Adoption of Zero-Carbon Fuels in Mexico

The Adoption of Zero-Carbon Fuels in Mexico

The global low-carbon fuel market is predicted to achieve a value of between $40 billion and $50 billion by 2030. A major driving factor for this growth will be the shift from fossil fuel-powered vehicles to electric, using both electric batteries and hydrogen fuel cells. This will also be supported through a transition to low-carbon jet and shipping fuels.

With a burgeoning renewable energy industry and well-established shipping routes, Mexico could quickly become a major international hub for low-carbon freight and transport. This would not only boost the country’s long-term energy security but would ensure its position in the global energy market in the transition to green.

Zero-Carbon Fuels

At the beginning of 2022, the International Energy Agency (IEA) published a report on The Role of Low-Carbon Fuels in the Clean Energy Transitions of the Power Sector. This paper highlighted the potential for zero-carbon fuels, such as green hydrogen and ammonia, as key to decarbonizing the power sector and other industries.

The IEA suggested that the technologies needed to expand the zero-carbon fuel market are progressing rapidly, with large-scale green hydrogen projects already being seen across several countries in Europe and Asia.

We believe that the costs related to low-carbon fuel production must be pushed down further, through greater research and development into innovative technologies, to encourage uptake.

The Potential in Mexico

To meet its pledge of 35% fewer greenhouse gas emissions by 2030, Mexico will continue to develop its renewable energy market, expanding its already significant wind and solar power operations and well as breaking into new green energy industries. The Mexican government plans to develop an additional 30 GW of combined wind, solar, geothermal, and hydroelectric capacity by 2030, taking over 40 GW of combined wind and solar energy.

The Mexican hydrogen group (Asociación Mexicana de Hidrógeno, AMH), which was created in 2021 and consists of energy companies, energy trade groups, and agencies, is expected to publish a national hydrogen strategy to support the development of the hydrogen industry and market, as well as to spur progress in other low-carbon fuel operations.

Opportunities in the Shipping Industry

Mexico’s well-established shipping routes could eventually be powered by a range of low- and zero-carbon fuels as the industry are developed, including green and blue hydrogen, green and blue ammonia, green methanol, and biofuels. New low-carbon fuel operations could also support the production of fertilizer for national use and export, and low-carbon steel and manufacturing operations.

Mexico is already a major trading hub for North and South America, with ports on the Pacific and Atlantic Oceans, and links to Europe, Africa, and Asia. In its position as the second-largest economy in Latin America and as part of the U.S.-Mexico-Canada Agreement (USMCA), Mexico has become an attractive trading partner.

We believe Mexico has the potential to become a forerunner in low-carbon shipping. It can achieve this through the development of a low-carbon fuel production industry; the creation of policies and regulations to support low-carbon shipping, and the adaptation of ports and vessels to meet low-carbon needs. The adoption of zero-carbon shipping technologies at Mexican ports could attract an investment of between $1.7 billion and $2.7 billion in onshore infrastructure by 2030, according to our estimates.

Our Outlook Remains Positive

We believe the establishment of a low-carbon fuel production industry – developing upon Mexico’s existing hydrogen production experience – as well as the adaptation of the country’s ports and infrastructure to become suitable for the transportation and use of low-carbon fuels, could help establish Mexico as a major low-carbon shipping hub. It would also support the development of the country’s renewable energy sector and encourage the use of low-carbon fuels in industry, which accounts for around 30% of Mexico’s GDP.

Mexico has both well-established shipping routes and international trade links as well as a strong energy industry, currently mostly based around fossil fuels. We believe the expansion of Mexico’s renewable energy industry and the development of national strategies supporting low-carbon fuel operations could help Mexico to become a low-carbon shipping hub, as well as have positive spill-over effects on its energy sector and other industries.