Sheinbaum's Energy Dilemma: Green Dreams vs. Nearshoring Needs

Mexico 's new president, Claudia Sheinbaum, is facing a serious challenge. In the coming months, she’ll have to outline an ambitious climate policy that satisfies a number of key actors both in her administration, party, and the country at large. And, quite crucially, one that can meet rising demands for a transition to clean energies while also enabling manufacturers to set up shop in the country amidst the rise of nearshoring (more in IMCO).?

This week at Nido we wanted to look more closely at these tensions as they are likely to be the most crucial debate of Sheinbaum’s administration. Moreso, as we seek to provide startups with a full background on the Mexican economy and the many opportunities that might arise within it. So, we put together a brief summary of the many tensions faced in the Sheinbaum administration when it comes to energy policy.

Let’s start by outlining a fact that might not be obvious from the get go. Often, when we speak of these tensions on the energy field, we are referring to two very different scenarios. First, is the tension between Mexico’s plan to expand capabilities and a drastic increase in demand from the many companies seeking to open new factories in the country but wary about the lack of energy (more in COPARMEX). Second, and equally as important, we have a debate between Sheinbaum’s own prioritization of renewable energy and her party’s strong stance towards energetic sovereignty, often through fossil fuels

It is worth looking at each of these challenges in due course, starting with the rising demand in the wake of nearshoring. Previously at Nido, we’ve written about the dire need to invest in electric production in Mexico. Data clearly shows that, despite growing production capabilities, Mexican energy demand is growing steadily (more on ConteNIDO). A pattern that will only be exacerbated by hundreds of companies investing in manufacturing capabilities in Mexico in the wake of nearshoring.

Although this second pattern is worrisome on paper, it seems to be the case that Mexico is dead focused on making energy a key policy of the coming years—more of this in a second. The question, however, is how will that demand be met? Will it be through fossil fuels, as has been the case over the last decades, or through a noble interest in clean energy?

This brings us to the second tension to discuss: the internal debate between Sheinbaum and her own party. You see, over the last six years, President Andrés Manuel López Obrador of Morena spearheaded a series of legislations meant to preserve Mexico's energetic sovereignty—a phrase that refers to a nation’s ability to produce its own energy without having to import it from abroad. Chief amongst them was the acquisition of an oil refinery in Houston and the construction of another refinery within Mexico in the southern city of Dos Bocas—a key infrastructure project for the administration (more in Capital21 and El País). On the legal side, President López Obrador tried to pass an ambitious reform to roll back the participation of private actors in Mexico's energy production, highly favoring the nation’s state-owned oil company (PEMEX) and electricity administration (CFE) (more on KAS). At the time, however, reforms of this sort were pushed back by Mexico' s Supreme Court (more on Forbes).

As one can see from these points, the vision of energetic sovereignty—especially, the one tied to the López Obrador administration—is closely related to fossil fuels, which are, in turn, seen as the best bet to maintain Mexico’s growing energetic demand with existing resources. Not surprisingly, when López Obrador first came into office, PEMEX—again, Mexico’s state-owned oil company—was producing the lowest amount of crude oil it had ever seen in recent history: just 1,823 thousand barrels of oil per day. By the end of his administration, the tide had turned to a slight increase of 1,855 thousand barrels, with increases starting in 2020.

Sheinbaum stands somewhat in contrast to these maxims. Before she entered politics, she was a renowned climate scientist at Mexico’s premiere university, UNAM. As an undergrad, she pursued a degree in Physics while writing a thesis on the impact of using energy efficient gas stoves in rural communities of Mexico. Ever since, renewable energies became somewhat of a passion to her. Later, in her PhD, she focused on energy, later teaching courses on energy management (more on Infobae). She was a founding member of the Intergovernmental Panel on Climate Change (IPCC) which served as one of the earliest supporters for a transition away from fossil fuels and received the Nobel Peace Prize in 2007 (more on CNN and The Nobel Prize).?

It's always been the case that Sheinbaum's biggest tension with the López Obrador administration came in the form of energy policy. As mayor of Mexico City, her own largest achievements all concentrated around energy policy, from making the largest solar energy project in an urban center to creating an efficient form of transport in the shape of electric gondolas connecting key areas of Mexico City (more on Politico).

But now, Sheinbaum has to deal with both perspectives. On the one hand, her own desire to achieve an energy transition while, on the other, meeting the rising demand of Mexico’s population and the calls to do so through fossil fuels. She is, in a way, both herself and the Morena president and has to balance both positions. And nowhere is this clearer than in her own program for the administration (which you can read here). The plan consists of 100 points she hopes to carry out throughout her tenure. Points 65 and 66 cover her energy policy—and how puzzled with tensions they seem to be from the get go. In point 65, Sheinbaum argued for the importance of strengthening Mexico’s state-owned oil and electricity companies—which, again, operate largely on fossil fuels. Yet point 66 speaks of achieving a transition to renewable energy.?

It's still early to tell how these tensions will balance out although, early in the tenure, Congress did pass a reform—a remnant left by the López Obrador administration—that restores power to state owned companies (more on Forbes). Sheinbaum has yet to present an official policy for renewable energy but, let’s not forget, she’s been in the presidency for less than a month—if she had solved the climate crisis in that time, that would’ve been something else.

For now, we need to wait and see what such policies will be. But one thing is certain: energy will be a key topic of the administration. The question is, what type of energy will that be?

Written by José Luis S.