Mexico's Energy Prospects: Gains from Renewable Sources Over A Fossil Fuel-Dominated Environment

Abstract

Following the energy reform in December 2013, Mexico set its priorities by pushing a more competitive electricity market and pursuing specific greenhouse gases emissions and renewable penetration goals. However, with the arrival of the new administration to the federal government on December 1, 2018, the a-priori promising future of a cleaner environment in Mexico has been seriously compromised. Specifically, the current administration aims to increase revenue from the national power company and gain control of the electricity market at the expense of consumer welfare and the environment. In the mediumand long-term (that is, within the next 10 to 30 years), however, renewable energies should become competitive and marketable energy sources due to significant technological advancements, including battery storage infrastructure. Because of this, it is interesting to analyze, and to quantify as much as possible, the potential benefits of an energy system based primarily on renewable energy compared to another scenario dominated by fossil fuels. Therefore, our analysis uses a baseline scenario that follows the energy policy agenda of the current administration which is popularly known as the “Fourth Transformation” or “4T”. Throughout the paper, we contrast the 4T scenario to an alternative “green scenario”. Based on our model, we can deduce the implications of changes in energy supply and demand on the rest of the economy, such as impacts on economic activity, air pollution, and, more generally, economic welfare.