Working Paper

Sectoral Offsets in the Mexican Oil and Gas Industry: Developing a Credible Baseline via Econometric Methods

Aug 20, 2015 | Richard D. Morgenstern, Alexander Egorenkov, Daniel Velez-Lopez

Summary

Mexico’s national oil company serves as a case study to demonstrate that substantial potential exists to use sectoral offsets to achieve cost-effective emissions reductions. But developing a viable baseline against which to credit reductions is key.

Abstract

Sectoral greenhouse gas offsets can provide the same incentives for emissions reductions as a carbon tax or a cap-and-trade program, with a focus on rewards rather than costs. This paper develops a pilot analysis of such offsets using relatively transparent quantitative methods to estimate a business-as-usual (BAU) emissions path for the gas and basic petrochemical subsidiary of Mexico’s national oil company, Pemex. This BAU path, in turn, may be used as a basis for monetizing emissions reductions via bilateral or international offset transactions, with potentially low transaction costs. Overall, the analysis finds that a 10 percent emissions reduction below baseline would yield about US$40 million in additional revenue over a 13-year period for this Pemex subsidiary at a price of US$10 per ton of carbon dioxide (CO2). Larger emissions reductions, higher offset prices, or expansion to other, larger company units could generate correspondingly higher revenues.