This presentation was made by Carlos MUÑOZ PIÑA, Mexico, at the 1st Workshop on Green Budgeting held at the OECD, Paris, on 20 June 2018.

1. 1
Mexico’s experience with
environmental taxes:
the carbon tax and the pesticide tax
Carlos Muñoz Piña
Finance Ministry, Mexico
June, 2018

2. • Choice of instruments: Environmental taxes (Prices) vs Cap&Trade
(Quantities)
• In practice, environmental taxes seem to be the most attractive choice for
most emerging markets. However, instrument mixes are valuable.
2
The rationale for environmental taxes
Taxes Cap & Trade
Higher certainty on costs,
higher uncertainty on outcomes
Higher uncertainty on costs,
higher certainty on outcomes
Collection is easier as it can rely on
existing capacities and institutions
Developing deep and liquid markets
is a challenge
General application
Issues of initial, and subsequent,
allocations

3. 1. Strategic complement for environmental policy.
2. Green revenue (better to tax bads than to tax goods)
• Choice of instruments: Prices vs Quantities (Weitzman)
– Quantities (Cap&Trade) give certainty to outcome, can have uncertain costs.
– Prices (environmental taxes) give certainty to costs, but outcomes may vary.
– Descentralized incentives: wider reaching than large emittors’ regulation or
markets, plus lower implementation costs. -Push and pull-
• Fiscal policy: raise revenue with minimum welfare loss.
– Ramsey rule: Low elasticity goods and services.
– Double dividend: Reduce negative externalities, and less DWL in others.
The rationale for environmental taxes.
3

4. 4
Mexico’s Carbon Tax

5. • Part of a broad fiscal reform that was sent to Congress in 2013:
o A fixed amount per ton of CO2 content, for all fossil fuels.
o The tax was set at US$ 5.7 per ton of CO2 (average of most relevant
carbon markets: EU-ETS, California, New Zealand).
o Rates are adjusted annually for general inflation.
5
Mexico’s Carbon Tax

6. • Tax administration is straightforward:
o The carbon tax is paid at the production or import stages and can
be credited, except for the final sale (similar mechanics to a VAT).
o Collection and auditing is done by the revenue collection agency
(SAT), on the same terms as other excise taxes.
6
The Carbon Tax in Mexico

7. • Well received in Congress and was approved with some changes:
o Lower average carbon pricing (US$3.7 per ton of CO2).
o Natural gas was taxed at zero. Argument: cleanest fossil fuel.
o Only coal used as fuel is subject to the tax.
o The tax can be paid with internationally-recognized certificates of
emission reductions, at market values.
• To comply with international treaties, jet fuel is also taxed at zero (through
Executive decree).
7
The Carbon Tax in Mexico

8. Carbon tax in Mexico, taxing carbon content
8
fuel CO2 potenctal 2014 2015 2016 2017 2018
Combustible
Tons of CO2
per unit
Tax per unit
pesos
Tax per unit
pesos
Tax per unit
pesos
Tax per unit
pesos
Tax per unit
pesos
Gasolines 2.27 tons por m3 0.104 por litro 0.108 por litro 0.111 por litro 0.114 por litro 0.122 por litro
Diesel 2.64 tons por m3 0.126 por litro 0.131 por litro 0.134 por litro 0.138 por litro 0.148 por litro
Natural Gas 1.92 tons por m3 0.00 por litro 0.00 por litro 0.00 por litro 0.00 por litro 0.00 por litro
LPGas 1.68 tons por m3
0.059-0.077
por litro
0.061-0.080
por litro
0.063-0.082
por litro
0.065-0.084
por litro
0.069-0.090
por litro
Turbosine 2.60 tons por m3 0.124 por litro 0.129 por litro 0.132 por litro 0.136 por litro 0.145 por litro
Fuel Oil
3.00 - 3.01 tons por
m3
0.135 por litro 0.140 por litro 0.143 por litro 0.148 por litro 0.158 por litro
Cokes 3.27 tons por m3 0.156 por Kg 0.162 por Kg 0.166 por Kg 0.171 por Kg 0.183 por Kg
Coal
2.00 - 3.00 tons por
m3
0.275 por Kg 0.287 por Kg 0.293 por Kg 0.303 por Kg 0.323 por Kg
Fuente: SIE-SENER-INEGI-con informaciónde PEMEX.
* información hasta abril

9. Carbon tax results in Mexico: implementation challenges
9
REVENUES MINUS ACCREDITATIONS (first assesments)
Thousand million pesos
2014 2015 2016 2017 2018
Enero 0.0 1040.1 540.0 -1,249.9 450.7
Febrero 902.5 119.2 675.7 181.8 561.5
Marzo 663.4 495.6 588.6 200.4 347.5
Abril 882.1 738.3 674.8 8,491.3 xxx
Mayo 985.9 616.2 525.1 925.3
Junio 784.2 728.1 347.8 557.4
Julio 978.3 628.6 132.4 -1,190.7
Agosto 895.3 675.8 -220.6 548.8
Septiembre 886.6 452.5 -342.6 373.8
Octubre 952.7 632.5 -637.2 419.6
Noviembre 836.1 701.0 -612.7 523.3
Diciembre 903.3 820.7 -1,225.3 1,756.2
Anual 9,670.4 7,648.5 445.9 11,537.2 1,359.7
Bianual 17,318.9 8,094.4 11,983.1 12,896.9
Histórica 30,661.7
FUENTE: SHCP. Estadísticas Oportunas de Finanzas Públicas.
REVENUES MINUS ACCREDITATIONS (first correction estimates)
Miles de millones de pesos
2014 2015 2016 2017 2018
Enero 0.0 1,040.1 540.0 507.4 450.7
Febrero 902.5 119.2 675.7 359.5 561.5
Marzo 663.4 495.6 588.6 200.4 347.5
Abril 882.1 738.3 674.8 726.5
Mayo 985.9 616.2 525.1 543.0
Junio 784.2 728.1 584.1 557.4
Julio 978.3 628.6 597.7 392.9
Agosto 895.3 675.8 456.1 548.8
Septiembre 886.6 452.5 543.6 373.8
Octubre 952.7 632.5 461.0 419.6
Noviembre 836.1 701.0 693.5 523.3
Diciembre 903.3 820.7 317.6 172.6
Anual 9,670.4 7,648.5 6,657.8 5,325.2 1,359.7
Bianual 17,318.9 14,306.3 11,983.1 6,685.0
Histórica 30,661.7

10. • Law allows to pay in-kind with CER.
• Payment according to equivalent value of CERs, not equivalent
of tons reduced (discussion).
• Concrete way for “conditional” goals for NDCs.
• Mexican government would act as aggregator of supply, and purchasers
would own the CERs and comply with conditionality.
• Uses Clean Development Mechanism (CDM) registry and
verification process.
Paying the tax with certified emission reductions

11. • Support from domestic think tanks and NGOs was important in media and
policy discussions.
• Build on previous success. Mexican Congress had approved its Climate
Change Law in 2012, where carbon taxes were mentioned as potential
instruments.
• Having the “greenest” option (natural gas) taxed at zero increases political
acceptance (similar to the tax for pesticides, part of the same bill).
• Neighbors matter: lower fuel taxes in some neighboring countries reduced
maneuvering room.
• Constant discussion on earmarking, vs green expenditure.
11
First Policy lessons from the carbon tax

12. 12
Mexico’s Pesticide Tax

13. • Approved to start operating in 2014 (half rates) and 2015 (full rates):
o Acts in the space of an existing 0% VAT rate for agrochemicals.
o Environmental signaling needed to classify compounds according to
impact on human health and wildlife.
o World Health Organization (WHO) classification provides robust
environmental gradient.
o Environmental tax is defined as a percentage of value, instead of kg.,
because of monitoring complexity, and varies according to WHO and
Mexican classification of toxicity of pesticides.
13
Mexico’s Pesticide Tax

14. Environmental gradient for taxes
Route of exposure Category 1​ Category 2​ Category 3 Category 4 Category 5
Oral (mg/kg)​ 5​ 50​ 300​ 2000 ​ 5000 ​
Dermal (mg/kg)​ 50​ 200​ 1000​ 2000​ ​
Inhalation Gases (ppmV)​ 100​ 500​ 2500​ 5000​ ​
Inhalation Vapours (mg/l)​ 0,5​ 2​ 10​ 20​ ​
Inhalator powders and mists (mg/l)​ 0,05​ 0,5​ 1​ 5​ ​
Note: This table is subject to updates of the Mexican Official Standard “NOM-232-SSA1-2009”.
Table 2:
Tax rates are established according to their acute toxicity hazard category:
[1] Source: Impuestos a los Plaguicidas (2014), SHCP: http://www.sat.gob.mx/fichas_tematicas/reforma_fiscal/Paginas/plaguicidas_2014.aspx
Table 1.
Acute toxicity hazard categories:
Toxicity Category
(OMS compatible)
Tax rate
​ 2014 2015+
Ia & Ib 4.5% 9.0%​
II 3.5% 7.0%​
III ​ 3.0% 6.0%​
IV 0 0

15. High correlation between pesticides consumption and
intoxication cases.
0
100
200
300
400
500
600
700
800
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
18,000
20,000
Consumo Aparente (tons) Registros de Intoxicaciones
Aggregate apparent consumption, tons per month Pesticides intoxication cases per month

16. Steady revenue collection,
Designed to decline as signal has effect
[1] Source: Impuestos a los Plaguicidas (2014), SHCP: http://www.sat.gob.mx/fichas_tematicas/reforma_fiscal/Paginas/plaguicidas_2014.aspx
Year
Total Revenue
(in millions of pesos)
2014 358.6
2015 606.9
2016 647.2
2017 705.2
2018 (jan-apr) 218.7
Total 2,536.6

17. Some shifts already observed
[1] Source: Impuestos a los Plaguicidas (2014), SHCP: http://www.sat.gob.mx/fichas_tematicas/reforma_fiscal/Paginas/plaguicidas_2014.aspx
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2014 2015 2016 Ene-Abr-17
Share of toxicity category in total
production plus imports
1 y 2 3 4 5
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2014 2015 2016 Ene-Abr.17
Millonesdepesos
Total pesticide tax revenues, by category
1 y 2 3 4

18. FOSSIL FUEL SUBSIDIES REFORM
IN MEXICO
June 2018

19. Mexico’s peer review on inefficient fossil fuel subsidies
19
• Part of the G20 commitment to phase-out fossil fuel subsidies, Mexico joined
Germany in a peer-review analysis of its efforts.
• Both reviews were completed in 2017 and valuable lessons were drawn from
the process, especially regarding the institutional setup for the phase-out and
current remaining challenges.
• Following on the paired effort of the US and China, and Mexico and Germany,
this year is the turn of Italy and Indonesia, supported by our analysis teams.

20. Mexico curbed, reduced and reverted subsidies
on gasoline and diesel
20
0.7%
0.7%
0.9%
1.3%
1.5%
1.0%
1.4% 1.3%
1.1%
0.6%
0.2%
-0.4%-0.4%
-1.8%
-0.1%
-0.6%
-1.1%
-1.4%
-0.6%
-0.2%
1.0%
1.2%
0.9%
0.7%
-2.0%
-1.5%
-1.0%
-0.5%
0.0%
0.5%
1.0%
1.5%
2.0%
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018e
Taxes(positivve)subsidies(negative),aspercentagepointsofGDP
WTI (Dls/Br)

21. A new pattern regarding oil prices and excise taxation
21
0.7%
0.7%
0.9%
1.3%
1.5%
1.0%
1.4% 1.3%
1.1%
0.6%
0.2%
-0.4%-0.4%
-1.8%
-0.1%
-0.6%
-1.1%
-1.4%
-0.6%
-0.2%
1.0%
1.2%
0.9%
0.7%
0
20
40
60
80
100
120
-2.0%
-1.5%
-1.0%
-0.5%
0.0%
0.5%
1.0%
1.5%
2.0%
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018e
Taxes(positivve)subsidies(negative),aspercentagepointsofGDP
WTI (Dls/Br)

22. Subsidies to gasolines tend to be highly regressive,
even more so in countries like México
22
1.3% 1.6%
2.5%
3.7%
4.8%
6.4%
7.9%
12.5%
20.3%
39.1%
0%
5%
10%
15%
20%
25%
30%
35%
40%
I II III IV V VI VII VIII IX X
Expenditure in gasolines by income decile

23. Defining Economic inefficiency,
subsidies vs. tax expenditures
23
Three elements for the analysis:
• Inefficiency inducing subsidies refer to pricing below opportunity cost
(price-gap approach). The comparison would be with fuels’
international reference prices.
• Tax exemptions are not subsidies, in the economics sense. If they differ
from the Ramsey rule they might be sub-optimal taxes, but not
inefficiency-inducing subsidies. However they are still presented here
for comparison purposes
• We also look at tax provisions to producers of hydrocarbons, in
particular in light of the recent opening of the upstream sector in
Mexico. The competitive bidding process internalizes the revenue loss
effect.

24. Low and Stable domestic prices for lpg also meant transfering variable
subsidies
24
-0.03%
-0.10%
-0.05% -0.05%
-0.09%
-0.22%
-0.06%
-0.19%
-0.28%
-0.14%
-0.03%
-0.04%
0.00% 0.00%
-0.30%
-0.25%
-0.20%
-0.15%
-0.10%
-0.05%
0.00%
0.05%
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016*
LPGsubsidies(unitsas%pointsofGDP)

25. Self-report and peer-review Conclusions
25
1. Through a prudent and gradual fiscal policy Mexico was able to completely
phase out general fossil fuel subsidies, fulfilling this G20 commitment.
2. The country gradually moved from an subsidy of 1.8% of GDP in 2008 to a
positive taxation amounting between 1.2% and 0.7% of its GDP.
3. Key in the success of this policy has been responsibly redistributing public
spending away from inefficient subsidies towards more productive and
socially progressive policies.
4. Mexico introduced resiliency into the general fossil fuel subsidies phase-out
through institutional changes part of its ambitious Energy Reform:
• reforming excise taxes,
• introducing a carbon tax,
• and redefining rules for its national petroleum company.

26. current challenges
26
• Tax accreditation remains an element to observe and analyse.
• Structural changes in Mexico reinforce the fossil fuel phase-out.
• From December 2017 onward, gasoline and diesel prices are now fully
determined by markets.
• LPG prices had the same liberalization in January 2017,
• the rest of fuels have had market prices for more than a decade.
• Price volatility is a challenge, especially in the transition to market prices.
• The response has been the implementation of an instrument of fiscal
smoothing through a transparent instrument of weekly stimulus given to
the Excise tax rate.
• Keeping net revenues within target, the instrument has been successful,
and supportive of the transition, for both new entrant firms and
consumers.

27. From subsidies to positive taxes,
but still below G20, OEXCD, Asia and Latin-America’s average
27* Source: Price, GlobalPetrolPrices.com (consulted 15/Jun/2018). Banxico, exchange rate: $20.72 per dollar
(consulted 15/Jun/2018).
$43.9
$42.1
$39.8
$39.6
$38.9
$38.7
$38.5
$37.3
$35.6
$35.4
$34.0
$33.4
$33.4
$31.9
$30.9
$30.2
$28.0
$27.6
$27.1
$26.7
$25.5
$25.5
$24.9
$24.4
$24.2
$24.0
$23.0
$23.0
$22.4
$22.2
$20.7
$20.5
$19.80
$18.09
$17.0
$15.93
$14.93
$14.9
$13.1
$11.2
$8.1
$0
$5
$10
$15
$20
$25
$30
$35
$40
$45
$50
HongKong
Noruega
Italia
Grecia
Dinamarca
Israel
Portugal
Francia
ReinoUnido
Alemania
Suiza
N.Zelanda
Uruguay
España
Belice
CoreadelSur
Japón
Turquía
Chile
Rep.Dom.
Cuba
Brasil
CostaRica
China
India
Canadá
Honduras
Perú
Paraguay
Nicaragua
Guatemala
Argentina
California
México,jun-18
Colombia
EE.UU.
Texas
Rusia
Iraq
Bolivia
Ecuador
Price for Regular Gasoline (MX$/Litre)
Average:
$26.98

28. Most recent developments, and policies moving forward
28
Objective: Avoid volatility in fuel prices for final consumers
Effect on revenues
(US$ million dollars)
2013 2014 2015 2016
8,245 2,833 0 0
Legal basis
Ley de Hidrocarburos, Ley del Impuesto Especial a los Productos y
Servicios, Ley de Ingresos de la Federación para el Ejercicio 2017
Recent developments
The subsidy was eliminated starting in mid-2014, and 2015 was the
first complete year for which positive revenues were generated.
Outlook
Since 2016, the fuel tax is a quota per liter. Starting in 2017, prices
will be gradually allowed to be set by market conditions. All of these
provisions preclude observing subsidies in the future.
Table 1: Subsidies for Gasolines and Diesel
Source: Fiscal Expenditure Budget, SHCP. Figure for 2016 is an estimate
Objective Avoid volatility in LPG prices for consumers
Effect on revenues
(US$ million dollars)
2013 2014 2015 2016
373 493 0 0
Legal basis
Ley de Hidrocarburos, Ley de Ingresos de la Federación para el
Ejercicio 2017
Recent developments The subsidy was eliminated in 2015
Outlook
Consistent with was what established in the Energy Reform, prices
will be freely set by the market starting in 2017. There is no
possibility of incurring in subsidies in the future.
Table 2: Implicit Subsidies for LPG
Source: Fiscal Expenditure Budget, SHCP. Figure for 2016 is an estimate

29. Sectoral benefits: tax exemptions and accreditations
29
Objective: Reducing production costs for the primary sector
Effect on revenues
(million dollars)
2013 2014 2015 2016*
245 63 171 274
Legal basis Ley de Energía para el Campo
Type of subsidy Productivity/growth assistance
Recent developments
Switching from direct budgetary support towards limited exemption from excise taxes. The
benefit could at most eliminate the excise tax but the effective price would still reflect VAT
and other taxes, hence guaranteeing that the effective price is always above costs.
Outlook
The Rural Energy Law requirements are still in place and the benefit is not considered an
inefficient subsidy.
Table 3:
Fossil fuel subsidies and tax exemptions for prices for agriculture and fishing
Source: Ministry of Finance estimation with data from the National Fisheries Council and Ministry of Agriculture.
Data for 2013 includes budget-based subsidies. Data for 2016 is an estimate.
Objective Reducing production costs
Economic activity
Tax Accreditation (US$ million dollars)
2013 2014 2015 2016
Public transport 0 0 810 1,062
Industrial machinery, other than
transportation
0 0 376 493
Fisheries machinery, including vessels 0 0 65 85
Farming machinery 0 0 174 222
Legal basis Ley de Ingresos de la Federación
Recent developments No provision has been made for degression
Outlook No change in policy expected.
Table 4: Diesel excise tax accreditation,
specific economic activities
* Source: Fiscal Expenditure Budget, SHCP. Figure

30. México’s carbon tax (and its exemptions)
30
Objective:
Establish natural gas as carbon tax baseline, comply with
international aviation treaties and lighten impact on coal.
Effect on revenues
(million dollars)
2013 2014 2015 2016
N.A. 272.9 167.7 100.8
Legal basis
Ley del Impuesto Especial a la Producción y Servicios,
Presidential decree, January 2014
Recent developments None
Outlook
Reforms to ICAO Chicago Convention are required to
elimination the tax exemption for jet fuel.
Table 5: Carbon-tax exemptions and
reductions
* Source: Fiscal Expenditure Budget, SHCP. Figure for 2016
is estimated up to October only.
Fuel
CO2 excise tax
Cents per volume or weight unit Equivalent US$ per ton of CO2
Gasolines 10.4 /litre 10.8 por litro
Diesel 12.6 l/itre 13.1 por litro
Natural Gas 0.000 por m3 0.000 por m3
LPG
5.9 - 7.7
por litro
6.1 - 8.0
por litro
Turbosine 12.4 por litro 12.9 por litro
Fuel Oil 13.5 por litro 14.0 por litro
Coke 15.6 por Kg 16.2 por kg
Coal 23.9 por Kg 28.7 por kg
Average annual revenue
collected:
US$ 1.0 thousand
million

31. Regional tax benefits
31
Objective
Avoid economic arbitrage in gasoline consumption in the
Mexico-US border
Legal Basis Presidential decree published each year.
Effect on revenues
(million dollars)
2013 2014 2015 2016
81 289 705 512
Recent
developments
From 2016 onwards only the general excise tax can be reduced
to close the price gap across borders. VAT, carbon-tax and
other taxes must always be applied.
Outlook
There are no plans at present for fundamental changes to this
arrangement.
Table 6: Tax benefit for gasoline consumption in the northern border
* Source: Fiscal Expenditure Budget, SHCP. Figure for 2016 is an estimation given future reference prices at time of reporting.
The policy rationale is to reduce price difference gap (if any) with border cities, to
avoid arbitrage and any related economic disruption.

32. tax benefits for Upstream Fossil fuel industry
32
Objective: Foster investment in the Mexican E&P sector.
Legal Basis Ley de Ingresos sobre Hidrocarburos
Effect on revenues
(estimated, million dollars)
2013 2014 2015 2016
0 0 0 0
Recent developments
No provision has been made to eliminate the treatment, as any
benefit accrued to contractors would be reflected in the bids
offered in the licensing rounds and hence on the fiscal terms..
Outlook No change in policy expected.
Table 7: Specific provisions for hydrocarbons
producers
* Source: Fiscal Expenditure Budget, SHCP
Special tax treatment in the Hydrocarbons Revenue Law:
• An exploration and production company can consolidate results across different contracts for
corporate income tax (CIT) purposes.
• For CIT purposes, an accelerated depreciation is provided : 100% depreciation rate for exploration
investments and 25% for wells.
• For deep-water projects, contractors are allowed to carry forward losses for up to 15 years (the
general treatment is ten years).

33. 33
LPG in Mexico, subsidies,
liberalization and targeted support

34. LPG: Eliminating subsidies, only if targeted support
34
• In 2016 liberalizing LPG imports. Until 2015 Pemex was sole producer, importer.
• In 2017, liberalization of prices. Could be done beforehand in 2016, “conditional on
targeted support for consumers”.
2016 2017 20182015
Liberalize private
sector imports
Liberalize consumer
prices
Liberalize price to
consumers only if
targeted support is in
place
• At any point in time, federal government retains the right to establish maximum
prices if Federal Competition Commission detrmines that there is not enough
competition in the national or regional markets.

35. A decade of fossil fuel subsidies for LPG
35
• LPG consumers in Mexico had enjoyed significant subsidies for almost a decade.
PEMEX as sole producer and importer allowed total control over pricing policy.
Social relevance and high weight in consumer index, made stable prices a policy
priority, and choice, for 3 administrations.
• Small but steady price increases sought to close a growing gap. It only stopped
whenever intnt prices dropped. In this context Mexico’s Energy Reform proposed
liberalization, gradual liberalization.
6
8
10
12
14
16
18
an-05
ay-05
ep-05
an-06
ay-06
ep-06
an-07
ay-07
ep-07
an-08
ay-08
ep-08
an-09
ay-09
ep-09
an-10
ay-10
ep-10
an-11
ay-11
ep-11
an-12
ay-12
ep-12
an-13
ay-13
ep-13
an-14
ay-14
ep-14
an-15
ay-15
ep-15
an-16
ay-16
ep-16
MX$/liter
LPG, domestic price
Estimado
LPG Intnl price
Total Subsidy
2003 - 2014 =
US$ 9.1 billion

36. How to liberalize and protect poorer households?
36
• Keeping prices stable and below international prices transferred significant amount
of subsidies to all consumers. Liberalization of prices in 2017 would either
eliminate or require subsidies to be explicit.
• As in most cases in energy consumption, higher income households consume more
energy –directly and indirectly- so they receive the greatest transfers.
610 641 666 673 715 751 815 875
981
1,306
826
689 724 752 759 807 847 920 987
1,107
1,473
932
0
500
1000
1500
2000
I II III IV V VI VII VIII IX X Prom
($)pesosmexicanos
Decil
Gasto antes ($) Gasto después ($)
• Having small steady price increases were a politically acceptable way to
reduce the ammount of subsidies.
• Providing targetted subsidies to the lowest quintile of the population would
avoid a negative shock to those living in poverty, while allowing the new
market to operate with a stronger fiscal situation.

37. Falling international fossil fuel prices made it unnecesary
37
• Currently domestic price is 34% above international reference prices (PEMEX opportunity
costs). Moreover, Federal Revenue Law would allow a price increase of 3% in 2016. Given
LPG future prices this would mean a surplus of more than 1.6 billion dollars in 2016.
• Opening imports would allow the market to work pushing down prices to their efficiency
levels. Given the oligopolistic structure of LPG markets, competition policy must activel and
ready for intervention.
6
8
10
12
14
16
18
Jan-05
May-05
Sep-05
Jan-06
May-06
Sep-06
Jan-07
May-07
Sep-07
Jan-08
May-08
Sep-08
Jan-09
May-09
Sep-09
Jan-10
May-10
Sep-10
Jan-11
May-11
Sep-11
Jan-12
May-12
Sep-12
Jan-13
May-13
Sep-13
Jan-14
May-14
Sep-14
Jan-15
May-15
Sep-15
Jan-16
May-16
Sep-16
MX$/liter
LPG, domestic price
LPG Intnl price

38. Conclusion
38
• In México, both the Executive and Legislative actively proposed liberalization of LPG prices
but only conditional on having a targetted support system in place.
• The evolution of international markets made it unnecessary, but the mandate was in place if
needed. The potential scheme provided certainty in the transition, including focusing
subsidies on those that most needed.
• Lesson for other economies: politically feasible, best way to ensure action is taken. Fiscally
responsible.