Energy Production, Transportation and Demand in the Transborder Region: Opportunities and Impacts 1 2 About the Board The Good Neighbor Environmental Board (GNEB or Board) was created in 1992 by the Enterprise for the Americas Initiative Act, Public Law 102-532. The purpose of the Board is to “advise the President and the Congress on the need for implementation of environmental and infrastructure projects (including projects that affect agriculture, rural development, and human nutrition) within the states of the United States contiguous to Mexico to improve the quality of life of persons residing on the United States side of the border.” The Board is charged with submitting an annual report to the U.S. President and Congress. Management responsibilities for the Board were delegated to the Administrator of the U.S. Environmental Protection Agency by Executive Order 12916 on May 13, 1994. GNEB does not carry out border region activities of its own, nor does it have a budget to fund border projects. Rather, its unique role is to serve as a nonpartisan advisor to the U.S. President and Congress and recommend how the federal government can most effectively work with its many partners to improve conditions along the U.S.-Mexico border. The Board operates under the provisions of the Federal Advisory Committee Act, and membership on the Board is extremely diverse. By statute, GNEB comprises representatives from: (1) the U.S. government, including a representative from the U.S. Department of Agriculture and representatives from other appropriate agencies; (2) the governments of the states of Arizona, California, New Mexico and Texas; and (3) private organizations, including community development, academic, health, environmental and other nongovernmental entities with experience on environmental and infrastructure problems along the southwest border. The Board also includes representatives from tribal governments with lands in the border region. The recommendations in this report do not necessarily reflect the official positions of the federal departments and agencies that are represented on the Board, nor does the mention of trade names, commercial products or private companies constitute endorsement. Following historic precedent, the federal departments and agencies represented on the Board have recused themselves from this report. This report uses the terms “resilience” and “resiliency” interchangeably, as the “term of art” differs among agencies. i ii Table of Contents About the Board i List of Figures vi List of Tables vii Transmittal Letter ix Executive Summary x 1. The Border Socio-Economic and Environmental Context 1 1.1 Other Factors 5 1.2 Energy Access, Energy Poverty and Energy Insecurity 5 1.3 Indigenous People Border Region Energy Issues 7 1.4 Overarching View of Climate Change 9 1.5 Energy Efficiency and the Border Region 10 1.6 Energy Efficiency in U.S. Border States 13 1.7 Resilience 14 2. Overview of the U.S. Energy Sector 15 2.1 U.S. Energy Market 15 2.1.1 Oil and Gas Production 15 2.1.2 The Natural Gas Sector 16 2.1.3 The Electricity Sector 17 2.2 U.S. Energy Regulation 18 2.2.1 Oil and Gas Production 19 2.2.2 The Natural Gas Sector 19 2.2.3 The Electricity Sector 20 2.3 U.S. Environmental Regulation and Programs 22 2.4 Environmental Impacts of Energy on Air, Water and Land 23 2.5 One Federal Decision 25 3. Overview of the Mexican Energy Sector 27 3.1 The Mexican Energy Market 27 3.1.1 The Lead Up to the Mexican Energy Reform 28 3.1.2 The Mexican Energy Reform 28 3.1.3 President López Obrador’s New Energy Policies 30 3.1.4 Mexico’s Energy Balance of Trade 33 3.2 Mexican Energy Regulation 33 3.2.1 Oil and Gas Production 33 3.2.2 Sale of Gasoline, Diesel and Other Petroleum Products 34 3.2.3 The Natural Gas Sector 34 3.2.4 The Electricity Sector 35 3.3 Energy-Efficiency Efforts 36 iii Table of Contents 4. U.S.-Mexico Cross-Border Energy Relations: The Legal and Institutional Framework 37 4.1 U.S.-Mexico Cooperation for Oil and Gas Production in the Gulf of Mexico 37 4.2 NADB and Financing of Renewable Energy Generation in the Border Region 38 4.3 Cross-Border Infrastructure—Presidential Permits 39 4.4 Cross-Border Infrastructure—Natural Gas Pipelines 40 4.5 Export Infrastructure—The Case of Liquefied Natural Gas Facilities 42 4.6 Cross-Border Trade in Energy 42 4.6.1 Petroleum Products 43 4.6.2 Natural Gas Exports and Imports 43 4.6.3 Electricity 45 4.7 Cross-Border Trade in Renewable Energy 45 4.8 Cross-Border Cooperation in Energy Regulation—NERC and Mexico 46 4.9 State and Local Cooperation to Foster Energy Trade and Efficiency 47 5. U.S. Border Energy 49 5.1 California Border Region: San Diego and Imperial Counties 49 5.1.1 Overview of San Diego 49 5.1.2 Current Energy Sector in San Diego: Demand and Sources of Energy 50 5.1.3 Cost and Prices of Current Energy Use 51 5.1.4 Factors Influencing Future Demand 52 5.1.5 Overview of Imperial County 52 5.1.6 Energy Use 55 5.1.7 Air Quality Issues in Relation to Power Generation 56 5.1.8 Renewable Energy Growth and Role of Wind and Solar 56 5.1.9 Unique Relationship Between California and Baja California 57 5.1.10 Energy Efficiency and Energy Poverty 57 5.2 Arizona Border Region 59 5.3 New Mexico Border Region 61 5.3.1 New Mexico at the International Border: Paso del Norte and Doña Ana County 61 5.3.2 Energy Sector in New Mexico’s Border Region 63 5.3.3 Cost and Prices of Current Energy Use 64 5.3.4 Environmental Impacts of the Energy Sector 64 5.3.5 Future Demand for Energy 65 5.3.6 Structure of New Mexico’s Energy Sector 65 5.3.7 Energy Use by Sector 66 5.3.8 Renewable Energy 66 5.3.9 Energy Efficiency 67 5.4 Texas Border Region 68 5.4.1 Electric Reliability Council of Texas—ERCOT 68 5.4.2 The El Paso Exception 69 5.4.3 Cross-Border Electrical Grid Interconnections 69 5.4.4 Oil and Natural Gas Production From the Eagle Ford Shale Formation in South Texas 69 5.4.5 Oil and Natural Gas Production From the Permian Basin Shale Formations in West Texas 70 5.4.6 Wind and Solar Energy 70 5.4.7 Cross-Border Natural Gas Pipelines 71 5.4.8 Energy Efficiency: Property Assessed Clean Energy Program in the Border Region 72 iv 6. Mexican Border Energy 73 6.1 Baja California 73 6.1.1 Current Energy Infrastructure and Use 73 6.1.2 Energy Resources 75 6.1.3 Cost and Prices of Energy in Baja California 75 6.1.4 Environmental Impacts of the Energy Sector 76 6.1.5 Future Energy Demand 76 6.1.6 Potential for Renewables 76 6.1.7 Energy Needs for Water 77 6.1.8 Binational Desalination Initiatives 79 6.1.9 Cross-Border Energy Trading 79 6.2 Sonora 79 6.3 Chihuahua 80 6.4 Coahuila 80 6.4.1 Shale Gas Reserves 81 6.4.2 Coahuila Energy Cluster 81 6.4.3 Solar and Wind Energy Resources 81 6.4.4 Energy Audit of the Piedras Negras Water Treatment Facility 81 6.5 Nuevo León 82 6.6 Tamaulipas 82 6.6.1 Wind Energy Projects 82 7. The USMCA and Energy Trade and Investment in the Border Region 83 7.1 Energy Import Duties Under the USMCA 83 7.2 Limitations on Import and Export Restrictions; Exception for Mexico Hydrocarbons 84 7.2.1 Export Licensing 85 7.2.2 Export Duties, Taxes or Other Charges 86 7.3 USMCA Chapter 8 Specifically Recognizes the Mexican State’s Ownership of Hydrocarbons in the Ground 86 7.4 Special Investor Dispute Resolution Mechanism Under USMCA Annex 14-E 86 8. Recommendations 89 References 92 Appendix 1: State Regulatory Agencies 107 Glossary of Abbreviations and Acronyms 113 2018–2020 Members of the Good Neighbor Environmental Board 114 Acknowledgments 117 Endnotes 118 v List of Figures Figure 1. The U.S.-Mexican Border Region as defined by the La Paz Agreement, North American Development Bank and border counties and municipalities. 2 Figure 2. U.S. tribal communities located in the U.S.-Mexico border region. 8 Figure 3. Southwest average yearly temperatures have increased 1.9°F (0.9°C) between 1901 and 2018. 9 Figure 4. Southwest annual precipitation. 10 Figure 5. Fuel sources as a percentage of total electric generation, 1998–2018. 18 Figure 6. Installed generation capacity by type of permit at December 31, 2018. 29 Figure 7. Installed generation capacity by type of technology at December 31, 2018 (70,053 megawatts). 29 Figure 8. The structure of the U.S. Section of the International Boundary and Water Commission (USIBWC) permitting process. 41 Figure 9. California operational power plants, May 2018. 49 Figure 10. San Diego Gas & Electric’s average residential rates. 51 Figure 11. Imperial County renewable energy power plant locations. 53 Figure 12. Net Imperial Irrigation District system sales. 56 Figure 13. Imperial Irrigation District 2018 load forecast. 56 Figure 14. Actual/anticipated 2017–2020 renewables mix. 56 Figure 15. Proposed and achieved energy savings targets, 2014–2023. 58 Figure 16. High- and low-emissions scenarios. A2: High-emissions scenario, B1: Low-emissions scenario.