Clean Energy Cost-Savings: A Study of Mexico’s Federal Electricity Commission (CFE)

Clean Energy Cost-Savings: A Study of Mexico’s Federal Electricity Commission (CFE)

Typically, a cap-and-trade system involves the following basic elements: 1. Emissions Permit: A permit granted to each covered facility, allowing it to emit a particular gas into the air. Permits cannot be bought or sold. 2. Emissions Allowance: Allowance allocated to a covered facility to emit a specific volume of gases into the air. The emission allowance is transferrable; that is, it can be traded. 3. Emissions Cap: The sum of the total emissions allowances placed “in circulation.” The cap is set below the current emission trends. It establishes the desired environmental goal and gives financial value to the allowances, since they will be in short supply. 4. Allowance Allocation: The specific mechanism used for distributing emission allowances among covered facilities (free distribution, auctioning, etc.). 5. Compliance: Surrendered allowances equal to a covered facility’s actual air emissions. Each individual facility has the obligation to cover all their emissions with allowances. 6. Emissions Tracking: The method used to track emissions from covered facilities in order to know the number of allowances a facility will be required to surrender. 7. Allowance Registry: An electronic log that keeps an account of emissions allowances in circulation: total granted, who received them initially, who traded them and who holds them at the time of compliance . The European Union Emissions Trading System covers more than 10,000 facilities. It has saved more than 2 billion tons of CO 2 , and covers about 45% of the European Union’s greenhouse gas emissions. CO 2 emission allowances are publicly traded and may be freely purchased in the market. Figure 11 shows the pricing trends for the past two years.

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