The greening of the New Mexico oil and gas industry (O&G) could go fast forward with the Senate passing on March 11 (Y:25 N:14) of New Mexico Senate Bill 11—Clean Fuel Standard Act (CFS). The fate of the bill lies with the House of Representatives, which would establish a market-based approach for fuel producers and importers to meet a lower-carbon fuel standard. The CFS bill would allow the purchase of credits to offset the carbon imbalances if the fuels they are producing do not meet the set carbon standard. The oil and natural gas industry is the largest contributor to greenhouse gas emissions in New Mexico.
A CFS is a market-based trading program under which the state specifies a schedule on which the carbon intensity of transportation fuels must be reduced, and the regulated entities must either adjust their operations to meet the rate of reduction, or buy credits from those whose reductions have come in under the requirements. Similar programs have been implemented in the U.S. by California and Oregon and are currently being considered by Washington, Nevada, Colorado and New York.
“Thank you to my colleagues in the Senate for supporting this legislation, which will result in huge economic benefits for New Mexico,” said sponsor Sen. Mimi Stewart. “I’m sure the more than 20 companies who have expressed interest in expanding or establishing operations in New Mexico if a Clean Fuel Standard passes are also celebrating today.”
“This forward-thinking legislation will boost private investment in innovative technologies that will assist New Mexico in transitioning to cleaner energy sources while attracting new businesses and creating jobs,” said New Mexico Economic Development Department Secretary Alicia J. Keyes.
Republican critics of the bill say they fear it will increase gasoline prices in New Mexico and the burden would be felt mostly by lower-income residents. A Colorado worst-case scenario study estimated that the price of gasoline could increase $0.12 per gallon.
An Adelante Consulting report on CFS found that New Mexico is unique from states that have implemented or are considering implementing the program, and it would have to be tailored to the unique characteristics of the state. The report listed a variety of potential adaptations. The credits needed to offset a carbon footprint can be generated and purchased from any business—including agriculture, chemical, dairy, energy, film, forestry, manufacturing, mining, oil and gas, waste management and wastewater treatment industries. New Mexico has an abundant supply of low-carbon electricity (solar and wind), which could be an important component of the state’s decarbonization strategy.
The consulting report said that given the limited alternative fuel infrastructure in New Mexico, there would be opportunities for economic and employment growth associated with infrastructure development, including significant job growth and investments that could total as much as $47 million if a CFS program is implemented in the state. “This will open the doors for New Mexico farmers, ranchers and dairy producers to be able to supply the biomass to produce clean energy fuels,” said New Mexico Agriculture Secretary Jeff Witte.
If the bill is enacted, New Mexico’s large agriculture industry could also benefit by becoming suppliers for New Mexico’s low carbon fuels market, selling the large quantities of biomass (for example, tallow and cow manure from dairy farms in Clovis, pecan shells from orchards in Doña Ana County and other organic waste from operations) they produce.
“It is imperative for our environment that we reduce the carbon intensity of fuels that power our economy,” said New Mexico Environment Department Cabinet Secretary James Kenney on the passing of the CFS bill. “A Clean Fuel Standard could enable businesses to substantially reduce their greenhouse gas emissions.”
An O&G company that is setting an example for others to follow if CFS is passed is EOG Resources, Inc., one of the largest crude oil and natural gas exploration and production companies in the United States. In projecting their brand as a place to invest money, EOG is ahead of the game. EOG has begun implementing a variety of strategies to get to the projected net-zero date by looking at the energy transition more as an opportunity than as a threat to their core business.
A new sustainability project initiated by EOG in its operations in the Permian Basin in November 2020 demonstrates the economic potential of creating cleaner oilfield operations and production. Their new solar and natural gas hybrid-power compression facility began operations in November of 2020. Estimates are that the emissions reductions provided by the compression plant could generate credits worth approximately $1 million a year, setting a firsthand example of how companies could benefit from the CFS if it is implemented in New Mexico.
Sarah Cottrell Propst, cabinet secretary of the Energy, Minerals and Natural Resources Department said, “Innovation is key to reducing emissions in the oil and gas sector. Expanding renewable energy in facilities is just one way to reduce greenhouse gas emissions in the oil and gas industry.”
EOG’s project uses 24,000 solar panels that are set in solar arrays on 70 acres in southern New Mexico. The electricity the panels produce is being used to run compressors for EOG that are normally powered entirely by natural gas. The solar array is expected to provide supplemental power of up to 8 megawatts during daylight hours. The renewable energy project will reduce operating costs and run emissions-free compressors. It will serve as an example of how inventions and investments in sustainable industry across the state can result in economic development and improved environmental results at the same time.
“Businesses want to develop clean-fuels technology, and this initiative will provide a market-based incentive for them to create these high-paying jobs and invest in New Mexico,” said Economic Development Department Cabinet Secretary Alicia J. Keyes.