Mexico’s Supreme Court on Thursday declared a controversial energy bill pushed by President Andrés Manuel López Obrador constitutional that prioritizes government-owned power plants over private competitors.
The law came into effect in March 2021, but a number of private energy companies took injunctions to block enforcement. Now that the law has been declared constitutional, the injunctions will now have to be resolved.
The law states that electricity must first be purchased from government power plants, which mainly use coal, oil and diesel to produce energy. If demand demands, additional electricity can be purchased from private wind, solar and natural gas plants.
Jesús Ramírez, presidential spokesman, celebrated the court’s decision. “History will judge those who betray the country and the interests of the Mexican people,” he said on Twitter.
Critics, including the United States government, argue that the law will undermine competition in the industry, harm the environment and violate free trade agreements.
US Ambassador to Mexico Ken Salazar said in a statement following the decision that “we are concerned that the 2021 electricity law is likely to open the door to endless lawsuits, create uncertainty and hinder investment.”
He said the US hopes that “the emerging legal framework will support the establishment of a North American clean energy powerhouse, protect current and future US business investment in Mexico in accordance with Mexico’s obligations under the United States-Mexico-Canada agreement, and the integration of US-Mexico supply chains for the prosperity of our region.”
The judges reviewed the bill piece by piece, repeatedly returning divided votes that weren’t enough to nullify it. The constitutional challenge was filed by opponents of the law in the Mexican Senate. The court’s formal written decision will not be published for weeks.
Opponents of the law argue it will create a de facto state monopoly, harm competition and force Mexicans to buy more expensive and polluting electricity.
Miriam Grunstein, a scientist at the Center for the United States and Mexico at Rice University’s Baker Institute, said Mexico could lose “a lot of investment capacity, a lot of credibility.” She said it could render Mexico’s electrical system “unusable” at a time when the fallout from Russia’s invasion of Ukraine is already complicating the energy sector.
López Obrador argues that the purpose of the law is to protect state-owned companies from what he considers unfair competition from private power plants.
Many private companies sought help from the courts when the law came into effect so that they could continue their operations. Investors in the private factories argued that the law violates the strict restrictions of the new United States-Mexico-Canada agreement on how a government can favor its own companies over outsiders, as well as going against Mexico’s international obligations. to reduce CO2 emissions.
Grunstein said this could mark the beginning of the end of free competition in the Mexican energy sector, as the constitutional reform under consideration goes in the same direction and seeks to close the market.
Mexican lawmakers are also debating a related constitutional reform of the energy sector that would accomplish much of what is in the law, but would be harder to undo if enshrined in the constitution.