Energy transition challenges and opportunities from COP28 for emerging economies: the case of Mexico

Blog by Gumersindo Cue Aguilar, Masters student in Leeds University Business School. 

According to the energy-related outcomes achieved at COP28, accelerating the transition towards net zero emissions by 2050 is at the nucleus of the global climate ambitions. From the energy industry viewpoint, the most important outcomes can be identified as the following:

1. A just, orderly and equitable transition away from all fossil fuels including the phase-out of unabated coal power and phasing-out inefficient fossil fuel subsidies;
2. Ambitious, economy-wide emissions reductions targets through nationally determined contributions (NDCs);
3. Tripling renewable capacity and doubling energy efficiency by 2030;
4. Scaling-up adaptation finance and reforming financial architecture for climate purposes. 

These outcomes entail challenges and opportunities, especially for emerging economies which face not only financial hurdles but also require progress within the legal, regulatory and policy frameworks needed to meet their own NDC goals. For instance, Mexico, which has high-quality renewable energy resources and has reached significant advances in its climate change regulation, currently faces uncertain policies that must be revisited in order to make feasible its own climate goals. For instance, the IEA1 estimates that by 2030 Mexico will reduce its emissions intensity by 7%, whilst similar economies like Chile and Brazil will achieve 35% and 30% respectively. These trends mean that there is room for improvement and further actions are needed. 

Since the beginning of the century, Mexico has featured as one of the most active mid-income countries for climate action, establishing its legal framework, promoting the substitution of fuel oil for natural gas and renewables in the power sector, and being the first developing country to establish its NDC in 2015. This was possible because of a better understanding about the hazards that climate change poses for the country, as well as by identifying the technical and economic competitiveness of the deployment of clean energy investments in key economic sectors like electricity generation, transportation, industrial activities like export-oriented sectors (cement, automotive, manufacture, electronics), amongst other factors. 

Although significant efforts have been made in the country, over the last five years Mexican energy and climate policy has supported the strengthening of fossil fuel infrastructure (like oil refineries) and has limited the integration of new renewable energy into the transmission grid under arguments of supply reliability and national sovereignty. This poses serious challenges to the country being able to achieve its NDC target of reducing its CO2 emissions by at least 35% by 2030. It also prevents adaptation to the growing risks associated with climate change like hurricanes, heatwaves, reduced water quality and availability, flooding, and the fragile equilibrium in production of some crops like corn, whose balance of trade is negative. 

In this context, and only looking at the COP28 target of tripling renewable energy capacity by 2030, Mexico needs to make profound changes in its energy policy. For this purpose, at least, it is essential to: 

• Update the national renewable resources inventory, assessing its untapped potential under technical, economic, environmental and social feasibility. 

• Through sustainability strategies, leverage the role of natural gas as a transition fuel, and reassume competitive mechanisms (auctions) to bid new renewable energy infrastructure under reliable, sustainable and regulatory certainty standards, with a regional approach according to the electric system’s needs. 

• Evaluate transmission infrastructure needs per region with the consideration of integrating renewable energy under reliability and sustainability criteria. 

• Advance the development of new regulation to boost technology adoption and assimilation in the fields of energy storage in any form (electricity, pumped hydro, etc.), clean fuels, green hydrogen, and strengthening the reduction of methane leakages. 

• Improve the efficacy of administrative procedures related to permit granting and modifications, especially in the energy sector, which is the key driver to attract investments and the relocation of global supply chains in the country (nearshoring). 

Action in the current decade is critical for achieving the Paris Agreement climate ambitions, and emerging countries have a strategic role in the global efforts. For Mexico, being the second largest economy in Latin America, the time to act is now. 

Featured image: eneko muruzabal elezcano