J.14 USAID-NREL_Mexico Electric Mobility Mini Assessment.pdf

A product of the USAID-NREL partnership Contract No. IAG-17-2050

MEXICO ELECTRIC MOBILITY

Mini Assessment

Kevin Wu, Riccardo Bracho, Patricia Romero-Lankao National Renewable Energy Laboratory

February 2022

NOTICE

This work was authored, in part, by the National Renewable Energy Laboratory (NREL), operated by Alliance for Sustainable Energy, LLC, for the U.S. Department of Energy (DOE) under Contract No. DE- AC36-08GO28308. Funding provided by the United States Agency for International Development (USAID) under Contract No. IAG-17-2050. The views expressed in this report do not necessarily represent the views of the DOE or the U.S. Government, or any agency thereof, including USAID.

This report is available at no cost from the National Renewable Energy Laboratory (NREL) at www.nrel.gov/publications.

U.S. Department of Energy (DOE) reports produced after 1991 and a growing number of pre-1991 documents are available free via www.OSTI.gov.

Cover photo from iStock 471670114.

NREL prints on paper that contains recycled content.

http://www.nrel.gov/publications http://www.osti.gov/ i

Table of Contents

1 INTRODUCTION

2 ISSUE OVERVIEW

2.1 Urban Transit System and Planning

2.2 Passenger Transportation

2.3 Freight Transportation

2.4 Crosscutting—Electromobility and Grid Integration

3 TRANSPORTATION LANDSCAPE IN MEXICO

3.1 Subsector-specific Categories

3.1.1 Urban Transportation

3.1.2 Passenger Transportation

3.1.3 Freight Transportation

3.2 Transportation Sector Emissions

3.3 Crosscutting—Factors Affecting Transportation Electrification

4 POLICY AND SECTORAL ANALYSIS

4.1 Previous Subnational and Federal Efforts

4.2 Linkages to Other Sectors

4.2.1 Trucking

4.2.2 Mining

4.2.3 Auto Manufacturing

5 INSTITUTIONAL STAKEHOLDERS

Federal Government Subnational Governments Private Sector International Cooperation Other

6 RECOMMENDATIONS

7 REFERENCES

ii

List of Figures Figure 1. Weighted density of various North and Central American cities Figure 2. Block density of various North and Central American cities Figure 3. Number of registered motor vehicles in circulation in Mexico, 1980–2019 Figure 4: Mexico freight transportation usage by mode (blue is rail, orange is road) Figure 5. Mexico’s total emissions by sector Figure 6. Mexico’s total transportation emissions by mode Figure 7. Mexico transportation road emissions by vehicle type, total and projected

List of Tables Table 1: Transportation Subsectors’ Contributions to Mexico’s GHG Emissions (1990– 2015) Table 2. Challenges To Decarbonizing Mexico’s Transportation Sector Table 3. Breakdown of transportation mode usage by Mexico City subdistrict Table 4. Number of freight road vehicle units in Mexico by class Table 5. Tons transported, traffic and average distance traveled per ton transported of freight road vehicles by class Table 6. Number of freight road vehicles in Mexico by fuel type Table 7. Recommended Actions for Mexico by Subsector—Subnational Level Table 8. Recommended Actions for Mexico by Subsector—Federal Level

List of Acronyms ANPACT National Association of Bus, Truck, and Tractor Producers

BAU business as usual

BRT bus rapid transit

CDMX Ciudad de Mexico (Mexico City)

CFE Comisión Federal de Electricidad (electric utility)

EV electric vehicle

GDP gross domestic product

GHG greenhouse gas

ICE internal combustion engine

INEGI National Institute of Statistics and Geography (Mexico)

MTCO2 metric tons of carbon dioxide

MTCO2e metric tons of carbon dioxide equivalent

NDC Nationally Determined Contribution

NREL National Renewable Energy Laboratory

OECD Organisation for Economic Co-operation and Development

SCT Ministry of Communications and Transport

SEDATU Secretariat for Agrarian, Territorial, and Urban Development

SEMARNAT Secretary of Environment and Natural Resources

SEMOVI Ministry of Mobility of Mexico City

SENER Ministry of Energy

USAID United States Agency for International Development

WRI World Resources Institute

1 INTRODUCTION

In the last 25 years, Mexico has undergone an urbanization process characterized by unsustainable patterns of land use and urban planning that, between 1996 and 2020, increased its urban population by 51% [1] and contributed to a sevenfold increase in its urban footprint [2]. This trend affects the shape and functioning of the country's cities as well as the patterns of population movement. The low residential density and high number of jobs in urban centers, a prevalent feature of Mexican cities, leads to long daily commutes. Over the same span of years, Mexico experienced a significant increase in its motorization rate. This urban sprawl and higher rate of motorization resulted in more frequent and longer trips with vehicles, resulting in increased transportation-related emissions [2].

Mexico’s transportation sector is one of the main emitters of greenhouse gas (GHG) emissions. During the 1990–2015 period, transportation-sector GHG emissions grew at an annual average growth rate of 2.5%, reaching 171.3 metric tons of carbon dioxide (MTCO2) in 2015. This amount represented 24.5%— nearly one-quarter—of the country’s total GHG emissions of 700 MTCO2. Table 1 shows the transportation subsectors in order of their contributions to Mexico’s GHG emissions:

Table 1: Transportation Subsectors’ Contributions to Mexico’s GHG Emissions (1990–2015)

Transportation Subsector

% of Mexico’s Total GHG Emissions

MTCO2

Contributed

Automotive 93.3 159.9

Aviation 3.7 6.3

Rail and water 3.0 5.1 Source: National Resource Governance Institute, 2018 [3]

From 2015 to 2020, the average annual growth rate for emissions from Mexico’s transportation sector grew to 3.3%. The 2020 updated version of the Nationally Determined Contribution (NDC) shows GHG emissions of 201 metric tons of carbon dioxide equivalent (MTCO2e) from the transportation sector.

Under the business-as-usual (BAU) scenario, this could grow by another 24.4% to 250 MTCO2e by 2030 [4].

Mexico’s transportation sector has grown fast over the years. At the end of 2021, preliminary figures show there were 34.4 million automobiles, 824,000 passenger buses, and 10.8 million trucks [5].

Mexico’s transportation-sector policies and investments have fostered a private-vehicle-centric model.

The country’s efforts to improve public transportation infrastructure have centered around the creation of ‘bus rapid transit’ (BRT) corridors as well as complementary interventions in nonmotorized transportation solutions, such as bicycle lanes. Mexico’s automobile fleet is expected to reach 70 million units by 2030, a 100% growth rate [2]. To counter the GHG emissions growth trend, Mexican federal, state, and local governments are promoting a more sustainable type of urban mobility for the country.

The organizational structure of the transportation sector in Mexico is fragmented across federal and subnational government institutions. The federal government has several institutions with jurisdiction over policy and regulation related to urban planning, energy, and transportation, including the promotion of adequate transportation and communication systems, accessibility of services, guarantee of adequate urban development and sustainable cities. The Secretary of Environment and Natural Resources (SEMARNAT) is the agency in charge of incorporating criteria and instruments that ensure the optimal protection, conservation, and use of the country's natural resources as well as implementing a comprehensive and inclusive environmental policy that allows achieving sustainable development.

Ultimately, the sub-national governments are responsible for providing public transportation systems and services in their communities. As part of this responsibility, these governments have the authority to implement changes for a more sustainable transportation sector within their jurisdictions.

Like many developing nations, urban planning in Mexico lacks the necessary coordination between the public sector, private sector, and civil society organizations to integrate sustainable transportation measures. According to Iniciativa Climática de México’s own assessment of the transportation sector in Mexico, lack of knowledge by public institutions about new transportation technologies, accompanying policies and energy related obstacles and requirements, is a particular challenge. International foundation funding in Mexico had worked with public institutions and provided technical assistance in these areas in the past; however, from 2013–2018, there was a pause with transportation-related activities because most international foundation funded assistance turned to the requirements of the power sector after the energy reform and energy transition law was passed. But, as power sector work became more difficult for foundations since 2019, foundations have returned to providing assistance in the transportation sector. For example, in 2020, with assistance from the World Resources Institute (WRI), SEMARNAT published the 2019–2024 National Strategy for Electric Mobility. SEMARNAT worked with several public and private institutions on this strategy, including the Ministry of Communications and Transport (SCT); the Ministry of Energy (SENER); the National Association of Bus, Truck and Tractor Producers (ANPACT); the Mexican Automotive Industry; academia; several automakers; and civil society organizations. For reasons unknown, the national strategy is no longer available on the SEMARNAT website.

Electrifying the transportation sector can be a key component for achieving Mexico’s national and regional decarbonization objectives. Not only are electric vehicles more efficient (per joule of energy) than gasoline/diesel vehicles, they have no tailpipe emissions (e.g., NOx, SOx, and particulate matter) that contribute to poor air quality and, overall, they produce fewer GHG emissions than conventional vehicles.

According to a WRI estimate, modernizing the transportation sector in Mexico could result in GHG emissions of 140 MTCO2e by 2030 (30% below projected BAU) and 44 MTCO2e by 2050—an 86% reduction of emissions below 2050 projected BAU, which could avoid 75,000 deaths related to air pollution exposure [6][7]. Most of these emissions reductions would come from urban planning or transportation demand management measures, such as increasing nonmotorized transportation and shifting modes (such as shifting from private vehicle to public transport). Historically, spending on public transportation creates 31% more jobs per dollar spent than does spending on new roads [2]. Despite these benefits, there are barriers and challenges to transportation electrification, such as higher up-front costs, potential range anxiety, charging inconvenience and/or lack of charging infrastructure, grid modernization and other required technical improvements, and general consumer unfamiliarity that may require targeting and addressing multiple policies, incentives, and regulations.

2 ISSUE OVERVIEW

Challenges to decarbonizing Mexico’s transportation sector include issues around the urban transit system and planning, passenger transportation, and freight transportation—with electromobility and grid integration challenges cutting across all three of these categories (Table 2). These challenges are described in greater detail in Section 3 and are also addressed systemically in Section 6.

Table 2. Challenges To Decarbonizing Mexico’s Transportation Sector

Urban Transit System and Planning

Passenger Transportation

Freight Transportation

Electromobility and Grid Integration

2.1 Urban Transit System and Planning

Poor urban planning, lack of information, and inadequate multi-agency coordination are the primary causes of challenges for urban transit systems across Mexico. Historical urban development and fiscal policies that have favored road vehicles (specifically, internal combustion engine (ICE) vehicles) have skyrocketed urban congestion. At the same time, a lack of multi-government agency coordination on urban transportation planning and lack of development funding has led to underdeveloped public transportation infrastructure in Mexican cities. This shortfall occurs despite Mexico’s high potential for a robust public transportation system. At the federal level, although Mexico has a national strategy for modernizing its transportation system, the government has not put in place the necessary policies and regulations to implement such a strategy.

2.2 Passenger Transportation

Mexico’s challenges with decarbonizing light passenger vehicles stem from policies and investments that resulted in an overreliance on private ICE vehicle usage across the country, which increased exponentially in the past two decades. At the same time, Mexico achieved very low levels of electric vehicle (EV) penetration within its passenger vehicle stock, mostly due to high cost, lack of national incentives for adoption, and an inadequate charging infrastructure (especially outside urban areas). This low EV penetration occurs despite Mexico’s increasing presence in the EV manufacturing global supply chain. Mexico exports a majority of the EVs it produces; therefore, there may be opportunities to bridge the gap between Mexico’s rising EV production capabilities and its need for greater domestic EV adoption. At the same time, electrifying passenger fleets (i.e., rideshare services) may present an opportunity to lower the costs of EV adoption.

For heavy passenger transportation, Mexico lacks a functional passenger rail service or low carbon urban transportation system. This has enabled the increase in carbon-intensive, private ICE vehicles over the past two decades. While the federal government has recently indicated increased interest in reviving passenger rail service (for both intra- and intercity travel), rail’s share of passenger transportation remains negligible. With respect to public road transportation, some states and cities have shown interest in electrifying more public transportation systems to decrease reliance on private ICE vehicles (e.g., the city of Monterrey recently announced an initiative to electrify bus lines).

2.3 Freight Transportation

Mexico relies heavily on diesel-powered road vehicles that contribute disproportionately to transportation emissions. Although historically Mexico has tried to address freight emissions through an efficiency focus, these efforts lacked integration into a broader framework. Daniela Muñoz, Director of Planning and Programming for the Ministry of Mobility of Mexico City (SEMOVI), recently stated that “historically, cargo transport has been relegated to mobility policies, and that the sector has important externalities due to lack of regulation and public policy attention.”

Specifically, Mexico has the potential to decarbonize its extensive last-mile freight subsector, which has increased its usage and emissions share, especially since the pandemic. Mexico City is one subnational government prioritizing the sustainability of last-mile transportation. At the same time, some private companies with sustainability goals are working to electrify their fleets (e.g., a bakery giant, Bimbo has created a subsidiary that manufactures electric delivery vehicles; see Section 3.1.3 for more information).

Appropriate policies, programs, and incentives could speed up this process. While public and private entities have shown an interest in decarbonizing freight, the design of current programs, policies, and incentives lacks the robustness needed for significant progress.

2.4 Crosscutting—Electromobility and Grid Integration

Mexico lacks a robust framework to design, evaluate, and integrate into the grid potential electromobility solutions that will be key to any meaningful transportation decarbonization. This issue cuts across all three categories described earlier because electrification will play a key role in any decarbonizing pathway. Mexico has done very little work evaluating specific electromobility use cases across various sectors and how they integrate into the grid. Specifically, Mexico needs to develop a better understanding (through data collection and analysis at the subnational level) of prominent use cases for electromobility across the country, which includes analysis of site design, network planning, and the economics of different charging schemes. This work must also be linked with the country’s efforts to promote clean energies for electricity generation. This analysis can support policymakers in determining how different use cases impact the grid, how they interact with each other (both from an operations and a policy/regulatory perspective), and how much emissions reductions potential they have.

In the end, Mexico will likely require multiple programs to address its various categories of transportation decarbonization challenges. As such, a well designed framework can coordinate stakeholders to support integration of these programs with the grid, which can contribute to real decarbonization impacts.

3 TRANSPORTATION LANDSCAPE IN MEXICO

3.1 Subsector-specific Categories

3.1.1 Urban Transportation

Mexico’s urban landscape is dominated by various types of public transportation (e.g., buses, minibuses, microbuses, minivans, workplace shuttles, taxis (shared or unshared), trains, metro (subway), and BRT), nonmotorized forms of transportation (e.g., walking and bicycling), and private cars. A study on transportation modes in Mexico's 100 urban areas found that 49% of users commute by public transit, 23% commute by foot or bicycle, and 23% commute by private car [8].

In the Metropolitan Area of the Mexican Valley (ZMVM), a study showed that residents made 31% of their trips by public transportation, 33% were by walking or bicycling, and 21% of trips were by private car (Table 3) [9]. However, breaking down these statistics by density of population reveals significant inefficiencies within the area’s transportation functions.

In the most densely populated area of the valley, Mexico City, the use of private cars (24%) almost catches up to public transportation (27%) and walking and bicycling (29%) [9]. The higher private car usage likely results from higher incomes leading to higher car ownership, leading to significant congestion. The average resident can only access 37% of Mexico City’s jobs within an hour of his or her home and spends an average of 158 hours stuck in traffic per year [9]. More than 20% of commuters spend 3–4 hours stuck in traffic every day, and the average distance traveled per commuter is 7.7 km [9].

In the least densely populated areas of the ZMVM (State of Mexico and State of Hidalgo), public transportation (34–37%) and walking and bicycling (37–41%) far outweigh private car usage (18–19%) [9]. Poor urban planning has enabled massive urban sprawl where many lower-income residents are forced to live on the outskirts of cities and are unable to afford the use of a private car. These residents rely on private minibuses operating on concession schemes where the government grants the concessionaire the exclusive right to provide public transportation services on certain routes. The criteria for granting a concession may include the tariff to be charged to the public, the number and quality of the vehicles, the frequency of the service, the experience of the company, etc.. In fact, 74% of public transportation trips in the Mexico City metro area use this minibus system [10]. Although these minibuses are cheaper than traditional public transportation methods (e.g., metro lines or BRT), they contribute further to urban congestion.

All of these inefficiencies contribute to Mexico having some of the highest transportation expenses in the world—19.3% of household expenses, on average. This number increases to 22.4% for residents in Mexico City’s outskirts and is the highest rate among G20 countries [10]. Mexico also has one the world’s highest percentages of income spent on public transportation, further suggesting the public transportation system has many inefficiencies [11].

Table 3. Breakdown of transportation mode usage by Mexico City subdistrict

Instances Car (%) Taxi (%) PT (%) MRT (%) Walk (%)

Total 434,834 20.90 4.50 30.9 10.30 33.40

Federal District

211,528 23.68 5.62 26.88 14.58 29.23

State of Mexico

220,894 18.19 3.46 34.67 6.34 37.34

State of Hidalgo

2,412 19.94 0.87 37.02 0.21 41.96

Weekday 265,958 18.78 3.87 32.02 10.83 34.49

Weekend 168,876 24.15 5.49 29.12 9.50 31.74

Note: The five categories include the following modes of transport: Taxi: Taxi (App), Taxi (Street); Public Transport (PT): Colectivo, Bús (RTP), Autobús, Trolebús; MRT: Metro, Metrobús, Mexibús; Walk: Walk, Bicycle.

Source: Harbering and Schlüter, 2020 [9]

Despite these challenges, Mexico’s cities have ample conditions for a robust public transportation system.

Central urban areas of cities in Mexico have some of the highest population densities, block densities (i.e., developed areas per km2), and percentage of population near frequent transit in North America (Figure 1) [12]. These characteristics suggest that in highly populated central urban areas, development of high-density public transportation systems and improving infrastructure for nonmotorized modes of transportation could lead to high rates of return for the transportation system. However, Mexico also has an extremely high disparity in block density between the central urban areas and their surrounding metropolitan areas, with the former dwarfing the latter (Figure 2) [12]. As such, approaches to public transportation improvement must account for the disparity in block density between the different areas of the cities (central urban vs. metropolitan), or they risk excluding large portions of low-income populations in the poorer metropolitan areas.

Figure 1. Weighted density of various North and Central American cities

Image by Chestnut, 2019 [12]

Figure 2. Block density of various North and Central American cities

Image by Chestnut, 2019 [12]

The disparity between Mexico’s current urban transportation landscape and the potential for improvement stems from a lack of coordination among civil society organizations, the private sector, and multi-agency government organizations responsible for urban development. This poor coordination is the result of four factors:

• Inefficient budget allocation

• Lack of open dialogue during the planning process

• For governments, lack of multi-agency and multi-level (federal-subnational) coordination

• Poor public-private coordination.

Despite the clear need to increase access to sustainable public transportation, Mexico City has historically only allocated 13% of its transportation budget to public transportation, compared to 30% for car infrastructure [10]. However, in recent years, this has shifted as Mexico City has embraced new and cleaner public transportation solutions. At the governance level, no federal agency in Mexico has a specific mandate to handle urban mobility issues; responsibilities are split among the Secretariat for Agrarian, Territorial and Urban Development (SEDATU), the SCT, and the SEMARNAT [10]. Although these agencies do collaborate, they have no shared vision for urban mobility improvements, leaving subnational governments to implement ad hoc solutions.

While local governments have the autonomy to make transportation decisions, they often lack the capacity to design and implement urban mobility strategies because they are usually dependent on federal transfers for their budget needs. And, because a multitude of private-sector actors manage a significant portion of public transportation across the country, strong public-private coordination is required to integrate private-sector operations into broader urban and transportation development frameworks. For example, Mexico’s inefficient and highly polluting minibus system enjoys entrenched political power in cities across the country, which means strong public-private coordination is required to implement urban transition plans. But, Mexico’s history of negotiating with minibus interests to implement sustainable change has shown strong tendencies toward situation-specific handling. This is because of widespread diversity, both within and between cities, in terms of: the number of minibus operators, passenger volume, operating/profit margins, government financial capacity, political will, and other economic and political conditions. Even within Mexico City, which has made the most progress overhauling its minibus system, different corridors of the city have utilized different public-private structures and negotiating tactics (from forced change to radical inclusivity) to integrate minibus operators [6]. Unfortunately, many local governments do not have the capacity to pursue such integration.

3.1.2 Passenger Transportation

Passenger cars dominate the road transportation landscape in Mexico, making up more than 85% of the national passenger vehicle stock (about 34 million in 2019) [5]. Unsurprisingly, Mexico’s national vehicle stock grew extremely fast over the past 40 years, as shown in Figure 3 and was dominated by increases in private vehicles [5]. In fact, Mexico’s private vehicle fleet is expected to increase from 32 million cars in 2018 to as many as 70 million by 2030 [13].

During the Peña Nieto administration, the federal government tried to build two rapid rail routes to connect Mexico City to Querétaro (to the north) and to Toluca (to the west). To date, the Querétaro- Mexico City rail has been cancelled, and the Toluca-Mexico City rail, which began construction in 2015, is expected to be completed in 2023.

Shared mobility with ride-hailing players, such as Uber, Easytaxi, Cabify, or Didi Chuxing, has increased recently in Mexico. In Mexico City, cash fares were allowed for these services, opening a new market for approximately 60% of the population that does not own a bank account. Mexico City also has a public bike- and scooter-sharing system, Ecobici, with 480 stations and 6,800 bikes and electric scooters provided by third-party private companies. [14].

Figure 3. Number of registered motor vehicles in circulation in Mexico, 1980–2019.

Image by INEGI, 2021a [15]

Note: There were 50.6 million registered vehicles in 2019.

A mix of policies and socioeconomic factors have fueled Mexico’s private vehicle usage explosion. First, the increase in private vehicle usage coincided with substantial rises in per capita income in the past few decades, and private vehicle ownership is considered a symbol of social status [16]. Furthermore, a mix of national and local policies, combined with various financing alternatives, has incentivized individuals to buy private vehicles [16]. These policies include:

• A gasoline subsidy

• Historic lack of taxes for car ownership

• Lack of mandatory insurance policies

• Open trade policies that facilitate imports of cheap and used cars

• A rise in commercial bank loans

• Prioritization of infrastructure funding that resulted in fast growth of private roads across the country.

These policies directly contributed to the quick increase in private vehicle usage and, in turn, congestion and significant vehicle pollution. Although in recent years the government has liberalized gasoline prices along with its energy reform, the current federal government administration has sought to reintroduce price controls and increase domestic gasoline production, which could further Mexico’s dependence on private vehicles [17].

Finally, rail passenger transportation is almost nonexistent in Mexico today. Mexico had a well established state-owned passenger rail system as late as the 1970s, but it suffered from relatively poor financial performance, which, combined with an increase in air transportation, led to a significant decline in rail use during the 1980s and 1990s. Now, Mexico’s passenger rail industry ranks only 36th out of 55 countries within the Organisation for Economic Co-operation and Development (OECD), and Mexico’s total rail usage falls far below the mean value within this data set [23]. The previous federal administration and the current government have sought to reinvest in Mexico’s passenger rail system by granting concessions for modern high-speed rail routes. However, many of these projects have faced significant financing and construction delays, such as the Mexico City-Queretaro High Speed Train [19].

3.1.3 Freight Transportation

Freight transportation in Mexico is also dominated by road transportation, but the disparity is not as significant compared to passenger transportation. Rail freight transportation makes up about 25% of Mexico’s total freight transportation usage (compared to 75% for road transportation), and it ranks 9th out of 55 countries within select OECD and related countries [18]. Figure 4 shows road and rail freight transportation have had similar growth rates in usage over the past 40–50 years, but rail has grown at a faster rate in the past 20 years after a dip in the 1990s.

Figure 4: Mexico freight transportation usage by mode (blue is rail, orange is road), 1970-2018

Data from International Transport Forum [23], image created by authors

For road freight transportation, large freight vehicles dominate. Table 4 shows that three-axle tractors (Class T-3) make-up around 66% of Mexico’s freight vehicle stock, with trucks making-up a large majority of the remaining 34% [20]. Furthermore, these Class T-3 vehicles transportation almost 80% of all volume and average the longest trips, indicating that Mexico is heavily reliant on long-distance road vehicles/trips to meet freight transportation needs (Table 5) [20]. Although rail freight is used less, it has a longer average trip metric (about 20% longer), suggesting there may be opportunities to replace long-distance road freight with rail, especially given the recent growth of freight rail in Mexico and the freight sector’s heavy reliance on diesel (90%) and gasoline (8%) (Table 6) [20].

Table 4. Number of freight road vehicle units in Mexico by class

Vehicle Class Nationwide Units

Two axle truck C-2 84,226

Three axle truck C-3 73,909

Two axle tractor T-2 2,968

Three axle tractor T-3 301,088

Others 825

Source: Sandoval-Garcia, et al., 2021 [20]

Table 5. Tons transported, traffic and average distance traveled per ton transported of freight road vehicles by class

Vehicle class Tons transported (thousands)

Traffice, tkm (thousands)

Average distance traveled per ton transported (km)

C-2 37,732 7,238,163 192

C-3 73,206 16,371,699 224

In combination with T-2 4,149 1,574,249 379

In combination with T-3 431,501 230,951,889 535

Total 546,588 256,136,000 332.5

Table 6. Number of freight road vehicles in Mexico by fuel type

Diesel Gasoline Natural gas Natural gas- Gasoline

Electricity

420,527 35,853 1,862 4,773 1

One fast-growing subsector of freight transportation in Mexico (and the world) is last-mile transportation.

This sector encompasses the last leg of the journey for the delivery of goods to their destination. It includes the trip from delivery warehouses to other businesses (business to business) and to final consumers (business to consumers). Mexico has a robust and sophisticated last-mile transportation system that is capable of delivering products to every corner of the country. In the past decade, new demand for last-mile services from e-commerce rose significantly. This growth rapidly increased congestion and emissions. From 2014 to 2019, e-commerce sales ratios nearly tripled globally and, in 2020, during the COVID pandemic lockdowns, e-commerce grew at an even faster rate. This trend results from various factors: urbanization, higher disposable income, an increasing range of products offered to consumers through new business models that offer fast and time-definite delivery. In 2020, e-commerce in Mexico grew by 81% [21].

Clean electrification of last-mile transportation is an important option that governments could more easily promote through regulation and incentives. Across the world, delivery giants, such as Amazon, UPS, and Deutsche Post, have made efforts to electrify their delivery fleets. In Mexico, there are already pilot programs with good results. Grupo Bimbo, a giant baking products multinational, began to transition to a fully electric fleet in 2012. Through its subsidiary MOLDEX, it developed two electric delivery vehicles models and as of today, it has produced 1,000 units but has the capacity to produce 3x that number [22].

The company is replacing 4,000 vehicles in Mexico and selling some units to other interested buyers.

Clean energy is critical for ensuring the sustainability of Mexico’s transportation electrification efforts.

Great potential exists for public- and private-sector collaboration to find sustainable solutions, including clean energy requirements, charging infrastructure, grid modernization, and regulations to incentivize economic charging (e.g., charging at times of low system demand).

3.2 Transportation Sector Emissions

Mexico has a lot of work to do to implement its climate change mitigation plans. Although the country has a General Climate Change Law that presents a long-term, systematic and comprehensive approach to mitigate emissions and help Mexico adapt to climate change, the government has so far failed to successfully implement its plans. There are two explanations for this failure:

1. Mexico has a perennial misalignment between its climate change and energy policies [23]. It lacks a developed policy framework that embeds its climate mitigation goals within the various economic sectors, including energy [23]. This has hampered decarbonization of the energy, transportation, and other sectors. This is unlike Mexico’s pollution policy, where laws, such as the Transition Strategy to Promote Use of Cleaner Fuels and Technologies, link energy policy to pollution reduction [23].

2. Mexico lacks institutional accountability to meet its climate goals. Officials do not face reprisal for missing targets and goals, and Mexico has missed both its clean energy and GHG emissions reductions targets in 2012 and 2018 with no institutional accountability (e.g., renewables still make up a mostly negligible portion of the electricity grid mix) [23].

Combined, these explanations show Mexico has a long way to go to operationalize its climate change plans.

Unsurprisingly, road emissions (cars, trucks, and buses) make up an overwhelming portion of Mexico’s transportation emissions—more than 97% (Figure 6) [23]. At about 26%, Mexico has a high proportion of transportation emissions relative to the country’s total emissions (Figure 5) [24].

Light- and heavy-duty road vehicles present different but equally critical problems for decarbonizing transportation in Mexico. Light passenger vehicles (i.e., ligeros, which are mostly private cars) produce about 66% of transportation GHG emissions, indicating the massive carbon footprint of Mexico’s private vehicle-oriented system (Figure 7) [25]. Heavy freight (carga) and heavy passenger (pasajeros) vehicles, which tend to use diesel over gasoline, follow in second and third, respectively, for road emissions [25].

However, diesel vehicles represent only 3% of Mexico’s vehicle fleet while accounting for 31% of emissions, indicating potential for efficient heavy-duty vehicle decarbonization [25].

Figure 5. Mexico’s total emissions by sector, 1990-2019

Image by WRI CAIT [24]

Figure 6. Mexico’s total transportation emissions by mode, 2018

Data from International Trasport Forum [23], Image by authors

Figure 7. Mexico transportation road emissions by vehicle type, total and projected, 2000-2030

Image by INECC, 2018 [25]

3.3 Crosscutting—Factors Affecting Transportation Electrification Mexico also faces challenges with vehicle electrification in terms of EV usage/infrastructure and grid integration, and generating electricity with renewables.

Mexico’s primary challenges with EV usage/infrastructure include the high cost of EVs (relative to incomes), an inadequate charging infrastructure, regulation of charging points, and lack of coordination between multiple public and private actors. The high cost of electric and plug-in hybrid vehicles represents the biggest barrier for these technologies to get a larger market share. Seventy percent of private vehicles sold in Mexico have an average price of US$15,000. There are no EV or plug-in hybrid models available at that range. According to Mexico’s National Institute of Statistics and Geography (INEGI), total sales of light vehicles in Mexico were 950,063 in 2020. That same year, sale of EVs and hybrids represented 2.5% (fully electric vehicles, 449 units; plug-in hybrids, 1,986 units; and conventional hybrids, 21,970 units). For the first 10 months of 2021, total vehicle sales were 834,486, and sales of EVs and hybrids were 4.7% of that total (EVs, 768 units; plug-in hybrids, 2,515 units; and conventional hybrids, 35,911 units) [15].

Furthermore, charging infrastructure for EVs in Mexico is inadequate and, even people with economic means, are not comfortable making the switch. Mexico has more than 31 EVs per charging point— compared to 13 in EU countries that have much faster [26]. As such, Mexico only has about 20,000 EVs on the road today, with less than 5% of these being fully electric. rates of adoption—and most of these charging points are concentrated in urban areas. Even in Mexico City (which has made the most progress in EV adoption in Mexico), there are only 7 EV chargers per 1 million people, which ranks very low compared to similar-sized cities.

Mexico also faces several challenges for EV grid integration. The country has taken very few steps to actually quantify the impact of different EV use cases on the grid. Although Mexico has a National Electromobility Strategy, and the government set a goal of 100,000 urban electric vehicles on the road by 2024, there has been very little action taken (in terms of more specific policies, regulations, or academic studies) to understand and determine how to integrate electrification of multiple transportation subsectors (light, heavy, and urban) into the grid. This results in an implementation gap for vehicle electrification.

Finally, Mexico’s high reliance on fossil fuels (especially natural gas) for electricity generation reduces the decarbonization potential of vehicle electrification.

4 POLICY AND SECTORAL ANALYSIS

4.1 Previous Subnational and Federal Efforts

Despite the various barriers to transportation electrification described in Section 3, Mexico has made efforts at both the federal and subnational levels to address issues in EV adoption, public transportation electrification, and broader urban planning considerations.

For deployment of EVs and hybrids, the federal and local governments have put in place some incentives.

Mexico’s federal income tax law exempts EVs and hybrids from sales or import fees [27]. In 2017, the federal government approved higher tax deductions for EV and hybrid owners and provided a 30% tax credit for investment in public EV supply equipment. Other federal incentives include exempting import taxes on all new EVs for the transportation of 10 or more people and the transportation of merchandise [28].the last digit of the vehicle’s license plate.

State and local governments have also launched incentives for EVs and hybrids. Leading the way with local policies to promote EVs and hybrids, Mexico City provides a series of incentives:

• Owners can save the payment of new vehicle taxes and annual property taxes

• EVs and hybrids can circulate daily while other vehicles must follow the “no driving day” program that bans drivers from using their vehicle one weekday per week. The day of the week designated as a non-driving day, is based on the last digit of the vehicle’s license plate.

• Through the EcoTag program, EV and hybrid owners save 20% over the cost of using urban highways in the city

• Parking slots with free charging and preferential parking status are provided in certain areas of the city

• Exempting public and private transit operators that use EVs from a requirement to renew their fleets every 10 years. [29] [30]

Furthermre, as an incentive for EV owners, the national utility, Comisión Federal de Electricidad (CFE), offers the installation of special meters for EVs, allowing the owners of EVs to remain on their domestic low-consumption tariff instead of the high-consumption tariff, despite the higher electricity consumption due to the EV1.

Mexico City has also recently implemented electrification solutions in the public transportation subsector.

City authorities developed the Ciudad de Mexico (CDMX) Electric Transport Service network. The network includes the expansion of the city’s trolleybus program that operates 209 trolleys over 9 routes and covers 203 km. In 2021, Mexico City inaugurated the first line of a new mode of public transportation for remote hilly areas of the city, called “cablebus”—an aerial lift that uses gondolas. This cablebus has the capacity to move 144,000 passengers per day with the one line currently in service. Mexico City also inaugurated the first modern light-rail line in Mexico, a survivor of the once-extensive tram network.

Finally, Mexico City is also part of the Zero Emission Bus Rapid-deployment Accelerator initiative that aims to increase zero-emissions public transportation in major cities across Latin America [26].

Other subnational entities that have made progress include cities in the Yucatan Peninsula. Mérida’s strategy, the Plan Integral de Movilidad Urbana Sustenable Mérida 2040, lays out urban mobility goals, 1 Mexico’s domestic electricity rates are subsidized for low consumption consumers. Above a certain level of consumption, consumers, also known as DAC consumers for its name in Spanish, stop receiving this subsidy and their rate is higher. Source: https://mxelectricity.com/the-dac-rate/ strategies, and actions, but does not explicitly address transportation electrification; however, electrifying vehicles could contribute to several strategies for Mérida, including [31]:

• Technological optimization and innovation in the public transportation system, with an emphasis on renovating fleets to meet energy efficiency and emission reduction goals

• Emphasis on monitoring and reducing environmental impacts (e.g., emissions) from private vehicles.

Plan Integral de Movilidad Urbana Sustenable Mérida points out that 47% of modal share in Mérida is public transit and 31% is private vehicles (with motorcycles representing a significant portion of those), which suggests these modes of transit could be a target for vehicle electrification pilots or programs if the city were to show interest.

In Quintana Roo, there is no explicit policy support for EVs, but the state’s “Ley de Movilidad” plan paints broad strokes about the importance of considering environmental impacts, emissions, and sustainable technologies that could justify EV programs [32]. According to the state’s Secretary of Energy, Quintana Roo and its private sector are interested in promoting electromobility, although various barriers exist, including potential resistance from public transit labor unions and a lack of publicly available charging stations for private EVs. Quintana Roo’s Instituto de Desarrollo Financiero has recently participated in a Tesla-led initiative to promote electromobility by installing charging stations.

More broadly, larger cities (including Mexico City, Guadalajara, and Monterrey) are participating in initiatives, such as the C40 Electric Bus Corridor, to transition municipal bus systems to electrification.

However, it is unclear how much progress has been made or whether momentum has expanded to smaller cities. Furthermore, Didi, a popular ride-sharing app, launched Latin America’s first ride-sharing EV fleet in 2020, with 700 full or hybrid EVs [33]. This goes along with broader market growth in the ride-sharing segment, where exponential growth (28% compound annual growth rate) is forecast for the next decade, with multiple competitors buying into this growth trend and seeking to enter Mexico [33]. As such, Mexico’s transition to EVs may start with a larger vehicle-sharing fleet (whether public or private) rather than with individual consumers purchasing private EVs.

4.2 Linkages to Other Sectors

4.2.1 Trucking

Trucking is a key industry in Mexico, with trucking logistics costs making up 5% of gross domestic product (GDP) in 2012, indicating the country has a vested interest in sustainable trucking [34]. Given that 75% of freight in Mexico is done by road, trucking is a key industry for decarbonization efforts.

Given the more centralized nature of the trucking industry, it is easier to regulate than light passenger vehicles because policymakers can implement new regulations without as much concern about incentivizing behavioral changes. For example, Mexico has historically implemented performance standards for the trucking industry and it has also considered heavy-duty vehicle road tolls to discourage road freight [35].

Furthermore, Mexico has established programs to increase efficiency in the trucking industry that have included robust collaboration between the trucking industry and government/regulators. For example, on the manufacturing side, ANPACT and INEGI have a data-sharing agreement to produce a monthly trucking industry report with information on wholesale and retail sales, import and export figures, as well as monthly production totals [36]. On the operations side, the government’s National Commission for the Efficient Use of Energy collaborates with the National Chamber of Freight Transport (an industry association), to implement eco-driving programs [35]. These programs have decreased fuel consumption by as much as 30% in some cases. Although these collaboration examples focus more on efficiency rather than electrification and are not integrated into a single, robust program, they nonetheless show the significant potential for public-private partnerships within the industry to achieve decarbonization goals [35].

Trucking decarbonization (efficiency and electrification) can also offer important benefits in reducing air pollutants, such as black carbon and other short-lived climate pollutants. As such, linking trucking with broader transportation decarbonization initiatives can lead to additional benefits beyond GHG emissions.

4.2.2 Mining

Mexico has an abundant resource base of key minerals for EV battery manufacturing, notably, lithium, silver, manganese, copper, and others [37]. However, development of these resources into a robust EV battery supply chain still faces economic and political complications. Economically, many of Mexico’s lithium deposits are in clay, which is much more expensive to extract compared to lithium in brine deposits [38]. The Ministry of Economy recently announced its plan to begin EV battery manufacturing domestically [38]. However, these plans are still in the early stages. Politically, the current federal government’s propensity for resource nationalization has clouded the outlook of the mining sector in Mexico. Although the government has signaled its willingness to respect existing concessions, only one, a US$420 million asset in Sonora, seems to meet its criteria while 31 other lithium concessions in Mexico with foreign ownership may face challenges [39]. Industry experts conclude that new concessions are even less likely to be granted [39]. This tilt toward nationalization, combined with expensive extraction costs, may harm the development of the mining industry in Mexico, especially given the government’s lack of finances and knowledge to develop mining projects on its own. For example, the Sonora project has pushed back production targets repeatedly [39]. As such, Mexico has the mining resource base to build out a robust supply chain for EV battery manufacturing, but it must create the right regulatory and political conditions to maximize resources used to develop this industry.

4.2.3 Auto Manufacturing

Mexico is currently the seventh-largest producer of passenger vehicles in the world, producing 4 million units a year of which 82% are exported [21]. This fast-growing industry represents more than 20% of Mexico’s GDP [21]. However, less than 2% of Mexican-produced vehicles are EVs of which a vast majority are exported. Mexico’s close proximity to major markets (e.g., the United States), favorable tax exemptions for manufacturers, and a competitive workforce built from robust vocational education programs have allowed it to build strong automotive clusters that attract increasing investment in EVs from across the automotive supply chain. For example, on the battery side, multiple companies have announced plans for lithium battery recycling plants (for lithium-ion EV batteries) in Mexico, especially given Mexico’s abundant lithium deposits. On the auto manufacturing side, major car companies have announced investments in the past 12 months, including GE (US$1 billion) and Ford (US$420 million) [40]. Although most EVs are currently exported, these increased investments suggest Mexico has ample opportunity to synchronize its increasing EV manufacturing apparatus with increased domestic adoption of EVs.

5 INSTITUTIONAL STAKEHOLDERS

Federal Government

• Ministry of Environment (SEMARNAT) o National Institute of Ecology and Climate Change

• Ministry of Energy (SENER)

• Ministry of Communications and Transport (SCT) o Instituto Mexicano del Transporte

• Secretary of agrarian, territorial and urban development (SEDATU) o Undersecretary of urban development and housing

• Comisión Federal de Electricidad (CFE)

• National Energy Regulatory Commission

• National Energy Control Center

• National Institute of Electricity and Clean Energies

• Consejo Nacional de Ciencia y Tecnología

Subnational Governments

• Ministries of Transport and Mobility

• Ministries of Planning

• Ministries of Energy

• Ministries of Urban Development

• Ministries of Environment

Private Sector

• Qualified Energy Market Participants o ENGIE o Enel Green Power

• Solar Energy Association

• Asociación Mexicana de la Industria Automotriz

• Operators of Public Transport o…