## A Comprehensive Climate Mitigation Strategy for Mexico

_IMF Working Papers, October 18, 2021_

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## Bibliographic details
- Authors: Simon Black, Koralai Kirabaeva, Ian W.H. Parry, Mehdi Raissi, Karlygash Zhunussova
- Published: October 18, 2021
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781513599847.001

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### Executive summary
- Progressive carbon price path from current levels of US$3 per ton to US$75 per ton by 2030 would achieve Mexico’s mitigation pledges.
- Annual revenues from the carbon price: 1.8 percent of GDP.
- Cumulative local air pollution deaths averted: 11,600.
- Average household burden from higher fossil fuel and electricity prices: 2.7 percent of consumption.
- Economic efficiency costs of carbon pricing: 0.3 percent of GDP in 2030.
- Mexico would need a more ambitious 2030 target to align with many countries adopting midcentury ‘net-zero’ emissions targets.

### Key findings and quantified impacts
- Carbon price trajectory: US$3 per ton (current) → US$75 per ton (by 2030).
- Fiscal impacts:
  - Annual revenues: 1.8 percent of GDP.
- Health and environmental benefits:
  - Cumulative deaths from local air pollution averted: 11,600.
  - Domestic environmental and local air pollution benefits more than offset the economic efficiency costs (0.3 percent of GDP in 2030) before counting climate benefits.
- Distributional impacts:
  - Direct burden on the average Mexican household: 2.7 percent of consumption from higher fossil fuel and electricity prices.
  - Revenue recycling can offset most of this burden.
  - Targeted transfers can make the reform pro-poor and pro-equity.

### Policy design and recommendations
- Core instrument:
  - Implement progressively increasing carbon pricing consistent with the US$3 → US$75 per ton path to meet mitigation pledges.
- Revenue use:
  - Recycle carbon pricing revenues to offset household burdens and implement targeted transfers to protect low-income and vulnerable groups.
- Complementary measures:
  - Reinforce carbon pricing with sectoral instruments (see below).
  - Support public investment in the clean energy transition through complementary policies.

### Sectoral instruments and areas for reinforcement
- Suggested sectoral tools to reinforce carbon pricing:
  - Feebates in transport
  - Power sector measures
  - Industry sector measures
  - Building sector measures
  - Forestry sector measures
  - Extractive sector measures
  - Agricultural sector measures

### Strategic considerations
- Mexico’s 2030 emissions target would need to be more ambitious to be consistent with a midcentury ‘net-zero’ objective followed by many other countries.
- Combining carbon pricing with sectoral instruments and public investment support increases effectiveness of mitigation strategy.

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## Content in this bundle

- **Working Paper**
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_Source: https://www.imf.org/en/publications/wp/issues/2021/10/18/a-comprehensive-climate-mitigation-strategy-for-mexico-494708_