Shifting pollution patterns in the production of refined oil products and industrial chemicals under NAFTA

Economic integration under the North American Free Trade Agreement (NAFTA) has provided a net environmental benefit to Mexico by promoting the import of relatively less pollution-intensive U.S. refined oil products and industrial chemicals. The accelerated U.S. penetration of the Mexican market for these products replaces some pollution-intensive production by Petróleos Mexicanos (Pemex), the government-owned oil production and refining company. Calculations of the air emissions per unit of production for Mexican refineries and for Texas refineries that produce the same products reveal that for one pollutant –volatile organic compounds – the pollution intensity of Mexican production was more than 10 times higher than the pollution intensity of Texas production in 1999. For sulfur oxides the Mexican pollution intensity was nine times higher. For other air pollutants, Mexican pollution intensity of production also was significantly higher. Calculations of air emissions from Texas refineries per unit of production indicate that although Texas refineries faced increasingly stringent air quality regulations under the 1990 Clean Air Act Amendments, refineries responded to this challenge with technological and environmental management changes that resulted in vi increased output of refined products, even as certain emissions of criteria pollutants dropped and others remained significantly unchanged. This industry response provided a net environmental benefit to Texas. The ability of Texas refineries to adapt to stringent regulations while increasing production, combined with the increased volume of U.S. exports of refined products and industrial chemicals to Mexico under NAFTA, implies that Mexican refineries do not benefit from a comparative advantage stemming from less stringent environmental regulations. NAFTA’s role in changing the level of air emissions in Mexico from refinery and petrochemical production primarily has been to facilitate U.S. penetration of the Mexican market, thereby replacing more pollution-intensive production. Evidence also suggests that deepening economic integration under NAFTA accelerates the strengthening of air quality regulations in Mexico as well as demands on Pemex to provide cleaner burning fuels for Mexico’s transportation sector.