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As Host of Climate Talks, Mexico Faces Domestic Energy Paradox

Mexico champions climate solutions but is also expanding its oil industry and car ownership

Nov 4, 2010

MEXICO CITY – In the run up to this month’s COP16 meeting in Cancún, Mexico has poised itself as an eager champion of climate change initiatives by rallying its Latin American counterparts to bring environmental policies to the top of their political agendas.
 
Rather than bolster its role as liaison, however, the country should first remedy its own domestic policy dilemma, local environment and energy experts argue. Even while Mexico outlines ambitious goals for climate change, the government is boosting the struggling economy by expanding the state-run oil industry and promoting car ownership.
 
“If Mexico wants to be a leader in the fight against climate change, it has to profoundly rectify its current policies for the energy sector instead of taking the country down the same road of fossil fuel consumption,” said Gustavo Ampugnani of Greenpeace México.
Mexico pledges to reduce its GHG emissions by 50 percent from 2002 levels in 2050 by investing in clean technologies such as wind and solar. The country currently produces 650 million tons of greenhouse gases per year, or 1.5 percent of the global total.

Renewable energies compose 3.3 percent of Mexico’s overall power generation and are expected to increase to 7 percent in 2012, a rise facilitated by the 2008 energy reform bill that allows for private investment in a state-controlled industry. In wind energy, Mexico’s largest renewable sector, the Secretary of Energy (Sener) aims to increase wind-generating capacity to 3,000 megawatts (MW) by 2014, a 600 percent rise from its current capacity.

Yet the government has been relatively slow to outline its plan to achieve such targets, according to the non-profit Mexican Wind Energy Association (AMDEE). A national inventory on renewable energy potential—which helps attract private investment—is more than three years in the making, and the 2008 law’s conceptual framework does not detail plans for public investment or how to bring turbine power to the national power grid or include small businesses or homeowners, the organization says.

Public Investment in State-Owned Oil Impedes Growth of Renewables

Ampugnani said that solar energy is still an untapped resource, as nearly all of big-scale public investments are going to wind projects, such as the $350 million allotted earlier this year for the Rumorosa Wind Park in Mexicali, Baja California.

AMDEE says it attributes this lack of momentum in the clean energy sector to a federal prioritization of oil development.

Martin Pasqualetti, an expert on U.S.-Mexico energy ties at Arizona State University in Tempe, Ariz., explained, “If all of your (efforts) in energy are put in oil, and if that is where the government wants to push, then you don’t see much attention on the other side” of the energy spectrum.

He said that public investments in state-owned Petróleos Mexicanos, or Pemex, could pose an “impediment” to renewable energy efforts because the oil company supplies nearly 40 percent of the government’s revenues through taxes and dividends. Pemex is the world’s fifth-largest oil exporter and the second-largest oil supplier to the United States.

With crude production and exports continually declining as oil fields mature—Mexico’s oil production fell by nearly 25 percent between 2004 and 2009—Pemex is aggressively expanding its exploration both onshore and off. The government is expected to increase its investment budget to $22.9 billion by 2011, up by nearly $2 billion from this year.

“The Mexican government clearly knows that their revenues from oil are going to diminish if they don’t explore, and it’s such a huge amount of potential income that that’s where the emphasis is being put,” Pasqualetti said.

Fabio Barbosa, an oil expert from the Institute of Economic Research at the National Autonomous University of Mexico (UNAM), likened Mexico’s dependency on fossil fuels to a “petro-addiction.”

“The fact that production levels are falling does not mean to say that Pemex will start to decrease its activities. To the contrary,” he said. “The government is pressured to maintain the same levels of production and exportation as in its peak years.”

Barbosa noted that exploiting Mexico’s largely untapped offshore oil reserves would require opening Pemex to foreign capital and technology, a highly contentious issue in this nationalized industry that could take years to resolve.

With production demands so high, he said, Pemex has had to amplify extraction efforts in the Chicontepec, an onshore basin that contributes just 40,000 barrels of crude oil a day on average, out of 2.561 million barrels a day, according to Pemex preliminary production figures for October.  Chicontepec reserves are so dry that oil drillers are resorting to hydraulic fracturing, or fracking, a controversial technique that fractures rocks with liquid and chemical pressure to increase the output of oil and gas wells, Barbosa said.

“To me, this indicates that the geology of our country is beginning to show signs of exhaustion,” he said. “But on the political level, this decline in oil production is perceived strictly as a loss of dollars. In this sense, Mexican politicians are suffering from something like a ‘petro-addiction,’” he said.

Public Transit Expands—But So Do Tax Breaks for Car Buyers

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