- He certainly hasn’t been representing the interest of green energy investors.
By Mary Anastasia O’Grady
During a visit to Mexico last week President Biden’s climate envoy, John Kerry, heaped praise on President Andrés Manuel López Obrador. “I see wisdom in his leadership that wants to undo some of the mistakes of the past and help to promote the interests of the people,” Mr. Kerry said of the 69-year-old career politician who sat nearby whispering to his team and grinning.
Mr. Kerry apparently saw no irony in linking arms for a photo-op, on the same trip, with Manuel Bartlett, one of the most notorious “dinosaurs” of Mexico’s one-party state during the 20th century. Mr. Bartlett is now the director of the state-owned Federal Electricity Commission, or CFE, which is at the center of a dispute with American renewable-energy investors.
The climate envoy’s job is to travel around the world spreading fear about global warming and pressuring countries to adopt the environmental lobby’s agenda. Mr. Kerry is good at the former. But while his seven trips to Mexico over 18 months seem to have made him Mr. López Obrador’s new BFF, they’ve done nothing to advance the cause of renewable energy in Mexico.
Mexico reformed its constitution in 2013 to allow for private investment—foreign and domestic—in energy. In November 2018, then-President Enrique Peña Nieto signed a renegotiated North American Free Trade Agreement, christened the U.S.-Mexico-Canada Agreement. Whereas Nafta did not commit Mexico to open its energy sector, USMCA consolidated the opening Mexico had done unilaterally and prohibits discrimination of investors and service providers.
AMLO, as the Mexican president is known, took office in December 2018 with a goal of restoring the monopoly power of the CFE and the state-owned oil company Petróleos Mexicanos, or Pemex. To get there, he’s been backtracking on Mexico’s USMCA obligations. Climate-envoy Kerry, who ought to represent U.S. interests, has served as a prop.
Pemex is a polluter. Last week the Mexican daily Reforma reported that about 30% of the output from its refineries is dirty fuel oil, roughly the same as its gasoline output. This compares with about 1.5% of output from U.S. refineries that is fuel oil. Pemex has trouble exporting this high-sulfur residual so it depends on the CFE as a buyer.
Under USMCA, Mexico is committed to issue permits to energy producers and allow interconnection with the electricity grid on a nondiscriminatory basis. The independent systems operator is supposed to dispatch the energy used for electricity generation according to its marginal cost. This implies that solar and wind projects go first. Yet to the extent that they displace Pemex, they are unwelcome by AMLO’s government.
Operating renewable projects now face different levels of generation restrictions and other projects have yet to be given permits to operate. As Oregon Sen. Ron Wyden told U.S. Trade Representative Katherine Tai when she testified on Capitol Hill last week, “Mexico is flouting its USMCA obligations by shutting out our renewable-energy providers.”
The U.S. and Canada have been in consultations with Mexico since last year over its discrimination against private energy investors, including in oil, natural gas, gasoline and renewables. In its July request for talks, the USTR pointed to “Mexico’s inaction, delays, denials, and revocations of private companies’ abilities to operate in Mexico’s energy sector.” Eight months later there’s been no progress.
To give himself cover for his economic nationalism, AMLO has now pivoted to building his own wind and solar farms. In February he said that four CFE-owned wind projects will be financed by the U.S. I asked the State Department if this was true. A State Department spokesperson told me that the U.S. plans “to catalyze and incentivize investments in renewable energy and mobilize climate finance to assist with these efforts.”
That sounds like yes, which is strange given that under a new electricity law, which AMLO pushed, energy produced by the CFE will enjoy preference in the dispatch queue regardless of how it’s generated. The law has been challenged and Mexico’s federal court has issued a stay pending a Supreme Court ruling. But if it goes into effect, U.S. financing of CFE projects will help Mexico displace American investors in favor of a state-owned monopoly.
Will the U.S. aid be deployed intelligently? Doubtful. The government has already overbuilt solar supply in the remote Sonoran desert, while the dream of a better grid, which is arguably a natural monopoly and the job of the state, remains elusive.
Green energy has advanced but it’s still an intermittent supply. To make it work requires more private capital in things like battery technology and creative thinking about how to structure future cost-sharing contracts with reliable producers. But AMLO’s attempt to nullify the ground rules under which private green capital has entered Mexico only drives new investment and innovation away. Note to Mr. Kerry.
Write to O’Grady@wsj.com.
Mary Anastasia O’Grady is an Opinion Columnist, writes “The Americas,” a weekly column on politics, economics and business in Latin America and Canada that appears every Monday in the Journal. Ms. O’Grady joined the paper in August 1995 and became a senior editorial page writer in December 1999. She was appointed an editorial board member in November 2005. She is also a member of the board of directors of the Indianapolis-based Liberty Fund. Energiesnet.com does not necessarily share these views.
Editor’s Note: This article was originally on the WSJ in the March 26, 2023. All comments posted and published on EnergiesNet or Petroleumworld, do not reflect either for or against the opinion expressed in the comment as an endorsement of EnergiesNet or Petroleumworld.
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energiesNet.com 03 28 2023