Mexico’s Supreme Court on Thursday declared a controversial energy law by President Andrés Manuel López Obrador unconstitutional, which gives preference to state-owned power plants over private competitors.
The law went into effect in March 2021, but a number of private energy companies sought injunctions to block enforcement. After the law has been declared constitutional, the decrees must now be clarified.
The law stipulates that electricity must first be purchased from state-owned power plants, which primarily use coal, oil and diesel to generate power. If necessary, additional electricity from private wind, solar and natural gas systems could be purchased.
Jesús Ramírez, spokesman for the President, celebrated the court’s decision. “History will judge those who betray the country and the interests of the Mexican people,” he said via Twitter.
Critics, including the United States government, claim the law will undermine competition in the industry, harm the environment and violate free trade agreements.
US Ambassador to Mexico Ken Salazar said in a statement following the decision, “We are concerned that the 2021 Electricity Act is likely to open the door to endless litigation, creating uncertainty and hampering investment.”
He said the US hopes that “the emerging regulatory framework will support the creation of a North American clean energy powerhouse, protect current and future US corporate investments in Mexico in accordance with Mexico’s obligations under the United States-Mexico-Canada Agreement, and integration.” of the US-Mexico supply chains for the prosperity of our region.”
Judges reviewed the law piece by piece, repeatedly returning divided votes insufficient to overturn it. The constitutional complaint was brought by opponents of the law in the Mexican Senate. The court’s formal written decision will not be published for weeks.
Opponents of the law claim it will create a de facto state monopoly, hamper competition and force Mexicans to buy more expensive and polluting electricity.
Miriam Grunstein, a researcher at the Center for the United States and Mexico at Rice University’s Baker Institute, said Mexico could lose “a lot of investment capacity, a lot of credibility.” She said it could render Mexico’s electrical system “inoperable” at a moment when the aftermath of Russia’s invasion of Ukraine is already complicating the energy sector.
López Obrador claims the law’s goal is to protect state-owned companies from what he sees as unfair competition from private power plants.
Many private companies went to court after the law came into force so that they could continue to operate. Investors in the private facilities argued the law violated the strict limits of the new agreement between the United States, Mexico and Canada on how a government could favor its own companies over outsiders, and also violated Mexico’s international commitments to reduce carbon emissions .
Grunstein said this could be the beginning of the end of free competition in Mexico’s energy sector, given that proposed constitutional reform goes in a similar direction and aims to shut down the market.
Mexican lawmakers are also debating related constitutional reform for the energy sector, which would achieve much of what is in the law but would be more difficult to reverse if enshrined in the constitution.