Petroleumworld`s
Opinion Forum:
viewpoints on issues in energy, international
politics & civilization.
Sunday's
Feature
Assessing
the Impact of Mexico’s Biofuels
Law
Editor: P.P.Bhojvaid
Biofuels:
towards a greener and secure energy future
By Raul Felix
In
the past five years, developers, researchers, small production
facilities and financiers of projects in the biofuel industry
argued in different forums that it was important for the
Mexican government to enact a biofuels law to provide the
certainty needed for the development of the biofuels market.
It now appears that the old saying “be careful of what
you wish for, you may just get it” is completely applicable
for this legislative development. The Law for the Promotion
and Development of Biofuels, which was published Feb. 1,
2008, in the Federal Official Gazette, became effective Feb.
6, 2008. Several surprises were offered for those same advocates
of regulations and instruments.
The biofuels law clearly states in its title that its main
objectives are the promotion and development of biofuels in
Mexico. However, it does not create a direct incentive for
those that desire to participate in this nascent industry.
Most of the content of the biofuels law is aimed at describing
the prerogatives of different ministries within the federal
administration to regulate the development of the biofuel industry
in Mexico.
For example, the biofuels law mandates the
formation of an Inter-Ministerial Commission for the Development
of Biofuels
with the participation of the following ministries: Energy
(SENER), Environment & Natural Resources (SEMARNAT), Agriculture,
Cattle, Rural Development, Fisheries and Food Supply (SAGARPA),
Economy (SECON) and Tax Collection and Administration (SHCP).
Another of its main objectives is to promote and regulate the
development of the agricultural sector in Mexico. This law
is aimed to fully expand on constitutional articles 25 and
27 section XX that discuss the state planning tool of the federal
executive to orient the economic development and the development
of the rural sector in Mexico. It is also aimed at devoloping
the national policies for the promotion, marketing and use
of renewable energy.
In the past, one of the main discussions among potential developers
of biofuel projects in Mexico was the potential interference
by the state-owned oil and gas monopoly (PEMEX) in the development
of this market. This was the consequence of the market not
being regulated and being open to anyone that would risk participating
in it. There was a lingering risk of the potential legal recharacterization
of biofuels as part of the traditional fuel market dominated
by PEMEX.
The most positive aspect of this biofuels law is the fact
that it generates an independent legal definition for biofuels
and a separate legal framework for their regulation that is
not to be limited by traditional fossil fuels laws being applied.
Biofuels are described as the “fuels obtained from biomass
derived from organic material in the following activities:
agriculture, cattle activities, forestry activities, aquaculture,
algaeculture, fisheries products, households, commercial, industrial,
from microorganism, enzymes, and derivatives of the foregoing
that are produced by technological sustainable processes that
comply with the specifications and quality norms issued by
the competent authorities.” Further, this law defines
biogas as the “gas produced by the biological conversion
of biomass as a consequence of the decomposition process.”
The regulation of this sector would in the medium to long-term
allow energy companies, producers and individuals to participate
in the development of a new regulatory framework for a new
alternative energy market.
It would be possible to develop several projects for mass
production, distribution and marketing of biofuels in Mexico
after obtaining the applicable permits.
SENER will be responsible for overseeing the development of
this market and it will effectively regulate those companies
and individuals that may produce, store, provide transportations
services, transport by pipelines and market biofuels in Mexico.
SENER has been empowered with the exclusive
authority to dictate the criteria for the acquisition of
biofuels to PEMEX, its
subsidiaries, the Federal Electric Commission and Light & Power
Company. Further, it will be responsible for designing the
introductory program for biofuels in Mexico that will allow
the use of ethanol mixed with gasoline and direct distribution
of biodiesel to the general public. Companies that produce
a biofuel that may substitute a traditional fuel may be authorized
to produce, store or market it in Mexico, and as long as they
secure all the applicable permits, they may freely enter and
compete in this market.
SEMARNAT was expressly entrusted with overseeing the environmental
impact of those facilities devoted to the production, storage,
transportation, distribution and marketing of biofuels. This
effectively expands the catalog of federally-regulated activities
contained in article 28 of the General Law of Environmental
Equilibrium and Protection. It will also regulate all activities
involving biofuels that may generate air emissions, wastewater
or waste. The biofuels law expressly prohibits changing the
zoning from forestry to agricultural for the production of
crops devoted to this industry. Therefore the production of
crops for the biofuel industry will be limited to those areas
where the prior authorized use was agricultural, limiting the
expansion of potential biofuel production areas.
The incentives and programs to be developed by federal, state
or municipal authorities under this law will be aimed at 1)
the development of the infrastructure required for the production
of crops, 2) local farmers and crops' producers, 3) individuals
and companies that contribute to the development and modernization
of the infrastructure required for biofuel production, and
4) researchers and developers of technology for biofuel production.
The biofuels law makes reference to other programs that are
already being developed for the promotion of the agricultural
sector and it establishes the parameters and general guidelines
to be followed by the ministries that form part of the Inter-Ministerial
Commission for the Development of the Biofuels market, in coordination
with federal, state and local governments, to generate new
incentives and benefits for project developers.
It appears that Congress did not evaluate the potential impact
of the biofuels law on projects that are currently being implemented
in Mexico that generate, store or use biogas such as landfill
projects, manure treatment systems and management of organic
wastes (as provided in article 3 and 24 of the biofuels law).
This is especially relevant because biogas is considered to
be part of the broader definition of biofuels as provided by
the biofuels law. As a result, once SENER publishes its guidelines
and criteria for such permits, new biogas projects should secure
said permits. Consequently, the requirement to secure a permit
from SENER for the production or storage of biofuels may have
a negative impact on biogas projects with registrations pending
under the Kyoto Protocol's Clean Development Mechanism.
This is especially relevant for the current administration
because more than 80 percent of the Clean Development Mechanism
projects that have received a letter of approval by the Mexican
Inter-Ministerial Climate Change Commission are for capturing,
storing or using biogas. As of Jan. 23, 2008, the Mexican Designated
National Authority issued 154 of its 184 letters of approval
to projects that would sequester or reduce methane/biogas to
the atmosphere.
As part of the validation process, the Designated Operational
Entities that are charged with verifying the Clean Development
Mechanism registration and emissions reductions of qualifying
projects may potentially require evidence that the project
developer has secured the applicable permits from SENER. Fortunately,
all five ministries that participate in the newly formed Inter-Ministerial
Commission for the Development of Biofuels are also part of
the Inter-Ministerial Climate ChangeCommission and SENER play
an active role on both commissions. SENER, if it so chooses,
has the authority to exclude these projects of the permitting
process by expressly exempting them from the licensing requirements
in the regulations related to the licensing process (as provided
in section IV of article 12 of the biofuels law).
The biofuel law provides for the following sanctions: 1) fines
that range from 1,000 to 100,000 days of minimum wage (approximately
$5,000 to $500,000), 2) cancellation of the permits, 3) temporary
or definitive, partial or total shutdown of the facilities.
Although Mexico has yet to participate in large-scale
biofuels projects, there is a tradition in several areas
of the country
and specific industries for the direct use of biomass and biogas.
With the enactment of the biofuels law a first step has been
taken to assure predictability of the legal framework for this
market. However, there will be a transitional period during
which each authority will set up its specialized teams and
will work together on the commission and to develop the regulations,
guidelines and Official Mexican Standards for the operation
of this market. This adjustment period may be confusing for
both the facilities that are already using biomass and biogas
and for investors planning to start-up new projects. Each authority
will have to face an adjustment or trial-and-error period until
they effectively set up the regulations, directives, requirements
and standards for biofuel projects. The previous could bring
instability to decision makers—instability that could
cause certain investments to flee to other countries.
The
objectives of this law are laudable. However, it falls short
of delivering immediate incentives to promote the development
of these alternative fuels in Mexico.
Energy
companies that have already developed the know-how and
technology abroad or in Mexico for biofuel production and
commercialization could clearly expand their horizons and
consider Mexico as
a viable market for mass commercialization, distribution
or production of biofuels.
Further, Mexico will grant companies privileged access to
the North American, European, Japanese and Latin American markets.
Prior to a regulation of biofuels in Mexico, the greatest fear
among players in this sector was the potential re-interpretation
of the existing norms for fossil fuels to expand their scope
to incorporate biofuels. This was particularly important, because
prior to the enactment of the biofuels law, PEMEX, as the preponderant
player in the national energy market, could easily hinder the
marketing of biofuels substitutes to its traditional fuel portfolio.
Under this independent legal structure, other energy companies
and start-ups could directly participate in the development
of the biofuel market as long as their product proves to be
competitive compared with the current fossil fuels offered
in Mexico.
Mexico has a wide array of topographic and climatic conditions
that range from tropical forests in the southern part of the
country, vast coastal areas, a mild climate in the central
part of the country, and mountainous areas and arid regions
that will allow the adaptation of several varieties of crops
that have been used in other latitudes for successful biofuel
projects. In addition, Mexico has already issued a law that
will regulate the use of genetically modified organisms (the
Biosafety Law for Genetically Modified Organism) that may potentially
open the door for the use of specific types of energy crops
under controlled conditions.
Mexico’s current administration has established
as part of its National Strategy on Climate Change the need
to diversify
its fuel alternatives and to introduce the use of biofuels.
It has also evidenced that due to the fact that biofuels do
not have a constitutional limitation for the participation
of private investment, it wishes to open this sector to both
national and foreign investment.
The biofuels law, notwithstanding its shortcomings, provides
a foundation for the development of a viable alternative energy
market in Mexico. Unlike the traditional fossil fuel sector
that depends on the state-owned companies in Mexico, the biofuels
law is setting the basis for the establishment of a differentiated
legal framework for biofuel projects, which may open the door
to the creation of new incentives that shall generate the direct
participation of private developers, with the federal government
serving as a regulator and promoter for the development of
this market.
Raul
Felix is the coordinator of the Climate Change & Renewable
Energy Practice in Mexico for Baker & McKenzie. Reach
him at raul.felix@bakernet.com or +52 (656) 629 1300. Petroleumworld
does not necessarily sharethese views.
Editor's
Note:This commentary was originally published byBiodiesel
Magazine, May 2008 Issue. Petroleumworld
reprint this
article in
the interest of our readers.
All
comments posted and published on Petroleumworld, do not
reflect either for or against the
opinion expressed
in the
comment as an endorsement of Petroleumworld. All comments
expressed are private comments and do not necessary reflect
the view of this website. All comments are posted and published
without liability to Petroleumworld.
Fair
use Notice: All works published by Petroleumworld are in
accordance with Title 17 U.S.C. Section 107, this material
is distributed
without profit to those who have expressed a prior interest
in receiving the included information for research and educational
purposes. Petroleumworld has no affiliation whatsoever with
the originator of this article nor is Petroleumworld endorsed
or sponsored by the originator.
Petroleumworld encourages persons to reproduce, reprint, or
broadcast Petroleumworld articles provided that any such reproduction
identify the original source, http://www.petroleumworld.com
or else and it is done within the fair use as provided for
in section 107 of the US Copyright Law. If you wish to use
copyrighted material from this site for purposes of your own
that go beyond 'fair use', you must obtain permission from
the copyright owner.
Internet web links to http://www.petroleumworld.com are appreciated.
Petroleumworld
04/20/08
Copyright© 2008
respective author or news agency. All rights reserved.
We welcome the use of Petroleumworld™ stories by anyone
provided it mentions Petroleumworld.com as the source. Other
stories you have to get authorization by its authors.
