Arturo Carranza
Energy Project Manager
Akza Advisory
Expert Contributor

Two Energy Models, One Relationship

By Arturo Carranza | Wed, 02/09/2022 - 11:02

To understand the implications of the US secretary of energy’s recent visit to Mexico, it is best to start from a very basic premise: historically, the relationship between these two countries has been marked by differences. This does not imply the presence of a crisis in which the foundations of the relationship have been affected. On the contrary, it means that both nations have shown the capacity to manage these differences and advance toward their solution.

This helps us understand what lies behind Secretary Jennifer Granholm's statement about the concerns of the Biden-Harris administration regarding the possible negative impact that Mexico’s energy reform proposals could have on private US investments. The secretary's words expose two different visions of the role that energy plays in each nation and suggest that, in one way or another, these differences will impact the future of the US-Mexico relationship.

As to each country’s energy visions, it is appropriate to recall that, since he took office as president, Joe Biden has been working on the implementation of a broad program of re-industrialization and scientific-technological developments based on the promotion of clean energies. Under this logic, the president and his cabinet work on the decarbonization of the US economy from two perspectives: the substitution of fossil fuels in the generation of electricity and the transformation of the automotive industry, by moving it from internal combustion engines to electric vehicles.

Aiming to materialize these efforts, during the coming years, the US will invest US$1.2 billion in modernizing the country's infrastructure, as well as in promoting research and development. The ultimate goal is to ensure that, by 2035, electricity in the US will come from clean sources and that, by 2050, the US economy will be completely decarbonized.

In the case of Mexico, President Andrés Manuel López Obrador is implementing an energy policy whose central axes are the strengthening of public energy companies and the promotion of fossil fuel production to achieve the long-awaited "energy self-sufficiency." There can be no doubt that this path implies a rupture that leads to uncertainty and that keeps businesses from investing.

The fracture has to do with the strong criticism of the 2013 Mexican Energy Reform, which laid the foundations for an energy model that fostered competition and the existence of autonomous and independent regulatory bodies. But this fracture is not only a criticism of the past. López Obrador's energy policy is also an approach that leaves Mexico behind in the energy transition.

What impact will the rupture that Mexico's current energy policy represents have on the US-Mexico relationship? The answer to this question requires sensible reflection to avoid disproportionate interpretations, such as those commonly heard in times of polarization and antagonism.

In this regard, although Biden's proposal will accelerate his country's energy transition, it does not imply that the US will stop producing and consuming fossil fuels in the medium term. What it does mean is that President López Obrador's energy policy is not completely out of sync with the US energy reality. Mexico could – if it decides – continue to export crude oil to the US and maintain its imports of natural gas and automotive fuels, given the complementarities of the energy markets in the North American region.

What remains true is that if the Biden project was to be consolidated, the energy transition will enter a point of no return. In the next 30 years, coal will lose importance as a fuel used for industrial activities, while oil will lose its share to natural gas and renewable energies. The displacement of oil operators by companies betting on new technologies will continue to advance. Even though oil and natural gas will continue to be strategic fuels, green hydrogen and other technologies, such as energy storage, will be even more so.

Therefore, if Mexico does not want to lag behind in the energy transition, it must align its policies with the trends that today drive US decisions. Mexico’s government must consider that, at a global level, the common denominator is the decarbonization of the world energy matrix for reasons linked to global warming – the main challenge facing the planet.

In spite of the aforementioned, it is difficult to believe that the Mexican government will change the energy policy it has followed so far. Given this context, it becomes necessary for different voices outside the government to express their views on the developments in the energy sector. For this reason, the statements made by the US secretary of energy, in the context of her recent visit to Mexico, should be understood not as a claim but as an opportunity for both countries to advance together in the construction of one common future.

Photo by:   Arturo Carranza