Update on the Paris Declaration on Carbon Pricing in the Americas 18th Partnership Assembly. Partnership for Market Readiness (PMR) Kyiv, Ukraine 24 April 2018 Juan Carlos ARREDONDO BRUN Director General for Climate Change Policies

Paris Declaration on Carbon Pricing in the Americas

What is the Declaration about? Context: Adopted at the One Planet Summit in Paris last December Signed by 12 jurisdictions (5 countries and 7 states/provinces) Canada, Colombia, Costa Rica, Chile, Mexico California, Washington, Alberta, British Columbia, Nova Scotia, Ontario, Quebec Content: Implement carbon pricing as central policy instrument for ambitious climate action Guide public investment decisions and encourage private sector to do the same Collaborate on strengthening MRV of GHG emissions and reductions Elaborate common standards to ensure environment integrity

Provide reference applicable to all What may be the contribution? Provide reference applicable to all Provide definitions so everyone understands the same Provide clear mandates or roles for different stakeholders or participants. Provide the institutional space for the interaction on carbon pricing

Progress to date Strategic: Development of a roadmap by September Potential setting up of a Secretariat Expand the signatories base: who else wants to join? Tactical: Acknowledged the importance of harmonization for potential linking Focus on monitoring, reporting and verification with standardized approaches (comparability and consistency) Share experiences with carbon pricing and means to enhance ambition, i.e. Practical experiences on carbon pricing, i.e. carbon tax or ETS development In-person training or technical visits Feedback to draft regulations Verifiers accreditation processes

Updates to the LGCC

More complete update to the LGCC Legal Framework: More complete update to the LGCC The incorporation of the Paris Agreement, its language, and some of its content into the General Law on Climate Change (LGCC). Our LGCC was enacted on October 2012, well before the Paris Agreement. It had references to Kyoto Protocol or on how to obtain a no objection letter from the government for a CDM project. But also, well before the Energy Reform and the Agenda 2030 for Sustainable Development…. No NDC, no transparency reporting, no collaborative approaches, no rationale for “higher ambition”… Specific mentions and tasks to state-owned companies (previous legal framework in the energy sector) Proposed changes approved by the Lower House (Deputies) last 12 December 2017. In the process of review and approval by the Senate

Paris Agreement and NDC Legal Framework: Paris Agreement and NDC Incorporation of the “Paris Agreement” and its goals into the national law Include the concept of Nationally Determined Contribution (NDC) and its update and reporting cycles Include provisions coming from Article 6, for instance ITMOs and corresponding adjustments Incorporate the concept of “transparency framework” and the mandate to work on that regard Consider National Adaptation Plans (NAP), early warning systems and other components as part of policy development Proposal approved in Lower House (Deputies) on 12 Dec 2017 Under final discussion at the Senate for final approval and enactment

Carbon pricing policy

Legal basis GENERAL LAW ON CLIMATE CHANGE (LGCC) About carbon pricing: “Federal government may design and promote the use of economic, financial, fiscal and market-based instruments” Definition Economic Norms, standars, or administrative mechanisms that help define the costs and benefits of mitigation and adapatation, and that foster compliance national targets Financial Loans, insurance, reinsurance, investment funds, trust funds, or similar instruments that finance mitigation and /or adaptation actions, or support research and development of climate technologies. Fiscal Incentives or fiscal measures that promote a behavioural change towards a nationally defined targets Market Permits, allowances, approvals, or authorizations related to pre-defined emissions caps that may trigger new actions or bring efficiency improvements. The reductions maybe transferred.

Legal Framework: Carbon Market (ETS) Article 94: “SEMARNAT… may set up a voluntary emissions trading system with the goal of promting emissions reductions at the least possible cost in a measurable, reportable and verifiable manner”. Proposal approved in Lower House (Deputies) on 12 Dec 2017: Article 94: “SEMARNAT… must set up in a gradual and progressive manner an emissions trading system with the goal of promting emissions reductions at the least possible cost in a measurable, reportable and verifiable manner, without threatening the competitiviness of participating sectors against international markets”. “… a 36 months pilot before a formal phase…” “…draft regulation to be adjusted based on the pilot…”

Carbon Market (ETS) development plan Legal Framework: Carbon Market (ETS) development plan ETS Simulation exercise at the Mexican Stock Exchange (Q3 2017 –Q3 2018) Potential linkages with others Pilot phase ➔ …al 2021 Regulation ETS (by Q2 2018) Technical design ETS (Feb 2017 – May 2018) Competitiveness sudies (Julio 2017-Feb 2018) ETS Workign Group (2017) Emissions reports verification criteria (30 Junio) Verified reports +1 MtCO2e (by 30 Nov) New verification bodies (al15 Junio) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2017 2018 2019 2020

ETS Design Steps to be followed… PMR; ICAP. (2016). “Emissions trading in practice: A Handbook on Design and Implementation” https://openknowledge.worldbank.org/handle/10986/23874

ETS Simulation Exercise (with PMR support) SEMARNAT, MEXICO2 and Environmental Defense Fund (EDF) are running a “Carbon makert simulation Exercise”. Use of the CarbonSim platform to simulate a market, participants, caps, trading… and all aspects of an ETS Voluntary participation of 94 companies Funded by the PMR from World Bank Goals: Build knowledge and capabilities within private sector companies on what is an ETS and how it works. Enhance their understanding of the role of different areas of a company when participating in an ETS Prepare them to participate more actively in the design of Mexico’s ETS regulation

Carbon tax [Ley de Impuestos Especiales a Producción y Servicios (IEPS)] “…importation and commercialization of fossil fuels…” Fuel Tax 2016 Unit $MXN / tCO2 $USD / t CO2 Natural gas $ - m3 Propane $ 0.0629 litre $ 42.34 $ 2.26 Butane $ 0.0815 $ 44.79 $ 2.39 Gasoline $ 0.1105 $ 48.18 $ 2.57 Jet fuel $ 0.1320 $ 49.86 $ 2.66 Diesel $ 0.1340 $ 49.41 $ 2.63 Fuel oil $ 0.1431 $ 48.77 $ 2.60 Petroleum coke $ 0.0166 kg $ 6.17 $ 0.33 Coal coke $ 0.0389 $ 14.25 $ 0.76 Coal $ 0.0293 $ 11.64 $ 0.62 Others $ 0.4237 tC $ 42.37

Monthly revenue - accumulated (USD) Millions (USD)

Impact of carbon tax - examples: Gasoline use in vehicles and emissions Electricity generation, demand and emissions

CO2 emissions from gasoline consumption in vehicles. Does not include other fuels

Based on fuels consumed for electricity generation in thermal processes

Thank you for your attention Juan Carlos Arredondo Brun SEMARNAT Thank you for your attention Juan Carlos Arredondo Brun Director General for Climate Change Policies juan.arredondo@semarnat.gob.mx Tel. +52-(55)-5490-2118