The Opportunity Mexico Can’t Miss

Successful outcomes are heavily influenced by our ability to seize opportunities that come along the way. Countries, and in this case Mexico, are subject to this same universal rule. Following the recent passing of the Inflation Reduction Act (IRA), the current Mexican administration has an unprecedented opportunity to align its interest with the US, growing energy demand via low-cost homegrown clean energy, all while acting on its climate goals and benefiting from the exponential economic growth resulting from energy innovation. 

Although the energy models followed by the US and Mexico are substantively different, the development of their respective industries has been compatible with each nation’s energy and economic interests. In the decades since World War II, both nations have been able to mutually benefit from the other’s energy policies, creating a balanced bilateral relationship and strengthening the North American region. The passage of the IRA is yet another opportunity for Mexico to transform its energy policy toward a more sustainable future.

The Inflation Reduction Act is the largest bill passed in the US to advance clean energy deployment, mitigate inflation, and combat climate change by incentivizing clean energy investments. The bill is set to deliver holistic results on energy, the economy and climate as listed below:

1. Carbon reduction via clean energy investment: 

• Lower power sector emissions to 25 percent of 2022 levels in 10 years

• Create multiple tax credits and incentives to support the growth of clean energy

2. Domestic manufacturing: 

• Create investment incentives to create new manufacturing capabilities in the country for renewable energy equipment (panels, inverters, racking, etc)

3. Jobs:

• Create new high-paying jobs 

• New labor provisions to support union jobs

The beauty of this bill is that it is turning a challenge into an opportunity to reinvigorate the US economy by ramping up energy innovation and entrepreneurship, fostering domestic manufacturing, creating a buffer against volatile energy commodities and further supporting energy independence and energy security. The economic growth that will happen directly from this bill is a stepping stone to modernize and build a cleaner energy grid. Mexico, as the US’ next door neighbor, can be the guest of honor if it decides to join the party.

The opportunity for Mexico has many angles but it simply stems from aligning with the country’s most important trade partner in embracing homegrown clean energy as a fundamental component of the energy matrix of North America. In addition to the bill, as the US is looking to distance itself from China, there is an unprecedented opportunity for Mexico to become a key piece in the clean energy supply chain. Mexico can take advantage of the growth that is to come with the Inflation Reduction Act by seizing the following opportunities:

Improve energy independence goals by adopting clean energy

Mexico relies heavily on gas imports from the US to generate most of the energy it consumes. This presents not only intrinsic fossil fuel challenges, such as price volatility, but it carries the supply risk that gives the US a lot of leverage over Mexico. Mexico could increase its energy independence by diversifying the energy matrix through more clean energy deployment and tap into the power of the sun and wind to power its economy. 

Meet energy demand amid constraints from traditional sources 

According to the official numbers from SENER via the Prodesen (Programa de Desarrrollo del Sector Electrico Nacional 2022-2036), Mexico will require anywhere from 40 to 45GW of new generation capacity during the period to satisfy the energy demand even under a very basic demand growth scenario (CAGR 2.7 percent). This capacity is in addition to the 5.6GWs that CFE has announced in the same document, where it states it will invest in generation capacity (combined cycle plants). What’s more, during the 14-year period CFE is considered to only decommission 3.44GWs of production capacity. As a result, the total generation capacity deficit is poised to grow further.

Provide green energy to companies that desperately need it

Most large multinational corporations have committed to using renewable energy and many are operating in Mexico and already providing good-paying jobs. Renewable energy in Mexico is far from reaching its potential and its deployment could help solve the energy constraints that challenge Mexico’s growth. To attract more manufacturing facilities and jobs, Mexico can and should facilitate clean energy implementation for industrial activities. 

Attract direct foreign investments and create jobs

Mexico is positioned to attract tens of billions of dollars in foreign direct investments. First by allowing the renewable energy sector to grow and second by providing the nearshoring manufacturing capabilities the US will require as a result of the Inflation Reduction Act. These are high-paying high-tech jobs that will directly impact the lower and middle classes in Mexico, boosting social mobility in the country.

Comply with Paris Accord commitments:

Mexico is facing challenges to comply with its self-imposed goals, but this alignment will be a step in the right direction and will send a message to the world that Mexico is committed to environmental stewardship. 

There is no country better positioned than Mexico to benefit from the growth the US will experience in the next decade as a result of energy innovation. Mexico can and should become a key partner to the US to lead the world in the adoption of renewable energy. The result will be economic growth, energy price stability, job generation, direct foreign investment and the exponential effect that this can have in the country. My hope is to see the current administration taking advantage of this opportunity and act to be front and center in this new era for energy. Like Bob Dylan says, “Then you better start swimmin' or you'll sink like a stone. For the times they are a-changin.’” Let’s hope Mexico swims.