Western Hemisphere Powers Up Single Energy Market

WASHINGTON, DC, August 31, 2001 (ENS) - The United States, Canada and Mexico are forging a single continental energy market in North America as a result of reform in energy regulation, environmental considerations, and the North American Free Trade Agreement (NAFTA).

This energy interdependence will be front and center early next month during the September 5-6 meeting in Washington between President George W. Bush and Mexican President Vicente Fox.

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President George W. Bush and President Vicente Fox work on their joint statement at a meeting in Leon, Mexico (Photo by Paul Morse courtesy the White House)
The September meeting will be the second time the two recently elected presidents have discussed the issue. A joint communiqué issued after their meeting at President Fox's ranch in Guanajuato, Mexico in February stated that the United States and Mexico would consult with Canada on development of a North American approach to energy resources.

According to one private energy expert, the energy markets in the three nations are already intertwined. Joseph Dukert, an independent energy consultant and lecturer at the Johns Hopkins School of Advanced International Studies, predicted this interdependent North American energy market will continue to evolve.

Once power lines and pipelines are in place, it would be impossible to go back, said Dukert, who has worked on energy issues for 35 years. "I call this a ratcheting effect. Once you get up, you can only go in one direction. You're not going to slide back."

On June 28, in remarks at the U.S. Department of Energy, Bush acknowledged the efforts of a trilateral working group organized by Canadian Minister of Natural Resources Ralph Goodale, Mexican Secretary of Energy Ernesto Martens, and U.S. Energy Secretary Spencer Abraham.

This trilateral working group was established at the Summit of the Americas Hemispheric Energy Ministerial meeting on March 9, when energy ministers from 34 hemispheric nations met in Mexico City. At the conference Abraham pledged that the Bush Administration would work with Canada and Mexico on energy issues.

In projecting the future of a North American energy alliance, Abraham said, "Here we find mutual dependence without any junior or senior partners."

Dukert said this is an important statement that defines the United States' goal in creating a North American energy market that works. The key is to have distinctive energy policies designed to meet the requirements and special circumstances of each country, and then to "harmonize" those policies so that all three countries benefit.

"I think Mexico, Canada, and the United States are already energy interdependent," he said. "A lot of people don't realize that the NAFTA countries represent the largest energy market the world has ever seen."

The Bush administration's national energy policy issued in May recognizes the North American energy market.

"Increased U.S., Canadian, and Mexican energy production and cooperation would enhance energy security and, through our economic links in the North American Free Trade Agreement economy, fundamentally advance each country's economic security," the Bush administration policy says. Among the report's recommendations was reform of varying U.S. government regulations to make them more compatible for cross-border trade in oil, natural gas, and electricity.

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Canadian Minister of Natural Resources Ralph Goodale (Photo courtesy Office of the Minister)
Canada remains the United States' largest overall energy trading partner and the leading foreign supplier of crude oil, natural gas, and electricity to the U.S. market. The national energy policy report says the U.S. energy relationship with Mexico reflects not just the shared border but also "the increasingly interrelated character of NAFTA economies."

The three North American countries consume about 30 percent of all the energy produced in the world. They also produce about 25 percent of all the world's energy.

"Canada has begun to develop potentially very large sources of both oil and natural gas off the Maritime Provinces," Dukert said. "I won't say that it never would have developed these resources, but it surely wouldn't have developed these resources for the next 10 years or so had it not been for the market in the United States."

To the south, the two-way flow of electricity and natural gas between Mexico and the United States is increasing.

"Already gas trade exists between Mexico and the United States," Dukert said. "This year there may be greater gas imports into Mexico from the United States than ever before in history. But, there will still be gas coming from Mexico into the United States in the east."

A consortium of the U.S. company Sempra Energy International, the California based utility Pacific Gas and Electric, and the Mexican firm Proxima Gas plans to build a $230 million pipeline that will transport 400 million cubic feet of natural gas per day.

The 210 mile pipeline will connect the U.S. and Mexican natural gas grids, starting in Arizona with a connection to the El Paso Natural Gas Company and then running through southeastern California and northern Baja California to connect with the Rosarito pipeline south of Tijuana. Much of the current growth in energy demand in Baja California can be met with U.S. natural gas.

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Mexican Federal Electricity Commission (Photo courtesy National Renewable Energy Lab)
Reforms in 1992 allow independent Mexican power producers and co-generators limited involvement in this energy sector. Electricity is largely controlled by the Mexican Federal Electricity Commission which generates 92 percent of the country's electricity, but private enterprises can now generate electricity for their own use and sell some surplus to the government power network.

The Mexican Energy Regulatory Commission has approved a plan for a power plant to be built in northern Baja that will buy U.S. natural gas and in turn supply San Diego one-third of the electricity generated by the plant.

As of February 2001, independent power providers in Mexico had received 12 permits for new electrical power generating plants expected to add more than 6,000 megawatts of electrical capacity by 2004. Ten of these 12 projects are in northern Mexico. Indicative of growing cross-border energy links, all 10 plants will be dependent on U.S. natural gas imports as the fuel source used to generate electricity.

Both for environmental reasons and economic efficiency, natural gas and electricity have become almost interchangeable in the energy market, Dukert said. For several years natural gas has been the preferred fuel for electricity generation because it is lower than either coal or oil in emissions of particulates, sulfur oxides, nitrogen oxides, and carbon dioxide, which is the major greenhouse gas linked to global warming.

The United States and Mexico are likely to become even more dependent on each other for energy, with mechanisms to shift natural gas and electricity among regions in either country that need energy at particular times to meet peak demand, and permission is being sought to install more electrical power lines connecting the United States and Mexico.

The NAFTA continental energy market is part of the move towards an energy market that encompasses the entire Western Hemisphere from southern Chile and Argentina north to the Canadian Arctic.

lines Western hemispheric countries have been participating in a region wide process of energy sector transformation. Begun in Miami at the Summit of Americas in December 1994, 34 heads of states have committed to steering their countries to the use of sustainable energy.

A Hemispheric Energy Symposium in 1995 agreed that, "The incorporation of reliable and cost effective, advanced, clean energy generation technologies in the power grids of the hemisphere will bring positive economic, social, and environmental benefits."

"The challenge now is for policy makers," symposium participants stated in their final report, "to ensure that their energy markets are receptive and adequate for developing a framework for attracting business investment and project development, for technology developers to strengthen their engagement in markets that wish to take advantage of clean energy options, and for participating nations to continue dialogue and activity in pursuit of this endeavor."

At a 1996 Hemispheric Energy Ministers Meeting in Santa Cruz, Bolivia, the ministers agreed that a hemispheric fund be developed for executing and tracking fast track clean energy projects.

At the 1996 Summit of the Americas also in Santa Cruz, governments recognized that one of the primary challenges to the attainment of sustainable development is, "promotion in the Hemisphere of the most economically and environmentally efficient means of production, transformation, transportation, and use of energy, through policies and programs that facilitate bilateral, subregional and regional trade, in energy related goods and services."

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El Cid Mega Resort in Mexico City uses Heliocol Solar to heat five pools and supplement their internal hot water system. (Photo courtesy Heliocol)
The governments agreed to support the work undertaken to implement the Summit of the Americas energy agenda, coordinated by the Hemispheric Energy Steering Committee. This hemispheric agenda promotes the creation of "positive regulatory and institutional settings to reduce barriers to energy efficiency investments and the development and use of renewable energy and clean technology projects which are economically feasible and socially desirable."

It encourages "hemispheric, regional, and cross-border energy and mining cooperation by sponsoring consultations among the public and private sectors and civil society on specific issues relating to policies, trade measures, laws, tariffs, regulations, research, and institutional structures."

Bill Richardson, energy secretary under President Bill Clinton, worked to implement these decisions. In December 1999, Richardson went to Mexico where he outlined a Hemispheric Natural Gas Initiative to boost international gas trade.

A week later, Richardson detailed his approach to creating a hemispheric market to a conference on the Geopolitics of Energy into the 21st Century. "First, the initiative would identify key issues and best practices between governments in facilitating cross-border natural gas infrastructure and trade."

"Second, the compilation of these best practices would create, in effect, a guide for governments developing natural gas markets. This guide would enable all countries, especially non-members of the International Energy Agency, to get the benefit of successful negotiations and agreements on a cost free or low cost basis, thus accelerating regional integration," Richardson said.

The ongoing energy integration is part of a hemispheric free trade agreement, the Free Trade Agreement of the Americas (FTAA).

All 34 democratically elected governments in the Western Hemisphere are participating in the FTAA negotiations, which have been held in Miami since September 1998 with the aim of creating a comprehensive free trade agreement. The commitment of the 34 countries to conclude these negotiations no later than 2005 was made at the 1994 Summit of the Americas, which was hosted in Miami by President Clinton.

At the latest Summit of the Americas in April in Quebec City, Canada, the 34 governments reaffirmed their goal of hemispheric energy integration. "Recognizing the importance of energy as one of the fundamental bases for economic development, the region's prosperity and improved quality of life, we commit to pursuing renewable energy initiatives, promoting energy integration and enhancing regulatory frameworks and their application, while promoting the principles of sustainable development."

From the government viewpoint, FTAA is desireable, but environmental and labor groups see it differently. They have staged massive demonstrations at hemispheric and global trade meetings since the Seattle World Trade Organization meeting in December 1999.

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Police arrest anti-globalization demonstrators in Seattle (Photo by Richard Lewis)
Public Citizen, a U.S. public interest organization headquartered in Washington, DC, sees FTAA as a "race to the bottom." Its Global Trade Watch division was created in 1993 to be a watchdog on the creation of NAFTA.

"FTAA would deepen the negative effects of NAFTA that people in Canada, Mexico and the U.S. have already suffered over the past seven years and expand NAFTA’s damage to the other 31 countries involved," the group says on its Global Trade Watch website.

FTTA rules would, Public Citizen says, "increase the power corporations would have to constrain governments from setting standards for public health and safety, to safeguard their workers, and to ensure that corporations do not pollute the communities in which they operate. Effectively, these rules would handcuff governments’ public interest policymaking and enhance corporate control at the expense of citizens throughout the Americas."

Non-governmental civil society organizations (NGOs) have demanded that the FTAA process include their participation in working groups on democratic governance, labor and human rights, consumer safety and the environment. While a Committee of Government Representatives on Civil Society was established to receive NGO input, Public Citizen says it is a dead end.