Electricity Market and Carbon Tax Advice, Mexico

Client needs

Mexico’s Ministry of Finance, supported by the French Development Agency, was considering a carbon tax to reduce its GHG emissions by 22 percent to meet its 2030 target. It also wanted to reform its electricity tariffs and subsidies to avoid impacting the affordability of electricity under the new tax.

How Castalia helped

• Economic modelling of carbon tax options based on international best practice and an historical analysis of the fossil fuels tax at national and sectoral levels
• Recommended a preferred carbon tax option and implementation plan
• Designed an optimal cost-based electricity tariff structure and subsidy transition plan.

The outcome of our work

The Ministry approved our recommendations. We are building its capacity to implement the reforms. The carbon tax will allow Mexico to reduce its emissions by 33 percent in 2030, beating its 22 percent target.