CLIMATE ACTION TRACKER BROWN TO GREEN: G20 TRANSITION TO A LOW CARBON ECONOMY

Mexico This country profile assesses the Mexico’s past, present and indications of future performance towards a low-carbon economy by evaluating emissions, decarbonisation, climate policy performance and climate finance. The profile summarises the respective findings from, amongst others, the Climate Change Performance Index (CCPI, operated by Germanwatch and Climate Action Network Europe), the Climate Action Tracker (CAT, operated by Climate Analytics, NewClimate Institute, Ecofys and Potsdam Institute for Climate Impact Research), and analyses from the Overseas Development Institute (ODI). Human Development Index

Share of global GHG emissions

GHG emissions per capita

Share of global GDP

GDP per capita

(tCO2e/cap) G20 average

0.76

0.82

0

G20 average

8.7

5.7

1.3% 1 1

G20 average

Source: UNDP, data for 2015

Source: World Bank Indicators, data for 2012

$ 1.8%

$

$ $ 13,484

$ 15,071

Source: IEA, data for 2013

GREENHOUSE GAS (GHG) EMISSIONS 1000

7

900

6 5

700 600

4

500 3

400 300

2

200

1

100

Emissions per capita (tCO2/capita)

Total emissions (MtCO2e/a)

800

0

30 20

26 20

22 20

18 20

14 20

10 20

06 20

02 20

98 19

94 19

19

90

0

Historic emissions (excluding forestry)

Energy-related CO2 emissions

Energy-related CO2 emissions per capita

Current policy emissions projections (excluding forestry)

Historic forestry emissions/removals

G20 average of energy-related CO2 emissions per capita

Mexico’s GHG emissions have continuously increased in recent decades, up to 713 MtCO2e in 2012, and are likely to grow further by 2030. Emissions from land use, land-use change and forestry (LULUCF) declined since 1990 to 44 MtCO2e in 2012. Mexico's energy-related C02 emissions have grown similarly to total GHG emissions. Energy-related CO2 per capita emissions have increased to nearly 4 tCO2, but remain below the G20 average. The CCPI indicates a relatively good performance by Mexico, but the five-year trend indicates a worsening development.

Composition of GHG emissions

66% N O 7% CH 18% F-Gases 1% CO2* 2

4

CCPI evaluation of emissions level and trend

Level Weak trend

very poor

poor

medium

good

very good

Strong trend

CO2 emissions from forestry 7% *CO2 emissions excl. LULUCF Source: Annex I countries: UNFCCC (2015); Non-Annex I countries: IEA (2014) and CAT (2015)

Sources: Past energy related emissions from the Climate Change Performance Index (CCPI); past non-energy and future emissions projections from the Climate Action Tracker (CAT). CCPI calculations are primary based on the most recent IEA data; CAT calculations are based on national policies and country communications. Brown to green: G20 transition to a low carbon economy

Mexico - Country Profile

DECARBONISATION Total Primary Energy Supply per GDP PPP(MJ per 2005 US dollar)

Energy intensity of the economy 10

The energy intensity of Mexico's economy (TPES/GDP) has slowly decline over the years. Starting one third below the G20 average, Mexico's energy intensity went down to around 5 TJ per million US$ in 2000 and has remained relatively stable at that level ever since. The CCPI ranked Mexico’s level of energy intensity as good, with a positive trend.

9 8 7 6 5 4 3 2 1

20 12

20 10

20 08

20 06

20 04

20 02

20 00

19 98

19 96

19 94

19 92

19 90

0

Energy intensity

CCPI evaluation of energy intensity of GDP

Level

Average energy intensity in G20

Weak trend

Source: CCPI, 2016

very poor

poor

medium

good

Strong trend

very good

Carbon intensity of the energy sector 70

The carbon intensity of total primary energy (CO2/TPES) in Mexico has increased throughout the years, but is still below the G20 average. Compared to other countries, the CCPI has evaluated Mexico as a relative poor performer. The ongoing increase over the last five years has led to a negative trend.

Tonnes of CO2 per TPSE (tCO2/TJ)

60 50 40 30 20 10

Carbon intensity (past trend)

Global benchmark for a 2°C pathway

30 20

26 20

22 20

18 20

14 20

10 20

06 20

02 20

98 19

94 19

19

90

0

CCPI evaluation of carbon intensity of energy sector

Level

Average carbon intensity in G20

Weak trend

Sources: Past: CCPI; future projections: CAT

very poor

poor

medium

good

Strong trend

very good

40%

450000

35%

400000

30%

350000 300000

25%

250000

20%

200000

15%

150000

10%

Total coal in TPES [TJ]

Share of coal in Total Primary Energy Supply (TPES) At 5%, the share of coal in Mexico's primary energy supply is low, compared to other G20 countries. Future projections expect the coal share to drop even further until 2030.

100000

5%

50000

0

% of coal (past trend)

% of coal (current policy projections)

Average % of coal in G20

Global benchmark for a 2°C pathway (min & max)

Source: CAT

Brown to green: G20 transition to a low carbon economy

30

Evaluation of coal share in TPES

20

26 20

22 20

18 20

14 20

10 20

06 20

20

02

98 19

94 19

19

90

0

Total coal consumption (TJ) poor

medium

good

Source: own evaluation

Mexico - Country Profile

Renewable energy in TPES and electricity sector 900000

30%

800000 25%

Total renewable energy in TPES [TJ]

700000 600000

20%

500000 15%

400000 300000

10%

200000 5%

Mexico's share of renewables in electricity has decreased over the years, down to a level of 15% in 2012. According to future projections, the share will stagnate around 13-16% until 2030. However, these projections do not yet include the effects of a recently approved Energy Transition Law and its target of 35% clean energy by 2024. As with the share of renewables in electricity, Mexico's share of renewable energy in primary energy supply is decreasing, going from 12% in 1990 to a level of 8% in 2013, now below the G20 average. The CCPI evaluates Mexico's renewable energy level as relatively poor, with a negative trend.

100000

0

% of renewable energy in electricity (past trend)

% of renewable energy in TPES (past trend)

% of renewable energy in electricity (current policy projections)

G20 average % of renewable energy in TPES

Total renewable energy consumption (TJ)

20 30

20 26

20 22

20 18

20 14

20 10

20 06

20 02

19 98

19 94

19 90

0

CCPI evaluation of renewable share in TPES

Level

Sources: CCPI and CAT

Weak trend very poor

poor

medium

good

Strong trend

very good

Emissions intensity of the electricity sector

The electricity demand in Mexico increased from a very low level in 1990 to nearly 2000 kWh per capita in 2012. According to future projections, it is expected that this growth will continue in the coming years.

After slightly exceeding the G20 average up to 2003, Mexico's electricity emissions intensity dropped to a low in 2008. Since then, emissions intensity has been increasing again towards the G20 average.

Electricity demand per capita (past trend) Average electricity demand per capita in G20

Source: CAT, 2015

Electricity demand per capita (current policy projections)

30 20

26 20

22 20

18 20

14 20

10 20

06

0

20

30 20

26 20

22 20

18 20

14 20

10 20

06 20

02 20

98 19

19

19

94

0

100

02

500

200

20

1000

300

98

1500

400

19

2000

500

94

2500

600

19

3000

700

90

3500

19

Emissions intensity of electricity [gCO2/kWh]

4000

90

Electricity demand per capita [kWh/cap]

Electricity demand per capita

Good practice benchmark: without nuclear or large hydro potential (Denmark)

Emissions intensity (past trend) Average emissions intensity in G20

Good practice benchmark: with large hydro potential (Norway)

Source: CAT, 2015

Evaluation of the electricity emission intensity

poor

medium

good

Source: own evaluation Brown to green: G20 transition to a low carbon economy

Mexico - Country Profile

CLIMATE POLICY PERFORMANCE Climate policy evaluation by experts

Checklist of the climate policy framework

Internationally, Mexico was evaluated as a good performer until CCPI’s 2011 evaluation, when its performance declined. Experts say energy policies are not aligned with the emissions reduction targets set by the Climate Change Law and the INDC. While Mexico strongly supports the fossil fuel sector, the CCPI still rates it well relative to other countries.

Low emissions development plan for 2050* 2050 GHG emissions target Building codes, standards and incentives for low-emissions options Support scheme for renewables in the power sector

The CCPI evaluates a country‘s performance in national and international climate policy through feedback from national energy and climate experts.

Emissions performance standards for cars Emissions Trading Scheme (ETS)

very good

Carbon tax

good

* understood as decarbonisation plans and not specifically as the plans called for in the Paris Agreement Source: Climate Policy Database, 2016

medium

poor

CCPI evaluation of climate policy

6

5

01

4

01

I2 CC P

I2 CC P

3

01

2

01

I2 CC P

I2 CC P

1

01

0

01

I2

I2

9

01

00

I2

CC P

very good

CC P

good

CC P

medium

I2

I2

poor

CC P

very poor

CC P

00

8

very poor

CCPI edition National

International

Source: CCPI, 2016

Compatibility of national climate targets (INDCs) with a 2°C scenario 1000 900

Max Min

Total emissions (MtCO2e/a)

800 700

Max

600

Min

500

Max

400 300

Min

200 100

Historic emissions (excluding forestry)

Historic forestry emissions/removals

sufficient

30 20

26 20

22 20

Emissions in INDC scenario (max & min)

CAT evaluation of Mexico’s Intended National Determinded Contributions (INDC)

medium

18

Fair emissions reduction range in a 2°C pathway

Current policy emissions projections (excluding forestry)

inadequate

20

14 20

10 20

06 20

02 20

98 19

94 19

19

90

0

Mexico’s Intended Nationally Determined Contribution (INDC) was submitted on 28 March 2015 and proposes to unconditionally reduce its greenhouse gases (GHGs) emissions and black carbon by 25% below baseline levels in 2030, equivalent to an increase of 35.8% above 1990 levels (including Land Use and Land Use Change and Forestry – LULUCF emissions). Based on this target, the Climate Action Tracker rates Mexico as “medium” since Mexico’s ambition level is not yet consistent with limiting global warming to below 2°C, and would require other countries to make deeper reductions and comparably greater efforts. Current policies imply emissions levels of 8–17% above the INDC target in 2030. Mexico has shown strong progress in policy planning and institution building, including the adoption of its General Law on Climate Change (LGCC in Spanish) in 2012. This was the first law on climate change in a developing country, under which Mexico aims to reduce its emissions by 50% from 2000 levels by 2050. This target is consistent with the INDC objective.

role model

Source: CAT, 2015

Brown to green: G20 transition to a low carbon economy

Mexico - Country Profile

FINANCING THE TRANSITION Investment attractiveness

Allianz Energy and Climate Monitor RECAI* (E&Y index) Category (own assessment)

Climate Transparency rates Mexico’s investment attractiveness as low to medium, due to the historical state monopoly in the energy sector and no substantive support schemes for renewables uptake. However, the new “pro-market” government has begun an overhaul of the energy sector. The 2014 constitutional reforms have opened up the electricity sector to private developers who have been awarded contracts worth 1,720 MW of renewable power.

LOW

MEDIUM Sources: Allianz Energy and Climate Monitor and RECAI reports

Trend** *Adapted from RECAI and re-classified in 3 categories (low, medium, high) for comparison purposes with Allianz Monitor. **Taken from RECAI issue of May 2016

The Allianz Energy & Climate Monitor ranks G20 member states on their relative fitness as potential investment destinations for building low-carbon electricity infrastructure. The investment attractiveness of a country is assessed through four categories: Policy adequacy, Policy reliability of sustained support, Market absorption capacity and the National investment conditions. The Renewable Energy Country Attractiveness Index (RECAI) produces score and rankings for countries’ attractiveness based on Macro drivers, Energy market drivers and Technology-specific drivers which together compress a set of 5 drivers, 16 parameters and over 50 datasets.

Historical investments in renewable energy and investment gap This section shows Mexico’s current investments in the overall power sector (including distribution and transmission) as well as in renewable energy expressed as the share of the total annual investments needed to be in line with a 2°C compatible trajectory

Investments in the power sector

% of current investments in the power sector compared to the investment needs under a 2°C pathway

56%

Investments in renewable energy for the power sector

28%

% of current investments for renewable energy in the power sector compared to the investment needs under a 2°C pathway

Source: Adapted from WEIO, 2014(2) WEIO (2014) compares annual average investments from 2000 to 2013 with average annual investments needed from 2015 to 2030 under a 2°C scenario

(2)

Carbon pricing mechanisms Emissions Trading Schemes (ETS) An ETS caps the total level of GHG emissions and allows industries to trade allowances based on their marginal abatement cost. By creating a supply and demand for allowances, an ETS establishes a market price for GHG emissions.

Carbon Tax A Carbon tax directly sets a price on carbon by defining a tax rate on GHG emissions or – more commonly – on the carbon content of fossil fuels. Unlike an ETS, a carbon tax is a price-based instrument that pre-defines the carbon price, but not the emissions reduction outcome of a carbon tax.

In 2014, Mexico introduced a national carbon tax that, covered 46% of the country’s emissions, and generated almost US$ 1 billion in revenue by mid-2016. The existing carbon tax, in combination with other climate initiatives such as a national emissions registry and the Clean Energy Certificates (CEC) scheme, are expected to enable a carbon market in 2018.

GHG

Sources: World Bank and Ecofys, 2016; other national sources

Brown to green: G20 transition to a low carbon economy

Mexico - Country Profile

Fossil fuel subsidies Despite productivity decreases in ageing oil fields since 2005, Mexico is one of the world’s largest producers of oil and gas. In 2013, Mexico initiated an energy reform to reduce oil industry restrictions to raise production and attract international players. Most of Mexico’s fossil fuel subsidies are consumption subsidies, although some production subsidies intended to reduce operating costs for new companies and spur a competitive market for oil and gas, currently exist (e.g. 100% deduction of exploration expenditures). In 2015, the government began a new fiscal regime for the oil and gas industry to create a level playing field between the monopoly producer, Petroleos Mexicanos (Pemex), and private players by reducing Pemex tax and royalty payments.

Average annual national subsidies (2013-14)*

Mexico G20 total

% of government’s income from oil and gas production (2013)*

$1.4 billion 24.1% $70 billion

Source: ODI, 2015

*The indicators above refer only to subsidies for fossil fuel production, and include direct spending (e.g. government budget expenditure on infrastructure that specifically benefits fossil fuels), tax expenditure (e.g. tax deductions for investment in drilling and mining equipment) and other support mechanisms (e.g. capacity mechanisms).

Public climate finance As a developing country, Mexico is not obliged to provide climate finance. It has nevertheless pledged $10 million to the GCF. Mexico has also created a national climate fund.

Brown to green: G20 transition to a low carbon economy

China - Country Profile