Environmental Policy Analysis

PEMEX's exploration and production activities in the state of Tabasco, Mexico, are believed to have caused significant ecological damage, including water pollution. Three main sets of policies regulate PEMEX's water pollution in Tabasco: liability rules, an effluent tax, and regulation. First, PEMEX pays compensation to the victims of the ecological damage caused by its operations, including water pollution. Second, the Mexican Official Standards represent a set of physical, chemical, and biological parameters and their permissible levels in wastewater discharges. Finally, combined with the Mexican Official Standards, environmental agencies apply an effluent tax for water quality management, with rates established annually. However, the current levels of PEMEX's pollution in Tabasco suggest that the instruments are failing to achieve the internalization of the externalities. The study follows a conceptual framework to identify conditions for success for liability rules, taxes, and regulation regarding their potential for internalizing PEMEX's water pollution. The study relies mainly on media analysis, key informant interviews, and secondary data sources. The study found that liability rules, taxes, and regulation are implemented ineffectively to achieve significant emission reductions. Policy changes are required to improve the effectiveness of liability rules, taxes, and regulation in order to achieve significant improvement in PEMEX's water pollution in Tabasco, Mexico.