Electricity and the Next Round of USMCA Negotiations

Although the USMCA remains in force until 2036, a key review is scheduled for July 2026, with preliminary discussions expected to begin as early as 4Q25. Amid diverging policy goals and shifting dynamics in energy and supply chains, the member countries must decide whether to extend the agreement or initiate annual reviews. As the United States pushes to protect investments and enhance market access and Mexico asserts energy sovereignty, tensions in the electricity sector are likely to persist. These developments carry significant weight for the region’s economic trajectory and integration. Understanding how these policies evolve is essential for stakeholders aiming to remain competitive in a complex, rapidly changing North American landscape.anada, Trade, Energy, Electricity, Tariffs, Investment, Regulations, Market Access, Investment Protections, Regulatory Cooperation, Transparency, Market Competition, Environmental Commitments, Renewable Energy, Cross-Border Trade, Supply Chain.

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The United States-Mexico-Canada Agreement (USMCA), effective since July 1, 2020, has reshaped the landscape of North American trade, notably impacting the energy sector, with a pronounced emphasis on electricity. Serving as the successor to NAFTA, the USMCA introduces updated regulatory frameworks and strategic considerations that are pivotal to energy trade and investment among the three countries. Amid geopolitical tensions and tariff disputes, as we approach the treaty's scheduled review — or renegotiation — electricity must stand as a prominent topic in ongoing discussions, specifically between the United States and Mexico.

Electricity is a strategic sector not only related to energy infrastructure projects, but critical to many energy-intensive industries, such as manufacturing, automotive, steel, and cement. The tactical nature of electricity regulation, driven by Mexico’s significant industrial footprint, and the physical and financial energy constraints that currently limit regional supply chain efficiency, should strengthen the priority for discussions. 

Since 2020, there have been shifts in the political landscape on both sides of the border. How will President Donald Trump´s philosophy around the slogan “drill, baby drill” align with President Claudia Sheinbaum´s “Plan México?” Another pending concern is how their ideologies blend in with the current and potentially future USMCA. Electricity acts as one of the most strategic and critical aspects of a growing economy; therefore, understanding the intricacies of cross-border interests, policy clashes, and related key provisions is critical to analyze potential outcomes. 

• Market Access: Once Mexico opens certain sectors to foreign investment, it cannot later restrict or reverse that liberalization due to the agreement´s “ratchet clause.” This should theoretically provide long-term regulatory certainty. Although the open market has continued to operate in Mexico, the United States could argue that Mexico´s former administration created multiple and significant barriers to entry and operation. 

• Investment Protections: In the event of discriminatory treatment or permit denials, the investor-state dispute settlement mechanism must remain in place for investors in strategic sectors like energy. This is particularly crucial to energy projects where consistent rules are essential for long-term investment viability. 

• Regulatory Cooperation and Transparency: The USMCA mandates clear, consistent, and non-discriminatory regulation in the energy sector, securing investor confidence to promote cross-border energy reliability and integration. To ensure oversight, each country must have an independent regulatory governing body. For Mexico, the Energy Regulatory Commission (CRE) previously exercised this responsibility until recently when Sheinbaum eliminated this institution and replaced it with a differently structured entity called the National Energy Commission (CNE), which initiates its functions on June 16 of this year. The new Mexican administration published a new Energy Reform at the end of March, although detailed regulations and manuals are scheduled to be published in the upcoming months. This regulation is aligned with her “Plan Mexico,” which has served as the overarching framework for her administration´s policy direction. 

• Market Competition: While the USMCA promotes equal opportunities for investment, Mexico’s preference for dispatching electricity from its state-owned utility, CFE, and its dominant role in the market continue to challenge private sector competitiveness. Under President Andrés Manuel López Obrador, a 54% share of generation capacity has been reserved for the state, with the remaining 46% allocated for private sector participation — a structure the current administration has committed to uphold. Although the agreement supports open access to the electricity market, including transmission infrastructure and co-investment pathways, opaque permitting processes and regulatory bias toward CFE often hinder the creation of a level playing field for private and foreign investors. Notably, the new Energy Reform has introduced the possibility of public-private co-investment in generation, an approach that has not been previously explored during the last six years. However, current Mexican law still prohibits shared participation in transmission and distribution infrastructure, which limits broader collaboration in key areas of the sector.

• Environmental Commitments and Renewable Energy Targets Under Shifting Leadership:  The USMCA incorporates provisions to encourage clean energy investment, reduce emissions, and align with global standards like the Paris Agreement. However, differing political stances have shaped the level of enforcement: While Biden reaffirmed US support for the accord, Trump’s administrations have favored deregulation, including repealing environmental controls on energy facilities and ceasing participation in climate negotiations. In Mexico, the 2015 Energy Transition Law aimed for 35% renewable generation by 2024, yet only about 24% has been achieved. With Sheinbaum’s stronger alignment to climate action compared to that of AMLO, there is renewed opportunity to promote renewable investment and move toward a more balanced energy mix — contingent on the alignment of regulatory and political will.

It is important to note that many companies, especially those integrated into international supply chains, are facing decarbonization mandates. Access to reliable, cost-effective clean energy is not just an environmental concern, but a competitiveness imperative, essential for meeting international and supply-chain requirements, lowering costs, and sustaining economic momentum. Creating these conditions will position the region more competitively when attracting investment.

• Cross-Border Electricity Trade and Regional Grid Integration: While limited in scale today, electricity trade between the United States and Mexico benefits from USMCA provisions that preserve zero tariffs and ensure non-discriminatory access to national electricity markets. One of the most vital energy commodities exchanged is natural gas, which is essential for power generation and of which Mexico imports roughly 70% from the United States. It is therefore critical to ensure that the zero-tariff principle remains intact for energy affordability and security. These regulations enable the seamless flow of energy across borders, paving the way for long-term cost savings and enhanced supply chain stability. In practice, Texas regularly exports electricity to northern Mexico, with the flow occasionally reversing depending on regional demand. While infrastructure development, such as high-voltage transmission lines, still faces permitting hurdles, expanding cross-border connections offers a clear path to enhancing regional energy resilience.

All these energy-related provisions under the USMCA must be revisited to align with today’s evolving priorities. In a world marked by geopolitical uncertainty, climate imperatives, and a growing energy demand driven by the increased use of artificial intelligence, data centers and economic activity, ensuring reliable, affordable, and sustainable electricity is not just a domestic challenge but a regional one. Reviewing these topics offers an opportunity to strengthen supply chain security, protect consumers, and bolster North America's competitive edge against other global blocs. By modernizing and deepening cooperation, the region can better position itself as a unified and resilient energy hub in the global economy.

To achieve this, it is imperative to overcome a key challenge: ensuring reliable electricity access for businesses looking to expand or establish new operations. Significant investment in energy infrastructure is essential, particularly as the country seeks to capitalize on the nearshoring wave that has made Mexico an increasingly attractive hub for global supply chains. According to the Wilson Center, US and Canadian companies have already invested US$34 billion in Mexico’s energy sector. A renewed USMCA should encourage continued investment and the exchange of technology, unlocking not only economic gains, but also broader benefits in areas like regional security, migration, and long-term competitiveness.

From a broader perspective, it is vital for companies to have access to low-cost, reliable, clean energy in order to maintain competitiveness, which in turn strengthens the job market and fosters overall economic stability. Acclaim Energy, as a leading consultant, has supported approximately 20% of the total volume in electricity supply contracts in Mexico. It is noteworthy that 60% of this portfolio consists of renewable energy, reflecting robust demand from commercial and industrial (C&I) consumers. These clients have achieved average savings of 19.6% compared to CFE’s Basic Supply tariff, underscoring the widespread and consistent interest across more than 15 industries. Given that energy ranks among the Top 3-5 operational expenses for most businesses, access to affordable and sustainable power is not just an environmental goal, but a strategic necessity.

A regionalized approach to the USMCA could benefit consumers, investors, producers, and the entire energy supply chain. Pushbacks nevertheless are expected from both sides, considering Trump´s ongoing negotiations on tariffs, immigration, and drugs, in addition to his strong nationalistic approach and preference for hydrocarbons. The uncertainty created in recent months on a macro-level, in conjunction with Sheinbaum´s new Energy Reform and the ongoing strategy of strengthening state control over the electricity sector