Blog Post

The triumph of Claudia Sheinbaum could mark the beginning of a new era for Mexico’s environmental and energy policies

As Claudia Sheinbaum prepares to take office as Mexico’s next president in October, her administration promises to usher in significant changes, including in environmental and energy policies. This shift is essential as the country transitions from the era of Andrés Manuel López Obrador (AMLO), whose environmental legacy leaves much to be desired. Sheinbaum’s proposed reforms aim to address past shortcomings and chart a new course toward sustainability and environmental stewardship.

While Sheinbaum’s environmental vision is ambitious and commendable, it is not devoid of challenges and uncertainties. The inherited legacy of environmental mismanagement and neglect presents formidable obstacles that must be addressed with strategic foresight and resolute action.

A troubling legacy

AMLO’s administration has faced substantial criticism for its environmental policies, or rather the lack thereof. The past six years have seen a series of setbacks, from the dismantling of technical bodies to inadequate enforcement of environmental laws. The environmental sector, overseen by the Secretariat of Environment and Natural Resources (Semarnat), has struggled with a lack of expertise among its personnel and an overall absence of coherent policy direction. Aside from some progress in protected natural areas, the general approach has been marked by improvisation and complicity in the destruction caused by symbolic projects.

A vision for change

Claudia Sheinbaum’s vision, outlined in her “100 Steps for Transformation” plan, signals a comprehensive overhaul of Mexico’s environmental and energy policies. Her program emphasizes the urgent need for an accelerated energy transition that balances sustainability with the practical requirements of energy sufficiency and affordability.

Key among Sheinbaum’s environmental commitments is the modernization and expansion of transmission and distribution networks to better integrate renewable energy sources like wind and solar power. This modernization is critical, given the current operating reserve margin of the national grid is only 8%, far below the desired 20%. Such improvements will enhance the reliability and security of Mexico’s energy supply.

Aspiration and challenges for energy system decarbonization

Sheinbaum’s administration intends to tackle the dual challenge of reducing fossil fuel dependence while ensuring energy affordability and reliability. Her strategy includes increasing the penetration of renewable energy, boosting energy efficiency, and electrifying as many sectors as possible, particularly transportation. This plan is ambitious, considering transport remains the largest consumer of final energy in Mexico, with a growing demand for gasoline, diesel, and jet fuel.

Her commitment to decarbonizing Mexico’s energy matrix is rooted in principles of sovereignty, security, solidarity, sustainability, and what she terms “good sense.” This approach aims to provide a robust, resilient energy system that supports economic development while honouring international climate commitments.

However, important challenges face an energy transition towards decarbonization, starting with the limited resources of both PEMEX and CFE (the State-owned O&G and electricity utilities, respectively) due to the heavy debts they have accumulated in the last couple of decades as their productivity has fallen. Today these companies are struggling to reach the investment level needed to maintain their output, let alone upgrade their infrastructure or embark in a deep structural transition that will require higher rates of investment.

As was noted in a recent study[1] deep decarbonization in Mexico is a transformation of such wide scope and urgent speed that it will need a very different investment profile over the next 15 years to roll out the new energy system, create the jobs to deliver it, as well as to drive coordinated decision-making across economic and fiscal policies, regulation, and social attitudes, translating into clear investments – and divestments – as of now.

While the state institutions should lead this transition to ensure a coordinated approach, enrolling the private sector with its dynamism, flexibility and innovation capacities will complement a state-led approach, and hence help develop the required business models, regulatory structures, energy markets and changes in consumer behaviour in the very limited time we have left. Furthermore, a paradigm switch to also include final users in electricity production (prosumerism) could help reduce transition costs while positively impacting Mexican families and businesses, but will need active involvement of society to be accomplished. In addition, as energy systems shift, fiscal policy, including both taxes and subsidies, will need to adjust to drive the best results for a rapid transition that achieves both the environmental and social goals set out by Sheinbaum.

Social and Economic Challenges

Sheinbaum’s plan promises measures to support vulnerable communities, such as eradicating energy poverty, promoting gender equity, and maintaining subsidies on residential electricity rates. Establishing access to electricity as a human right signals her commitment to inclusive and equitable energy access.

The connection between climate change and inequality underscores the urgency of addressing social disparities alongside environmental degradation. Climate change disproportionately affects poorer communities which are the most vulnerable, exacerbating existing inequalities and leaving marginalized populations more susceptible to its impacts. Therefore, combating poverty and promoting social equity are essential components of effective climate policies.

The risk for new climate investments

International financial markets reacted negatively to Mexico’s election results. The president-elect promises to continue the nationalist policies from the previous administration which aim to reinforcing the roles of the state-owned energy companies in order to promote energy sovereignty, potentially limiting the potential for investment and impacting productivity. Sheinbaum’s policies have been well communicated and her victory was anticipated, however, the overwhelming majority with which she won gives her the power to enact laws and even constitutional changes without support from the opposition. This has led to a concern that the checks and balances which put a halt to some of AMLO’s most controversial actions with regards to private sector electricity generation and the dispatch of renewable power will be removed, giving free rein to the cancelation of energy contracts which were agreed prior to AMLO taking office.

Furthermore, state-owned enterprises such as Pemex and CFE have been confronted with issues like inefficiency, corruption, and financial instability in the past. Foreign investments can bring advanced technology but usually demand transparency and a long-term vision. Without private and foreign investments, problems associated with the bad administration of the public companies may persist or even worsen.

By maintaining a limitation on private participation, some foreign investments could be discouraged from being allocated in Mexico. On this regard, it is important to recognize that modernizing Mexico’s energy infrastructure and meeting growing demand requires significant infrastructure upgrades and innovation. Providing the necessary funding and expertise to modernize the energy sector requires foreign and private investment. Sheinbaum’s administration may not adequately meet the country’s energy needs and climate commitments if it restricts foreign and private involvement. Her administration must improve and modernize national companies, set clear rules to lead the announced energy transition, and overhaul fiscal policy, altogether. The new administration’s decision to continue with the same policies could result in a high risk of failure. Today, international markets are showing signs of concern.

Claudia Sheinbaum’s upcoming presidency marks a pivotal moment for Mexico’s environmental and energy policies. Her ambitious agenda promises to rectify the environmental neglect of the past and lay the groundwork for a sustainable, equitable future. While the challenges are significant, the proposed reforms could offer a roadmap for a greener, more resilient Mexico.

Her success will depend on her ability to navigate complex political and economic landscapes, implement her policies effectively, and build broad consensus among investors and stakeholders. Sheinbaum’s credentials bring the promise of transformative climate and environmental leadership, while the legacy of her predecessor present uncertainties which will have to be resolved.

[1] IMAGINE Project (2024), results to be published soon.