Sustainability or carbon-lock in? Opportunities and risks of the new Mexican National Energy Strategy
February 15h, 2013
MEXICO CITY – Mexico unveils a new National Energy Strategy (ENE) envisioning the energy sector as a lever for the economic growth and social development of the country. However, with Mexico international pledges to address climate change, the ENE should approach both concerns while paving the ground for a third challenge: implementing effective mitigation measures and reducing greenhouse gases (GHG) emissions in line with its international commitments.
Following 2008´s reform to the Organic Law of Federal Public Administration, every year the National Ministry of Energy, on behalf of the President, is obliged to submit the ENE to the Mexican Congress for ratification. The ENE specifies overarching principles and specific objectives to drive the Mexican energy sector – for a time horizon of 15 years – towards a secure, efficient and sustainable pathway. Up to now, only the 2010 version has been ratified by the Congress.
In its 2013 version, the ENE makes special emphasis on using the power sector as a vehicle to foster economic growth and expand quality energy access to a larger extent of the population. The strategy outlines different ambitious policy measures that are associated to three core areas of interest namely security, efficiency and sustainability. In this respect, the ENE-2013 does not differ much from the ENE-2010, except in one thing: a misconception about sustainability.
In 1987, the Brundtland Report set on vogue the concept of sustainability. Originally crafted in a general fashion within the context of development (“…to ensure that it meets the needs of the present without compromising the ability of future generations to meet their own needs.”), the idea evolved into a more specific conception accounting for the inter-relation among the economy, society and environment as subordinated elements.
In the ENE-2013, the concept of sustainability is poorly framed and limited exclusively to the interactions of the society with the economy. The ENE misuses the concept when it refers to sustainability as the capacity of the energy sector to increasingly amplify the energy supply while fulfilling energy demand of consumers indefinitely. The strategy seems to use sustainability as a synonym of perpetual energy security; the misconception is not a triviality as it dismisses the environmental implications of this energy pathway.
In Mexico, average primary energy demand grows 2.1% annually, while production (mostly oil and gas) declines at 0.3%. Historically, Mexico’s energy sector has been dependent on fossil fuels, what suggests that at the current trend, the country will risk further its energy security and increase its reliance on energy imports. Due to these concerns, the ENE-2013 pushes for accelerating an optimal energy transition that ensures the security of the sector in the long term.
More than the large potential in the country to harvest energy from renewable sources, the ENE-2013 highlights the role of natural gas as key element for the transition. The strategy substantially explores different action plans to strength the operability and reliability of gas transport, storage and distribution by means of promoting investments on increasing gas conversion capacity and infrastructure.
Natural gas indeed constitutes a first step opportunity towards achieving an energy transition in a relatively clean manner; compared to coal or oil, natural gas has lower carbon content and therefore it emits lower carbon emissions per unit of energy. Yet, natural gas is still a source of GHG that accounts for around 24% of total emissions in the country.
Giving so much strategic emphasis on natural gas can route the transition of the energy sector towards a consolidated carbon lock-in, as it has been the case in the past. In 1976, the Mexican government published a 25 year power supply plan, in which 74% of the electricity demand was expected to be met with non-fossil energy by the year 2000. This vision was not adopted by successive governments and the sector developed upon increasing investments on fossil energy technologies. Today, 80% of power generated in the country comes from conventional fossil fuels.
New investments on natural gas will fix a long-lasting presence of a carbon emitting capital stock. Under the expectation of high electricity prices, natural gas energy conversion capacity and infrastructure will operate as long as the price received for electricity generation exceeds marginal costs. Forecasting increasing energy prices, the operation of these carbon emitting assets is probable to prevail even far beyond their expected technical lives.
By stringently promoting natural gas related investments the ENE undermines low carbon investments and hinders real possibilities of long-term decarbonisation. Mexico has pledged ambitious emissions reduction targets by 2030 and 2050. Unless more emphasis is placed in renewable sources of energy as the core of the energy transition the country will hardly fulfill its commitments.
Investing in low-carbon technologies, particularly renewables, includes benefits other than emission reductions. PwC, in a recent study published by the Mexican Renewable Energy Initiative (IMERE), has estimated that reaching a 29% share of non-fossil energy in the mix by 2018 would increase Mexico’s GDP by 2% (compared to 2011) and would generate over 147,000 jobs. Consequently, betting on renewable energy investments will foster Mexico´s economic development while accomplishing its climate mitigation aspirations.
Although the strategy recognizes the key role of renewables in realizing energy transition in Mexico, it underestimates their driving potential to reach sustainability. Given its recent approval, it will be crucial that the Mexican government informs about the plans and programs it intends carrying out during the present administration, in order to leverage these technologies.
In order to guarantee energy security, foster development and achieve a real energy transition in a sustainable way, the Mexican energy sector needs measures that lock-out the dependence of the economy on fossil energy. Mexico has a great potential to cover to a larger extent its energy demands with renewable energy; the ENE must leverage this potential.
Tabaré A. Currás
Advisor on Energy Economics
WWF-Global Climate and Energy Initiative
Mexico City – MEX