{"id":50051387,"date":"2022-02-24T18:24:04","date_gmt":"2022-02-24T18:24:04","guid":{"rendered":"https:\/\/stage.dialogochino.net\/?p=51387"},"modified":"2024-04-12T14:44:08","modified_gmt":"2024-04-12T14:44:08","slug":"51387-explained-why-is-amlo-mexico-energy-reform-electricity","status":"publish","type":"explainer","link":"https:\/\/dialogue.earth\/en\/energy\/51387-explained-why-is-amlo-mexico-energy-reform-electricity\/","title":{"rendered":"Explainer: Why is Mexico reforming its energy sector \u2013 again?"},"content":{"rendered":"

Last September, Mexico\u2019s president, Andr\u00e9s Manuel L\u00f3pez Obrador \u2013 popularly known as AMLO \u2013 presented<\/a> a controversial proposal to annul the 2013 energy reform<\/a> introduced by his predecessor, Enrique Pe\u00f1a Nieto.<\/p>\n

That law allowed private and foreign companies to participate in the energy sector alongside state entities for the first time in almost 80 years.<\/p>\n

AMLO\u2019s proposal for the Electricity Industry Law, which the Mexican senate will vote on in the coming months, would see the public sector take back control of planning, concentrating the generation and commercialisation of energy in the hands of the state-owned utility, the Federal Electricity Commission (CFE). It forms part of his government\u2019s broader plan to achieve energy independence in the coming years.<\/p>\n

However, the reform has attracted widespread criticism. Opponents are fearful of the creation of a state-run energy monopoly, and the law appears to prioritise fossil fuels and stunt the nascent growth of renewables \u2013 something that private companies have largely driven. This also potentially threatens Mexico\u2019s climate commitments.<\/p>\n

So why is AMLO campaigning to reassert state control over Mexico\u2019s energy sector and what implications does it have for the economy and climate?<\/p>\n

Why the counter-reform?<\/h2>\n

AMLO has said that Mexico\u2019s oil does not belong to the government, nor the state, but \u201cto the people\u201d. He has been called a \u201cresource nationalist\u201d in the shape of former populist leaders L\u00e1zaro C\u00e1rdenas and Adolfo L\u00f3pez Mateos, who nationalised state energy company Petr\u00f3leos Mexicanos (Pemex) in the 1930s, expropriating it from Anglo-Dutch owners Shell.<\/p>\n

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Read more: AMLO’s return to oil<\/a><\/strong><\/figcaption><\/figure>\n

AMLO rode to a landslide election victory in 2018 on a wave of public anger at Pe\u00f1a Nieto\u2019s perceived failure to clamp down on corruption, including at Pemex following its privatisation in 2015, which was a pillar of the former president\u2019s energy reform process. Pe\u00f1a Nieto himself has since been accused of corruption by Pemex\u2019s former president Emilio Lozoya, who remains in pre-trial detention for his dealings with disgraced Brazilian infrastructure giant Odebrecht. Pe\u00f1a Nieto has not responded to the allegations.<\/p>\n

Mexico\u2019s current practice of importing its own oil, having been refined overseas, is like selling oranges to foreign markets and buying their orange juice, AMLO has said. For this reason, he is revitalising six of Mexico\u2019s oil refineries and investing in a new one, Dos Bocas.<\/p>\n

He has blamed the country\u2019s failure to retain added value in the oil sector on \u201cthe corrupt technocratic mentality\u201d that prevailed among political decision-makers for 40 years.<\/p>\n

What does AMLO\u2019s reform propose?<\/h2>\n

AMLO’s proposal is based on three main premises: empowering the CFE as the sole seller of energy to end users; privileging the energy generated by the CFE in the electrical system over that of private companies; and centralising activities such as planning and directing the energy transition within the state company.<\/p>\n

Empowering CFE<\/strong>: Currently, the CFE is the only electricity provider<\/a> for small- and medium-sized energy consumers. This includes individuals and small businesses. Large consumers, such as industry, however, have the possibility of buying energy from other providers, including those generating renewable energy. If the CFE becomes the sole seller of energy, large consumers will no longer have the option of generating their own energy or buying it from private producers. As things stand, independent energy producers contribute approximately 27% to Mexico\u2019s total national electricity supply, while self-supply represents 15%, according to CFE data<\/a>.<\/p>\n

Centralisation<\/strong>: Centralising activities also has important political and legal implications. Today, the Energy Regulatory Commission (CRE), which was strengthened<\/a> by the 2013 reform, acts as arbiter of the sector, controlling activities such as generation, transmission and distribution, along with the transportation, storage and distribution of oil and gas.<\/p>\n

\"aerial<\/a>
Read more: Yucat\u00e1n wind farms benefit big business and overlook local citizens<\/a><\/strong><\/figcaption><\/figure>\n

With the current reform, the CRE would cease to exist as an independent body and would be subsumed under the Secretariat of Energy (the relevant ministry). The National Centre for Energy Control (Cenace), which guarantees national electricity dispatch and rates, meanwhile, would be incorporated into CFE.<\/p>\n

According to former CRE commissioner, Montserrat Ramiro, this would make the state company self-regulating: \u201cThe state already has leadership through various instruments, such as regulators, which can ensure the interests of consumers in the long term. Centralising everything in CFE takes away leadership from the state,\u201d he said<\/a> in a recent interview.<\/p>\n

Such an institutional arrangement would also violate the terms of the United States-Mexico-Canada Agreement (USMCA), which guides North American economic policy.<\/p>\n

Dispatch<\/strong>: The reform also seeks to change the way the wholesale market dispatches the energy that the CFE and private companies generate. Currently, the main criterion is price: the cheapest energy is favoured. Among the cheapest sources of electricity are privately run wind and solar farms. As it is generated mostly by oil and coal, CFE\u2019s electricity is more expensive and loses out.<\/p>\n

With the proposed reform, CFE\u2019s hydroelectric, coal-fired power and the country\u2019s only nuclear power plant<\/a> would be prioritised in energy dispatch, along with thermoelectric, which in Mexico mostly operates with fuel oil \u2013 a residual product from oil and coal refining, both of which are highly polluting and harmful to human health<\/a>. This is despite their costs being higher. Renewables, then gas, would follow. Consequently, the CFE would control 54% of the electricity market and private corporations, 46%.<\/p>\n

What are the climate implications of the reform?<\/h2>\n

Critics say AMLO\u2019s reform would bring about negative environmental consequences, greater pollution and burden the state with the costs. There is also the risk of affected companies filing million-dollar international arbitrations as a result of the policy change.<\/p>\n

\u201cWhat is problematic now is believing that the discussion is whether it [energy generation and supply] is public or private. The problem is the solutions proposed by the reform,\u201d said Pablo Ram\u00edrez, a specialist in energy and climate change at Greenpeace Mexico.<\/p>\n

\u201cThere are many contradictions that are problematic. The reform is ambiguous and leaves room for discretion in many aspects. They have a worrying conceptual confusion between what is clean and what is renewable, between security and sovereignty,\u201d he added.<\/p>\n

Under the proposed model, the carbon dioxide emissions emitted by Mexico\u2019s energy sector would hit 1 billion tonnes by 2050, more than double the 486 million tonnes projected under existing laws, according to a study<\/a> carried out by the German Institute for Economic Research.<\/p>\n

They have a worrying conceptual confusion between what is clean and what is renewable, and between security and sovereignty<\/p><\/blockquote>\n

Those figures suggest that Mexico would fail to meet its own voluntary pollution reduction goals<\/a> set out in the 2015 Paris Agreement on climate change.<\/p>\n

Furthermore, in order to keep electricity prices low, as the government has promised, subsidies for almost half of CFE\u2019s customers would need to increase.<\/p>\n

But in terms of costs, an analysis<\/a> by the non-governmental Mexican Institute for Competitiveness (IMCO) calculated that, to guarantee the generation of its target of 54% of electricity between 2022\u20132028, CFE would have to spend between US$19.7 billion and $24.8 billion dollars in that timeframe. This means a massive increase on the $4.5 billion CFE currently spends buying energy from private companies to satisfy demand, which grows about 4% annually.<\/p>\n