Mexican Electric Industry Reform: A Setback to Climate Change Policies?

Precedents and Goals on Climate Change

In accordance with Mexican legal precedents, climate change is the "[v]ariation of the climate directly or indirectly attributed to human activity, which alters the composition of the global atmosphere and adds to the natural variability of the climate observed during comparable periods."

In response to climate change, Mexico has implemented and adopted several mitigation and adaptation policies under the precaution, sustainability, co-responsibility and progressivity principles established in the Mexican Constitution, international treaties and environmental and energy federal laws. With respect to the energy sector, these policies have been further developed with the publication of the National Program for the Sustainable Use of Energy, the Program for the Development of the National Electricity System 2019-2033 and the Transition Strategy to Promote the Use of Cleaner Technologies and Fuels.

Under such provisions and guidelines, Mexico has set specific goals to combat climate change, including in accordance with the Second Transitory Article of the General Law on Climate Change: (i) reduction of 22% of greenhouse gas ("GHG") emissions by 2030 through the reduction of emissions from transportation by 18%, electricity generation by 31%, residential and commercial by 18%, oil and gas by 14%, industry by 5%, agriculture and livestock by 8%, and waste by 8%; (ii) reduction of emissions intensity per unit of gross domestic product by 40% between 2013 and 2030; and (iii) reaching a maximum of national emissions by 2026. Furthermore, by signing and ratifying the Paris Agreement, the Mexican State ratified its commitment to this 22% reduction of GHG emissions and 51% of black carbon, as well as to generate 35% of power through clean energy sources by 2024 and 43% by 2030.

Notwithstanding the above, currently, the generation of electricity represents 24.1% of all GHG emissions in Mexico. Of this percentage, coal-fired power contributes 4.7%; combined cycle 3.6%; conventional thermal 3.8%; natural gas 5.6%; petroleum refining 1.7%; and solid fuels manufacturing and other energy industries 4.1%. In this regard, it is estimated that these sources generate 1.82 tons per year of carbon dioxide ("CO2") emissions per ton of coal used, 3.12 tons per year of CO2 emissions per ton of heavy fuel oil, 2.83 tons per year of CO2 emissions per 1 ton of diesel; while emissions are reduced by up to 30% (depending on the source) when using clean energy sources or under the energy efficiency and pollutant emissions reduction scheme.

On March 6, 2021, the National Meteorological Service reported that the temperature in Mexico has increased 1.4 degrees Celsius, with respect to the reference period 1981-2010, and in that same period, the planet increased 0.98 degrees Celsius, meaning the temperature in Mexico increased faster than in the rest of the world.

Electric Industry Reform

Regardless of the above-mentioned rules, polices, programs, and international commitments, on March 9, 2021, the Congress passed a presidential bill that reforms and adds certain provisions to the Electricity Industry Law (the "Reform"), with the objective of strengthening the Federal Electricity Commission ("CFE"), which is the state owned company that for many years had a monopoly on electric energy generation, until President Peña Nieto's 2013 reform opened the activity to the private sector.

While the new administration's objective could be considered politically legitimate and foreseeable, its implementation is questionable from a legal point of view and poses a threat to Mexico's goals to combat climate change, as CFE's power generation is mostly done through conventional sources, and the Reform establishes a new structure that would result in the elimination of the preference for clean energy generation and other incentives granted to aid in the growth and development of the clean energy sector. Neither the President nor the Congress proposed complementary or compensatory measures that could mitigate the negative effects of the Reform.

In reaction, more than 120 companies, non-governmental organizations and even governmental decentralized bodies around the country, have filed "Amparo" law suits against the Reform before federal courts (a Constitutional control judicial process to protect individuals' human rights against general rules, acts or omissions by public authorities). Courts in many of these cases have granted injunctive relief, suspending the Reform until such processes are resolved. These suits argue that the Reform goes against several constitutional principles and rights, such as the human right of every person to a healthy environment and sustainable development, as well as commitments on GHG reduction and the transition to clean energy agreed to by Mexico in the international arena, including the Paris Agreement, the Agreement on Environmental Cooperation between the Governments of Mexico, the United States of America and Canada, and the 2030 Agenda for Sustainable Development, among others, which require adopting measures to reduce polluting energy and encourage the use of energy from renewable sources.

The suits further argue that the Reform contradicts provisions contained in various environmental and energy federal laws, including, the General Law on Ecological Balance and Environmental Protection, the General Law on Climate Change, the Electric Industry Law and the Energy Transition Law, among others, which establish provisions aimed at prioritizing and transitioning to clean energies. Therefore, the issuance of the Reform has created a conflict that will have to be finally resolved by the competent courts.

If the Reform is ultimately implemented, the benefits granted to the CFE will be a true disincentive for the development of clean energy plants in Mexico, and will be a setback to Mexico's climate change policies, which were achieved after a long-standing demand and work done by a multiplicity of interested sectors.

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