This study explores transition pathways for Mexico under scenarios relevant to evaluate transition risks. Key variables of interest for the transition risk are the implied carbon tax, changes in primary energy fuels, transitions in the use of energy technologies, and investment requirements. They are complemented by considerations of land use, water use, and carbon leakages in the absence of carbon tariffs.
To this end, the study employs an integrated assessment model, specifically the open-source GCAM model, to conduct a comparative analysis of three transition scenarios and a current policies scenario. One transition scenario explores the risks for Mexico of following a non-cooperative stance under a world committed to a net-zero transition. A second scenario explores the pathway of a world cooperating to limit the warming to well below 2?C, and a third one compares how the transition would have to go if the policy actions to limit the warming to below 2?C were delayed until 2030.
The non-cooperative scenario reveals the potential disappearance of high-emission technologies in Mexico, such as coal-based electricity, driven by technological change rather than internal emission policies, highlighting the role of technology competitiveness for transition risks. However, tradeoffs emerge, with the absence of global carbon tariffs for agricultural products leading to carbon leakage. This leakage could economically benefit Mexico but at the cost of forest loss, heightened water stress, and biodiversity implications. The transition scenarios confirm previous findings on the plausibility of decreasing emissions through the expansion of renewable-based electricity. Additionally, they show a higher relevance of electrifying road freight transportation than passenger transportation, and propose an important deployment of biomass to compensate hard-to-abate emissions.
The primary finding regarding capital implications is the need for investment reallocation in the energy supply. While a slight investment expansion may be necessary before 2050, the study emphasizes that reallocating investments is more significant. By the second half of the century, investments in fossil extraction are expected to be replaced by those in electricity generation, transmission, and distribution.
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