NAFTA turns USMCA - What`s in it for Energy and the Climate?

The Trump administration announced the end of more than one year of negotiations on a new trilateral agreement that will revamp the 25-year old North American Free Trade Agreement (NAFTA). The United States-Mexico-Canada Agreement (USMCA) shall be officially signed in November. But what is in it for energy and the climate?

Canada decided last sunday night to join a bilateral agreement between Mexico and the US that had been reached some weeks ago. The USMCA will be more of a revamp than a replacement of NAFTA, which was initially favoured by President Trump.

The provisions of the new USMCA will mainly have an impact upon the car industry (with Canada reserving its right to send cars and parts to the US without tariffs until a particular threshold is reached), greater access of American farmers to the Canadian dairy industry, potential changes in national security tariffs (steel & aluminum), dispute resolution (the contested chapter 19 remains in the agreement) and the duration of the agreement (sunset clause - now 16 years). Cultural exemptions have been retained from the old NAFTA text.

With a view to energy and climate the USMCA agreement does not change much. Most prominent in this context is chapter 8 on the `Recognition of the Mexican State’s Direct, Inalienable, and Imprescriptible Ownership of Hydrocarbons`. This is mainly an amendment to bring the old NAFTA into line with reality. The background is that Mexico`s constitution prohibited foreign investors to be active in the country`s upstream oil and gas sector. Some years ago the Mexican constitution has been amended and now allows foreign investors to be active in that industry. The new chapter 8 reserves to Mexico the right to change its constitution again,  should it feel that this is becoming necessary.

Appart from hydorcarbons, other forms of energy are not addressed directly, but the existing rules of NAFTA on investments and trade that apply to, inter alia, components for renewable energy production (windmills, solar panels,etc.) are largely intact. Chapter 24 of the new USMCA discusses the environment, but no big changes to NAFTA were made.

Overall, it seems as if the new USMCA will not have much of an effect for energy and climate change mitigation. However, it remains to be seen whether some of the new rules that could have an indirect effect on the energy sector are going to be applied and interpreted in the same way as their predecessors in NAFTA. The deal still needs to be ratified by some national parliaments and that is likely to take at least until 2019.