STORY INLINE POST
During life-threatening moments, trauma tends to focus one’s mind on what truly matters. When such trauma affects most of the world, as the COVID pandemic did, or several countries, such as the war in Ukraine, it tends to cause rapid and drastic changes to how we view policy, government, and even global trade systems. Years after the trauma has passed, we tend to realize that the changes that came out of the lessons learned were somehow necessary to make the world a more livable and somehow better place.
The last six months have seen a rapid shift in the understanding of what energy security means. In the new reality that we have been experiencing over the last two years, we have gone from thinking that the energy transition is essential to the belief that it is imperative that the transition be completed ASAP to save the world, while realizing that adopting an energy policy without taking into account every risk factor is a dangerous way to run any country, let alone our global markets.
Germany is a cautionary tale that Mexico could learn from. Over the last 10 years, Germany has been one of the leading countries in accelerating the adoption of renewable energy — their ambitious target is to obtain 65 percent of the country’s total electricity consumption from renewable sources by 2030. The country has also taken steps to ban fracking (2016), further drilling in the North Sea (2021), and announced a plan to phase out all coal-fired power plants by 2038. The country has been at the forefront of what “can be done” with renewable power. Nonetheless, such ambitious plans and vote-catching announcements come at a cost. Taxpayers in Germany directly subsidize renewable power to the tune of €24 billion (US$27 billion) during the 2020 calendar year alone. This, one could argue, is a justifiable way to fund renewable advancement, except that the tax is levied on consumption, irrespective of the household’s income, effectively making it more difficult for lower-income families to make ends meet. But the dirty little secret has shockingly come to light: these ambitious plans have indeed been fueled by Germany’s access to abundant quantities of cheap Russian gas and oil.
Come 2022 and the Russian invasion of Ukraine and the massive political backlash from the world over this aggression has led the public in most Western countries to demand that companies cease working with Russia and that their home countries stop importing Russian oil and gas. The situation has resulted in a spike in gas prices, particularly in Europe, since gas is a much less portable resource. There are far fewer options to transport it from other markets to Europe instead of oil or coal. Therefore, Germany has been left with no option but to reactivate previously mothballed coal-fired power plants, several of which were shut down precisely because they pollute sensitive environmental areas.
The world will find new ways to overcome challenges, including increased LNG capacity. Over time, the push for renewables will become a critical, unavoidable step to survive. Still, today, the lessons we have learned over the last three years show how important it is that politicians keep a multiple-factor balance in mind when framing energy policy. Over-reliance on a single energy source is dangerous for any country, leaving it vulnerable to unexpected shocks. The push to make our economies greener needs to happen. It should happen to ensure that socio-economic gaps between the haves and have-nots are not widened by short-sighted policy decisions designed to garner votes for the next election. We need bridges to get us from where we are to where we want to be, and like any bridge, only careful design, long-term planning, and resilience to outside forces will afford safe passage to the other side.
Countries are rapidly waking up to the idea that natural gas is such a bridge. The European Union has recently passed a resolution declaring natural gas a “green” energy source. Gas is a less polluting, readily available fuel that is probably the best way to allow not only new renewable energies to develop but also will allow the space and time for us to figure out how the energy transition can be socially fair or, even better, become a source of growth in the most vulnerable parts of our countries.
Mexico must learn from global events to ensure its energy policy is built for long-term resilience. Steps need to be taken to achieve several goals. Over-dependence on the US for over 80 percent of the gas consumed in Mexico is not as likely to result in catastrophic risk as reliance on Russian gas has for many European nations. That said, Mexico is a country that is blessed by abundant gas resources that could quickly be developed locally to reduce this reliance. By implementing LNG projects and connecting Southern Mexico and eventually Central America, a further connection with global markets will also reduce the risk of a single source of supply on any market. If such projects are well thought-out and coupled with the intelligent implementation of renewable power — mainly hydro and geothermal areas in which Mexico also has significant growth potential — we can see a future in which Mexico enjoys a resilient, greener, and socially fair energy system that allows it to further grow.