Mexican and American officials met Thursday amid disagreements over power reform aimed at limiting foreign-built renewable energy plants and giving Mexico’s state-owned utility a majority market share.
President Andrés Manuel López Obrador met with US climate chief John Kerry, but the Mexican leader appeared unwilling to budge on the proposal, which is currently stuck in Mexico’s Congress.
“I think it was a friendly, necessary and useful meeting,” wrote López Obrador on his social media accounts.
While he didn’t address the differences, López Obrador appeared to offer foreign firms an opportunity to invest in a project to build natural gas liquefaction plants in southern Mexico, likely to export LNG to Europe or Asia.
Mexico needs to import gas — it doesn’t produce enough to meet its own needs, let alone export it — so the program would involve pumping U.S. natural gas into ports in southern Mexico, cooling and liquefying it, and loading it on board ships to load ships.
“There are many opportunities for investment,” López Obrador said before meeting Kerry. “We have excess gas due to purchases through the gas pipelines” that process US gas. “We have land, we have seaports in Salina Cruz, Coatzacoalcos.”
López Obrador has vowed to press ahead with changes in the electricity industry despite US fears that they could close markets, stifle competition and potentially violate the US-Mexico-Canada free trade agreement.
On Thursday, US Trade Representative Katherine Tai told US Senators she was “deeply concerned by the legislative and regulatory developments in Mexico’s energy industry that we have seen over the past few months. My team and I at USTR, along with much of the US government, have regularly and directly raised these concerns with our counterparts in the Mexican government.”
Tai said energy companies and environmentalists “have unanimously expressed concern about what is happening in Mexico, particularly regarding the competitiveness of the North American energy market as well as the competitiveness of Mexico’s energy industry.”
Mexico’s changes would favor a domestic company — the state’s Federal Electricity Commission — over foreign electricity producers, which is prohibited under the US-Mexico-Canada Free Trade Agreement.
“I have informed Mexico and I assure you that at USTR we are reviewing all available options under the USMCA to address these issues,” Tai said, “so that the USMCA can work for our stakeholders and protect our environment in all three countries.” “
Senator Ron Wyden, an Oregon Democrat, said Mexico is considering “laws to concentrate market power and regulatory authority in the hands of the state electric company. This result means a greater focus on fossil fuels with limited opportunities for clean energy providers.”
“So Mexico’s new reforms are a punch or two at America’s ecological progress,” Wyden said. “Not only are they a setback in the fight against the climate crisis, they also deny American companies, for example in the Pacific Northwest, a fair shake-up of the Mexican market.”
After a meeting in February, Kerry expressed “significant concerns” about the bill, but López Obrador said the proposed changes “do not affect the treaty at all”.
US companies have complained bitterly about constitutional changes proposed in October. They are still being held up in Mexico’s Congress, where they need a two-thirds majority that López Obrador has yet to muster.
The changes would guarantee Mexico’s state-owned power plants, which often burn dirty fuel oil or coal, a majority market share, while private wind, natural gas and solar plants would be restricted to a minority market share.
Many US companies operating in Mexico have either invested in cleaner power plants themselves or rely on the cheaper energy produced there.
But López Obrador’s penchant for fossil fuels is also a fundamental problem. He often looks back nostalgically to his youth in the oil-rich Gulf Coast state of Tabasco, and has boosted investment in oil refineries. These refineries often produce dirty fuel oil as a by-product, and it has to be burned in state-owned power plants because few other buyers want it anymore.
The bill, presented in October, would terminate contracts under which 34 private power plants feed electricity into the national grid. The plan would also make “illegal” another 239 private facilities that sell energy directly to corporate customers in Mexico. Almost all of these plants are powered by renewable energy or natural gas.
The measure would also terminate many long-term energy supply contracts and clean energy preferential purchase programs, often affecting foreign companies.
It puts private gas-fired power plants almost last — ahead of only state coal-fired power plants — for rights to sell electricity to the grid, even though they produce electricity about 24% cheaper.