OPIS Insights

Mexican states closed out 2025 with a wave of amendments to local revenue laws and tax legislation reshaped subnational carbon pricing for 2026. 

The updated rules and tax rates adopted in Colima, Mexico City, Morelos, Querétaro, Tamaulipas and San Luis Potosí underscore the complexity of how local governments in Mexico are grappling with the challenge of balancing fiscal needs, environmental objectives and industrial competitiveness.

A key observation is that these changes appear to be aimed at easing pressure on regulated entities, yet each state has pursued a markedly different policy path – ranging from the introduction of flexibility mechanisms that strengthen carbon markets, to outright rollbacks of tax rates or the expansion of temporary exemptions.

In addition, all carbon tax rates in Mexico that are calculated based on the Update and Measurement Unit (UMA) – Querétaro, Colima, Tamaulipas, Yucatán, Morelos and San Luis Potosí – are now adjusted upward by approximately 3.7%, reflecting the inflation-linked nature of this economic unit. 

The updated rates are as follows:

• State of Mexico: MXN 58 (USD 3.2)
• Mexico City: MXN 60 (USD 3.3)
• Durango: MXN 100 (USD 5.5)
• Guanajuato: MXN 100 (USD 5.5)
• San Luis Potosí: MXN 339.4 (USD 18.8) with the applicable reductions, 2026 rates fall to MXN 117.3 and as low as MXN 5.8.
• Morelos: MXN 103.2 (USD 5.7)
• Zacatecas: MXN 250 (USD 13.9)
• Yucatán: MXN 316.7 (USD 17.6)
• Tamaulipas: MXN 351.9 (USD 19.5)
• Colima: MXN 586.5 (USD 32.6)
• Querétaro: MXN 692 (USD 38.5)

Colima Set Rules for Carbon Offsets

Under the Finance Act of the State of Colima, all facilities with stationary sources that emit GHGs are subject to the state carbon tax, locally known as the “Ecological Tax.” While the law anticipated flexibility mechanisms, these were only formally defined with the publication of the Agreement Establishing the General Rules for Obtaining the Low-Carbon Label and the Foundations of the Emissions Offset System of the State of Colima on Dec. 26, 2025, .

With this agreement, Colima rules its Low-Carbon Label program designed to recognize decarbonization efforts by CO₂-emitting facilities that voluntarily participate, while also providing concrete avenues for reducing tax liabilities through carbon offsets. 

The agreement introduces two primary mechanisms for facilities to reduce their tax liability:

• Direct Emissions Reduction (SBC-COL1): Facilities can secure a 15% reduction in their taxable base by demonstrating a permanent, verifiable reduction of at least 20% in production emissions compared to the previous year. Due to the requirement for year-over-year data, this mechanism will officially become available in 2027.
• Emissions Offsetting (SBC-COL2): Facilities may offset up to 50% of their emissions by acquiring Emission Reduction Certificates (CERs), issued from 2021 onward, from projects registered in the State Emissions Compensation System (SECS).

Qualifying projects under SBC-COL2,  must not originate from activities mandated by law and must fall within the following sectors and subsectors:

1. Mexican Projects

• Agriculture: sustainable agriculture, regenerative agriculture and improved agricultural land management.
• Forestry: improved forest management, afforestation/reforestation, urban forests, silvopastoral systems, restoration, agroforestry systems, soil carbon and blue carbon.
• Waste Management: landfills, landfill methane, composting, methane recovery from wastewater and biochar.
• Sustainable Livestock: methane in livestock farming.
• Transport: bus rapid transit, high-speed passenger rail, public transport, modal shift to non-motorized transport and electric transport.
• Residential, Commercial, and Industrial: solar energy (all forms), biogas, improved cookstoves, industrial processes.
• Renewable electricity and energy efficiency: energy efficiency

2. International Projects

• Agriculture: sustainable agriculture, regenerative agriculture and improved agricultural land management.
• Forestry: improved forest management, afforestation/reforestation, urban forests, silvopastoral systems, restoration, agroforestry systems, soil carbon and blue carbon.
• Waste Management: landfills, landfill methane, composting, methane recovery from wastewater and biochar.
• Sustainable Livestock: methane in livestock farming.

While international projects are allowed, the state has set a clear path toward increased investment in Mexican projects over time. Facilities may offset 2025 emissions with CERs from projects in Mexico and the rest of Latin America and the Caribbean, at the discretion of the facility. However, starting for 2026 emissions, at least 50% of offsets must originate from Mexican projects, a requirement that scales to 70% by 2030.

Accepted certification standards include Clean Development Mechanism (CDM), Climate Action Reserve (CAR), Verra, Gold Standard, BioCarbon, CERCARBONO and any other standard authorized by the Environment and Sustainable Development Institute (IMADES).

IMADES is also the local authority responsible for validating and registering emission reduction projects in the SECS, as well as authorizing the issuance of Low-Carbon Labels.

Project registration will be open annually from Jan. 1 to Jan. 31, with the possibility of reopening during the year if determined by the competent authority. Facilities will have until the end of February to apply for a carbon label.

Despite its relatively small market size, Colima’s new legislation is likely to increase demand for carbon credits in Latin America. More importantly, it strengthens local carbon market infrastructure and prepares domestic players to participate more effectively in international carbon markets. 

Mexico City: Tax Rate Update

Within the group of jurisdictions that define their carbon tax rate in pesos rather than UMAs are Mexico City, the State of Mexico, Durango, Guanajuato and Zacatecas. 

In this context, Mexico City has opted for a straightforward rate adjustment. An amendment to the Tax Code published on Dec. 19, 2025, updated the “Tax on Emissions of Polluting Gases into the Atmosphere.” The reform increased the specific tax rate from MXN 58 (USD 3.2) per metric ton of CO₂ equivalent to MXN 60 per mtCO₂e. The increase is modest, although consistent with the inflation rate. The city’s government anticipates revenues of MXN 62.3 million in 2026, targeting approximately one million mtCO₂e.

Morelos: A Step Backward for Competitiveness?

In contrast to Mexico City, Morelos presents a case of policy softening. Originally, the state’s Finance Act imposed a high rate of MXN 250 per mtCO₂e. However, throughout 2025, a 60% subsidy effectively lowered this to MXN 150.

For the 2026 cycle, despite an initial proposal to hike the tax to MXN 475, the state government ultimately reversed course. With the amendment, the rate was slashed to 0.88 UMA (approximately MXN 103.2). This reduction highlights the ongoing tension between climate policy and corporate interests, as the administration cited the need to protect local company competitiveness while evaluating the tax’s actual efficacy in driving down emissions.

Morelos stands out as a significant outlier: the decision to reduce its carbon tax rate by nearly 50% represents a major setback for carbon pricing policy in this state and substantially weakens the environmental signal of the tax.

San Luis Potosí: Incentivizing Compliance

San Luis Potosí published an agreement to continue using a tiered incentive structure to manage its carbon tax. While the tax rate is set at 3 UMAs, the government extended significant relief measures through 2026. New businesses remain exempt for their first year of operation, while existing businesses benefit from a regressive rate scale:

• Up to 25 mtCO2e/month: Full exemption.
• 26 to 50,000 mtCO2e/year: 1.0 UMA (MXN 113.14) per mtCO2e.
• 50,001 to 100,000 mtCO2e/year: 0.5 UMA per mtCO2e.
• 100,001 to 500,000 mtCO2e/year: 0.20 UMA per mtCO2e.
• Over 500,000 mtCO2e/year: 0.05 UMA per mtCO2e.

Furthermore, the state rewards broader corporate responsibility, offering a 30% tax reduction for businesses holding “Clean Industry” or “Socially Responsible Company” certifications.

Querétaro: Strengthens its Low Carbon Label Program

Querétaro’s well-established Low Carbon Label Program has been strengthened through recent regulatory updates. 

The new regulation creates a new label, SQRO-4, focused on efficiency in self-consumption. This label will be granted to facilities that generate or cogenerate electricity for self-consumption using fossil-fuel-based processes, provided they can demonstrate an emissions factor lower than that of the National Electric System, thereby contributing to the reduction of indirect emissions associated with electricity consumption. 

Notably, it establishes that Querétaro will recognize all transactions carried out under the national emissions trading system (ETS), including the use of carbon offsets, as long as these offsets originate under an international standard and are registered in a public registry. 

Regarding offset projects, the regulation maintains the acceptance of projects related to Nature-Based Solutions, including forest conservation and sustainable livestock activities, as well as Technology-Based Solutions that include waste management and energy projects. 

However, the previous equivalence between project types to account for tax compensation under the local system has been eliminated. Now, the regulation mentions that while there is available supply of Nature-Based Solutions projects within the territory of the state of Querétaro, at least 25% of offsets must come from these sectors; likewise, while there is supply of Technology-Based Solutions projects within the state, offsets must also originate from this sector. 

Organizations may use eligible projects elsewhere in the national territory only after local project priorities have been met, clearly excluding the acceptance of international projects. The GHG CleanProjects Registry has also been incorporated as an accepted certification standard. 

The regulation also formally establishes a project registration window for the state compensation system from Nov. 16 to Dec. 15, 2026, strengthens monitoring by requiring semiannual – rather than annual – reporting and maintains the maximum offsetting limits at 20% of emissions, or up to 50% for emissions-intensive industries, subject to prior evaluation by the Secretariat of Sustainable Development. Additionally, the state published an agreement granting tax relief for early payment of obligations.

Tamaulipas: Efficiency or Uncertainty?

Under the current Tax Law, Tamaulipas mandates a tax on the emission of GHG and Compounds to the Atmosphere, also known as a carbon tax. To provide some flexibility, the law provides three distinct pathways for regulated entities to reduce their tax liabilities: (1) by proving a reduction of 20% yearly emissions; (2) through the acquisition of certified emission reductions to offset footprint; and (3) by demonstrating full carbon neutrality.

Previously, the law required companies to validate these efforts through a Low-Carbon Label (LCL) and mandated the Ministry of Urban Development and Environment to establish the operational rules for this mechanism.

The recent reform to the Tamaulipas State Tax Law, effective for 2026, removed the LCL requirement to access the carbon tax reduction incentives. While the move may reduce bureaucratic hurdles for regulated entities, it simultaneously creates a significant regulatory vacuum. Unlike other Mexican states with robust LCL frameworks, Tamaulipas now lacks a formal mechanism to certify the origin, quality, and standards of the offsets used by industry.

This lack of procedural clarity introduces substantial legal and financial uncertainty for companies. Without an assigned authority to authorize certified reductions or a list of accepted methodologies, the path to accessing this flexibility mechanism remains ambiguous. The government’s move toward administrative simplification must be accompanied by clear technical guidelines. Defining the rules for eligibility is essential to ensure that carbon compensation is both transparent and scientifically rigorous, without the risk of creating controversies in national emissions inventories.

More Fragmentation Ahead

The divergence between states such as Colima and Morelos highlights the absence of national harmonization in subnational carbon pricing.

This wave of amendments lacked provisions acknowledging the forthcoming national ETS that addressed potential legal conflicts, paving the way for a smoother integration of subnational taxes with the federal carbon market. Apparently, several jurisdictions appear to be adopting a wait-and-see approach, delaying more ambitious reforms until federal carbon market legislation is formally published. In this context, it is notable that the carbon tax initiatives in Puebla, Tabasco and Coahuila failed to move forward.

Another missing thread in the annual amendments was the upward adjustments tied to inflation to those tax rates not based on the UMA, which still need an adjustment through legal reforms. 

Looking forward, we can expect more fragmentation across Mexico’s state-level carbon taxes, while the federal regulation of the national ETS keeps lagging. The current trajectory suggests that Mexican authorities remain overly condescending toward industry in the design of decarbonization obligations. Without stronger and more coordinated policy signals, the effectiveness of state-level carbon taxes as tools for driving meaningful emissions reductions will remain limited.