The Effect of NAFTA on Energy and Environmental Efficiency in Mexico

Abstract

Prior to Mexico's entry to the North American Free Trade Agreement (NAFTA), predictions of the consequent impact on the environment in that country ranged from the dire to very optimistic. This article investigates NAFTA's outcomes in terms of energy use and the emission of atmospheric pollutants. Specifically, has entry into NAFTA led to a convergence or divergence in indicators of emissions, environmental efficiency, and emissions‐specific technology in Mexico, the United States, and Canada? A battery of tests is applied to these indicators for energy use and carbon, sulfur, and NOx emissions in the three countries. The results show that the extreme predictions of the outcomes of NAFTA have not materialized. Rather, trends that were already present before the introduction of NAFTA continue and, in some cases, improve post‐NAFTA, but not yet in a dramatic way. There is strong evidence of convergence across the three countries toward a lower intensity of energy use and emissions per unit of GDP. Although intensity is rising initially for some variables in Mexico, it eventually begins to fall post‐NAFTA. Per capita emissions of sulfur and NOx also show convergence, but this is not the case for energy and carbon, and the latter variables also drift moderately upwards. The state of technology in energy efficiency and sulfur abatement is improving in all countries, although there is little, if any, sign of convergence and NAFTA has no effect on the rate of technology diffusion. However, total energy use and carbon emissions increase both pre‐ and post‐NAFTA and total NOx emissions increase in Mexico. Only total sulfur emissions are stable and falling in all three NAFTA partners.