RFF on the Issues

RFF on the Issues: A North American Energy Strategy for NAFTA Renegotiations

Feb 7, 2017 | Peter Nelson

Energy issues may be front and center if the North American Free Trade Agreement (NAFTA) is to be renegotiated, as President Trump has promised. The agreement, which went into force in the mid-1990s, reduces trade barriers between the United States, Canada, and Mexico. But the energy landscape across the continent has changed notably since NAFTA was established—with advancements in drilling technology, improved access to shale gas and oil resources, and systematic energy reform. Though connections across the three nations continue to increase, uncertainty remains over how energy integration may be addressed in NAFTA renegotiations, as the Trump administration has yet to propose any specifics. However, as reported in Energywire (subscription required), Canadian minister of natural resources Jim Carr notes, “We continue to make the case that the integration of the energy sector continentally is in the interests of all three governments. … [U]ntil we have more clarity we will continue to establish this network of important relationships, both within the United States and in Mexico.”

RFF’s Raymond J. Kopp and Alan J. Krupnick explored the potential benefits of negotiating an energy-specific agreement (i.e., an “E-NAFTA”) to promote a united North American energy strategy in Resources magazine, writing that “the potential for enhanced cross-border energy trade will make the energy-intensive economic sectors more competitive, improve energy security, dampen short-term energy price volatility, and stimulate continent-wide economic growth. … [An E-NAFTA] could help to ensure that each nation reaps the economic benefits from development of these reserves while maintaining and enhancing commitments to protect the environment.”

According to the authors, “Harmonized regulatory policies and reduced barriers to electricity trade could enable expanded US imports of hydroelectric power from Canada. Similarly, low-cost power from Texas could flow across the border to Mexico, and renewable resources along the Baja, Mexico–California border could bring more carbon-free electricity into the Southwest.” Kopp and Krupnick further suggest that “such an international agreement would facilitate the coordination of cross-border energy trade infrastructure (pipelines, railroads, shipping, and electricity transmission) and harmonize energy regulatory structures so energy markets could be effectively integrated continent-wide.”

Learn more about RFF’s initiative exploring the potential for tri-national coordination of energy policies and markets: North American Energy Opportunities.

RFF on the Issues connects today’s pressing news with related research and expertise at RFF.

The views expressed in RFF blog posts are those of the authors and should not be attributed to Resources for the Future.