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Mexico’s new president and energy reform

After choosing a new president on July 1st, Mexico must now decide whether to use its Energy Transition Law to transition away from fossil fuels towards renewables. Español

Mexican president Andrés Manuel López Obrador (image: Cierre de Campaña). All Rights Reserved.

It is the stuff of legend in Mexico: In 1938, president Lázaro Cárdenas nationalised US and Anglo-Dutch oil companies and called on Mexicans to “furnish the necessary moral and material support” to pay the debt that newly-created Petróleos Mexicanos (Pemex) had acquired.

Thousands of Mexicans, inspired but unsure quite how to support the new venture, queued up outside the presidential palace with donations ranging from chickens to jewellery.

Eighty years later, as Mexico elected a new president on Sunday, it is in the process of reforming its energy sector, opening it up to foreign investment following congressional approval of the Energy Transition Law in 2014.

After choosing a new president, now the country must also decide whether to use the process, which has attracted billions of dollars in foreign investment, to transition away from fossil fuels towards renewables. 

A new wave of resource nationalism comes as Mexico develops new international partnerships, including with China. Chinese companies won big in both fossil fuel and renewable energy auctions. 

Meanwhile, the issue of who controls Mexico’s natural resources remains a divisive and emotional one. “My vote will be for whoever makes a public commitment to reverse the constitutional reforms on energy”, prominent politician Cuauhtémoc Cárdenas, Lázaro Cárdenas’ grandson, said last month. 

A new wave of resource nationalism comes as Mexico develops new international partnerships, including with China. Chinese companies won big in both fossil fuel and renewable energy auctions. 

Will the new president of Mexico, a country with a reputation for acting swiftly in the international climate change arena, embrace the opportunity to take Mexico down a more sustainable development path?

Mixed messages 

Not even Andrés Manuel López Obrador (AMLO), who won by a landslide, is likely to heed Cárdenas’ call for re-nationalisation. He has pledged not to halt the reform. He has said that there may be a larger role for the State in the oil sector under his watch, but no new expropriations.

The former mayor of Mexico City’s position on climate change is less clear. He has pledged to “accelerate the energy transition” but at the same time to “rehabilitate thermoelectric power plants”.

“AMLO, as all the other candidates, has put environment last”, says Yolanda Trápaga, a researcher at Mexico’s National Autonomous University (UNAM). She adds that he now finds himself facing an environmentally “devastated” country as a result of open-pit mining and badly-managed infrastructure projects.

AMLO’s team has exciting ideas about getting people involved at the community level in renewable energy projects.

Trápaga suggests that AMLO’s eventual stance on environment will depend on his team. David Shields, an energy consultant based in Mexico City, told the Latin America Energy Advisor that AMLO’s team has “exciting ideas about getting people involved at the community level in renewable energy projects”.

These are part of a more holistic development policy that integrates jobs, health, education and the environment, he said. 

Javier Flores Durón Lizoala, director for North America, Europe and Asia, at Mexico’s energy ministry (SENER), says that Mexico is already working with international partners to foster the development and deployment of clean technologies.

These partners include Denmark, Germany, France, the US and the UK, and multilateral forums such as NAFTA.

Mexico also recently signed agreements with China on developing small hydropower plants through the exchange of information and experts, Javier Flores Durón adds.

New China partnerships

The energy auction has offered an entry point into Mexico for China, in the wake of strained relations following the cancellation of two major projects. Chinese company Jinko Solar won contracts for two solar projects in the states of Jalisco and Yucatán, which will generate a combined 170 megawatts.

Buying Chinese technology could assist Mexico’s environmental objectives, which include reaching 35% generation from “clean” sources by 2030.

Chinese Envision Energy International, in consortium with the Mexican company Vive Energía, won the first two auctions and will develop two wind farms in Yucatan.

Trápaga says that buying Chinese technology could assist Mexico’s environmental objectives, which include reaching 35% generation from “clean” sources by 2030.

However, she doesn’t believe that the energy reform offers opportunities for China to support sustainable development as long as the country’s vision for development is based on extractive industries and infrastructure building. The country’s “grow first, protect the environment later” approach is also a problem.

Furthermore, investment in renewables pales in comparison to hydrocarbons, which has attracted around 150 billion dollars.

The opportunity to participate in Mexico’s oil sector for the first time in nearly 80 years brought companies from all over the world, including China National Offshore Oil Corporation (CNOOC), which won two significant blocks in early auctions.

Tabaré A. Currás, honorary member of the Climate Change & Renewable Energy Commission at World Peace Builders, recently told the Latin America Advisor that the election of a new president is an opportunity to move Mexico in a new direction.

The World Bank Group’s International Finance Corporation (IFC) estimates that Mexico represents a 75 billion dollars opportunity for renewable energy investors between now and 2030.

“Mexico’s fossil-based economy must transition faster to a decarbonised energy paradigm, one that would surely bring about positive results to all stakeholders”, he said. 

The World Bank Group’s International Finance Corporation (IFC) estimates that Mexico represents a 75 billion dollars opportunity for renewable energy investors between now and 2030. Of all Latin American countries, only Brazil has greater potential, according to an IFC report on “climate-smart” investment in the region.

Renewables prices tumble 

By the time AMLO completes his 6-year term, the way the world generates and stores energy may have changed dramatically. Most parts of the world will generate electricity from wind and solar cheaper than they will from coal by 2023, according to a recent report by Bloomberg Energy Finance (BNEF).

The drop in cost is in part attributable to falling prices for lithium batteries, an increasingly popular method of storing energy, but is also driven by cheaper Chinese manufacturing of renewable technologies. 

“The economic case for building new coal and gas capacity is crumbling”, says Elena Giannakopoulou, head of energy economics at BNEF. 

According to Lisa Viscidi, director of the energy program at US think-tank Inter-American Dialogue, Mexico’s leadership in international climate talks – it was the first developing country to submit a climate plan to the UN – is ahead of renewable energy generation.

Mexico generates less than a quarter of its energy from renewables, according to the International Energy Agency, well below the Latin America average of 50%.

However, the reform process’ creation of a wholesale energy market and a system of issuing clean energy certificates is promising for renewables growth, Viscidi told the Advisor: “Energy reform has created a strong framework and important incentives to increase renewable energy in Mexico”.

This article was previously published by Dialogo Chino.

About the author

Robert Soutar is Managing Editor of Diálogo Chino, based in London. He holds an MSc in Comparative Politics (Latin America) and a BA in Hispanic Studies.

Robert Soutar es editor de Diálogo Chino, sediado en Londres. Ha obteniedo un MSc en Comparative Politics (América Latina) y un BA en Hispanic Studies.

Robert Soutar é editor do DIálogo Chino, com sede em Londres. Obteve um MSc em Comparative Politics (América Latina) e uma BA em Hispanic Studies.


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