Mexico clings on to fossil fuels

Mexico clings on to fossil fuels

The Mexican government’s actions have a direct impact on the commitments made to increase the presence of renewable sources in the energy mix and, ultimately, to decarbonise the country’s economy. This 2010 image, taken in the Gulf of Mexico, is of Centenario, a deep-water oil extraction platform operated by Petróleos Mexicanos (PEMEX).

(Prometeo Lucero)
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This article has been translated from Spanish.

Mexico is reluctant to part with fossil fuels. President Andrés Manuel López Obrador’s energy strategy is firmly committed to new hydrocarbon projects and the generation of dirty energy, to the detriment of renewable sources such as wind and solar power.

López Obrador has launched a crusade against private companies in the renewables sector, which he accuses of making millions in profits, in cahoots with previous governments, at the expense of the two main state companies in the sector, oil company Petróleos Mexicanos (Pemex) and electricity company Comisión Federal de Electricidad (CFE).

“We need to strengthen Pemex and the CFE, we need to rescue them, because deliberate moves have been taken to destroy them, so that the energy market could be left in the hands of private, national and above all foreign companies,” the Mexican president said in February 2021.

López Obrador considers clean energy to be a pretext used by previous administrations to hand out subsidies to private companies. His actions, moreover, suggest a total lack of concern for climate change. At the Leaders’ Summit on Climate, at the end of April, the Mexican president avoided any kind of commitment to emissions reductions. Instead, he announced the discovery by Pemex of three large oilfields that will allow Mexico to meet its domestic demand. The president is convinced that this will put an end to the current practice of having to export Mexico’s heavy crude oil to be refined abroad, mainly in the United States, and to buy fuel.

Full brakes on clean energy

López Obrador’s main energy initiatives for his six-year term, which began in December 2018, are to strengthen Pemex, which has become a money-losing machine in recent years, to build an oil refinery in Tabasco, his home state, and to reform the electricity sector to give priority to energy generated by CFE plants, which is more expensive and more polluting than renewables.

The Dos Bocas refinery, the president’s flagship project, has been allocated initial funding of US$8.9 billion (some €7.34 billion), although Pemex has warned that the work is behind schedule – it was due to start operating in June 2022 – and that US$3.5 billion (some €2.89 billion) more than budgeted will be needed.

For Luis Zambrano, a researcher at the Institute of Biology at the Autonomous University of Mexico (UNAM), López Obrador is pursuing a “nationalist” energy policy based on oil because his way of thinking remains anchored in the 1970s, the glory years for Pemex and the hydrocarbon industry.

“The world is shifting to other forms of energy generation for the obvious reason of climate change, but the president comes from a big oil-producing state, Tabasco, which reaped the benefits of oil for many decades, and he brings with him the political culture of the 1970s and 1980s, when oil was the lynchpin of the Mexican economy,” Zambrano tells Equal Times.

The Mexican government’s actions have a direct impact on the commitments made to increase the presence of renewable sources in the energy mix and, ultimately, to decarbonise the country’s economy, the second largest in Latin America after Brazil.

The Energy Transition Law was enacted under the previous administration of Enrique Peña Nieto, in December 2015. It set out an ambitious roadmap: by 2024, 35 per cent of the energy consumed and produced in the country should come from clean sources, including hydroelectric and nuclear power plants.

Last year, 25.48 per cent of Mexico’s electricity was produced by clean energy, but there has been a downward trend since López Obrador came into office, and any hopes of reaching 35 per cent within just three more years is a pipe dream, according to Daniel Chacón, energy director for the Mexican Climate Initiative (ICM).

“If you don’t at least have decarbonised electricity, it’s going to be very difficult to decarbonise everything else. López Obrador’s proposed amendments to the Electricity Industry Law represent a real step backwards,” Chacón tells Equal Times.

According to a study by the ICM, if implemented, the president’s proposed reform – currently blocked by the courts – will mean that clean energy sources will only represent 22 per cent of the total in 2030.

Mexico is also unlikely to meet the commitment, made under the Paris Agreement on climate change, to reduce carbon dioxide emissions by 22 per cent by the end of the decade.

“What already seemed unviable before is even less feasible now that we’re headed in the wrong direction. These agreements are toothless, and it is of little consequence whether Mexico fulfils them or not: López Obrador doesn’t care about the environment or international relations,” says Zambrano.

The controversial electricity law reform

López Obrador’s latest battle to resuscitate the state-owned electricity company is a controversial legislative reform approved and dispatched in record time in the Mexican Congress, where the president’s party holds a majority.

The Electricity Industry Law reform is an overhaul of the energy sector that gives the CFE a leading role in the power generation sector and pushes private renewable energy companies into the background.

The project seeks to bury the 2013 energy reform that opened the electricity generation market, allowing private renewable energy companies to sell energy to the CFE, which has a monopoly on transmission and distribution. This was done through the mechanism of long-term auctions, whereby the CFE was obliged to buy the cheapest energy for the end consumer, which was often generated by wind and solar plants owned by foreign companies. The 2013 reform relegated the CFE and its old, polluting power plants to the role of mere spectator.

In February 2019, López Obrador’s government sent out a clear warning, on cancelling the fourth electricity auction, although the real blow came with the law passed in March of this year to change the pecking order of the energy that is dispatched, giving preference to that produced by the CFE’s plants.

The government’s plan is for the CFE’s hydroelectric plants to be the first to send their power into the electricity grid, followed by its nuclear, geothermal, combined cycle and thermoelectric plants. Second in line are the small power producers operating combined cycle plants, followed by wind and solar plants owned by private companies.

“The CFE plants started to grind to a halt because they were left out of the market, on economic grounds, so the government comes along and imposes the inclusion of these plants in the dispatch of electricity. “They’re trying to change the rules of the game,” explains Chacón of the ICM.

The reaction to López Obrador’s controversial plan was instantaneous. Dozens of private companies in the renewables sector filed injunctions against the new law, and several federal judges issued definitive suspensions just after the law was published in the Official Federation Gazette (which contains information about new laws and legal reforms), pending a judicial ruling regarding its constitutionality.

The director of a foreign solar energy company operating in Mexico, who wishes to remain anonymous, sees the law as a rule change in the middle of the game. “The banks don’t want to lend money until this is resolved. No one is investing in renewables at the moment. There’s a lot of uncertainty,” he comments.

The executive warns that small and medium-sized companies “are not going to waste any more time” trying to invest in Mexico and will direct their efforts towards more attractive countries with greater political and legal certainty, such as Spain or Colombia, where renewables are advancing at full throttle.

The legal actions and complaints have not only come from the corporate world. At the beginning of April, a group of opposition senators filed an injunction against the reform on the grounds that it violates free market rules and international treaties.

Similarly, the US Chamber of Commerce warned that López Obrador’s reform represents a breach of the United States-Mexico-Canada Agreement (USMCA), as the free trade agreement prohibits governments from favouring state-owned companies.

Observers are dumbfounded by López Obrador’s fixation on oil and polluting energies, given Mexico’s huge renewables potential. Jeffrey Sachs, a Harvard professor and president of the UN Sustainable Development Solutions Network, recently underlined that the country could produce enough solar energy to cover its own consumption and that of the United States.

Mexico’s northern states are ideal for solar plants because of their practically all-year-round clear skies, whilst states such as Oaxaca, Tamaulipas, Baja California and Coahuila enjoy wind currents that make them prime locations for wind energy projects.

Despite this wide array of possibilities, the outlook is uncertain for the present and the future of renewables in Mexico. López Obrador is not giving in and seems willing to defend Pemex and the CFE till the bitter end, under the banner of a nationalist energy policy that postpones the country’s decarbonisation and threatens to erase the efforts of recent years with the stroke of a pen.