Congress has passed the General Climate Change Law. This federal statute, which is scheduled to be enacted shortly, is expected to have a major impact on the energy industry.
Mexico relies on fossil fuels for nearly 90% of its energy. In implementing the November 2008 energy reform and adopting a number of international treaties on climate change, it has already firmly committed to reduce fossil fuel consumption and greenhouse gas emissions. The new law provides for further cuts in greenhouse gases: a 30% reduction by 2020 and a 50% reduction by 2050.(1)
A number of provisions are expected to have a direct effect on the short and medium-term development and operation of energy projects in Mexico.
One of the law's main objectives is the gradual replacement of fossil fuels by renewable energy. Economic incentives, including subsidies, are expected to encourage the development of efficient cogeneration, renewable energy and 'clean' energy facilities. At present, subsidies provided by the Federal Electricity Commission, Mexico's national utility company, result in market prices for power that, in turn, make certain power projects uneconomical. The phasing-in of subsidies for non-fossil fuels is expected to start an industry trend towards cleaner resources. The new law provides for:
- the gradual development of a subsidies programme to promote the benefits of non-fossil fuels, energy efficiency and sustainable public transport, to be fully implemented by 2020;
- the creation of an incentives system to allow for the profitable development of renewable energy projects - including wind, solar and mini-hydraulic projects - by 2020; and
- the promotion of greener electricity generation, with a target of 35% of electricity from clean energy sources by 2024.
The new law requires parties involved in fossil fuel extraction to reduce gas flaring and venting. Pemex, the state-owned energy company, will need to work quickly to ensure that such reductions are implemented promptly. Coal producers are required to use associated gas for power generation or industrial processes, thereby reducing emissions and additional fossil fuel consumption.
Emission generators, including energy companies, are required to register with the National Emissions Registry and report their emissions periodically. Incentives will be introduced to encourage participation in the emissions market and a proactive approach to reducing emissions. Within each state, the authorities will be authorised to impose green taxes; the law also calls for tax incentives to encourage the lowering of emissions.
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]).