How Can Biden’s Climate Plan Benefit Mexico and the US

Joe Biden won the US presidential elections and he is already changing the political spectrum. Biden plans to establish a full throttle energy transition to meet stringent climate goals. What could this move toward renewables mean for Mexico and the US? MBN expert contributors weigh in on this debated topic.

The US president-elect outlined his ambitious plans during the second presidential debate late October. “Yes, I would transition from the oil industry,” he said. Furthermore, Biden promised to remove federal subsidies for oil production and said his administration will aim to achieve net-zero emissions by 2050. Biden’s US$2 trillion plan in clean energy infrastructure, transportation and further incentives toward clean business development appears to have sufficient potential to completely alter the Northern American energy mix in the future.

Setting into motion these ambitions could easily become a Herculean task. Biden will most likely face tough opposition from US Congress, unions, the fossil fuel industry and environmentalists, reported The Wall Street Journal. Ramón Basanta, CEO of ATCO Energía, pointed out the challenges that Biden could face ahead. “It is clear that internally, Biden is facing a problem with the Senate and the Supreme Court; they will not be on his side. All the executive decisions and regulations Biden would want to pass will confront issues. If we assume that a second term for him will be unlikely, these proposed regulations will not be as successful as people believe,” he said.

THE US AS A NEW ENVIRONMENTAL POWERHOUSE

The success of the global energy transition, however, does not rely on how it fares in the US alone. China, for instance, needs to be recognized for its crucial role in renewable energy development. The country has been, for many decades, among the world’s top polluters. Nevertheless, The Guardian reported that China has been cleaning up its environment act since 2013 through concerted action. With many renewable technology companies under its banner, China furthermore has committed to carbon neutrality by 2060. Juan Manuel Ávila, CEO and Co-Founder at TOP Energy, recently highlighted China´s role in an interview with MBN. “The sector and the industry have been growing in past years, mostly motivated by Chinese investments. To have US public policy based on renewable energy will of course work and increase installed capacity. Perhaps it will detonate exponential growth of renewable technologies in certain areas of the world. But one of the main engines of this industry will keep on being China. I do not know if a Biden presidency will take China’s place in the world as the leader in green energy, especially in solar. Nonetheless, it is still great news that the Biden administration will have a large focus on renewable energy investment.”

Ramon Moreno, CEO of Mitsui Power Americas, explained to MBN that the Trump administration could have influenced China’s accelerated transition. “Paradoxically, Trump might have pushed China into its recent announcement of net-zero emissions by 2060, which is key because China is responsible for 25 percent of greenhouse emissions.” Moreno highlighted that without a doubt, the US remains a worldwide political and technology leader.

Strong internal headwinds are unlikely to push the democratic party away from its objective. Instead, the next US administration might look to assert its influence internationally to achieve its goals. “Biden will therefore focus on his international agenda, where he has a freer mandate that does not depend on so many internal regulations. He will attempt to make the US’ trade partners, including India, Mexico and Canada, adjust to his policies and leadership. The first areas where he will make changes is in emissions of methane, CO2 and mercury from cars, airplanes and boats. This will immediately send a strong message to the world,” Basanta says. During this decade, Basanta believes that many countries will work to become net-zero by 2050 – goals that the EU and China are already committed to. With the US now added to this fold, combined leadership will bring clear pressure toward countries that are not yet on board. Real progress toward decarbonization can be made within this time frame.

Internally, Basanta thinks US regulations will force companies to become carbon neutral. Furthermore, “Biden will try to give tax breaks on R&D in renewables. He will perhaps value a decrease in carbon emissions or sanction polluters. This will affect trade severely,” he said.

MEXICO’S ROLE IN THE ENVIRONMENTAL TRANSITION

These trends will have a strong impact on the Mexican sphere as well, both directly and indirectly. “When this becomes a reality, all transnational companies in Mexico will have to adapt to this agenda. It will influence the energy policy in Mexico quite a bit, since the private sector will be regulated through these new changes,” Basanta said. Nevertheless, the biggest influence will likely come from the US and its interests in the geopolitical sphere. “In my opinion, Biden will try to present Mexico, Canada and the US as a geopolitical bloc to oppose the Russian and Chinese ones. There will be a period of competition between them and the US alone will not be able to do so,” argued Basanta, adding that Mexico might have to change its current energy policy direction as a result.

Rodrigo Osorio, Director of the Energy Agency of Puebla, agrees that an energy policy shift is on the table. “Mexico will surely experiment changes in its energetic policies as a collateral effect. Donald Trump is far from concerned about investing in clean energy, climate research and innovation. This has allowed President López Obrador to carry on with a federal energy policy that is not ‘green’ enough amid the urgent environmental crisis we are experiencing. However, enforcing a clean energy revolution is a priority for Joe Biden. It is expected for President Lopez Obrador to face much more pressure from the US to implement a political agenda that promotes renewables, the creation of green jobs and investment in science and technology toward the reduction of carbon emissions from the energy sector,” Osorio told MBN.

Zooming in closer on the influence Biden’s administration could have on Mexico, considering the country’s public policy and its private investment opportunities are important. Mexico is part of the 2015 Paris Agreement, which aims to combat climate change, and the renewed USMCA. Nevertheless, ever since López Obrador took office on Dec. 1, 2018, Mexico’s energy policy has been shifting. During the previous administration, the 2014 Energy Reform attracted unprecedented green energy investment to the country through the entrance of private companies in the market. López Obrador decided to prioritize his energy policy differently, however. From the very start, the president criticized the Energy Reform saying it has brought along corruption and unfavorable contracts for the government, while state-owned PEMEX and CFE were weakened by what López Obrador calls unfair private competition. As a result, Mexico´s current energy policy aims to strengthen state production companies so they can serve as a ‘lever for development’ toward Mexico’s more socially oriented goals. But a strong CFE does not mean that Mexico needs to dilute its climate goals, Ramon Moreno told MBN. “CFE is the main pillar of the power system in Mexico, so a strong CFE is absolutely necessary. There is no conflict but rather a necessity of having solid state-owned companies to comply with international agreements, including those related to the decarbonization of the economy. I am sure the government will find the way to do it soon.”

López Obrador’s fight against the Energy Reform, to the point of threatening to alter the constitution to undo it entirely, has alarmed private renewable energy companies, investors and environmental watchdogs. Despite the likelihood that Biden will try and steer Mexico to his ways, MBN expert contributors argue that it is difficult to predict how Mexico will react to a Biden presidency. “We definitely need to expect the unexpected,” said Ávila. But by following basic political logic, enforcing USMCA could already alter the discussion. “Mexico should lower or change its tone in regards to the monopoly it wants to bring back with PEMEX and CFE. USMCA could already enforce freedom of competition and the protection of investment by itself,” said Ávila. Regarding the potential influence of the Paris Agreement, he notes that it did not serve as a strong enforcer during past years, either. “We do not have certainty about how these agreements can coerce the Mexican government, because in the past and during the Trump administration, we did not see the US take action in this matter despite press conferences and other interventions.” Nonetheless, both frameworks could and should be used to promote fair competition and a sustainable energy policy in Mexico.

Mexico could benefit from a US policy on natural gas production. Mexico imports increasing amounts of natural gas from the US, reported Natural Gas Intel. Much of this gas is produced in the Texas Permian Basin through fracking. If policy were to favor a clean environment, fracking could potentially be banned due to the inherent risks it poses. But, as the US mainstream media has reported, Biden’s stance on the issue is somewhat confusing. Moreno thinks fracking will continue to be a part of US energy production. “I am sure Joe Biden will keep supporting fracking, which brings low gas prices not only to North America but worldwide thanks through LNG exports, facilitating the substitution of oil and coal in the energy matrix.”

Toward the future, however, the US will move away from natural gas production, argues Basanta. “It is very likely that the US will move away from natural gas. It causes a lot of methane to leak, which is three times as harmful as CO2 as a greenhouse gas,” he told MBN. Nonetheless, Hans Kohlsdorf, Founder of Energy to Market (E2M), believes that this move will take some time. “Natural gas still has a long way to go to replace carbon and fuel oil generation,” he pointed out. Eventually, natural gas will replace diesel and gasoline as fuel for vehicles, he added.

In regards to energy generation, Moreno has already identified what comes next for gas-based energy. “Storage will eventually displace part of gas-fired power generation. But right now, the transition to natural gas is a key part of the decarbonization process. The role of CCS and green hydrogen will be very important in the future utilization of natural gas and its infrastructure.”

Would a stricter focus on these international regulations lead to higher foreign private investment toward Mexico’s renewable energy sector? Whereas industry experts are cautiously optimistic, Ávila argues that if the government does not change its rhetoric first, companies might not see Mexico as the ideal business partner. “There could be a lot of liquidity and money to be invested in renewable energy. But even if companies in the US will have a surplus, they will probably not see Mexico as their first option, regardless of whether they might have operations or presence in Mexico. The manner in which the Mexican government has communicated its intentions through public energy policy has not been optimal for attracting investment. Mexico is a large market that has many needs, which is why companies will continue to invest here. But as long as we have an administration that will not listen to reason and base decisions on ideology, it will be hard to see this investment flow into Mexico, even though there is a lot of liquidity available for renewable energy,” Ávila said.