Mexico has started a number ofefforts to develop adequate policy frameworks in severalareas including the energy sector, transportation andindustrial policies, and forestry and natural resourcesmanagement.Its Climate Change Law and the NationalStrategy on Climate Change envision is changing the upwardtrend of its carbon dioxide emissions towards a totaldecline of emission of thirty percent by 2020, and fiftypercent by 2050.Achieving these ambitious policy goals ischallenging for the country and will require many distinctefforts to mainstream climate change in policy design.Careful economic analysis will be critical to effectivelyreduce emissions while allowing for sustainable development.The policy evaluated in the study is part of Mexico'spolicy framework to promote renewable energy.The Ministryof Energy in Mexico, SENER, has issued a Methodology toincorporate external costs of electricity generation.Whileexternal costs are not privative of fossil energy, theMexican government has started this process by focusing onthe external costs on health and climate change, two of themain impacts of energy use.The study analyzes thepotential of this new policy to help Mexico in its energyand environmental goals.It is organized into fivechapters: (i) Introduction; (ii) Mexico s Policy Context forIncorporating Externalities; (iii) Valuation ofExternalities; (iv) Internalizing Externalities; and (v)Conclusion.Included are four annexes: Method to ValueExternalities for Mexico's Electricity Generation;Investment Plan in the Power Sector in Mexico; ModelingFramework and Methodology; and Project Valuation withEnvironmental Externalities.
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