Renewable Energy in Mexico (Part II)

Renewable Energy in Mexico (Part II)

Baker & McKenzie

IV. Emission Reduction Projects

We have mentioned that renewables reduce pollutant air emissions. Therefore, renewables have been considered in the negotiation of several international agreements, in some of which the Mexican government has actively participated.

As a result of the general concern generated by the environmental damage produced by the emission of pollutant gases, the international community decided to execute the Kyoto Protocol of the United Nations Climate Change Convention (Kyoto Protocol). The Kyoto Protocol includes several mechanisms that enhance the exchange of emission-reductions units 7 (ERU’s). The Clean Development Mechanism, established by article 12 of the Kyoto Protocol, grant the possibility to certify in developed countries (mainly in the European Union, Canada and Australia) the reduction of Greenhouse Gas emissions, as a consequence of the implementation, development and operation of renewable energies in Exhibit II countries of the Kyoto Protocol (such as Mexico). The Mexican government executed and ratified the Kyoto Protocol, which was published in Federal Official Gazette on November 24, 2000. Once the Kyoto Protocol is ratified by the number of parties required for it to become effective, its enforcement in Mexico will be immediate 8.

On January 23, 2004, an Accord creating the Mexican Inter-Ministerial Committee for Emission-Reduction Projects and Greenhouse Gas Capture (the “Committee”) was published in Mexico’s Official Federal Gazette. This Committee was established in order to submit the Mexican government to comply with the commitments acquired by the accession to the Kyoto Protocol.

The purpose of the Committee will be to identify opportunities as well as to simplify, promote, publish, evaluate and approve when required, emission-reduction greenhouse gases projects in Mexico. The Committee will also act as the Designated National Authority for purposes of the Kyoto Protocol. Furthermore, the Committee will be entrusted with the authority to issue letters of approval and keep record of emission-reduction and greenhouse gas projects.

The creation of the Committee is a significant step in the development of an institutional framework for the certification of ERU’s in Mexico. However, success of the Committee will depend on the creation of comprehensible and accessible policies to those parties interested in certifying their projects, and this is why this Committee must develop the regulatory framework to identify the scope and rights that the ERU’s will have in the internal legal framework.

Once the Kyoto Protocol becomes enforceable, México should have developed those institutions and legal framework that enables its companies to actively participate in the green market, in order to exchange ERU’s.

V. Challenges and Opportunities

There are other alternative mechanisms currently under evaluation that aim to provide additional incentives for renewables. Among them, is the creation of a green market for the negotiation of carbon certificates. In addition, as a result of the involvement and participation of several entities and financial strategies, the motivation for pollutant emission-reduction projects such as renewable energy sources has been extended.

Notwithstanding the slight distinction available under our legislation for renewable energy sources vis à vis traditional power generation technologies, and the limited number of instruments available under Mexican law to sufficiently promote and develop incentives required for the implementation of renewable energies, several mechanisms sustained by international treaties or non-governmental associations are anticipated. We will certainly find in the near future that the use of renewables is a common practice of electricity generation used in Mexico.

To promote the development and dissemination of renewable energies, it is necessary to create additional benefits or subsidy policies over those earnings received by independent producers arisen from the sale of electricity to distributors (CFE and/or LFC) and to develop tax incentives and governmental benefits for power producers under the self-supply or independent production schemes, which use renewable technology. Furthermore, the government should economically promote and support research and development programs for this type of technologies.

We have mentioned in this document that unlike thermal energy conventional sources, most renewable energy sources are irregular. Nonetheless, renewable energies may highly contribute to the energy needs of a given system. It is true that renewables will not assume total responsibility for power supply, but in fact may have a proportional share of such responsibility in coparticipation with the traditional technologies, thereafter conducting a strategic diversification that involves use and alternation of different technologies and sources.

Environmental legislation and the Kyoto Protocol have incorporated provisions for the development of a regulatory framework that promotes use of renewable energy in Mexico. The government’s administration has certain regulatory tools and policies to promote use of technologies that reduce environmental pollutant emissions, such as renewables. These legal schemes could consist in tax benefits, preferential finance conditions through development banks, preferential provisions for acquisition of renewable energy by state owned entities, benefits for the importation, exportation and/or development of equipment required for implementation of renewable energy projects, enactment of certification guidelines and purchase and sale of carbon credits.

7 One unit of certified emission reduction is equal to a Ton of Carbon Dioxide or its equivalent in any other kind of emission of greenhouse gases.

8 In accordance to the provisions of the article 133 of the Federal Constitution.

By Baker & McKenzie

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