The most important principle governing environmental protection in Mexico is enshrined in Article 4 of its Constitution. Every person has a right to a healthy environment for his or her development and well-being and the government has the responsibility as well as the mandate to ensure that this right is afforded and protected.
All activities that may adversely affect the environment and public health must abide by environmental laws and regulations. Since 1988, the government has enacted many laws, regulations, directives and standards intended to ensure that air quality is satisfactory, that water and waste water are not contaminated, that wastes (hazardous or non-hazardous) are lawfully handled, recycled and disposed of, that contaminated soils are remediated and that all activities that may generate adverse environmental impacts secure the required authorisations prior to initiating.
Among the most important environmental laws in Mexico are the General Ecological Balance and Environmental Protection Law (the General Law), the Federal Environmental Liability Law (the Liability Law), the General Law of Waste Prevention and Integral Management (the Waste Law), the Wildlife Law, the Sustainable Forestry Development Law and the Climate Change Law, as well as a set of specific laws regulating the oil and gas industry. In addition, all of Mexico's 32 states have enacted their own environmental laws and regulations.
Mexico is also a party to several of the most important international environmental treaties, such as the Paris Climate Agreement, the North American Agreement on Environmental Cooperation with the United States and Canada, the Agreement on Cooperation for the Protection and Improvement of the Environment in the Border Area (also known as the La Paz Agreement) with the USA, the Marpol Protocols to Prevent Pollution from Ships, and the Basel Convention on the Control of Transboundary Movements of Hazardous Wastes and Their Disposal.
The country has also developed and enacted regulations, directives and more than 100 technical standards covering a number of areas and topics, such as those that set maximum allowable limits for waste water and pollutant air emissions, standards that establish remediation action limits and also those that set criteria to determine whether wastes are hazardous.
The Liability Law contains a definition of environmental damage. According to Article 2, it is defined as "adverse and measurable loss, change deterioration, detriment, affectation or modification of habitats, ecosystems, natural resources and elements, their chemical physical or biological conditions, of their interaction as well as of the environmental services they provide".
No environmental damage is deemed caused if it is reported in advance to regulators when applying for an environmental impact authorisation, or if the maximum allowable pollutant limits established in applicable Mexican Official Standards are not exceeded.
The federal authority entrusted with overseeing environmental policy in Mexico is the Ministry of Environment and Natural Resources (SEMARNAT). There are three de-concentrated agencies within SEMARNAT that regulate environmental matters:
All of Mexico's states have their own environmental agencies that regulate all matters that do not fall under the control of federal environmental authorities, such as waste water discharges into urban sewerage systems, stationary air emission sources under state control, and non-hazardous waste-handling and disposal.
Many municipalities also have their own environmental agencies that regulate matters that are not reserved to federal or state authorities.
Federal and state environmental laws provide a mandate to authorities to conduct investigations and inspections if there are any incidents that cause or may cause environmental damage or if any individual or entity files a complaint against a party that may be causing such damage. In addition, regulators may schedule inspections solely for the purpose of verifying that all laws are being complied with. However, authorities have to be diligent in how they conduct investigations – the Mexican Constitution requires all acts of authority to be properly supported by law and that no person be deprived of his or her possessions or rights without a proper order signed by an authority having a mandate to carry out an investigation or inspection.
Public complaints for environmental violations may be submitted without having to meet complicated formalities; these can even be anonymous or by telephone. Regulators may carry out investigative acts based solely on these types of complaints.
PROFEPA may act in co-ordination with Mexico's General Prosecutor Office in investigating crimes against the environment.
There are different types of permits that must be secured, with the most relevant ones being the following.
This authorisation is required prior to carrying out any activity that may cause environmental damage. It is generally considered the most important environmental permit because it allows regulators the opportunities to review in advance the most relevant environmental effects that a work or activity will produce and to order the implementation of mitigation activities. Certain industries or activities such as hydraulic projects, federal highways, petrochemical installations, power plants, high-risk industries or tourism developments that may affect coastal ecosystems, require environmental impact authorisations from SEMARNAT or from ASEA. Activities not expressly regulated by federal agencies, require environmental impact authorisations from state authorities.
Stationary air emission sources (such as industrial facilities, power plants, petrochemical installations or steel mills) are generally required to secure operating licences. The requirements to obtain them vary from state to state. However, federally regulated air emission sources, such as petrochemical and power plants, as well as the steel, cement, paper, automotive and lime industries, must secure licences from SEMARNAT or ASEA. Stationary sources not expressly classified as federally regulated are required to obtain licences form state authorities.
Waste Water Discharges
If waste water is discharged into federal land or a federal water body, such as a river, lake, lagoon or into the sea, a permit must be secured from CONAGUA. If waste water is discharged into a municipal or urban sewerage system, the permit must be obtained from a state or municipal water agency, although in many states registering the discharge is sufficient.
All generators of wastes classified as hazardous (corrosive, explosive, reactive, toxic, flammable or bio-infectious) are required to record their waste stream with SEMARNAT or with ASEA and to lawfully handle, contain, transport and dispose of hazardous wastes. If hazardous wastes are generated as a result of processing or using raw materials imported into Mexico on a temporary basis, they have to be exported to their country of origin.
Generators of non-hazardous wastes as well as of wastes subject to special handling requirements, must register their waste streams with the corresponding state or municipal agencies and must also prepare and register waste management plans that may include take-back requirements.
Obtaining environmental permits involves – more often than not – submitting comprehensive applications to regulators. A permit review process generally lasts between 30 to 120 business days, depending on the complexity of the permit being sought. Once an environmental permit is issued, it may be contested by any party having legal standing on environmental matters (such as non-governmental organisations, NGOs, or persons that may be affected by the permitted activity).
Any party that causes environmental damage or breaches environmental laws may be subject to any of the following types of liability.
This is the most common and widespread form of liability and generally involves fines, temporary shutdowns, the seizure of pollutant sources and the revocation of environmental permits. Administrative penalties may be imposed by regulatory agencies, such as PROFEPA, ASEA and/or state or municipal agencies. Under the Liability Law, judges may impose monetary penalties that may be substantial (up to USD3 million in some cases) aside from imposing remediation requirements.
This is becoming more widespread in Mexico. It may stem from civil lawsuits, either in the form of collective actions or those that are based on the Liability Law, and generally result in judicial rulings ordering polluters to carry out restoration, compensation or remediation requirements, and in some cases to compensate plaintiffs in a collective action.
This stems from carrying out acts that are considered environmental crimes. Criminal liability involves prison sentences that may range from three months up to 12 years, as well as fines that are calculated taking into account the yearly earnings of a person convicted of a crime. There is an entire chapter in the Federal Criminal Code devoted to environmental crimes. In instances of repeated serious crimes, judges may order the dissolution or liquidation of companies that have been involved in environmental crimes committed by their employees or legal representatives. However, this is very rare.
Any party that causes soil contamination is legally required to remediate it and may face administrative, civil and in some cases criminal liability (if it wilfully caused contamination or if acting with gross negligence).
According to the Waste Law, owners or occupants of a contaminated site are jointly liable for remediation regardless of fault, and irrespective of historic environmental contamination. They, in turn, can bring an action against the party that caused contamination. Prior to transferring title over a contaminated site, seller and buyer must agree on who will carry out remediation if the site is contaminated. Agreeing on who will remediate involves having actual knowledge of the existence of contamination and this may also involve conducting characterisation studies and finding out whether there is a remediation obligation.
To help answer the question "How clean is clean?" the government has published two standards in the area of soil contamination. One is standard NOM-138-SEMARNAT/SSA1-2012 (NOM-138) that establishes maximum allowable limits for hydrocarbons in soils and the other is NOM-147-SEMARNAT/SSA1-2004 (NOM-147) that sets limits for heavy metals. In the absence of clear regulatory guidelines, however, human health and risk studies may have to be performed to determine of remediation must be carried out.
SEMARNAT and/or ASEA must approve the transfer of a contaminated site. However, failing to secure this authorisation will not prevent the transfer from taking effect. If a seller failed to inform a buyer that a site was contaminated and buyer later discovers that it was, the seller will be liable for remediation.
The statute of limitations for making a claim of environmental liability is 12 years as of the moment when contamination occurs or its effects cease.
Liability for environmental damage is strict. A polluter is required to pay and, in some cases, liability is objective (such as when damage is caused by handling hazardous materials or waste). As noted above, liability may be administrative, civil or criminal. Liability for environmental incidents or damage is generally limited to carrying out restoration, remediation or compensatory activities and ordering, in some cases, the payment of fines or economic penalties (punitive damages are rare, but may be awarded – see 9.2 Exemplary or Punitive Damages).
Economic penalties may be substantially reduced by a court order, if the party at fault (i) has purchased environmental insurance, (ii) has been audited by PROFEPA and has secured a "clean industry" certificate, and (iii) has implemented an environmental management programme.
In the case of a resolution imposing administrative liability (such as a fine), it may be contested through a recourse or an annulment complaint (at a federal level) filed before an administrative court. A final defence may be in the form of an "amparo" lawsuit filed before a federal circuit court, particularly if there may be constitutional violations incurred by a regulatory agency.
A civil judgment (requiring the remediation of a contaminated site, for example) may be contested through an appeal before a superior court and also through an amparo lawsuit. A criminal judgment imposing a prison sentence, may be contested through an appeal heard before a state or federal superior court and through the submittal of an amparo lawsuit.
The Liability Law states that legal entities are liable for environmental damage caused by their legal representatives, directors, administrators, managers, directors, employees and by any party having functional control over their operations, including if such persons are either careless or acting in accordance with their functions.
Officers, employees and agents are generally liable for:
In Mexico, there is no piercing of the corporate veil for environmental liability matters, therefore shareholders may not be liable. Only the legal entity (a company) may be found liable along with its legal representatives, directors, administrators, managers, or employees. However, environmental agencies may summon shareholders of a particular company to the administrative procedure or judicial trial in order to negotiate an agreement on behalf of a company found to be causing environmental damage.
It is rare for parent companies to be accused of playing a role in environmental damage caused by their subsidiaries. However, collective actions on environmental matters could target parent companies if there is evidence that they may have been complicit in any action or omission that causes environmental damage.
Under the Liability Law, directors and other officers may be ordered to pay fines of up to 50,000 times a measurement and updating unit (UMA) for each violation (equivalent to around USD210,000), aside from facing criminal liability if they wilfully caused contamination or were grossly negligent.
Criminal Law also contemplates the feasibility to directly penalise directors, officers, or any person that ordered an action that caused an environmental damage. As mentioned above, there is also a possibility that a criminal court may order the dissolution of a company if it has been proven that its directors, employees or legal representatives committed serious crimes against the environment. However, this type of court decision is rare.
Individuals or companies may purchase environmental liability insurance or in some cases may acquire surety bonds to cover against environmental damage that may be caused due to breaching a legal obligation or an environmental permit.
In the case of large projects, such as petrochemical installations, infrastructure projects, power plants or industrial facilities that may be deemed "high-risk", regulators will order the project owners or developers to purchase insurance to cover any type of environmental damage that may be caused. If an entity has caused contamination, penalties against it may be reduced if it is able to show that it has acquired insurance.
Employees, directors or representatives of financial institutions may be liable for environmental damage or for breaching environmental law if they have been instructed to carry out actions that are detrimental to the environment or public health. Financial institutions or lenders could be ordered to undertake site remediation activities if they own or occupy a contaminated site as a result of a financial arrangement, lien or other type of agreement.
Also, if a financial institution holds title over a contaminated site as a result of a mortgage guarantee or any other type of guarantee, it may be liable for carrying out remediation activities because of the strict liability provisions established by the Waste Law.
Lenders can protect themselves by incorporating adequate indemnity and release language in credit or loan agreements, making the debtor or actual occupier of a site liable for carrying out site remediation or compensation activities and securing a release from any and all liability associated with contamination or environmental damage.
In Mexico, financial institutions are not legally required to adopt the "Equator Principles". However, many of these institutions consider such regulations as a good practice when authorising different transactions. Among other things, the Equator Principles require financial institutions to comply with local environmental regulations within their activities.
Liability in most cases is subjective, except when handling hazardous materials or waste, when carrying out high-risk activities, when operating vessels in coral reefs or when operating machinery or equipment that may cause environmental damage.
A claim may be brought by an individual or by a group of 30 or more individuals through a collective action. A judge must "qualify" the complaint to make sure that the groups has proper standing or, if it is being represented by an NGO, that it has been formed and registered to deal with environmental protection matters.
The general rule is that if it is proved that environmental damage was caused, a judge should order either restoration or compensation activities. "Restoration" implies returning a site to the state it was in prior to the damage being caused, but if this is not possible then compensation may be required.
Traditionally, Mexican environmental laws have not contemplated exemplary or punitive damages. These were introduced into the Mexican legal system in 2011 through a constitutional amendment. In 2016 the Supreme Court ruled that in certain cases it is permissible to award punitive damages, particularly when there is gross negligence involved. Even though this ruling was not properly an environmental case, it opened the door for civil courts to award large sums to plaintiffs that are successful in demonstrating that certain acts or omissions incurred by defendants have caused serious environmental damage.
Courts have the prerogative of awarding punitive (or moral harm) damages at their discretion and these damages may run to millions of US dollars, particularly if it is shown that environmental damage was the result of gross negligence or a wilful disregard for the environment or public health.
In 2015 a company operating a copper mine in the State of Sonora, Mexico, was fined by PROFEPA in an amount equivalent to USD1.1 million for discharging cyanide into a river. The company was also required to create a trust worth approximately USD105 million to help in environmental restoration activities and to assist the population affected by the environmental damage that was caused.
Under the Federal Civil Procedure Code, collective actions may be brought in the case of environmental claims. A group of 30 or more individuals, along with NGOs duly registered, as well as regulatory agencies, may file a collective action against a party accused of causing environmental damage. The main purpose of a collective action is for the damage caused to the environment to be restored and, if this is not possible, for compensation activities to be ordered.
Collective actions may be brought to safeguard:
The statute of limitations for filing collective actions is three years and six months from the moment when damage or injury was caused. However, in the case of damage or injury having continuous or ongoing effects, the term will run as of the last day (or more recent day) in which the damage has been caused. This contradicts the term contained in the Liability Law, which provides that the statute of limitations for demonstrating environmental damage is 12 years as of the moment contamination took place or when its effects cease. Since the Liability Law expressly deals with environmental liability as opposed to the Federal Civil Procedure Code, the 12-year statute of limitations would apply in the case of environmental collective actions.
A federal judge may issue any of the following rulings once the procedural and probative phases have concluded in a collective action:
Most cases in Mexico have focused on the area of consumer protection. However, by the end of 2015, an explosion in an oil platform of PEMEX (the state-owned oil company) caused an NGO to file a collective claim against such entity, seeking that PEMEX undertake remediation or at least compensation and that fisheries be compensated for harm caused to their livelihood.
Several NGOs have announced their intention of filing public actions against the proposed Dos Bocas Refinery that the Mexican government intends to construct in the State of Veracruz, alleging that this project, worth billions of US dollars, will likely cause widespread environmental damage, will adversely affect flora and fauna and will degrade air quality. The refinery is in the early construction stage, but already there are legal challenges being filed to prevent it from being constructed.
Other NGOs are planning to file public actions against another refinery that operates in Cadereyta, State of Nuevo Leon, with the intent of forcing PEMEX to improve its air emission stacks. This is because the refinery is contributing to poor air quality in the region.
Indemnities and suchlike may be used to transfer or apportion liability. However, these may have very little binding effect or influence over regulators or even civil judges. For example, regulators or judges may require an owner or occupier of a contaminated site to remediate it, irrespective of a contractual arrangement with a third party. It will be up to the parties entering into the agreement – and not regulators or judges – to ensure that the contractual obligations are properly met.
For example, in the case of an environmental permit granted to an oil company for offshore drilling, that company may hire a third party to conduct the drilling and may enter into a service agreement containing a number of environmental indemnity provisions, making the contractor liable for remediation in case of an oil spill. However, in the eyes of regulators such as ASEA, if there is an oil spill the permit holder will be the liable party and may face civil or even criminal liability in the case of serious environmental harm, notwithstanding any contractual arrangement that may be in place.
When hiring a company to transport and dispose of hazardous wastes, it is very important to have a contract in place making the transporter liable for any damage caused when the wastes are being transported to a final destination facility (which could be a landfill, a recycling yard area or a transfer station). This is because the Waste Law provides that in the absence of a contract that defines the role of the generator, the transporter and the disposal company, the waste generator would be liable if the wastes are not sent to a licensed disposal facility.
Authorising hazardous wastes to be sent to an unlicensed disposal facility is also a federal crime, punishable with prison terms that may be as high as four years.
Environmental insurance is readily available in Mexico. There are a number of carriers that offer coverage for any of the following risks:
ASEA has unveiled administrative guidelines that establish the amounts that insurance must cover against losses and damages caused by parties that carry out activities relating to the hydrocarbons sector (ie, "regulated entities").
Regulated entities must register their insurance policies with ASEA prior to carrying out any works or activities. If regulated entities have already secured a valid insurance policy as of the date of publication of the guidelines, they may register it with ASEA, and at the end of the term of the insurance policy, the corresponding adjustments must be made in accordance to the guidelines.
The guidelines state that regulated entities must purchase insurance if they carry out any of the following activities:
Insurance limits will be set: (i) based on the results of a likely maximum loss study or (ii) based on the liability limits established the guidelines. Maximum coverage may be US1 billion in the case of ocean tankers weighing 15,000 GT.
Most environmental impact procedures require the preparation of a technical economic study to determine the amounts of insurance to be approved.
The main law governing contaminated land is the Waste Law and its regulations, along with standards that establish maximum allowable pollutant limits in soils.
Regulators generally go after owners or occupiers of a contaminated site when requiring remediation activities to be carried out, because the law makes them liable for remediation regardless of fault. In some cases, they will also impose penalties against parties that are known to have caused soil or groundwater contamination.
The Waste Law defines a contaminated site as "a place, space, soil, water body, installation or any combination thereof that has been contaminated with hazardous materials or wastes that, because of their quantities and characteristics, may represent a risk to human health, living organisms and the use of personal goods or properties". The authority in particular keeps a record of contaminated lands.
A legal requirement for remediation may be ordered when a site characterisation study reveals that there are pollutants in the soil in quantities or concentrations exceeding the maximum allowable limits established by applicable standards or in the absence of a standard, if the conclusions contained in a human health and risk study make remediation necessary to protect the environment or human health.
As mentioned in 5.1 Liability for Historical Environmental Incidents or Damage, there are two standards that establish maximum allowable limits for pollutants in soils. One is NOM-138 that establishes maximum limits for hydrocarbons in soils; the other is NOM-147 that establishes maximum allowable limits for heavy metals. If there are other pollutants in soils that may pose a risk to human health or the environment, a human health and risk assessment may have to be carried out.
Parties liable for remediating contaminated land include:
In order to be able to get a regulator or a court to force an original polluter, former landowner or any other person to remediate, the liable person will have to demonstrate that any of them caused contamination or environmental damage; in the case of the former owner, if it failed to disclose the environmental conditions of the site, prior to its transfer of ownership, it may be liable for remediation in accordance with the regulations of the Waste Law.
The Climate Change Law states that it is in Mexico's strategic interest to carry out actions designed to mitigate or compensate for climate change and to develop the corresponding technical, as well as economic, instruments. Also as a signatory to the Paris Climate Agreement, Mexico has agreed to contribute to fighting climate change and reducing greenhouse gas (GHG) emissions within the country and to implement mitigation and compensation policies.
The Climate Change Law sets an aspirational 30% greenhouse gas reduction target by 2020, increasing to 50% by 2050 with regard to the year 2000 emissions. However, this target has not been achieved and the current government does not seem to be inclined to adopt actions to meet GHG reduction targets. According to the Climate Change Law, GHG reduction targets may be achieved if an international regime is in place that provides for financial and technological support afforded by developed countries. Currently, the government has a target for 35% of the nation's energy output to come from renewable or "clean" sources by the year 2024.
The Mexican government requires that emitters of a minimum of 50,000 MT of GHGs a year report their emissions. This is widely seen as a prelude to a future emissions trading scheme.
There are currently no laws establishing a mandatory emissions trading scheme in Mexico. However, in August 2016, the Mexican Stock Exchange and SEMARNAT unveiled a pilot programme to develop a carbon market in Mexico so that the private sector may reduce its GHG emissions and remain competitive in a global environment. However, this pilot programme has not yet started and so at this time is only a virtual exercise among the parties involved. There is, however, a voluntary market of emissions enacted which is administered by MéxiCO₂, a company created by the Mexican stock market. This company also has a market specific for the renewable energy sector.
It is worth mentioning that according to Mexico's REDD+ 2017–2030 Strategy published by the federal government, rights over carbon credits should be bestowed exclusively to the government and not to the owners of the land where the credits are generated. This has created some controversy within indigenous communities and farming towns and it is likely that this claim by the government may be challenged in the courts.
Asbestos fibres are considered hazardous waste once they are free from the areas or places where asbestos is affixed, present or found and must be handled, contained, transported and disposed of in compliance with federal regulations.
There are no asbestos abatement regulations in Mexico. Occupational health and safety laws require workers that are exposed to asbestos fibres to wear protective equipment and to undergo medical examinations if exposed to certain quantities.
There is one Mexican Official Standard that regulates the sanitary requirements for the processing and use of asbestos: NOM-125-SSA1-2016.
It is important to add that, since 2011, the government of Mexico City has promoted preventative actions to reduce diseases caused by the use of asbestos.
There are no specific asbestos removal requirements in Mexico except when it becomes a hazardous waste, or in an emergency situation where the levels of asbestos are surpassed in specific areas.
Asbestos litigation cases are not common in Mexico. However, under Mexican employment laws, employees may terminate a labour agreement if an employer fails to provide a safe and hygienic working environment or fails to comply with applicable Mexican occupational health and safety regulations and standards.
The Waste Law and its regulations establish the basic legal framework regarding the generation, handling, management, containment, transportation and disposal of hazardous and non-hazardous waste in Mexico. There are also a number of standards containing criteria to determine if a waste may be hazardous as well as on containment and disposal requirements for specific types of waste.
States have also enacted laws establishing handling, transportation and disposal requirements for non-hazardous and municipal wastes.
A producer or consignor of waste retains liability for waste only if it has hired disposal services from a party that lacks the required licences to store, transport and dispose of waste, or if it has sent waste to a location lacking a licence to receive it. Also, and as mentioned in 10.1 Transferring or Apportioning Liability, consenting to the transportation of hazardous waste to an unlicensed site is a federal crime, punishable by a prison term of one to four years.
Certain wastes are subject to specific management (including take-back) requirements. Generators, producers or owners of these wastes must prepare and file waste management plans, specifying how these wastes are to be managed.
Producers, importers, exporters and distributors of goods that at the end of their life cycle become hazardous wastes are also required to prepare management plans.
Among the wastes that must be included in management plans are: spent oils, used organic solvents, catalytic converters, mercury or nickel-cadmium batteries and pesticides. Waste management plans must be registered with SEMARNAT, ASEA or with state or municipal agencies in the case of certain non-hazardous wastes.
Accidental releases of waste water, as well as of hazardous materials or wastes, must be reported to regulators, and all actions designed to reduce or minimise environmental damage must be implemented.
In the case of an accidental hazardous waste spill covering an area not exceeding 1 m³, generators or transporters must immediately carry out the necessary actions to minimise and limit its dispersion and clean up the affected area.
If the spill covers a large area, PROFEPA or ASEA must be immediately notified so that they may adopt the necessary actions to prevent damage from being caused, in co-ordination with the parties causing the spill.
According to the General Law, and the Law of Access to Public Information, any person has the right to have SEMARNAT, ASEA, as well as other federal or state environmental agencies, put at his or her disposal any environmental information requested. Any petition must be in writing, specifying the type of information being requested and the reasons behind the request.
In some cases, regulatory agencies may deny access to information if it is deemed of a confidential nature or if its disclosure may damage third-party rights.
Corporates are not required by law to disclose environmental information in their annual reports. However, many companies do provide reports on their sustainability initiatives and on how they are contributing to the fight against climate change. This is becoming more common and widespread.
When purchasing or leasing land, environmental due diligence is conducted on M&A, finance and property transactions in order to determine whether there may be any type of remediation liability, because the Waste Law requires that the parties involved determine who will be responsible for remediation if a site being purchased is contaminated.
It is also customary to conduct a permit review in order to determine if the target company is in compliance with relevant permitting and compliance requirements and if it has incurred any type of environmental liability.
A buyer may incur environmental liability for historic environmental damage, because under federal law an owner or lessee of a contaminated site are jointly liable for its remediation, regardless of fault. This is why it is important to conduct proper due diligence prior to purchasing a site and, in some instances, carry out a site characterisation study that will help determine if remediation may be warranted.
Laws do not require a seller to disclose any environmental information to a purchaser. This is more a contractual requirement. However, in the case of soil contamination, if a seller fails to disclose to a buyer the fact that a site was contaminated prior to its transfer, it will retain environmental liability for historic environmental damage if the buyer discovers that the site was contaminated and that the contamination was generated prior to the transfer. This, according to the Waste Regulations. Likewise, in the absence of an express agreement to determine which party is liable for remediation of a polluted site, the seller retains liability for such remediation.
In the interest of environmental due diligence, a purchaser may investigate to determine if a site may be contaminated, because of the remediation liability that owners or occupiers have, regardless of when contamination occurred. Typically, the purchaser requests the execution of a site characterisation study. In addition, a permitting review should also be conducted, in order to determine whether the company in question is legally authorised to operate and whether the permits are in full force and effect.
Warranties, indemnities or other provisions that may be given during a share or assets sale mainly deal with remediation obligations if a site being sold or transferred is contaminated. It is common for parties to include language on who will be contractually required to undertake remediation or who will indemnify and free the other party from any liability associated with soil or groundwater contamination.
There may also be warranties and indemnities in place if a purchased site it cited or shut down for causing environmental damage that was generated prior to the purchase date, or if regulators impose penalties for violations of environmental laws occurring prior to the deal taking place.
Mexico is yet to establish a comprehensive legal framework in the area of environmental or green taxes, although certain states and municipalities have attempted to impose environmental taxes at one time or another without much success as they have been deemed unconstitutional.
The most clear example of this kind of tax is the carbon fee to the fuel imposed by the federal government, which means that each litre of car fuel is affected by a carbon fee that is included in the Special Tax on Production and Services for the purpose of discouraging the use of fuels.
Climate Change Framework in Mexico
The climate change framework in Mexico became effective on 10 October 2012, when the Climate Change General Law (CCGL) came into force.
The CCGL largely governs the mitigation and adaptation measures for climate change in Mexico. It also promotes the transition towards a competitive, sustainable and low-emission economy.
The provisions set forth in the CCGL are mainly focused on setting goals to be achieved by the Mexican governmental agencies and not in setting obligations to be observed by private parties. The only obligation that private parties must comply with is to provide information on the greenhouse gas (GHG) emissions that their outputs generate. As per the CCGL, the National Emission Registry (RENE) has been created. The latter is a database that gathers all information on greenhouse gases and compounds emissions produced by certain fixed sources.
Specifically, the submission obligation for private parties arises when the latter generate GHG emissions in amounts equal to or above 25,000 tons of carbon dioxide equivalent per year ("fixed sources subject to report"). The list of fixed sources of pollution that fall into the scope of the CCGL is set forth in the CCGL Regulations. These sectors are the energy, industrial, transportation, agriculture, waste, trade and services sectors.
For its part, the greenhouse gas emissions subject to report are, among others, carbon dioxide, methane, nitrous oxide, black carbon, fluorinated gases, sulphur hexafluoride, nitrogen trifluoride, halogen ethers, halocarbons, any mix of the aforementioned gases as well as other gases identified by the Intergovernmental Panel on Climate Change.
Private parties are to submit this report through the technical instrument known as the Federal Annual Operation Report (Cédula de Operación Annual, COA). The COA is a report submitted before the Ministry of the Environment and Natural Resources (Secretaría del Medio Ambiente y Recursos Naturales, SEMARNAT) on an annual basis to inform on the types and amounts of pollutants generated in a calendar year. This obligation, with regard specifically to GHG emissions, arose in 2015.
As of 2016, and in addition to the obligation to submit the COA, fixed sources subject to report are obliged, every three years, to submit an expert opinion prepared by a verification unit authorised by SEMARNAT. Verification units are private parties with technical expertise, authorised by governmental agencies, to validate information produced by private parties to confirm compliance with the law. In this specific case, the expert opinion certifies the relevance, integrity, consistency, transparency and accuracy of the information contained in the COA.
Law Enforcement on Climate Change
Law enforcement on climate change in Mexico has been incremental. Until now, fixed sources subject to report only needed to self-determine their GHG emissions and submit their report for the RENE.
However, by 2018 and 2019, almost all fixed sources subject to report were required to submit, together with the COA, the expert opinion issued by a verification unit approved by SEMARNAT.
The CCGL foresees an economic sanction of up to USD12,123 for all establishments that do not present said report to the RENE, as well as a fine of up to USD40,410 for those fixed sources subject to report that submit untruthful information.
On 13 July 2018, the CCGL was subjected to some reforms and additions, which became effective on 14 July 2018. These modifications had the purpose of establishing an emissions trading system, carrying out the amendments to the settings, trajectories, actions and goals committed as part of the National Strategy on Climate Change, internalising into the national framework the reduction goals assumed by Mexico as its "nationally determined contributions" (NDCs) on the basis of the agreements reached during the UNFCCC Conference of the Parties in its 21st session which took place in December 2015 in Paris, France, and set the basis for the elaboration of the National Adaption Policy within the frame of the National System for Climate Change and an Early Warning System.
Mexico’s NDCs consist of reducing its GHG emissions by 22% and its black carbon emissions by 51% with regard to the baseline – this to be achieved by 2030 and in a non-conditional way. This commitment implies a 40% reduction in the intensity of emissions per GDP unit between 2013 and 2030.
The 22% reduction on GHG emissions translates as a reduction of 18% by the transport sector, 31% by the electric generation sector, 18% by the residential and commercial sectors, 14% by the petroleum and gas sector, 5% by the industry sector, 8% by the agriculture and farming sectors, and 28% by the waste sector.
In order to meet these commitments, the Mexican government has focused on increasing the use of renewable sources to generate energy and transition into a decarbonised economy. In 2019, Mexico occupied the 19th position on the Renewable Energy Country Attractiveness Index. However, a cancelled auction in the renewables sector and the revision to contracts from the state’s utility tender for 70 W of wind and solar capacity have injected uncertainty into the market and thereby displaced Mexico into the 25th position in 2020.
Furthermore, on 29 April 2020, the National Centre of Energy Control released an administrative resolution with measures to guarantee the efficiency, reliability, quality, continuity and safety of the Electric National System. In addition, on 15 May 2020, the Ministry of Energy published an administrative resolution by means of which a new public policy in such respect was issued. These two resolutions set forth that, as of 3 May 2020, (i) pre-operative tests of intermittent wind and photovoltaic power plants undergoing commercial operation are suspended, and (ii) for those intermittent wind and photovoltaic power plants that have not started operations, their pre-operational tests will not be authorised.
Consequently, both resolutions grant priority to the electric energy produced by the Federal Electricity Commission (CFE) and restrict the participation of power plants with intermittent clean energy in the SEN, specifically, the participation of power plants with wind or photovoltaic energy (henceforth “renewable power plants”).
Said restrictions may have the following consequences over the commitments acquired by Mexico in the international sphere, on the basis of the Paris Agreement as well as over clean energy certificates.
For its part, the Security, Energy and Environment Agency (Agencia Nacional de Seguridad Industrial y de Protección al Medio Ambiente del Sector Hidrocarburos, ASEA) published in the Federal Official Gazette, on 6 November 2018, the General Administrative Dispositions establishing the Guidelines for the Prevention and Comprehensive Management of Methane Emissions in the Hydrocarbon Sector (henceforth the Methane Emissions Guidelines). These became effective on 7 November 2018.
The purpose of the Methane Emissions Guidelines was to set the actions and mechanisms that are to be adopted by those parties executing activities in the hydrocarbon sector to prevent and control the methane emissions generated in their facilities. Some of these obligations consist of identifying the sources and potential sources of methane emissions within their facilities and preparing a methane diagnosis report as well as a Program for the Prevention and Comprehensive Management of Methane Emissions within the Hydrocarbon Sector.
Mexican Emissions Trading System
The Mexican Emissions Trading System is being implemented progressively and gradually. It is a public policy tool of recent creation that seeks to promote the reduction of the emissions generated in Mexico within the private sector.
On 1 October 2019, SEMARNAT published, in the Federal Official Gazette, the Accord by means of which the Preliminary Basis of the Emission Trading System Test Program are established (henceforth the “Emission Trading System Accord”). The Emission Trading System Accord became effective on 2 October 2019.
The most significant aspects of the Emission Trading System Accord are the following.
The COA will serve as the basis to determine which facilities are to be considered as mandatory participants or new participants.
For purposes of the testing stage, participants must record the number of emissions resulting from the verification process mentioned above in the tracking system, no later than 30 September of each year.
Mexico faces various challenges with regard to the enforcement of its climate change regulation and achieving its commitments in combating climate change. As per Mexico’s commitments through its NDCs, efficiency and effectiveness are of the outmost relevance. The implementation of the Emission Trading System will be an important tool to help Mexico to comply with its international commitments adopted due to the Paris Agreement.
Perhaps the most important challenge for Mexico and, specifically, for its regulators, will be to enforce the legal framework and its plans to combat climate change, even against the same government that has begun to undergo relevant but controversial infrastructure projects, such as the construction of a new refinery, in addition to the new policies implemented at the beginning of this year that are having negative effects on the implementation of renewable energy projects.