Energy Integration Key After the Pandemic


This article was first published by Mexico Business

By Leonardo Beltrán | Wed, 07/01/2020

If there is one thing, we have learned with the pandemic is that we cannot live in isolation. Developed and developing countries alike are struggling to maintain their economic sustenance, irrespective of their individual specialization and/or competitive advantage. Whether it is an agricultural, industrial or services exporting world power, the lockdowns have suddenly halted their momentum. However, the pandemic has shed light on the opportunities to enhance our collaborative work and strengthen our resiliency and stamina to weather the crisis.

There are a number of companies, labs, and academic institutions doing research to advance knowledge and develop solutions to reduce the cost of treatments or to eradicate diseases. However, individual efforts are not enough to solve a global challenge. There are several examples of the power of international cooperation. According to the World Health Organization (WHO), in 1988, the poliovirus was affecting more than 125 countries and paralyzed around 350,000 people per year. That year, the international community set the goal to eliminate the disease, and the Global Polio Eradication Initiative was launched. Ever since, the number of cases has been almost eliminated (over 99%) due to immunization efforts, sparing over 13 million children from paralysis.

Another example of the benefits of international cooperation in public health is Malaria. This disease can cause lifelong intellectual disabilities in children, and its economic impact is estimated to cost billions of dollars in lost productivity every year. An estimated 219 million people suffered from the disease in 2017 and about 435,000 died. However, in the last two decades, mortality from malaria has been halved, thanks to a coordinated research agenda, and a rise in funding. It is clear that isolation is just a local and transitory measure that requires a global coordinated effort to speed up the process out of a pandemic.

Public health examples offer a wealth of knowledge to understand the complexities, interdependencies, and implications of a global challenge. In a pandemic, the more integrated a country, the faster the virus spreads across borders. In the economy, similar to what happens in a pandemic but in positive terms, the more complementary and complex the value chains across products, the more sophisticated and developed the country would be. The interconnectedness of a globalized world enhances economic development grounded on the accumulation of knowledge and its use in both a larger number and more complex industries.

According to Harvard’s Growth Lab, Mexico at the beginning of the century ranked 25th in their Economic Complexity –EC– index (measures the number and complexity of the products they successfully export). That year, more than half of Mexico’s exports were automobiles and auto parts, machinery, electronics and minerals, and the Mexican economy represented around three-quarters of the Chinese economy, which ranked 39th, and the majority of its exports were services, textiles, machinery and electronics. Eighteen years later, China has quintupled its economy, ranking 18th in the EC index, diversified its exports and increased the contribution of its electronics, metals, and chemical exports, surpassing Mexico in the EC index (19th). Meanwhile, Mexico´s economy in the same period increased 43 percent and has maintained a similar export pattern, although with a larger proportion of auto and auto parts exports than in 2000. Thus, in spite of Mexico being the country with the most trade treaties signed (more than 50 countries, over 60% of world GDP), a focus on less complex goods (manufacturing and agriculture) has resulted in a more competitive environment for its products; whereas in China, an increasing specialization in technology-oriented exports have resulted in less competition for its products, and faster development paths, similar to what happened as well in South Korea (ranked 19th in 2000 versus third in 2018) and Singapore (ranked 11th in 2000 versus fifth in 2018).

Both public health and trade offer best practices and lessons learned applicable to the energy sector. One of the lessons learned is that isolation limits the potential to create virtuous cycles, and one of the best practices is international cooperation because it opens the opportunity to multiply the combined capabilities of the partners to tackle a challenge.

The challenge in the energy sector of the 21st century is to have a balanced system, one based upon energy security, sustainability and equity (the World Energy Council´s Energy Trilemma). Such a system would enable economic prosperity, social development, and environmental conservation. Some countries would choose to focus on energy sovereignty as a means to enhance their energy security, which would require a coordinated national effort and would be subject to their domestic resources (talent, innovation, and funding) that can lead them to the best those capabilities can offer. But some other countries would choose to enhance their energy security by integrating, which would also need coordination (national and international), and would be subject to both their domestic resources and the complementary resources of their partners, leading to a better result by multiplying resources and taking advantage of a combined potential.

A great example of the power of international cooperation applied in the energy sector is the Nord Pool. In 1996, Norway and Sweden decided to integrate their power markets. Today, Nord Pool is a system that trades 40 percent more energy than Mexico (321.2 TWh vs. 592 TWh Nord Pool) with 380 companies from 21 countries in the Nordic and Baltic regions, Germany and the UK. They established what a modern power exchange business looks like, and what has now become the EU European Target Model. It is a system that has brought economic prosperity, social development, and environmental conservation not only to Scandinavia, but soon enough to all of Europe.

In terms of equity and sustainability, the international scientific community has provided evidence to support that the way forward is to reduce the use of fossil fuels; thus, the international community committed in 2015 to decarbonize their economies by 2050. Some countries would speed up this process, by closing fossil fuel plants and electrifying their economies. Some others would work on developing technology to continue to use their existing assets, but limiting their environmental footprint. Some others would accelerate the uptake of renewable energy technologies. Irrespective of their individual paths, the energy transition would require both the public and private sectors, and national and international institutions, to decarbonize their energy sectors and their economies.

In this context, Mexico has a superior advantage to choose the most efficient path toward decarbonization for five reasons: it has an unlimited amount of renewable resources; it has a strong domestic market; is located south of the largest market in the world, with the potential to integrate both with the US and Central America; it has access to 60% of the world’s GDP with its network of free trade agreements; and an already proven investment-attractive energy legal framework. Therefore, the choice is for us to make. Nevertheless, after the pandemic, energy integration would place our country on the most efficient path to economic recovery and deep decarbonization.