Mexico's climate law to face challenge under new president

SAO PAULO, July 24 Tue Jul 24, 2012 4:33am EDT

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SAO PAULO, July 24 (Reuters Point Carbon) - Mexico's new president is unlikely to implement much of the sweeping climate change law signed in June by outgoing President Felipe Calderon amid inevitable resistance from industry and his party's focus on accelerating economic growth and ramping-up oil and gas production, policy experts said.

Enrique Pena Nieto, who will take office in December after winning national elections earlier this month, will bring the Institutional Revolutionary Party (PRI) back to the presidency after a 12-year hiatus, resuming its 71-year reign over Mexico.

One of Pena Nieto's main campaign promises had been to reinvigorate sagging oil and gas production by reforming Mexico's state-owned giant Pemex to allow more private investment.

The president-elect will also be under pressure to deliver a campaign goal to increase Mexico's GDP growth to as much as 6 percent per year, making a focus on environmental issues unrealistic in his first years in office, experts said.

"The industrial sector has contributed to a large share of the PRI campaign's resources and because of that it expects to have total openness in the dialogue with the upcoming government," said Benjamin Ordonez Diaz, director of Pronatura Mexico AC, an environmental organization.

Weak economic growth was a main factor behind the erosion of public support for outgoing President Calderon's National Action Party.

Mexico's GDP growth averaged 2.6 percent over the last two decades, significantly lower than other emerging economies that have experienced much more rapid growth during the same time frame.

The new government, analysts said, will have a more open ear to companies on economic issues, and will be less keen to implement any restrictions, such as carbon dioxide limits, in the first years of its six-year mandate.

CLIMATE LAW

Mexico's climate law, one of Calderon's legacies, aims to cut greenhouse gas emissions by 30 percent from business-as-usual levels by 2020 and by 50 percent by 2050.

It also calls for a major increase of the use of renewable sources to generate up to 35 percent of all electricity in the country and requires mandatory emissions reporting by all the major economic sectors.

But the legislation will need to implement several mechanisms, such as a financial incentive to drive renewables investment and an emissions trading system to reduce carbon, that may be too complicated for the new administration.

"The goals are certainly very aggressive and I will put a question mark on them," Carlos Ramirez, Mexico analyst for political risk consultancy Eurasia Group, said.

"Because it will not be the first time and certainly will not be the last time that a law approved by the Congress has goals that are out of reach for the country," he added.

OIL PUSH

Ramirez said the new government will be focused on oil and gas production. One of the pillars of Pena Nieto's campaign was to further open the oil and gas sector to attract private investment and increase production.

Mexico's oil production has fallen by a quarter since a peak in 2004 to about 2.55 million barrels per day.

Pemex estimated there are up to 29 billion barrels of crude equivalent in the Gulf of Mexico, but the company lacks the expertise do tap these reserves. Broader partnerships with other companies would be necessary.

"Because of the potential Mexico still has in gas and oil, they will continue to be the main area of interest," Ramirez said.

"That does not necessarily mean you will have to abandon the work in other areas, but of course you are not going to see an aggressive shift in the energy pattern. It is not going to happen in the short term, not in the medium term."

Miriam Grunstein, international counsel for project finance and energy with law firm Chadbourne & Parke in Mexico, questioned in a recent article Calderon's aggressive target in the climate bill, to reduce fossil fuels in power generation by 50 percent by 2050.

"This will be quite a challenge for Mexico, as it still is a hydrocarbon-dependent economy with gigantic commitments to hydrocarbon industry infrastructure. If this remains the case, it is questionable the fit that renewable/clean energy will have in Mexico," she said.

POLITICAL SYSTEM

Political analyst Eduardo Viola, a professor of International Relations at University of Brasilia (UnB), called the attention to the way presidential systems work in Latin America and the shifts expected in a political transition.

"A large part of the legislation will be left to be regulated by the next president. The law's implementation timing will always depend on the president's orientation," said Viola, a Global Environmental Politics scholar.

"This is a common scenario for presidential systems in Latin America, something that we know well," he said.

Viola said Pena Nieto will be a more domestically-focused president than Calderon, who had prioritized global issues, such as climate change action.

Calderon's climate agenda pushed Mexico to the forefront of climate politics and encouraged lawmakers to finalize a modern general law on climate change.

Although climate change was not a central theme of the PRI campaign, Pena Nieto did cite the issue among its proposals.

He said he wants to promote renewable sources and to increase energy efficiency in order to reduce Mexican dependence on fossil fuels and cut greenhouse gas emissions.

Christina McCain, senior manager of the Latin America Climate Initiative, run by the Environmental Defense Fund (EDF), acknowledged Mexico's economic situation but said the new president will be in a privileged position regarding climate.

"The law he has inherited gives Pena Nieto discretion over how robustly to implement it; in other words, he begins his term with the power and opportunity to establish Mexico as a leading 21st-century low-carbon economy."

(Editing by Valerie Volcovici)

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