Changes to Annual Operations Report
Energy Transition Law
Over the past few years Mexico has made significant progress in the establishment of a climate change framework as part of its national and international commitments. The first move was made when the General Law for Climate Change was enacted on June 6 2012. The main purpose of this law is to create a general legal framework to implement the National Policy on Climate Change. This policy was designed to pinpoint climate change causes and effects, set mitigation and adaptation goals and measures, and guide the transition to a sustainable low-carbon emissions economy. Pursuant to the policy, the following measures were introduced:
- the creation of the National Emissions Registry;
- the establishment of emissions reduction targets of 30% by 2020 and 50% by 2050, with respect to the baseline levels reached in 2000; and
- the commitment for electricity generation through renewable/clean sources to reach 35% of total production by 2024.
Further, the General Law for Climate Change Regulations for the National Emissions Registry (published in the Federal Official Gazette on October 28 2014) established the obligation for specific sources (sectors and subsectors) to report their air emissions to the Federal Ministry of the Environment and Natural Resources (SEMARNAT). This includes both direct and indirect emissions (ie, those that are generated in the production of energy that a person or entity uses for its main activities), which must be reported through the Annual Operations Report system.
The regulations stipulate which sectors must use the Annual Operations Report system to report the generation of greenhouse gas emissions, among other emissions and pollutants. These reports are needed to provide SEMARNAT and the National Institute of Ecology and Climate Change with sufficient data for national statistics. They are also used to verify progress towards the goals set out under the National Policy on Climate Change, and to implement additional measures to achieve emissions reduction goals.
Changes to Annual Operations Report
In order to comply with the objectives of the General Law for Climate Change, its accompanying regulations and the National Policy on Climate Change, SEMARNAT made several modifications to the official format of the Annual Operations Report. The Annual Operations Report is now the main regulatory instrument through which SEMARNAT keeps track of emissions generated. Therefore, on August 14 2015 SEMARNAT published in the Federal Official Gazette an amendment to the timeframe within which companies must submit the Annual Operations Report for operations conducted in 2014 (the submission deadline has been extended to February 15 2016), as well as the new submission form for the report.
SEMARNAT has issued a decree listing all greenhouse gases that must be disclosed in the Annual Operations Report. Further, SEMARNAT published in the Federal Official Gazette the Technical Particularities and Formulae for the Application of Methodologies for the Calculation of Greenhouse Gas or Compound Emissions (September 3 2015) and the Methodology for the Direct Measurement of Carbon Dioxide Emissions (September 8 2015). These technical documents set out the approved measurement methods for reportable greenhouse gas emissions under the Annual Operations Report.
The new format of the Annual Operations Report requires companies to report their annual emissions of greenhouse gases on the abovementioned list, as well as relevant information on other kinds of air emission that companies were previously reporting through the Annual Operations Report in accordance with the relevant Mexican official standards.
Previously, under the General Law for Ecologic Balance and Environmental Protection all fixed sources of air emissions under federal jurisdiction had to report their emissions through the Annual Operations Report. However, with the enactment of the abovementioned instruments, such sources and those listed under the regulations accompanying the General Law for Climate Change as 'establishments subject to report' must now report their greenhouse gas emissions as well.
As part of the government's climate change commitments – and as a signatory to the United Nations Climate Change Conference – Mexico participated in the 21st annual session of the Conference of Parties (COP21) in Paris, assuming the following 'intended nationally determined contributions':
- an unconditional 25% reduction in greenhouse gas and short-lived climate pollutant emissions by 2030; and
- a conditional increase of the abovementioned reduction target to 40%, subject to a global agreement addressing important topics (eg, carbon prices, carbon border adjustments and technical cooperation).
As part of the mechanisms to fulfil the intended nationally determined contributions and related goals under the General Law for Climate Change, the Energy Transition Law was approved and published in the Federal Official Gazette on December 24 2015. Among other things, this law regulates the sustainable use of energy and sets out requirements for the generation of energy through clean/renewable sources, as well as emission reduction requirements for the electricity sector. The law also establishes the National Electricity and Clean Energies Institute, which will be in charge of coordinating and providing technical support to all governmental agencies and private corporations to achieve the goals of the Energy Transition Law, the General Law for Climate Change and the National Policy on Climate Change.
The Energy Transition Law regulates the progress of emission reduction goals in the electricity sector through the issuance of clean energy certificates and the creation of a public registry for these certificates. Clean energy certificates are key economic and legal instruments that were first introduced and regulated under the Electricity Industry Law (which became effective on August 12 2014) in order to promote the clean energy sector – not only renewable energy such as solar and wind, but also cogeneration, nuclear and hydroelectric power, and other low-carbon technologies.
The guidelines for the issuance of clean energy certificates and the corresponding requirements for their acquisition were published on October 31 2014. They set out the general rules under which certificates can be issued and traded in the market (the enactment of the Energy Transition Law was necessary to systematise this new regulatory scheme; however, additional regulations will be issued in 2016 to facilitate compliance with the goals of the General Law for Climate Change and all other emissions reduction goals).
The government has been busy promoting a series of instruments and measures to meet the goals set out in the General Law for Climate Change and the commitments made at COP21. The targets are aggressive and will require persistent follow-up by SEMARNAT and other government agencies, so as to ensure that consistent and permanent progress is made in their fulfilment by the corresponding deadlines.
For further information on this topic please contact Juan Francisco Torres Landa, Mario Jorge Yanez, Brenda Rogel Salgado or Jeanett Trad Nacif at Hogan Lovells BSTL, SC by telephone (+52 55 5091 0000) or email ([email protected], [email protected], [email protected] or [email protected]). The Hogan Lovells BSTL, SC website can be accessed at www.hoganlovells.com.