Urban Energy Efficiency – Mexico’s Winning Formula for Sustainable Development

In the late afternoon of June 17, as the streets of Mexico City transformed into probably the largest celebration of a tie game at the World Cup, I joined 200 other people filling the main hall of the Technology Museum of the Federal Electricity Commission.  We would have to wait a little while for our event to start.  Nothing that afternoon, not even the opening of the Conference on Energy Efficiency in Cities, would get in the way of the game between Mexico (ranked 20^th in the world by FIFA) and Brazil (the favorite to win the tournament).  And despite the fact that the game ended in a 0-0 tie, the mood of our Mexican hosts was upbeat and confident. 

This mood was appropriate; it nicely reflected the ambitious approach of Mexico to the main challenge presented at the conference: how national and local governments can work together to make cities much more energy efficient.  Mexico had also just secured the chairmanship of the high-level policy committee of the International Partnership for Energy Efficiency Cooperation (IPEEC) where they also intend to pursue this agenda.
 
The conference was hosted by SENER, Mexico’s Energy Ministry, and supported by the World Bank – including its Energy Sector Management Assistance Program (ESMAP) -- the International Energy Agency (IEA), IPEEC, and CAF.
 
At the conference, SENER’s Under Secretary, Leonardo Beltran, announced a new national program to scale up energy efficiency in Mexico’s cities. This program will kick off with energy diagnostics in 30 cities, each from a different Mexican state to ensure broad coverage.  The World Bank will be a privileged partner as Mexico pushes the urban energy efficiency agenda forward both domestically and on the international stage.
 
To understand the significance of this, it is first important to understand the larger context of what is happening in Mexico:

• Energy – Mexico’s energy sector has been of strategic importance to the economy and a driver of growth, productivity and competitiveness.  To provide a sense of the magnitude: Mexico is the world’s tenth largest oil producer and Latin America’s second largest energy consumer.   The country also has vast renewable energy resources, mostly untapped.  However, if nothing changes, Mexico could see its current status of a net exporter of energy shifting to that of a net importer as early as 2020.  This is one of the primary reasons for President Enrique Peña Nieto’s Administration’s ambitious energy reform.  As was recently mentioned to me by senior SENER officials, the goal is to have the energy sector become a lever for economic growth, as well as generate positive spill-overs in terms of opportunities for employment and enhanced competitiveness throughout the country.
   
• Climate Change – Mexico’s government has adopted a climate change law and is putting priority on both adaptation and mitigation.   Mexico has determined that low-carbon development is in its interest: by doing its part to address global climate change, Mexico also aims to contribute to its sustainable development and provide other ancillary benefits such as stimulating the development of new technologies and improving productivity.  Clean energy – including renewable energy as well as energy efficiency – figures prominently in its strategy.
   
• Cities – Mexico is highly urbanized, with three fourths of Mexicans currently living in cities and the share expected to grow to 88 percent by 2027.  This will put pressure on municipalities to provide high quality and affordable public services, such as transport, energy, water and sanitation – all in the context of already stretched fiscal resources.   At the same time, how cities grow will matter a great deal for how Mexico meets its energy and climate ambitions. About 70 percent of global greenhouse gas emissions originate from cities, and in Mexico, projections indicate that cities will increase their energy consumption to nearly 50 percent of the country’s energy resources and 60 percent of its water consumption over the next 20 years.    But just as these challenges can be traced to cities, so can the solutions – with energy efficiency at the center of them.

Energy efficiency is the cheapest, cleanest, and most readily available energy source and it offers the opportunity to help Mexican cities provide services at lower cost, alleviate budgetary pressures, enhance their competitiveness, and help lower GHG emissions at least cost.  For example, public lighting represents between 10-40 percent of all energy bills in municipalities and is a large source of their emissions (typically 30 to 60 percent).  Moving to more efficient public lighting, using LEDs for example, can lead to energy savings in the order of 50 percent or more  – and the payback period is relatively short.  Similarly, substantial energy savings are possible in the water and waste water sector. 
 
But if energy efficiency makes so much sense, why is it not already widespread?  Many studies refer to energy efficiency as  “low-hanging fruit”, but I picture this so-called low hanging fruit hanging from a tree on a hard-to-reach desert island.
 
There are barriers associated with lack of information or awareness about the potential of energy efficiency.  There are obstacles associated with securing financing to cover the initial investment cost.  There are capacity constraints and unclear incentives, along with institutional and legal challenges.  Moreover, only a small fraction of cities are deemed credit-worthy, restricting access to capital.   The rates of return of energy efficiency projects make them look good on paper, but confidence is often needed that expected energy and monetary savings will be realized in practice.   
 
That said, the Mexican government is betting it can use its capacity, with the support of the World Bank, to work with municipalities and help them save money, improve services and reduce emissions using energy efficiency.
 
The technical, institutional and financial arrangements are never simple.  But Mexico clearly has the right combination of capacity, incentives, support and ambition. Mexico may no longer be part of the 2014 World Cup, but its sustainable development efforts have just started. Go Team Mexico!