate for their emissions through mitigation projects. Offsetting via participation in the Clean Development Mechanism and Joint Implementation was fundamental to the Kyoto Protocol. In contrast, the Paris Agreement is ambiguous about its use. Other national or regional offset programs, such as the EU, Australia, New Zealand, Japan, or Korea, work within emission trading systems. Subnationally, the California-Quebec program has been in effect since 2014. As Greenhouse Gases (GHGs) are global, offsetting allows market participants to compensate for their emissions through mitigation projects, whether domestically or abroad. Given their global scope, such programs present a wide variability in quality. This chapter presents an overview of offset programs worldwide and argues that non-additionality, overestimated supply, and double counting are their three most pressing quality problems. This analysis sheds light upon the nascent Mexican system and its offset program.

Key Theoretical, Policy, and Implementation Experience Considerations for the Mexican ETS: Toward an Equitable and Cost-Effective Compliance Phase

This chapter presents a brief overview of the policy design and theoretical environmental economic principles that underpin the concept of emissions trading systems (ETS) as a policy approach to address climate change. It discusses basic environmental economic principles pertinent to the development of market-based solutions to mitigate greenhouse gas (GHG) and co-pollutants. The chapter serves as the technical basis for the broader discussion that this book as a whole presents on the launch of the pilot phase of the Mexican ETS on January 1, 2020. Understanding international program design experiences, theoretical principles, and implementing best practices is key to ensuring Mexico’s success in the transition from the pilot or learning phase to an operational ETS compliance system. This will ensure Mexico fulfills its national climate policy goals and nationally determined contributions (NDC) under the Paris Agreement in a cost-effective manner, while also providing compliance flexibility to the industrial sectors covered under the program. A well-designed ETS ultimately provides the right incentives for industrial carbon emission reductions to drive cost-effective abatement and clean innovation. Secondly, this chapter presents a more in-depth review of policy developments focusing specifically on key implementation lessons from the two most advanced ETS systems in operation to date: (1) the European Union ETS and (2) California’s cap-and-trade program. In short, this chapter outlines a set of key policy lessons and design parameters to support the transition from the pilot Mexican ETS to an operational compliance phase in a socially just, environmentally sound, and cost-effective manner.

Emission Trading System and Forest: Learning from the Experience of New Zealand

In the area of international policy to mitigate climate change, the forest has been important in achieving the objectives of liable countries. The Emissions Trading System in New Zealand (NZ ETS) is the only case of an ETS integrating forestry as a mandatory actor. This is the result of prolonged political discussions and the characteristics of New Zealand forestry. Forest landowners are liable to surrender allowances for deforestation and can potentially receive allowances for the level of carbon sequestered. This scheme created new opportunities for forestry activities and impacted the decision-making trade-offs related to land-use changes. In Mexico, the implementation of an Emissions Trading System in 2020 is evidence of the country’s commitment to controlling domestic emissions under the Paris Agreement. Nevertheless, for now, the forestry sector is not involved as a liable actor. It is possible to envision the integration of the forest sector because of the extensive forest cover in the country, which provides a livelihood for a large part of the population. Mexico has the experience and institutional framework to integrate forestry into national emission accounting and carbon forest projects in the voluntary market. The potential impacts of this integration are both positive and negative. Environmental impacts are positive because forest areas can help mitigate emissions, but intensive carbon farming disrupts native forests and biodiversity. The economic impacts would be highly favorable for forest landowners if market volatility were controlled, but there is a potential loss of public revenue for the State. Finally, carbon forestry has the potential to cause conflict between economic sectors involved in land use and among participating communities.

The Environmental Justice Dimension of the Mexican Emissions Trading System

Emissions trading systems have the potential of increasing air quality given that GHG emissions are often co-produced with local pollutants such as NOx, SOx, and Particulate Matter (PM). Can emissions trading systems exacerbate or alleviate environmental justice concerns in emerging economies? According to the U.S. Environmental Protection Agency, Environmental Justice is achieved when no group is disproportionately affected by an environmental policy or phenomenon. The main objective of this chapter is to estimate the pollution burden faced by marginalized neighbourhoods in Mexico. This is relevant for Mexico given the beginning of the pilot program of the Mexican Emissions Trading System (ETS) and the country’s history of income inequality and poverty. Using linear regression and two-way fixed effects methods, we found that the highest emitters regulated under the ETS are located near poor populations. We estimated a 5$$\%$$ % CO2 emissions-reduction scenario corresponding to national targets and associated NO2 emissions to that scenario. We find that this scenario is consistent with a decrease in the exposure of NO2 pollution for the most marginalized neighbourhoods. This chapter also discusses other potential sources of environmental injustice that could result after the beginning of the ETS and the potential to address them.

The Political Economy of Regulation: An Analysis of the Mexican Emission Trading System

The chapter argues that the design of carbon pricing policies takes place as a sequential, negotiated process whereby specific constituencies have privileged access to shape policy design because they have high stakes in regulations. These groups, identified ex ante based on the political economy of regulation and a stakeholder approach, exhibit two characteristics: first, they are high-interest actors, as a change in the status quo would impose concentrated costs on them; second, they are high-power actors, since their resources and participation in the national economy make them a critical sector. Using theory-guided process tracing and the policy stages heuristics framework, the empirical analysis explores the policymaking process of the Mexican pilot emission trading system and discusses key features of its design.

Particularities of the Legal Framework for the Mexican Emissions Trading System

This paper examines the legal bases for the mandatory regulation of the emissions trading system in Mexico. They are derived from the main international instruments on climate change: the United Nations Framework Convention on Climate Change (UNFCCC) and its ambitious objective, the quantifiable commitment of the Kyoto Protocol, and its tie to economic instruments. The Paris Agreement, the Nationally Determined Contributions (NDCs) and the market mechanisms regulated in Article 6, the implementation of which is essential to achieve the Agreement’s objectives are also part of this broad system. Legally, the international foundations of the emissions trading system are reflected at the national level. For these, the constitutional and legal bases underpin the current regulation of the mandatory market instrument. It aims to effectively reduce, in terms of costs, the greenhouse gas emissions from the most polluting economic activities, without replacing direct control measures. The core aspects of this system are highlighted from a national regulatory analysis, with special emphasis on the importance of a limited cap and its future reduction, as well as the legal nature of allowances that are allocated by the public administration to the regulated industries’ facilities.

Moving Towards an ETS in Mexico: The Case of International Cooperation

Mexico has participated in different international climate initiatives and has benefited from international collaboration. This cooperation, both at the political and technical levels, has been crucial for the design and implementation of the national carbon market. Through its climate diplomacy leadership, Mexico has played a key role in international carbon pricing initiatives, and in the technical sphere, the country has benefited from peer-to-peer international experiences and knowledge. This chapter analyzes those initiatives and their contribution to continue broadening collaboration towards a carbon market in the country. It explores how recent changes to the environmental agenda, adopted as of 2018 by the new federal administration, could hinder the implementation of the market mechanism.