Carbon Pricing-The Way to a Net-Zero Emissions Planet


Written by Enrique Lendo, Business Development Mexico Advisor.


Adopted in 2015, the Paris agreement sets the objective to stabilize the average increase of global temperature at 1.5 °C to avoid widely documented catastrophic effects. According to the Intergovernmental Panel on Climate Change (IPCC), this target will be reached only if global emissions of greenhouse gases (GHG) peak in 2030 and become net zero by 2050.

The transformation required to decarbonize our economy is monumental. It implies reconfiguring our energy mix, electrifying our transport systems, reverting deforestation rates, boosting resource efficiency and building smart cities, among many others. The OECD estimates that the investment cost in infrastructure to achieve the global climate change and sustainable development goals will be close to 7$ trillion dollars a year, equal to the GDP of Mexico multiplied by 5. 

Who is to pay for the transition cost? It is very likely that the only feasible alternative to drive the energy transition at the speed required by the Paris Agreement is the massive adoption of “carbon pricing schemes”, which are based on the “polluter pays principle”.

According to the World Bank, carbon pricing schemes throughout the world have increased exponentially going from 7 in 2000 to 61 today. Thirty of these are carbon taxes and 31 are emission trading systems (ETS). Carbon pricing schemes are applied both by national and subnational governments, cover 22% of global emissions and collected $ 45 billion dollars in 2019. Through immediate signals to economic agents, they induce innovation, resource efficiency and important changes to production and consumption patterns. 

Mexico was the first country in Latin America to adopt a carbon tax in 2014, which has collected $ 1.8 billion dollars since its operation began. Mexico´s ETS pilot program was launched this year, considering companies with 100,000 + tones of CO2 emissions from the energy and industrial sectors. The ETS will become fully operational in 2023 and become the first of its kind in the region.

Besides the carbon pricing schemes adopted at the federal level, in the last days some subnational governments in Mexico have shown interest to adopt GHG emissions taxes under environmental and public finance grounds, as well as in reaction to policies adopted at the federal level which prevent the transition to renewable energy. A couple of weeks ago, Tamaulipas became the first subnational government in Mexico to adopt a carbon tax and the state government of Jalisco announced that its carbon tax will enter into force in 2021. The states of Nuevo León, Coahuila, Durango, Michoacán, Colima and Guanajuato are also considering similar taxes.

While carbon pricing schemes around the world have advanced notably, their impact are still insufficient. According to the Carbon Pricing Leadership Coalition (CPLC), the price level to achieve the goal of the Paris Agreement needs to reach $75 dollars per ton of CO2 in 2030. Half of the schemes currently operating around the world have set the price below $10 dollars and Mexico´s carbon tax is only $2 dollars per ton. In this context, it is imperative to secure a substantial increase both in the price level and in the emissions covered by carbon pricing schemes to induce the transformation required. In the same line, it will be necessary to link schemes within and between countries.  

Finally, to foster social acceptance, it is essential that carbon pricing policies consider compensation and transition measures to affected sectors and consumers, which can be financed with the same revenues. The post-Covid economic recovery process provides an opportunity to adjust the relative prices of energy in order to transit towards carbon neutrality by 2050.

Article originally published in Mexico´s newspaper Reforma

ALLCOT and Green Tank, an alliance to promote sustainability and a low-carbon economy in Mexico.

The two companies join forces to support organizations in achieving sustainable and non-polluting business models. The alliance aims to respond to current needs of the Mexican market and the Sustainable Development Goals (SDGs) of the United Nations.

From the time of the launch of Agenda 21 and, more recently, the Agenda 2030, Mexico has actively voiced her commitment to sustainable development and to strengthening the channels for monitoring, communicating and regulating actions that have allowed us to reduce the gap between the high indices of inequality and the high indices of pollution of the 1980s up to the second decade of the 21st century. Undoubtedly, the COVID 19 pandemic of 2020 marks a turning point—not only in Mexico—that calls for being even more rigorous and exhaustive in complying with sustainability goals. The 17 Sustainable Development Goals (SDGs) take on greater relevance and emphasize the right path for humanity and the planet.  

Mexico became a signatory to the Agenda 2030 and the Paris Climate Agreement and included their objectives in national planning through passing reforms to the legal framework and prioritizing those goals in the development strategies. Green House Gas Emissions (GHG) are to be reduced by 22% in 2030 and by 50% by 2050, and the national contribution to the Paris Agreement is being updated to reflect a vision of net zero emissions by mid-century.

To meet its climate mitigation objectives, Mexico established a carbon tax in 2014 and, with its launch of a carbon trading system in 2023, will become the first Latin American country to set a ceiling on emissions through efficiency schemes that promote competitiveness in sustainability. In addition, in 2020 Mexico presented its National Strategy for Implementation of the Agenda 2030 including concrete action plans for achieving each of the 17 SDGs and putting people in the center of the development program under the slogan, “No One Left Behind”.

In response to these priorities, ALLCOT and Green Tank, after many years of promoting sustainability with different approaches, draw closer to combine efforts and advance toward a shared purpose. Today, our goal of promoting compliance with the SDGs and protecting the planet’s resources is intensified, but above all, we strive together to generate prosperity, shared value and promote better living conditions in communities.

ALLCOT, with more than 10 years of experience, develops sustainable projects around the world, supporting its clients and collaborators with know-how and management of initiatives that fulfill the Sustainable Development Goals and actively combat the climate crisis by reducing emissions of Greenhouse Gases (GHG). Since 2017, ALLCOT began operations in Mexico aimed at breaking paradigms in the private and public sectors by promoting vigorous efforts to reduce greenhouse gases through adopting sustainable projects designed to produce social impacts. Also, we have served as a spokesperson for the SDGs with leaders in banking, industry, waste management, construction, tourism and academia. ALLCOT is committed to and forms alliances with companies that, like us, value the environment.

The Green Tank team applies its extensive international experience and multi-disciplinary backgrounds to support businesses as change agents that protect the environment to foster successful and regenerative economies. Green Tank offers strategy, management and communication of projects and products that favor the planet and apply the Triple Impact approach. Our consultancy works to create shared value through collaborative models that stimulate cooperation among businesses and exchange of products or services between Large Businesses and Small and Medium Enterprises for achieving energy efficiency and the circular economy. Green Tank consulting services enable businesses to develop business strategies and measure and comply with the SDGs of the Agenda 2030, and the firm is committed to the movement of B Corps.

ALLCOT and Green Tank merge their pathways and combine tools to pursue a single vision of forming sustainable alliances to promote a sustainable and low-carbon economy and, why not?, to advance towards a carbon-neutral economy motivated by promoting the well-being of the people, communities and organizations where we leave our marks.