Could a Biden Victory Push Mexico Toward Renewables?

Based on an analysis by S&P Global Platts, the winner of the upcoming US presidential election could have a major influence on Mexico’s energy policy. If democratic candidate Joe Biden wins the presidency, he could choose to enforce the 2015 Paris Agreement and the energy chapter in USMCA. On the contrary, if Trump remains in power, Mexico will likely continue its chosen path.

A key pillar of President Andrés Manuel López Obrador’s policy framework is using energy as a ‘lever’ for development in Mexico. López Obrador envisions that the country exploits its own resources optimally through its two state production companies: PEMEX and CFE. This approach goes against the previous administration’s 2014 Energy Reform, which sought to privatize Mexico’s energy resources and attracted many renewable energy players and private investments to the market in return. A return toward state utility monopolies would certainly continue under Trump. Nevertheless, a Biden victory could sway Mexico to reorient itself toward renewables once again.

While Biden is not necessarily attached to the so-called ‘Green New Deal’ plan in recent debates, he does aim to tackle the threat of climate change through his own plan inspired by the deal. Notably, the ‘Biden Plan for a Clean Energy Revolution and Environmental Justice’ aims to accomplish what its title suggests. Biden’s plans include reaching net-zero emissions by 2050 and would encompass trillions of dollars in terms of investment. A budget of US$1.7 trillion in federal investment is expected within the next decade, with local and private sector investments adding a further US$5 trillion. Furthermore, the plans eliminate tax benefits and subsidies for fossil fuel companies. While these plans directly impact only the US, the greater interconnection through USMCA will permeate Mexico as well. After all, the agreement serves to protect US investments in Mexico made after the 2014 Energy Reform.

Juan González, Principal at JSG Strategy, shares his insights as a Biden insider. "Biden will invite Mexico to listen to science and work with it to help it invest in new technology to prepare for the challenges facing it during the next decades," he said at a Wilson Center seminar. Currently, Mexico’s efforts to meet the goals of the Paris Agreement have been questioned by watchdog Climate Action Tracker. Nevertheless, the sheer size of Biden’s investments could change the charted pathway. Severo López-Mestre, Partner at Galo Energy, told S&P that the investment will be a “game-changer,” forcing Mexico to decide whether it would be willing to deal with the tension caused by sticking to its hydrocarbon-focused plans.

There is a possibility that change could also come from within Mexico. Even though renewable energy companies have been vocal about the government policy’s effects on attracting investment and ensuring clean energy generation, the global trend of turning finance in general ‘green’ is starting to influence Mexico, as well. One example of the private sector demanding green investment options is Blackrock’s Mexican local currency sustainable exchange-traded fund (ETF). Even though the fund was the first of its kind, it has been a success, as Reuters reported it is experiencing some of the fastest growth seen worldwide at US$450 million collected during its first two months.