Report No: AUS0002147 . Mexico: Paving the way for the development of emissions trading Report for the Mexico Partnership for Market Readiness Project . March 2021 . EAE . . © 2017 The World Bank 1818 H Street NW, Washington DC 20433 Telephone: 202-473-1000; Internet: www.worldbank.org Some rights reserved This work is a product of the staff of The World Bank. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of the Executive Directors of The World Bank or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. Rights and Permissions The material in this work is subject to copyright. Because The World Bank encourages dissemination of its knowledge, this work may be reproduced, in whole or in part, for noncommercial purposes as long as full attribution to this work is given. Attribution—Please cite the work as follows: “World Bank. 2021. Mexico: Paving the way for the development of emissions trading © World Bank.� All queries on rights and licenses, including subsidiary rights, should be addressed to World Bank Publications, The World Bank Group, 1818 H Street NW, Washington, DC 20433, USA; fax: 202-522-2625; e-mail: pubrights@worldbank.org. 2 Table of Contents I. Executive Summary .............................................................................................................................. 7 II. Background........................................................................................................................................... 9 Mexico’s climate change challenges and actions ................................................................................. 9 PMR engagement in light of Mexico’s evolving climate mitigation policy ......................................... 13 III. PMR Mexico program and key results .............................................................................................. 16 Component 1. ETS Pilot Program design elements ............................................................................ 17 Component 2. Development of the ETS Registry (Pilot Program) ...................................................... 23 Component 3. Cross-cutting capacity building and communications ................................................ 25 IV. PMR project implementation arrangements .................................................................................... 28 V. Impacts of PMR-Mexico ..................................................................................................................... 29 Support for enhanced and effective mitigation action in Mexico ...................................................... 30 Effective domestic climate policy ....................................................................................................... 30 Access to international carbon markets ............................................................................................. 30 Inter-sectoral engagement through capacity building ....................................................................... 31 Raising awareness – Communications strategy.................................................................................. 32 VI. Lessons Learned ................................................................................................................................. 33 VII. Challenges ahead ............................................................................................................................... 35 VIII. Annexes .............................................................................................................................................. 37 Annex 1. Technical support - Main Activities and Deliverables ....................................................... 37 Annex 2. Communication products ................................................................................................... 49 3 Table of Figures Figure 1. Mexico’s path for the implementation of its climate change commitments .............................. 11 Figure 2. Mexico’s approach to climate action ........................................................................................... 12 Figure 3. Key features of the ETS Pilot Program ......................................................................................... 14 Figure 4. Key articles of the ETS Pilot Program regulation ......................................................................... 15 Figure 5. PMR Mexico program structure................................................................................................... 16 Figure 6. Structure of component 1 ............................................................................................................ 17 Figure 7. Carbon pricing policies in Mexico at the federal and state level ................................................. 22 Figure 8. Flux of carbon credits between national and international carbon pricing instruments ............ 23 Figure 9. Structure of component 2 ............................................................................................................ 23 Figure 10. Registry operation by differentiated users ................................................................................ 25 Figure 11. Structure of component 3 .......................................................................................................... 25 Figure 12. Capacity building – Key figures .................................................................................................. 27 Figure 13. PMR Mexico readiness program - Key results ........................................................................... 33 4 Acronyms AFOLU Agriculture, Forestry and Land Use CANACEM National Chamber of Cement (Cámara Nacional del Cemento) CANACERO National Chamber of Steel (Cámara Nacional de Acero) CCC Climate Change Council (Consejo de Cambio Climático) CCE Business Coordination Council (Consejo Coordinador Empresarial) CDM Clean Development Mechanism CEL Clean Energy Certificate (Certificado de Energía Limpia) CESPEDES Private Sector Commission for Studies on Sustainable Development (Comisión de Estudios del Sector Privado para el Desarrollo Sostenible) CICC Intersectoral Commission on Climate Change (Comisión Intersecretarial de Cambio Climático) COA System for annual GHG emissions report (Cédula de Operación Anual) CONAFOR National Forestry Commission (Comisión Nacional Forestal) CONANP Natural Protected Areas Commission (Comisión Nacional de �reas Naturales Protegidas) CONCAMIN Confederation of Industrial Chambers (Confederación de Cámaras Industriales) CONEVAL National Council for the Evaluation of Social Development Policy (Consejo Nacional de Evaluacion de la Política de Desarrollo Social) COP Conference of the Parties CORSIA Carbon Offsetting and Reduction Scheme for International Aviation CPLC Carbon Pricing Leadership Coalition DGPCC General Directorate for Climate Change Policies (Dirección General de Políticas para el Cambio Climático) DPF Development Policy Financing ENACC National Strategy on Climate Change (Estrategia Nacional de Cambio Climático) ETS Emissions Trading System ETS-PP Emissions Trading System Pilot Program FONDEN National Fund for Natural Disasters GDP Gross Domestic Product GHG Greenhouse Gas IEPS Special Tax on Production and Services IPCC Intergovernmental Panel on Climate Change INECC National Institute of Ecology and Climate Change (Instituto Nacional de Ecología y Cambio Climático) INECyGEI National Emissions Inventory of Greenhouse Gases and Compounds LAC Latin America and the Caribbean LGCC General Law on Climate Change (Ley General de Cambio Climático) MRP Market Readiness Proposal MRV Monitoring, Reporting, and Verification MSM Market Stability Mechanisms NAMA Nationally Appropriate Mitigation Action NDC Nationally Determined Contribution OECD Organization for Economic Co-operation and Development 5 PECC Special Program on Climate Change (Programa Especial de Cambio Climático) PMI Partnership for Market Implementation PMR Partnership for Market Readiness REDD Reducing Emissions from Deforestation and Forest Degradation RENE National Emissions Registry (Registro Nacional de Emisiones) SADER Ministry of Agriculture and Rural Development (Secretaría de Agricultura y Desarrollo Rural) SEMARNAT Ministry of Environment and Natural Resources (Secretaría de Medio Ambiente y Recursos Naturales) SENER Ministry of Energy (Secretaría de Energía) SHCP Ministry of Finance and Public Credit (Secretaría de Hacienda y Crédito Público) UNFCCC United Nations Framework Convention on Climate Change WB World Bank WCI Western Climate Initiative 6 I. Executive Summary Mexico has made great strides recently in its fight against climate change. The enactment of the Climate Change Law in 2012 and its reform in 2018 led to the creation of a series of administrative and policy instruments to guide domestic action on climate mitigation and adaptation. The development and implementation of this agenda created new and different challenges involving the design and adoption of new fiscal, economic, and market-based instruments. Mexico opted for the development of an Emission Trading Scheme (ETS) as its main instrument to scale up climate change mitigation efforts. To address design and implementation challenges, the country sought avenues of international cooperation and technical assistance, including by joining the Partnership for Market Readiness (PMR). Established and managed by the World Bank, the PMR is a grant-based, global partnership that provides systemic support and funding for technical and institutional capacity development and piloting of new and innovative market-based instruments. Implemented from January 2018 to February 2021, the PMR Mexico readiness program analytical and advisory project (hereinafter referred to as “the project�) was instrumental in setting up new sound technical knowledge foundation in the country and providing inter-sectoral and inter-institutional engagement. The program encompassed three components: 1) ETS Pilot Program design elements; 2) Development of the ETS Registry (Pilot Program); and 3) Cross-cutting capacity building and communications. The project contributed to the development of flexibility mechanisms for carbon crediting, draft GHG protocols, early actions recognition and offsets use in the ETS, an evaluation framework to assess the ETS Pilot Program performance and effectiveness, and guidance on market oversight and market stability mechanisms. It also helped assess the interactions and complementarities of emerging subnational policies in relation to the ETS and the carbon tax and explore Mexico’s engagement in cooperative approaches under Article 61 of the Paris Agreement. The Ministry for the Environment and Natural Resources (SERMARNAT) is the agency responsible for devising policy instruments to encourage and guide actions for the accomplishment of national targets. The activities undertaken under the project were carried out in close cooperation with SEMARNAT which was the main recipient of the technical assistance and advisory services. With support of the program, SEMARNAT adapted an existing information system for the creation of an ETS transactions registry and supported the implementation of web-based carbon market simulation exercises. Stakeholders' engagement benefited from a new e-learning course on carbon markets, the preparation of a Mexico ETS Handbook, and sectoral training on carbon markets and registries related matters. Box 1 presents key outputs of the project. 1 Article 6 of the Paris Agreement provides an opportunity for countries to cooperate in the implementation of their climate change mitigation and adaptation plans through market-based approaches and reflect this cooperation in their NDCs. EBRD, 2017. Operationalizing Article 6 of The Paris Agreement, Perspectives of developers and investors on scaling-up private sector investment 7 Box 1. Key figures of PMR Mexico project • 13 technical study reports • 8 in-depth ETS training activities with different target groups • 5 guideline documents • 12 technical workshops on ETS and related topics • 65 technical & policy notes • ~ 1200 participants in trainings and workshops (42% women) • 12 social media outreach • ~ 100 national and international experts involved in supporting products the different TA assignments • Innumerable consultation & discussion workshops with national experts & stakeholders convened as part of the different TA assignments Mexico’s ETS Pilot Program is the first market-based instrument of its kind fully designed and launched in the Latin America and the Caribbean (LAC) region. Mexico is at the forefront of similar initiatives and is working to create South-South cooperation channels to share its experience with other countries in the region. Based on all the background, knowledge base and inter-institutional engagement created by this project, the government has opened opportunities for discussion to evaluate different approaches and design the roadmap aimed at the approval of official protocols and carbon pricing instruments in the future. The successful development and completion of market readiness activities positions Mexico on a solid path toward the large-scale implementation of a comprehensive ETS program. This report presents the main activities undertaken under the project and identifies the main outcomes. Observed results confirm the important contribution of this project to the Mexican development and climate policy landscape, developing technical knowledge products, practical tools and capacity building activities that are shaping the design of the national carbon pricing policy mix and informed the review of the NDC (submitted to the UNFCCC in December 2020). The report is organized as follows: section II outlines the country context prior to the PMR project; section III outlines the project goals; the implementation process and the key outcomes; and final sections evaluate the impacts of the project in the country and outlines next steps, lessons learned, and recommendations. 8 II. Background Mexico’s climate change challenges and actions Mexico faces the dual challenge of reducing its greenhouse gas (GHG) emissions and its vulnerability to climate change. On one hand, Mexico is among the top 15 largest GHG emitters in the world. According to its most recent national GHG emissions inventory, Mexico emitted over 733 MtCO2e in 2017, equivalent to 1.4% of global emissions.2 Over 70% originated from the burning of fossil fuels in transport, electricity generation, and industrial processes. On the other hand, Mexico is considered a highly vulnerable country due to its socio-economic and geographic characteristics, including its location amid the Atlantic and the Pacific oceans. Extreme weather events constitute a significant threat to coastal communities, low-lying zones, mountainous regions, and urban areas, as many of these are regularly exposed to storm surges, hurricanes, heavy rains, flooding, landslides, or droughts throughout the year. In 2018, insured losses from extreme weather events totaled over $230 million dollars, 40% of which came from hurricanes and flooding.3,4 In that same year, the federal government spent nearly $1 billion dollars on disaster recovery funding through the National Fund for Natural Disasters (FONDEN).5 The frequency and severity of extreme weather events are expected to increase, exposing the country to greater risks, particularly for a sizable proportion of the population who is less equipped to sustain and recover from the impacts of climate change. Recent statistics by Mexico’s National Commission for Poverty Evaluation (CONEVAL) highlight poverty pervasiveness in the country. By 2020, nearly 49% of the population experienced certain degree of poverty in terms of access to food, housing, education, health services, or a regular source of income.6 In that context, Mexico assigns significant and equally relevant importance to reducing GHG emissions as well as enhancing adaptive capacity and reducing vulnerability to climate change.7 Since its accession to the United Nations Framework Convention on Climate Change (UNFCCC), Mexico has been an active Party to the Convention and has translated that interest into international engagement and domestic legislation. At the international level, the country has prepared and submitted six National Communications and two Biennial Update Reports, including updated national GHG emissions inventories, to inform about Mexico’s implementation of the Convention. Similarly, Mexico has taken a progressive role under the Convention. On the eve of Conference of the Parties (COP) 15 in Copenhagen, in 2009, Mexico submitted a mitigation pledge of reducing national emissions by 30% by 2020 in support 2 Compared to the global annual emissions for the same year, as estimated by the Global Carbon Project. Data set available at: https://www.icos-cp.eu/science-and-impact/global-carbon-budget/2018 3 Based on data from the Mexican Association of Insurance Institutions (AMIS): https://www.eleconomista.com.mx/politica/Huracanes-e-inundaciones-causan-el-40-de-danos-por-desastres-en-Mexico-AMIS- 20190617-0055.html 4 Gobierno de México (2019). “Sexta Comunicación Nacional y Segundo Informe Bienal de Actualización ante la Convención Marco de las Naciones Unidas sobre el Cambio Climático�. https://unfccc.int/sites/default/files/resource/MEX_6aNC_Revisada_0.pdf page 466. 5 Total amount of financial resources channeled through FONDEN in 2018, as reported by Ministry of the Interior: http://www.gobernacion.gob.mx/work/models/SEGOB/Resource/1077/12/images/Recursos%20autorizados%202018%20- %2009-10-2018.pdf 6 CONEVAL (2019). Medición de la pobreza 2008-2018. https://www.coneval.org.mx/Medicion/MP/Paginas/Pobreza-2018.aspx 7 Gobierno de México (2019). “Sexta Comunicación Nacional y Segundo Informe Bienal de Actuali zación ante la Convención Marco de las Naciones Unidas sobre el Cambio Climático�. https://unfccc.int/sites/default/files/resource/MEX_6aNC_Revisada_0.pdf 9 of the international negotiation process towards more ambitious action. A year later, in 2010, Mexico hosted COP 16, ratified its pledge, and guided negotiations towards the adoption of the Cancun Agreements, which consolidated the multilateral process towards the adoption of the Paris Agreement at COP 21 in 2015. Mexico has maintained an active presence in mitigation-related initiatives. Between 2009 and 2010 the country became an early adopter of abatement cost curves and low-carbon development analysis as mechanisms to inform mitigation policy decisions.8 Similarly, between 2011 and 2015 the country prepared a portfolio of emerging Nationally Appropriate Mitigation Actions (NAMAs) that could contribute to the voluntary pledge expressed at COP 15. In 2012, Mexico joined the World Bank’s Partnership for Market Readiness, with a view to developing the technical foundation for carbon pricing policy in a cost-efficient manner. Later, Mexico also engaged in the Carbon Pricing Leadership Coalition (CPLC) and led the incorporation of a working group on monitoring, reporting and verification (MRV) of GHG emissions under the Pacific Alliance, both as expressions of genuine political interest on carbon pricing while recognizing the importance of integrating solid technical work capacities on GHG emissions in the country. International engagement has been mirrored by domestic legislation. In 2012, Mexico was the second country in the world to enact a climate change bill, the General Law on Climate Change (LGCC), which defines a set of regulations and instruments that conform the framework for climate action in the country. Articles 7 to 9 distribute duties and responsibilities among federal, state, and municipal governments in relation to both mitigation and adaptation policy. The law assigns the federal government, in the remit of SEMARNAT, the responsibility for devising policy instruments to encourage and guide actions for the accomplishment of national targets. It also assigns the National Institute of Ecology and Climate Change (INECC) the responsibility to advise SEMARNAT on this task by conducting research and technical studies on mitigation potentials, decarbonization and technological pathways, costs modeling, among other topics. The LGCC established the foundation for mitigation policy where administrative, fiscal, economic, and market instruments could be used to drive down emissions. An amendment to the law in 2018 introduced the goals and precepts of the Paris Agreement, including the use of a Nationally Determined Contribution (NDC) as a new target-setting policy instrument. Amongst other critical provisions, the amended Law mandates SEMARNAT to design and implement a National ETS, starting with a pilot phase. The regulation (“Bases Preliminares�) for the Pilot Phase of the ETS was published on October 1st, 2019. The pilot will run for three years, starting on January 1st, 2020. Figure 1 summarizes main milestones achieved by Mexico to push forward its climate change agenda. 8 Johnson, T. Alatorre, C. Romo, Z., Liu, F. (2010). “Low Carbon Development for Mexico�. World Bank https://www.esmap.org/sites/default/files/esmap- files/P108304_MX_Low%20Carbon%20Development%20for%20Mexico_Johnson.pdf 10 Figure 1. Mexico’s path for the implementation of its climate change commitments Source: World Bank Staff Climate policy instruments in use The five legal and policy instruments described below and presented in Figure 2 comprise the foundation of Mexico’s approach to climate action. Combined, they provide a long-term vision, a decade-specific set of targets, an administration-oriented group of objectives with an action plan, the reporting obligations and requirements for private and public sector organizations, the means to monitor progress, and an initial price signal on GHG emissions. 11 Figure 2. Mexico’s approach to climate action Source: World Bank Staff National Strategy on Climate Change (ENCC). It is the main policy instrument derived from the LGCC. This planning document sets Mexico’s vision and priorities for climate action over the next 10, 20, and 40 years. In its first version, published in 2013, the Mexican government already identified the challenges arising from transitioning to deep decarbonization while promoting economic development and enhancing competitiveness. To that end, the strategy conceives the use of fiscal and market instruments to sustain economic transformation and low carbon development and envisions voluntary carbon markets as a mitigation option. National Emissions Registry (RENE). The RENE regulation, enacted in 2014, mandates the disclosure of annual GHG emissions by any corporation or organization when emitting more than 100,000 tCO 2e per year. The RENE became the first mandatory reporting requirement for GHG emissions applicable to all types of economic activities. The disclosure obligation under the RENE is accompanied by a third-party verification requirement overseen by SEMARNAT, to ensure the accuracy, comparability, and transparency of reported GHG emissions. Carbon tax on the importation and commercialization of fossil fuels. Originated during the fiscal reform of 2014 and regulated by the Law of Special Tax on Production and Services (IEPS), this became the first instrument on carbon pricing in Mexico. The tax applies a differentiated rate per fossil fuel based on its 12 carbon content, but natural gas which is exempted. The applicable rates have not changed since its introduction in 2014, hence the annual increase only reflects inflation. Special Program on Climate Change (PECC). This instrument, equally emanated from the LGCC but only applicable to the federal government, is the program that defines government climate commitments and actions over the period of government administration. Its content and focus must be derived from ENCC’s vision and its actions directed towards national targets. As a government plan of action, it entails budgetary decisions, and therefore its progress must be tracked and reported on a regular basis. To that end, SEMARNAT developed the SIAT-PECC, an electronic platform used by all government ministries under the PECC to report progress and for SEMARNAT to calculate and report overall accomplishment of PECC mitigation and adaptation targets. Nationally Determined Contribution (NDC). This instrument, incorporated into the climate change law in 2018, is conceived as the set of national targets on mitigation and adaptation that contribute to the goals of the Paris Agreement and the ultimate objectives of the UNFCCC. Mexico was the first developing country to submit its intended NDC in 2015. The updated NDC9, submitted to the UNFCCC on December 2020, confirmed the national targets of reducing the expected GHG emissions levels by 22% by 2030, and increasing the target to 36% conditioned to international support. It should be highlighted that the updated NDC embraces the Mexican Emissions Trading System (ETS) as a key policy instrument to support the achievement of its quantified 2030 mitigation target. In fact, the coverage and the cap initially established for the ETS pilot program (see figure 3) has been set in a way that it is aligned with a linear mitigation trajectory towards the NDC 2030 mitigation target, including sectoral burden sharing considerations as determined in the LGCC and NDC. The updated NDC also expresses Mexico’s intention and interest in using international cooperative arrangements under Article 6 of the Paris Agreement as a mechanism to achieve its conditional target. In Mexico, the NDC has become the key reference to national climate action plans against which policies assess their ambition and performance. PMR engagement in light of Mexico’s evolving climate mitigation policy Mexico has made great strides toward ambitious climate action in a relatively brief time. Yet, the design and adoption of new fiscal, economic, and market instruments create new and different challenges. These new instruments may raise questions about equity of effort sharing across sectors, generate skepticism about whether national expertise on the topic exists, or if it will result on robust decision making to promote economic development. These aspects pointed Mexico to the need to study and understand the costs, benefits, and interactions of instruments aimed at increasing mitigation and adaptation to climate change. In that environment, the PMR represented the opportunity to work alongside other jurisdictions experiencing similar processes, accompanied by global technical expertise, and supported by financial resources that would facilitate the development of necessary technical elements to inform and implement national carbon pricing policies. 9 Available at https://www4.unfccc.int/sites/ndcstaging/PublishedDocuments/Mexico%20First/NDC-Esp-30Dic.pdf 13 Box 2: Brief review of Mexico’s participation in the PMR prior to current readiness project The PMR Partnership Assembly endorsed Mexico´s Market Readiness Proposal (MRP) in 2013 and awarded funding for US$3 million to support market readiness activities. The PMR readiness grant was initially to be managed by Mexico’s Climate Change Fund; however, due to changes in the fund operation, SEMARNAT and Hacienda requested the Bank to administer the PMR readiness grant under Bank executed modality in April 2017. There was also a change in priorities in terms of the content and scope of program. Mexico’s initial MRP considered supporting the development of GHG crediting mechanisms for sector mitigation programs (so called Nationally Appropriate Mitigation Actions, NAMAs), specifically, a NAMA for sustainable housing and for energy-efficient appliances. However, the LGCC amendment marked a major milestone in Mexico’s carbon pricing policy, driving the country to update the scope of work of its MRP. The PMR-supported work program was updated in January 2018 to support the development of a National ETS. Mexico’s participation in the PMR builds firmly upon the provisions of the LGCC and its mitigation policy instruments. The 2018 LGCC reform shaped Mexico’s engagement in the PMR in a meaningful manner. The reformed Article 94 of LGCC mandated SEMARNAT to design an ETS within 10 months starting from the reform’s enactment date. The Law also stablished that the ETS will be gradually implemented in Mexico, starting with a 36-month Pilot Program aim at evaluating potential impacts on industrial competitiveness. During the Pilot Program, there won’t be economic penalties for noncompliance and the allocation of allowances will be free of charge. In this way, companies will have time to learn about the ETS operation and to identify mechanisms to reduce their emissions before facing the operational phase. The regulation for the operational phase of Mexico’s ETS will be based on the effectiveness and results of the Pilot Program. Figure 3 shows the key features of the Pilot Program as defined in the 2018 LGCC reform. Figure 3. Key features of the ETS Pilot Program Source: World Bank Staff The subsequent approval of the ETS Pilot Program regulation10, published in October 2019, guided the last implementation years of the PMR, from 2019 to 2021. The new legal requirements created a need for 10 ETS Pilot Program regulation is available at: http://www.dof.gob.mx/nota_detalle.php?codigo=5573934&fecha=01/10/2019. 14 technical studies and new institutional arrangements to set up the ETS Pilot Program and its initial operation. As a response, following a country-driven market readiness plan developed in consultation with SEMARNAT, the PMR Mexico readiness activities focused on building the analytical base to support the implementation of the provisions of Article 94 in the LGCC, the RENE regulation, and the 10 key articles of the ETS Pilot Program regulation presented in Figure 4. Figure 4. Key articles of the ETS Pilot Program regulation Source: World Bank Staff More information about the ETS Pilot program is available at SEMARNAT: https://www.gob.mx/semarnat/acciones-y- programas/programa-de-prueba-del-sistema-de-comercio-de-emisiones-179414 15 III. PMR Mexico program and key results The PMR Mexico country readiness program was implemented from January 2018 to February 2021 with grant funding allocated by the Partnership for Market Readiness totaling $3 million (PMR implementation phase grant).11 Anticipating the major milestone marked by the ETS development mandate introduced in the LGCC reform, the PMR-supported readiness program was structured in three components, presented in Figure 5, covering the following relevant areas: 1) ETS Pilot Program design elements; 2) Development of the ETS Registry (Pilot Program); and 3) Cross-cutting capacity building and communications. Figure 5. PMR Mexico program structure Source: World Bank Staff 11 The PMR Mexico readiness grant allocated to Mexico was in the amount of USD 3 million (TF0A6548, PMR Mexico Bank Executed Trust Fund). In January 2019, the Bank team and SEMARNAT reviewed and updated the planned work program and corresponding procurement plan. This followed a request of the PMR Partnership Assembly to all PMR implementing country participants (ICPs) to assess the uncommitted funds and provide with an updated implementation plan to facilitate the completion of all activities by the end of FY20. The revised work program, mutually agreed by the Bank, the client counterpart and the PMR Secretariat, resulted in a revised amount for the planned total project expenditures of total USD 2.35 million. 16 The project’s PDO, supporting the design and evaluation of market-based instruments for climate change mitigation in Mexico through selected activities outlined in the country’s Market Readiness Proposal, was satisfactory achieved. Component 1. ETS Pilot Program design elements According to the LGCC and the ETS Pilot Program regulation, the Mexican government faced the need to develop flexibility mechanisms and determine the use of emission reductions from non-regulated sectors for compliance under the ETS. Similarly, on rolling out the ETS Pilot Program, SEMARNAT confronted the need to explore the linkages and interactions with new carbon pricing instruments created by subnational governments and the existing GHG reporting obligations to the RENE. At the same time, Mexico’s engagement in the next generation of international carbon markets was at a nascent stage. These considerations meant a heavy load of technical work to be developed in a short time frame. The PMR Mexico program focused on creating the analytical underpinnings for SEMARNAT to consider for the design of priority technical elements of the ETS Pilot Program as summarized in Figure 6. Figure 6. Structure of component 1 Source: World Bank Staff 17 1.1 Design of ETS flexibility mechanisms The ETS pilot program considers the development of flexibility mechanisms, dividing them into the recognition of ‘early action measures’ in order to facilitate compliance during the first years of the Pilot Program, and a domestic offset scheme, a long-lasting solution that requires more time for planning and design. Mexico’s offset scheme requires, in addition to credits issued by other standards, national protocols that could guide emission reduction projects to issue carbon credits in Mexico. The PMR-Mexico program brought together a team of national and international experts to analyze the local context, explore technical possibilities, and provide a set of recommendations that could guide SEMARNAT on the definition of an official structure of its flexibility mechanisms. Given the LGCC mandate for the consideration of previous mitigation actions under the Kyoto Protocol, the Recognition of Early Actions measures focused on procedures for recognizing carbon credits (issued before 2020 under the CDM or other emission reduction standards) as compliance units under the Mexican ETS, providing liquidity to the Pilot Program. The setting up and operation of a Comprehensive Compliance Offset Scheme for the Mexican ETS was analyzed from different perspectives to develop a technical proposal covering: i) the development of an initial set of technical rules, processes, and guidelines for the lifecycle of a GHG offset project; ii) technical inputs on procedures for the review and approval of new or revised offset protocols; and iii) verification guidelines and criteria for emission reductions from eligible offset projects under the compliance offset scheme. Based on this technical proposal, the PMR worked with SEMARNAT on the development of technical recommendations around these options to enhance Mexico’s MRV systems and improve the accounting of emission reductions with the transparency demanded by the LGCC. Recommendations considered experiences in renowned crediting systems in the world (e.g., Climate Action Reserve, Verified Carbon Standard, Gold Standard and CDM), as well as several consultations with Mexican experts. Box 3 presents the main tasks and the key outputs, and Figure 7 shows the proposal of project cycle for the Mexican compliance offset scheme, which was designed following the structure of existing SEMARNAT procedures to ensure a smooth integration with the current framework. As mention above, these key outputs created he analytical bases to inform the government on considerations for the ongoing implementation of the offset scheme. Box 3. Main tasks and key outputs of activities 1.1.1 and 1.1.2 Main tasks Key Outputs Options for the design of The study provides solid technical options for the definition of eligibility domestic offset program: criteria (e.g., additionality, transparency, permanence, etc.), standardized initial set of technical rules, inputs such as baseline scenarios, and draft formats for project review, processes, and project lifecycle with considerations for further decision-making processes in Mexico. The design aim of the different options was to have actionable, transparent, cost- effective and simple rules, aligned to strict international parameters. Draft procedures for the The study drafted minimum requirements and a protocol template with a review and approval of description of the information that would be required for either locally protocols developed protocols or the adoption of international ones, including supplemental guidance and procedures for selecting standardized emission factors, social and environmental safeguards and SDG reporting, among others. It also provides a proposal of review, consulting, approval and updating processes for protocols in Mexico. 18 Draft verification guidelines for This task focused on the analysis of roles and responsibilities for the eligible offset projects verification process; proposals for technical aspects such as materiality threshold (allowed level of omitted or misstated information) and assurance level (accuracy and correctness of GHG estimates), and requirements on competence and impartiality for third party verifiers. With the aim of rapidly operationalizing an upcoming Mexican ETS offset scheme, the PMR supported the development of a first set of Draft GHG Offset Protocols, tailored to the country’s context, and elaborated with the purpose of minimizing the burden of administrative processes while maintaining a high technical quality, as well as complying with the accounting principles of completeness, consistency, transparency, preciseness, and conservativeness. Four priority sectors were identified as mitigation activities/project types with potential of being recognized as GHG emission offsets. The four draft protocols were conceptualized as a replicable structure that may be easily tailored for other projects. The design process followed a participatory approach with the relevant stakeholders per sector, such as INECC, the National Forestry Commission (CONAFOR), the Natural Protected Areas Commission (CONANP), and the Ministry of Agriculture and Rural Development (SADER). Four different technical virtual workshops were organized to receive feedback from national experts and each draft protocol proposal went through an international expert review process. Box 4 describes the mitigation actions prioritized in selected sectors. Box 4. Draft GHG Offset Protocols Agriculture: Accounting for GHG reductions on the release of methane (CH4) and nitrous oxide (N2O) from burning post-harvest agricultural residues and/or for pre-harvest burning for sugarcane. Under this protocol, in lieu of burning, crop residues are sent to alternative fates, which may include mulching, spreading over the soil, piling, green harvesting (in the case of sugarcane), and/or feeding livestock. Livestock: Applicable to manure management projects on livestock farms (pigs, dairy cows, beef cattle, and chickens) where the existing manure treatment system is carried out through anaerobic ponds, tanks, and pits. The mitigation activity includes the installation of biogas capturing systems, followed by other stages of sludge and supernatant treatment. The product obtained from bio-digestion is a gas composed of methane in its highest proportion. Methane can be used for energy production in the form of electricity or heat. Forestry: Activities increasing carbon stocks in forestry lands by improved forestry management and afforestation/reforestation. The draft document provides eligibility and additionality rules to estimate GHG removals from carbon sequestering projects, procedures to evaluate reversal risks, and a proposal to progressively improve monitoring and reporting systems in Mexico. Moreover, it describes social and environmental safeguards and methods to ensure the permanence of carbon reserves. The proposal is aligned with international directives (i.e., IPCC) and national regulation, including the National REDD+ Strategy. Transport: Activities that shift the mode of urban passengers' transport to non-motorized bicycles or e-bikes, by implementing infrastructure such as bicycle lanes, bicycle sharing programs (e.g., dock-less bicycles or sharing stations) and bicycle parking areas. Activities to introduce e-bikes (e.g., e-bikes belonging to bicycle sharing programs or promotion of individual ownership) are also eligible. The protocol proposal provides a standard for emission reduction projects with simplified methods for estimating baseline scenarios and calculating emission reductions from the displacement of GHG- intensive transportation modes. 19 1.2 Technical support for the ETS Pilot roll-out PMR Mexico supported SEMARNAT in identifying and prioritizing - according to the ETS Pilot Program regulation - key technical elements that needed further development for the Pilot Program, such as: (i) reviewing and updating emissions and ETS participants databases; (ii) facilitating and supporting information exchanges with regulated entities; (iii) assisting on the development and review of technical notes related to the ETS Pilot operation (e.g., criteria for allocation during the Pilot Program); (iv) developing draft documents and supporting processes for the organization and establishment of the (multi-stakeholder) Consultative Committee. Given the limited experience with emissions trading markets in Mexico’s environmental sector, the PMR supported a study to develop technical guidance on Market Oversight and Market Stability Mechanisms. The study entailed guidance on primary market oversight activities, aimed at ensuring compliance and safeguarding the integrity and liquidity of the market for ETS allowance units, and Market Stability Mechanisms (MSM) to prevent and manage price volatility and other potential market distortions in the Mexican ETS. As result, a set of suggested market oversight indicators were uploaded to the ETS Registry and are already in use, allowing SEMARNAT to automatically oversee the main components of the market during the ETS –Pilot Program implementation. Furthermore, the recommendations arising from this study provide SEMARNAT operational guidelines for monitoring tasks definition of subsequent stages of the market. A core element in rolling out the ETS Pilot Program was the development of an ETS Program Evaluation Framework to assess its results and effectiveness. To that end, the PMR supported the design of a framework proposal for monitoring and evaluating the Mexican ETS Pilot Program comprising a methodological approach, evaluation criteria, indicators, dimensions to be evaluated, and procedures. The framework proposal aims to provide guidance for an ex-post evaluation of the ETS effectiveness, starting in July 2021, and serve as a tool to inform the Consultative Committee12 about the continuous improvement and further development of the ETS regulation for its operational phase. The framework proposal was created based on available evaluation methods and international best practices and experiences on ETS evaluation processes. Box 5 presents the main tasks and the key outputs of technical support activities for the ETS Pilot roll-out. Box 5. Main tasks and key outputs of activities 1.2.1 and 1.2.2 Main tasks Key outputs Market Oversight Emphasizing that the ETS Pilot Program will only have primary market functions, the study identifies key data and indicators to identify potential misconducts. Recommendations provided will allow Mexico to get experience on overseeing market behavior, implement prevention measures such as borrowing limits, and release transparent and public market information. Some of the indicators suggested as technical inputs were already introduced to the Registry platform. 12The ETS Consultative Committee is the permanent technical body for consultation, guidance, social participation and advice to the Mexican Government on emissions trading. It was launched on June 30th, 2020 and comprises 6 representatives from the federal governments (different ministries), 8 representatives from the private sector, 2 observers from non-governmental organizations, and 2 representatives from academic institutions with relevant work on carbon pricing. 20 Beyond the pilot program, the study provided options for overseeing the secondary market in the upcoming ETS operational phase. Market Stability Mechanisms Based on an analysis of best practices and international experiences (MSMs) with MSMs, the study provided a solid basis to inform the ongoing decision-making process for the operational phase design, describing a proposal to include a MSM to avoid price volatility and potential market distortions. ETS Pilot Program Evaluation The main outcome was an evaluation framework for the ETS pilot program. The guiding document drafted a methodological approach with clear definitions and actionable steps to enable the evaluation process in the second half of 2021, as mandated by the regulation, including 8 criteria with 19 evaluation aspects, a workplan for 3 evaluation stages, and a proposal of roles and responsibilities. 1.3 Policy Analysis to inform Low Carbon Development Strategies Beyond the Pilot Program, the implementation of the ETS in Mexico goes along with other policy instruments at the Federal and Subnational levels, as well as in the international arena. National and international experts provided key recommendations for an efficient, effective, and smooth implementation of carbon pricing policies in Mexico. At the same time, the PMR program facilitated exchanges with international experts, internal knowledge sharing sessions, and technical discussions about bilateral and multilateral agreements. Carbon Taxes and Climate Mitigation Policies have been recently adopted by Mexican Subnational Governments targeting sectors (also covered by the ETS Pilot Program) as subnational climate instruments. To prevent redundancies between policies and inefficiencies in the operation of the ETS, the PMR provided technical advice and supported the following activities: (i) an initial mapping of carbon pricing instruments with an assessment of their potential contribution to national mitigation and other climate change commitments; (ii) an analysis of the interaction among those instruments, highlighting complementarity and efficiency; and (iii) the development of recommendations for improving the effectiveness and coherence of the national carbon pricing policy mix, obtaining positive distributional effects, and delivering other development benefits. Figure 8 provides with a comprehensive and updated overview of current carbon pricing policies (and enabling mitigation policy instruments) in Mexico at the federal and state level. 21 Figure 7. Carbon pricing policies in Mexico at the federal and state level Source: World Bank Staff In addition, the PMR supported SEMARNAT and INECC with key technical input and relevant international experience to assess the Requirements, Opportunities and Challenges that Article 6 cooperative approaches and other emerging market-Based instruments might entail for Mexico. This technical input sheds light on methodological considerations as well as the potential transaction and administrative costs of participating in the new international carbon trading schemes, for both the public and private sectors. This work facilitated important decision-making processes regarding eligibility criteria for internationally transferred mitigation outcomes (ITMOs) and interactions with Mexico’s domestic carbon pricing instruments, considering national development and environmental integrity considerations. A series of key technical inputs for the development of Mexico's engagement strategy in Article 6 Cooperative Approaches was discussed with public and private sector representatives at facilitated workshops. Figure 9 shows an overview of potential sources of carbon credits in Mexico and market pathways at the national and international levels. 22 Figure 8. Flux of carbon credits between national and international carbon pricing instruments Source: World Bank Staff Component 2. Development of the ETS Registry (Pilot Program) This component comprised three activities focused on supporting the development of the ETS Pilot Program registry, as shown in Figure 10. Figure 9. Structure of component 2 Source: World Bank Staff 23 The development of a Mexico ETS Demo Registry activity involved providing technical support for the adaptation of an existing climate policies tracking system (SIAT-PECC) into an initial emission allowances trading registry for Mexico’s ETS Pilot Program. SIAT-PECC system was selected over other national emissions registries/mitigation action information systems due to its better and more robust operational capabilities and its open-source software, which would allow further development, future expansions and adjustments. The scope of the work included the assessment of the emissions registry requirements in the Mexican pilot program, technical advisory support for adapting a climate policy tracking system to the emission trading needs, and supporting a series of testing runs to probe the demo registry solution. The ETS Pilot Program will allow testing user experience and reliability aspects of the demo registry such as reliance, completeness, security, among others, and inform technical and operational requirements for the development of a full-fledged emissions trading registry for the next phase. PMR Mexico readiness program supported training activities aimed at regulated entities and other personnel involved in the ETS registry platform. Practical exercises guided by national experts increased participants’ capacity to perform trading activities as well as MRV related actions using the demo registry platform. The first training series took place in November 2020, followed by a second one in January 2021. Each week-long series had separate sessions for each regulated sector, bringing together more than 500 participants per series. This component also provided support for the Mitigation Module for the National Emissions Registry. RENE is a mandatory reporting requirement for GHG emissions applicable to all types of economic activities. This new module is a registry to keep a record of mitigation outcomes, such as offsets, early action offsets, ITMOs or voluntary projects, in a centralized tool managed by SEMARNAT. The PMR provided technical advice on the platform concept, as well as the definition of project eligibility criteria, registration processes, and formats for the new mitigation component of RENE. Technical support also included considerations to ensure harmonious bonding among projects, procedures, protocols, and accredited bodies, as well, internal capacity building for SEMARNAT. Box 6 presents the main characteristics and functionalities of the ETS demo registry and Figure 11 summarizes relevant processes to be followed by ETS participants and the ETS administrator. Box 6. Functionalities of the proposal for an ETS Registry 24 Figure 10. Registry operation by differentiated users Source: World Bank Staff Component 3. Cross-cutting capacity building and communications This component sought the development and strengthening of capacities for government representatives and other stakeholders involved in the design and implementation of the ETS. The PMR supported Mexico’s participation in several training activities and meetings with international experts and peers to discuss and exchange knowledge on carbon pricing. Finally, PMR knowledge products as the Guidebook "Emissions Trading in Practice: A Handbook on Design and Implementation" were valuable references for Mexico to design the ETS and to guide the pilot implementation. Figure 12 shows how the work was structured. Figure 11. Structure of component 3 Source: World Bank Staff 25 3.1 Capacity building and stakeholder's engagement A substantial component of the work program in Mexico was targeted to stakeholder engagement, training, consultation, and public awareness activities related to the ETS Pilot Program. The PMR Mexico supported the mapping of regulated entities and an initial contact with them, conducting briefing calls about carbon pricing as well as promoting a permanent communication channel with SEMARNAT. Currently, there is a database of more than 1,500 private representatives that have been engaged in activities under this component. The PMR Mexico supported SEMARNAT and MÉXICO2 (an initiative of the Mexican Stock Exchange) in developing, organizing and delivering the “Carbon Market Simulation Exercise�. It consisted of a web- based multi-phased voluntary simulation exercise over using EDF’s carbon market simulation tool ‘CarbonSim’ that provided companies with insights into the major components of emissions trading markets, including emission allowances, offsets, a progressive cap, allowance auctions, abatement measures, secondary market trading (both exchange and over the counter), banking, and non-compliance penalties. The simulation covered three market phases, each of them with compliance periods from 3 to 6 years. It featured a series of training sessions with ETS experts and a call center for participants, finishing with an award ceremony for top performers. SEMARNAT and other key policymakers extracted valuable policy design lessons from studying participant interactions within the simulation. The simulation played a critical role in encouraging and stimulating public-private sector dialogue and raising awareness of key stakeholder groups with regards to the role of emission trading schemes as a cost-effective form of achieving national mitigation objectives. In July 2019, the PMR-Mexico joined efforts with SEMARNAT, GIZ and ICAP, to develop the Mexico ETS Academy. This three-day workshop series brought together 21 international experts from North America, Asia, and Europe, along with national high-level officials from different government agencies, including Ministry of Environment, Finance, Economy, Foreign Affairs, National Forestry Commission, National Institute of Ecology and Climate Change, PROFEPA, CONAMER, PEMEX, CFE, among others. This workshop series, focused on knowledge exchange on challenges, lessons learned, and best practices to enhance the design of the ETS in Mexico. The workshops included government-led discussions about the regulation of the ETS Pilot Program. First edition success in 2019 resulted in a second edition in 2020 with the overall goal of bringing together public and private sector representatives to enhance and deepen the understanding of key technical concepts and requirements for the effective implementation of the ETS Pilot Program. This virtual training comprised both live and prerecorded lessons structured on weekly modules. The PMR Mexico program further developed and delivered a comprehensive capacity building program with a sectoral business-to-business approach, a Sector-specific (Virtual) Training for Regulated Entities under the ETS Pilot Program. It was specifically tailored to strengthen readiness and build compliance capacities of regulated entities within the Mexican ETS Pilot Program, allowing them to gain a deeper understanding of the opportunities and challenges from their participation. The virtual training started in August 2020 and ran for 9 weeks with presentations from 21 national and international experts. It included pre-recorded and live sessions, interactive activities, and expert-to-participant knowledge transfer. The training included over 400 participants from around 80 companies from different sectors such as, food and beverages, glass, pulp and paper, power generation, cement, lime, mining, iron and steel, chemical industry, oil and gas, petrochemical, oil refining, and others. 26 Building on the capacity building outputs and all the Mexico ETS training material developed under the PMR Mexico program, a Mexico ETS e-Learning Platform as an online tool for self-paced learning is being developed and will be made available to the public, with prerecorded presentations, videos, animations, interactive activities, games, among others. The main objective of this platform is to secure a high-quality, reliable, low-cost, and open learning source, for any stakeholder interested in emissions trading and the Mexican ETS Pilot. Figure 12 shows key figures of capacity building provided with support of the PMR Mexico program. Figure 12. Capacity building – Key figures Source: World Bank Staff 27 3.2 Communications and knowledge dissemination Recognizing communication as a key component for the success of the ETS, the PMR Mexico supported activities that promoted interaction and participation of interested parties in the implementation of the ETS Pilot Program and the delivery of reliable information, embedded in the local context and expressed in the simplest way possible. PMR supported the preparation of a Stakeholder Engagement, Capacity Building, and Communications Strategy that went beyond the information dissemination. The strategy identified the degree of participation and influence of different audiences and highlights the most effective communication channels and appropriate narratives to achieve a favorable position for the ETS in Mexico, contributing to the fulfillment of its environmental objectives. The strategy proposal included a baseline, a stakeholder mapping exercise, a market research (interviews, round tables, focus groups, and national surveys), an assessment of training needs on ETS issues, a social media strategy, and profiles for appropriate spokespersons. This component also supported the development of a comprehensive Handbook on the Mexican ETS Pilot Program and Communication Products for the Mexican ETS and the PMR Mexico. The Handbook targets two audiences: (i) general audience/non-expert public, and (ii) national participants/stakeholders of the ETS Pilot Program (e.g., regulated entities, third-party verifiers, project developers). It features comprehensive and user-friendly graphics, including an interactive version for web-based use with animations, informative pop-ups, and explicative videos. To support higher visibility of the ETS scheme in Mexico, the PMR supported broader communication activities, including the development of a branding package (logo, PowerPoint templates, Word templates, banners, etc.), to create a consistent and identifiable image for the Mexican ETS. Other communication materials were developed (2 short videos, 2 infographic guides for participants) to facilitate the dissemination of technical topics. Communication products were planned, designed, and delivered for joint activities with SEMARNAT such as reporting PMR Mexico’s progress, announcing ETS Pilot Program milestones, or supporting technical events to inform about relevant ETS tools or instruments (e.g., ETS demo registry platform). To evaluate the impact of the capacity building and communication activities, the project undertook ex- ante and ex-post evaluations. For example, during the sectorial trainings, 97 percent of participants representing 290 regulated entities indicated that their knowledge on ETS increased considerably. During the ETS academy, about two thirds of participants had already a good knowledge of the Mexico ETS and they found the training to be directly relevant for their work. Finally, to inform of the communications strategy, focus groups were implemented in three of the country’s main cities and more than a thousand phone interviews were conducted. The results of the focus groups and interviews informed the development of the main messages and content of the public communication activities. IV. PMR project implementation arrangements The implementation arrangements of the PMR Mexico readiness project reflected the strong sense of ownership of the Mexican counterpart agency, SEMARNAT, and ensured an efficient highly collaborative work environment with the World Bank PMR Mexico project team. 28 • The PMR Mexico project put together a strong team of up to five qualified professionals (local STCs), with a technical coordinator and a task manager assigned to each of the main technical building blocks. The project team facilitated the technical cooperation between SEMARNAT, INECC, and the World Bank; worked closely with consortia and firms carrying out technical assignments; and supported project-related activities such as technical backup, internal and external communications, and event planning. • All the work was developed in close collaboration with SEMARNAT’s General Directorate for Climate Change Policies (DGPCC), providing collaborative support to plan and implement the work plan across all project components and remaining highly engaged throughout the process. In addition to continuous collaboration on specific technical activities, the World Bank PMR Mexico team held weekly coordination calls with SEMARNAT, in addition to project-specific calls with other technical experts (e.g., national and international consultants in charge of technical assignments) as needed. • All interim and final technical deliverables were subject to reviews by the World Bank PMR Mexico project team, the SEMARNAT – DGPCC counterparts, and, as applicable, other technical units at SEMARNAT and INECC. National and international expert reviews and consultation sessions were also planned and carried out as part of the development of select reports under program components 1 and 2. Constant communication and engagement between the government, the WB team, and the thematic experts opened the door for a steady capacity building process. In addition to ensuring that outputs were aligned with the client’s expectations, the implementation strategy and its multiple work sessions created constant opportunities for SEMARNAT to formulate questions, familiarize themselves with new concepts, and weight the implications and future needs of potential policy decisions. On a side note, it should be mentioned that the implementation of the work plan in 2020 was challenged due to COVID-19 pandemic disruptions, demanding alternative modalities or approaches for implementing technical, communication and capacity building tasks. In many cases, the extraordinary circumstances proved to be an opportunity seized by the PMR Mexico. The improvement of online tools allowed to optimize the use of resources, reaching international experts simultaneously (as in the ETS Academy), engaging all corporate levels from different cities and regions in Mexico (as in the ETS business training), facilitating work meetings and expediting feedback through online shared documents. V. Impacts of PMR-Mexico The PMR Mexico program has played a critical role in supporting Mexico’s SEMARNAT work during the design and initial implementation of the Mexican ETS pilot phase. Technical advisory work carried out under the PMR Mexico program has informed and supported decision-making processes around the ETS flexibility mechanisms, market oversight, the ETS pilot registry design, and the ETS pilot evaluation framework. It also elaborated technical definitions and provided strategic recommendations on potential cooperation under Article 6 of the Paris Agreement and the domestic climate policy mix for effective mitigation based on the best international practices and experiences. The implementation of the ETS and the enforcement of related policies will support Mexico’s COVID-19 economic recovery in a more resilient way. 29 Support for enhanced and effective mitigation action in Mexico Effective domestic climate policy As Mexico adopted the first ETS in the LAC region, a new set of technical challenges emerged with it. On that regards, the comprehensive project scope resulted in a broad portfolio of products, covering technical reports, research, strategies design, templates, handbooks creation, practical tools, training, and engagement activities. Some of the areas of technical contribution, as summarized in the previous sections, included allowances allocation rules, allowance tracking, offset definitions, design of processes for crediting recognition, design of GHG protocols, analysis of interactions with other carbon pricing instruments, criteria for market oversight and mechanisms stability, and effectiveness evaluation. The set of outputs produced under the PMR Mexico project are becoming a solid foundation for accomplishing the mandate of the reformed LGCC, and positions Mexico in the path of more effective domestic climate policy. A noticeable contribution came from the review of the policy mix in which the ETS is situated. This assessment identified a group of 18 different carbon pricing instruments and mitigation policy instruments whose interactions have a complementary, reinforcing or countervailing effect on climate change mitigation. It constitutes a first assessment on the potential interactions of current national and subnational policies and instruments and helped SEMARNAT understand areas of further analysis and coordination with a view of increasing the mitigation effectiveness of climate, fiscal and energy policies. As a result, SEMARNAT is considering the creation of a working group on carbon pricing within the National Climate Change System (SINACC) for enhanced coordination across government levels and among ministries of the federal government. The technical assistance provided by PMR was key to inform the Mexico Environmental Sustainability and Urban Resilience Development Policy Financing (DPF) (P174000), approved by the World Bank’s Board of Directors in December 2020. The ETS regulation, which benefited from technical inputs by the PMR project, was supported as an important policy measure under the DPF. Similarly, the design of flexibility mechanisms and first drafts of GHG protocols for agriculture, livestock, forestry and transport are now key knowledge products for SEMARNAT to move forward with the climate policy agenda. These inputs are important building blocks for SEMARNAT to set up a domestic offsets scheme for Mexico’s ETS based on offset project types that respond to national circumstances and development priorities. These draft protocols follow the newest findings and international experiences on carbon crediting, their design and operation. In summary, the PMR project facilitated a comprehensive understanding of global climate policy developments, such as the implementation of the Paris Agreement, and introduced the rationale behind decisions taken by other countries in the design and operation of effective emission trading systems. As result, global lessons learned have been applied to the national context. Access to international carbon markets As Mexico updated its NDC in 2020, a main discussion topic was the potential interaction between domestic mitigation ambition and the opportunities brought by the cooperative approaches under Article 6 of the Paris Agreement. In that context, SEMARNAT and INECC aimed to explore the role that international cooperation could play under an enhanced ambition option, and to devise possible options for Mexico’s engagement in international transfer of mitigation outcomes for its conditional NDC target. The PMR Mexico project facilitated the preparation of technical inputs toward an Article 6 engagement 30 strategy for Mexico, and their discussion with international experts on the Paris Agreement rulebook and international carbon markets. This work provided a detailed planning process that may allow SEMARNAT and INECC to identify and select mitigation actions that could be eligible for international transfer of mitigation outcomes; and discussed governance issues around the authorization and mitigation accounting processes and the reporting required by the Paris Agreement. With this work of strategic relevance, Mexico has become one among the few countries that are systematically exploring the possibilities brought by the implementation of cooperative arrangements in the Paris Agreement, including through ongoing bilateral discussions with other (PMR) countries on prospective cooperation under Article 6 of the Paris Agreement. Inter-sectoral engagement through capacity building With the support of the PMR Mexico readiness program, national climate policymakers at SEMARNAT and other relevant agencies strengthened their capabilities and extended their knowledge on carbon pricing and markets. They have identified technical, procedural and regulatory gaps, and defined new requirements that are key for a smooth implementation of the emissions trading scheme. In addition to ETS topics, government representatives gained knowledge and experience in other relevant areas, such as electronic registries, offsets, GHG protocols, Article 6 discussions, and analysis of design and operationalization options. Beyond the government, knowledge has been extended to regulated entities in the private sector, enhancing capacity within participating companies on identifying needs to operate efficiently within a compliance carbon market, assessing data needs for building internal marginal abatement cost curves, or identifying key resources needed for emissions trading. The main impact of this engagement is the consolidation of the ETS at distinct levels. Nowadays, there is a positive perception of the ETS as an instrument to facilitate reaching mitigation goals without compromising economic growth. Private sector representatives expressed the importance of these kind of incentives for emissions abatement and the vast potential for having co-benefits that could reach non-covered parties, for instance, forestry, livestock and agriculture workers and the protection of the national ecosystems. The sector-specific (virtual) training and registry training, reached 93.5% of regulated entities under the ETS Pilot Program, with the participation of 290 regulated entities. Additionally, post-attendance surveys generated valuable input for future trainings, such as the relevance of trainings in the participants’ work, as well as their needs and preference on topics for future trainings, that can create a significant impact in their ability to participate effectively in the ETS. SEMARNAT has led interactions between stakeholders and has undertaken strong coordination efforts on this front. As determined in the regulation for the ETS pilot program, SEMARNAT has established the Comité Consultivo del Sistema de Comercio de Emisiones (COCOSCE) to support and streamline coordination and cooperation across relevant line ministries and private sector. PMR Mexico project activities supported some of the initial activities of COCOSCE. The PMR project has strengthened the relationship between the Authority, regulated entities, and stakeholders based on systematic and clear communication, and enriched public-private discussions about the implementation of emissions trading in Mexico by furthering the understanding of key components of emissions trading schemes. There is a visible improvement in the preciseness and relevance of questions and comments raised by regulated entities to the government and a relevant engagement to constructively contribute to carbon market policy design. 31 National firms and experts participated in every work commissioned with international consortia by the PMR Mexico, hence increasing their experience and providing market visibility in this new field. As a result, growing number of local consultancy firms are expanding their portfolio and hiring professionals to work in climate mitigation, carbon pricing and carbon markets. Raising awareness – Communications strategy The communication products developed aimed at increasing awareness and improving understanding of carbon pricing related topics. The constant flux, technical quality and friendliness of the products served to increase local capacities and to continue positioning the country as a regional leader in climate instruments. A market study was carried to inform the design of the communication strategy. This study provided important inputs regarding the attitudes of the general public towards climate change, the perception of its effect on Mexican society, and their views on the SCE as an instrument to promote the reduction of carbon emissions. The communications strategy development and implementation facilitated by the PMR in Mexico provided the first set of knowledge products on carbon pricing available in Spanish, ranging from social media entries with basic concepts to highly technical products, such as the criteria for market monitoring or the GHG protocols proposal. The country is working to create South-South cooperation channels to share its experience with other countries in the region, which is relevant since Mexico is the first Latin American country at the ETS implementation stage. The communications work supported by the PMR Mexico readiness program contributed significantly to increase awareness and understanding on the ETS Pilot Program among a broad and heterogenous set of stakeholders, making it a recognizable instrument of Mexico’s climate policy portfolio and laying the groundwork for further development of communication materials for different audiences. 32 Figure 13. PMR Mexico readiness program - Key results Source: World Bank Staff VI. Lessons Learned The PMR Mexico program accomplished its main objective of providing support to prepare and implement climate change mitigation policies - including carbon pricing instruments - in order to scale up GHG mitigation. Its implementation and completion have provided important lessons - summarized below - that may be very valuable for other countries following a similar process. Technical assistance delivery model • The activities, including their objective and specific scope, need to be defined in close consultation with the Client to ensure that they respond to the country’s priorities. The activities supported from the PMR program and their scope were identified jointly with SEMARNAT based on Mexico’s needs and priorities and aimed at assessing current policies, improving their efficiency and operation, and designing the road map for a sound implementation of carbon pricing policies; • Continued engagement can be a useful tool to support the country’s path for the development and implementation of their carbon reduction mechanisms, particularly at times when the client faces limitations on technical expertise among its staff. The support from the PMR technical team provided expert advice and facilitated continuity when the counterpart faced personnel changes and shortages; 33 • Project's flexibility is critical to face unexpected challenges. Despite COVID-19 pandemic restrictions, Mexico’s participation in the PMR was not interrupted. The collaboration and support to the Mexican government found innovative means, exploiting the benefits of virtual tools when the country just launched its ETS Pilot Program, a turning point for the program success. • The PMR Mexico grant was administered by the World Bank (‘Bank-executed’ grant). SEMARNAT intends to join the PMR successor program, the Partnership for Market Implementation (PMI) and apply for a technical assistance grant under the PMI policy implementation support window. Given the expected grant objectives and priorities to support ETS implementation activities, both SEMARNAT and the Bank need to anticipate the need to agree on revised grant delivery modality and implementation arrangements in accordance with Bank policy. Informing policy making • International best practices need to be carefully adapted to the national context. Design and implementation of key elements integrated global best practices and experiences tailoring international standards to local conditions, which ensured their applicability in Mexico; • Enhanced understanding of the opportunities and challenges behind introducing a new carbon pricing instrument increases the prominence and acceptance of climate mitigation action in the national agenda. The PMR Mexico program generated new, country specific knowledge and information that has been critical to deepening the policy dialogue with policy-makers and practitioners. Private sector and international experts’ engagement at early stages of the ETS design enabled direct communication and exchange channels between SEMARNAT and interested stakeholders, leading to improved capabilities, more informed discussions, and smooth decision- making processes; • The design and implementation of a specific mitigation instrument, such as the ETS Pilot Program, is a mechanism to enable further ambition in NDC targets compliance. The Mexican ETS is currently perceived by SEMARNAT as a key instrument to comply with the NDC targets, as stated in the NDC update from December 2020. Skills and capabilities • Capacity building is key to continuity. During the PMR Mexico project, training was a continuous crosscutting support element. Workshops and training sessions on the principles of carbon pricing, major components of carbon markets, the design elements and communication of an ETS, or the experiences in other jurisdictions provided the tools and knowledge to stakeholders across public and private sectors. As new capacity was built, policy-makers and practitioners were better equipped to discuss design elements around the Mexican ETS, and effectively participate in the development of the ETS roadmap. This, together with institutional arrangements and regulatory framework already in place, pave the way for continuity and the achievement of long-term impacts. • Mexico increased its ability to participate in international forums around carbon pricing instruments and Paris Agreement mechanisms positioning the country to champion carbon markets development in the region and contribute as a knowledge provider in formal and informal South-South-North peer exchanges. Mexico’s SEMARNAT ETS task team has an intensive collaboration agenda on ETS policy design and program implementation matters with peers from California and Quebec (through Collaboration MoUs) and Germany (supported by a multi-year 34 ETS technical assistance program), as well as with Pacific Alliance partners (Chile, Colombia, Peru) on carbon pricing and MRV technical matters. • Regulated entities and stakeholders benefited a lot from the trainings and the variety of communication tools provided by the program. It was very effective and helpful for those entities to prepare for piloting and consider it as an opportunity to take advantage of increasing its efficiency on business operations rather than just perceiving to meet their cooperate mandate or social responsibility. The program also helped the government to keep engaging and informing those entities, as those training materials and online tools can be repetitively used and adopted for internal training within the regulated entities; • The design and implementation of one specific carbon policy instrument can improve synergies and complementarity with other instruments in place. The ETS implementation can drive the improvement of other mitigation policy instruments, such as the RENE mitigation module, and facilitate a more comprehensive approach to the national MRV architecture. VII. Challenges ahead Mexico has built a solid base to manage the implementation of the key components of the ETS Pilot Program. Even though, the full implementation of the Pilot Program, its review and evaluation, pose a significant challenge within the next two years, along with the design and implementation of the operational phase of the ETS market in Mexico. Consolidating the operation of the pilot from a technical, institutional and regulatory perspective is a relevant challenge. In the next months, the set of recommendations and technical documents prepared during Mexico’s engagement with the PMR, will need to be further assessed and discussed by the government and the ETS Consultative Committee. This analysis of the PMR inputs will inform different ETS decision-making processes, including on adoption of operational guidelines or supplementary regulation for the ETS pilot program. That is the case for the establishment of the ETS domestic offset scheme, the validation and adoption of offset protocols, and the adoption of updated RENE regulation to ensure full alignment with the ETS. In less than three years, Mexico will have gone through the rolling-out of an ETS Pilot Project to the approval of a regulation proposal for the ETS full implementation. This process must be informed by the results and effectiveness of the ETS Pilot Program to become an instrument that assists the country in achieving its NDC mitigation target and policy objectives. The ETS Consultative Committee will need regular updates from the ETS Pilot Program operation to develop a work plan for the following years, to transition to the full-fledged first phase of the ETS. Mexico will face new challenges as its ambitious agenda moves forward: • One challenge ahead relates to the design of technically difficult components of an ETS, such as an auction scheme that requires clear and comprehensive rules, government processes and systems and the definition of sectoral benchmarks both of these for more effective future allocation of allowances in a manner that further incentivizes climate change mitigation among participants. • Another example is the complete operation of the ETS registry as an electronic platform that has integrated with existing reporting requirements and systems (such as those under RENE and COA). 35 The seamless integration of platforms represents a technical challenge for SEMARNAT, but is also a significant opportunity for streamlined emissions reporting and verification, recording of mitigation activities and tracking of offsets issuance and use. If Mexico engages in Article 6 cooperation, such platforms would also need to consider the registration and tracking of mitigation outcomes leading to internationally transfer mitigation outcomes, its adequate accounting in Mexico’s emissions levels, and the corresponding adjustment to reflect real emissions balance. • The ETS Pilot must give way to the regulation of the first phase of the ETS. As indicated in the LGCC and the regulation of the ETS Pilot, this first stage of the new instrument must be evaluated in terms of its effectiveness to serve as input of the new regulation. The proposal of an evaluation framework developed under the PMR project constitutes a steppingstone in the right direction. Yet, it is the role of the ETS Consultative Committee and of SEMARNAT to consolidate, adopt and apply such framework, and to setup any institutional arrangements needed for the future complete and efficient operation of the ETS in its next phase. Further capabilities will need to be developed, within SEMARNAT and among ETS participants who are now facing the complexities of operating under capped emissions. These are examples of the challenges ahead for the implementation of Mexico’s ETS. International support will play a relevant role in supporting key topics. Mexico’s participation in the PMR inserted the country into a network of international experts from where SEMARNAT may draw support when needed and may serve as a source of ideas and exchange during the Pilot Program. The involvement of SEMARNAT and INECC in national, regional or international initiatives on carbon markets and carbon pricing should be sought and maintained. Mexico’s participation on the Partnership for Markets Implementation (PMI) would represent an opportunity for continuous support toward the next phase of the ETS and set the stage to the carbon market maturity. 36 VIII. Annexes Annex 1. Technical support - Main Activities and Deliverables The following tables include the main deliverables per activity. For a complete list of deliverables please see Table 2.1 at the end of this annex. Component 1: ETS Pilot Program Design Elements Activity 1.1.1 Technical Proposal for an Early Action Offset Scheme Objective Provide technical support for the design of “the Early Action Offset Credits requirements� for the ETS Pilot Program. Plan and design clear, operational, and trustable requirements and procedures for the government, the regulated entities, project developers and qualified offset credit owners, to recognize early action credits as compliance offset units and to provide liquidity to the offsets market in the ETS Pilot Program. Content • Proposal of criteria, methodologies, guidelines, technical templates, and checklists for project registration. • Calendar of the early action recognition process with deadlines and relevant steps. • Report on the design and recommendations for the optimal implementation of the Mexican Offset Program in its early action projects recognition component. • Draft proposal of the process for project registration and offset credit issuance for the operationalization of the Mexican Offset Program. • Factsheet of Early Action recognition in Mexico. • Compilation of Frequently Asked Questions about Early Action Offsets Main deliverables 1. Reporte Final Créditos de Compensación de Acción Temprana 2. Propuesta de Criterios, Metodologías y Lineamientos y otros Documentos Técnicos 3. Recomendaciones para Proyectos de Compensación en la Fase Operativa Activity 1.1.2 Proposal for a Draft Compliance Offset Scheme in Mexico Objective Develop a comprehensive technical proposal on options for the setting up and operation of the compliance offset scheme under the Mexican ETS. The proposed technical guidance is expected to enhance Mexico’s efforts to achieve a comprehensive MRV system for the ETS Pilot Program, build its flexibility mechanisms, develop the RENE mitigation register, and develop the system for tracking Mexico’s NDC progress. This guidance would help improve the GHG accounting for emission reductions, and the tracking and transparency required by the General Law on Climate Change. Content • Technical proposal for project cycle procedure for offset scheme. • Recommendations for the design, development, and approval of offset protocols. • Proposed guidelines for offset project verification. • Glossary of technical definitions related to offsets 37 Main deliverables 1. Recomendaciones para el diseño, desarrollo y aprobación de protocolos 2. Procedimiento de ciclo de proyecto y revisión de la propuesta del Esquema de Compensación de Acción Temprana del Programa de Prueba del Sistema de Comercio de Emisiones 3. Directrices propuestas para la Verificación de proyectos de compensación Activity 1.1.3.a. Proposal for Draft Protocols for Livestock and Agriculture for selected mitigation activities Objective Support the review and prioritization of mitigation activity/project types in the agriculture and livestock sectors that could generate GHG emission offsets for use as a compliance option in Mexico's Emissions Trading Program. Elaborate an activity-specific GHG protocol proposal for each sector, tailored to Mexico-specific conditions, thereby demonstrating the GHG protocol development process under the Mexican ETS offset scheme. Content • Report with an analysis of the agriculture and livestock sectors, and a complete overview of activities that could generate GHG emission offsets, prioritization process, and offset activities selection. • Draft offset protocols for selected mitigation activities in each sector. • Summary report of lessons learned and expert consultations. Main deliverables 1. Identificación y priorización de proyectos de mitigación en los sectores de agricultura y ganadería 2. Borrador de protocolo de compensación para el sector de agricultura 3. Borrador de protocolo de compensación para el sector de ganadería Activity 1.1.3.b Proposal for Draft Protocols for the Forestry sector, for selected mitigation activities Objective Support the review and prioritization of mitigation activity/project types in the forestry sector that could generate GHG emission offsets for use as a compliance option in Mexico's Emissions Trading Program. Elaborate an activity-specific GHG protocol proposal, tailored to Mexico-specific conditions, thereby demonstrating the GHG protocol development process under the Mexican ETS offset scheme. Content • Report with an analysis of the forestry sector, and a complete overview of the forestry activities that could generate GHG emission offsets, prioritization process, and offset activities selection. • Draft offset protocol for the selected mitigation activities of the forestry sector. • Summary report of lessons learned and expert consultations. Main deliverables 1. Identificación y priorización de proyectos de mitigación en el sector forestal 2. Borrador de protocolo de compensación para el sector forestal 38 Activity 1.1.3.c Proposal for Draft Protocols for the Transport sector, for a selected mitigation activity Objective Support the review and prioritization of mitigation activity/project types in the road transport sector that could generate GHG emission offsets for use as a compliance option in Mexico's Emissions Trading Program. Elaborate an activity-specific GHG protocol proposal in the road transport sector, tailored to Mexico-specific conditions, thereby demonstrating the GHG protocol development process under the Mexican ETS offset scheme. Support the development of a preliminary assessment of the inclusion of the road transport sector in future phases of the Mexican ETS in Mexico. Content • Report with an analysis of the road transport sector, and a complete overview of the road transport activities that could generate GHG emission offsets, prioritization process, and offset activities selection. • Draft offset protocol for the selected mitigation activity. • Summary report of lessons learned and expert consultations. • Report on challenges and recommendations for regulating road transportation in future phases of the Mexican ETS. Main deliverables 1. Recomendaciones sobre las actividades de mitigación del sector del transporte 2. Borrador de protocolo de compensación para el sector del transporte terrestre Activity 1.2.1. Technical Guidance on Market Oversight and Market Stability Mechanisms for Mexico's ETS Objective Assess options and develop technical guidance to oversee relevant aspects of the primary market of the Mexican ETS Pilot Program. Discuss options and technical guidance regarding market stability mechanisms to manage price volatility of emission allowances and other market distortions in the ETS Pilot Program. Content • Development of a proposal for a market oversight framework. • Report with recommendations for the design of Market Stability Mechanisms. Main deliverables 1. Market Oversight Final Report 2. Market Stability Mechanisms Final Report Activity 1.2.2. Development of an Evaluation Framework for the Mexican Emissions Trading Pilot Program Objective Propose a methodological approach for evaluating the effectiveness and outcomes of Mexico’s ETS Pilot Program. Propose criteria and procedures for the ex-post evaluation of the effectiveness of Mexico’s ETS Pilot Program, in accordance with article 11 of the ETS regulation. Content • Report on climate policy context, international experiences, and interviews with relevant stakeholders. 39 • Evaluation framework proposal, with methodological approach, evaluation criteria, data requirements, and evaluation procedures. Main deliverables 1. Propuesta de Marco metodológico: criterios, aspectos y datos 2. Propuesta de Manual del Marco de Evaluación: Guía de uso Activity 1.3.1. Mapping and Review of Carbon Pricing Instruments at National and Subnational Levels (Policy Mix) Objective Identify and map Mexico’s carbon pricing policies, instruments, and programs at national and sub-national level, and analyze the interaction among them. Provide insights about their complementarity and efficiency to deliver environmental outcomes beyond mitigation. Provide recommendations to improve the effectiveness and coherence of the carbon pricing policy mix, reduce redundancies or inefficiencies, and obtain positive distributional effects. Content • Report with complete identification, mapping, and analysis of carbon pricing instruments in Mexico. • Analysis of Mexico's carbon pricing instruments interaction and recommendations. Main deliverable 1. Reporte Final de Consultoría. Análisis de interacciones de instrumentos de precio al carbono y recomendaciones Activity 1.3.2. Opportunities & challenges for Mexican engagement in Cooperative Approaches under the Paris Agreement and other emerging market-based instruments Objective Analyze the opportunities, challenges, and needs that the Cooperative Approaches of the Paris Agreement and other emerging carbon market instruments present for contributing to the implementation of Mexico’s NDC and overall long-term low carbon development goals. Content • Review of participation requirements and enabling conditions to effectively engage in Article 6 Cooperative Approaches and other emerging market- based instruments. • Report on national institutional arrangements and governance required at the national level for effective Article 6 cooperation. • Report on methodological considerations to facilitate Mexico’s participation in Cooperative Approaches. • Technical inputs for the preliminary analysis of Mexico's engagement in Article 6 Cooperative Approaches. Main deliverables 1. Revisión de los requisitos de participación y condiciones propicias para participar en los enfoques cooperativos del Artículo 6 2. Arreglos institucionales nacionales y de gobernanza necesarios para una cooperación efectiva del Artículo 6 3. Consideraciones metodológicas 4. Insumos técnicos para el análisis preliminar de la participación de México en los enfoques cooperativos del Artículo 6 40 Component 2: Support for the Conceptualization of a Transactions Registry for the Mexican ETS Pilot Program Activity 2.1 Technical Support for the Adaptation of an Existing Platform into an ETS Registry Objective Assist in the adaptation of an existing government-owned climate policies tracking system, SIAT-PECC, into an initial platform that functions as an emission allowances trading registry for Mexico’s ETS, to meet the needs of the Mexican ETS Pilot Program. Content • Technical note with general description of the IT solution for the adjustment of the SIAT-PECC platform, including functionalities, data collection, information flows, and technical specifications. • Draft pilot registry manuals for administrators and users. Main deliverables 1. Propuesta de manual para instalaciones, sistema de seguimiento 2. Propuesta de especificaciones funcionales, sistema de seguimiento Activity 2.2 Practical training sessions for the Mexican ETS Registry Objective Prepare and conduct a series of practice sessions with relevant stakeholders to probe the demonstrative Registry and train market participants to interact in the virtual marketplace. Content • Guiding materials for the training sessions. • Development and delivery of training sessions. • Draft document on the best practices for Registry users. • Proposal for a welcome package for new Registry users. • Proposal of standardized codes for units, phases, periods, companies, installations, and users in the demonstrative platform. • Proposal for an online Registry tutorial. • Video tutorial for the monitoring system use Main deliverables 1. Presentación Sistema de Seguimiento de los derechos de emisión: Sesión práctica 2. Reporte de recomendaciones para el Registro de Mitigación del Registro Nacional de Emisiones Activity 2.3 RENE mitigation module Objective Provide technical advice on defining a conceptual design of a mitigation register to keep a record of mitigation outcomes (e.g., offsets, early action offsets, ITMOs, voluntary projects) in a centralized tool managed by SEMARNAT. Content • Platform concept • Definition of project eligibility criteria, registration processes, and formats for the new mitigation component of RENE. • Considerations to ensure harmonious bonding among projects, procedures, protocols, and accredited bodies. • Internal capacity building for SEMARNAT. 41 Component 3: Capacity Building and Communications Activity 3.1.1 Carbon Market Simulation Exercise Objective Support the development, organization, and delivery of an emissions trading simulation for firms with GHG intensive facilities�. Content • Delivery of capacity building sessions with participating companies. • Facilitation of web-based multi-phased voluntary simulation exercise using EDF’s carbon market simulation tool ‘CarbonSim’ • Three end-of-phase reports, including frequently asked questions, participants’ general behavior, common issues, performance, recommendations, and general comments. • Report with inputs and recommendations for public policy in relation to the design of an ETS in Mexico in the light of the simulation results. Main deliverables 1. Simulation Exercise Phase 1 Report 2. Simulation Exercise Phase 2 Report Activity 3.1.2.a ETS Academy 2019 Objective Develop and deliver a training course to enhance awareness and strengthen the capacities of Mexican decision makers and key stakeholders at national and regional levels regarding the design of an effective ETS. Provide participants with a robust understanding of key concepts and design elements of ETS Pilot Program and the requirements for effective implementation of the instrument in the Mexican context. Content • Design and organize an applied three-day ETS training course for selected decision makers (for 45 participants). • Deliver training course in Mexico City. • Results of the training effectiveness evaluation. Main deliverables 1. 2090806_Mexico ETS Academy Evaluation Report 2. Presentaciones ETS Academy Julio 2019 Dia 1 3. Presentaciones ETS Academy Julio 2019 Dia 2 4. Presentaciones ETS Academy Julio 2019 Dia 3 Activity 3.1.2.b ETS Academy 2020 Objective Develop and deliver a training course to enhance awareness and strengthen capacities of Mexican decision makers and key stakeholders at national and regional levels with regards to effective implementation the ETS Pilot Program. Provide participants a clearer idea of the necessary steps and actions to implement and/or improve the necessary infrastructure for effective ETS related processes or systems, improve internal coordination, and facilitate future engagement with other stakeholders in Mexico. Content • Design and organize a virtual ETS training course for selected decision makers and industry stakeholders in Mexico. • Training materials (e.g., online games, interactive exercises, and surveys). • Deliver an 18-module virtual training course. • Results of the training effectiveness evaluation. 42 Main deliverable 1. Reporte Final Academia del SCE 2020 Activity 3.1.3. Sector-specific virtual training for regulated entities under the Mexican Emissions Trading Pilot Program Objective Plan, design, and deliver virtual training to build capacities (understanding of compliance processes and procedures) of regulated participants of the Mexican ETS Pilot Program. Develop targeted information/communication products such as infographics, flyers, videos, and others. Content • Planning report. • Deliver and document an 11-module virtual training course. • Factsheets about trading on ETS, user types and account opening for the Mexican Registry, and training results. • One-pagers of ETS participation strategies for companies with one or multiple installations. • Videos on: i) readiness strategies for companies and, ii) training results. • Results of the training effectiveness evaluation. Main deliverables 1. Reporte sobre la capacitación 2. Preparación y organización para el sistema de comercio de emisiones 3. Fact sheet. Sistema de seguimiento Activity 3.1.4. ‘ETS in Mexico’ e-learning course Objective Assist in the design and development of materials for an e-learning course based on capacity building materials previously developed by PMR Mexico, as an open learning source available to the public. Content • E-course outline. • Final e-course materials package (edited videos, online games, tests, etc.). Main deliverable 1. Contenido de módulos de e-learning 2. Curso en línea SCE México. Presentación de resultados finales Activity 3.2.1. Proposal for a Stakeholder Engagement, Capacity Building, and Communications Strategy for the Mexican Emissions Trading Pilot Program Objective Conduct market research on public attitudes towards climate change and climate policy, and test narratives to communicate the importance of the ETS as a tool for climate change mitigation. Identify key stakeholders describing their level of influence and opinions on carbon pricing instruments, particularly related to the ETS-PP. Propose a stakeholder engagement, capacity building, and communications strategy, including audiences, key messages, communication channels, timeline, and budget. Content • National context and baseline assessment. • Stakeholder mapping report. • Market research report, with information from interviews, round tables, and surveys (online and telephone). 43 • Proposal for stakeholder engagement, capacity building, and communications strategy. Main deliverable 1. Propuesta. Estrategia de comunicación, capacitación y sensibilización a públicos del Sistema de Comercio de Emisiones Activity 3.2.2. Mexico ETS Handbook Objective Develop a comprehensive handbook on the Mexican Emissions Trading System and its Pilot Program. Develop additional supplemental communications materials on the Mexican ETS- PP. Content • Draft of Handbook with basic concepts for a general audience. • Draft of Handbook with technical concepts for ETS stakeholders. • Smart book version of both Handbooks. • Proposal for a social media campaign on the Mexican ETS. • Branding package (logo, banners, PowerPoint and Word templates, etc.) to build a visual identity of the Mexican ETS. • Communication materials (ecards, infographic series, videos). • 13-step guide on the Mexican ETS-PP. Main deliverable 1. Manual básico del Sistema de Comercio de Emisiones 2. Manual técnico del Sistema de Comercio de Emisiones 3. Manual de identidad institucional SCE Activity 3.2.3. Support to develop communication products for the Mexican ETS and the PMR Mexico Objective Plan, design, and develop communication products for a launch event for the ETS registry, reporting PMR Mexico project’s progress, and proposing the structure for an ETS knowledge center. Content • PMR Mexico video and graphic report. • ETS promotional materials. • Communication materials for virtual events. • Proposal for knowledge center’s structure. • PMR Mexico Video Summary of activities Main deliverable 1. Propuesta de arquitectura de la página web 44 Table 1.1 Detail of deliverables and level of disclosure Proposed Activity Deliverables Format Status classification Component 1 – ETS Pilot Program design elements Propuesta de Criterios, Metodologías y Lineamientos y 1 PDF Official use only Shared with client otros Documentos Técnicos Technical Proposal Reporte Final Créditos de Compensación de Acción 1.1.1 for an Early Action 2 PDF Official use only Shared with client Temprana Offset Scheme Recomendaciones para Proyectos de Compensación en la 3 PDF Official use only Shared with client Fase Operativa Recomendaciones para el diseño, desarrollo y aprobación 4 PDF Official use only Shared with client de protocolos Proposal for a Draft Procedimiento de ciclo de la propuesta del Esquema de 1.1.2 Compliance Offset 5 Compensación de Acción Temprana del Programa de PDF Official use only Shared with client Scheme in Mexico Prueba del SCE Directrices propuestas para la Verificación de proyectos 6 PDF Official use only Shared with client de compensación Identificación y priorización de proyectos de mitigación Proposal of Draft 7 Word Official use only Shared with client en los sectores de agricultura y ganadería Protocol for Livestock Borrador de protocolo de compensación para el sector de 1.1.3.a and Agriculture for 8 Word Official use only Shared with client agricultura selected mitigation activities Borrador de protocolo de compensación para el sector de 9 Word Official use only Shared with client ganadería Proposal of Draft Identificación y priorización de proyectos de mitigación 10 PDF Official use only Shared with client Protocols for the en el sector forestal 1.1.3.b Forestry sector, for Borrador de protocolo de compensación para el sector selected mitigation 11 PDF Official use only Shared with client forestal activities Proposal of Draft Recomendaciones sobre las actividades de mitigación del 1.1.3.c 12 PDF Official use only Shared with client Protocols for the sector del transporte 45 Proposed Activity Deliverables Format Status classification Transport sector, for Borrador de protocolo de compensación para el sector a selected mitigation 13 PDF Official use only Shared with client del transporte terrestre activity Technical Guidance 14 Market Oversight Final Report PDF Official use only Shared with client on Market Oversight 1.2.1 and Market Stability Mechanisms for 15 Market Stability Mechanisms Final Report PDF Official use only Shared with client Mexico's ETS Development of an Propuesta de Marco metodológico: criterios aspectos y Evaluation 16 PDF Official use only Shared with client datos Framework for the 1.2.2 Mexican Emissions Propuesta de Manual del Marco de Evaluación: Guía de Trading Pilot 17 PDF Official use only Shared with client uso Program Mapping and Review of Carbon Pricing Instruments at Reporte Final de Consultoría. Análisis de interacciones de 1.3.1 18 PDF Official use only Shared with client National and instrumentos de precio al carbono y recomendaciones Subnational Levels (Policy Mix) Revisión de los requisitos de participación y condiciones Opportunities & 19 propicias para participar en los enfoques cooperativos del PDF Official use only Shared with client challenges for Artículo 6 Mexican engagement Arreglos institucionales nacionales y de gobernanza in Cooperative 20 PDF Official use only Shared with client necesarios para una cooperación efectiva del Artículo 6 1.3.2. Approaches under 21 Consideraciones metodológicas PDF Official use only Shared with client the Paris Agreement and other emerging Insumos técnicos para el análisis preliminar de la market-based 22 participación de México en los enfoques cooperativos del PDF Official use only Shared with client instruments Artículo 6 46 Proposed Activity Deliverables Format Status classification Component 2 - Development of the ETS Registry (Pilot Program) Technical Support for Propuesta de manual para instalaciones, sistema de 23 PDF Official use only Shared with client the Adaptation of an seguimiento 2.1 Existing Platform into Propuesta de especificaciones funcionales, sistema de an ETS Registry 24 PDF Official use only Shared with client seguimiento Presentación Sistema de Seguimiento de los derechos de 25 PDF Official use only Shared with client Practical training emisión: Sesión práctica 2.2 sessions for the Reporte de recomendaciones para el Registro de Mexican ETS Registry 26 PDF Official use only Shared with client Mitigación del Registro Nacional de Emisiones Component 3 - Cross-cutting capacity building and communications Market Simulation 29 Simulation Exercise Phase 1 Report PDF Official use only Shared with client 3.1.1 Exercise 30 Simulation Exercise Phase 2 Report PDF Official use only Shared with client 31 2090806_Mexico ETS Academy Evaluation Report Word Official use only Shared with client 32 Presentaciones ETS Academy Julio 2019 Dia 1 Rar Official use only Shared with client 3.1.2.a ETS Academy 2019 33 Presentaciones ETS Academy Julio 2019 Dia 2 Rar Official use only Shared with client 34 Presentaciones ETS Academy Julio 2019 Dia 3 Rar Official use only Shared with client 3.1.2.b ETS Academy 2020 35 Reporte Final Academia del SCE 2020 PDF Official use only Shared with client Sector-specific virtual 36 Reporte sobre la capacitación PDF Official use only Shared with client training for regulated Preparación y organización para de sistema de comercio entities under the 37 PDF Official use only Shared with client 3.1.3 de emisiones Mexican Emissions Trading Pilot 38 Fact sheet. Sistema de seguimiento PDF Public Shared publicly* Program 39 Contenido de módulos del eLearning Excel Official use only Shared with client ‘ETS in Mexico’ e- 3.1.4 learning course Curso en linea SCE Mexico. Presentación de resultados 40 PDF Official use only Shared with client finales 47 Proposed Activity Deliverables Format Status classification Proposal of a Stakeholder Engagement, Capacity Building, 3.2.1 and Communications 41 Propuesta de estrategia de comunicación PDF Official use only Shared with client Strategy for the Mexican Emissions Trading Pilot Program 42 Manual básico del Sistema de Comercio de Emisiones PDF Official use only Shared with client Mexico ETS 3.2.2 43 Manual técnico del Sistema de Comercio de Emisiones PDF Official use only Shared with client Handbook 44 Manual de identidad institucional SCE PDF Official use only Shared with client Support to develop communication 3.2.3 products for the 45 Propuesta de arquitectura de la página web PDF Official use only Shared with client Mexican ETS and the PMR Mexico *during the implementation of capacity buildings activities 48 Annex 2. Communication products 49 50 51 52 53 54