Emphasis on Social Impact Key to Mexico’s Energy Transition

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A significant part of Mexico’s population is indigenous, living on land valuable to renewable energy developers and therefore to the energy transition. Setting the highest social impact standards for energy companies is essential to ensure that these projects are fair and sustainable, but regulation remains somewhat undefined.

Data from the Mexican government shows that Mexico counts about 16.9 million indigenous citizens, representing around 13 percent of the entire population. This already suggests that infrastructure projects are likely to intersect with indigenous communities, but the reality of Mexico’s geography ensures that this becomes even more likely. “The state of Oaxaca is a prime example. Here, both a high number of indigenous peoples and excellent renewable potential for wind energy, for example, are found,” said Héctor Sánchez López, Independent Member of the Board of Directors at Mexico’s state-owned utility CFE.

To guide energy developers in their interactions with communities, Mexico has established an indigenous consultation process, which is carried out prior to any development to assess its social impact and aims to be “free, informed and in good faith.” The consultation process is evaluated by the sector’s regulatory commission, CRE. Sánchez highlights that renewable energy projects often have a profound impact on the local economy and on the way of life of these communities, making a social evaluation essential to the success of the project and the well-being of the community involved. This consultation is not the only process developers need to keep in mind. In addition, they need to complete an environmental impact assessment, which is judged by SEMARNAT. “The environmental impact assessment does not only aim to protect the environment; it works to preserve and restore the land and its flora and fauna as best as possible,” Sánchez said.

Foreign investment laws protect developers against the loss of previous investment if social engagement does not go as well as planned, mentioned Sánchez. He explains that social issues can strand projects indefinitely, which makes a good ending for either community or company a much less likely outcome. While this protection exists, it is simply not the preferred outcome for lengthy project development processes. Companies therefore have every motivation to engage communities the right way from the beginning. But this is no simple task: “There is no set of laws that explains exactly how the consultation process should be done or that really show us the right way,” Sánchez stated. While laws state that indigenous communities have the right to determine their own development and that they should share in the benefits of infrastructure constructed on their land, the way this pans out is not written. At times, these rights can even clash.

For Sánchez, this issue needs to be addressed. “We need to solve these issues, so the clean energy transition can develop further and benefits from clean energy projects can be shared in a fair manner,” he said. The global energy transition is not standing still and indigenous communities themselves could greatly benefit from having access to renewable energy on their land, so they can replace harmful fossil fuels. Expanding on the legal framework will ensure that companies have better guidelines available. “Secondary laws can help to clarify what really needs to be done,” he said, warning that in some cases, companies wrongly thought of the consultation process as a “formality”.

Even though the state can intervene to set the rules of the consultation, Sánchez emphasizes that companies have the responsibility to do all they can to meet community needs. Communities, on the other side of the equation, can consider the benefits of becoming an integral part of Mexico’s clean energy transition.