Carbon tax or emissions trading? An analysis of economic and political feasibility of policy mechanisms for greenhouse gas emissions reduction in the Mexican power sector. (November 2018)

• Record Type: Journal Article
• Authors: Barragán-Beaud, Camila; Pizarro-Alonso, Amalia; Xylia, Maria; Syri, Sanna; Silveira, Semida
• Is Part Of: Energy policy. Volume 122(2018)
• Page Start: 287
• Page End: 299
• Publication Date: 2018-11
• Subjects: Mexico -- Carbon pricing -- Electricity sector -- Climate policy -- Energy systems analysis -- Political feasibility; Energy policy -- Periodicals; Politique énergétique -- Périodiques; Electronic journals; 333.79
• DOI: 10.1016/j.enpol.2018.07.010
• Languages: English
• ISSNs: 0301-4215

Abstract

Abstract: This study provides a comparative assessment of carbon-pricing instruments for the Mexican electricity sector, contrasting a carbon tax with an emissions trading scheme (ETS). The assessment is performed in terms of economic impacts and political feasibility. Model-based scenarios considering different price and quantity levels are analyzed on Balmorel-MX, a cost optimization bottom-up model of the Mexican electricity system. The political feasibility is evaluated using an online survey and interviews with representatives of relevant stakeholder groups. The assessment suggests that an ETS is the most appropriate instrument for the Mexican case. We recommend to set the cap as 31% abatement in relation to a baseline, which is suggested to be 102 MtCO2 by 2030, given the business-as-usual baseline used as reference by the Mexican government (202 MtCO2 ) is found to leave cost-effective abatement potential untapped. An emission trading system with such design has higher cost-efficiency and lower distributional effects than a carbon tax at equivalent ambition level (15 USD/tCO2 ). The political feasibility analysis confirms the assessment, as it is in line with the priorities of the stakeholder groups, allows earmarking carbon revenue and avoids exempting natural gas from carbon pricing. Highlights: Current climate goals for the power sector leave untapped potential for mitigation. Mexico can exceed its unconditional NDCs commitments with economic benefits. An ETS is economically preferred to a tax providing the same level of mitigation. An ETS displays a higher social consensus than a carbon tax among stakeholders.