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A man rides a bike on a road near high-voltage transmission lines near the Tula power plant owned by state-owned power company Comision Federal de Electricidad, or CFE, in Tula de Allende, north of Mexico City, on June 22, 2020.Henry Romero/Reuters

Mexico’s Supreme Court is set to rule on an electricity law that Canada and the U.S. have lobbied against for disadvantaging their companies in possible violation of North America’s free-trade agreement.

The top bench is expected to decide Thursday if the legislation, championed by President Andres Manuel Lopez Obrador, is constitutional, a decision that could also have significant climate policy implications.

The law prioritizes the use of electricity produced by the Comision Federal de Electricidad, or CFE, Mexico’s government-owned electricity commission, over that generated by private companies. It has attracted criticism within Mexico for putting hydrocarbon-run CFE plants, including some that burn fuel oil, ahead of new wind and solar installations.

Mexico’s president says proposed electricity reform does not violate U.S.-Canada trade deal

The Canadian and U.S. governments have pushed back against the law out of fear it will hurt the Mexican business interests of companies from their respective countries. Ottawa says Canadian investments in Mexico’s energy sector total $12.9-billion, of which $5-billion is in renewable power.

Prime Minister Justin Trudeau made a last-ditch attempt to change Mr. Lopez Obrador’s mind in a call this week. “They discussed the important contributions Canadian investors make to the Mexican economy, including in the energy sector,” the Prime Minister’s Office said in a summary of the conversation.

Canadian and American officials have been pressing their Mexican counterparts to change course over the past year to no avail.

Trade Minister Mary Ng lobbied Mexican Economy Minister Tatiana Clouthier Carrillo and Energy Minister Rocio Nahle Garcia in Mexico City last July, and raised it again with Ms. Clouthier in a call in December. John Kerry, the White House’s climate envoy, flew to the Mexican capital last month to plead his case to Mr. Lopez Obrador in person.

Mr. Lopez Obrador this week dismissed U.S. arguments that the electricity law would violate the U.S.-Mexico-Canada Agreement, which governs continental trade.

“They have put to us that they don’t agree with it, and even to insinuate that it violates the deal, when that’s not true,” he told a news conference. The President derided legislators who oppose the electricity law as “traitors to the country” and “employees of entrenched interests.”

In 2013, then-president Enrique Pena Nieto amended Mexico’s constitution to open the oil, gas and electricity sectors to private investment. The country introduced clean-energy auctions, meant to kick-start the development of renewable electricity plants.

Foreign investment in the energy industry was further enshrined in the renegotiated NAFTA, now dubbed USMCA in the United States, which took effect in 2020.

Mr. Lopez Obrador is trying to reverse many of these changes in the name of restoring public-sector dominance in energy. When he took office in 2018, he stopped the private clean-energy auctions. Last year, he introduced the electricity law. It was struck down by lower courts, sending the case to the 11-member Supreme Court.

Mr. Lopez Obrador is also attempting to enshrine the new electricity rules in the constitution. That measure is before the Mexican Congress, where the President will need the help of opposition legislators to reach the required two-thirds threshold to change the constitution.

The electricity law dovetails with Mr. Lopez Obrador’s ambition to revitalize Pemex, the government oil company. He is building an enormous refinery in his home state of Tabasco and pushing to drill new oil fields. Pemex’s refineries produce large quantities of fuel oil, which is used in CFE power plants.

Canadian electricity assets in Mexico include a hydroelectric dam in Veracruz and gas-fired power plant in San Luis Potosi owned by Calgary-based Atco, and solar farms by Canadian Solar of Guelph, Ont., and Toronto’s Northland Power.

With a report from Reuters

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