Mexico’s Senate approves a new tax on fossil fuel use

Mexico’s Senate has approved a new tax on fossil fuel use that will allow companies to buy and surrender U.N. -backed carbon credits instead of paying the charge. The bill had already passed a vote in the lower house last week and is likely to have to return there for final approval before President Enrique Pena Nieto can pass it into law.

The bill requires companies from next year to pay around $5 per tonne of carbon dioxide they emit. It exempts crude oil and natural gas producers but it will apply to producers of byproducts including gasoline, diesel, propane, butane and coal. However, companies can surrender an equivalent amount of Certified Emission Reductions (CERs) from carbon cutting projects hosted in Mexico.

The law is expected to boost demand for carbon credits from Mexican projects registered under the U.N.’s Clean Development Mechanism (CDM). The CDM allows investors in CO2 reduction projects located in developing nations to earn carbon credits that governments and companies can use to offset their emissions.

 “If this bill is signed into law the way it is now, as seems that will be the case, a Mexican carbon market will ‘de facto’ be created,” said Eduardo Piquero, who is  developing a platform to host carbon trade for the exchange. “It will be a market with demand and offerings from private and public Mexican companies,” said Piquero.

Mario Alberto Santillan, who coordinates a CDM project at coal mines owned by Minerales Moncloya, said the firm planned to use all of the expected 300,000 CERs/year from the project to help avoid the tax. Some 210 Mexican projects currently in the CDM pipeline are expected to earn more than 200 million credits by 2020. “We have possibilities for additional CDM projects that could generate some 3.5 million credits, and now I think we should speed up those plans,” Santillan said.

So, it is clear that industrial companies likely to face the tax had lobbied for the inclusion of the offset provision to help limit cost.

 

 

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