Current Policy Projections
According to our assessment, Mexico’s current policies will lead to emissions between 724 MtCO2e and 736 MtCO2e excl. LULUCF in 2020. In 2030, the emissions level is projected to reach 810–843 MtCO2e, excl. LULUCF. We estimated a range (see the Assumptions section for more details) given the uncertainty in GDP projections. The upper end assumes higher economic growth than the lower end. This scenario suggests that Mexico will neither meet its 2020 nor 2030 emissions targets and will need to implement additional policies to do so.
Historically, Mexico’s emissions have been increasing since 1990. GHG emissions have steadily shifted away from agriculture and LULUCF towards energy-related emissions. While in 1990 agricultural emissions represented 31% of Mexico’s GHG emissions, by 2015 their share had declined to 18%. Over the same time period, energy-related emissions increased substantially—by almost 40%.
The basis for climate policy in Mexico is its ‘General Climate Change Law’—which was adopted in 2012—translates the overarching targets into strategies and plans, and provides the institutional framework for implementation. The law does not include concrete political instruments, rendering it impossible to quantify its direct effects. Notably, the most recent reform to this law includes the addition of Mexico’s NDC sectoral emission reduction targets for transport, electricity generation, buildings, oil & gas, industry, agriculture and waste sectors.
The National Strategy on Climate Change (NSCC), published in June 2013, implements one of the requirements of the General Law. The NSCC is designed towards a long-term strategic development, but only provides very general guidance. How this will be translated into concrete action remains to be seen.
The 2nd Special Programme on Climate Change (PECC 2014–2018), published in 2014, includes the most relevant mitigation measures to 2018. The programme summarises 23 quantified mitigation-relevant measures that lead to a reduction in emissions by 83 MtCO2e in 2018 compared to the baseline presented in the same document. Mexico’s General Climate Change Law establishes that a new PECC will be developed with every incoming administration (Cámara de Diputados del H. Congreso de la Unión. Diario Oficial de la Federación, 2012). This means that Mexico’s new president—Andrés Manuel López Obrador—and his team, which are in office since December 2018, are responsible for the development of the PECC 2018–2022.
López Obrador´s campaign did not have a clear position on climate change, focusing instead on the energy sector. Here, he stressed the need to achieve energy security to replace oil and gas imports from the United States. To achieve this, the president proposed sectoral changes that include fostering national extraction of oil & gas, building new refineries, remodelling old refineries and increasing electricity production. To increase electricity production, he proposes three actions: 1. increase the load factor of hydro power plants, 2. avoid the planned retirement of thermal—fossil fuel—power plants (by converting old ones to cogeneration and all units over 150 MW to gas CC) and 3. create programmes to foster energy transition to RE—solar PV, wind and hydro.
Some of these proposals are now materialising whereby little is left of the third promise to foster the energy transitions towards renewable energy sources. In December 2018, the new administration published the national budget for 2019, which favoured fossil fuel electricity generation over renewables (Solís, 2018). Most of the budget allocated to the Federal Electricity Company (CFE, in Spanish) will be invested in the “modernisation” of coal, diesel, oil and gas power plants, some of which had been planned to retire by the previous administration’s long-term electricity plan.
Only a small part of the budget will be allocated to rehabilitating existing geothermal and hydro power plants. Rehabilitating hydro power plants includes a plan to increase their electricity generation capacity by 26%—equivalent to less than 3% of the total Mexican electricity generation in 2017—with a budget that is equal to only 12% of the investments in fossil fuel power plants (Solís, 2018).
In 2019—just two months into the new administration—Mexico’s new government announced the cancellation of the 2018 long-term electricity auction (Centro Nacional de Control de Energía, 2019). This auction—originally scheduled for December 2018—was intended to assign contracts for the trading of power, cumulative electric energy and clean energy certificates from 2021 onwards, but was suspended end of 2018 due to change of government (Centro Nacional de Control de Energía, 2018a, 2018b). Nevertheless, López Obrador has stated that his administration will honour the results of the first three long-term electricity auctions–which took place in 2015, 2016 and 2017 (Karol, 2019).
These two decisions by the Mexican Government bring into question whether Mexico will achieve its clean energy targets and international commitments under the Paris Agreement. Our analysis considers the first three long-term electricity auctions but does not take into account the effect of modernising existing fossil fuel electricity generation plants. The new administration announced in December 2018 a “National Electricity Plan” 2018 but—as on February 2019—this strategy plan has not yet been published.
In 2014, Mexico implemented a carbon tax that is set at approximately at US$3.5/tCO2e differentiated by fuel type (SEMARNAT, 2014). This tax is expected to generate an annual revenue of about US$1 billion. However, its impact on GHG emission reduction is unclear and, given its low rate, a substantial emission reduction is unlikely. At the end of 2017, the regulation for the use of emission reduction credits for compliance under the carbon tax in Mexico came into force. This regulation establishes the allowance of Certified Emissions Reductions (CERs)—from CDM projects in Mexico—as well as Green Certified Emission Reductions—in the EU ETS—as payment means under the carbon tax (Diario Oficial de la Federación, 2017; World Bank Group and Ecofys, 2018).
In 2017, Mexico began a simulation of a voluntary Emissions Trading Scheme (ETS). The General Climate Change Law was amended later that year to make the scheme mandatory as soon as its three-year pilot phase concludes. The ETS will not replace the existing carbon tax. The ETS’ pilot phase—originally programmed to start in August 2018—will begin operation in 2019 (Secretaría de Medio Ambiente y Recursos Naturales (SEMARNAT), 2017, 2018).
A further reform to the LGCC in 2018 lays the foundation for the establishment of the mandatory carbon market by putting in place mechanisms for cost-efficiency, MRV, deadlines and obligations following the pilot-phase (Congreso General de los Estados Unidos Mexicanos. Diario Oficial de la Federación, 2018).
The formal start of the ETS—originally planned for August 2021, together with the entry into force of the Paris Agreement—has been delayed to 2022 (Secretaría de Medio Ambiente y Recursos Naturales (SEMARNAT), 2017, 2018). Between 400 and 700 companies are expected to participate in the market (Santiago and Rodríguez, 2017).
In its NDC, Mexico committed itself to unconditionally reduce GHG emissions from electricity generation and oil & gas by 31% and 14% respectively in 2030 from a business as usual base line (Government of Mexico, 2015). These commitments have been added to the General Climate Change Law in its July 2018 reform.
The Energy Transition Law (Cámara de Diputados del H. Congreso de la Unión. Diario Oficial de la Federación, 2015), published in December 2015, includes clean energy targets for Mexico for the year 2018 (25% of generation), 2021 (30%) and 2024 (35%). Clean energy according to Mexican law includes renewable energy sources, nuclear power, CCS as well as efficient cogeneration (Congreso General de los Estados Unidos Mexicanos. Diario Oficial de la Federación, 2014).
Recent decisions by Mexico’s new administration regarding its favour of fossil fuel electricity generation over renewable energy bring into question whether Mexico will achieve its clean energy targets. The 2019 announcement cancelling the “2018 Long-term electricity auction” is a backward step for Mexico’s the transition towards renewable energy. “Long-term electricity auctions” had been held on an annual basis since 2015.
As part of the electricity auctions, Mexico is also using clean energy certificates as measures to support clean distributed generation (Secretaría de Energía, 2014). If a plant uses clean energy—including those from fossil fuel sources, namely efficient cogeneration— a “Clean Energy Certificate” (CEL, in Spanish) will be granted for each MWh generated from clean energy. The clean energy certificate scheme includes targets for both electricity suppliers and large consumers (those with a load larger than 1 MW).
Preliminary results are promising, showing that tenders may be especially effective in increasing the share of renewables, especially solar and wind, as a large number of projects were awarded, with record low prices (SENER, 2016; Centro Nacional de Control de Energía, 2017). In January 2019, the Mexican Business Coordinating Council (CCE, in Spanish)—a business sector autonomous organism—announced that 65 clean energy power plans are currently under construction, while 65% of the first round’s tendered capacity, and 18% from the second auction are already in operation (Notimex, 2019).
Some of the tendered projects already in commercial operation include the “Villanueva 3” solar PV park of Enel Green Power Mexico—the first winning project from the country’s first long-term power auction—and “el Cortijo” wind farm from ACCIONA Energía (SENER, 2017a; ACCIONA Energía, 2018).
The status of construction and expected operation start dates of other projects are less clear. Projects have roughly two years to be built after the auction, but according to the tender regulations, the start date of operation for awarded projects is flexible and can be modified free of penalties under certain circumstances (e.g. if the delay can be attributed to governmental authorities or if specified in the contact) (SENER, 2015a). Penalties for missing the start of the operation date include monthly payments of 5% of offered cost, plus an increase of 10% warranty for up to two years.
Our bottom-up calculations on the awarded projects from the first three long-term electricity auctions indicate that if all tendered projects get to operation—at least four years after their respective tendered year—Mexico would reach 33% renewable electricity generation in 2030. If Mexico continues to have annual tenders until 2030 in the same manner that they been happening—and assuming all these projects get built and operate—Mexico will still need efficient cogeneration and nuclear power to achieve its 2021 and 2024 clean energy targets.
Nevertheless, it remains unclear whether all awarded projects will be realised and if tenders will continue to happen in the future. Similar tender processes in other countries have shown that the award in a tender process does not necessarily lead to the fully timely project realisation.
In its NDC, Mexico committed itself to unconditionally reduce GHG emissions from the forestry sector by 144% in 2030 from a BAU baseline (Government of Mexico, 2015). Unlike the commitments on other sectors this commitment was not included in the July 2018 reform to the General Climate Change Law (Government of Mexico, 2015).
Mexico’s REDD+ National Strategy 2017-2030 (ENAREDD+) established strategic action lines with the aim of promoting continued reduction of LULUCF emissions and achieving 0% net deforestation rate by 2030 (CONAFOR, 2017).
In its NDC, Mexico committed itself to unconditionally reduce GHG emissions from the waste sector by 28% in 2030 from a BAU baseline (Government of Mexico, 2015). This commitment has been added to the General Climate Change Law in its July 2018 reform (Government of Mexico, 2015).
GHG emissions from the waste sector have increased by more than 70% between 1990 and 2015 according to the most recent inventory data, making this sector with the highest emissions increase in this period.