This issue brief examines the signals conveyed by Mexico's 2014 energy reforms, and analyzes the limitations in law, institutional design and policy that may delay, if not derail, the reforms' success.

Twenty years after NAFTA came into force, Mexico is more dependent than ever on food imports. Energy reforms could help change that.

Speaking from the historic steps of Old North on the Georgetown University campus on June 25, 2013, President Obama unveiled a detailed plan to address the causes and impacts of climate change. In his words, the president promised, “I’m directing the Environmental Protection Agency to put an end to the limitless dumping of carbon pollution from our power plants, and complete new pollution standards for both new and existing power plants.” Not quite a year later on June 6, 2014, Gina McCarthy, administrator of the Environmental Protection Agency, responded by proposing “state-specific rate-based goals for carbon dioxide emissions from the power sector, as well as guidelines for states to follow in developing plans to achieve the state-specific goals.”

Energy regulation under Mexico's energy-sector reforms are of great interest to investors, since autonomous regulators—protected from political pressures and able to make and sustain technical decisions—can guarantee greater legal consistency than government authorities exposed to political pressures. The difficulty was finding an alternative model that ensured the institutional strengthening of the agencies without relinquishing too much control of the executive branch.

Fossil fuel subsidies have allowed energy exporting countries to distribute resource revenue, bolstering legitimacy for governments, many of which are not democratically elected. But subsidy benefits are dwarfed by the harmful consequences of encouraging uneconomic use of energy. Now, with consumption posing a threat to long-term exports, governments face a heightened need to raise prices that have come to be viewed as entitlements. While reforms of state benefits are notoriously politically dangerous, previous experience shows that subsidies can be rolled back without undermining government legitimacy — even in autocratic settings — given proper preparation.

Kenneth B. Medlock III, James A. Baker, III, and Susan G. Baker Fellow in Energy and Resource Economics, testified about crude oil production and energy trade policy before the Committee on Foreign Affairs of the U.S. House of Representatives.

There is a curious imbalance in energy markets in the Persian Gulf region: Five of the six Gulf monarchies exhibit shortages in domestic supply of natural gas. Meanwhile, Qatar holds the world's third-largest conventional reserves and is the world's No. 2 gas exporter. Why is Qatar, given its enormous resources and relatively small domestic needs, unwilling to supply gas sufficient to meet its neighbors' demand?

Mexico’s 2013–2014 energy reform promises to bring the country’s economic drivers and regulatory institutions in line with the global practices of free market democracies. If successful, this development would be a 180-degree turn. The accomplishment of such realignment is hardly assured, however.

A proposed inflation targeting (IT) approach to monetary policy has generated vigorous debate in India, where inflation has not dropped much below 10 percent for the past eight years.

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Executive Summary

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