Mexico proudly controls its energy, but may struggle to meet its climate goals

MEXICO CITY — Mexico’s seizure of control of its oil sector from North American and British companies is taught in schools and celebrated every year. The 1938 nationalization is a source of pride for millions of Mexicans, including President Andrés Manuel López Obrador.

The popular president comes from the heart of Mexico’s oil industry and 16 years ago led a fight against energy reforms aimed at attracting private investment to the huge state oil company, Pemex. This year, the favorite in the race to replace López Obrador chose the anniversary of Mexico’s oil expropriation to announce her energy proposals, which include maintaining large-scale oil production by Pemex.

Front-runner Claudia Sheinbaum also wants to ensure that the government-run Federal Electricity Commission, CFE, generates most of the energy Mexico supplies to homes and businesses. Like the other two candidates to replace López Obrador, she wants only limited private involvement in energy, but continuing to favor state-owned companies will make it harder for Mexico to meet its climate change commitments, experts say.

Despite Pemex’s difficulties, Mexico continues to be one of the largest oil producers in the world. None of the candidates talk about reducing this. The Federal Electricity Commission has had a monopoly on the transmission and distribution of electricity since it was created by presidential decree in 1937.

Mexico is committed to having 43% of the energy it generates come from non-polluting sources by 2030. Today, about 22% of Mexico’s electricity production comes from clean sources, according to estimates from the Mexican Institute for Competitiveness think tank , or IMCO.

The room for change in Mexico’s contribution to global warming appears to lie where the government monopoly gets its electricity, and no participant in Mexico’s presidential debate on Sunday discussed reducing Pemex’s output.

Gálvez said he wants Mexico to produce half of its energy from renewable sources within six years and for Mexico to once again be known for cheap energy “thanks to the participation of the private sector.”

Sheinbaum mentioned his background in climate science and spoke vaguely of the need to reduce emissions that cause climate change, advancing the energy transition and adapting to climate change. She also said a huge new refinery built by López Obrador would help reduce gasoline imports from Mexico.

Sheinbaum has promised to continue to increase Pemex’s refining capacity, hardly a recipe for a concerted move away from fossil fuels by a climate scientist-turned-politician. The 61-year-old former mayor of Mexico City also said she wants CFE to continue generating most of Mexico’s electricity, complicating the country’s stated desire to contribute less to global warming.

López Obrador has pushed for laws to give preference to CFE plants over private plants producing renewable energy and natural gas, despite many of the state plants burning dirtier fuels, such as fuel oil, coal or diesel. The courts blocked the changes, so last year, López Obrador purchased 13 power plants – most of them natural gas – from Spain’s Iberdrola for almost $6 billion, calling it the “new nationalization”, ensuring that the CFE generates most of Mexicans’ electricity.

“It would be expensive for her to move away from that official line,” said Oscar Ocampo, energy and environment coordinator at IMCO.

Opposition candidate Xóchitl Gálvez is the candidate of a coalition of ideologically different opposition parties. When she was a senator, she sat with the conservative National Action Party, which had previously promoted reforms in the energy sector that forced greater openness to the private sector.

In 2008, left-wing lawmakers allied with López Obrador – the PRD’s 2006 presidential candidate – took control of both chambers of Congress in an attempt to prevent votes on reforms. These reforms opened the industry to private contracting in the services sector, but Pemex maintained its monopoly over gasoline exploration, pipelines and distribution.

Gálvez said he wants to improve Pemex’s efficiency and profit and proposed closing two loss-making refineries. The unlikely candidate, Jorge Álvarez Máynez, from the small Citizen Movement, also proposed closing two refineries.

Julia González Romero, a lawyer specializing in energy sector regulation at the law firm González Calvillo, recalled that she learned in elementary school about oil expropriation and said it is understandable that the debate between public versus private in the energy sector is heated.

“It is in the DNA of our policy to discuss the extent to which the private party should participate in the sector,” said González Romero.

Sheinbaum wants the state energy sector to expand into lithium production and geothermal electricity generation. CFE has been developing geothermal power generation for years. In 2022, Mexico nationalized lithium mining and extraction, with a state-owned company having exclusive rights to extract the metal used in electric car batteries and other devices.

She said she wants an energy transition to be one of the “hallmarks” of her administration and spoke of leaving the door open for private energy companies. But Ocampo said there is “a fundamental difference in the magnitude of (private sector) participation” in the candidates’ proposals.

Gálvez said he prefers to rely on the private sector to boost investments in renewable energy. The tech entrepreneur also proposed a Pemex shift to geothermal energy, but touts a proposal to make it easier for people to install solar panels on their properties across the country to access more affordable electricity.

She also wants to bring back the energy auctions that opened the electrical generation market to more private renewable energy companies, but which López Obrador suspended.

Climate-related policies have gone backwards under López Obrador, said Climate Action Tracker, which tracks countries’ pledges to limit warming.

“Mexico’s greenhouse gas emissions continue to rise – despite the brief drop caused by the COVID-19 pandemic – and are expected to continue to rise until 2030,” according to the independent scientific project.

Edgar Olvera, a 45-year-old lawyer from Mexico City, said the private sector could bring more investment to exploit Mexico’s natural resources.

“But we know that the money would go to foreigners,” said Olvera. “It’s a very delicate topic, very, very delicate, because we know that the government also doesn’t do things 100% correctly.”