Incentives Can Turn Clean Engine Tech into Market Mainstay

Q: How has business for Cummins’ various products evolved over the pandemic?

A: Our business ranges from solutions for transport to power production. During the pandemic, everyone was isolated and e-commerce boomed. As a result, last-mile delivery became essential when people began doing all their shopping from home. This segment compensated some of our diminished sales over 2020. In 2021, demand recovered close to pre-pandemic levels. In 2022, we expect it to recover entirely.

Regarding the energy sector, the situation has become very challenging. This has not been due to the pandemic. It is related to the government’s electricity reform proposal, which has had a very strong influence on the sector. Many companies investing in alternative fuel sources have decided to delay investment decisions because of this uncertain situation. For instance, companies are not sure if private power production for self-consumption will continue. In contrast, demand for emergency energy is increasing as hospitals and industrial companies need stable electricity to operate. If companies cannot produce their own power and are forced to rely on CFE, the state utility would not have enough capacity to consistently meet demand. In this environment, having backup becomes an attractive option. Nevertheless, much investment has been put on hold. Ideally, the sector hopes to gain a clear outlook soon but this is uncertain.

Q: Which fuel does the company see as key for the future and how is it adapting its strategy to this end?

A: The renewable energy market will continue to develop. Our engines can provide stability for wind and solar projects but they are also used for efficient cogeneration projects. Today, these projects are on hold. However, we have the technology to run cogeneration on clean burning natural gas, as well as on different types of fuels. These include biofuels, created from waste at landfills. Cummins is a responsible company, driven by its Destination Zero strategy that will make the company carbon neutral by 2050. We are already working with fuel cells and combustion engines that run on hydrogen. To this end, Cummins already provides electrolyzers that produce hydrogen. We think this is a fuel of the future. The company is investing heavily in hydrogen.

Q: How could Mexico boost its clean energy transition by creating incentives for using cleaner fuels?

A: For instance, in other Latin American countries, such as Colombia, the government promotes aggressive strategies in the energy and transportation businesses, which feature strong incentives for natural gas vehicles (NGV). By not imposing a tax on the purchase of an NGV, the technology becomes attractive. Compared to a truck running on diesel, an NGV is very clean: its emissions are so low they compare to electric vehicles (EVs). We need similar incentives in Mexico. The country’s long-distance transport and public transport fleets are old and highly polluting. Instead of promoting solutions to reduce emissions, the government should incentivize the renewal of these fleets. Similarly, the use of diesel for power production should be displaced by promoting natural gas. Reducing the carbon footprint is about fostering a better fuel consumption in general.

In regard to whether EVs are already viable in Mexico, the electrical infrastructure is simply not there yet. In Mexico, close to 43 percent of energy consumed is used for transportation. Around 25 percent is used to generate electricity. If we want to transition to electrified transport, then we need to increase our power generation capacity first. This will likely not happen within the next 10 years.

Q: What are the main barriers companies face in adopting cleaner new technologies?

A: The technology is already there; the challenge is how to make it economically viable for the developing Latin American region. In Mexico, a major question is how the country can promote cleaner public transportation modalities since it does not allow companies to increase their tariffs and rates. Incentives could help too. At the end of the day, companies cannot switch to more expensive solutions on the same income. State-of-the-art technologies have a premium cost attached to them. Mexico is still primarily investing in refineries rather than green hydrogen production. Mexico should create regulation to boost the development of such technologies and to make it more accessible to consumers.

Recently, the Ministry of Environment and Natural Resources (SEMARNAT) postponed some of its higher emission standards for the automotive industry. Nevertheless, Cummins completely complies with these high standards, although the availability of low-sulfur diesel has been uncertain. This is jeopardizing the introduction of new technology: outside of providing the engines, we need to have the appropriate fuel ready. These issues need to be solved first in Mexico, which largely depends on imports for low-sulfur diesel. With new refining capacity, the government hopes to address this. For now, Cummins offers engines that run on natural gas. This is a great alternative because of its low emissions and great efficiency. Several of our clients have reported saving up to 30 percent in fuel costs. Natural gas is making the country more competitive, although any type of new engine can easily beat outdated technologies.

Q: What will be the main drivers for Cummins’ growth in 2022 and what are its goals?

A: We foresee a mix of drivers. Despite the pandemic, transportation keeps growing. COVID-19’s push toward remote working has also increased the need to use the internet, which is boosting the development of data centers in Mexico. Companies will continue to invest in these centers, which require stable power and, therefore, benefit from our solutions.

The US economy is showing a strong recovery. Normally, the Mexican market follows suit. We have not seen strong signs of this but we hope to see this improve in 2022. In any case, the US consumes many products that are manufactured in Mexico and this presents an opportunity for the transport sector. In addition, we expect to see more business from the reactivating mining sector. Regarding the energy industry, we still expect this sector to remain quiet for the next three years. However, the need for emergency power will keep growing. Cummins has a responsibility to foster positive change in Mexico and beyond. It is not only up to the government; private companies can strive to do better by promoting diversity in the workforce and generate a net positive impact.

Cummins is an American multinational corporation that designs, manufactures and distributes engines, filtration and power generation products. It has more than 60 years of experience in the Mexican market.