The political gridlock and partisan animosity of an election year is an unwelcome reminder of just how far the United States is from passing legislation to comprehensively regulate greenhouse gas emissions.
In contrast, the picture for emissions reduction is growing much brighter to our south. In mid-April, the Mexican legislature passed legislation that requires the country to reduce its emissions to 30 percent below projected business-as-usual by 2030 and 50 percent below 2000 emissions by 2050. President Felipe Calderón is expected to sign the bill into law in the coming weeks.
The law, the second in the world (after the United Kingdom) to establish legally binding reduction goals, also requires 35 percent of electricity generation to come from renewable sources by 2024 and will include a cap-and-trade system, though its scope is yet to be determined. Mexico is the first ‘developing’ nation to voluntarily codify its climate goals, and the symbolism of its actions matter on the international stage.
Despite its label as a ‘developing’ country, Mexico more accurately falls into the emerging economies category with other nations of some import to the international climate debate, including China, India, Brazil, and Indonesia. While Mexico’s annual GHG emissions rank below those four countries, it still comes in as the 11th largest emitter in the world. It also possesses the world’s 11th largest economy in terms of GDP.
That Mexico would be the first emerging economy to commit to binding emissions target is not surprising. Environmental issues have always been a priority for President Calderón. His administration released a National Climate Change Strategy in 2007, which led to the development of a Special Climate Change Program (PECC) unveiled in 2009. The PECC first set the goal of 50 percent reductions from 2000 emissions by 2050.
Ambitious goals are nice, but achieving them is another story. Mexico will face challenges that are quite different from the United States, but those differences will present useful opportunities as well. Back in 2009, a team of researchers here at RFF investigated how Mexico could best design policies to achieve their 2050 goals.
First, we found substantial opportunities to reduce emissions from the oil and gas and electricity sectors. These two sectors are the biggest contributors to Mexico’s GHG emissions, but they are also state-run monopolies. This means that the Mexican government can accomplish a great deal of emission reductions through direct action and regulation, though cap-and-trade markets will almost certainly yield emission reductions more efficiently and effectively.
Second, Mexico can implement carbon cap-and-trade, though it will not look exactly like it does in the EU ETS or in California due to the public nature of the electricity and oil and gas sectors. Pemex and CFE represent the majority of mitigation opportunities and their marginal abatement costs will differ, so one possibility for cap-and-trade is for each entity to establish internal compliance markets that allow individual facilities to trade back and forth. These internal markets could then be linked to take advantage of the least-cost reductions.
Finally, linkages between markets in Pemex and CFE are only the beginning of the possibilities for Mexico. When we conducted our research in 2009, we saw a real opportunity for Mexico to link with programs like those proposed under Waxman-Markey, were they to be written in US law. While links to a US national system will clearly not happen any time soon, there are real possibilities for Mexico to link with California, which recently announced its intentions to link its carbon trading market with Quebec.
The result could be an expansive North American emissions market where in which Mexico is a major player. First things first, it will have to establish its cap-and-trade system, which according to the law, will be voluntary. It is, however, a sign that at least one country in North America is ready to act on climate change.
