Over the past few years Mexico has sought to play a greater global role in climate change policy making. The authorities have been working to establish the necessary legal instruments that will allow for policy planning, mitigation actions and adaptations to projects. The General Law on Climate Change, passed by the Senate in December 2011, is an important piece of the puzzle.

Among other things, the new law seeks to promote coordination between federal, state and local authorities, encourage the development and transfer of technology and foster a transition towards a competitive, sustainable and low-carbon economy.

The structures and institutions foreseen under the law will have a significant effect on the energy industry. One example of this is the creation of a national emissions registry. The main purpose of this registry is to control greenhouse gases produced by key sectors of the Mexican market, including the energy industry. Industry players will be required to register and report their annual direct and indirect emissions. Failure to meet these periodical reporting requirements will result in considerable fines.

The law also provides for the creation of a so-called 'green fund' to finance mitigation and adaptation efforts through domestic and international financial organisations. This fund will receive funding from several sources, including:

  • direct contributions from the federal budget;
  • revenues generated from fines for exceeding authorised emissions;
  • tax-deductible contributions from private, public and social sources;
  • contributions from international organisations or multilateral agencies; and
  • revenues from sales of emission reduction certificates.

The fund will be operated through a public trust, with a technical committee chaired by a representative of the Ministry of Finance. However, the Ministry of Energy's representation on the committee reflects the impact that this extra source of funding will have on the power generation sector, particularly for clean-source and environmental impact management projects.

The law calls for the gradual elimination of fossil fuel subsidies and the use of fossil fuels for electricity generation. This, in turn, is expected to foster the development of clean-energy facilities, efficient cogeneration and renewables. At present, market prices for power make certain projects uneconomical. This is the result of subsidies provided by the Federal Electricity Commission. If these subsidies are gradually withdrawn, there is likely to be a trend towards power from greener sources. As drafted, the law would also require entities in the fossil fuel sector to reduce gas flaring and venting. This will have a direct impact on energy projects; the state-owned energy company, Pemex, will need to play a role in achieving the necessary reductions. With regard to coal production, the law calls for the use of gas associated with coal extraction for power generation and industrial processes, thereby reducing emissions and the need for additional fossil fuel use.

For further information on this topic please contact Rogelio López-Velarde at López Velarde, Heftye y Soria by telephone (+52 55 3685 3334), fax (+52 55 3685 3399) or email ([email protected]).