Mexico’s ETS, carbon taxes must coordinate: Forum

Mexico's developing emissions trading system (ETS) will require careful coordination to avoid clashing with state-level carbon taxes, government and private-sector participants say.

The official launch of Mexico's ETS has stalled since 2022, but carbon market participants attending the Mexico Carbon Forum in Leon, Guanajuato, this week are optimistic that the new federal administration, that takes office on 1 October, will finally roll out the program.

Yet the government will have to reconcile how the ETS will work with the country's state programs, as currently eight states charge different carbon taxes to industrial companies.

"Our aim is to ensure that carbon policies are complementary, not duplicative," Ricardo Torres, Queretaro's deputy environment ministry, said. "The ETS and state-level taxes should work together to reduce emissions effectively without imposing double regulation on businesses."

Queretaro is one of the eight states that have implemented carbon taxes, but currently it is the only allowing carbon offsets, with Guanajuato and Tamaulipas planning to do so next year.

While the private sector awaits the ETS launch, concerns about regulatory overlap are growing, said Carlos Medina, sustainability director at Cemex.

The government "must ensure that state and federal policies coexist and complement each other," Medina said. "The lack of standardization across states creates challenges, turning some systems into revenue-generating tools rather than true emission reduction strategies."

But the only way to overcome the challenges is by launching the ETS and making adjustments along the way, says Soffia Alarcon, associate director for the Americas in the sustainability business at Schneider Electric.

"The system won't be perfect from the start, but policies must evolve over time to address emerging issues," Alarcon said. "The ETS needs to be flexible enough to integrate with other public policies and respond to unforeseen complications."

Diverse approaches

Carbon taxes have been adopted as tools for coordinating mitigation actions across some Mexican states since 2017.

From 2017-2023, carbon pricing instruments were developed and implemented in the following states: Durango, the state of Mexico, Guanajuato, Queretaro, San Luis Potosi, Tamaulipas, Yucatan, and Zacatecas.

"State government leadership is crucial for reducing emissions and sending a clear message to major greenhouse gas emitters," Eduardo Piquero, chief executive of Mexico2, a subsidiary of Mexico's stock exchange, said during the event.

But efforts have varied across states, with different implementation rules and prices.

Guanajuato has collected Ps48mn ($2.7mn) through carbon taxes, with the funds earmarked for environmental and climate action, governor Diego Sinhue said.

In Queretaro, the carbon price remains the second-highest in Latin America at about Ps640.50 t/CO2 emitted, with 28 companies having offset their emissions, amounting to over 440,000 t/CO2 emitted, Torres said.

Tamaulipas, one of the most recent adopters of carbon taxes, has set its rate at about Ps325.71 t/CO2 emitted, Karina Saldivar, Tamaulipas' environmental minister said.

Yucatan maintains its carbon tax at Ps293.1 t/CO2 emitted, "with incentives leading to the registration of mitigation projects that achieved a total reduction of 216,785 t/CO2 in 2023," said the state's minister of sustainable development, Diana Perez.

By Antonio Gozain