Impact Investing in Mexico The Outlook for Energy Sustainability Dr. Francisco Barnés Regueiro is executive director of the Mario Molina Center for Energy and the Environment. In this exclusive interview, he discusses low-carbon growth, adaptation to climate change, and other sustainability issues. 1
Dr. Francisco Barnés Regueiro has led some of Mexico s foremost organizations dedicated to air quality, energy sustainability, and the environment. As executive director of the Mario Molina Center, he leads programs designed to bring together the public and private sectors, as well as civil society, to support Mexico s progress toward a low-carbon environment. At a recent United States-Mexico Chamber of Commerce event held in New York City, Dr. Barnés sat down with Ricardo Haneine to discuss the Molina Center s achievements and plans for the future. Ricardo Haneine: Can you tell us a little about the center and its mission in Mexico today? Dr. Francisco Barnés: The center is a think tank founded in 2005 by Mexico s only Nobel Laureate in science, Dr. Mario Molina. He is an atmospheric scientist and chemist. It was created with the intent to influence environmental and energy policy making and to promote sustainability in Mexico through rigorous analyses. The center started with just a few people and has grown steadily to a staff of 80 today. I think the center should broaden its mission to transcend policy and become a catalyst for action on sustainability on the part of the government, the private sector, and civil society. We are continuing our work on the federal and local level, but we are also going to increase our efforts to reach out to the private sector and nongovernmental organizations (NGOs). The level of investment required for Mexico to move to a low-carbon or green-growth scenario is massive. No single government can assume the entire burden; we must mobilize the private Dr. Francisco Barnés Regueiro Executive Director, Mario Molina Center for Energy and the Environment Dr. Barnés leads the Mario Molina Center for Energy and the Environment, which is dedicated to collaborative policy analysis and outreach related to energy and the environment in Mexico. Previously, Dr. Barnés served as executive coordinator of the Megalópolis Environmental Commission, which supports policies to improve air quality in Mexico City and the surrounding region and harmonizes air quality policies, including monitoring and on-road emissions testing. In addition, Dr. Barnés has served as president of the National Institute of Ecology and as general director of the National Institute of Ecology and Climate Change. Before these positions, he was a partner at McKinsey & Company, where he consulted on strategies for low-carbon growth, adaptation to climate change, and sustainable development issues regarding energy, water pollution, and solid waste. He has published articles in professional journals and participated in international forums on environmental and energy policy. Dr. Barnés holds a degree in chemical engineering from the Universad Nacional Autónoma de México (UNAM), a master s degree in chemical engineering from the University of California at Berkeley, and a doctorate in energy and environmental policy from London University s Imperial College. He has served as a visiting professor at Boston University and has received numerous awards for his academic work. 1
sector. A public-private sector collaboration requires government policy making and a shared understanding about climate priorities. Ricardo Haneine: Please discuss Mexico s economics and the investments needed to move toward sustainability. Dr. Francisco Barnés: In the past 10 years, Mexico s level of greenhouse gas emissions (GHG) has increased at about twice the rate of the previous decade. In the same period, GHG expansion has tracked closely to economic growth. The challenge for Mexico is to meet growing energy demand, alleviate poverty, and realize more economic growth, ensuring energy security while reducing emissions and future damage caused by climate change and air pollution. The government recently presented the Molina Center with an unconditional contribution to reduce the country s GHG emissions by 22 percent below business-as-usual (BAU) levels by the year 2030. The good news is that GHG mitigation can drive far more economic growth than continuing BAU. A full commitment to lowering emissions may result in economic expansion with the exception of the oil and gas sector while incremental investment may create 300,000 to 550,000 jobs by 2030. The Mario Molina Center has concluded that an estimated initial $114 billion in capital would be required to finance a large-scale program that delivers the desired results in the electricity sector from now until 2030. As part of our analysis, we compared three alternative strategies to achieve sustainability: transitioning to a natural gas-only system, transitioning to a clean energy system, or reducing energy demand. We found that while the clean energy option is the most desirable, because it has the least environmental impact, it would require significant additional investment to keep up with the continuing growing demand for energy and because we still require fossil fuel investments to complement capacity and assure reliability of the grid. We should note that the gas-only scenario also requires additional investment another $70 billion in capital. Nonetheless, we expect investment in clean energy to double between 2015 and 2030, far outpacing investment in the natural-gas and energy-reduction options. Once CO 2 emissions and the price of carbon are taken into account, the differences in generation cost among the three scenarios narrow further, with clean energy becoming more attractive. Ricardo Haneine: How would you characterize the business community s readiness to embrace sustainability practices? Dr. Francisco Barnés: The private sector in Mexico is slowly changing. Some conservative enterprises are still hesitant about Mexico s responsibility for sustainability, yet others are very forward thinking. To buy into a climate change program, the private sector needs to see actions that will deliver both environmental and economic returns. The center is currently focused on Mexico and its responses to climate change. Since Latin America is culturally more aligned with Mexico than other regions, such as Europe, we can be an important influence in replicating some of the experiences and communicating the lessons learned here to other countries in the region. Ricardo Haneine: Can you summarize your expectations for the regulatory environment and how that will affect the center s mission? Dr. Francisco Barnés: There were great expectations surrounding this year s upcoming United Nations Framework Convention on Climate Change meeting in Paris (COP 21). There is 2
widespread agreement that COP 21 marks an inflection point in the global discussion around environmental sustainability. Each participating country should emerge from the meeting with highly specific voluntary, unconditional actions aimed at achieving emission reduction targets. It will be important for countries in the developing world to commit to fund part of their own efforts, assisted as needed with additional capital from the developed world. Mexico has a solid regulatory framework for the environment and energy. The country s Climate Change Law passed in 2012. It sets specific targets and aspirational goals to be achieved by 2020, 2024, and 2050. It also defines a set of institutional planning obligations at the local, state, and federal level. The country s structural reforms for the electricity and the oil and gas sectors opening these industries to the private sector are highly relevant as well. However, we do not yet have a portfolio of specific investments that will allow for a transition to a lower-carbon economy yielding positive economic and social effects. The center is working on positioning the agenda for change. Dr. Francisco Barnés Regueiro, executive director of the Mario Molina Center Ricardo Haneine: What are your expectations for the center s role in aligning stakeholders in public and private sectors, and the government, regulators, and funding institutions? Dr. Francisco Barnés: The center is working on positioning the agenda for change. That means being the first out of the gate with ideas, even before the government or the private sector. To accomplish this, the center has to be very connected to the world and to best practices. We also need a very good understanding of the barriers that have hindered best practices in Mexico and Latin America. We are in an excellent position to lead in this way. Today, the center is focused on four areas of action: sustainable energy; adaptation and managing the risks around climate change, air pollution, and its link to health; and education. Dr. Molina is convinced that education is essential. The center is working with youth to teach them about climate change and what can be done to respond to it. These middle school and high school students are our future leaders. Ricardo Haneine: How do you see the center 10 years from now? Dr. Francisco Barnés: A decade from now, we see the center as the hub of policy discussions related to bringing about a more sustainable world. I would like to see the center as a relevant player in discussions about decision making among public and private sector entities. Our aim is to be positioned to set the climate change agenda and provide meaningful feedback on post-reform energy development. For example, when plans are under way for unconventional gas development, the center should be at the table with recommendations on how projects may go forward in an environmentally friendly way. To do this, we need to stay ahead of developments. It is also very important for the center to build networks. A think tank needs to work closely with academia both within and outside Mexico and with other think tanks, as well as with relevant institutions in civil society that are working to push the environmental agenda forward. 3
As a think tank itself, the center must constantly be redefining its role in society and adapting to change. Today, we are in the process of redefining our vision, mission, strategic objectives, and governance, which has implications in terms of our funding and the specific incentives that we give our team. Ricardo Haneine: How are you planning to complement your in-house talent and foster and develop people who will push the agenda? Dr. Francisco Barnés: There are many potential talent models. For example, the center could cultivate a group of bright professionals who may not be expert in particular topics but can easily identify the right individual to bring in for a specific discussion. The center would outsource talent. Other think tanks focus on having best talent within their ranks. This latter model is the best for the center bringing in the very best people, aligned to common objectives. Thinking ahead, we want to develop individuals who can someday take on leadership roles at the center and groom others to serve in the government and private sectors. To bring aboard the best people, we need the right financing, which comes through having a diversified funding strategy. Ricardo Haneine: As a think tank, what values does the center have that define its actions and the actions of its people? Dr. Francisco Barnés: The center promotes excellence, applying the highest level of analytical rigor to decision-making. We are independent, non-partisan, neutral, and transparent with the data we publish and the way we represent the center to potential sources of funding. Our reports are solely based on our analyses, and our results are not influenced by any political bias. We have to be neutral and transparent in our funding, and also in why and how we address different topics. Interviewer Ricardo Haneine, partner, Mexico City ricardo.haneine@atkearney.com 4
A.T. Kearney is a leading global management consulting firm with offices in more than 40 countries. Since 1926, we have been trusted advisors to the world's foremost organizations. A.T. Kearney is a partner-owned firm, committed to helping clients achieve immediate impact and growing advantage on their most mission-critical issues. For more information, visit www.atkearney.com. Americas Atlanta Bogotá BostonCalgary Chicago Dallas Detroit Houston Mexico City New York Palo Alto San Francisco São Paulo Toronto Washington, D.C. Asia Pacific Bangkok Beijing Hong Kong Jakarta Kuala Lumpur Melbourne Mumbai New Delhi Seoul Shanghai Singapore Sydney Taipei Tokyo Europe Amsterdam Berlin Brussels Bucharest Budapest Copenhagen Düsseldorf Frankfurt Helsinki Istanbul Kiev Lisbon Ljubljana London Madrid Milan Moscow Munich Oslo Paris Prague Rome Stockholm Stuttgart Vienna Warsaw Zurich Middle East and Africa Abu Dhabi Doha Dubai Johannesburg Manama Riyadh For more information, permission to reprint or translate this work, and all other correspondence, please email: insight@atkearney.com. The signature of our namesake and founder, Andrew Thomas Kearney, on the cover of this document represents our pledge to live the values he instilled in our firm and uphold his commitment to ensuring essential rightness in all that we do. A.T. Kearney Korea LLC is a separate and independent legal entity operating under the A.T. Kearney name in Korea. A.T. Kearney operates in India as A.T. Kearney Limited (Branch Office), a branch office of A.T. Kearney Limited, a company organized under the laws of England and Wales. 2016, A.T. Kearney, Inc. All rights reserved.