Mexico
The SAF market in Mexico is still in its infancy, with limited traction largely due to the absence of targeted policy support and regulatory frameworks. Despite having plentiful biofuel feedstock resources like sugarcane and corn, the SAF industry in the country has yet to leverage them. However, recent voluntary commitments and collaborations from major airlines and industry stakeholders signal a growing interest in developing a domestic SAF supply chain. Mexico’s policy stance on energy transition and decarbonization goals under the newly elected government will play a crucial role in shaping the future of the SAF market.
GDP (Current Prices) USD (2023) | 1.789 Bn |
Real GDP Growth Forecast (2023-2027) | 1.97% |
10-year Govt Bond Yield (12-month rolling average) | 9.19 |
Country Credit Rating | BBB |
Average Daily Flights | 2,588 |
Existing Fuel Consumption | 4.62 million metric tons |
Usage Mandate | |
Projected SAF Capacity Under Development (MT/Year) | |
Policy Support |
Aviation Industry Backdrop
Mexico’s aviation industry experienced a strong recovery, with an 11.5% annual growth in total incoming air travel passengers, reaching 119 million as of end-2023 (Mexico Business News, 2024). Domestic travellers accounted for over half of the total passenger traffic, while the North American region dominated the international air transport business, with an 85% share of total international air passengers. The US alone contributed 27 million visitors to Mexico’s international passenger traffic in 2023.
In the post-pandemic era, Mexico’s aviation sector has demonstrated remarkable resilience, becoming one of the first countries in the region to recover its domestic air traffic (KPMG, 2024). In 2023, Mexico surpassed Brazil as the largest aviation market in Latin America for the first time (IBS, 2023). The restoration of Mexico’s Category-1 air safety status by the US Federal Aviation Administration in 2023, after a two-year gap, further boosted the industry’s growth prospects (Airport Technology, 2023).
However, despite this strong recovery, decarbonization efforts within Mexico’s aviation sector have been limited due to the absence of clear policy guidelines and specific emission reduction targets. The country has a stated goal of reducing greenhouse gas (GHG) emissions by 35% by 2030 compared to 2000 levels, but the roadmap for achieving this target across various sectors, including aviation, remains unclear (Argus, 2024).
Source: OECD.Stat, 2024
Note: Thousand tonnes of CO2-equivalent
Policy Regulation
The SAF market in Mexico lacks a comprehensive policy and regulatory framework to support the adoption and production of SAF. The absence of supply-side incentives and clear guidelines has hindered the growth of the domestic SAF market, resulting in negligible production and consumption levels (Mexico Now, 2023).
The country’s biofuel industry, despite its resource potential, operates without the typical regulatory norms seen in other markets. For instance, the fuel ethanol content requirement has remained stagnant at 5.8% since 2018. A proposed amendment in 2020 to increase the blending mandate for gasoline was stalled in the courts, leading to a regulatory impasse (CZ, 2024).
Expectations are high that the newly elected Mexican President, set to take office in October 2024, will bring a favourable outlook to energy transition and decarbonization efforts. The incoming administration is widely regarded as having an objective view on the importance of reducing GHG emissions, despite concerns about political compulsions (BBC, 2024).
Market Opportunity
Mexico’s aviation industry is well-positioned to benefit from the growing global demand for SAF, especially given its rich biofuel feedstock sources like used cooking oil, agricultural waste, and animal fats. However, while these resources offer great potential, the current high cost of SAF compared to conventional jet fuel presents a significant barrier. To overcome this, the development of a robust SAF supply chain will require both strategic investments and policy incentives that make SAF production more viable and cost-effective (AMI, 2024).
Recognizing the importance of establishing a local supply chain, Mexican airlines have started collaborating with industry stakeholders to develop sustainable, scalable solutions. Volaris, one of Mexico’s leading low-cost carriers, recently partnered with Airbus to evaluate proposals for scalable and affordable SAF development in Mexico (Mexico Business, 2024). This partnership has the potential to kickstart local SAF production and reduce reliance on costly imports.
In addition to partnerships, Volaris has announced a groundbreaking $50 million investment agreement in collaboration with key industry players (PR Newswire, 2023) to enable SAF production based on a technology developed by CleanJoule, a North American startup. By focusing on producing high-performance and cost-effective SAF from agricultural waste and organic residues, Volaris is poised to significantly increase its SAF supplies, promoting a greener aviation industry.
Moreover, the increasing focus on achieving zero CO2 emissions in the airline industry has led carriers like Aeroméxico to establish ambitious goals (IBS Software, 2023). The airline aims to have 5% of its aviation fuel comprised of SAF by 2030, with 20% sourced from domestic production (Mexico Business, 2024). This strong push for sustainability is spurring increased demand for competitive and sufficient supplies of SAF in Mexico.
VivaAerobus, another major Mexican airline, has joined industry peers in actively soliciting proposals to scale up domestic SAF production. A recent purchase agreement between Viva Aerobus and SAF producer Neste marked a crucial milestone in SAF offtake for flights between the US and Mexico (Neste Corporation, 2023).
Outlook
The high production costs of SAF, biomethane, and renewable diesel have slowed their adoption among Mexican producers and consumers. One of the major roadblocks remains Mexico’s regulatory framework, which lacks incentives for cleaner fuel production. Currently, biomethane producers receive equal compensation for any gas injected into the national grid, regardless of its sustainability profile (AMI, 2024). The absence of targeted subsidies and legislation focused on promoting sustainable fuel production has further deterred major players, such as Engie, from advancing biomethane projects within the country.
Despite these challenges, partnerships between leading aviation companies like Airbus and research institutions to develop scalable and affordable SAF production solutions (Airbus, 2024) suggest growing momentum to address these cost barriers. These collaborations signal a promising shift towards increasing SAF accessibility in the Mexican market.
There is optimism that the incoming administration will introduce new biofuel laws and mandates aimed at accelerating the demand for sustainable fuels (AMI, 2024). Latin America is projected to produce over 15% of the total global SAF output by 2030, presenting a significant opportunity for Mexico to capture a substantial share of the market if the right policies are in place (AMI, 2024).