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# **Chapter 13 Blue Carbon in Emissions Markets: Challenges and Opportunities for Mexico**

**Antonina Ivanova Boncheva and Alfredo Bermudez-Contreras**

**Abstract** Mangroves are ecosystems made up of trees or shrubs that develop in the intertidal zone and provide many vital environmental services for livelihoods in coastal areas. They are a habitat for the reproduction of several marine species. They afford protection from hurricanes, tides, sea-level rise and prevent the erosion of the coasts. Just one hectare of mangrove forest can hold up to 1,000 tons of carbon dioxide, more than tropical forests and jungles. Mexico is one of the countries with the greatest abundance of mangroves in the world, with more than 700,000 ha. Blue carbon can be a novel mechanism for promoting communication and cooperation between the investor, the government, the users, and beneficiaries of the environmental services of these ecosystems, creating public–private-social partnerships through mechanisms such as payment for environmental services, credits, or the voluntary carbon market. This chapter explores the possibilities of incorporating blue carbon in emissions markets. We explore the huge potential of Mexico's blue carbon to sequester CO2. Then we analyse the new market instrument that allows countries to sell or transfer mitigation results internationally: The Sustainable Development Mechanism (SDM), established in the Paris Agreement. Secondly, we present the progress of the Commission for Environmental Cooperation (CEC) to standardize the methodologies to assess their stock and determine the magnitude of the blue carbon sinks. Thirdly, as an opportunity for Mexico, the collaboration with the California cap-and-trade program is analysed. We conclude that blue carbon is a very important mitigation tool to be included in the compensation schemes on regional and global levels. Additionally, mangrove protection is an excellent example of the mitigationadaptation-sustainable development relationship, as well as fostering of governance by the inclusion of the coastal communities in decision-making and incomes.

A. Ivanova Boncheva (B)

Department of Economics and Director of APEC Studies Center, Universidad Autonoma de Baja California Sur, La Paz, Mexico e-mail<EMAIL_ADDRESS>
A. Bermudez-Contreras Autonomous University of Baja California Sur (UABCS), La Paz, Mexico e-mail<EMAIL_ADDRESS>
© The Author(s) 2022

S. Lucatello (ed.), *Towards an Emissions Trading System in Mexico: Rationale, Design and Connections With the Global Climate Agenda*, Springer Climate, https://doi.org/10.1007/978-3-030-82759-5\_13

**Keywords** Blue carbon · Oceans · Emission trading · Sustainable development · International cooperation

# **Introduction**

Blue carbon ecosystems are "the coastal ecosystems of mangroves, tidal marshes, and seagrass meadows" (CI, IUCN and IOC-UNESCO 2019:2). Mangroves have an enormous capacity for sucking up carbon dioxide and other greenhouse gases and trapping them in flooded soils for millennia. In addition to their mitigation potential, they contribute to climate change adaptation stabilizing the coastal areas and protecting them from sea-level rise, storms, and soil erosion (Ibid). Mangroves also provide important ecosystem services as a habitat for the reproduction of different marine organisms. Their social contribution is also very significant in providing food and employment opportunities to coastal communities.

Governments, international actors (NGOs and academia), and local communities around the world are supporting coastal wetland conservation as a part of the mitigation strategy. The initiatives have varying levels of private sector involvement and different objectives, targets, and timelines. Some efforts focus on reducing emissions from deforestation and degradation, while others focus on negative emissions through the restoration of cleared or degraded landscapes. The United Nations Framework Convention on Climate Change (UNFCCC) is beginning to include blue carbon in the discussion of natural ecosystems. The existing REDD+ framework set-up under decisions of the UNFCCC COP specifies modalities for Measuring, Reporting, and Verifying (MRV) greenhouse gas emissions and removals (Park et al. 2013). Article 5 of the Paris Agreement explicitly calls for parties to take action to conserve and enhance sinks and reservoirs of greenhouse gases, including forests, and encourages countries to engage in cooperative approaches to this end. The explicit inclusion of forest and mangrove conservation is potentially a "game changer" as it encourages countries to safeguard ecosystems for climate mitigation purposes (Grassi et al. 2017) and facilitates the access of developing countries with abundant forests and mangroves to international carbon mitigation financing.

The objective of this chapter is to present Mexico's potential to involve blue carbon in the emissions trading system. First, we present the stocks of blue carbon in Mexico, the country with the greatest abundance of mangroves in the world, with more than 700 thousand hectares. Second, the potential of blue carbon as carbon storage is explored. Third, we analyse the opportunities that the new Sustainable Development Mechanism (SDM) introduced by the Paris Agreement is presenting for cap-and-trade and REDD+ mitigation options, especially for developing countries like Mexico. Further, we explore Mexico's collaboration with the California cap-and trade program, as a possibility to introduce blue carbon in the emissions trade. A case study of the Vizcaino Biosphere Reserve illustrates the country's likelihood of entering the blue carbon emissions markets. We conclude that blue carbon is a great area of opportunity for Mexico to perform mitigation strategies and participate in the regional and world cap-and-trade systems.

# **Blue Carbon in the World and Mexico**

# *Climate Change and the Ocean*

Total anthropogenic CO2 emissions have been steadily and undoubtedly rising over the past decades and with them, the energy we trap on the planet. How emissions will behave in years to come depends on the decisions we make and the pathways we follow, as depicted in Fig. 13.1. According to the IPCC (2014), in excess of 90% of the energy accumulated in the climate system on Earth is in the ocean.

To make matters worse, alongside emissions growth and increased energy entrapment in the climate system, degradation of natural ecosystems that could serve as carbon sinks is also progressing, thus reducing their capacity to absorb CO2 from the atmosphere. Fortunately, the mechanisms provided by forests to store carbon are well understood leading to the formulation of financial support schemes to promote their conservation in an effort to reverse the aforementioned trend. However, the carbon storage potential of ocean ecosystems, where 55% of biological carbon is captured (Nellemann et al. 2009), has not received enough attention in the fight against climate change.

**Fig. 13.1** Left: Annual anthropogenic CO2 emissions history and IPCC scenarios. Right: Energy accumulation in the climate system. *Source* (IPCC 2014)

# **Blue Carbon**

Coastal ecosystems can provide a wide range of services such as supporting fisheries, coastline protection from storms and sea-level rise, shoreline erosion prevention, water purification, biodiversity conservation, or providing food security for coastal communities, all of which are essential for climate change adaptation. Additionally, some of them can also work effectively to capture and store organic carbon acting as a carbon sink in the plants themselves and the sediments below. These include mangroves, salt marshes, and seagrass meadows. These ecosystems stretch through the land-sea interface covering supratidal (salt marshes), intertidal (mangroves), and shallow subtidal regions (seagrasses). In 2012, Pendleton et al. estimated the global extent of blue carbon ecosystems in the world to be 48.9 million hectares. The carbon stored in such ecosystems is referred to as blue carbon and accounts for perhaps as much as 71% of all carbon stored in ocean sediments (Ashok et al. 2019; CI et al. 2019; Nellemann et al. 2009; SEMARNAT 2017).

Blue carbon ecosystems are very fragile. Despite the enormous value found in the services they provide, economic development and human activities put them under sustained pressure. In fact, marine ecosystems are being lost at a faster rate than those based on land. The loss of these ecosystems due to unsustainable natural resource exploitation practices, poor watershed management, poor coastal development practices, and poor waste management is a serious threat for them and for the long list of services they provide in coastal regions, including carbon capture (uptake) and long-term carbon storage. Using a social cost of carbon of \$41 per ton of CO2 (2007 USD), Pendleton et al. (2012) estimated an annual global cost of blue carbon ecosystems conversion and degradation between \$6.1 and \$42 billion and noted that while damages to these ecosystems are located in a narrow strip along the coasts, the consequences are endured globally. Therefore, the management of marine ecosystems must be regarded as a desirable investment rather than an unnecessary cost. One method to promote their conservation and restoration would be their successful incorporation in carbon markets (Nellemann et al. 2009; OCM-NOAA 2018).

According to the Blue Carbon Initiative (www.thebluecarboninitiative.org), blue carbon ecosystems are found in all continents around the globe except Antarctica with the distribution presented in Fig. 13.2. The Blue Carbon Initiative reports loss rates of 1.5% per year for seagrasses and 1–2% per year for tidal marshes. They also report a loss of 30% of historical global coverage for seagrasses and 50% for tidal marshes (CI et al. 2019). Feller et al. (2017) report mangrove losses of 35% of their original area by the end of the twentieth century at global loss rates between 1–3% per year. Fortunately, this shows signs of improvement in the twenty-first century with loss rates of less than 1% per year and even as low as 0.16% per year between 2000 and 2012 (Feller et al. 2017; Hamilton and Casey 2016).

**Fig. 13.2** Global distribution of blue carbon ecosystems (top) and mangroves alone (bottom). *Source* Top: Reproduced from CI et al. (2019). Bottom: Reproduced from Alongi et al. (2015)

# **Blue Carbon in Mexico**

Mexico has considerable extensions of mangroves and seagrasses covering an estimated surface of 1.1 million hectares (Herrera-Silveira et al. 2020). Because of these ecosystems, Mexico has significant potential to capture and store blue carbon. Despite some protection provided by Mexican regulations, these ecosystems are under constant pressure from land-use changes for various purposes. Over the past 20 years, 24 Mt1 CO2 has been emitted in Mexico due to mangrove coverage loss (Herrera-Silveira et al. 2020). That's equivalent to 3% of the total emissions of Mexico in 2017 (INECC 2018). Financial schemes to support the conservation of blue carbon ecosystems in Mexico could help in maintaining a healthy stock of mangroves and seagrasses.

According to the most recent evaluation by Mexico's Biodiversity Commission (CONABIO), the country has a total mangrove surface of 775,555 ha (Valderrama-Landeros et al. 2017) distributed in five regions as shown in Fig. 13.3. The Yucatan Peninsula alone accounts for more than half of the total. Overall, this mangrove area

1 1 Mt equals 1 million metric tons.

**Fig. 13.3** Mangrove ecosystem surface by region in Mexico. *Source* Top: Reproduced from Herrera-Silveira et al. (2020). Bottom: Authors' elaboration with data from Valderrama-Landeros et al. (2017)

**Fig. 13.4** Evolution of mangroves in Mexico. *Source* Authors' elaboration with data from Valderrama-Landeros et al. (2017). The value presented for 1980 corresponds to the aggregation of data for individual states during the 1970s and 1980s as presented by Valderrama-Landeros et al. (2017)

had a net loss of 9.4% between the 1970/1980 records and 2015, with a small recovery between 2010 and 2015 (Fig. 13.4). Hamilton et al. (2016) ranked Mexico in the top 10 countries with the most mangrove forest area but Mexico was also ranked in the top 10 countries with the highest annual total area of mangrove deforestation between 2000–2012 (Feller et al. 2017). Nevertheless, some steps are already being taken in the right direction. The "Adaptation and Blue Carbon" project is the first adaptation project in Mexico funded with national resources through the Climate Change Fund created by the General Law of Climate Change.2

# **Carbon Storage**

Annually, between 235–450 Mt of carbon are captured and stored by blue carbon ecosystems around the world (Alongi 2014). The attention that these ecosystems and mangroves, in particular, have received as carbon sinks is due to their disproportionately high capacity to trap carbon in the long term in relation to the area they cover (see Fig. 13.5). However, as could be reasonably expected, not all mangrove plants around the world are the same nor are the conditions they grow in. Plant species, local climate, coastal geomorphology, fertility gradients, hydrodynamic types, and

2 A video summarizing the experience in this project can be found in www.youtube.com/watch?v= zvDtxrizRws (04 May of 2020).

**Fig. 13.5** Average global carbon stocks of various ecosystems. *Source* Reproduced from Alongi (2014)

even surface salinity are all factors that affect carbon storage capabilities per unit area (Herrera-Silveira et al. 2020; Ochoa-Gómez et al. 2019). Figure 13.6 presents

**Fig. 13.6** Organic carbon stores per unit area in mangroves around the world. *Source* Reproduced from Herrera-Silveira et al. (2020)

**Fig. 13.7** Mangrove distribution in VIBIRE. The Reserve is in a darker shade; mangrove ecosystems are in red. *Source* Authors' elaboration with data from Google Earth, CONANP (2000), and CONABIO (2015)

a comparison of unit carbon storage for mangroves worldwide. It is then clear that there is a wide range of carbon capture capacities for these ecosystems (Fig. 13.7).

Despite the different carbon storage capacity of mangroves in various places, in general, they maintain similar amounts of carbon in their living biomass as other vegetated ecosystems. However, a larger benefit lies in the carbon stored in the soil over which they are located and that they successfully create through various mechanisms. These soils are carbon-rich environments that can extend several metres deep where lack of oxygen and other factors constrain decomposition (Pendleton et al. 2012). This is at the same time why the conversion of mangroves to other land uses also poses an enormous risk as a climate change contributor. In converted or degraded mangrove regions, surface vegetation harm will not only result in a loss of atmospheric carbon uptake capacity but, more importantly, lead to the unlocking and decomposition of the organic carbon contained in these soils, ultimately resulting in pulses or spikes of greenhouse gases released back into the atmosphere. Estimates of emissions released to the atmosphere in the range of 150–1020 Mt CO2 each year (central value: 450 Mt) have been reported due to the degradation and conversion of coastal ecosystems (Pendleton et al. 2012). To put this into perspective, Mexico's total greenhouse gas emissions in 2017 (734 Mt CO2e, INECC 2018) are within that same range. Therefore, conserving and adequately managing mangroves to ensure the long-term permanence of those carbon stores is of paramount importance, firstly for their climatic benefits but also for the long list of valuable other services they provide.

# **Sustainable Development Mechanism (SDM) of the Paris Agreement**

The 2015 Paris Agreement to the UNFCCC is at the centre of international cooperative efforts for climate change mitigation and adaptation in the post-2020 period. Although its legal form was heavily disputed in its four-year negotiating process (Dagnet et al. 2016). The overall purpose of international cooperation through the Paris Agreement is to enhance the implementation of the UNFCCC, including its objective of stabilizing atmospheric GHG concentrations "at a level that would prevent dangerous anthropogenic interference with the climate system" (UNFCCC 1992 Art. 2).

Article 6.1 of the Paris Agreement recognizes the role that cooperative approaches can play, on a voluntary basis, in implementing parties' Nationally Determined Contributions (NDCs) "in order to allow for higher ambition" in their mitigation actions and to promote sustainable development and environmental integrity. It lists a number of specific types of cooperative approaches that come within its ambit, including Internationally Transferred Mitigation Outcomes (ITMOs), a "mechanism to contribute to mitigation and support sustainable development", and a framework for non-market mechanisms (UNFCCC 2015; Morgan and Northrop 2017).

Article 6.2 suggests ITMOs can originate from a variety of sources including regional carbon markets or REDD+. While this provision, unlike similar provisions in the Kyoto Protocol, does not create an international carbon market, it enables parties to pursue this option should they choose to do so, for example, through the linking of domestic or regional carbon markets (Ivanova et al. 2020). Article 6.2 could also be implemented in other ways, including direct transfers between governments, linkage of mitigation policies across two or more parties, sectoral or activity crediting mechanisms, and other forms of cooperation involving public or private entities or both (Linn 2016). Wetlands International, together with the Australian Government, organized the event "Incorporating Blue Carbon into Nationally Determined Contributions under the Paris Agreement" at the UN Climate Change Conference, COP22, in Marrakesh (Ullman et al. 2013; Herr et al. 2015). In 2013, Mexico began to explore the options to include blue carbon in countries' NDCs (Pronatura Sur A.C. 2016).

Article 6.4 concerns the mitigation mechanism, referred to by some parties as the "sustainable development mechanism" or SDM. It is a mechanism that has as output GHG emissions reductions, which can be used by any party towards its NDC. However, the limit exists that emission reductions cannot be used by the host party if another party applies them to demonstrate the achievement of its NDC. Unlike the Clean Development Mechanism (CDM), there is no restriction specified regarding which parties can host mitigation projects and which parties can use the resulting emissions reductions towards their NDCs (Streck et al. 2016). The SDM will operate under the authority and guidance of the CMA3 and is to be supervised by a body designated by the CMA in a similar fashion to the CDM.

The SDM also has a mission to foster sustainable development. The decision adopting the Paris Agreement specifies experience with Kyoto mechanisms like the CDM as a basis for the new mitigation mechanism (UNFCCC 2016). Compared to the CDM under the Kyoto Protocol, which had a climate-centric focus on measuring emissions reductions, the SDM has a more balanced focus on both climate and development objectives and a stronger political mandate to measure sustainable development impact and to verify that the impacts are "real, measurable, and long-term" (Olsen et al. 2018).

# **Blue Carbon in North America: Assessing the Role of Coastal Habitats in the Carbon Balance of the Subcontinent**

As a member of the Commission for Environmental Cooperation (CEC),4 Mexico is involved in various trilateral projects. The CEC's first blue carbon project is a tool that facilitates the inclusion of Mexican blue carbon in the emission markets. It contributes to the conservation and restoration of coastal habitats that capture and store CO2. The project systematizes the information, mapping, and approaches necessary to fill gaps in our knowledge of carbon dynamics in carbon ecosystems as marshes, mangroves, and beds (CEC 2014, CCEA 2015).

The progress of the project is presented as follows:

3 CMA is the short form for the group of the countries who have signed and ratified the Paris Agreement. The full name of this governing body is "Conference of the Parties serving as the meeting of the Parties to the Paris Agreement".

4 Since 1994, Canada, Mexico, and the United States have collaborated in protecting North America's environment through the North American Agreement on Environmental Cooperation (NAAEC). Accordingly, the NAAEC established an intergovernmental organization—the Commission for Environmental Cooperation (CEC)—to support cooperation among the NAFTA partners to address environmental issues of continental concern, including the environmental challenges and opportunities presented by continent-wide free trade (CEC n.d.).

	- (1) Observation of carbon accumulation indexes in coastal marshes and their response to sea-level rise.
	- (2) Levels of uptake and storage of blue carbon in northern marshes: evaluation of processes, reserves, and accumulation rates of the element in undisturbed, drained, and restored marshes.
	- (3) Carbon reserves in mangroves and marshes in the most extensive wetlands in Mesoamerica: the Centla swamps, Mexico.
	- (4) Carbon stocks in seagrass bed systems across a range of environmental conditions and seagrass types, with the aim of determining the amount of carbon deposited.
	- (5) Spatial variability of carbon storage within the marshes belonging to the United States National Estuarine Research Reserve System for (NERRS): comparison of methodologies and coastal regions (Ivanova 2019).

This cooperation mechanism is an important tool for Mexico to evaluate blue carbon availability in the country and to develop the necessary methodologies for comparative studies.

# **California Cap-and-Trade Program**

California decided that a cap with a broad scope would be the most effective way to ensure that the state could meet its mitigation targets. At its launch in 2013, California's program covered all six greenhouse gases (GHG emissions) within the industrial and electricity sectors (EDF 2014). In 2015, the cap coverage expanded to transportation fuels and natural gas, bringing about 85% of state emissions under the cap. Emissions from imported electricity and fuel are included in the cap, though the cap does not cover emissions from sectors that are currently challenging to measure or regulate on a large scale, such as agriculture and fugitive emissions (EDF 2018).

In 2010, California and representatives of Acre, Brazil, and Chiapas, Mexico, signed a Memorandum of Understanding (MoU) that led to the establishment of a working group to provide guidance to California on fighting tropical deforestation and carbon pollution around the world through innovative policies that reduce Emissions from Deforestation and Degradation (REDD). The working group examined design elements, including legal and institutional aspects and social and environmental safeguards, to develop a jurisdictional scale REDD credit-trading system that could be used for compliance within California's carbon market (ROW 2013).

Chiapas has been developing a state-wide approach to REDD+, but it is at an earlier stage than Acre, Brazil (EDF 2015). Chiapas is identifying and beginning to assimilate the substantive and procedural elements needed to build a successful jurisdictional REDD+ program that will work within the Mexican context (Herrera Silveira and Teutli Hernández 2017). It also brings an important set of experiences regarding land tenure, indigenous rights, and participation, highlighting the critical importance of establishing a process that incorporates all stakeholders from the beginning in designing and building jurisdictional programs for REDD+ and low emissions development.

A very small amount (about 5%) of emissions reductions from California Commerce-included industries can be purchased through uncapped sources, including forestry ("green carbon") here. California has begun to expand this trade to neighbouring states and even to the international arena with highly forested countries with which it can offset its emissions, such as Brazil, Indonesia, or Mexico, and has already begun to work with the scheme of the certifying organization VCS (Lopomo et al. 2011). Currently, the California scheme is focused on qualifying blue carbon as a compensation category. It is yet to be decided whether this category will be applicable exclusively to bonds within California, or also to compensation from other countries included in California Commerce, such as Mexico. This may be a good opportunity for Mexico, as it adjusts very well to the requirements of this ETS and the scheme of working between states. In this way, the compensation scheme would come to adhere to state climate change strategies.

# **The Mexican Emissions Trading System Pilot Program**

On 1 January 2020, the Ministry of the Environment and Natural Resources (SEMARNAT) launched the Emissions Trading System Pilot Program, which aims to promote the reduction of emissions at the lowest possible cost, and which will last for three years, in compliance with the Reform of the Mexican General Law on Climate Change.

During the pilot program, only facilities whose annual emissions are equal to or greater than 100,000 tons of direct carbon dioxide emissions will participate.

According to the Regulations of the National Emissions Registry, the following activities are considered:

Blue carbon and forestry are sectors not regulated by the pilot program. However, the ETS can incentivize CO2 reductions in unregulated sectors. Mitigation projects in these sectors can be submitted to inspection under approved protocols to guarantee the quality of their reductions. Approved projects can access offset credits to achieve the mitigation goal. It is a good opportunity to promote blue carbon, but the priority of offset credits is still the regulated sector (SEMARNAT and GIZ 2020).

# **Case Study: El Vizcaino Biosphere Reserve**5

Baja California Sur is an arid state in Northwest Mexico. With more than 2,100 km (SPYDE 2015), the state has the longest coastline in the country, where blue carbon ecosystems can be found. According to CONABIO's most recent report (Valderrama-Landeros et al. 2017), as of 2015, the state had 26,579 ha of mangroves. Unlike other places in Mexico and the world, mangrove coverage in Baja California Sur has been very stable over the past four decades (26,724 ha in 1978), losing only 0.5%. Nevertheless, mangrove ecosystems in Baja California Sur are not static but rather the result of a dynamic equilibrium of losses and gains balancing out (López-Medellín et al. 2011; Watson and Corona 2018).

Natural Protected Areas (NPA) in Baja California Sur cover more than 40% of the state total surface of 73,308 km2. The El Vizcaino Biosphere Reserve (VIBIRE) located in the north of the state is the largest NPA in the country with an area of 2.5 million hectares. The San Ignacio Lagoon in the Reserve is an important location for biodiversity including considerable mangrove extensions. CONABIO reported that in 1978 the Lagoon and neighbouring estuaries La Bocana and El Datil had a combined 3,672 ha of mangroves. By 2005, this was reduced to 3,607 ha but recovered by 2010 for a total of 3,799 ha.

An estimate of the total carbon stock in the San Ignacio Lagoon and neighbouring estuaries can be worked out using the organic carbon stock value reported by Herrera-Silveira et al. (2020) for mangroves in the North Pacific region in Mexico of 204.9Mg Corg ha−1. This includes both above- and below-ground stocks and results

5 We present this case study in the chapter to highlight the potential of the blue carbon in the emissions trade of Mexico. The results that presents the Vizcaino Biosphere Reserve are an example of the great possibilities that the inclusion of the blue carbon in the emission trade can represent for Mexico. The blue carbon could be included in the Californian cap-and trade system and as a non-regulated sector in the Mexican cap-and trade system.

in 0.778 Mt of organic carbon in the Lagoon region. If all this carbon were oxidized fully to form carbon dioxide, this would translate to 2.85 Mt CO2 in total. To put this into perspective, this would be in the same order of magnitude as the reported greenhouse gas emissions for the whole state of Baja California Sur in all categories in 2010 of 4.16 Mt CO2e (Ivanova and Gámez 2012). Finally, using the social cost of carbon6 reported by Pendleton et al. (2012) of US 2007 \$41 per ton of CO2, the 0.778 Mt of organic carbon in the Lagoon would equate to 117 million dollars in global costs if these mangroves were converted, which as the data suggests is fortunately not happening. As compelling as these figures may be, without the adequate mechanisms in operation at the required scales, mangroves and their management around the world will not be valued for their superb carbon sequestration capacity in the long term and will continue to sustain pressure from economic development and human activities.

# **Conclusions**

In the short and medium term, expansion of mangrove ecosystems provides many environmental services such as supporting fisheries, coastline protection from storms and sea-level rise, shoreline erosion prevention, water purification, biodiversity conservation, or providing food security for coastal communities, all of which are essential for climate change adaptation. However, in the long term, expansion and conservation of mangroves translate into enhanced carbon stores, which is of great value in the mitigation of climate change.

However, in its broadest understanding, mitigation activities—as well as climate change adaptation and conservation activities—can also include national capacity building or awareness-raising efforts (e.g. enabling stakeholders to use mangroves in a sustainable manner), support for institutional set-up, developing and implementing sectoral policies, enforcing changes in national legislation, and engaging stakeholders. The goals for mitigation are most prominently aligned with climate adaptation objectives, especially for nature-based solutions such as in agriculture, forestry, and the rural land-use sectors. Recognition of how climate change is likely to influence other development priorities, as access, justice, and allocation, may be a first step towards building cost-effective strategies and integrated, institutional capacity in Mexico to respond to climate change.

The present analysis found that the integration of the concept of blue carbon in Mexican public policy is an important area of opportunity. However, there are some challenges to be faced. In the first place, an official Mexican standard specifically regulating matters related to blue carbon must be drafted, proposed, and implemented. Others are property rights; the federation, state, and community areas of influence; and access to the international green funds. Currently, there are substantial shortcomings in the functioning of the institutional framework for sustainable

6 Global economic cost of new atmospheric carbon (Pendleton et al. 2012).

development. Mitigating climate change, adapting to sea-level rise, and alleviating coastal communities' poverty can all be complementary.

The international commitments of Mexico involve both mitigation and adaptation actions, and in both cases, conservation and restoration of blue carbon ecosystems is the best solution in terms of cost-effectiveness (CEC 2017).

Mexico as part of the Paris Agreement can use ITMOs to achieve their NDCs but when engaging in this activity shall promote sustainable development, ensure environmental integrity, ensure transparency, including in governance, and apply "robust accounting" in accordance with CMA guidance to prevent double counting. Additionally, as a member of the CEC, Mexico participates in the regional assessment of blue carbon stocks and shares with methodologies for implementation and monitoring the U.S. and Canada. Under this scheme, the compensation scheme would come to adhere to state climate change strategies.

The best resource for this is the creation of a national regulated emissions trading system—similar to and supported by the California Emissions Trading System (ETS)—that includes blue carbon through the guidelines imposed by the specific Mexican official standard, and with a system of concessions to be able to assign carbon credits. Currently, the Mexican ETS is in the pilot phase and only considers the energy and industrial sectors as regulated. The creation of the ETS in Mexico is based, therefore, on the lessons learned and good practices carried out by international and national voluntary markets and implemented through a strategy at all levels of government, where financing and capacities flow from the international to the local and community level. Considering the great potential of Mexico to benefit from blue carbon in emissions trading, we strongly recommend including it among the regulated sectors during the next phase of ETS.

# **References**

**Open Access** This chapter is licensed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits use, sharing, adaptation, distribution and reproduction in any medium or format, as long as you give appropriate credit to the original author(s) and the source, provide a link to the Creative Commons license and indicate if changes were made.

The images or other third party material in this chapter are included in the chapter's Creative Commons license, unless indicated otherwise in a credit line to the material. If material is not included in the chapter's Creative Commons license and your intended use is not permitted by statutory regulation or exceeds the permitted use, you will need to obtain permission directly from the copyright holder.

# **Chapter 14 Relationship Between Emissions Trading System and the 2030 Agenda for Sustainable Development**

**Gustavo Sosa-Nunez**

**Abstract** With the Paris Agreement and through Nationally Determined Contributions, nation-states have agreed to reduce their emissions of greenhouse gases. Some of them have approached this aspect by setting emission trading systems. In some cases, it is in the regional and sub-national levels where these types of developments are taking place. The relevance of this market-based instrument is increasing over time, to the point of being regarded as a cornerstone of climate change mitigation strategies, despite the lack of global agreement on the matter. The importance of emission trading systems, however, can be observed when assessing their relevance for achieving the 2030 Agenda for Sustainable Development. Implementing them can, and should, assist in reaching diverse targets of different Sustainable Development Goals. This is the case of the goals related to energy, economic growth, inclusive industrialization, sustainable cities, sustainable production and consumption patterns, marine and land life, as well as the climate itself. Then, the relevance of emission trading systems can be observed throughout the whole 2030 Agenda. It is thus in this context that this contribution aims to assess the manner in which this relationship takes place in the global fora and in Mexico. A key argument is that there should be the participation of a wider set of sectors and actors.

**Keywords** Emission trading system · Mexico · 2030 Agenda · Sustainable development goals

# **Introduction**

The main objective of an Emission Trading System (ETS) is to reduce Greenhouse Gas (GHG) emissions in a cost-effective way without damaging the competitiveness of participating sectors and actors (European Commission 2015). The creation of this market-based instrument is aimed at complying with commitments made at the international level to tackle climate change, essentially the 2015 Paris Agreement, in

G. Sosa-Nunez (B)

Instituto Mora-CONACYT, Mexico City, Mexico e-mail<EMAIL_ADDRESS>
© The Author(s) 2022

S. Lucatello (ed.), *Towards an Emissions Trading System in Mexico: Rationale, Design and Connections With the Global Climate Agenda*, Springer Climate, https://doi.org/10.1007/978-3-030-82759-5\_14

which technological innovation and energy efficiency are essential. To achieve this, it is crucial to measure, report, and verify emissions reductions.

There is a disparity between different ETS according to their geographical location, the type of GHG emissions to consider, and participating sectors. However, they all share the same goal. Now it is Mexico's turn to develop its own ETS. The pilot programme currently in place offers insight about the road the country is planning to follow, and the different chapters conforming to this book provide accounts from different academic approaches about what is coming next, including expectations and areas of opportunity.

It is in this sense that the links between ETS and the 2030 Agenda should be explored. Even when ETS aims at reducing GHG emissions, a relationship with different Sustainable Development Goals (SDGs) exists beyond climate. The underlying rationale is that ETS could gain greater presence and importance in government circles if they were to acknowledge that, by implementing this type of market-based instrument, a better implementation of the 2030 Agenda could happen. Of course, this is an argument that should be explored further, as the content of this contribution shows only initial findings.

In this context, the first section presents a general background of ETS, stating their relevance, followed by a description of the 2030 Agenda, as well as the links that the author observes between SDGs and ETS. Afterwards, the case of Mexico is presented, commenting broadly on the ETS pilot programme currently in place, the national approach to the 2030 Agenda, and the links that are observable as things stand now. Lastly, there are conclusions commenting on the impact that the ETS pilot programme has on the 2030 Agenda, as well as suggestions on how to move forward when the pilot programme transitions to the operative phase.

# **ETS Background**

There are many ETS across the world with different features. The one developed by the European Union (EU) stands out, as it is the largest market for trading Greenhouse Gases (GHGs) emissions and is its flagship climate change mitigation policy (Jones 2013). It is also the first multinational cap-and-trade system that has been seen as a prototype for a global scheme, as its participants—that is, member states present significant disparities in economic circumstance, institutional development, and political will (Ellerman 2010). It includes the power sector, energy-intensive industry, and commercial aviation (European Commission 2020).

Another is the Regional Greenhouse Gas Initiative (RGGI), which is the first mandatory market-based programme in the United States to cap and reduce carbon dioxide (CO2) emissions from the power sector. It is a cooperative initiative of the New England and Mid-Atlantic States (RGGI 2020). There is also the Western Climate Initiative (WCI), which is a collaboration of independent jurisdictions with GHG trading programmes between California, USA, and the Provinces of Québec and Nova Scotia, in Canada (WCI 2020).

Asia also has its cases. In Japan, the Tokyo Metropolitan Area is the country's first mandatory ETS and is linked to the Saitama ETS, in which participants are factories, buildings, and other facilities that consume large quantities of fossil fuels (ICAP 2020a). For its part, South Korea launched East Asia's first nationwide mandatory ETS and the second-largest carbon market after the EU ETS (ICAP 2020b). It includes direct GHG emissions and indirect emissions coming from electricity consumption. China has also recently implemented a national ETS, which builds on the experience of having carried seven regional pilot programmes (ETS-China 2020).

Down south, Australia also developed an ETS, in which credits could be obtained via a carbon farming initiative where farmers were paid to maintain their land as carbon sinks; although this scheme did not last due to political reasons (Atchison 2020). New Zealand also has its own ETS, which creates financial incentives for businesses to reduce their emissions and landowners to earn money by planting forests that become carbon sinks (New Zealand's Ministry for the Environment 2019). This case is also an interesting one because it includes the majority of economic sectors: forestry, waste, industrial processes, stationary energy, fossil fuels, and synthetic gases.

Beyond political jurisdictions, there is the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA), which is a global scheme for the global international aviation industry, and States adhere as members (ICAO 2020).

Newly created programmes can learn from these previous experiences. For example, the EU ETS experience has provided some insights into this market-based instrument, like considering the power sector and large industrial facilities as the first ones for early inclusion in the ETS. However, initial partial coverage should not "preclude a later, more comprehensive system, although the issue will be whether an initial partial approach makes it more difficult to arrive ultimately at comprehensive coverage" (Ellerman 2010, p. 94).

A further lesson is the possibility to move beyond the energy sector to include forests and farming. Another is that companies reducing emissions regard the carbon price as a competitive advantage; such price is too low to foster technological innovation, and companies focusing on reducing GHG emissions are reducing their costs (MexiCO2 2019).

Lastly, a further lesson is that oversupplying emissions allowances contributes to a low carbon price that, in turn, does not stimulate investment in emission reduction measures. If this situation does not happen, then a series of follow-up actions could result in a compelling approach to develop not only strategies for climate change mitigation, but also actions to comply with the 2030 Agenda for Sustainable Development. The resulting spillover effect could in turn help to consider tackling climate change as the cornerstone for worldwide sustainable development.

# **2030 Agenda for Sustainable Development**

Since 2000, the United Nations (UN) have developed a series of goals aimed at improving humankind's living conditions. With the Millennium Development Goals (MDGs), which lasted up until 2015, there was the idea to tackle different problems. Out of eight, the seventh MDG emphasized guaranteeing environmental sustainability with no explicit reference to climate change. By the time the MDGs ended, it was acknowledged that climate change was undermining progress and that global CO2 emissions were increasing at a rate of over 50% since 1990 (UN 2015a). This would locate environmental sustainability at the core of the post-2015 development agenda, which would come jointly with the Paris Agreement.

The 2030 Agenda for Sustainable Development was subscribed in 2015. Trying to overcome the pending issues that the MDGs left, 17 Sustainable Development Goals (SDGs) and 169 targets were issued, aiming at leaving no one behind. Issues would range from poverty, hunger, and health, to land and sea environments, including cities, employment, and economic growth.

Climate change is also considered in the 2030 Agenda. The preamble states the acknowledgement of the United Nations Framework Convention on Climate Change as "the primary international, intergovernmental forum for negotiating the global response to climate change" (UN 2015b, p. 8). For this, it is of utmost importance to accelerate the reduction of global GHG emissions and to adapt to the adverse impacts of climate change. To show commitment, the Agenda dedicates SDG13 to this topic.

However, despite the presence of climate change in the 2030 Agenda, it is through the United Nations Framework Convention on Climate Change (UNFCCC) and the Paris Agreement where efforts to tackle climate change are concentrated. The SDG13 of the 2030 Agenda includes a disclaimer stating this, hence diluting the impact that this SDG could have on climate change combat and the overall Agenda. The SDG Report issued by the United Nations (UN) in 2019 reiterates the importance of reducing GHG emissions, but makes no consideration about the type of instruments or mechanisms to use (UN 2019).

This does not come as a surprise, as the core objective of the Paris Agreement is to tackle climate change and foster the development and implementation of mitigation and adaptation strategies—where market-based instruments like ETS are included while in the 2030 Agenda this topic is one of many to attend, despite its links with different SDGs besides SDG13. The existence of ETS could relate to this context, as this market-based instrument is related essentially to climate change mitigation. However, developing and implementing ETS could assist in achieving a wider range of issues for the Agenda beyond SDG13.

# **SDGs Link with ETS**

The 2030 Agenda entails a wide range of issues, like ending poverty and hunger, ensuring healthy lives and quality education, achieving gender equality, accessing water and energy, promoting economic growth, conserving natural sea and inland resources, and promoting peaceful societies, among other objectives (see Appendix 1) (UN 2015b). Many of them can relate to the development and implementation of ETS. It is worth mentioning, though, that the following are broad comments aimed at pointing out links between ETS and the 2030 Agenda, and further research is needed to support these arguments. In fact, each SDG link with ETS would merit a chapter in itself.

The obvious link is with **SDG13**, as one of the strategies to tackle climate change relates to integrating mitigation measures into national policies. In this sense, setting ETS can be observed as part of a wider climate change policy of a given nation (**target 13.2**). This also relates to the improvement of education and human and institutional capacity (**target 13.3**), as well as the increase of capacity for planning and management in the least developed countries (**target 13.b**).

Besides SDG13, there are links between ETS and other SDGs, which can be observed in two different ways. The first is that some targets of different SDGs can be assisted when implementing ETS. The second is that ETS can be the result of work done around specific SDGs. That is to say, ETS can be either a cause or a consequence of approaches made on specific targets of some SDGs.

Energy is a key factor, which allows for considering **SDG7** as having a link. Participating companies looking to be energy efficient (**target 7.3**) while transitioning to renewable energy—for the sake of GHG emissions reduction—is central to any successful ETS (**target 7.2**). For this, research and investment in technology are required (**target 7.a**), to be able to expand infrastructure on the matter (**target 7.b**).

Being a market-based instrument, ETS should promote sustained, inclusive, and sustainable economic growth, as aimed by **SDG8**. Participating companies should achieve higher levels of economic productivity through innovation and technological upgrading to reduce GHG emissions (**target 8.2**), although this can be costly. If this happens, it could lead to decouple economic growth from environmental degradation, as proposed by the 10-Year Framework of Programmes on Sustainable Consumption and Production (10YFP) (**targets 8.4** and **12.1**, the latter coming from **SDG12**). If this is attainable, it may result from the development of sustainable industrialization, including the research and adoption of clean and environmentally sound technologies and industrial processes, as proposed by **SDG9** (**targets 9.2**, **9.4**, and **9.5**).

Transitioning to sustainable and environment-friendly industrialization would imply a positive impact in cities and human settlements where they are located, thus contributing to **SDG11**. For example, the inclusion of sustainable infrastructure, meaning buildings, could foster the reduction of GHG emissions (**target 11.3**) and, hence, improve air quality (**target 11.6**). Besides, if the transport sector participates in ETS, its sustainability could be improved (**target 11.2**).

Besides actions suggested by the 10YFP (**target 12.1**), the implementation of sustainable production patterns, as aimed by **SDG12**, could assist in reducing GHG emissions of those companies participating in ETS whose production is changing due to innovative technological upgrades. With this, there would be cases in which natural resources are used in a more sustainable and efficient way (**target 12.2**). Moreover, if cities and human settlements were to participate in ETS as contributing entities, through their governments and representatives, reducing food waste and post-harvest losses could mean a reduction of methane (CH4) emissions, which would in turn need to be considered in the set of emissions considered by some ETS. Another aspect of **SDG12** that relates heavily with ETS is that, by aiming to reduce GHG emissions, inefficient fossil-fuel subsidies that encourage wasteful consumption could be removed (**target 12.c**).

On top of the previous comments, if a global ETS were to exist, or regional ones were to be fostered, regardless of the level of country development, some other SDGs could be related, although many of the cases would have to consider the geographical scope, the timeframe, political will, economic context, and citizenry commitment, among other variables.

One can assume that if a reduction in GHG emissions takes place, improvements in health and the **SDG3** would also be seen. This could imply a decrease in air pollution, hence reducing the number of deaths and illnesses happening due to this factor (**target 3.9**). This is because sectors contributing to GHG emissions are also sources of air pollution. Additionally, reducing CO2, which is a GHG, can mean lower emissions of particulate matter, ozone, precursors, and other air pollutants (EPA 2020).

Other SDGs have an indirect link with the development of ETS, and they depend on considering forestry as a component of this type of market-based instrument. This would allow for considering links with **SDG15**, due to the importance of forests as inland ecosystems that can perform as carbon sinks. It should be the case, as "forestry can either be a source of significant emissions reductions or increasing emissions, depending on what incentive structures are put in place" (Brohé et al. 2009, p. 253). In this sense, their conservation, restoration, and sustainable use (**target 15.1**), together with halting deforestation and restoring degraded forests (**target 15.2**), could be actions going in the correct direction if included in ETS, besides being regarded as offset providers. For this, financial support would be necessary (**targets 15.a** and **15.b**). In this context, **SDG6** about water is intrinsically related, since forests, as water-related ecosystems, need to be protected and restored (**target 6.6**).

This is also the case of **SDG1**, aimed at tackling poverty. Granting equal rights and access to poor and vulnerable people to own land and natural resources (**target 1.4**) can encourage the participation of a wider set of actors in different ETS. Forest protection for ETS purposes would also help reach other SDG1 targets, like implementing programmes to reduce poverty in the least developed countries (**target 1.a**), creating related policy frameworks (**target 1.b**), and building resilience for the poor and reducing their exposure and vulnerability to climate-related extreme events (**target 1.5**).

In this context, it is likely that women take the leading role in plenty of cases, due in part to their ownership and control over land and natural resources (**target 5.a**), as stated by the **SDG5**, about gender.

If forests are to be included in ETS, agriculture should also be looked at. Agroforestry, forest farming, and mixed farming are examples of interventions in the agriculture sector that can assist to reduce deforestation emissions as well as reducing emissions in the agriculture sector (Carter et al. 2015). That is, although **SDG2** relates to ending hunger and achieving food security, it also focuses on the promotion of resilient and sustainable agricultural practices that help maintain ecosystems (**target 2.4**), which in turn could help to ensure access to food for local communities and a potential trade-related income (**targets 2.1** and **2.3**).

Would all ETS eventually include a wider range of actors? In developed and middle-income countries, it could be possible, which would lead one to think that not only local communities could participate through the forestry sector, but also smallscale industries and companies, who could promote development-oriented policies and access to financial services (**target 8.3**), as suggested by **SDG8**. The more the topic permeates in the society, the more people would be willing to participate, which would allow for establishing links with **SDG4**, about education. If learners acquire the knowledge and skills needed to promote sustainable development (**target 4.7**), an increase in public understanding of the topic could take place and, hence, wider participation coming from a broader set of actors would exist. This action could be assisted by an increase of qualified teachers (**target 4.c**) and by the expansion of scholarships to people interested in learning and deepening knowledge about ETS (**target 4.b**).

And what about **SDG14**? Links may appear if ETS were to move from a geographical approach to an emissions-based perspective in which estimated numbers from maritime transportation could be traded in an attempt to reduce marine pollution, regardless of location (**target 14.1**).

Continuing with potential links, if ETS were to be a global approach to reduce emissions, then it would be necessary to broaden and strengthen the participation of developing countries in institutions of global governance that would deal with the matter (**target 16.8**). A global carbon price could point in this direction, although this is far from certain for the near future. To make this happen, alliances to foster cooperation in technology, technology transfer, and innovation could assist, as proposed by **SDG17** (**targets 17.6**, **17.7**, and **17.8**). In turn, all countries would have access to similar information, thus enhancing policy coherence for sustainable development (**target 17.14**).

Then, as it is observable, many SDGs can relate to ETS, either as the cause of or as consequence from, implementing actions to reach specific targets (see Appendix 2 for a full list of ETS-related SDGs and targets listed in this section). Some links are noticeable, and others require long-term research to assess whether their connection is viable. However, the lifespan of the 2030 Agenda does not address this regard. In spite of this, some findings are conclusive for the current situation of Mexico.

# **The Case of Mexico**

Continuing with the idea of pointing at potential links between ETS and different SDGs of the 2030 Agenda, this section aims to identify them for the case of Mexico. To do so, first, it is necessary to contextualize the topic; the reason for which a brief description of the ETS pilot programme recently put in place is provided. Subsequently, Mexico's work around the 2030 Agenda is commented upon, emphasizing on SDG indicators developed for the country and on its National Strategy for the Implementation of the 2030 Agenda. This allows identifying current SDG links with the establishment of the ETS pilot programme.

# **ETS Pilot Programme**

Mexico has a legal and institutional framework focusing on tackling climate change. The cornerstone is the 2012 General Law on Climate Change, which was amended in 2018 to update the reduction percentages committed in both this legal instrument and the Nationally Determined Contribution (NDC) and it sets the context in which the ETS would exist (LGCC 2012). The federal government is responsible for creating, authorizing, and regulating emissions trading (Art. 7, Fraction IX), while also fostering the competitiveness of companies participating in such trading (Art. 7, Fraction XVIII).

The 2018 amendment entailed the gradual creation of an ETS (Art. 94) that includes a 36-month long pilot programme with no economic effects for participants (Transitory Art. 2). Preparations for Mexico's own ETS were supported by international exchange and experience coming from other parts of the world, as it was the case of California. Germany also assisted Mexico in setting up the National Emissions Registry (RENE), which is a database that collects information on GHG emissions from all major GHG emitting sectors, like energy, industry, transport, and others (IKI Alliance Mexico 2020). Such information would be essential for the ETS pilot programme.

The agreement setting the preliminary basis for the ETS pilot programme was published on 1 October 2019 (Gobierno de México 2019a). Lasting 36 months, the pilot programme began on 1 January 2020 and includes a transition phase towards the operative phase during the whole of 2022. The pilot programme is applicable to energy and industry sectors in cases when their yearly direct emissions surpass 100.000 tons of CO2. Subsectors of the former relate to the production and supply chain of hydrocarbons and electricity. Subsectors of the latter compile a wide range of industries: automotive, cement, chemical, food processing, glass, iron and steel, metallurgical, mining, petrochemical, cellulose and paper, as well as those subsectors that produce emissions out of stationary sources (SEMARNAT 2019). It is worth pointing out that the ETS pilot programme considers only CO2 emissions since it is the most emitted gas in the country (Gobierno de México 2019a).

The argument to select only energy and industry sectors is that they represent more than 90% of emissions reported by RENE. The agreement setting the pilot programme states that those sectors and GHG detailed in the LGCC will be added when the operative phase starts. This implies widening the scope of the ETS so that transportation, waste, agriculture, farming, forestry, and other land are considered in the future. It also implies that emissions other than CO2 may be included.

Then, the potential inclusion of a broader range of sectors, once the operative phase starts, allows for consideration of the possibility of Mexico to set the links between the ETS and its approach to the 2030 Agenda. Being in the pilot phase implies a learning process that allows for focusing on areas of opportunities.

# **Mexico's Approach to the 2030 Agenda**

In accordance withMexico's usual performance in global affairs, this country adopted the 2030 Agenda at the beginning of 2016. However, the Agenda has not truly permeated public policies, despite the creation of an institutional framework to follow up on the matter and the promotion given to the topic by both governmental and non-governmental actors. Instead, there are broad references to it in governmental development programmes and public discourse, neither of which have the expected impact, mainly due to a lack of interest or indifference that rests on the immediacy of political preferences and government strategies, which focus essentially on social issues. Yet, in 2017, the Office of the Presidency formed a task force that, since then, has discussed the manner in which the Agenda can be implemented and measured.

Including members of the government, academia, private sector, and civil society, the task force assisted to develop a 2018 national strategy to begin the adoption of the Agenda. Nevertheless, it was not until 2019 that a National Strategy for the Implementation of the 2030 Agenda was issued. The task force would also support the National Institute of Statistics and Geography (INEGI) to develop indicators applicable to Mexico to measure SDGs performance.

Taking into account the targets that were identified as potentially having a link with ETS, which were shown in prior sections of this contribution, it is not surprising to argue that all of them could be applicable to Mexico, either explicitly or implicitly. Climate, energy, and industry appear as the obvious connections, but other SDGs are also related. Yet, if indicators to measure those SDG targets do not consider the involvement of ETS, little can be expected to promote the importance of this market-based instrument.

Of the 40 targets previously listed and that seem to relate to the implementation of ETS, indicators were developed in 29 cases (see Gobierno de México 2020). Unsurprisingly, they are mostly unrelated to ETS, except for two indicators of SDG7:

These indicators could consider the inclusion of ETS—through GHG emissions reduction—as a means to contribute to their respective targets. For this, the meticulous analysis would be required to assess how to incorporate ETS contributions to the indicators, while at the same time keeping them in a side list to show the importance of this market-based instrument not only for the two related indicators, but also for showing their potential relevance for the overall Agenda. It is worth pointing out, however, that if forestry were to be included as a participating sector in the ETS once the operative phase starts, a further indicator could also be considered: indicator 15.1.1, measuring forest area as a proportion of the total area.

Maybe indicators for other SDGs could be developed to assert the importance of ETS for reducing emissions. Again, including forestry could have a spillover effect on other development areas. It would also widen the scope and number of actors and, as a result, it could increase the relevance of programme once its pilot phase ends.

With regard to the National Strategy for the Implementation of the 2030 Agenda, there is only one reference to the relevance of developing an ETS. It is presented as a way to transition to clean technologies that can assist in reducing GHG emissions from productive sectors and, hence, should be promoted and implemented (Gobierno de México 2019b). A further suggestion made in the National Strategy relates to the optimization of a carbon tax that goes beyond the mere fiscal collection, one that is properly destined for emissions reduction.

# **Comments/Conclusions**

There are different aspects that come to mind when assessing the potential links that ETS can have with the 2030 Agenda SDGs, and the way this can be seen for Mexico. It is important to keep in mind, however, that the ideas expressed in this section require further research for both global and national levels.

To begin with, the development and implementation of ETS can have a spillover effect across many of the SDG targets, an issue that corroborates the transversal nature of the 2030 Agenda. For this to happen, it is essential that the formulation of SDG indicators includes a perspective on the ETS. This implies that whoever participates in the drafting has a clear understanding of the topic. At the same time, those in charge of preparing the ETS operative phase out of the pilot programme should also have the 2030 Agenda in mind. The addition of forests as carbon sinks and the people who manage them can be a turning point, the reason for which assessing the case of New Zealand should be interesting to observe and learn from the experience.

With regard to Mexico, both energy and transport sectors are key for reducing emissions: They are responsible for around three-quarters of the country's total GHG emissions. However, Mexico is not considering the transport sector in the pilot programme. Other sectors should also be included, namely forestry, domestic aviation, management, and public buildings. In addition, other GHG should be included to expand the scope of the emissions. In theory, this will happen with the operative phase, so a close follow-up will be required.

Considering environmental pollution—including GHG emissions—as economic externalities could assist not only in developing fairer market rules, but also to reach many of the goals of the 2030 Agenda. However, the slow pace and the voluntary approach that characterizes the ETS imply that any potential impact on this type of market instrument to mitigate climate change in Mexico will take place in the distant future. The key message is to foster investments in measures to mitigate emissions, but it is easier said than done. It may be possible that many commercial and industrial entities prefer to pay to pollute and innovate later. This is because it gives them the flexibility to reduce their emissions on their own terms (e.g. decide a timeframe for low carbon investment tailored to their business plan) and do so in the most cost-effective manner.

The aforementioned does not mean that ETS is the panacea to climate change, despite some governments and advocates claiming so. Market-based instruments can be criticized for monetizing the combat to climate change, although this is an ideological perspective that does not hold to the basic premises of the economic system in which we live. Furthermore, due to its market nature, ETS can mean that only those capable of investing in technology to reduce emissions or paying to pollute can persist.

Could ETS foster the creation and preservation of monopolies or oligopolies in specific productive sectors? The best-positioned industries could work together to sideline small competitors that cannot afford to reduce emissions or innovate at the speed, pace, and scope that a wealthier industry can. This is why it is important to broaden the scope of participant actors in ETS. The role of national governments is also up for discussion. They would be expected to regulate monopolies and oligopolies. Advocating for a bigger role from the state, either through incentives or regulations, depends on an environmentally conscious government that commits to the issue. Here, it is necessary to consider another set of variables, like the political party in power, policy preferences, and institutional structure, to cite a few.

Should the invisible hand be fully in charge of ruling this market-based instrument? How to set adequate carbon prices? There are many questions and few answers. Delayed decisions do not contribute to develop the urgent actions necessary to give ETS the importance that the global community is willing to give to them.

Then, it is worth noticing that the ETS is merely one of the many climate change mitigation measures that exist, and focusing on it due to its potential and market-driven perspective can be counterproductive if other measures are sidelined or reduced in importance. Therefore, there is the need to see the whole picture and include more sectors and actors. The consideration of the 2030 Agenda for Sustainable Development can be of assistance to get to this point.

# **Annex 1—Sustainable Development Goals of the 2030 Agenda**

Goal 1. End poverty in all its forms everywhere.

Goal 2. End hunger, achieve food security and improved nutrition, and promote sustainable agriculture.

Goal 3. Ensure healthy lives and promote well-being for all at all ages.

Goal 4. Ensure inclusive and equitable quality education and promote lifelong learning opportunities for all.

Goal 5. Achieve gender equality and empower all women and girls.

Goal 6. Ensure availability and sustainable management of water and sanitation for all.

Goal 7. Ensure access to affordable, reliable, sustainable, and modern energy for all.

Goal 8. Promote sustained, inclusive, and sustainable economic growth; full and productive employment; and decent work for all.

Goal 9. Build resilient infrastructure, promote inclusive and sustainable industrialization, and foster innovation.

Goal 10. Reduce inequality within and among countries.

Goal 11. Make cities and human settlements inclusive, safe, resilient, and sustainable.

Goal 12. Ensure sustainable consumption and production patterns.

Goal 13. Take urgent action to combat climate change and its impacts.

Goal 14. Conserve and sustainably use the oceans, seas, and marine resources for sustainable development.

Goal 15. Protect, restore, and promote sustainable use of terrestrial ecosystems, sustainably manage forests, combat desertification, and halt and reverse land degradation and halt biodiversity loss.

Goal 16. Promote peaceful and inclusive societies for sustainable development; provide access to justice for all; and build effective, accountable, and inclusive institutions at all levels.

Goal 17. Strengthen the means of implementation and revitalize the Global Partnership for Sustainable Development.

# **Annex 2—ETS-Related SDGs and Targets**

# **Goal 1. End poverty in all its forms everywhere**

1.4 By 2030, ensure that all men and women, in particular the poor and the vulnerable, have equal rights to economic resources, as well as access to basic services, ownership and control over land and other forms of property, inheritance, natural resources, appropriate new technology, and financial services, including microfinance.

1.5 By 2030, build the resilience of the poor and those in vulnerable situations and reduce their exposure and vulnerability to climate-related extreme events and other economic, social, and environmental shocks and disasters.

1.a Ensure significant mobilization of resources from a variety of sources, including through enhanced development cooperation, in order to provide adequate and predictable means for developing countries, in particular least developed countries, to implement programmes and policies to end poverty in all its dimensions.

1.b Create sound policy frameworks at the national, regional, and international levels, based on pro-poor and gender-sensitive development strategies, to support accelerated investment in poverty eradication actions.

### **Goal 2. End hunger, achieve food security and improved nutrition, and promote sustainable agriculture**

2.1 By 2030, end hunger and ensure access by all people, in particular the poor and people in vulnerable situations, including infants, to safe, nutritious, and sufficient food all year round.

2.3 By 2030, double the agricultural productivity and incomes of small-scale food producers, in particular women, indigenous peoples, family farmers, pastoralists, and fishers, including through secure and equal access to land, other productive resources and inputs, knowledge, financial services, markets, and opportunities for value addition and non-farm employment.

2.4 By 2030, ensure sustainable food production systems and implement resilient agricultural practices that increase productivity and production; that help maintain ecosystems; that strengthen capacity for adaptation to climate change, extreme weather, drought, flooding, and other disasters; and that progressively improve land and soil quality.

### **Goal 3. Ensure healthy lives and promote well-being for all at all ages**

3.9 By 2030, substantially reduce the number of deaths and illnesses from hazardous chemicals and air, water, and soil pollution and contamination.

# **Goal 4. Ensure inclusive and equitable quality education and promote lifelong learning opportunities for all**

4.7 By 2030, ensure that all learners acquire the knowledge and skills needed to promote sustainable development, including, among others, through education for sustainable development and sustainable lifestyles, human rights, gender equality, promotion of a culture of peace and non-violence, global citizenship, and appreciation of cultural diversity and of culture's contribution to sustainable development.

4.b By 2020, substantially expand globally the number of scholarships available to developing countries, in particular least developed countries, small island developing States, and African countries, for enrolment in higher education, including vocational training and information and communications technology, technical, engineering, and scientific programmes in developed countries and other developing countries.

4.c By 2030, substantially increase the supply of qualified teachers, including through international cooperation for teacher training in developing countries, especially least developed countries and small island developing States.

# **Goal 5. Achieve gender equality and empower all women and girls**

5.a Undertake reforms to give women equal rights to economic resources, as well as access to ownership and control over land and other forms of property, financial services, inheritance, and natural resources, in accordance with national laws.

# **Goal 6. Ensure availability and sustainable management of water and sanitation for all**

6.6 By 2020, protect and restore water-related ecosystems, including mountains, forests, wetlands, rivers, aquifers, and lakes.

### **Goal 7. Ensure access to affordable, reliable, sustainable, and modern energy for all**

7.2 By 2030, increase substantially the share of renewable energy in the global energy mix.

7.3 By 2030, double the global rate of improvement in energy efficiency.

7.a By 2030, enhance international cooperation to facilitate access to clean energy research and technology, including renewable energy, energy efficiency, and advanced and cleaner fossil-fuel technology, and promote investment in energy infrastructure and clean energy technology.

7.b By 2030, expand infrastructure and upgrade technology for supplying modern and sustainable energy services for all in developing countries, in particular least developed countries, small island developing States, and landlocked developing countries, in accordance with their respective programmes of support.

# **Goal 8. Promote sustained, inclusive, and sustainable economic growth; full and productive employment; and decent work for all**

8.2 Achieve higher levels of economic productivity through diversification, technological upgrading, and innovation, including through a focus on high-value added and labour-intensive sectors.

8.3 Promote development-oriented policies that support productive activities, decent job creation, entrepreneurship, creativity, and innovation, and encourage the formalization and growth of micro-, small-, and medium-sized enterprises, including through access to financial services.

8.4 Improve progressively, through 2030, global resource efficiency in consumption and production and endeavour to decouple economic growth from environmental degradation, in accordance with the 10-Year Framework of Programmes on Sustainable Consumption and Production, with developed countries taking the lead.

# **Goal 9. Build resilient infrastructure, promote inclusive and sustainable industrialization, and foster innovation**

9.2 Promote inclusive and sustainable industrialization and, by 2030, significantly raise industry's share of employment and gross domestic product, in line with national circumstances, and double its share in the least developed countries.

9.4 By 2030, upgrade infrastructure and retrofit industries to make them sustainable, with increased resource-use efficiency and greater adoption of clean and environmentally sound technologies and industrial processes, with all countries taking action in accordance with their respective capabilities.

9.5 Enhance scientific research and upgrade the technological capabilities of industrial sectors in all countries, in particular developing countries, including, by 2030, encouraging innovation and substantially increasing the number of research and development workers per 1 million people and public and private research and development spending.

### **Goal 11. Make cities and human settlements inclusive, safe, resilient, and sustainabl**e

11.2 By 2030, provide access to safe, affordable, accessible, and sustainable transport systems for all, improving road safety, notably by expanding public transport, with special attention to the needs of those in vulnerable situations, women, children, persons with disabilities, and older persons.

11.3 By 2030, enhance inclusive and sustainable urbanization and capacity for participatory, integrated, and sustainable human settlement planning and management in all countries.

11.6 By 2030, reduce the adverse per capita environmental impact of cities, including by paying special attention to air quality and municipal and other waste management.

# **Goal 12. Ensure sustainable consumption and production patterns**

12.1 Implement the 10-Year Framework of Programmes on Sustainable Consumption and Production Patterns, all countries taking action, with developed countries taking the lead, taking into account the development and capabilities of developing countries.

12.2 By 2030, achieve the sustainable management and efficient use of natural resources.

12.c Rationalize inefficient fossil-fuel subsidies that encourage wasteful consumption by removing market distortions, in accordance with national circumstances, including by restructuring taxation and phasing out those harmful subsidies, where they exist, to reflect their environmental impacts, taking fully into account the specific needs and conditions of developing countries and minimizing the possible adverse impacts on their development in a manner that protects the poor and the affected communities.

# **Goal 13. Take urgent action to combat climate change and its impacts**

13.2 Integrate climate change measures into national policies, strategies, and planning.

13.3 Improve education, awareness-raising, and human and institutional capacity on climate change mitigation, adaptation, impact reduction, and early warning.

13.b Promote mechanisms for raising capacity for effective climate change-related planning and management in the least developed countries and small island developing States, including focusing on women, youth, and local and marginalized communities.

### **Goal 14. Conserve and sustainably use the oceans, seas, and marine resources for sustainable development**

14.1 By 2025, prevent and significantly reduce marine pollution of all kinds, in particular from land-based activities, including marine debris and nutrient pollution.

### **Goal 15. Protect, restore, and promote sustainable use of terrestrial ecosystems, sustainably manage forests, combat desertification, and halt and reverse land degradation and halt biodiversity loss**

15.1 By 2020, ensure the conservation, restoration, and sustainable use of terrestrial and inland freshwater ecosystems and their services, in particular forests, wetlands, mountains, and drylands, in line with obligations under international agreements.

15.2 By 2020, promote the implementation of sustainable management of all types of forests, halt deforestation, restore degraded forests, and substantially increase afforestation and reforestation globally.

15.a Mobilize and significantly increase financial resources from all sources to conserve and sustainably use biodiversity and ecosystems.

15.b Mobilize significant resources from all sources and at all levels to finance sustainable forest management and provide adequate incentives to developing countries to advance such management, including for conservation and reforestation.

# **Goal 16. Promote peaceful and inclusive societies for sustainable development; provide access to justice for all; and build effective, accountable, and inclusive institutions at all levels**

16.8 Broaden and strengthen the participation of developing countries in the institutions of global governance.

### **Goal 17. Strengthen the means of implementation and revitalize the Global Partnership for Sustainable Development**

### *Technology*

17.6 Enhance North-South, South-South, and triangular regional and international cooperation on and access to science, technology, and innovation and enhance knowledge sharing on mutually agreed terms, including through improved coordination among existing mechanisms, in particular at the United Nations level, and through a global technology facilitation mechanism.

17.7 Promote the development, transfer, dissemination, and diffusion of environmentally sound technologies to developing countries on favourable terms, including on concessional and preferential terms, as mutually agreed.

17.8 Fully operationalize the technology bank and science, technology and innovation capacity-building mechanism for least developed countries by 2017 and enhance the use of enabling technology, in particular information and communications technology.

*Systemic issues—Policy and institutional coherence*

17.14 Enhance policy coherence for sustainable development.

# **References**

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*3.5. Cluster Annotation Enrichment Analysis and Gene Co-Expression*

From the same top 2500 variable genes, we identified positive and negative relationships between pairs of genes based on gene expression. We tried to capture genes that behave conjointly across the various experimental conditions and group them into clusters. According to our expectations where a gene would be binary regulated (up or down), the optimal k solution should range between 25 (32) and 213 (8192) (accounting

for 5 to 13 distinct experimental conditions with a total sample number of 23; see Table 1). We computed the optimal number of clusters and determined that 36 clusters was the most suitable solution for the selected genes (Supplementary Figure S7). To better understand the underlying biological processes inside the clusters, ontologies that were overrepresented were extracted and analysed. Only five out of the 36 clusters were characterized by significantly overrepresented ontological terms (Supplementary Table S10). In total, those five clusters were composed of 631 transcripts out of the 2500 initially used for clustering, and 52% of them had at least one annotation attribute. Their expression can be visualized in hierarchically clustered heat maps (Figure 5).

Results from the enrichment tests revealed that "nucleosome category" was overrepresented in cluster 1, which contains transcripts of the "DNA damage checkpoint" and "ribosome" hubs of the ontological network, hub 1 and 2, respectively (see above). These transcripts encode histones, and core components of "nucleosome", that participate in wrapping and compacting DNA into chromatin. The observation that DNA packaging, transcription and translation shared the same gene expression pattern may be relevant because in euglenids, as well as in dinoflagellates, chromosomes are permanently condensed [128]. Furthermore, transcripts encoding different components of the chloroplast reaction centres of hub 3 were also found in this cluster. This cluster was characterized by a larger down-regulated expression in PRJEB38787 (E), while other experiments were slightly over and under zero. Cluster 4 was enriched in "photosynthetic electron transport" and "DNA damage checkpoint" related terms mainly present in hub 3, with several transcripts encoding ATP synthase subunits in the former and cell cycle and apoptosis regulator proteins in the latter. Gene expression in cluster 4 was homogeneous with values ranging between one or minus one, except for a group of genes greatly down-regulated in studies PRJNA310762 (A), PRJEB10085 (B), PRJNA298469 (C), and likely to be not expressed in such experiments. About a third of the transcripts from cluster 19 encode different types of serine/threonine proteins and are ontologically typified by "cyclin-dependent protein serine/threonine kinase regulator activity", which are processes closely related to cell cycle regulation. Their expression was slightly negative in the experiment PRJEB38787 (E) and positive in PRJEB10085 (B) while it remained unaltered in the rest of the experiments. "Neuroblast proliferation" and "neuroblast division" categories illustrated cluster 24, which, considering the unicellular nature of *E. gracilis*, was more likely to be related to cytoskeletal structure of eukaryotic cells formed during cell division or cell polarity than regulation of neurogenesis. In study PRJNA289402 (D), ABC transporters, fatty acid and polyketide synthesis were more down-regulated than in the remaining studies. Lastly, cluster 25 was enriched in "positive regulation of mitochondria organization" due to the presence of putative mitochondrial heat shock proteins that were co-regulated across studies. Besides, expression of cluster 25 was disparate for PRJNA289402 (D), compared with the other studies. A main difference was a group of transcripts largely downregulated in the PRJNA289402 (D) experiment, while they were upregulated in the remaining studies. Those transcripts putatively encode different components of the nitrogen metabolism, some chloroplastic electron transport chain components and ATP-dependent RNA helicase. A few transcripts related to cell cycle and translation, present in the annotation network, were found in cluster 25.

The cluster patterns reported above show that expression is driven by study rather than experimental conditions of the studies. Even if disappointing, these findings were similar after the tentative SVA correction of the batch effect present in the studies (Supplementary Figure S8). Presumably, our approach was not able to properly capture the batch effect, maybe due to an unbalanced batch-group design of the studies [129]. Nonetheless, we observed that a selection of 133 genes, coding for the components of the photosynthetic and respiratory electron transport chains, were grouped together. This subset of genes, located in the chloroplast and in the mitochondrion, respectively, was selected because most of the experimental conditions (light/dark, presence or absence of acetate in the medium, oxic/anoxic environment) of the studies were expected to affect respiration and

photosynthesis. As illustrated in Figure 6, the expression of these genes is also driven by the study rather than by the reported physico-chemical parameters of each experiment. Yet, most components of the mitochondrial electron transport chain among the 133 selected genes were grouped together after hierarchical clustering of their expression, while chloroplastic components exploded into different subgroups. Concretely, genes coding for light-harvesting complexes grouped together distantly from other chloroplastic components. These transcripts are nuclear-encoded and showed a taxonomic affinity to Streptophyta (Supplementary Table S11).

**Figure 4.** Annotation network of ontological terms showing the functional organization and relationships between the 2500 most variable genes. GO and KEGG terms were considered as a large pool in which the genes could be associated with 0 to N terms. Such associations served as the basis to infer the network (see text). Colours correspond to ontological terms (or groups of related ontological terms).

**Figure 5.** Selected co-expression clusters computed on the 2500 most variable genes. Only the five clusters characterized by significantly overrepresented ontological terms (featuring 631 transcripts) are shown. Heat maps and trees regroup samples behaving similarly across genes on the horizontal axis and genes behaving similarly across samples on the vertical axis; gene expression is vertically clustered to facilitate visualization (see text). Samples are colour-coded both by condition (F = fermentative, M = mixotrophic, H = heterotrophic, P = phototrophic) and by study (A = PRJNA310762, B = PRJEB10085, C = PRJNA298469, D = PRJNA289402, E = PRJEB38787). (**a**) Cluster 1; (**b**) cluster 4; (**c**) cluster 19; (**d**) cluster 24; (**e**) cluster 25.

**Figure 6.** Expression heat map of 133 genes involved in electron transport chains. Heat maps and trees regroup samples behaving similarly across genes on the horizontal axis and genes behaving similarly across samples on the vertical axis (see

text). Samples are colour-coded both by condition (F = fermentative, M = mixotrophic, H = heterotrophic, P = phototrophic) and by study (A = PRJNA310762, B = PRJEB10085, C = PRJNA298469, D = PRJNA289402, E = PRJEB38787). Genes are colour-coded by organelle (CP = chloroplast; MT = mitochondrion).

> Overall, our last analysis indicates that genes that share common metabolic functions are packed together, as would be expected, even though the expression is driven by study rather than culture condition. Beyond the technical issues that may have contributed to a loss of exploitable signal (e.g., heterogeneous experimental "design", see Table 1, uncorrected batch effects), these negative results can also be interpreted as additional evidence for the idea that, similar to what is known in trypanosomatids, nuclear gene expression in *E. gracilis* is not primarily regulated at the transcriptional level. In these parasites, gene regulation mostly occurs at the post-transcriptional level, through stabilization/degradation of mRNA molecules and control of mRNA translation (see [8] for a recent review of the issue). While the former mechanism should in principle change transcript abundance, the latter one might not be visible in comparative transcriptomics. For example, Yoshida et al. (2016) observed little change at the transcriptomic level following anaerobic treatment. Moreover, these changes in gene expression were inconsistent with respect to the activation of paramylon degradation and wax ester production [53]. In a more systematic investigation, Ebenezer et al. (2019) reported a striking lack of correlation between transcriptomic and proteomic data when comparing light and dark conditions [7]. As already mentioned, the raw transcriptomic data from these two studies were included in the present work (along with those of O'Neill et al. (2015) [52] and our own data), which allowed us to compare gene expression across a wider range of culture conditions at once. A few meaningful clusters of genes (i.e., following functional term enrichment) could be identified based on shared expression patterns across samples, which suggests that there is some biological signal in transcript abundance. However, the dominance of batch effects on these levels further questions the usefulness of transcriptomics for functional studies in *E. gracilis*.