STORY INLINE POST
On May 20, the Group of Seven most industrialized economies (G7) launched their Clean Energy Economy Action Plan, a seven-point document reflecting their priorities to achieve the Paris Agreement goals, including their commitment to reach net-zero emissions by 2050. There are five items that arose from this action plan, which if taken as a blueprint for low and middle income countries, it will align incentives and create for interested countries the conditions to partner and share in the benefits of a potentially sustainable net-zero path.
A new business model. There will be a concerted effort to embrace decarbonized industrial production as the default business case, which would support green growth and coordinate activities among the interested parties.
International cooperation. All interested parties will work together to align efforts and develop consistent policies to expand opportunities for trade and investments that scale up clean energy technologies, including into non-G7 members.
Harmonized accounting measure of carbon content. A concerted endeavor to have a single set of metrics to ensure that the baseline and progress is robust and creates the conditions for fair and open competition among the interested participants.
Strategic friendshoring. There will be a concerted effort to boost investments in renewable energy technologies and energy efficiency measures, and to diversify clean energy manufacturing supply chains to reduce dependency on critical minerals. Interested non-G7 participants would have access to the Partnership for Global Infrastructure and Investment (PGII) to help them catalyze public and private finance, to support and accelerate their clean energy transitions and contribute to long-lasting economic growth in these jurisdictions.
Clear and transparent rules of the game. There will be joint work to promote open, transparent competitive energy markets and to develop technical international standards for critical minerals markets through the International Organization for Standardization.
This blueprint also comes with a pledge from the G7 to mobilize in the next four years up to US$600 billion of investments to narrow the infrastructure investment gap to support a net-zero path in partner countries. There has been some progress on this front: at COP26 in Glasgow, some G7 members pledged US$8.5 billion to support South Africa in its decarbonization process through the Just Energy Transition Partnership (JETP). A year later, at the G20 meeting in Bali, Indonesia, US$20 billion was pledged. In addition to these two countries, the second set of partners include India, Senegal, and Vietnam. Moreover, the G7 has already expressed interest in working with the G20; therefore, the participation of President Lula da Silva at the Hiroshima G7 summit sends a strong signal that Brazil has returned to the international arena, and potentially advancing the terms of its JETP.
If Mexico would like to be part of the G7 Clean Energy Action Plan and this net-zero path, the requirements are clear. On one hand, Mexico has clear advantages: it is already a G20 member country, holding commercial treaties with all the G7 member countries with a trade balance of US$142.4 billion in 2020. On the other hand, Mexico needs to align its energy, mining, and trade policies to international best practices. On energy, a positive development is the announcement of the Sonora Plan, where a public-private partnership model would allow investment and the deployment of solar power; yet, if Mexico would like to promote a JETP like Indonesia’s (US$20 billion), the Sonora Plan can and should be multiplied by at least a factor of 10 to supply the upcoming needs of the relocated clean energy manufacturing supply chains, in addition to investments in the transmission infrastructure required to strengthen the national grid, and to increase electricity trade with the US. On mining, the G7 will work through the Minerals Security Partnership to strengthen supply chains for critical minerals, promote responsible and sustainable investment in extraction and processing, and recycling and drive high environmental, social and governance (ESG) standards. Mexico should explore the possibility of joining this partnership to attract the investments required in critical minerals, especially in processing and refining, more so considering the renewed national interest in developing lithium reserves. On trade, engaging with the G7 to negotiate a carbon market would ensure that our companies would be ready to compete and thrive in the growing shared markets for clean energy goods and services.
However, there are a couple of preconditions for Mexico to get a share of the US$600 billion to be mobilized by 2027. First, we must actively increase our presence at the working and political levels in international forums, including the G20, the UNFCCC, and WTO; and domestically, to ensure that the political cycle neither transcends nor distorts the investment climate.