Alberto Gonzalez Pandiella
OECD
OECD Economic Surveys: Mexico 2026
Abstract
Mexico has taken significant steps to reinvigorate its climate ambition and reengage with global efforts to reduce greenhouse gas emissions. The government has recently pledged to achieve net-zero emissions by 2050, a significant policy shift from the previous administration. Achieving these ambitious targets will require decisive progress in reducing emissions from the electricity sector, which in turn depends on unlocking the country’s considerable renewable energy potential. Recent moves to increase private sector participation in the electricity sector are promising, but attracting investment at the scale needed to meet targets will depend on a regulatory environment that provides clarity, stability, and long-term confidence. Strengthening adaption is an urgent priority given Mexico’s high vulnerability to climate change. The country is experiencing growing water stress, driven by rising temperatures, shifting precipitation patterns, and increasing demand linked to economic and population growth. Strengthening water management is vital to adapt to climate change , ensure sustainable use of water resources and enhance the reliability of supply both for households and firms.
Mexico faces significant challenges in advancing decarbonization and adapting to climate change. The country’s energy mix remains dominated by fossil fuels, while regulatory uncertainty has constrained the expansion of renewable energy despite abundant solar and wind potential. Climate change impacts are already visible through rising average temperatures, prolonged droughts, and increasingly severe hurricanes, which threaten water security, agricultural production, and coastal infrastructure. Reducing emissions in the electricity sector, a key enabler of economy-wide decarbonisation, will be central to addressing these challenges. Expanding renewables generation offers a cost-effective way to cut emissions while simultaneously meeting rising energy demand. A cleaner and more reliable electricity supply would also enhance Mexico’s competitiveness by improving energy affordability and reducing exposure to volatile fossil fuel markets. It would also strengthen energy security by lowering dependence on imported natural gas, which currently supplies around two-thirds of Mexico’s electricity generation. Accelerating the deployment of renewable energy and upgrading grid infrastructure can thus generate both environmental and economic benefits.
While emissions have continued to rise in recent years (Figure 3.1, panel A), Mexico is now restoring its ambition to reduce greenhouse gas emissions and re-engaging with global efforts to combat climate change. The new government has pledged to achieve net-zero greenhouse gas emissions by 2050, marking a decisive shift from the previous administration’s stance and aligning Mexico more closely with the goals of the Paris Agreement. Until recently, Mexico’s emission reduction targets only extended to 2030, limiting the country’s ability to signal a clear long-term direction. An updated Nationally Determined Contribution (NDC) was published in November 2025 with more stringent goals than those set out in the 2022 NDC, which was assessed as inconsistent with the 1.5°C temperature limit (OECD, 2024[1]). These renewed commitments should provide a clearer roadmap for government agencies and the private sector, strengthen policy predictability and improve incentives for investment, helping both to reduce emissions and boost growth prospects.
The transport and electricity sectors are Mexico’s largest sources of greenhouse gas emissions (Figure 3.1, panel B). Previous Economic Surveys have emphasized the need to reduce emissions from the transport sector by strengthening public transportation systems, integrating urban and mobility planning, and improving tax design (OECD, 2022[2]; OECD, 2024[1]). Efforts are currently underway to expand the interurban train network, with plans to build 3,000 kilometres of new rail infrastructure across four major routes. Mexico was the first emerging economy to introduce a carbon price in 2014. However, at 3 EUR per ton of CO2, the tax remains below the OECD average (62 EUR per ton of CO2) and covers mainly road fuels, but not fuels used in other sectors, such as natural gas, while coal is taxed at a reduced rate (see also chapter 1). Broadening the carbon tax base and gradually increasing the rate, as recommended in previous Surveys (Table 3.1), would create stronger price signals for emissions reductions, particularly in the transport sector. Maintaining and strengthening Mexico’s long-standing efforts on forest conservation would also be key to mitigating climate change, as forests provide important carbon sinks while simultaneously helping to preserve biodiversity, protect water resources, prevent soil erosion, and support rural livelihoods.
Mexico has also taken steps to price carbon in the energy and industrial sectors through the launch of Latin America’s first emissions trading scheme (ETS). A pilot phase ran from 2020 to 2021, covering approximately 300 large entities in the energy and industrial sectors. During this period, emission allowances were freely allocated based on historical emissions. The government originally intended to transition to a fully operational ETS in 2023, with broader coverage extending to several hundred companies. However, implementation has been delayed. In October 2025, the authorities agreed on the final regulation for the first operational phase of the ETS. The regulatory assessment process is now underway, with publication expected by March 2026. Once operational, the ETS would represent a significant advance in Mexico’s climate policy framework. Over time, a well-functioning ETS would help reduce emissions across all sectors of the economy, including energy uses beyond electricity generation.
A catalogue of mitigation actions has been prepared, though financing needs for their implementation have not yet been quantified. Developing a comprehensive estimate of investment requirements will be essential to translate Mexico's decarbonisation goals into an actionable financing strategy. Quantifying investment needs, encompassing both mitigation and adaptation actions (see next section), would help identify funding gaps, guide the prioritisation of projects, and support the design of financing instruments aligned with the country's climate objectives. It would also allow for a clearer allocation of responsibilities between public and private actors and to strengthen coordination across ministries, public financial institutions, and subnational governments.
Source: SEMARNAT.
3.1.1. Making the most out of renewable resources
Decarbonising the electricity sector will be critical for Mexico to meet its emissions reduction targets and enable low-carbon development across the economy. The country has recently raised its ambition regarding the energy transition, committing to a significant expansion of renewable electricity generation, setting an ambitious target for clean sources to supply 38.5% of electricity generation by 2030 and 41.3% by 2035. While Mexico is endowed with abundant and well-distributed renewable resources across the country, including solar, wind, and geothermal, these remain largely underutilised (Figure 3.2). The share of electricity generated from clean energy sources declined to 24.3% in 2024, from 27.5% in 2021. This drop reflects regulatory changes since 2018 that have discouraged private investment in renewables. These included the suspension of long-term renewable energy auctions in 2019 and a series of attempted reforms aimed at reinforcing the role of the state-owned utility (CFE), at the expense of private sector participation. Achieving the target for renewables will require restoring investor confidence, introducing transparent procurement mechanisms and ensuring a predictable regulatory environment.
Note: In Panel A, renewables include hydro, geothermal, solar (thermal and PV), wind and tide/wave/ocean energy, as well as combustible renewables (solid biomass, liquid biomass, biogas) and waste (renewable municipal waste). The underlying data are obtained from the World Energy Statistics Dataset in the IEA World Energy Statistics and Balances Database. In Panel B, data was last updated in 2020. For both panels, LAC is a simple average of Chile, Colombia, Costa Rica, Argentina, Brazil and Peru.
Source: OECD Green Growth (database); and World Bank Global Atlas Solar (database).
Achieving the ambitious renewable energy target will require a substantial increase in private sector investment. Although recent legislation mandates that the state-owned utility CFE must retain at least 54% of total electricity generation, this share includes joint ventures with private companies and independent power producers, leaving space for meaningful private sector participation. This marks a welcome departure from the previous administration’s efforts to curtail private involvement in the electricity sector. In October 2025, the government published new regulations for the Electricity Industry, Geothermal Energy, and Energy Planning and Transition Laws, aiming to update the sector’s legal framework. Looking ahead, unlocking private investment will depend on the establishment of a regulatory framework that provides clear incentives and long-term certainty, for example through predictable tariff structures, stable rules for clean energy certificates, transparent procurement mechanisms for new capacity, and clearly defined long-term planning for transmission expansion.
The newly established National Energy Commission, which replaced the former independent energy regulator, is a deconcentrated entity within the Ministry of Energy. Although it is intended to function with technical and operational autonomy, its institutional placement within the Ministry creates risks regarding perceived regulatory independence and impartiality, key for fostering investors’ confidence (see also Chapter 1). To mitigate these risks, it will be important to ensure that the Commission operates transparently and according to clear, rules-based procedures. This includes establishing well-defined processes for permit approvals, public consultations, regulatory reviews, and appeals. Safeguards should also be in place to guarantee a level playing field between public and private actors in the electricity market. Strengthening the professional capacity and procedural autonomy of the Commission can enhance trust in the regulatory framework and support the needed scaling up of private investment.
Public investment will also play a vital role in achieving Mexico’s renewable energy goals, particularly by modernising and expanding the electricity transmission network. A stronger transmission system is essential to connect new clean energy projects and meet rising electricity demand in a cost-effective and sustainable manner. Grid congestion and capacity saturation have become increasingly common in key transmission corridors (Carrillo et al.;, 2022[3]) and are expected to worsen as demand continues to grow. The state-owned utility CFE, which manages the transmission system, has consistently under-executed its allocated federal budget for infrastructure investments. For example in 2023, the federal budget approved for transmission was 43% of what CFE had originally planned, and actual spending reached just 22% of the planned investment (IMCO, 2024[4]). Execution has been hindered by weak long-term planning, limited project preparation capacity, complex procurement processes, and shifting investment priorities within CFE. Prioritising transmission within CFE’s investment strategy and ensuring full execution of budgeted resources will be critical to integrating additional renewable capacity and maintaining grid reliability. The latest government plans foresee the construction of 275 new transmission lines between 2025 and 2030, along with improvements in 524 electrical substations.
3.1.2. Integrating climate objectives into fiscal planning and budgetary processes
One important way to strengthen mitigation policy and reflect Mexico’s renewed commitment to climate action is by integrating climate objectives into fiscal planning and budgetary processes. Aligning fiscal policy with climate goals is essential to translate long-term emission reduction targets into actionable and measurable investments. While Mexico has raised its ambition on mitigation, fiscal frameworks have yet to fully incorporate climate priorities in a systematic manner. In contrast, several OECD countries, including regional peers such as Costa Rica, have begun embedding climate-related spending and contingent liabilities from climate events into their fiscal management systems. Mexico could take similar steps by institutionalising climate-responsive budgeting practices that align public spending with mitigation objectives. A positive development in this regard is the launch of Mexico’s Sustainable Taxonomy in 2023 (OECD, 2022[2]; OECD, 2024[1]) , which provides a framework to classify and prioritise investments that contribute to environmental and social goals, including climate change mitigation. This tool can guide both public and private investment decisions, enhance the transparency of climate-related expenditures, and improve accountability.
To build on this progress, Mexico could further institutionalise climate budgeting practices—such as tagging mitigation-related expenditures, linking investments to emissions outcomes, and integrating climate objectives into medium-term fiscal planning. These steps would help ensure that public spending is effectively aligned with the country’s climate goals while increasing transparency and accountability. Mexico is already active in mobilising green finance through instruments such as green bonds and sustainable development bonds. Continued expansion and diversification of these green and sustainable bond instruments would help mobilise additional private capital and scale up investment. The financial sector has also begun assessing its exposure to climate-related risks through stress testing, which is a positive step toward better understanding vulnerabilities. A key next step would be to strengthen climate-related financial disclosures, building on international frameworks such as the Task Force on Climate-related Financial Disclosures. Improving transparency in how financial institutions manage and disclose climate risks would support more informed decision-making and accelerate the reallocation of capital toward mitigation priorities.
Mexico is one of the most vulnerable countries to climate change due to its geographic location, ecological diversity, and socioeconomic conditions, with 68% of its population and 71% of its economy exposed to climate change impacts (GCF, 2025[5]). Situated between two oceans and home to a wide range of ecosystems, from arid deserts to tropical rainforests, the country is highly exposed to climate-related hazards such as droughts (Boumahdi and González-Pandiella, mimeo[6]), hurricanes, floods, and heatwaves (Figure 3.3). These events have become more frequent and intense in recent years, with growing impacts on agriculture, water resources, biodiversity, and public health. For instance, nearly 70% of Mexico’s land has experienced significant soil moisture loss since 1980 (OECD, 2025[7]).
Rural and low-income communities are especially vulnerable, as they often lack the infrastructure and financial capacity needed to adapt to and recover from environmental shocks. Mexico’s high reliance on climate-sensitive sectors, such as agriculture and tourism, further increases its vulnerability. Smallholder farmers, in particular, increasingly suffer from unpredictable rainfall patterns and prolonged droughts, which threaten food security and rural livelihoods. Alterations in hydrometeorological conditions have caused significant losses in agriculture and livestock, adversely impacting more than 50% of total production (GCF, 2025[5]). In Mexico, 88% of the 145 species grown for food depend on pollinators, which have been largely affected by changing climatic conditions (GCF, 2025[5]). Coastal communities are also increasingly exposed to rising sea levels and extreme weather events, endangering infrastructure, housing, and economic activity.
Note: In all Panels, OECD refers to a weighted average of OECD member countries with available data. In Panel B, data refer to wind threats of a hurricane category 3 likely to cause extensive damage in a 100-year return period. In panel C, forest cover is assessed using forest cover data from 2020.
Source: OECD Climate-Related Hazards (database).
Mexico’s framework to address climate change adaptation is based on the General Law on Climate Change (LGCC), enacted in 2012 and subsequently updated. Under this framework, Mexico developed the National Climate Change Strategy (ENCC) in 2013 and updated it in 2025. The Strategy sets medium- and long-term objectives for both mitigation and adaptation across various sectors. Mexico also established the National Climate Change System (SINACC) in 2012 with the objective of aligning policies, incentives and resources. The latest Nationally Determined Contribution has strengthened its adaptation component by introducing a new axis on climate security and loss and damage. However, Mexico has not yet formally developed a national adaptation plan. National adaptation plans provide a strategic and long-term framework to identify climate adaptation needs, integrate resilience into national policies and prioritize actions. Establishing a comprehensive and formal National Adaptation Plan would help Mexico consolidate and update its current climate efforts, systematically assess vulnerabilities and integrate adaptation into relevant new and existing policies. It would provide a clearer basis for quantifying investment needs and mobilising the necessary domestic and international climate finance. Preparatory work towards developing a national adaption work is under way, with the ambition of finalising it by the end of 2026.
A National Adaption Plan can also help to coordinate actions across levels of government. This can be useful in Mexico, where adaptation responsibilities are shared among federal, state, and municipal levels. The federal government sets national policies, coordinates efforts, mobilises resources, promotes research, and monitors progress. States are tasked with developing regional action plans, aligning their policies with national climate goals, coordinating with municipalities, and implementing projects. Municipalities focus on local planning, land use regulation, public service adaptation, community engagement, and disaster response. While this structure is designed to ensure that adaptation efforts flow from national plans to local action, it requires strong coordination across levels of government. Although there have been positive examples, such as Mexico City’s collaborative network model (Cid et al., 2024[8]), where municipalities coordinate both horizontally, with neighbouring municipalities and civil society, and vertically, with federal agencies, overall coordination has been uneven, resulting in fragmented implementation. Many municipalities lack the technical and financial capacity to fully integrate climate resilience into their planning. Providing targeted technical assistance and training to municipalities, particularly those with limited institutional capacity, would help strengthen local implementation, reduce regional disparities and facilitate that adaptation actions are more effective and aligned with national goals.
Monitoring and evaluation mechanisms are essential for assessing the effectiveness of climate adaptation policies and guiding needed adjustments over time. While Mexico does not yet have a comprehensive monitoring, evaluation and learning system for climate adaptation, it has made progress with the development of the National Atlas of Vulnerability to Climate Change, a structured, nationwide mapping tool that visualises territorial exposure and sensitivity to climate hazards. The Atlas could provide useful inputs into future national assessments, but further progress is needed to enhance its usefulness and precision. Covering more hazard types and increasing data granularity, both for climate risks and socioeconomic conditions, are pending challenges. To maintain its relevance and usability, it is also essential that the Atlas is regularly updated. There is also a need to upgrade early warning systems, which remain focused on seismic and tropical cyclone hazards. The National Meteorological System currently provides partial monitoring of rainfall and river conditions and other risks, such as floods, landslides, droughts, wildfires, and volcanic eruptions, are not yet comprehensively covered, despite the country's vulnerability to such events. Improving the dissemination of alerts through digital technologies and expanding their coverage to rural and remote areas would ensure that all communities receive timely alerts and are better prepared to respond.
Mexico has made progress in strengthening its climate risk insurance framework, but significant gaps remain. Recent advances include sovereign catastrophe bonds for earthquakes and hurricanes, public insurance for federal infrastructure, and local initiatives such as the parametric reef insurance in Quintana Roo. The private sector has also introduced innovative climate-linked products, including mangrove parametric insurance and pilots for smallholder farmers. The government’s two main risk-transfer mechanisms include a national catastrophic insurance scheme and the International Bank for Reconstruction and Development Catastrophe Bond for the Caribbean and Mexico (IBRD CAR), which provides parametric coverage for major earthquakes and tropical cyclones. The elimination of the trust fund associated to FONDEN, the national disaster fund, has increased the government reliance on ad-hoc budget allocations for disaster recovery. To strengthen resilience, Mexico could build on these existing mechanisms by establishing a well-governed national disaster resilience fund to ensure predictable financing for post-disaster response and reconstruction. Expanding parametric coverage for critical infrastructure, where the speed of recovery is essential, would also facilitate faster and more efficient reconstructions following disasters. While insuring all public assets may not be cost-effective given the government’s borrowing capacity, targeted instruments can strengthen financial resilience by ensuring timely payouts and reducing fiscal volatility.
Beyond the sovereign level, households and firms also face large protection gaps against climate-related risks. Insurance penetration among households and firms for climate-related risks remains low. Only about a quarter of homes in Mexico has property insurance, which typically covers risks such as fire and theft, but often does not include protection against natural disasters unless purchased separately. This leaves a large portion of households and small businesses unprotected against losses from floods, hurricanes or earthquakes. A key challenge is informal housing, which put lives at risk and complicates urban planning and weakens the enforcement of building standards. Stronger enforcement of land-use regulations and construction standards, as analysed and recommended in the 2024 OECD Economic Survey, would also be essential to boost insurance penetration. Another important barrier is low financial inclusion, which limits access to and understanding of traditional insurance products, as analysed in the thematic chapter of the 2022 OECD Economic Survey of Mexico (OECD, 2022[2]). In this context, parametric insurance can offer a practical entry point for expanding climate risk coverage. By providing faster, simpler payouts based on predefined triggers, such as wind speed or rainfall thresholds, rather than damage assessments, these products are more accessible to smallholder farmers, informal workers, and low-income households. As such, parametric models can serve as a stepping stone toward broader adoption of conventional indemnity-based insurance, helping to gradually increase financial resilience across vulnerable communities. To support wider uptake, the government could promote a culture of risk awareness through public campaigns that highlight how insurance can protect livelihoods and speed up recovery. Targeted incentives, such as tax deductions or premium subsidies for low-income households insuring against major hazards, could further increase coverage for vulnerable groups without crowding out private provision for higher income households and strengthen local resilience. In poor or remote communities where insurance is often unavailable or unaffordable, part of the premium could be subsidised through existing housing programmes, or complemented by innovative schemes such as simplified, low-cost insurance products for informal settlements, as seen in South Africa.
Mexico faces growing water stress (Figure 3.4), driven by a combination of rising temperatures, shifting rainfall patterns and increasing demand from population growth and economic activities. Over the past decades, the amount of water available per person has declined significantly, placing increasing pressure on freshwater resources. At the same time, Mexico has one of the lowest shares of the population connected to public wastewater treatment systems in the OECD (Figure 3.5), which limits the potential for water reuse and contributes to pollution in rivers and aquifers. These trends are intensifying the risks of water scarcity, droughts, and regional imbalances in water availability, with particularly severe consequences for vulnerable communities, agricultural producers, and ecosystems. They also increase operational risks and costs for businesses that depend on reliable water access, potentially undermining investment and competitiveness. Without stronger water management policies and investment in water infrastructure, these pressures are likely to intensify in the years ahead.
Note: In Panel A, water stress refers to freshwater withdrawal by major economic sectors as a proportion of available freshwater resources, after considering environmental water requirements. LAC is the simple average of Chile, Colombia, Costa Rica, Argentina, Brazil and Peru. In Panel B, the primary type of losses of water are losses during distribution. Losses during distribution occur between a point of abstraction and a point of use or between points of use and reuse of water. They may also include problems associated with water meters and theft.
Source: FAO AQUASTAT (database); and OECD Water Accounts (database).
Strengthening water management is critical for Mexico to adapt to climate change and ensure the sustainable and efficient use of water resources. A major barrier is the limited availability and quality of water data. Accurate, consistent, and timely information on water availability, usage, and quality is essential for effective planning, allocation, and enforcement, as illustrated by several OECD countries (Box 3.1). However, due to budget constraints, the number of monitoring sites managed by CONAGUA has declined from 5000 in 2012 to 1300 in 2024. At its peak, the network allowed monitoring of major rivers and water bodies, with an original goal of expanding to 10000 sites for full national coverage. Measurement frequency has also dropped, often to just once per year, and the range of parameters recorded has been significantly reduced. Automated stations are no longer functional, and all data collection is now manual. These gaps severely hinder the ability to manage water resources, assess environmental risks, and ensure access to safe water. Upgrading data infrastructure, through digital metering, remote sensing, and automated monitoring systems is urgently needed. Some positive steps are being taken under the 2025–2030 National Water Plan, which includes an automated monitoring project in the Tula, Atoyac, and Lerma-Santiago rivers. It would enable real-time measurement of the physicochemical characteristics of water and allow for the detection of atypical events that affect water quality in these rivers.
Connection to wastewater collection system, % of resident population, 2023 or latest
Note: OECD average refers to an unweighted average and excludes Colombia, Iceland and New Zealand. LAC average is an average of Chile, Costa Rica, Argentina, and Brazil. Argentina: data are estimates for urban areas only. Mexico: data is estimated based on treated wastewater, there is no official information so data for total connection to wastewater collecting system dates back to 2010.
Source: OECD Environment Statistics: Water (database).
Accurate, up-to-date, and publicly accessible water data is essential for effective water governance and several OECD countries have established robust and integrated water information systems that offer valuable lessons:
Australia has developed the National Water Account and Water Data Online platforms. These tools provide open, real-time data on water availability, use, and entitlements across jurisdictions, enabling informed allocation decisions and drought management.
The Netherlands integrates high-resolution hydrological and quality monitoring into real-time dashboards managed by Rijkswaterstaat and local water boards. These systems are central to adaptive planning, flood control, and risk reduction.
France operates the Système d’Information sur l’Eau (SIE), a national platform aggregating water use and quality data across river basins. It supports compliance with EU directives and enhances transparency through open government data portals.
Sweden, through SMHI and municipal operators, maintains centralised hydrological and quality datasets, which are used to guide infrastructure planning, climate adaptation, and community awareness initiatives.
The United States combines the USGS National Water Information System (NWIS) and the EPA Water Quality Portal to deliver extensive real-time data on surface and groundwater. These tools support regulatory enforcement, environmental protection, and public accountability.
These examples underscore the importance of coordinated institutional frameworks, modern monitoring technologies, and public data access in achieving sustainable and equitable water management
Beyond data limitations, the current framework for water rights and concessions presents significant governance and sustainability concerns. Nearly 360 000 water concessions have been granted over the past three decades, often without adequate technical, environmental, or social safeguards. Many are based on outdated or incomplete hydrological data, and weak enforcement has allowed expired or non-compliant permits to remain in use. Furthermore, permits are not systematically linked to actual consumption data, complicating oversight and making it difficult to detect overuse or illegal extraction, especially from groundwater. Priorities for reform include the digitalisation of water rights and usage data and expanding monitoring and enforcement using remote sensing technologies and targeted field inspections. To address this issue Mexico could prioritize the digitalization of water rights and usage data and increasing audits, including through remote sensing technologies and field inspections. The ongoing review of the Public Water Rights Registry (REPDA), under the 2024-2030 National Water Plan, and efforts to integrate satellite-based monitoring into enforcement are important steps in this direction.
The highly fragmented institutional landscape further complicates effective water governance. Responsibilities for water management are dispersed across the three levels of government and involve numerous private actors. CONAGUA operates through 13 hydrological-administrative regions and 20 local offices, while there are 26 basin councils and more than 200 auxiliary bodies. Each of Mexico’s 32 states has a State Water Commission, while around 2,356 municipal or inter-municipal entities manage water and sanitation services. This fragmentation weakens coordination, reduces accountability, and complicates policy implementation. Addressing these challenges requires reinforcing CONAGUA’s role as national coordinator and strengthening its capacity to promote coherent, transparent, and effective governance. In parallel, capacity-building for subnational authorities is essential to support the local implementation of national water policies.
Financial sustainability is another pressing concern. One key challenge is the lack or poor quality of water metering, which limits the ability to track consumption, detect inefficiencies, and implement volume-based pricing. Tariff setting is also highly fragmented, with each municipality determining rates independently, often without transparency or public oversight (IMCO, 2023[9]). Many tariffs are set below the actual cost of water extraction, treatment, and distribution, with federal subsidies covering the gap. While these subsidies help ensure affordability, particularly for low-income households, they are untargeted and thus create unnecessary fiscal costs by also supporting higher-income households who do not need them. They also reduce incentives for water conservation and contribute to chronic underinvestment in infrastructure. Expanding the use of smart metering would support more accurate billing and accountability. A transparent, regularly updated, and cost-reflective tariff framework is also essential to promote efficiency and ensure the long-term financial sustainability of water services. Affordability can still be protected through targeted transfers, rather than universal subsidies. Municipalities should also have the autonomy to adjust tariffs independently, without needing approval from state authorities, as it is currently the case.
Infrastructure modernisation is also urgently needed. An estimated 46% of distributed water is lost due to leaks in ageing networks, outdated technologies, and inadequate maintenance (Lopet et al., 2017[10]). Many regions, particularly rural and suburban areas, continue to lack reliable access to clean water and wastewater treatment. This undermines public health, environmental quality, and economic development. In response, the government has launched a major initiative under its National Water Plan 2024-2030 to restore and clean up the Lerma-Santiago, Tula, and Atoyac rivers, three of the country’s most polluted water bodies, selected for their high levels of industrial and urban contamination and their strategic location across multiple states. The clean-up of the Tula River will serve as the foundation for Mexico’s first large-scale national circular economy project, included in Plan México. This project envisions the modernisation of the Tula refinery’s treatment plant and the construction of a 700-hectare industrial park equipped with facilities to separate and convert organic and inorganic waste into reusable resources, such as charcoal and fertiliser.
Expanding these initiatives to additional critical water bodies is essential, alongside broader investment in pipe replacement, wastewater treatment capacity, smart water technologies, and strengthened maintenance systems. Financing these investments will require a combination of cost-reflective tariffs to cover operating and maintenance costs, increased public investment for larger scale infrastructure projects, and innovative financing mechanisms. Public-private partnerships can help mobilise private capital and expertise, while linking a portion of federal transfers to performance-based criteria could incentivise improvements in efficiency and service delivery at the local level. The National Water Plan also foresees the modernisation of irrigation systems, in coordination with the Ministry of Agriculture, to improve water-use efficiency in the agricultural sector.
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