By Daniela Stevens*

Mexican President Andrés Manuel López Obrador’s proposal early last month to overhaul the country’s electricity market – which appears likely to become law – will betray the country’s climate change commitments, curtail private investment, and hurt consumers. Rooted in 1960s left-wing nationalism, AMLO’s vision is for a state-led, fossil fuel-powered electricity system. It is blind to what many experts consider the urgency for the government to coordinate with the private sector, which he prefers to portray as an adversary, on strategies to curb carbon emissions.

• The lower Chamber approved the proposal “without changing a comma,” as the President asked. The Senate passed it last night, but the law will face obstacles in court. The Supreme Court in February declared that some guidelines that the Secretariat of Energy presented last May were unconstitutional because they hindered free competition and unduly benefitted the state electricity utility, La Comisión Federal de Electricidad (CFE).
• AMLO’s plan reverses the principle of “economic dispatch” – a provision of the 2014 Electricity Industry Law (LIE) that requires the most efficient power plants (those with the lowest production cost) to be the first to upload electricity to the grid. Given the inefficiency of the CFE’s aging hydroelectric and thermoelectric plants, the law currently favors renewables like wind and solar, which are generally inexpensive and in the hands of private investors. AMLO wants to give preference to CFE ahead of private generators.
• Since hydroelectric plants cannot satisfy electricity demand, the main beneficiaries will be the power plants that generate electricity from fossil fuels. The administration has repeatedly argued, without evidence, that renewables should be downsized because they are unreliable and give undue advantage to private capital. In the President’s view, the initiative would end “price simulation” in a market that favors private participants.

The international community, private sector, and civil society organizations immediately rejected the proposal.

• The country’s largest business organization, El Consejo Coordinador Empresarial (CCE), called it an “indirect expropriation” of private power plants. Further, the private sector warned that the proposal would lead to national and international lawsuits for state compensation.
• Diplomats representing the European Union, Canada, and the United States in Mexico said the move will damage the investment climate. The U.S. Chamber of Commerce pointed out that the “deeply worrisome” initiative violates the free trade spirit of the United States-Mexico-Canada Agreement (USMCA), undermining the confidence of foreign investors.
• Activists and civil society organizations across Mexico said the policy reverses progress toward decarbonization and called it an infringement of international environmental commitments, such as the Paris Agreement and the Sustainable Development Goals of the United Nations’ 2030 Agenda.

López Obrador’s response to the criticism has been to claim his proposal restores Mexico’s energy sovereignty and self-determination, but it ignores the reality of the country’s dependence on U.S. natural gas – brought home when last month’s snowstorm in Texas paralyzed production and eventually caused blackouts in 26 of Mexico’s 32 states. Indeed, he flipped the narrative in claiming Mexico’s handling of the crisis was a “success of CFE’s workers,” compared to the “failure” of the liberalized electricity sector in Texas.

• Relying predominantly on the fossil fuel intensive CFE only deepens Mexico’s vulnerability. Natural gas – 80 percent of which comes from the United States – is used to cover around 60 percent of Mexican energy needs. The proposal also fails to address some deeper issues, such as the lack of storage capacity, diversity in power generation sources, and investment in the electric grid to incorporate renewables.

The move is typical of AMLO’s fixation with grandiose national projects, such as El Tren Maya and the Dos Bocas refinery, both of which will harm the ecosystem of the Tehuantepec Isthmus, and to waste money in obsolete and polluting technology that shows disregard for climate change in favor of short-sighted energy nationalism. The reform not only defies climate issues; it challenges the energy sector’s autonomy, chills the investment environment, and marks a return to monopolistic and authoritarian practices.

March 3, 2021

* Daniela Stevens is an Assistant Professor at the Centro de Investigación y Docencia Económicas (CIDE) in Mexico City.