Will its new climate scientist president pivot Mexico towards renewables?

With Claudia Sheinbaum, a climate scientist, winning a landslide victory in Mexico’s presidential election on Sunday, a policy pivot toward renewables is already seen as a possible outcome as she emerges from the shadows of her mentor, President Andres Manuel Lopez Obrador.

AMLO, as Sheinbaum’s populist predecessor is known, touts a Mexican brand of oil nationalism centred around state-run fossil giant Pemex and power utility CFE.

Denying market share to private sector renewable energy companies was a mark of AMLO's time in office, which began in 2018.

Sheinbaum’s political career is closely tied to AMLO’s but, as mayor of Mexico City, her approach has contrasted with his.

She took an empirical approach to fighting crime, with positive results, and won plaudits for her willingness to listen to advice and to work with the private sector.

Green policies?

Sheinbaum has challenges to face, including soaring rates of organised crime, but many investors are now looking to what she will do in the energy space as a key signpost for policy direction.

Sheinbaum holds a PhD in environmental engineering and, as a former environmental secretary of Mexico City who has contributed research to the UN’s Intergovernmental Panel on Climate Change (IPCC), she is often described as an "environmentalist".

She has said she wants to invest $13.6bn in clean energy, outlining measures than include installation of solar, wind, hydroelectric and geothermal power generating capacity — six projects alone, as well as four transmission line reinforcement projects.

In the words of one a retired Mexican diplomat, she "understands both sustainability and climate change".

Felix Delgado, senior research analyst, Solar PV Latin America, at consultancy firm Wood Mackenzie, noted that Sheinbaum's campaign had become centered on the energy transition, which "coupled with her technical background as a climate and energy scientist, signals a more positive outlook for renewables."

“She diverges from AMLO’s policy by prioritising renewable development. Her $13.6bn energy investment plan until 2030 focuses on wind and solar expansions," he added.

Distancing measures could involve dropping AMLO’s plans to nationalise lithium production or perhaps reversing her own pledge – which nonplussed investors – to put Pemex and CFE in charge of the promised boom in green investments.

A proposed role for Pemex is paradoxical from the environmental point of view, but also ignores the fact that the oil company has been saddled with world-record amounts of debt.

Mentor AMLO

However, it is not yet clear if she intends to to distance herself from a mentor who enjoys 65% approval ratings, with infamous skills as a communicator.

"She is expected to continue AMLO's policies by prioritising [CFE] over private participation in the power market. She plans to maintain CFE's 54% share of electricity generation while allowing limited private participation, through controlled and proportional permit approval," Delgado cautioned.

But historic underinvestment in transmission and distribution infrastructure, undersupply in generation capacity, and rising power demand may leave her with little choice.

"Leveraging CFE’s ability to engage in public-private partnerships or contracts will be crucial, given CFE’s limited finances and capacity to focus on generation, transmission and distribution activities," Delgado notes.

"Although transmission and distribution are state-exclusive, the law allows CFE to engage in such partnerships on its behalf. Therefore, it is anticipated that CFE will utilise these mechanisms to a certain extent to facilitate renewables integration."

Climate goals

Sheinbaum's handling of national decarbonisation targets will also be a key pointer.

Mexico is currently one of only two G20 nations without any net zero emissions target.

In October 2022, during COP27 in Egypt, Mexico began to address this anomaly by announcing a commitment to reduce emissions by up to 35% by 2030. The Mexican government promised investments of $49bn in energy efficiency, sustainable transportation, renewables and nature based solutions.

The closing phase of Sheinbaum's administration will coincide with deadlines for Mexico to meet key climate goals including the Paris Agreement and the Kunming-Montreal Framework, and there are expectations that she can strengthen the climate objectives outlined in Egypt.

Sheinbaum has said she will release a National Energy plan early in her term, outlining the sector’s goals until 2050 and aiming to align the sector with international climate commitments.

Constitutional reform?

Another area being closely watched by investors is the possibility of AMLO-led constitutional reform.

The scale of the Morena party's selection victory means that a Sheinbaum ruling coalition is within sight of a two-thirds super-majority in both houses of Congress, potentially allowing it to pass a clutch of constitutional reforms proposed by AMLO on the eve of the elections, even before he leaves office.

Although some analysts have express concerns about what might result from such reforms, Andres Rozental president of Rozental & Associados consultancy firm, pointed out that — depending on the drafting — it could actually provide some welcome certainty in areas where the constitutionality of Mexico's current Electricity Law has been at issue.

Concerns are real, however, and Rozental also pointed out that AMLO has, during the six years of his presidency, tried to "dismantle or emasculate some of the entities that were created as checks and balances on the executive branch [of government]".

US trade

On the economic front, Sheinbaum takes over a Mexico that has been doing well out of US efforts to decouple supply chains from China. Trade and manufacturing has been boosted by a North American free-trade deal that was signed under President Donald Trump.

Legal insecurity has been raised as one of the factors holding back trade, however and there are signs that a new trade dispute is looming over US concerns that Mexican assembly plants are serving as a 'Trojan house" for imports of cheap Chinese electric vehicles.

AMLO appeared to back down recently over US pressure on Mexico not to offer incentives to Chinese EV manufacturers recently, but Sheinbaum may have a balancing act to perform after campaigning on pledges to boost auto manufacturing jobs in Mexico.