North America’s Renewable Energy Goals

30 06 2016

543607718-mexican-president-enrique-pena-nieto-canadian-prime.jpg.CROP.promo-xlarge2.jpg
Mexican President Enrique Peña Nieto, Canadian Prime Minister Justin Trudeau, and U.S. President Barack Obama at the North American Leaders Summit on Wednesday.
Chris Roussakis/AFP/Getty Images

On one side of the Atlantic Ocean last week, the U.K. instigated the prospect of the European trading bloc—too tightly integrated on monetary and labor policy for comfort—coming apart. On the other side of the Atlantic this week, a more loosely affiliated trading bloc agreed to work more closely together. On Wednesday, the heads of state of the United States, Mexico, and Canada met at the North American Leaders Summit, aka the “Three Amigos” Summit. Among other things, they announced that they would all commit to an effort to get 50 percent of their countries’ electricity from what they called clean sources by 2025.

There’s both more and less than meets the eye here. For the purposes of this 50 percent goal, the Three Amigos are including nuclear energy—which is emissions-free, but not renewable, and from which the U.S. already derives about 20 percent of its juice. What’s more, the three countries already get a combined 37 percent of their electricity between them from clean sources as they define them. Getting to 50 percent in a decade from this high baseline isn’t that much of a leap.

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But there are other things at work. Mexico, Canada, and the U.S. are a really powerful trading bloc with a combined population of about 465 million and a combined gross domestic product of well over $20 trillion. They enjoy a pretty high level of trade integration when it comes to physical goods and services, too. But in a few under-the-radar ways, the countries are already using trade to iron emissions out of electricity production. And there’s much more that can be done.

Let’s start with Canada and the United States. Canada is a resources economy: It has vast reserves of stuff people like to use, but not that many people. Thanks to its network of lakes, rivers, streams, and waterfalls, Canada already gets 59 percent of its power from hydroelectric plants. And because Canada’s eastern provinces, where much of the hydro-capacity resides, border U.S. states with large populations, the country has long exported electricity south. In 2014, Canada exported about 10 percent of its electricity production—an amount equal to 1.6 percent of U.S. consumption—across the border. (In the Pacific Northwest, meanwhile, the U.S. sends some power to population centers in British Columbia.)

But there could be much, much more. We may have killed off the Keystone XL Pipeline, but plenty of other energy-carrying pipelines are being pitched. New England and New York are in the unhappy circumstance of having vast population centers in states whose governments wants to iron out both coal and nuclear from their energy mix while resisting the construction of natural gas pipelines that would enable more production of electricity from that fossil-fuel source. So developers have proposed a series of projects and transmission lines that could carry clean power from Canada into the Northeastern U.S. There’s the Northeastern Pass, which would carry hydroelectric power from Quebec into New Hampshire; the Northeast Energy Link, which would carry wind power from Canada and Maine into Massachusetts; and the Can-Am Link, an undersea cable that would convey power from an offshore Nova Scotia wind farm to Massachusetts.

The story is a little different with the U.S. and Mexico, whose trade relationship isn’t exactly what people think. Overall, the trade deficit with Mexico is actually quite small: about $60 billion in 2015, or .03 percent of U.S. GDP. That’s down from $75 billion in 2007. The trade in petroleum used to account for a big chunk of the U.S. trade deficit with Mexico. But as production by Mexico’s state-controlled behemoth Pemex faltered, and U.S. production boomed thanks to fracking, the trade in crude petroleum dwindled. On the other hand, the U.S. has also deployed fracking to great effect in Texas to produce natural gas. The result: Pipelines connecting the U.S. and Mexico are now sending natural gas to Mexico, where factories and power plants use the fuel, which burns much cleaner than coal, to create electricity. Between 2010 and 2015, the volume of natural gas pipeline exports to Mexico have more than tripled. And with gas cheap and abundant in the U.S., there’s the potential for much more.

There’s something else going on in Mexico: For decades, government control put a damper on the growth of the country’s power industry. While the utility-scale solar business in Mexico is still essentially nonexistent, analysts expect the country will install six times as much solar capacity in 2016 as it did in 2015. Wind power in Mexico is somewhat more advanced, and the sectors are already providing opportunity for cross-border opportunity. For example, last year, a newly constructed wind farm in Baja, California, came online—and ships all its power to San Diego Gas & Electric.

The development of large-scale solar and wind farms in power is a boon to the U.S. in other ways. Over the past decade, American companies and engineers have gained considerable experience and expertise in constructing giant wind and solar facilities. So guess who is building and developing some of Mexico’s most ambitious investments? San Diego–based Cannon Power and Spanish turbine maker Gamesa have teamed up to build a giant wind farm 15 miles south of the U.S.–Mexico border. When the Mexican government doled out huge chunks of solar capacity in an auction, the winners included U.S.-based Sunpower and a subsidiary of Canadian Solar.

To a large degree, electricity markets in North America remain highly national. Only a small portion of the power produced in the North American Free Trade Agreement countries flows across borders. But the commitment by all three parties to have more clean energy will intensify such efforts. The U.S. has the potential to be a much larger market for Canadians’ huge wind and hydroelectric power resources. As I’ve noted, sometimes at night there is so much wind power in Texas that the price of electricity goes into negative territory. On those same nights, millions of customers in northern Mexico are starved for electricity. A more robust set of transmission lines crossing the Rio Grande would simultaneously lower electricity prices in Mexico while bringing more revenue to wind farm owners in Texas.

Even if there is less appetite for having people move freely across the NAFTA borders, the incentives and opportunities for electrons to do so are growing. At least one part of the world is coming closer together.

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