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Mexico Passes Climate Change Legislation

Profession:Vinson & Elkins LLP

By Hana Vizcarra1

On April 19, the Mexican Congress passed a climate change bill that sets greenhouse gas emissions reduction targets for the country, outlines goals for a national climate change policy, and specifically creates the authority to institute a cap-and-trade program in the future. The comprehensive law emphasizes public participation and education and the promotion of renewable resources. The law establishes structures for implementing climate change adaptation and mitigation goals and builds on previous legislative efforts to combat climate change in Mexico. Passed in the Cámara de Diputados by vote of 128 to 10 and in the Senado by a vote of 78 to 0, the law did not engender the political divisiveness surrounding climate change issues in the United States. President Calderón signed the bill on June 5, and it was published in Mexico's Federal Register (Diario Oficial de la Federación) on June 6. The bill goes into effect on September 4, 2012.

Under the Kyoto Protocol, Mexico is a non-Annex I Party, meaning that it does not currently have binding GHG emission reduction targets. As a non-Annex I Party, Mexico hosts numerous projects under the Clean Development Mechanism (CDM), generating certified emission reduction credits that can be used by other Kyoto Parties to achieve their emission reduction targets. The Kyoto regime's flexibility mechanisms, including the CDM, are premised upon the idea that emissions reductions in non-Annex I countries go beyond those that will happen in a business-as-usual scenario and are therefore "additional." The general test for additionality under the CDM requires the project sponsor to demonstrate that the emission reductions created by the process are not legally required and would not happen without the incentives provided by the availability of carbon credits.2 Therefore, non-Annex I countries that choose to develop climate legislation are faced with the challenge of how to do so without the resulting law defeating the additionality requirement of the CDM. If a reduction is mandatory under the law, or a project would have happened without the CDM process due to other incentives, it would not be eligible to receive carbon credits.

Mexico's law largely focuses on establishing general policy goals and voluntary reductions, and also requires the adoption of monitoring, measurement, and reporting requirements for yet-to-bedetermined industrial sectors. The law provides authority for incentive programs to encourage voluntary emission reductions and even a cap-and-trade program. The law also leaves open the possibility that the government could impose binding emissions reductions limits sometime in the future. Depending on how the government chooses to implement the law, it could pose a risk of defeating additionality requirements and therefore CDM eligibility.

The Ley General de Cambio Climático (General Law...

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