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On the Horizon 2022 | Mexico

January 11, 2022

Cars at a Mexican gas station — Mexico City, Mexico - October 6, 2021: Drivers refuel their cars at a gas station of PEMEX Petroleos Mexicanos, Mexico’s state-owned oil company.
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Critical Challenge for the U.S. | Energy

Proposed efforts to reverse Mexico’s 2013 energy reform, which opened the sector to foreign direct investment, present the United States with economic, environmental, and national security challenges. Mexican President Andres Manuel Lopez Obrador (AMLO) has long advocated for Mexican energy self-sufficiency, which he associates with the restoration of the primacy of PEMEX and CFE, the state-owned oil and electricity entities. Long an opponent of the 2013 reform, he has proposed a constitutional reform that, inter alia, would grant CFE control of at least 54% of domestic electricity production and prioritize dispatching electricity from CFE’s own generation facilities over private facilities, replacing the current economics-based dispatch framework with one that is ownership-based. Many of CFE’s generation facilities burn bunker oil or combustóleo, a byproduct of oil refining for which there is limited use because of its high sulfur content.

Consequently, Mexican electricity would be more costly than electricity derived from renewable sources, and “dirtier” due to the reliance on combustóleo. The proposed reform would deny firms the right of self-supply – much of which currently comes from investment in renewables, likely undermining Mexican efforts to attract firms seeking to bring production back to North America from Asia. The reliance on dirtier energy will undermine efforts to meet corporate global emissions reductions targets, thus discouraging investment. The proposed reforms likely violate the U.S. Mexico Canada Agreement. Failure by the United States and Canada to challenge the reform’s compliance with the agreement will undermine confidence in the agreement overall. Finally, reliance on fossil fuels for electricity generation questions Mexico’s ability to meet its Paris commitments to address climate change.

Three Things to Watch

1. Migration

As border apprehensions of undocumented migrants reach record levels, the Biden and López Obrador (AMLO) administrations strive to collaborate to reduce the flow and improve the treatment of those who reach the Mexico-U.S. border. Following the Biden administration’s recent acknowledgement of Mexico’s concerns about the treatment of migrants, the López Obrador administration accepted resumption of the Migration Protection Protocols (aka “Remain in Mexico”), which the Biden administration sought unsuccessfully to terminate. Collaboration is also underway to address the drivers of migration from Central America’s Northern Triangle. Expansion of Mexico’s tree-planting “Sembrando Vida” program may provide immediate cash transfers while the new “Sembrando Oportunidades” program provides skills development opportunities. Until these efforts bear fruit, sizable groups of migrants seeking to cross Mexico in caravans offer AMLO a bargaining chip for use in other areas of the bilateral relationship.

2. Security

Agreement on a new bicentennial security cooperation framework in October marked the end of the often decried and mischaracterized Merida Initiative. Criminal organizations’ dominance in large areas of the country has fueled much of Mexico’s violence, highlighted the military’s lack of complete territorial control, and undermined the López Obrador administration’s “hugs, not bullets” strategy. Precursor chemicals and fentanyl increasingly flow from China through Mexico into the United States while small arms and cash flow south. The success of the new framework depends largely on the reestablishment of trust between law enforcement and justice agencies. Mexico’s resumption of the issuance of visas for DEA agents is a good first step though a great deal of work remains to resolve this multifaceted bilateral challenge.

3. Democratic Institutions

Government actions that reduce independence and inhibit performance of their duties are steadily eroding the faith Mexicans place in their institutions. The National Election Institute successfully organized Mexico’s largest ever election in 2021 yet faces budget cuts and potential reforms that would politicize its membership. A recent decree declaring virtually all public works projects matters of national security and requiring regulatory and other agency approvals within five days, undermines public oversight and regulatory institutions’ autonomy. Interference in the independence of academic institutions and criticism of those who express views contrary to those of the government stifles independent thought. The increasing use of governmental investigative bodies to harass political opponents under the guise of anti-corruption efforts undermines faith in the judicial system. Continued efforts to undermine institutions will likely invite further comparisons to Cuba, Venezuela, and Nicaragua while constraining the Biden administration’s ability to engage with the López Obrador administration.

Contributors

Mexico Institute

The Mexico Institute seeks to improve understanding, communication, and cooperation between Mexico and the United States by promoting original research, encouraging public discussion, and proposing policy options for enhancing the bilateral relationship. A binational Advisory Board, chaired by Luis Téllez and Earl Anthony Wayne, oversees the work of the Mexico Institute. Read more