Mexico has been a frontrunner at the UNFCCC and it supports the climate and energy agenda of the German G20 presidency. At the national stage, however, despite considerable progress, not all signs point yet to climate-compatible transformation of the country. In face of the US withdrawal from the Paris Agreement, strong international climate leadership by the rest of the world to maintain momentum for Mexico’s national energy transformation is required.
On international stage, Mexico has emerged as a frontrunner for ambitious climate action and greening the economy. During its 2012 G20 presidency, Mexico put “inclusive green growth” on the G20 agenda for the first time. It played an important role enabling the Paris agreement and was one of the first four countries to present its long term strategy to the UNFCCC in November 2016, along with Canada, United States and Germany. Mexico confirmed its long term climate mitigation target to half emissions from the year 2000 by 2050 and maintained the goals established in the Nationally Determined Contributions (NDCs) to reduce emission by 36% in the year 2030 and achieve peak emission no later than 2026.
In recent years, some of these submissions have been coordinated with the North American partners as a region linked by trade, investment and technical standards. Less than a year ago the presidents of US, Canada and Mexico announced a regional target to reach 50% of clean energy sources for electricity by 2025. Hence, the decision by the republican US-government to withdraw from the Paris Agreement could represent an unfortunate brake to the country’s energy transition. However, the most impending challenge is to nurture social and business leadership to sustain accelerating ambition.
The country will require to move from the successful experimentation with new policy mechanisms towards their ambitious deployment to an extent that indisputably shifts the business case from fossil fuel-based development to low-carbon development. This requires domestic political and social engagement that must be nurtured but has not yet emerged.
In revision of the NDCs taking place before 2020, Mexico will take advantage of the successful deployment of clean energy in the electricity sector. In the first two energy auctions ever developed in the country under a new legal regime established only in 2015, contracts were awarded with some of the lowest prices in wind and solar projects worldwide. In the immediate future, the annual growth rate of the share of clean energy in electricity will be above 1.5 percent. Maintaining or increasing this growth rate in the future would require the country to reduce the use of natural gas in power generation – undermining the economic case for investment in natural gas infrastructure.
The country is in the process of a fuels price liberalization that should contribute to the reduction of subsidies to fossil fuels. This welcomed decision is accompanied by the implementation of a ‘carbon tax’. The concept has been introduced into the fiscal system, but the actual effect is limited. The tax rate for liquid fossil fuels of 10 cents (MXP) per liter based on standardized carbon content is equivalent to 0,5 cents (USD) , while coal and heavy fuel oil are subject to one fourth that rate, and natural gas is still exempt of the carbon tax.
While the country is showcasing important policy innovations, these have not yet been transformational for the economy. Unlocking the transformative potential requires a holistic approach, as recently highlighted in a joint statement on sustainable energy transformation by the official engagement groups to the G20, from business (B20), think tanks (T20) and civil society (C20), directed to the Energy Working Group, which is co-chaired by Mexico. The statement addresses the importance of the Paris Agreement and carbon pricing, but also of the promotion of the recommendations of the Taskforce on Climate-related Financial Disclosure (TCFD). The TCFD recommendations address the discrepancies between current policy and a low-carbon future from a business and financial risk perspective. Their adoption by Mexican stakeholders could serve the country to gauge the risks that loom over the economy by not speeding up clean energy transition, especially if employed by the state owned energy companies, PEMEX and CFE.
The G20 ecosystem must acknowledge that Mexico has successfully embraced climate-informed policy innovations, but has yet to show it is already on the course of transformational change. Especially in times of US withdrawal from the Paris Agreement, the rest of the world’s major economies, international business community and civil society networks should support Mexico’s domestic voices making the case for increased ambition in the goals of centralized mechanisms and for the spread of decentralized and local initiatives..
José Maria Valenzuela
Graduate Student at the University of Chicago. His latest work is concerned with international energy governance and climate policy, which he will continue as DPhil student at the University of Oxford in autumn 2017. Amongst others, he previously worked for WWF Mexico and the Mexican Ministry of Energy (SENER).
MSc. Candidate in Environmental Governance at the University of Oxford. Her research focus is on energy and climate change policies. She previously worked for the Mexican Ministry of Energy (SENER) and the Mexican Ministry of the Environment (SEMERNAT).
Disclaimer: The current research of both contributors is funded by Mexico’s Science and Technology Council.
- With financial support by Stiftung Mercator. The Author and Germanwatch are responsible for the content. -