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Pricing Natural Gas in Mexico: An Application of the Little-Mirrlees Rule

The Mexican energy regulatory commission--Comision Reguladora de Energia (CRE)--has implemented a netback rule for linking the Mexican market for natural gas with the North American market. This paper describes the economic analysis that supported this policy. We show that the netback rule is the efficient way to price natural gas and it is in fact an application of the Little-Mirrlees Rule.

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Energy Specializations: Natural Gas – Pipelines ; Natural Gas – Markets and Prices; Natural Gas – Policy and Regulation

JEL Codes:
N5 -
L13 - Oligopoly and Other Imperfect Markets
E60 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook: General

Keywords: Natural gas, welfare, pricing, Mexico, regulation, Little-Mirrlees Rule

DOI: 10.5547/ISSN0195-6574-EJ-Vol23-No3-4

Published in Volume23, Number 3 of The Quarterly Journal of the IAEE's Energy Economics Education Foundation.