Climate Regulation in Mexico

Main climate regulations, policies and authorities

International agreements

Do any international agreements or regulations on climate matters apply in your country?

The main international agreements on climate matters that are applicable in Mexico are the United Nations Framework Convention on Climate Change, its Paris Agreement and the Kyoto Protocol. Mexico is a contracting party to these agreements and their domestic implementation is mainly through the General Climate Change Law (LGCC), its Regulations on matters of the National Registry of Emissions (RLGCC), the Energy Transition Law and the Regulations thereunder, the Power Industry Law (LIE) and public policy formulated to regulate climate matters in Mexico.

International regulations and national regulatory policies

How are the regulatory policies of your country affected by international regulations on climate matters?

Regulatory policies in Mexico are directly affected by international and foreign regulations and experience, in the way that the Mexican government has a mandate to observe the trading systems of other countries that would represent the lower cost for the implementation of a national trading system, international and regional experiences in matters of carbon credit or allowance trading, or trading of any other market instruments for GHG emissions reduction, such as CORSIA, the carbon market between California and Quebec, the Clean Development Mechanism of the CMNUCC or the Emission Trading System of the European Union, and to take them into consideration for founding the basis of the Mexican emissions trading system, as established in the second transitory article of the amendment to the LGCC enacted on 13 July 2018.

Main national regulatory policies

Outline recent government policy on climate matters.

Mexico has adopted three main government policies on climate matters: an adaptation policy; a GHG emission reduction policy; and a clean-energy consumption policy, which are being implemented and intended to be complied with mainly through the following policy instruments:

• National Atlas of Climate Change Vulnerability (Published in August 2018 and available at www.gob.mx/inecc/acciones-y-programas/atlas-nacional-de-vulnerabilidad-ante-el-cambio-climatico-anvcc-80137);
• National Inventory of GHG Emissions (containing information from 1990);
• a market for verified emission reductions (a three-year pilot programme is in the works and expected to be rolled out during 2020); and
• a market for renewable energy certificates through mandatory acquisition of such instruments by load serving entities (LSEs) and other power industry participants.

Main national legislation

Identify the main national laws and regulations on climate matters.

The LGCC and the RLGCC are the main laws and regulations on climate change matters; however, there are other rules, norms and laws that indirectly regulate climate change issues including abatement, mitigation and adaptation measures.

National regulatory authorities

Identify the national regulatory authorities responsible for climate regulation and its implementation and administration. Outline their areas of competence.

The Ministry of Environment and Natural Resources (SEMARNAT) is the national authority responsible and empowered to dictate and implement public policy on climate matters in Mexico. The states and municipalities have only certain and limited faculties regarding climate change mitigation and adaptation matters.

SEMARNAT is assisted by the National Institute of Ecology and Climate Change (INECC) and the Inter-Ministerial Commission on Climate Change, both with competence to coordinate and develop national policy on climate change matters, and evaluate compliance with the adaptation and mitigation objectives set forth in the General Law of Climate Change, among other faculties. These two entities are part of the National System of Climate Change, which serves as a permanent mechanism of concurrence, communication, coordination and collaboration on the national policy of climate change.

General national climate matters

National emissions and limits

What are the main sources of emissions of greenhouse gases (GHG) (or other regulated emissions) in your country and the quantities of emissions from those sources? Describe any limitation or reduction obligations. Do they apply to private parties in your country?

According to the Mexican National Inventory of GHG of 2015, published on 18 May 2018 by the INECC, the main sources of emissions of GHG in Mexico and their annual emission volumes of GHG are the following:

• fossil fuel consumption, mainly by the energy, manufacturing, construction and transportation industries: 436,459.963Gg;
• livestock production systems: 70,567.60Gg;
• industrial processes: 54,111.761Gg;
• solid waste treatment: 45,909.010Gg;
• fugitive emissions from oil, gas and mineral extraction: 44,418.868Gg; and
• agricultural activities: 46,286.569Gg.

There are no limitation or reduction obligations currently applicable to private parties in Mexico.

National GHG emission projects

Describe any major GHG emission reduction projects implemented or to be implemented in your country. Describe any similar projects in other countries involving the participation of government authorities or private parties from your country.

In Mexico several Clean Development Mechanism projects have been implemented throughout the past decade, from waste to energy projects, to renewable energy projects and protection of forests as carbon sinks.

However, with the Kyoto Protocol winding down, REDD+ projects have come to the fore, with proceeds from the payment of rights for change in the use of forestry land and other federal subsidies being directed towards the payment to local communities and ejidos for the environmental services that their forests provide. This is essentially a payment to preserve the forestry ecosystem.

In addition, on 24 December 2015, Mexico enacted the Law for the Energy Transition, which sets forth the objective that by 2024 at least 35 per cent of the energy that is consumed should be produced by renewables and other clean sources. One of the instruments to achieve this goal is the Clean Energy Certificates that will be issued to renewable power plants and other technologies.

Domestic climate sector

Domestic climate sector

Describe the main commercial aspects of the climate sector in your country, including any related government policies.

In Mexico there is still no mandatory emissions reduction policy, which clearly hinders the development of a full-blown emissions trading scheme and market.

However, considering the objective set forth in the Law for the Energy Transition to achieve a 35 per cent domestic consumption energy produced from renewable and clean sources, the groundwork for a Clean Energy Certificates market has been laid, with obligated energy consumers already showing an appetite to obtain and market such certificates. These certificates will be traded with large power consumers, who will have to gradually increase the amount of electricity obtained from clean sources.

In addition, on 13 July 2018, the General Climate Change Law was modified to set forth for the first time the obligatory emission reductions that different sectors of the economy will have to comply with in the near future.

To this end, the ground rules for an incipient cap and trade scheme have been enacted, with a pilot emissions trading programme being set in motion in the next 24 months. However, it is still unclear when the formal emissions trading scheme will start operating.

General GHG emissions regulation

Regulation of emissions

Do any obligations for GHG emission limitation, reduction or removal apply to your country and private parties in your country? If so, describe the main obligations.

Mexico’s GHG emission reduction commitments are those taken before the international community under the Paris Agreement, as part of the Nationally Determined Contributions, which have been internally adopted through the LGCC and consist of an unconditional 22 per cent reduction of the current GHG emissions levels to be achieved by 2030, through the participation of the ensuing economic sectors and their specific emission reduction goals:

• transportation: 18 per cent;
• electric energy generation: 31 per cent;
• residential and commercial activities: 18 per cent;
• oil and gas: 14 per cent;
• industry: 5 per cent;
• agriculture and livestock: 8 per cent; and
• waste: 28 per cent.

However, there are still no mandatory emission reduction, limitation or removal obligations set for private parties in Mexico.

On the other hand, the RLGCC establishes other kinds of obligations regarding GHG emissions that do apply to private parties in the country, which are to:

• identify direct and indirect GHG emissions from stationary and mobile sources;
• measure, calculate or estimate the GHG generated by all the emission sources identified;
• report the GHG emissions annually;
• verify the reported information; and
• keep all the information, data and documentation about such GHG emissions for a period of five years.

Those obligations are applicable to specific activities of specific industries listed in the RLGCC, all of which belong to the following sectors:

• energy;
• industry;
• transportation;
• agro-livestock;
• waste; and
• commerce and services.

However, the obligation to report to SEMARNAT the annual generation of GHG emissions is only mandatory if the regulated party generates 25,000 tonnes or more of direct and indirect carbon dioxide equivalent emissions in the corresponding year.

GHG emission permits or approvals

Are there any requirements for obtaining GHG emission permits or approvals? If so, describe the main requirements.

So far, there are no permits or approvals required for the emission of GHG in Mexico.

Oversight of GHG emissions

How are GHG emissions monitored, reported and verified?

Pursuant to the RLGCC, GHG emissions are required to be measured, calculated or estimated by emission factors, material/input balance, alternative methodologies proposed to and approved by SEMARNAT or any mandatory methodologies that do not yet exist but may be established by the government in the future.

The reporting obligation must be complied through the Annual Emissions Inventory (known as the COA). In addition, a verification report is required to be submitted to SEMARNAT every three years. Such verification reports must be issued by companies certified by the Mexican Accreditation Entity and approved by SEMARNAT, with the purpose of reviewing the GHG emissions generated prior to the presentation of the COA, and verifying the adequate and correct calculation of such emissions. There are no mandatory verification criteria yet, but they are expected to be stipulated in a Mexican official standard in the future.

There are currently nine certified verification organisations and approximately 20 auditors operating in Mexico.

GHG emission allowances (or similar emission instruments)

Regime

Is there a GHG emission allowance regime (or similar regime) in your country? How does it operate?

There are no emission allowance regimes in Mexico. However, the modifications to the LGCC enacted on 13 July 2018 provide the framework for a future GHG emission allowance regime, where a regular cap and trade market will start operating.

In addition, the Regulations to the LGCC on the National Emissions Registry provide the possibility to register any project contributing to the mitigation, reduction or absorption of GHG, which will probably link with the future GHG emissions allowances market.

Registration

Are there any GHG emission allowance registries in your country? How are they administered?

There are no GHG emission allowance registries in Mexico. There is, however, a National Emissions Registry where all parties directly or indirectly generating 25,000 tonnes of equivalent CO2 or more must report every year the volume generated. In addition, as mentioned earlier, projects contributing to the mitigation, reduction or absorption of GHG may also be registered in this registry. A certified third party must verify this report to remove the possibility of double accounting or under-reporting.

Obtaining, possessing and using GHG emission allowances

What are the requirements for obtaining GHG emission allowances? How are allowances held, cancelled, surrendered and transferred? Can rights in favour of third parties (eg, a pledge) be created on allowances?

While there is still no emission allowances scheme in Mexico, the basis for a future emission trading regime was recently enacted when the LGCC was amended on 13 July 2018.

The final form of this emission cap and trade regime and when it will be in full force is still unclear, albeit an emission trading pilot project will be rolled out in the near future.

Trading of GHG emission allowances (or similar emission instruments)

Emission allowances trading

What GHG emission trading systems or schemes are applied in your country?

As mentioned earlier, there currently is no other mandatory emission trading scheme in Mexico.

However, pursuant to the amendments to the LGCC enacted on 13 July 2018, a 22 per cent reduction of the current GHG emissions level is to be achieved by 2030, with the commitment of the economic sectors mentioned in question 9.

Based on the foregoing, the LGCC provided the preliminary rules for a 36-month pilot trading programme, without economic consequences for the participants. However, it is still uncertain when the pilot program will be officially rolled out or when it will turn into a mandatory scheme for the above-mentioned sectors.

Trading agreements

Are any standard agreements on GHG emissions trading used in your country? If so, describe their main features and provisions.

There are no standard agreements on GHG emissions trading in Mexico.

Sectoral regulation

Energy sector

Give details of (non-renewable) energy production and consumption in your country. Describe any regulations on GHG emissions. Describe any obligations on the state and private persons for minimising energy consumption and improving energy efficiency. Describe the main features of any scheme for registration of energy savings and for trade of related accounting units or credits.

According to the 2019-2033 National Electric System Development Program (PRODESEN 2019-2033) published by the Mexican Ministry of Energy, in 2019 gross energy production from the Mexican government public utility (Comisión Federal de Electricidad (CFE)) and the net energy output from private generators was 317,278GWh. In this regard, fossil fuel power plants (mainly natural gas-fired combined-cycle power plants which generated 51 per cent of the total production in Mexico) accounted for approximately 76.8 per cent of the total energy output nationwide. On the other hand, the total gross energy consumption for 2018 was around 318,236GWh (2.7 per cent more than in 2017). Likewise, according to the 2015 National GHG Emissions Report published by the INECC, in 2015, GHG emissions from the energy industry were approximately 165MtCO2e.

From an energy efficiency standpoint, the main policy instrument is still the Transition Strategy for the Use of Cleaner Technologies and Fuels (the Energy Transition Strategy) published by the Mexican government in 2016. The energy efficiency trend in Mexico has focused on the following:

• energy efficiency as a financial sustainability asset for Mexican households (ie, less and more efficient energy consumption = lower expenses);
• LEED or Energy Star-types of systems in order to keep score and certify corporate or government buildings;
• implementation of Mexican Official Standards (NOMs) with respect to high energy consumption devices;
• energy efficiency goals for buildings of the federal government; and
• distributed generation opportunities for clean energy sources.

For example, each year the Mexican government publishes the General Provisions for Energy Efficiency in Buildings, Fleet vehicles and Industrial facilities of the Federal Public Administration. Such regulations provide for (among other matters) energy efficiency goals in the context of reducing electricity consumption for office buildings, as well as increasing fuel efficiency of the fleet vehicles of the Federal Government.

Moreover, there are multiple Mexican Official Standards for fostering energy efficiency in Mexico, including energy efficiency-related standards for devices such as washing machines and refrigerators.

Finally, several (clean energy-related) distributed generation regulations have been put in place by the Mexican government. Such regulations include standard forms of contract between basic suppliers and ‘exempt generators’ (owners of generation facilities with an installed capacity below 0.5MW) for the sale of excess energy or for the sale of the total energy output from distributed generation facilities, terms and conditions to calculate prices payable to exempt generators (eg, net metering or net billing) and interconnection rules for distributed generation assets. Additionally, new regulations with respect to ‘collective’ distributed generation (ie, distributed generation facilities that deliver energy to two or more load points in the general distribution grids) are being discussed and reviewed by Mexican policymakers and are expected to be issued In the short term.

Other sectors

Describe, in general terms, any regulation on GHG emissions in connection with other sectors.

There are no emission regulations for specific sectors, but draft rules are currently under evaluation to prevent and control emissions of methane in the oil and gas industry.

Renewable energy and carbon capture

Renewable energy consumption, policy and general regulation

Give details of the production and consumption of renewable energy in your country. What is the policy on renewable energy? Describe any obligations on the state and private parties for renewable energy production or use. Describe the main provisions of any scheme for registration of renewable energy production and use and for trade of related accounting units or credits.

According to the PRODESEN 2019-2033, in 2018 renewable energy production in Mexico accounted for approximately 16.71 per cent of the total generation output countrywide (equal to 53,019GWh). Hydropower is still the main renewable energy resource, but solar has had the most significant increase (523.2 per cent increase from 2017 to 2018).

The LIE passed by the Mexican Congress in 2014 provides the fundamental legal framework for the power sector in Mexico. Furthermore, the LIE sets forth the key principles of clean energy-related obligations. Additionally, the Energy Transition Law enacted in 2015 establishes that the participation of clean energy assets in the production of energy shall be at least 35 per cent by 2024. The new federal government (which assumed office in December 2018) has not changed these legal instruments and, therefore, are still enforceable in relation to generators, load serving entities, final users, regulators, independent system operators, and transmission and distribution services providers.

The LIE defines clean energy as those energy sources and electricity generation processes whose emissions or waste, when applicable, do not exceed the thresholds set forth by the relevant regulations. As such, clean energy includes wind, solar, wave, tidal, geothermal, hydro, nuclear and waste-to-energy sources.

More importantly, the LIE and its regulations set forth an obligation for load serving entities (LSEs), qualified users participating in the Mexican Wholesale Electricity Market, final users who receive energy under an isolated supply scheme and holders of grandfathered interconnection agreements whose load points do not consume their total energy from clean energy resources, so that such entities and users acquire a certain amount of clean energy certificates (CELs) on a yearly basis. The number of CELs that shall be acquired by these load serving entities and users is based on a percentage of the energy consumption of the load points associated with such load serving entities and users. The percentages determined by the Mexican Ministry of Energy for purposes of complying with this obligation to acquire CELs are:

• 2019: 5.8 per cent;
• 2020: 7.4 per cent;
• 2021: 10.9 per cent; and
• 2022: 13.9 per cent.

The regulatory body responsible for the administration of these clean energy-related obligations is the Mexican Energy Regulatory Commission (CRE). CELs are awarded by CRE to clean energy generators on a monthly basis pursuant to the energy generation information collected, mainly, from the National Centre of Energy Control (CENACE) - the Mexican Independent System Operator. Overall, CRE grants a CEL for each MWh injected into the Mexican grid. Furthermore, CELs are traded either at the yearly CELs market operated by CENACE (such CEL spot market is pending implementation by CENACE) or through bilateral contracts (including those contracts awarded as a result of the long-term auctions organised by CENACE). In the context of bilateral contracts, CELs are transferred by means of the execution of bilateral transactions (TBCELs). CRE has implemented an Electronic System for the Management of CELs and Compliance of Clean Energy Obligations (S-CEL) for purposes of handling the granting, processing and transfer of CELs among clean generators, load serving entities, qualified users that participate in the wholesale electricity market, holders of grandfathered interconnection agreements that have the obligation to acquire CELs and other entities or individuals who voluntarily want to purchase or sell CELs.

Except for the form of energy hedge agreements in terms of the long-term auctions called by CENACE in 2015, 2016 and 2017 (whose target is the deployment of renewable energy projects as the energy sold thereby shall be produced exclusively from clean energy facilities), the current Mexican legal framework does not provide for other standard forms of contract vis-à-vis the trading of CELs in the Mexican Wholesale Electricity Market.

Finally, it is important to highlight that renewable energy is expected to have a key role in the Mexican power sector in the short, medium and long term. Wind and solar energy assets are expected to cover around 48 per cent of the capacity to be installed within the next 15 years (approximately 33,929MW).

Wind energy

Describe, in general terms, any regulation of wind energy.

Wind energy does not have specific regulations. The LIE and the regulations arising from the law set forth the rules, terms and conditions applicable to energy activities, including clean and renewable energy-related activities such as wind energy generation. From a permit standpoint, energy generation facilities (such as wind farms) with an installed capacity equal to or greater than 0.5MW require a generation permit from CRE (the term of the generation permit is 30 years).

Notwithstanding the latter, certain rules and manuals provide for specific rules with respect to wind energy, for example:

• the Interconnection Manual establishes certain technical information requirements for the purposes of the studies that CENACE must perform in order to determine the feasibility of the interconnection of the corresponding wind energy generation facility to the Mexican National Transmission Grid;
• the Grid Code sets forth the general terms and conditions in connection with the physical operation by CENACE of the Mexican electricity system (including dispatch instructions to all generation assets) and, thus, incorporates certain parameters vis-à-vis active power regulation and information that CENACE needs to adequately control wind farms interconnected to the Mexican grid; and
• the Short-Term Energy Market Manual contains special requirements for the submission of energy sale offers in the Day-Ahead and Real-Time Markets for wind energy assets (as intermittent dispatchable resources - as opposed to fossil-fuel power plants).

Moreover, from a tax standpoint, investments in the purchase of machinery and equipment for energy production from renewable resources (eg, wind turbines) are subject to a 100 per cent income tax deduction. Furthermore, the Income Tax Law also provides for certain tax benefits vis-à-vis the payment of dividends by renewable generators (such as wind energy generators) through the CUFIN Verde instrument. Additionally, equipment and facilities to be installed for purposes of wind energy generation assets may be subject to certain benefits in regard to import duties as per applicable Mexican laws (eg, the Import and Export Taxes Law) and free trade agreements signed by the Mexican government.

Solar energy

Describe, in general terms, any regulation of solar energy.

Solar energy does not have specific regulations. Solar generation assets with an installed capacity equal to or greater than 0.5 MW require a generation permit from CRE (the term of the generation permit is 30 years).

Nevertheless, there are specific rules applicable to solar energy in Mexican regulations, mainly:

• the Interconnection Manual in the context of the technical information that is necessary for CENACE to perform the relevant interconnection studies for solar power plants;
• the Grid Code, which establishes certain technical requirements for solar power plants in relation to the physical operation by CENACE of the Mexican electric system (including active power regulation and the information required by CENACE to control and dispatch solar PV systems interconnected to the grid); and
• as an intermittent dispatchable resource, solar energy projects are subject to requirements for submittal of energy sale offers in the short-term energy market that differ from fossil fuel power plants’ offers.

The long-term auctions called by CENACE in 2015, 2016 and 2017 were a key policy instrument - from an energy market structure standpoint - to develop utility-scale solar energy projects across Mexico. Fixed prices and long-term contracts awarded through this mechanism ensure financing (through equity, debt or both) for solar energy generators. The last long-term auction held by CENACE in 2017 resulted in a record-setting price for solar energy of US$17.7 per MWh. Having said that, the new federal government has recently cancelled the 2018 long-term auction and is not expected to call for new long-term auctions within the next three years until the projects awarded as a result of the 2015, 2016 and 2017 long-term auctions reach their respective commercial operational dates.

Nonetheless, solar energy developers and sponsors (as well other renewable energy developers and sponsors) still have plenty of business opportunities under the current regulatory and market framework to deploy new power plants in Mexico. Projects based on (1) bilateral energy hedging agreements between generators and qualified suppliers, and (2) spot market prices, are being developed, financed, built and commissioned at a faster rate. Furthermore, the short-term energy market follows a merit order (economic) dispatch methodology that facilitates the financial dispatch of (merchant) solar energy assets (solar energy projects’ production and variable costs are minimal). Such merchant projects are paid at the spot prices (local marginal prices or PMLs), which in certain price nodes are quite economically attractive.

Finally, from a tax standpoint, investments in the purchase of machinery and equipment for energy production from renewable resources (eg, solar panels, trackers and inverters) are subject to a 100 per cent income tax deduction. Likewise, the CUFIN Verde instrument explained in question 20 also applies to solar energy projects in the context of dividend payments in relation to the applicable tax income in Mexico. The Electricity Sectorial Program (PROSEC) issued by the Mexican Ministry of Economy (PROSEC) grants certain benefits to solar energy developers and sponsors with respect to exemptions or reductions of import duties (eg, with respect to the import of solar panels and other equipment associated with solar energy projects such as inverters).

Hydropower, geothermal, wave and tidal energy

Describe, in general terms, any regulation of hydropower, geothermal, wave or tidal energy.

Geothermal energy is regulated by means of the Geothermal Energy Law, which sets forth the basic terms and conditions for the recognition, exploration and exploitation activities of geothermal resources to produce energy or for other purposes (eg, cooling and heating). The three main governmental approvals that are established in the Geothermal Energy Law are:

• recognition registration granted by the Ministry of Energy so that preliminary works to identify potential geothermal resources are carried out (the term of these recognition registrations is eight months);
• exploration permits granted by the Ministry of Energy to analyse the geological, geophysical and geochemical elements of the geothermal area that is being explored, as well as other works to ascertain the existence of the geothermal resource (the term of these exploration permits is three years, which can be extended for three additional years); and
• exploitation concessions granted by the Ministry of Energy in order to authorise the performance of any works associated with the construction, extraction, commissioning, production and transformation of the relevant geothermal resource (these concessions are subject to a 30-year term, which may be extended).

Regardless of the specific provisions contained in the Geothermal Energy Law, geothermal assets that produce energy are also subject to the provisions of the LIE and, thus, require a generation permit from CRE if the installed capacity is equal to or greater than 0.5MW.

Hydropower, wave and tidal energy generation assets with an installed capacity equal to or over 0.5MW also require a generation permit from CRE, provided further that water concessions and authorizations from CONAGUA are required for using national waters to produce energy.

In addition to the foregoing, it is important to note that Mexican energy regulations establish some specific rules, terms and conditions for geothermal plants (as a firm non-dispatchable resource), as well as for hydropower, wave and tidal energy assets in the context of interconnection-related information and operation and dispatch by CENACE. For example, with respect to hydropower facilities, CENACE must assess the requirements for energy and ancillary services of the Mexican electric system seven days in advance for purposes of the issuance of financial dispatch instructions for the corresponding operation day.

The general tax incentives described for other renewable energy technologies (ie, CUFIN Verde and customs benefits for the power industry) may also be applicable to geothermal, hydropower, wave and tidal energy generation projects.

Finally, it is worth mentioning that geothermal and hydropower projects are subject to certain real estate-related obligations under the Power Industry Law (as a result of requiring a specific location) for purposes of acquiring land rights in order to construct and operate those types of generation facilities, including the delivery of notices, need for appraisals, use of standard forms of real estate contract and court validations.

Waste-to-energy

Describe, in general terms, any regulation of production of energy based on waste.

Waste-to-energy projects are deemed clean energy resources under applicable Mexican laws and regulations. All energy generation facilities (such as waste-to-energy power plants) with an installed capacity equal to or greater than 0.5MW require a generation permit from CRE (valid for 30 years). Likewise, urban solid waste management is regulated under municipal and state laws and may be subject to local concessions and authorisations.

In addition to certain rules that apply to waste-to-energy projects in relation to interconnection studies (waste-to-energy power plants are considered conventional power plants for such purposes), it is important to highlight that waste-to-energy power plants are subject to different dispatch rules as a result of being deemed non-intermittent or base-load types of generation assets. Furthermore, the technical configuration of waste-to-energy facilities implies that they must submit sale energy offers in the short-term energy market with different requirements than wind or solar energy facilities, provided that the premise of merit (economic) dispatch orders (ie, based on production and variable costs) is still the same.

The general tax and customs incentives described for other renewable energy technologies may also be applicable to waste-to-energy projects.

Biofuels and biomass

Describe, in general terms, any regulation of biofuel for transport uses and any regulation of biomass for generation of heat and power.

In general terms, electricity generation from biomass is subject to:

• a generation permit;
• specific rules regarding interconnection studies and dispatch instructions; and
• tax and customs incentives.

On the other hand, it is important to highlight that production, storage, transportation and commercialisation of biofuels is regulated pursuant to the Law for Promotion and Development of Biofuels. In accordance with this law, the above-mentioned biofuel-related activities require a permit granted by the Ministry of Energy or the Ministry of Agriculture, Livestock, Rural Development, Fishery and Feeding, as applicable.

Carbon capture and storage

Describe, in general terms, any policy on and regulation of carbon capture and storage.

There is currently no specific regulation or policy governing carbon capture and storage in Mexico.

However, on 6 November 2018, the federal government enacted the Guidelines to prevent and control methane gas emissions in the hydrocarbons sector. These guidelines provide the obligation to assess, identify, measure and abate methane emissions. The techniques allowed in these guidelines to abate methane emissions are varied, encompassing sequestering, redirecting to other processes, combusting and flaring. All companies and facilities involved in the hydrocarbons sector where methane gas may be present (ie, oil and gas exploration, production, storage, transport, distribution and processing) are obliged to comply with these guidelines. All existing and new projects (all projects that have obtained a permit or an agreement with the National Hydrocarbons Commission) must conduct a diagnosis of their facilities and establish a methane emissions reduction goal, while new projects should not exceed the volume of methane estimated in the design of the project. Compliance with the obligations provided in the Guidelines, and reporting thereto, is expected by November 2019.

Climate matters in transactions

Climate matters in M&A transactions

What are the main climate matters and regulations to consider in M&A transactions and other transactions?

Climate matters are not considered in the course of ordinary M&A transactions in Mexico. On financing operations, we are starting to see some credit institutions, particularly export-import banks and multilateral banking institutions, include some covenants or specific provisions regarding the emission of GHG from specific projects; however, we cannot say that this is a general trend right now in Mexican transactions.

Update and trends

Emerging trends

Are there any emerging trends or hot topics that may affect climate regulation in your country in the foreseeable future?

Emerging trends27 Are there any emerging trends or hot topics that may affect climate regulation in your country in the foreseeable future?

Distributed generation is not only being discussed among policymakers for the purpose of issuing specific regulations in connection with this matter (eg, regulations regarding ‘collective’ distributed generation) - many entrepreneurs are constantly enquiring about distributed generation (in particular about sale of energy from distributed generation assets to qualified suppliers or to basic supply users) as a big business opportunity under the current political and regulatory context of the Mexican electricity sector.