Argentina eyes emissions trading system

Market: Electricity, Emissions
05/01/24

Argentina's government is targeting the creation of an emissions trading system (ETS) and the elimination of incentives for distributed power generation, as it directs the country's approach to energy and climate to more closely mirror president Javier Milei's market-driven economic policies.

Milei, a right-wing economist and climate change skeptic, took office on 10 December and his government has already pushed ahead with two massive policy packages. More than 800 articles have been included in the two legislative initiatives to dramatically change the country's economy, including the energy sector, by lifting controls and regulations. Several more bills are in the works.

The government on 27 December submitted an omnibus bill with 644 articles that congress must approve. The administration met with lawmakers on 3 January to facilitate the approval process.

The omnibus legislative package includes a new approach to greenhouse gas emission (GHG), calling for the creation of an ETS similar to that used by the EU.

The legislation calls for the government to assign carbon allowances "to each sector and subsector of the economy compatible with compliance of the emission goals pledged by the country for 2030 and beyond."

Argentina in 2021 submitted a revised nationally determined contribution (NDC) to not exceed net GHG emissions of 349mn t of CO2e in 2030.

Under Milei's plan, the government would establish annual GHG limits for companies by sector. Public and private companies that exceed the allowance would be required to pay for the excess.

The state would also create a market for carbon credits so that those companies producing excess GHG can buy credits and avoid penalties.

The legislation requires the state to register transactions in the primary and secondary market to guard against monopolies.

Hit to the power sector

A previous decree submitted on 21 December dealt with different components related to electricity transmission and generation that could hit the development of future renewable projects.

It struck down several earlier decrees, including eliminating a law that outlined the federal electricity transmission plan and a decree concerning public financing for transmission lines. It removed 22 articles from a law that covers incentives distributed generation from renewable sources.

Transmission is the most serious problem in the electricity sector in Argentina and the elimination of the federal transmission plan will only make it more difficult to build new lines. Distributed generation as a way around the transmission bottleneck is now in doubt as the government eliminated a state trust fund and tax credits for the technologies, as well as a government program to finance construction of distributed generation systems and the components needed to build them.

The government claims the changes are necessary to avoid a complete economic meltdown. Milei inherited inflation running at about 150pc and an economy contracting by 2pc. It has deficits equivalent to 17pc of its gross domestic product.

Argentina ended 2023 with 5,831MW of installed renewable capacity, excluding large hydroelectric plants of 50WM, according to the government electricity wholesaler, Cammesa. The country added 397MW of wind, 280MW of solar and 277MW of bioenergy capacity last year.

By Lucien Chauvin

Argentina’s GHG emissions mn t CO2e

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