Ruling on the constitutionality of state “green taxes” in Zacatecas

On December 31, 2016, the State of Zacatecas, Mexico published its 2017 Treasury Bill, Expenditure Bill and Revenue Bill. The Treasury Bill established a tax on greenhouse gas emissions (GHG) produced by stationary sources. A corporation dedicated to beer production sued the state legislature, challenging the constitutionality of the Treasury Bill of the State of Zacatecas. Specifically, the corporation argued that the State of Zacatecas was invading the national Congress’s powers by introducing the tax. On October 31, 2017, the Second District Judge in the State of Zacatecas agreed that state authorities could not tax GHG emissions without overstepping on Congress’s power. Particularly, the judge pointed to the fact that the Mexican Constitution reserves imposition of taxes on beers to federal authorities. Thus, it declared the taxes unconstitutional. State authorities appealed the decision to the appellate Collegiate Tribunal, and the Collegiate Tribunal sent the case to the Supreme Court for review. On February 20, 2020, the Supreme Court concluded that States were not prevented from implementing taxes on GHG emissions since, as a general rule, Federal and State authorities have joint powers to establish taxes unless the Mexican Constitution reserves a specific area to the federation. The Court noted that the tax on GHG emissions under analysis was not a tax on beer production but rather on the emission, deposition, or storage of substances in the atmosphere. The Court also noted that the State had acted pursuant to its responsibilities under Mexico’s General Law on Ecologic Equilibrium and Environment Protection and the General Law on Climate Change. Responding to other arguments from the corporation, the Court noted that the tax intended to force polluters to internalize the costs of their GHG emitting activities, and this was a valid implementation of the “polluter pays principle.” The Court also dismissed the corporation’s argument that the UNFCCC only called developed countries to take action on GHG emissions. In this sense, the Court noted that Mexican authorities have a duty to address the effects of climate change. Finally, the Court dismissed the argument that the tax was arbitrary since it only applied to GHG emissions and not to other gas emissions that also pollute the atmosphere. To do so, the Court carried out a proportionality analysis to conclude that the distinction made by the State was justified.