Mexico’s Transition to a Net-Zero Emissions Energy System: Near Term Implications of Long Term Stringent Climate Targets

Abstract

Mexico has positioned itself as a leader among emerging countries for its efforts to mitigate climate change through ambitious climate policies aimed at reducing greenhouse gas (GHG) emissions. However, the Energy Reform bill approved in 2014 promotes the production of hydrocarbons to develop the economy of this sector, as well as the use of natural gas for electricity generation in order to reduce electricity prices in the short term. In 2016, nearly 80% of Mexico’s total electricity was generated by thermal power plants. While natural gas prices stay low, there might be a limited role for natural gas to act as a fuel bridge in this sector if the government is to pursue deep decarbonisation targets to 2050. There is a risk that over-investing in gas infrastructure may delay a transition to lower carbon sources, potentially leading to less cost-efficient pathways towards decarbonisation. This analysis is based on three decarbonisation scenarios that have been modelled using an energy system optimisation model soft-linked to a power systems model. Our results suggest that a deep decarbonisation of the power system is techno-economically feasible and cost-optimal through renewables (mainly solar PV and wind); also, that decarbonisation paths post-2030 are largely dependent on the investment decisions made in the 2020s. It is therefore essential that Mexico’s energy planning decision-makers avoid a natural gas “lock-in” that would either cause carbon targets to be missed or risk leaving some natural gas infrastructure stranded.