Skip to main content
Home

Main navigation

  • Centers & Programs
    • Centers
      • Center for Energy Studies
      • Center for Health and Biosciences
      • Center for the Middle East
      • Center for Public Finance
      • Center for the U.S. and Mexico
      • McNair Center
      Center for Energy Studies
      Providing new insights on the role of economics, policy and regulation in the performance and evolution of energy markets.
      More Details
      The globe at night, lights in populated areas illuminated
      Center for Health and Biosciences
      Advancing data-based policies that promote health and well-being in the U.S. and around the world.
      More Details
      Female healthcare worker lifts finger to press digital buttons featuring topical iconography
      Edward P. Djerejian Center for the Middle East
      Developing pragmatic policy approaches to the region’s enduring political, economic and societal concerns.
      More Details
      Topographic map of Middle East
      Center for Public Finance
      Delivering research and analysis on the effects of major U.S. fiscal policies.
      More Details
      Stack of coins with mathematical figure overlays
      Center for the U.S. and Mexico
      Strengthening the binational relationship by addressing major concerns on both sides of the border.
      More Details
      Textured flags of America and Mexico
      McNair Center for Entrepreneurship and Economic Growth
      Providing actionable policy analysis and recommendations that aim to expand the economy through private enterprise.
      More Details
      Professionals gather around a large table with laptops, printed documents and coffee cups for a business meeting
    • Programs
      • China Studies
      • Drug Policy
      • International Economics
      • Presidential Elections
      • Religion & Public Policy
      • Science & Technology Policy
      • Space Policy
      China Studies
      Analyzing the influence of the transnational circulation of people, technologies, commodities and ideas in China.
      Read More
      Person walks alongside large banner with Chinese characters
      Drug Policy
      Pursuing research and open debate to develop pragmatic drug policies based on common sense and driven by human rights interests.
      Read More
      Marijuana
      International Economics
      Studying timely issues in global economic policy as well as developmental policy in foreign countries.
      Read More
      International paper currencies stacked together, showing range of colors and styles
      Presidential Elections
      Offering nonpartisan analysis of elections to better understand the changing dynamics of presidential campaigns.
      Read More
      An assortment of campaign buttons from a variety of US elections and political pursuits are displayed in a collage
      Religion and Public Policy
      Exploring how religion and cultural factors interact with public policy issues.
      Read More
      A worn path stretches between rows of olive trees
      Science and Technology Policy
      Addressing a broad range of policy issues that affect scientists and their research.
      Read More
      A scientist picks up test tubes from a rack.
      Space Policy
      Focusing on U.S. space policy and the future of space travel.
      Read More
      The International Space Station (ISS) orbits the Earth at sunrise
  • Events
    China flag with binary code overlay texture
    China Studies
    Mon, Jan. 30, 2023 | 5:30 pm - 7:30 pm
    How China is Winning the Battle for Digital Sovereignty See Details
    The front of Baker Hall, from across the plaza, with fountain in foreground
    Center for the U.S. and Mexico
    Thu, Feb. 23, 2023 | 5 pm - 7:30 pm
    Immigration Reform and the Impact on Children: A Town Hall Discussion See Details
  • Experts
    • Biomedical Research
    • Child Health
    • China
    • Conflict Resolution in the Middle East
    • Domestic Health Policy
    • Drug Policy
    • Energy
    • Entrepreneurship and Economic Growth
    • Global Health
    • Health and Biosciences
    • Human Rights and Refugees
    • International Economics
    • Islam and Politics
    • Latin American Energy
    • Middle East
    • Political Economy of the Arab Gulf
    • Presidential Elections
    • Public Finance
    • Religion and Public Policy
    • Science and Technology
    • Space Policy
    • Texas Politics
    • U.S. and Iran
    • U.S. and Mexico
    • See All Experts
    • Experts in the News
  • Support
    • Join the Roundtable
      Join the Roundtable
      Learn more about the Baker Institute’s premier membership forum, which offers unique opportunities to engage with fellows and policy-minded peers.
      Read More
      RT
    • Join the Roundtable Young Professionals
      Join the RT Young Professionals
      If you're interested in major political and public policy issues, and want the opportunity to network with industry leaders and your peers, then our young professionals organization is for you.
      Read More
      RYP Baker
    • Major Gifts
      Major Gifts
      Major gifts provide the funds necessary for the Baker Institute to explore new areas of study and research, and expand current programs.
      Read More
      Wallace S. Wilson meeting with former British Prime Minister Tony Blair
    • Endowments
      Endowments
      Endowment gifts provide the Baker Institute with permanent resources that support research programs, fellows and scholars.
      Read More
      Pictured from left are William Martin, Katharine Neill Harris, Ambassador Edward Djerejian, Alfred C. Glassell, III, and Pam Lindberg
    • Planned Giving
      Planned Giving

      Plan a gift that will ensure lasting, meaningful support for policy programs important to you.

       

      Read More
      meeting
    • Corporate Support
      Corporate Support
      Corporations can become involved with the institute in a number of ways and see the benefit from the research conducted by our fellows and scholars.
      Read More
      Wide shot of the Doré Commons during a Shell Distinguished Lecture Series event featuring Wim Thomas
  • About
    • People
      People
      Learn more about the Baker Institute's leadership and get contact information for the administrative staff.
      Read More
      Secretary James A. Baker, III, stands with a portion of the Berlin Wall, outside of Baker Hall
    • Student Opportunities
      Student Opportunities
      Through the internships on campus and beyond, Rice students can explore careers in public policy, or simply become better informed about important issues of the day.
      Read More
      Amb. Edward P. Djerejian speaks with students outside Baker Hall
    • Annual Report
    • Blog
    • Contact
      Contact Us
      Complete a form for event, media or other inquiries, and get directions and parking information for the Baker Institute.
      Read More
      The front of Baker Hall, from across the plaza, with fountain in foreground
  • Contact
  • Research
    • Economics & Finance
      Economics & Finance
      Read More
    • Energy
      Latest Energy Research
      Summary on Latest Energy Research
      Read More
    • Foreign Policy
      Foreign Policy
      Read More
    • Domestic Policy
      Domestic Policy
      Read More
    • Health & Science
      Health & Science
      Read More
    • All Publications
  • Facebook
  • Youtube
  • Twitter
  • Linkedin
  • Economics & Finance
  • Energy
  • Foreign Policy
  • Domestic Policy
  • Health & Science
  • All Publications
Center for Energy Studies | Journal

Mexico’s Energy Prospects: Gains from Renewable Sources Over A Fossil Fuel-Dominated Environment

August 23, 2022 | Pedro Hancevic, Hector Nuñez, Juan Rosellón
Mexico Flag

Table of Contents

Author(s)

Pedro Hancevic
Associate Professor of Economics, Centro de Investigación y Docencia Económicas (CIDE)
Hector Nuñez
Associate Professor of Economics, CIDE
Juan Rosellón
Nonresident Fellow

Share this Publication

  • Facebook
  • Twitter
  • Email
  • Linkedin
  • Print This Publication

Tags

Mexico energy

Changing political conditions in Mexico threaten the future of clean energy in the country. A competitive electricity market and ambitious environmental goals were among the priorities of the previous administration, but the current administration aims to increase revenues from the national power company and acquire control of the electricity market at the expense of consumer welfare and the environment. In the medium and long term, however, renewable energies are expected to make significant progress as a very competitive energy source. In this work, we develop an economic framework to provide insights into the economic and environmental effects of promoting the renewable energy industry. Results show that maintaining the status quo will only favour electricity company revenues (for a limited time), but renewable energy won't take off, while a green strategy would boost economic growth, reduce emissions, and ultimately improve social welfare.

Executive Summary

Following the energy reform in December 2013, Mexico set its priorities by pushing a more competitive electricity market and pursuing specific greenhouse gases emissions and renewable penetration goals. However, with the arrival of the new administration to the federal government on December 1, 2018, the a-priori promising future of a cleaner environment in Mexico has been seriously compromised. Specifically, the current administration aims to increase revenue from the national power company and gain control of the electricity market at the expense of consumer welfare and the environment. In the medium- and long-term (that is, within the next 10 to 30 years), however, renewable energies should become competitive and marketable energy sources due to significant technological advancements, including battery storage infrastructure. Because of this, it is interesting to analyze, and to quantify as much as possible, the potential benefits of an energy system based primarily on renewable energy compared to another scenario dominated by fossil fuels. Therefore, our analysis uses a baseline scenario that follows the energy policy agenda of the current administration which is popularly known as the “Fourth Transformation” or “4T”. Throughout the paper, we contrast the 4T scenario to an alternative “green scenario”. Based on our model, we can deduce the implications of changes in energy supply and demand on the rest of the economy, such as impacts on economic activity, air pollution, and, more generally, economic welfare.

We develop a mathematical programming, economic equilibrium model for the fuel and electricity sectors in Mexico. The model includes imports of fuels from the rest of the world and employs the economic surplus maximization approach first introduced by Samuelson (1952) and later developed by Takayama and Judge (1964, 1971). We follow the modeling strategy of larger and well-known sectoral, partial equilibrium models (e.g., Beach et. al, 2012; Chen et al., 2012; Lapan and Moschini, 2012; and Núñez, 2021). Technically, we develop a static endogenous-price, mathematical programming model, emphasizing the Mexican energy sectors, which are embedded in a multi-region, multi-product, spatial partial equilibrium model of the Mexican economy.

Our partial equilibrium model has the clear advantage of focusing on an accurate representation of the energy sector. In contrast, computable general equilibrium (CGE) models could be used to analyze further effects in other sectors of the economy at the expense of a less accurate fitting in the energy sector. However, even without relying on a CGE model, we adapt the energy-elasticity approach to perform complementarity calculations and assess the changes in employment and production under the two alternative scenarios. Correspondingly, we evaluate the impact that the different mixes of energy generation, and various levels of electrification in the transportation and manufacturing sectors would have on gross domestic product and the national employment level.

The main result is that maintaining the status quo energy policy will only benefit the government-owned electricity company revenues for a limited period. Yet, an alternative green strategy will boost economic growth, reduce emissions, and ultimately benefit social welfare in a substantial way. In particular, most electricity generated under the 4T scenario will come from fossil fuels (mainly natural gas for combined cycle technology) representing 78 % of total generation in 2035 and 77 % in 2050, while the primarily renewable source will be hydropower in this context. By contrast, under the green scenario, renewables will predominate (68% in 2035 and 80% in 2050), primarily from solar and wind sources while hydropower will decline over time. As well as increasing the use of renewable energy, the green scenario will lead to a higher demand for electricity since the cost of electricity will go down, and manufacturing and transportation will become more electrified. As a result, under the green scenario which implies a larger share of renewables and higher amounts of electricity consumed, most economic sectors are better off. The economic surplus of the domestic sectors in the green scenario will be 11% (respectively, 82%) higher in 2035 (2050) than in the 4T scenario. For the projected years 2035 and 2050, GHG emissions in the green scenario will be 56% and 71% lower than in the 4T scenario, respectively. Finally, the benefits of the green scenario will translate into an increase of 1% percent in annualized GDP growth and employment level in 2035 and 1.2% in 2050.

Access the full report in Economics of Energy and Environmental Policy (subscription required). 

  • Print This Publication
  • Share
    • Facebook
    • Twitter
    • Email
    • Linkedin

Related Research

Hydrogen
Center for Energy Studies | Working Paper

Developing a Robust Hydrogen Market in Texas

Read More
ME Map
Edward P. Djerejian Center for the Middle East | Center for Energy Studies | Policy Brief

Building Water and Energy Security in the GCC through an Integrated Policy Approach

Read More
Gas+Stove
Center for Energy Studies | Commentary

Why Gas Stoves Matter to the Climate — and the Gas Industry: Keeping Them Means Homes Will Use Gas for Heating Too

Read More
  • Facebook
  • Youtube
  • Twitter
  • Linkedin
  • Donate Now
  • Media Inquiries
  • Membership
  • About the Institute
  • Rice.edu
Contact Us

6100 Main Street
Baker Hall MS-40, Suite 120
Houston, TX 77005

Email: bipp@rice.edu
Phone: 713-348-4683
Fax: 713-348-5993

Baker Institute Newsletter

The email newsletter of Rice University's Baker Institute for Public Policy provides a snapshot of institute news, research and upcoming events.

Sign Up

  • © Rice University's Baker Institute for Public Policy
  • Web Accessibility
  • Privacy Policy