GUARDRAILS NEEDED TO STRENGTHEN NEW MEXICO CLIMATE POLICY AND INVESTMENTS

Interlocking set of 2024 bills, lacking guardrails, risk burdening New Mexico taxpayers with private sector fossil fuel liabilities

UPDATE 2/23: All of the bills discussed below failed in New Mexico’s 30-day legislative session. We expect the state to nonetheless move forward with certain efforts, including the strategic water supply as well as investment of some amount of New Mexico’s severance tax permanent fund for “climate technology.”

It is imperative that New Mexico open new doors to a diversified revenue and economic base that does our state’s fair share to address the global climate crisis — a crisis we witness each year in the form of catastrophic wildfires, drought, and hotter and drier seasons. But this responsibility clashes with the demands of entrenched, politically powerful oil and gas lobbyists and executives who seek to perpetuate the state’s dependence on oil and gas production.

The 2024 New Mexico legislative session exemplifies this clash. Several interlocking bills and initiatives — HB 9, HB 259, SB 215, and the governor’s Strategic Water Supply — would, if passed into law, send upward of $750 million in public monies to oil and gas companies.

In so doing, these legislative efforts would burden the public with technological and economic risks that should be shouldered by private industry, not the people of New Mexico. This plan would also distract from long-needed action to transition away from fossil fuels.

Before digging into the specifics of these interlocking bills, we’d like to offer three sensible guardrails that can guide decision-makers to build trust with the public and as the basis of a far comprehensive, effective, and prudent climate policy and investment strategy:

• Governance. Prudent climate investments demand objective and impartial decision-makers. These decision-makers should reflect New Mexico’s rich demographics and varied economic sectors, hold expertise in how state funds can be invested in service of science-based climate policy — not just a short-term investment returns — and be fully independent of political influence.
• Transparency. All decisions should be made in the light of the day, with information freely provided and easily accessible to the public. This information must be crafted and communicated to the public in a way that plainly and rationally connects decision-makers’ factual findings with policy and investment choices.
• Science-based accountability. Decisions should be subject to clear, objective, and enforceable criteria that spark climate action in accord with U.S. and New Mexico decarbonization commitments and protection of New Mexico’s people and environment. It is not enough to simply reduce climate emissions; we must achieve the state’s objective to reduce climate pollution 45% below 2005 levels by 2030 — an objective that, right now, existing strategies, even if fully enforced, will not meet.

We offer these guardrails as a starting point, not an end point of conversation. Regardless, none of these guardrails nor any effective analogue is present in the interlocking set of bills and initiatives now under consideration in the 2024 legislative session. Let’s a take a look at them.

1. The Governor’s Strategic Water Supply: This initiative would “make an advanced market commitment” of $500 million to purchase two types of water: treated brackish water and treated oil and gas production wastewater (also known as “produced water”), presumably from oil and gas companies. Unfortunately, the state is putting the cart before the horse, seeking funding prior to crafting assurances into law to provide confidence that these purchases will prove prudent. While the state created a website and fact sheet to explain the Strategic Water Supply, websites and fact sheets are not a substitute for enforceable laws and rules. Public protections like these must also exist before public money is invested. The proposed funding mechanism itself raises questions. Funds to purchase the treated water would be raised by selling bonds authorized by HB 2, the annual budget bill, in the coming two fiscal years. In effect, the strategic water supply is a half-billion-dollar gamble that brackish water and oil and gas wastewater can be cleaned up, sold, and re-used for other purposes — a bet private companies are apparently unwilling to wager at scale. This initiative would, meanwhile, sap the severance tax permanent fund’s growth because the $500 million in bonds would be paid off by diverting severance tax revenue away from where they’d otherwise go: the severance tax permanent fund. As Legislative Finance Committee economists have found, distributions from state permanent funds “are the most stable revenue source in the general fund and are growing at the fastest rate of all major general fund revenues.” Put simply, decisions makers should adhere to this fund’s intent to protect New Mexico’s finances from the inevitable decline of oil and gas revenue — not prop up oil and gas companies with risky bets.
2. House Bill 9: This bill would create a new Climate, Energy, and Water Division in the Economic Development Department to support climate, energy, and water projects. HB 9 would also create a new “Decarbonization Technology Program” and associated “Climate, Energy and Water Project Fund.” While we appreciate efforts to centralize and coordinate climate investments in the state’s evolving energy economy, the new division’s duties are defined in far too vague terms. This animates the well-founded theory that HB 9’s true purpose is to orchestrate investment in a hydrogen hub, support unproven carbon capture and sequestration technology, and engineer new markets for oil and gas wastewater.
3. House Bill 259: This bill would direct the State Investment Council to invest 2% of the market value of the Severance Tax Permanent Fund in “climate technology private equity funds.” However, the term “climate technology” is far too vaguely defined as “technology directed at reducing greenhouse gas emissions or mitigating the effects of climate change.” This sounds nice, and might well include high-value, climate-friendly technologies such as renewables, geothermal energy, and energy storage. But it’s also virtually meaningless language and could be easily abused to invest public funds in ill-considered or politically favored technologies (e.g., hydrogen, which was highlighted in the governor’s 2024 State of the State address) that would, ironically, harm the climate and are fiercely opposed by climate, environmental, and frontline groups. Echoing our concerns with the Strategic Water Supply, HB 259 would also risk the growth and stability of annual severance tax permanent fund distributions if the investments in whatever “climate technology” is chosen underperforms or fails.
4. Senate Bill 215: This bill would facilitate the sequestration of carbon dioxide in New Mexico, providing a new target for investments that could be identified by HB 9 and funded by HB 259. SB 215 would move liability for accidents from the private companies that build carbon storage facilities to the state and taxpayers immediately upon conclusion of injection operations. These liabilities can be enormous. A carbon dioxide pipeline explosion in 2020 in Mississippi, which nearly asphyxiated an entire town, illustrates the dangers of carbon dioxide transport and storage.

It’s fair to ask whether we’re overstating our concerns. We’ve asked ourselves the same question with an intent to pragmatically engage with the complexities of New Mexico’s energy economy while standing firm in our principled position that state-level action commensurate to the scale of the climate crisis is urgently needed.

We keep reaching the same conclusion: these interlocking bills cannot be disentangled from efforts begun by state political leaders in 2021 to engineer new markets for fossil fuels, including liquified natural gas exports but especially a hydrogen hub that would have been dependent on natural gas feedstock, most likely from the declining San Juan Basin. We wish this were not the case.

The state’s efforts to engineer these new markets for New Mexico’s fossil fuels have repeatedly been advanced over the objection of climate, environmental, and frontline groups. These contentious fights contributed to the failure of comprehensive climate legislation as well as multiple hydrogen bills in New Mexico’s 2022 and 2023 legislative sessions. They also likely contributed to the U.S. Department of Energy’s 2023 decision to reject a $1.25 billion funding request from New Mexico and other states to develop a Western Inter-States Hydrogen Hub.

We simply cannot afford zero-sum political battles.

To us, the market and wastewater challenges faced by the oil and gas industry problem begs the question: why should public monies further subsidize fossil fuel energy sources that, whether because of economics or climate policy, will soon tilt into decline? Oil and gas production (and therefore revenues) are now expected to flatten and begin declining, depending on prices, anywhere between fiscal year 2027 and fiscal year 2032. That’s quite soon!

Public resources just should not be used to benefit the oil and gas industry at the precise moment New Mexico should be transitioning away from its historic dependency on boom-bust oil and gas economics.

We do not mean to cast aspersions on the motivations of state political leaders backing these bills and initiatives. But given the absence of robust governance, transparency, and accountability guardrails, and given the fact that the same political actors involved with prior hydrogen efforts are also the primary drivers of the bills and initiatives described above, these interlocking bills walk, talk, and look like a Trojan horse.

We urge New Mexico’s political leaders to change course and build trust with the public by providing assurances that state climate policy and investment will prioritize the public interest. Right now, the public interest includes climate action, a diversified state economy, public health, and protected land, air, and water. These interlocking bills just don’t do that.

For too long, fossil fuel executives and their lobbyists have exerted massive political force to bend state policy around their private profit on publicly owned resources. The industry weaponizes state oil and gas revenue to block New Mexicans from a future that isn’t dependent on boom-bust oil and gas economics and the sacrifice of our climate, land, water, and people. It is a tired tactic ill-suited to the challenges and opportunities faced by New Mexico and its hotter and drier climate.

The time is now to step forward and reimagine New Mexico’s energy future, not retreat into the fossil fuel past.