Industrial demand for Mexican green hydrogen is poised for significant growth after newly elected president Claudia Sheinbaum announced the country’s first ever net-zero target. Speaking from COP29 in late November, Mexico’s president pledged to reach net-zero greenhouse gas emissions by mid-century.

Mexico is one of several Latin American countries blessed with enormous green hydrogen potential. Baja California and Sonora in the north offer excellent resources close to the US market, while further south the Yucatan peninsula benefits from both strong wind and solar with easy access to export routes.

“Oaxaca’s Isthmus of Tehuantepec is globally renowned for its wind energy, making it ideal for hydrogen projects,” said Julia Gonzalez, a counsel at international law firm Perez-Llorca. “Northern states like Coahuila and Nuevo Leon combine renewable potential with high industrial demand, and central states like Hidalgo and Queretaro lie close to major manufacturing hubs.”

“Mexico has the geographic potential to install up to 22TW of electrolysis capacity throughout the country” Alvarez, Santamarina y Steta

Mexican hydrogen association AMH2 estimates that domestic industrial demand at the pilot development phase could reach 392,189t/yr across seven key industries. Refining would be responsible for the bulk of initial demand (38%), followed by mining (27%) and hydrogen blending with gas (14%).

“The main driver for green hydrogen adoption will be its cost competitiveness, which is projected to be achieved for most applications around 2040 or 2050, depending on the level of government support, industry adoption and global cost reduction of hydrogen technologies,” said Norma Alvarez, a senior associate in energy and ESG at Mexican law firm Santamarina y Steta. “Mexico has the geographic potential to install up to 22TW of electrolysis capacity throughout the country to produce green hydrogen at an average levelised cost of hydrogen of $1.4/kg.”

Taking baby steps

Already, Mexico has $20b in green hydrogen projects under various stages of development. The Danish investment fund Copenhagen Infrastructure Partners leads with a $10b green hydrogen project in the Isthmus of Tehuantepec. Construction is set to begin in 2026, according to a recent press conference with Sheinbaum.

Even if only six projects of the 16 underway ultimately reach start up by 2030, the AMH2 says this would generate 3.351GW in additional installed capacity and $2.5b in revenues. Mexico’s National Electric System Development Program (Prodesen), for the period 2023–27, also set out the ambition of converting just over 1,000MW in combined power cycle plants to a 70/30 blend of natural gas and hydrogen.  

“The Mexican president, in a document streamlining her government priorities, highlighted the importance of developing hydrogen projects to boost energy transition,” added Jorge Cervantes, a partner at Perez-Llorca. “However, no specifics have yet been announced.”

In October, the AMH2 presented its roadmap for industrial hydrogen adoption and highlighted the lack of a specific regulatory framework for hydrogen in Mexico. The roadmap also pointed to lack of adequate infrastructure for transmission networks and gas pipelines.

“It is very important to have a legal and regulatory framework for hydrogen,” stressed Alvarez. “The issuing of the corresponding regulation must include technical issues, standards, regulatory and tax incentives to be able to promote new investments.”

Hitting the brakes?

Sheinbaum’s backing of the energy transition may represent a major shift in Mexican energy policy, but her thinking appears not to break entirely with her predecessor. Former president Andres Lopez Obrador cancelled all hydrocarbon licensing rounds after taking office and instead focused on state-backed oil production.

The energy reforms enacted under former president Enrique Pena Nieto, opening the door to the private sector, were essentially put on hold over the past six years. Those reforms then took another hit in late October when Sheinbaum passed constitutional reforms that rebranded state oil and gas firm Pemex, as well as the national electric utility CFE, as “productive state enterprises” exempt from being considered monopolistic.

The government has also indicated it will cap all power generation from the private sector at 46%, subject to secondary legislation yet to be announced. “There are still some gaps regarding how the government will interpret this proportion of electricity generation,” highlighted Alvarez. “It is necessary to determine whether this percentage will be considered for the development of new or existing projects. In addition, it should be noted that the National Electricity Sector Strategy foresees a public-private investment of $32.4b in the next five years.”

This development will likely either encourage or deter future investment in green hydrogen depending on how the government allows private sector participation in further legislation.

Carlos de Maria y Campos, a co-leader of energy and projects practices at Mexican law firm Galicia Abogados, is optimistic, however. “In parallel, the current administration has set a very aggressive goal to achieve 45% of the total national generation through clean sources,” he explained.

“Reaching this percentage seems very difficult without the participation of the private sector, especially considering the financial restrictions and challenges the government will face as it will continue to fund Pemex, finance social programmes and pay a costly judicial election. Because of this, I believe the new legislation and the new government policies will favour the development of clean energy projects and the participation of private investors.”

Mexico’s court order?

Another complication of the recent constitutional reforms is the impact on the US-Mexico-Canada Agreement (USMCA), the direct replacement of the North American Free Trade Agreement, which was rewritten after criticism from former US president Donald Trump.  

“The USMCA includes clauses designed to prevent the rollback of pro-trade and investment measures,” said Aisha Calderon, an associate at Mexican law firm Mijares Angoitia, Cortes y Fuentes. “For instance, the ‘ratchet’ clause stipulates that a country cannot reverse liberalisation measures or close sectors that were previously open to private participation. By increasing state control over the energy sector, reinstating the role of CFE and Pemex as public entities and giving prevalence to CFE in the electricity sector, Mexico's reform may be seen as contravening this clause, leading to disputes with the US and Canada.”

$20b – Value of projects

Calderon added that the reforms could also be challenged under the USMCA's investment protection provisions, which safeguard investors against measures that could adversely affect their operations and property. “Foreign investors in Mexico's energy sector might argue that the reform undermines their investments, prompting formal disputes under the agreement's mechanisms.”

The USMCA is also set for review in 2026 and provisions related to market access, investment protections and environmental commitments will most likely be raised. The return of Trump and his threats of tariffs, as well as deporting millions to Mexico, will also likely impact the USMCA review as well as general trade between the two countries.

“The recent constitutional change eliminates the energy regulator as an independent agency from the government and transfers its authorities to the executive power, which may be perceived as a violation of the terms of USMCA,” underlined de Maria y Campos. “Negotiating the new terms of the agreement will be more complicated if it is apparent that Mexico has not respected its terms and has failed to comply with some of the USMCA’s rules.”

The knock-on effect of all this remains to be seen, but investors will be hoping the scale of decarbonisation needed will incentivise the government, especially when the promise of domestic green hydrogen is so strong. Last year, Mexico still relied on fossil fuels for 77% of its electricity generation. Green hydrogen presents an important opportunity to achieve the net-zero goal but also help diversify the economy.

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Author: Marat Aslan