The following article by guest contributor Dr. Jim Peach is part of a series of articles focused on energy issues of importance to our region and as part of a lead up to the 2nd Annual Re-energize the Americas conference being held on Oct 17 & 18th, 2012 at the Las Cruces, NM Convention Center.
As Abbas Ghassemi, my colleague at New Mexico State University, pointed out in an earlier blog, energy issues are always complex. In part, this complexity stems from the fact that energy issues are always intertwined with other complex issues –economic growth, technological change, population growth, environmental issues, and political stability.
The international border creates additional complexity for energy issues in the border region. San Diego and Tijuana (or El Paso and Juárez) are cities in two different nations but anyone living in the border region can explain that they have more in common than geographic proximity. Interactions across the border include workers who commute, trade flows, cross-border investments, families in which some members live on one side of the border while others live in el otro lado. Traffic flows and long lines at border crossings are almost daily reminders of cross-border interaction. Energy is also a trans-border phenomenon. City pairs in the interior of a nation such as Dallas-Fort Worth may have daunting energy issues, but they do not have an international border to contend with. Border region city pairs (they are not twins as they are sometimes called) are located where two very different national energy systems collide and where trans-border cooperation on energy issues is not exactly easy.
Energy prices in Mexico and the US are rarely the same. Total energy consumption per capita in the US is about 4.5 times the comparable figure in Mexico. Electricity consumption per capita in the US is about 6.5 times as large as in Mexico –but Mexico’s per capita electricity consumption is growing at a faster rate than in the US. For each $1,000 of GDP, the US uses more energy than Mexico but the gap is narrowing because US industries have greatly increased their energy efficiency. (The data in this paragraph are from World Bank, Development Indicators as of 2009, the latest year available http://data.worldbank.org/topic/energy-and-mining).
The US and Mexican national energy systems also differ in terms of market structure. US petroleum is produced almost exclusively by private firms while in Mexico the oil industry is dominated by a single state owned firm, PEMEX. For more than fifty years the US has been a large importer of petroleum and for most of that time Mexico has been a large exporter of petroleum –mainly to the US. In the borderlands, consumers and suppliers face the same petroleum related problems as in the two nations.
Prices of petroleum (and natural gas) are mainly determined in national and international markets even though there may be small regional price differentials. Figure 1 displays percent changes in inflation adjusted (real) West Texas Intermediate prices per barrel. The WTI price is a commonly used benchmark price for oil. While many people assume that oil prices (and other energy prices) always increase, what is striking in Figure 1 is that oil prices are highly volatile. Other energy (natural gas, uranium, coal) prices are also highly volatile and confronting this price volatility is a major energy issue that affects consumers, producers, and the business community in the border region.
In the US, most but not all electricity is produced and distributed by private (regulated) firms while that is not the case in Mexico. The Comisión Federal de Electricidad (CFE) is the state owned electric company in Mexico. CFE is responsible for nearly all electricity generation, transmission, and distribution in Mexico including the six border-states. While states and municipalities on both sides of the border face challenges to ensure adequate supplies of electricity and a stable electricity grid for a growing population and expanding commerce and industry, they do so in very different regulatory and investment environments.
Cross-border transmission of electricity (mainly from Mexico to the US) is already occurring and this phenomenon will probably increase in the future. Historically, the US first exported electricity to Mexico in 1905. NAFTA expanded the possibility of cross-border electricity sales and regulatory agencies in the US such as the Federal Energy Regulatory Commission (FERC) and state agencies responded with appropriate regulatory changes. The potential for cross border trade in electricity generated by renewables is also enhanced by individual state environmental standards, particularly Renewable Portfolio Standards (RPS). RPS standards are state regulations that require a specified percentage of electricity sales in the state to be generated by renewables. Imports of electricity generated by renewables can generally be counted against RPS standards. Increasingly, electricity generation projects on the borderlands (both sides) involve solar or wind generation (Photo 1).
While cross-border energy projects can increase efficiency, such projects can also create additional difficulties. For example, in the early 2000s various environmental and citizen groups alleged that power plants being built in Mexicali to provide electricity to southern California and Arizona did not meet US environmental standards. The debate over whether or not the plants were being built in Mexico to circumvent US law was bitter and intense (see, for example the report by the US Government Accountability Office on the estimated emissions from the two plants: http://www.gao.gov/products/GAO-05-823 ).
Another issue associated with cross-border energy projects is the reliability of the electricity grid. A power outage in Southern California and Arizona in early September 2011 knocked out a power plant in Mexicali because of the trans-border interconnections.
This brief blog is not intended to be a comprehensive introduction to border region energy issues. Rather, the purpose is to suggest that border region energy issues are more complex than regional energy issues in the interior of either nation.
If these issues fascinate you, the ReEnergize the Americas Conference to be held October 17 and 18 at the Las Cruces, NM Convention Center should also interest you. The conference is sponsored by New Mexico State University, The University of Texas at El Paso and the Paso del Norte Group. The website for the conference is: http://reenergizetheamericas.com/ .–Jim Peach