Overview

Description

The Ministry of Environment and Natural Resources (SEMARNAT) is looking to establish a domestic mechanism for the generation of carbon credits that can be used for compliance obligations by entities covered under its new ETS. Details around eligible mitigation projects or activities are still to be determined but are expected to include domestic projects from non-regulated sectors within the ETS that have been validated and verified under approved protocols. The crediting mechanism is also expected to credit early action activities by projects in Mexico (projects that are already receiving credits from other crediting mechanisms) before the national ETS comes into force. To receive early action credits, these projects would be expected to cancel any credits they have received from other mechanisms to avoid double counting.

Recent Developments

Mexico’s ETS developed through a pilot phase (2020-2021) and transitional phase (2022) that was extended due to delays in finalizing regulations. Final regulations and the launch of the “Operational Phase” (i.e. compliance phase) are expected during 2026. The ETS covers direct CO2 emissions from large industrial and energy sector installations representing approximately 40% of Mexico’s national GHG emissions. The emissions cap for the pilot phase was initially set at 271.3 MtCO2. The final regulations will establish the cap for the Operational Phase (expected to cover 25-30% of Mexico’s updated NDC). Use of domestic offsets is permitted and currently capped at 10%. This cap could potentially be increased for the Operational Phase: Reported statements from Mexican officials indicate that the offset cap could increase to 100% depending on Mexico’s soon-to-be updated NDC. This approach would increase demand for domestic offsets significantly and incentivize carbon credit project development

Relation to Compliance Carbon Pricing Instruments or other Voluntary Schemes in the country

ETS: Participants can meet up to 10% of their compliance obligations with offset or early action credits.

Eligible Activities