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

Camila Barragán-Beaud, Amalia Rosa Pizarro Alonso*, Maria Xylia, Sanna Syri, Semida Silveira

*Corresponding author for this work

    Research output: Contribution to journalJournal articleResearchpeer-review

    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.
    Original languageEnglish
    JournalEnergy Policy
    Volume122
    Pages (from-to)287-299
    ISSN0301-4215
    DOIs
    Publication statusPublished - 2018

    Keywords

    • Mexico
    • Carbon pricing
    • Electricity sensor
    • Climate policy
    • Energy systems analysis
    • Political feasibility

    Cite this

    Barragán-Beaud, Camila ; Pizarro Alonso, Amalia Rosa ; Xylia, Maria ; Syri, Sanna ; Silveira, Semida. / 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. In: Energy Policy. 2018 ; Vol. 122. pp. 287-299.
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    title = "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",
    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.",
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    author = "Camila Barrag{\'a}n-Beaud and {Pizarro Alonso}, {Amalia Rosa} and Maria Xylia and Sanna Syri and Semida Silveira",
    year = "2018",
    doi = "10.1016/j.enpol.2018.07.010",
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    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. / Barragán-Beaud, Camila; Pizarro Alonso, Amalia Rosa; Xylia, Maria; Syri, Sanna; Silveira, Semida.

    In: Energy Policy, Vol. 122, 2018, p. 287-299.

    Research output: Contribution to journalJournal articleResearchpeer-review

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    AU - Syri, Sanna

    AU - Silveira, Semida

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