Mexico's Emissions Trading System (SCE)

Mexico's Emissions Trading System (Sistema de Comercio de Emisiones, SCE) is a market-based instrument designed to reduce greenhouse gas emissions from the country's largest-emitting sectors. It works on a cap-and-trade principle: the authority sets a maximum emissions limit for the covered sectors and distributes allowances that installations can buy and sell among themselves.

The SCE was the first emissions trading system launched in Latin America, making it a regional reference point for carbon market design.

How a cap-and-trade system works

In an emissions trading system (ETS), the regulator sets a total emissions cap that must decline over time. Installations receive or buy allowances and, at the end of each period, must surrender as many allowances as the tonnes they have emitted. Those who cut emissions can sell their surplus allowances; those who emit above their allocation must buy them. This puts a price on carbon and drives reductions where they are most efficient. The model has parallels with the EU Emissions Trading System (EU ETS), though with its own rules.

Legal framework and covered sectors

The SCE is grounded in article 94 of the General Climate Change Law (LGCC), reformed in July 2018, which tasks the environmental authority with establishing an emissions trading system progressively and gradually.

The system targets the energy and industry sectors and covers installations whose direct emissions from stationary sources are at or above 100,000 tonnes of CO2 a year. The energy sector includes electricity generation, transmission and distribution as well as the extraction, production, transport and distribution of fossil fuels; industry covers activities such as cement and lime, chemicals and petrochemicals, iron, steel and metals, mining, glass, automotive, food and beverages, and pulp and paper.

The SCE relies on the National Emissions Registry (RENE), which provides the verified emissions data needed to allocate allowances and check each installation's compliance.

From pilot programme to operational phase

The LGCC reform itself provided for a test programme with no financial consequences for participating sectors, lasting thirty-six months: a pilot phase in 2020 and 2021 and a transition year in 2022. During that period installations became familiar with measuring, reporting and surrendering allowances without financial penalties for non-compliance.

The operational phase, with full binding effect, is scheduled from 2025 onwards, but the preliminary rules of the test programme remain the framework in force until the regulation for the operational phase is published. It is therefore worth following publications in Mexico's Official Gazette before treating the system's final design as settled. The design includes an offset mechanism: participants can meet up to 10% of their compliance obligations with offset or early action credits.

Why it matters for companies

For covered installations, the SCE introduces a cost attached to emitting and, therefore, a direct financial incentive for decarbonisation. Anticipating the system, measuring emissions accurately and planning reductions lets companies manage carbon price risk rather than be exposed to it.

Get ready for the carbon market with Manglai

At Manglai we help companies measure their emissions, anticipate the cost of carbon and design credible reduction plans. With Manglai's carbon footprint software you can prepare for the SCE and for a future with a price on carbon.