Mexico signed the Paris Agreement on April 22, 2016, which was ratified on September 17, of the same year.

In accordance with Mexico’s NDC Updated Report for 2020, the country is committed to reducing, unconditionally, 22% of its Greenhouse Gases (GHG) and a reduction of 51% of black carbon emissions for the year 2030 considering the below Business as Usual baseline. This commitment implies a reduction of 22% of GHG.

The 22% reduction commitment expressed above could increase up to 36% in a conditional manner for GHG and 70% by 2030, subject to a global agreement addressing important topics including international carbon price, carbon border adjustments, technical cooperation, access to low-cost financial resources and technology transfer, all at a scale commensurate to the challenge of global climate change.

In the year 2000, Mexico published three National Strategies on Climate Change and in 2009 adopted its first Special Program on Climate Change.

In April 2012, the Mexican Congress approved the General Law on Climate Change, which entered into force in October of that same year and made Mexico the first developing country to have a comprehensive law on this topic.

Subsequently, in compliance with the provisions set forth in the General Law on Climate Change, the Mexican government adopted, in 2013 and 2014, respectively, the National Strategy on Climate Change which sets the vision on Congress the matter for the next 10, 20 and 40 years. In addition, Mexico adopted the Special Program on Climate Change 2020-2024 which guides the implementation of climate change’s public policy in the short term and contains four main sections: adaptation, mitigation, synergies and co-benefits and, means of implementation.

Additional instruments made available due to the National Strategy on Climate Change are the National Report on Air Quality, National Inventory on Emissions and Green-house gases, National Registry of Emissions, Flood’s Vulnerability Map, Index of the Economical Pressure Regarding Deforestation, Mexico’s NDC Annual Update Report and the Integrated Strategies in Short-lived Climate Pollutants to Improve Air Quality and Reduce the Impact of Climate Change

The National Strategy on Climate Change sets a long-term GHG reduction target cutting 30% of emissions by 2020 relating to the 2000 baseline, and 50% by 2050.  This implies that by 2020 the annual GHG emissions should be reduced about 288 MtCO2e and that by 2050 total emissions should reach a maximum level of 320 MtCO2e.

In 2013 the Mexican Congress passed diverse amendments to the Mexican Constitution and several secondary laws to modify the legal regime of the energy sector (“Energy Reform”).

As part of this reform, the Energy Transition Law was approved, which purpose is to rule over the sustainable use of energy, clean energy sources and the reduction of GHG emissions from the power sector. 

In the above-referred law, diverse objectives were established to be complied with regarding the increase of clean technologies’ participation in the generation of electric power was set, being 25% for 2018, 30% for 2021 and 35% for 2024. The law also regulates diverse incentives for the producers of power energy through clean technologies, such as the Green-Energy Certificates, to incentivize investment in the clean energy sector.

In this regard, although the Mexican legislation does not set forth provisions expressly limiting or prohibiting the use of certain fuels a similar effect is achieved through the promotion of clean technologies.

At federal level, the following specific legislation has been approved:

• General Law on Climate Change approved by the Mexican Congress in April 2012 and enforceable since October of the same year.
• Regulation of the General Law on Climate Change on the matter of the National Emission Registry, enforceable since October of 2012.

In addition, many states have approved local laws on the matter which are only enforceable within the territory of the State that approved the law.

Due to the amends to the General Law on Climate Change in 2012, the creation of a Mexican Emission Trading System (SCE Testing Program) was envisioned with the purpose of establishing a market instrument designed to reduce greenhouse gas (GHG) emissions, based on the "cap and trade" principle.

In observance of the agreement published by SEMARNAT on October 1, 2019, the testing phase of the SCE Testing Program, will be carried out from January 1, 2020, until December 31, 2021. Afterward, from January 1, 2022, until December 31, 2022, a transition phase of the Test Program to the Operational Phase of the Emissions Trading System will be conducted.

The current SCE Testing Program has the following characteristics: 

• The entities obligated to participate in the SCE Testing Program are those fixed sources conducting activities in the energy and industry sectors, when generating an amount that adds up or surpasses 100 thousand tons of direct carbon dioxide in any of the following years: 2016, 2017, 2018 or 2019, as well as those facilities that fall into the scope of the above-described scenario during 2020 (new participants).
• The Ministry of Environment and Natural Resources (SEMARNAT) fixed the cap of emissions for the years 2020 and 2021 in 271.3 and 273.1 million of CO2 tons, respectively.
• The Emission Rights will be distributed gratuitously between the participants by SEMARNAT. It is estimated that during the SCE Testing Program all participants receive a number of emission rights that allow them to conduct their business as usual.
• No later than November 1st of each calendar year, the participants of the SCE Testing Program must submit before SEMARNAT a number of emission rights equivalent to the reported and verified emissions of the immediately previous year.
• The participants complying with the above-mentioned obligation in a timely manner will be able to use their exceeding emission rights in their accounts to (a) carry out transactions with third parties that need them to comply with their obligations; or (b) comply with their own obligations in subsequent compliance periods, during the SCE Testing Program.
• The SCE Testing Program will have no economic effects, this is, no monetary penalties will be imposed; however, participants that do not observe the obligations will receive a minor number of Emission Rights once the Operative Stage of the Emission Trading System starts.

A carbon tax was introduced in Mexico in 2014, with the following characteristics:

• The tax is paid by the producers or importers of fossil fuels.
• Each fossil fuel has a different tax rate according to the amount of carbon dioxide it contains. This value is determined by the annual update carried out by the International Panel on Climate Change (IPCC). (US $3.7 per ton of CO2).
• Natural gas and jet fuel were taxed at zero and only the carbon used as fuel is subject to the tax.
• The tax can be paid with internationally recognized certificates of emission reductions, at market values.

As of this date, there are no specific legal dispositions on the matter.

The Mexican Federal Commission of Electricity may when drafting clean energy contracts with particulars offer transmission cost discounts for power generators who use their transmission network. Nevertheless, there are no subsidies over the production of energy from renewable sources, however, support schemes, such as tax benefits, to promote the development of renewable energy projects have been implemented in the past years. For example:

• 100% deduction over the federal income tax when purchasing machinery or equipment used in the generation of renewable energy sources or co-generation of efficient electricity, as long as the equipment or machinery has been in used for a minimum 5-year period.
• Taxpayers who carry out investments in power supply units of electric vehicles will be able to obtain a 30% tax stimulus over the income tax, as long as the vehicles are connected in public places.
• Import final goods, supplies and machinery, such as solar panels, without tariffs or with preferential tariffs.
• At a local level (i.e. Mexico City), a 55% deduction over the payroll tax, a 30% deduction over the property tax and an 80% deduction over real estate acquisition will be applicable to those companies that prove that they initiated operations in high technology sectors such as energy technologies and renewable energies.
• Most of the States in Mexico has implemented an exemption over the tax over vehicle tenure for electric vehicles (i.e. Mexico City implements a 100% exemption, the State of Mexico grants a 100% exemption for the first 5 years and of 50% for the next 5 years.

As per the Climate Change Mitigation and Adaptation Commitments for the 2020-2030 period:

• Utilize water-saving equipment to reduce the used energy for water heating.
• Substitute conventional water heaters with efficient water heaters such as instantaneous or solar.

As per the National Strategy on Climate Change, Mexico’s energy efficiency measures are, among others:

• Promote the use of photovoltaic energy and thermic solar energy in the residential sector.
• Encourage changes in the consumers’ consumption behaviors as to create a conscience of energy efficiency and saving.
• Promote the strengthening, adoption and application of regulations and standards that bolster saving harnessing technologies (i.e. for water, energy, gas) such as green roofs, vertical gardens, etc. in buildings.

As per the Sectorial Program for Environment and Natural Resources 2020-2024, the priority strategies for the reduction of GHG emissions are the following:

• Actions that promote the energy transition with clean sources, guaranteeing environmental protection and ensuring the well-being of the population, particularly the most vulnerable communities, with a focus on inclusion and social and economic mobility.
• Reduce emissions from deforestation and soil degradation, promoting the integrated management model of the territory, instruments to promote low-carbon and resilient rural development, the conservation and increase of forest carbon stocks and the equitable distribution of benefits.
• Promote sustainable mobility systems, public and private, low emissions, efficient, safe, inclusive, affordable and accessible, with the latest technological advances, recognizing different patterns of mobility between men and women of different social groups, in communities, cities and areas metropolitan.
• Promote a sustainable, inclusive and compact urban development, with sustainable mobility and housing, with solid waste and wastewater management that reduces greenhouse effect emissions and increases the resilience and adaptive capacity of cities and metropolitan areas.
• Establish, strengthen and promote, in coordination with agencies of the APF, policy and regulatory instruments for the reduction of GHG emissions in strategic sectors with a circular economy approach to meet national and international climate change goals.

Furthermore, Mexico City, as one of the ten biggest cities worldwide, became part of the community of cities part of the Low Carbon Emission Building Certificates of the Climate Bonds Initiative as of 12 April 2019.

In the transport sector, the mitigation measures proposed in the Climate Change Mitigation and Adaptation Commitments for the 2020-2030 period include:

• Update the Mexican Official Standard (“NOM”) for emissions and energy efficiency of light new vehicles (NOM-163-SEMARNAT-ENER-SCFI-2013) which sets forth the specifications that must be observed by brand new light vehicles distributed and in Mexican territory with regards to their CO2 emissions in order to set forth the guidelines and dispositions to be observed by vehicles year model between 2017 and 2025. The project has already been submitted for evaluation and public consultation however, as of this date, it is still pending to be approval. Even when this update has not been approved the standard has continued to be applied. 
• Carry out city densifications programs and actions to adopt integrated transport systems.
• Carry out a modal shift in freight transportation.
• Create an emission and energy efficiency Mexican Official Standard for new heavy vehicles.
• Build passenger interurban trains.
• Accelerate the incorporation of clean and efficient technologies in auto transport.
• Apply programs of natural gas-based vehicles in public transport.

In addition, the National Climate Change Strategy foresees energy efficiency lines of action such as:

• Promotion of safe, clean, low emission, accessible and comfortable public transport systems by strengthening the regional and national connectivity with the creation of efficient multimodal networks.
• Development regulatory agencies with a national and regional level transport demand vision that will help optimize the transport systems and that can reduce the travel distances and times.
• Bolster efficient public transport systems with low emissions and update the regulatory framework and tariffs to promote reinvestment and continuous improvement.
• Redirection subsidies to fossil fuels as to strengthen the sustainable, efficient and safe public transport and train system.
• Increase the energy efficiency of public and private auto transport through the establishment of Mexican Official Standards and logistic and technologic improvement schemes.

As per the Sectorial Program for Environment and Natural Resources 2020-2024, to reduce GHG emissions / improve energy efficiency in the transport sector:

• Promote sustainable, public and private mobility systems, low emissions, efficient, safe, inclusive, affordable and accessible, with the latest technological advances, recognizing different patterns of mobility between men and women of different social groups, in communities, cities and metropolitan areas.

Reduction of GHG emissions measures as per the National Climate Change Strategy and the Climate Change Mitigation and Adaptation Commitments for 2020-2030:

• Participate in the clean energy generation and self-supply goals.
• Use exhaust as fuel.
• Substitute fuel oil with cleaner fuels such as natural gas.
• Implement the Nationally Appropriate Mitigation Actions (NAMA) proposed by Mexico such as implementing energy efficiency measures, monitoring process emissions and design a low emission development strategy for the chemical industry sector (soap and synthetic wastes subsectors) or the cement sector NAMA that focuses on the co-processing of materials and wastes as well as in the optimization of the clinker-cement factor (fabrication of green cements).
• Substitution of fuel oil, diesel and coke fuels for low black carbon emission fuels, as well as the implementation of emission control and energy efficiency systems for the productive processes.

In addition, companies in this sector generating 25 thousand tons of equivalent carbon dioxide specifically have the obligation to report their GHG emissions in the National Emission Registry annually through the Annual Operating Report. As of 2018, the report has to be subjected to a verification Certification Organism.

As per the Sectorial Program for Environment and Natural Resources 2020-2024, to reduce GHG emissions improve energy efficiency in the industry:

• Promote change and innovation in production and consumption methods through the adoption of technologies that allow the sustainable use of resources, considering good practices and international standards and revaluing traditional production and consumption systems.
• Promote the use and management of low-carbon and sustainable energies in industrial, productive, public and residential services.
• Promote sustainable production and consumption methods in order to reduce the extraction of natural resources, the use of energy, and to minimize the effects of human activities on the environment.
• Promote the circular economy in order to promote the efficient use of resources and avoid pollution and degradation through a focus on the life cycle of goods and services in production chains.
• Reduce negative externalities to the environment and social effects by strengthening collaboration between the private and public sectors in the development of economic and financial instruments that generate incentives, within a framework of respect for human rights.

The Climate Change Mitigation and Adaptation Commitments for the 2020-2030 set forth that in the agriculture and livestock sector the compromise is to reduce the burning of wastes in field crops of agricultural surfaces, install and operate biodigesters for stabled livestock’s excreta and substitute nitrogen synthetic fertilisers with biofertilizers.

For its part, for land use and land use change the commitment is to reach a cero deforestation rate by 2030 through the national REDD+ strategy (for the low carbon sustainable rural development and the efforts to fight the forests’ deforestation and degradation processes) and promote sustainable forestry management as well as an increase in the productivity of forests and jungles with productive profile and commercial forestry plantations.

As part of the National Climate Change Strategy, which aims to promote best practices in the agricultural and forestry sectors to increase and preserve the natural carbon sinks, actions such as the increase of agricultural and forestry production schemes with a higher mitigation potential and that provide environmental and social co-benefits (i.e. agrosilvopastoral systems and linking traditional knowledge with current agricultural and agricultural programs are proposed.

Reducing the technical losses in the electric network and substituting the fuel oil for natural gas are some of the measures proposed for implementation the electric sector in order to contribute to the reduction of the GHG emissions and the commitment acquired by Mexico as per the Paris Agreement.

As per the National Climate Change Strategy, some lines of action to reduce GHG emissions, improve energy efficiency and transition into a cleaner energy scheme are:

• Increase the penetration of renewable energy and reduce energy losses through the use of smart grids and distributed generation in the national electric system.
• Reduce the energetic consumption and hence, the GHG emissions, by executing energy efficiency projects deriving from the comprehensive energetic diagnoses.
• Reduce the losses in the transmission and distribution of energy by modernizing the electric lines and substations as well as improving the distribution network.

In addition, companies in this sector generating 100 thousand tons of direct carbon dioxide emission, are obligated to participate in the SCE Testing Program since January 1, 2020.

The Green Finance Advisory Council (CCFV - composed of high-level representatives of the Mexican financial sector, such as: Afores, Insurers, Associations, Commercial Banking, Development and Multilateral Banking, Issuers, Investment Funds, etc.), has promoted the dialogue between different market actors about how to encourage the financing of green projects, influence market practices and investment mandates and/or regulations, so that they contribute to the establishment of incentives to stimulate the development of the finance market green.

Some examples are:

• The MEX green bonds principles launched by the CCFV, which aim to set guidelines that can help green bond issuers in the Mexican market in the bond emission process, in addition to providing investors with certainty of the benefits that the financing of green projects bring.
• The Association of Banks in Mexico (“ABM”) decided to demonstrate its leadership in the improvement of the financial system in matters of sustainability and climate change, through the Sustainability Protocol of the Banking of Mexico. The document recommends a management framework and sustainability guidelines for Mexican banks.
• The Mexican Stock Exchange (“BMV”) generated a sustainability index (IPC-Sustainable), to encourage Mexican broadcasters to implement sustainable policies and systems. In addition, the BMV signed the Sustainable Stock Exchanges Initiative, to improve accountability and transparency, Finally, and after that, the Sustainability Guide for Issuers was launched to support companies in the implementation of strategies in favor of sustainability and dissemination of programs in the field.

On March 9, 2021, it was published by the Mexican government the amendments to the Electrical Industry Law which offers a preferent treatment to the State-owned energy company (Federal Commission of Electricity, which mainly uses fossil fuels for the generation of energy) over the renewable energy electricity generating companies owned by the private sector. These amendments caused a severe wave of Amparos (extraordinary constitutional appeal, which may be filed in federal court, by Mexicans and by foreigners) against the Mexican government. The lawsuits against these amendments vary from private-owned companies affected by this preferent treatment to diverse NGO´s and student associations for the environmental damages this will cause and the possible non-compliance of Mexico to its international commitments, specifically those related to the reduction of GHG emissions.  To this date, several federal judges have declared the suspension of effects of these amendments to the Mexican Constitution and the laws on economic competition to all the privately-owned companies participating in the Mexican energy market. Nevertheless, it is expected that the Mexican Supreme Court will solve the legality of these amendments and their consequences for the environment.

As of the last couple of years (2018-2019), different States and Municipalities of the country have approved modifications to their environmental laws and regulations, respectively, to prohibit the use and distribution, even free of charge distribution, of straws, plastic bags, sole use plastic products and Styrofoam containers in commercial, industrial and services establishments within their territories (i.e. Veracruz, Baja California Sur, Tamaulipas, San Luis Potosi, Coahuila, Nuevo Leon, Mexico City, just to name a few). Most of these dispositions entered into force gradually, and as of 2021, at least 27 states in Mexico have issued specific rules regarding the use of plastic in their jurisdiction.

Note: the above-referred information is based on the government programs and policies published by previous administrations. The current federal administration (2018-2024) has yet to publish its policies and strategies to be taken during said administration’s period on this matter.