By Gloria Park and Estuardo Anaya, Santamarina y Steta 

Global climate change is a very popular topic of discussion of late, both in Mexico and the United States, and particularly in California. Driven by a widely perceived consensus among scientists that global warming is currently taking place at an accelerating rate, due in large part to man-made carbon emissions, public opinion has impelled policy makers in both countries to take action. This article will compare the different approaches that Mexico and the U.S. are taking at various levels of government to address climate change issues, particularly through regulation of greenhouse gases (“GHGs”), and will analyze the resulting obstacles and opportunities for private enterprise in both countries.
 

A. U.S. Climate Change Regulation.

1. Federal Level.

On the U.S. side of the border, very little concrete legislation has yet emerged at the federal level. Although a recent U.S. Supreme Court case[1] found that the federal government has both the authority and the duty to regulate carbon dioxide emissions (thought to be the main contributor to climate change) under the federal Clean Air Act, the Bush administration has generally followed a “wait and see” approach, calling for and sponsoring further research and study into climate change issues. (Certain modest steps nevertheless have been taken – for example, the administration’s encouragement of ethanol fuels.)

The federal approach appears to be beginning to change, however. President Bush has recently called for a conference of leaders of industrialized nations and larger developing nations (including Mexico) to be held in late September 2007.[2] Congress has introduced several legislative measures for consideration in both houses, with no single proposal emerging as a frontrunner for passage. Certain U.S. industry groups such as the recently formed U.S. Climate Action Partnership (“US-CAP”) are also pushing for federal regulation, to avoid the “patchwork” of state regulation that now exists[3]. This may lead to some further initiatives during the last months of the current administration. More significant change is likely under the next administration after the November 2008 election – several of the candidates from both parties appear to support stronger action on climate change. 

2. State Level / California.

Given the vacuum at the top, the most significant U.S. climate change regulation has been at the state level. Several states, including California, Massachusetts, New York and New Jersey have enacted stringent regulatory programs, and numerous other states are in the process of doing so;[4] over half of all U.S. states now have “Climate Action” programs of some kind in effect. California has been in the vanguard of this movement under Governor Arnold Schwarzenegger and a Democratic-controlled legislature. In August 2006, the Governor signed Assembly Bill 32 – the Global Warming Solutions Act (“AB-32”) into law, committing the State to enact new regulations over the next few years to roll back the State’s total GHG emissions (both public and private sector) to specified levels.[5]

Under this statutory mandate, the California Air Resources Board (“ARB”) is the lead regulatory agency empowered to enact the requirements of AB-32. Over the next four years, ARB will be promulgating and implementing a series of regulations for achievement of GHG reductions in the State, beginning this year with publication of optional early action measures for GHG emitters, and culminating in 2011 with mandatory reduction requirements.[6] Although not published yet even in draft form, mandatory GHG reduction requirements are expected to include a market-based “cap and trade” program or similar structure establishing maximum total GHG emission limits, allowing companies the right to buy and sell emission credits. The new rules will likely affect all sectors of the economy – ranging from energy and agriculture to transportation and residential, commercial and industrial real estate development. Government operations are already subject to new climate-related standards, which will be increased in the future, and private companies also are being impacted specifically in the areas discussed below. 

(a) Real Estate/Land Use. Real estate development and land use have been among the first areas significantly affected by climate change legislation in California. Under the California Environmental Quality Act (“CEQA”), new development is required to analyze its “significant impacts to the environment” – and the GHG emissions resulting from increased energy use by new buildings, together with the additional vehicle miles traveled by their occupants, have been viewed by state authorities as “significant.”[7] As such, the environmental impact reports prepared for new local planning initiatives and private developments have been required to analyze climate change impacts, and mitigation for these impacts is likely to be required in the near future. Such mitigation could consist of additional energy efficiency measures, the redesign of projects to reduce vehicle trips, the installation of solar panels, the planting of trees, and the purchase of carbon credits. This trend is likely to spread to other states, such as Massachusetts and New York, that have similarly stringent environmental review requirements.

Most recently, California legislators have circulated initiatives to restrict new development to areas where mass transit infrastructure already exists or is proposed under applicable planning documents, in an effort to limit “suburban sprawl” and reduce emissions.[8] Such proposals have generated significant controversy between developers and environmental interests, and the conflict shows no sign of abating – although there may be opportunities to find common ground as developers begin to construct more “smart growth” developments that locate high-occupancy buildings in urbanized areas near transit infrastructure. These initiatives have also antagonized local governments, as land use planning has traditionally been almost purely a matter of local control. Nonetheless, consensus has been developing that measures of this sort will be needed to implement the AB 32 mandate.

(b) Vehicle Fuel and Efficiency Standards. California has recently adopted stringent new standards to require production and sale of lower-carbon fuels for vehicles through ARB regulations. Also, California is attempting to impose fuel efficiency standards for new vehicles that are stricter than the federal standards – if it is successful in doing so despite federal opposition, many other states are expected to follow California’s lead. Such developments may also encourage stronger federal regulations in the future.

3. Business Opportunities.

Although increased regulation will cause significant increased costs and other obstacles for business, there are numerous economic opportunities that will arise from the new requirements. Many industries have been encouraged by new and proposed energy-related requirements, including manufacturers of solar panels, wind turbines and other “clean” technologies. Developers of “smart growth” projects are gaining additional leverage to get their projects approved, given their climate change benefits.

More generally, the expertise that California developers, consultants and other businesses are gaining by dealing with the new requirements may be “transportable” to other jurisdictions – such expertise will be valuable once new requirements are imposed elsewhere. As such, California companies may benefit by being “ahead of the curve” in adopting to climate change impacts and the resulting legal requirements. Such factors appear to have been the underpinnings for the Schwarzenegger administration’s support for AB 32 and the other measures enacted so far. 

B. Mexican Climate Change Regulation.

1. Applicable International Regulation.

On the international level, Mexico is party to the United Nations Framework Convention on Climate Change (“Convention”) and the Kyoto Protocol.[9] As a Non-Annex I Country of the Convention, Mexico is not obligated to reduce its GHG emissions to the Kyoto Protocol levels, but it is authorized to receive Clean Development Mechanism (CDM) projects from the wealthier Annex I Countries. CDM projects established in Mexico create certified emissions reduction credits to help the Annex I countries reach their compliance objectives under the Kyoto Protocol; these projects are further described below. 

2. Domestic (Federal) Regulation.

Most Mexican regulation of climate change is indirect, through existing laws regulating air quality. [10]Still, various legal instruments do establish mechanisms for determining, reporting and controlling the total volume of GHG emissions generated in the country.[11] The indirect regulation of climate change in Mexico also includes regulation on sustainable forestry development directed to the preservation and sustainable management of forest ecosystems.[12]

In order to comply with Mexico’s international commitments and generate mechanisms for controlling climate change, an Inter-Secretariat Commission has been created which integrates the following federal government departments: Environment and Natural Resources, Agriculture, Cattle, Rural Development, Fishery and Food, Energy, Social Development, Economy and Foreign Affairs.

The two most important companies controlled by the Mexican government – the Federal Electricity Commission (CFE) and the Mexican Oil Company (PEMEX) have established the following goals for emissions reduction:
 

(i)                           CFE: Increase the efficiency of transmission and distribution lines by 2%; increase efficiency of thermoelectric plants by 2%; and conversion to natural gas of thermoelectric plants; and

(ii)                         PEMEX: Install combined heat and power plants in the national refining system; increase PEMEX’s energy efficiency by 5%; and reduce fugitive emissions of methane from natural gas production, transportation and distribution.
 

For private companies, there are no general guidelines for emissions reduction.  Certain companies that have internal environmental management policies or are recognized by the environmental authorities with Clean Industry Certificates are obliged to comply with more strict parameters than those contained in the applicable regulations.  However, this is a voluntary program and only the wealthiest and largest companies are part of it.

3. Little State Regulation.

Throughout Mexican history, the establishment of public policies and the legislative mechanisms for creating laws and regulations has been characterized by centralism. One expression of this political practice is the preeminence of federal governmental bodies over local and municipal authorities. As such, the Mexican state governments are not very involved in the development of regulations on climate change. However, the State of Sonora has recently requested a technical study for measuring the possible consequences of climate change in the state, in order to take legislative measures to minimize its effects.  Also, the State of Baja California has been actively promoting the development of solar power and other renewable energy sources, some of it in connection with power sales to the U.S. 

4. Development Opportunities.

Mexico has become an important receiver of CDM projects under the Convention described above – currently there are 178 CDM projects with approval letters, including: management of wastes of cattle farms, methane use from landfills, management of wastewaters, etc. Partly as a result of this success, the federal government headed by President Felipe Calderon has designed a National Strategy on Climate Change, with the purpose of generating GHG mitigation opportunities through different actions covering two major areas: (i) energy generation and use, and (ii) vegetation and land use.

(a) Energy Generation and Use. Actions in this area are intended to promote energy savings and efficiency; co-generation of energy along with national industries (in general, energy production is an exclusive activity for the State); energy generation with renewable energies and bio-fuel.

(b) Vegetation and Land Use. Actions in this area are directed to reduce the emission of GHGs through the conservation, capture and substitution of carbon by sustainable forestry and forest ecosystems conservation, and by such actions as reforestation and sustainable management of commercial plantations.

By virtue of the above, we can conclude that, although there are no specific legal instruments for controlling climate change in Mexico, there are authorities, public policies and government programs directed to the reduction of GHGs. Increasing interest in implementing more CDM projects from both the public and private sectors will help Mexico to take advantage of the economic benefits that climate change regulation may bring.

C. Comparison / Conclusions.

Review of the Mexican and U.S. approaches to GHG emissions leads to several interesting conclusions. First, it is clear that Mexico has taken leadership on this issue at the federal level by acknowledging the problem and committing the government to take some future action, which puts it ahead of the U.S. in some respects. Since a larger portion of Mexican industry is controlled by the government than in the U.S., the reductions targeted for these industries should be easier to implement and have greater overall impact. Even though most of its measures so far require relatively small changes to current operations, Mexico at least is making progress on the issue at a national level – and hence may be in a better position to deal with expected climate change impacts and future measures on a comprehensive national basis than the U.S.  Mexico’s centralized federal authority may also give it some advantage for imposing future regulation in a uniform manner, with fewer demands for "local control".

The fact that U.S. state regulation of climate change has gone ahead of federal regulation is likely to create some significant problems for the U.S. Industry groups such as US-CAP have noted the problems resulting from large companies being forced to comply with different regulations in different states and the inefficiencies that this creates – this is why some of these groups are requesting that uniform federal controls be imposed. However, even if new federal requirements (such as a future national cap-and-trade program) are adopted, there will be significant interpretation issues over how and to what extent the federal requirements “preempt” the state requirements in California and elsewhere, and what the results will be. Dealing with these issues will likely pose a continuing headache for lawyers and their clients in numerous U.S. states for years to come – a problem that Mexico will hopefully be able to avoid. 

The main U.S. strength, surprisingly enough, may reside in its institutions – both governmental and non-profit – and its legal system. Once an enforceable “cap and trade” system is in place, at the state or national level, the details and mechanics of the system will be implemented, enforced, worked out and tested by these institutions – and may, in the future, become a model for other countries. Also, once sufficient economic incentives exist, the demonstrated ability of the U.S. (particularly California) to create innovations in environmental and energy technology will benefit individuals and companies both domestically and worldwide.

In sum, climate change regulation in both the U.S. and Mexico presents many obstacles and challenges for both government bodies and private companies, but will also provide opportunities to those that take affirmative steps to deal with the issues early on – particularly in the development of new strategies and technologies to reduce GHGs. The only real certainty is that developments in this field are likely to continue at a rapid rate, and will require continued close attention by companies investing and doing business on both sides of the border.

Authored By:

Gloria Park and Estuardo Anaya, Santamarina y Steta 

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