Environmental Impacts of Mexican Energy Reform

1. Environmental Impacts of Mexican Energy Reform José Juan González Márquez Universidad Autónoma Metropolitana

2. I. Introduction • In 2013 an important Constitutional reform was passed in Mexico by Federal Congress and 31 Local Congresses. • The reform makes possible new schemes of private participation in Energy Sector. • Secondary legislation implementing constitutional amendment is currently being discussed by Federal Congress. • It focuses more on hydrocarbons than on renewable sources of energy. • It includes few but insufficient environmental considerations. • Environmental regime could result inefficient to deal with negative environmental impacts resulting from new and more intensive activity in energy sector

3. I. New Schemes for private investment • By 2013 Mexican constitution forbids private participation in energy sector (oil and electricity industries). • In nineties secondary legislation was modified to open up opportunities for private companies: • Oil sector: • contracts of multiple services (PEMEX with Private companies) • Activities of transport and storage of natural gas were privatized • Electricity: independent producer of energy (private companies generates electricity to complement Energy generated by CFE). They can not sell electricity directly to consumers.

4. Strategic character of Energy Sector • Mexico is a carbon based economyOil Industry is the main source of revenue • Electricity industry is fully integrated to north and central American markets. • Energy sector is the main generator of: • regional and national development • social welfare( CFE and PEMEX: 270 000 employees)

5. Why an energy reform? • Mexican energy sector start losing self-sufficiency: • Mexico passed from exporter to importer of gasoline and natural gas. • Poor development of renewable sources of energy. • Oil reserves started to decline. • Importing natural gas made electricity more expensive. • PEMEX supported a heavy tax regimen • Energy sector required investments that PEMEX and CFE can not afford. • Exploration and exploitation of shale oil/gas and hydrocarbon resource placed in deep waters of Gulf of Mexico required technologies that PEMEX did not have. • So, private investment was seen as the best solution to maintain Mexican oil production in the level it had at the end of XX Century.

6. What the reform consist of? • Constitutional reform of 2013. • reduces the state monopoly just to exploration and exploitation of hydrocarbons but: • Makes possible private participation in all those activities trough contracts • Any other activities of oil industry were privatized. • Reduces the state monopoly just to transmission of energy but privatized allother activities related to this sector. • Constitutional reform is too simple. It modified few words of articles 25,27 and 28. However, it made possible what has been impossible during last 30 years.

7. II. Secondary Legislation • April 2014: Mexican President sent to Federal Congress 9 bill of new energy laws and a proposal to modify 12 currently in force laws. New Laws: • Law of Hydrocarbons • Law of Electricity Industry • Law of PEMEX • Law of CFE • Law on hydrocarbons revenue • Law on Geothermic Energy • Law of Mexican Oil Fund for development and Stability • Law on regulatory Bodies of Energy Sector • Law of the National Agency of Industrial Security and Environmental Protection of Hydrocarbons Sector, • Initiatives are addressed to strength productivity an financial viability. • Agreements on these initiatives seems to be not easy. • Transitory provisions has already defined the content of secondary legislation.

8. III. Renewables: the pending reform • There are two currently in force laws: • Ley of Removable energies and and Support of energy Transition. 2008. • Law for sustainable use of Energy. 2008: • Both of them are just programmatic pieces of legislation without regulatory content. • Proposal of Law of Geothermal Energy. It contains big mistakes. • So, Mexican Energy Reform consist of a more intensive exploitation of hydrocarbons.

9. IV. Environmental analysis of the reform • Mexican Energy sector is the main responsible of green house gases and it has caused the most catastrophic environmental accidents: Ixtoc (1979), San Juanico (1984), Guadalajara (1992). • New Agency but same old instruments of environmental regulation. • Land use regulations(environmental and social conflicts). • Environmental impact assessment. • Emissions control. • New Agency just for Hydrocarbons Sector. • Any activity generates land use conflicts. New Electricity Act. • Exploitation of shale oil/gas offers new challenges: • Subsurface use regulations • Cujus est solum Roman Maxim

10. Conclusions • Mexican energy reform focuses more on privatization that on sustainability. • Arguments behind the reform hold that alternatives for Mexican Energy Sector are exploitation of both; shale gas/oil and hydrocarbons placed in deep watters of Gulf of Mexico by private companies. • An scenary of more intensive exploitation of hydrocarbons demands more efective environmental controls: • By addapting traditional instruments • By including new schemes for payment of externalities. • It is necessary an environmenta liability regime for energy sector. • Redefining frontiers between: • land property • Subsurface property • Natural resources placed into subsurface • Thus, Environmental Energy Reform is still pending.