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Mexico slow on path to GHG reductions

10 January 2021 Kevin Adler

Mexico has signed onto the 2015 Paris Agreement, but it has yet to complete laws and regulations that would move it towards meeting its obligation.

The country does have a National Electric System Development Program for 2019-2033 that requires utilities to source increasing amounts of renewable power. In 2018, approximately 16.7% of Mexico's power generation was renewable, of which more than 80% was hydropower.

The nation's target is that 35% of its power will be renewable in 2024, and incentives are in place, such as a 100% tax income tax deduction for machinery and equipment used in renewable energy production.

But with a country in which power demand is growing by 2.9% per year (US Energy Information Administration), the task of keeping pace with the country's needs, while also reducing emissions, is significant. "There are still no mandatory emissions reduction, limitation or removal obligations set for private parties in Mexico. However, it is expected by 2020," wrote attorneys at Galicia Abogados SC, a Mexico City-based law firm, in a September 2020 client analysis.

To support its effort, the government has established the National Registry of Emissions (RLGCC), to which companies that emit 25,000 metric tons or more per year must:

  • identify direct and indirect GHG emissions from stationary and mobile sources;

  • measure, calculate or estimate the GHG generated by all the emission sources identified;

  • report the GHG emissions annually;

  • verify the reported information; and

  • keep all the information, data and documentation about such GHG emissions for a period of five years.

RLGCC reporting covers the energy, transportation, agricultural, livestock and waste industries, as well as more general categories of "commerce and services" and manufacturing.

Structural challenges

Mexico faces other challenges, particularly in the structure of its oil and gas industry, that also are interfering with the drive to reduce emissions.

Petroleos de Mexico (Pemex), the national oil company (NOC), was the subject of a decentralization and liberalization reform effort in 2013 and 2014 under former president Enrique Peña Nieto that largely failed to turn around a decline in production and lack of outside investment.

When President Andrés Manuel López Obrador was elected in 2018, he shifted to consolidate more of the industry under Pemex's control. Pemex has announced a goal of growing crude oil production from 1.71 MMb/d in 2020 to 2.24 MMb/d in 2024, and it said that one benefit of increased revenues would be greater investment in environmental programs.

However, IHS Markit noted in a report in October 2020 that Pemex's program "has fallen short of expectations to this point," and the weakening of oil prices in spring 2020 will only make the task more difficult.

"Given the operational and financial challenges facing Pemex, it is unclear whether the company will be capable of undertaking significant action to reduce its greenhouse gas emissions in the near term," wrote IHS Markit Principal Analyst Kareem Yakub. "Based on its most recent reporting, Pemex has stated the need to reduce its emissions across the value chain. The corporation's objectives are somewhat general and modest, with plans to reduce gas flaring, improve energy efficiency at its facilities, switch some of its fuel sources from oil to gas, and develop cogeneration projects."

Reducing flaring from oil production is one of the most obvious reduction strategies that Pemex could undertake, and it would support governmental guidelines announced in November 2018 (more below). "Having the dual objective of monetizing gas and reducing flaring from shallow-water assets in the Gulf of Mexico—which accounted for 74% of its output in 2019—the NOC is taking steps to expand its gathering and processing facilities," Yakub wrote. "Pemex is also refurbishing compressors at its gas processing centers to increase gas output while also making the production process more efficient. While these steps are welcome, it is unclear if Pemex will undertake more significant efforts in the short term as it grapples with falling production and severe financial challenges."

Other programs

Other programs are in place to reduce emissions, but again they exhibit either the lack of a firm mandate or delays in implementation that are typical of the country's GHG-reduction efforts so far.

A voluntary Mexican Emissions Trading program was launched in January 2020 for companies generating 100,000 or more metric tons/year of CO2, under management by the Ministry of Environment and Natural Resources. It is expected that the emissions reduction plan finalized in 2022 will include a mandatory trading program, with GHG emissions caps per industry and tradeable allowances. That program will likely be phased in, as the voluntary program has a 36-month lifespan.

Beyond the emissions trading program, Mexico also has guidelines for reducing methane emissions from oil and gas production and distribution that went into effect in November 2018. But these, too, are not yet being enforced. "All existing and new projects (all projects that have obtained a permit or an agreement with the National Hydrocarbons Commission) must conduct a diagnosis of their facilities and establish a methane emissions reduction goal, while new projects should not exceed the volume of methane estimated in the design of the project. Compliance with the obligations provided in the Guidelines, and reporting thereto, was expected by November 2019; however, this term was extended for an additional 19 months upon the lack of authorized third parties required to sign off on the reports and diagnosis of the facilities," said law firm Galicia Abogados.

Posted 10 January 2021 by Kevin Adler, Editor, Climate & Sustainability Group, IHS Markit

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