Climate High on North American Energy Agenda

This week’s gathering in Winnipeg of energy ministers from the US, Canada, and Mexico has received little media attention, coming as it does in a period of stock market volatility and economic uncertainty. Yet there are reasons to be optimistic about the meeting’s potential to stimulate North American cooperation on energy issues – in particular, with developing a continental strategy to combat climate change.

Critically, this week’s event comes as Prime Minister Justin Trudeau has renewed Canada’s focus on climate-change mitigation. Trudeau’s Conservative predecessor, Stephen Harper, was seen by many climate activists as downplaying the issue due to his close ties to the Alberta oil patch. As a result, much of the advances that Canada made on the climate front over the past decade came at the sub-national level. Even without Ottawa’s blessing Ontario and Quebec, the most populous provinces, adopted cap-and-trade schemes for greenhouse gas emissions, while British Columbia imposed a carbon tax as far back as 2008. Now, though, the federal government is playing catch-up.

Since taking office in November, Trudeau has sought to draft a new national climate strategy in close consultation with the provinces. Late last month, the federal minister of environment and climate change, Catherine McKenna, met with her provincial and territorial counterparts to discuss the issue, and a first ministers’ meeting tackling climate change is set for next month. In a further sign of how the tone in Canada has shifted, the government of Alberta late last year presented its own ambitious climate program, including a carbon tax – and the oil industry voiced its support.

The new Canadian approach has been welcomed in Washington. President Barack Obama, who has less than a year left in office, is focusing more on climate issues as he seeks to cement his legacy. Obama’s support was widely seen as instrumental in securing an international climate deal at December’s Paris summit. More recently, the president has frozen coal leases on federal lands, and his administration is giving signals that it might support a carbon tax. Those policies put the US and Canada on the same wavelength – although how long they stay there depends in large part on who wins this year’s US presidential election.

Meanwhile Mexico, which as the least-developed member of the triumvirate often finds itself out of sync with its partners, is in some ways taking the most aggressive action of the three on emissions reduction. In 2013, Mexico was the first North American country to pass a national carbon tax. Last year, the nation’s Congress passed an energy transition law setting out a framework to boost renewables’ share of the national electricity matrix. This past March, Mexico became the first developing nation to present an Intended Nationally Determined Contribution (INDC) in advance of the Paris climate talks. And less than two weeks ago, Mexico formally launched a competitive wholesale electricity market; the new system’s first power auction is set to take place next month, although it is unclear how big a role renewable projects will play.

A major component of the Mexican climate strategy is further energy integration with the US. President Enrique Peña Nieto’s government is working to build numerous cross-border natural gas pipelines connecting northern Mexico to the Texas shale gas fields. Some of that gas is going to state electric utility CFE, which is converting power plants that run on high-emission fuel oil and diesel to use the cleaner fuel. However, there remains far more scope for integration between Mexico and its northern neighbors. Electricity trade between Mexico and the US, for example, remains minimal despite the huge potential.

Looking ahead, Mexico’s energy integration with the US and Canada is likely to increase rapidly, in good part due to the historic 2013 energy reform that ended state monopolies in both the hydrocarbon and electricity sectors. Indeed, the Canadian government’s announcement of the Winnipeg meeting noted that energy trade will be on the agenda. Future discussions must focus on the vital issues of infrastructure, regulatory harmonization, and quality and quantity of energy data. 

Jason Fargo is the Latin America Team Leader for Energy Intelligence