Private vs. public ownership of power generation in Mexico : should environmental policymakers care?

Abstract

Congress has not yet approved regulatory reform in the Mexican energy sector. In fact, the debate is deadlocked, with many political actors disagreeing on even the most basic principles that ought to guide future investments in energy. The disagreement persists even as the structure of the energy sector has begun to change. Privatization of power generation, for example, has accelerated over the past five years, in spite of the fact that several of the obvious legal modifications that would provide greater certainty for private investors are not in place. International firms are the primary investors. Some observers suggest that increased competition and privatization will benefit consumers by increasing energy supplies and reducing costs. These new developments, however, might have mixed environmental consequences. That is what I set out to discover. While it may be true that new investments in electricity generation can produce technology improvements that are more efficient and environmentally cleaner, it is also possible that, with competition keyed primarily to price, the free market could perpetuate fossil-fueled generation, making investments in renewable energy unattractive and reducing investments in emission abatement.

(cont.) The fact is, privatization of power generation in Mexico, which has occurred within a market that is only partially open, seems to have produced cleaner and more efficient plants. This appears to have occurred primarily because newer technologies (and the fuels they employ) happen to be cleaner than the technologies that have traditionally been used. Some private power producers, who own and operate new plants in Mexico, have chosen to adopt environmental practices that exceed those that public producers have been required to meet. There is actually great variability in the environmental management practices of both publicly-owned and privately-owned plants in Mexico. Among public utilities, most improvements in environmental management practice seem to have come in response to pressure from regulatory bodies at the national level. Private producers, on the other hand, seem to respond more to corporate strategy dictated by their parent companies and to mandates from funding institutions.