Mexico Has Limited Options for Companies to Meet Emissions Goals

CO2 emissions are a global issue and now a global market. As humanity faces the challenges and risks of climate change, both countries and companies are making commitments to reduce their greenhouse gas emissions and increase their renewable energy usage. If countries do not have options for enterprises to reduce their emissions, those countries have an opportunity cost related to  reducing pollution locally, as these enterprises will seek alternatives to reduce their footprint and externalities elsewhere, such as renewable energy certificates.

At the COP27, held in Egypt in November 2022, Mexico committed to adding 30GW of renewable energy by 2030 and reducing greenhouse gas emissions by 35%, a commitment that is higher than its initial 22%. However, if we look at the energy mix trend in recent years and the current regulatory environment, it is evident that the country requires a complete strategic change and an active stage-by-stage plan to decarbonize and meet the goal.  

Graphs of Mexico’s energy mix in the past six years show there was an increased penetration of solar and wind capacity from 2017-2020 but then the growth ceased and in 2022, as part of the clean energy mix, solar and wind decreased in comparison to other technologies. Now, only 6% of the mix is generated from wind and 4.8% from solar. In today’s picture, 73% of the energy generation still depends on fossil fuels — and governmental measures, vision, and policies are not helping change the situation. 

As mentioned before, global corporations have their own sustainability and greenhouse gas emission’s reduction targets. Many have aligned their goals to obtain 30%, 50%, and even 100% of their energy from renewable sources by 2025 or 2030. These very aggressive targets face an obstacle in the Mexican market, which is the new renewable energy available. This is becoming a problem in 2023. How can companies increase their renewable energy goals this year if the market is not growing at the pace their goals are and if they are not able to purchase new renewable energy or install it? 

The renewable energy targets of multinational companies are made on a global scale and translated to local strategies and goals, but if goals can’t be met locally, some have turned to an international renewable energy certificate (RECs). A REC is a traceable certificate equivalent to one megawatt-hour (MWh) of electricity generated from a renewable energy source. The way these certificates work is that they create a tracking system for electricity generation sources and then through an instrument (certificate), provide a renewable energy attribute to an owner. This instrument has a price that then becomes an incentive for a source to migrate to renewable energy. It becomes a market that is international and global. Owners of RECs can purchase certificates from electric generation projects from very far away countries, which is why if the countries do not provide the incentives and allow renewable energy to grow in their territory, there is a very large opportunity cost related to  reducing pollution locally. 

Other disadvantages of not having growth in renewable energy as fast as companies’ targets is that foreign investment could be reduced. Nearshoring manufacturing from North America to Mexico is of great interest, but clean energy and energy scarcity in general are becoming an issue that could prevent businesses from moving to the country. 

Another important trend to consider is electric mobility, although studies show that the global grid capacity will not be congested by the shift to electric vehicles, where studies estimate the global grid increase in 2050 will be approximately 4%, but the demand will be for integration to be from renewable energy sources. Therefore, in addition to having renewables available for companies to meet their goals, renewables for EV charging have to be an option as well. The Mexican Automotive Association (AMIA) expressed its concern of this industry disappearing from Mexico if the country does not make clean energy available and at affordable costs, assuring that clean energy is an important pillar for the automotive industry to migrate to electromobility. 

There are still some mechanisms for renewable energy growth in Mexico, one of which  is distributed generation solar. This is the only segment that presented considerable growth in the past two years; however, there is now a proposal from the regulatory commission (CRE) that will limit the growth of this sector. 

There are many reasons to promote clean energy in the country.  Securing nearshoring, securing the continuity of the automotive industry, and reducing pollution locally are only some of the many benefits Mexico can obtain from incentivizing and allowing the clean energy market in the country, in addition to the international commitments made at COP27. Collaboration among the public, private, and academic sectors is key to have a successful transition, which will create economic and social benefits for Mexicans. 

Source: https://www.mckinsey.com/industries/automotive-and-assembly/our-insights/the-potential-impact-of-electric-vehicles-on-global-energy-systems