Carbon finance includes the exchange of contracts for the sale and purchase of securities to reduce emissions of greenhouse gases (GHG) in markets established by the Kyoto Protocol. This is done in order to help developing countries significantly reduce such gases with the support of developed countries, in an equitable and transparent manner. Globally, it is trying to transform the current economic model, towards a non-renewable energy model that takes into account climate change and is more environmentally responsible. It also seeks to promote energy efficiency, efficient use of nonrenewable resources and sustainable consumption.
This model is not about taxing GHG emissions, since taxation depends on each country, what this model strives to develop is an efficient market exchange of emission allowances to offset such emissions. A carbon credit system provides economic incentives for businesses that contribute to improving the quality of the environment, considering the right to emit GHG as interchangeable and following a price dictated by the market. This system benefits companies that do not emit, or emit very little, and charges those that emit more than permitted. These securities are primarily emission permits, allocated by countries to companies to produce GHG when a set limit is exceeded, emission reduction certificates issued for specific projects and voluntary reduction certificates. This market also seeks to channel financial resources to enable the implementation of technologies that mitigate the impact on the environment and that the credits, created by emission reduction, are marketed and allow those who buy them to achieve reduction obligations.
Following the new carbon tax, which came into effect this year in Mexico, companies can pay this obligation through carbon credits or by emission reduction certificates. The current tax reform provides the option to choose how to pay for this tax. Clear rules are not yet established that would facilitate this process, as well as regulations to promote and drive the carbon market in our country; the basis has been established but secondary legislation is required to be issued shortly. It is estimated that just fewer than 40% of companies in Mexico is aware of this tax.
It is worth nothing that this stimulus is not only aimed at companies listed on the Stock Market, public officials and civil organizations can benefit from it as well. For this reason, the Mexican Stock Exchange established a platform dubbed MexiCo2 market for the sole purpose of trading carbon credits, in which titles will be exchanged on a voluntary basis. This platform allows those companies that issue pollutants to acquire tradable certificates through an electronic program. At the same time, it allows investors to promote environmental projects that help reduce climate change in relation to renewable energy, forestry, public and private transport, methane creation and energy efficiency.
Furthermore, it is important to recognize that carbon certificates will diversify in the future, which will set the tone to be an affordable option for a greater number of companies. Our country is the first in Latin America with a carbon market incorporated into a stock exchange, which is a great advantage, since it has the technical and institutional support of the subsidiaries of the Mexican Stock Market. The aforementioned comes as a great opportunity for Mexico to take the lead over other Latin America countries when in comes to transfer technology and new production processes.
In addition to a carbon market in Mexico, I believe that it is necessary to promote a more integrative initiative, both at government and private level, which encourages businesses and consumers to adopt more energy efficient practices. It requires many more initiatives and investment, as well as a social and cultural change that encourages energy responsibility in the economic affairs of our country, lead by our financial institutions, businesses, government, and educational institutions who ought to stimulate new ways of meeting the challenges of climate change and its socio-economic consequences.