State's record oil production double-edged political sword

Dec. 17—State lawmakers will once again head into the legislative session with record oil production in New Mexico pumping up tax revenues to its highest level ever — a trend that's buoying most state officials while raising concerns among conservationists about the leverage it gives the industry to thwart anti-pollution efforts.

New Mexico's oil production jumped to 658 million barrels in fiscal year 2023 from 531 million barrels the previous year, helping to nudge state tax revenue to a record $12.7 billion.

State finance officials estimate the fossil fuel industry now accounts for 40% of the state's yearly revenue, which funds education, social services, infrastructure improvements and many other programs.

Lawmakers in both parties laud the industry for its financial contributions, saying they benefit New Mexicans and are essential to the state's economy. Republicans and more conservative Democrats have said the industry has earned additional consideration when it comes to legislation that could affect it.

Meanwhile, environmentalists contend that as oil companies generate more tax revenue, they produce more pollution and enjoy more political pull in the Legislature, all while the state becomes more financially dependent on the industry.

One economist said every legislative session presents a tricky challenge for state leaders in balancing a green agenda — including accelerating the transition to renewable energy — and accommodating an industry that injects big money into a relatively poor state.

"It does put the Legislature and the governor in kind of an awkward position," said Jim Peach, a New Mexico State University economics professor emeritus. "It's a difficult problem."

Although the growth is slowing — revenue is projected to climb by just $700,000 from this year's $12 billion — the surge in 2022 helped fuel an almost 50% increase in state revenue from the previous year. The recent oil boom has made New Mexico the second-largest oil producer in the country.

Industry representatives aren't shy about pointing out the money fossil fuel puts into state coffers and how it helps pay for essential programs.

In an email, John Lonergan, CEO of Permian Petrochemical Corp., wrote 40% is a conservative estimate of the industry's portion of state tax revenue. Some industry research pegs it closer to half, he wrote, calling into question the push to eliminate fossil fuel.

"You can't replace that with basket weaving or Hollywood movies," he argued.

Derailed bills cause tensions

Some conservationists point to the last legislative session as evidence of oil and gas clout at the Roundhouse, with the industry getting its way even as Democrats command a strong majority in both chambers and a Democratic governor holds office.

Virtually all efforts to impose new standards or regulations on the industry faltered, an outcome that worries climate advocates who contend curbing greenhouse emissions from the oil and gas sector is crucial in keeping the Earth from warming to catastrophic levels.

The fossil fuel industry remains the largest emitter of the state's methane, a gas climate scientists say has 80 times the warming effect of carbon dioxide in a 20-year period and accounts for about a quarter of global warming.

Derailed bills included codifying the governor's executive order to reduce carbon emissions by 45% by 2030, modernizing the state's Oil and Gas Act to consider climate change and public health, and cracking down on flagrant violators in the industry.

Other failed proposals would've given citizens more legal power to hold polluters accountable, such as the "green amendment" to the state constitution and the right for them to take enforcement action.

At the time, several activists said the stalled measures were especially disheartening because the next session will last only 30 days. These shorter sessions are focused on the budget, so the Governor's Office must approve all bills.

Industry lobbyists are almost sure to resist any efforts in the upcoming session to better protect the environment and public health if they feel the measures will infringe on oil and gas, said Charles de Saillan, an attorney with the Coalition for Clean Affordable Energy.

"Of course it's going to be challenging," de Saillan said. "The oil and gas industry has a lot of power in this state. And it is responsible for a lot of our state revenue. There's no disputing that."

Lonergan, of Permian Petroleum, wrote in the email that the industry already must deal with plenty of regulation in New Mexico, raising the question of how much more is needed.

"New Mexico's laws on methane emissions and pollution are the toughest in the U.S.," he wrote. "We're #2 in oil production and are much more stringent than #1 Texas or #3 North Dakota."

Lonergan was referring to two state rules. One curbs oil-field emissions of volatile organic compounds and nitrogen oxides, which form ground-level ozone, and the methane linked to these gases. The other bars venting and flaring of natural gas, except in emergencies, and requires operators to capture 98% of their methane by 2026.

Still, conservationists think more oversight is required for an industry with a record of breaching air quality standards and spilling toxic liquid waste thousands of times with no penalties in the past few years.

A place to start is giving regulatory agencies more enforcement power and more funding to carry it out, de Saillan said.

The failed climate legislation in the last session irked conservationists, who questioned whether Gov. Michelle Lujan Grisham, who promotes herself as a climate advocate, was beholden to industry.

Lujan Grisham rejected proposed tax incentives on electric vehicles, geothermal energy, heat pumps and energy storage. Environmentalists also accused her of being unsupportive of the other climate proposals that fell to the wayside.

Earlier this year, the Environmental Defense Fund issued a report saying the state would only reduce carbon emissions 13% by 2030 if it remained on its current path.

The same day, the Center Biological Diversity gave the governor mostly failing grades on a climate scorecard.

Gail Evans, an attorney at the Center, said the escalating oil production that's giving the governor and other New Mexico officials more revenue is worsening the climate crisis.

"A climate governor does not oversee a massive oil and gas expansion in the state," Evans said, "because oil and gas is a source of greenhouse gases."

Governor wins back some activists

in recent months, the governor has been involved in new regulations that benefit the climate, making some conservationists hopeful she'll get behind proposed climate legislation in the next session.

Others remain wary, arguing her pursuit of hydrogen, carbon storage and the recycling of fracking wastewater for commercial use are false climate solutions that benefit industry and detract from the transition to renewable energy.

Lujan Grisham backed a rule requiring 43% of new cars and light-duty trucks delivered to New Mexico to be electric models by 2026 and 82% by 2032. She plans to introduce a bill to create tax credits for buying electric vehicles.

Also, the federal Environmental Protection Agency recently issued its final methane rule modeled partly on the New Mexico ozone and methane waste rules enacted under her watch.

The governor has brought together conservation, community and industry groups as well as state regulators and lawmakers to discuss revisions to the Oil and Gas Act, which she wants to see introduced in the next session, said Tannis Fox, senior attorney at the Western Environmental Law Center.

The proposed changes include requiring operators to have wells set back a half-mile from homes, schools and businesses; increasing the amount of bonds they must provide upfront to cover wells that might be abandoned; and removing the caps on penalties imposed on violators, Fox said.

It also could embed the methane capture rule into law, she added.

Having the governor orchestrate discussions that include industry representatives creates the best chance of getting this through the Legislature, she said.

Unlike last year's proposed amendment, this one contains no language calling for climate impacts to be considered in fossil fuel activities, Fox said. Even so, it would be a strong piece of environmental legislation, she said.

"This would be the most significant reform of the Act since it was passed in 1935," Fox said.

Although the next session is only 30 days, efforts to combat climate change should not be omitted, de Saillan said, given how the crisis is growing.

Industry doesn't like climate bills because they often require reducing carbon emissions or moving toward alternative energy sources, he said. But lawmakers must avoid giving in to political pressure from the industry, he said.

An effective climate bill can be relatively simple with just four parts, de Saillan said.

The governor's executive order on cutting emissions should be made into law and become the Legislature's future goals, he said. At the same time, regulatory agencies should be required to adopt rules to decrease greenhouse gases.

The last parts would be funding the regulatory efforts and crafting guidelines to ensure disadvantaged communities aren't disproportionately affected by the rules, de Saillan said.

A plan of this scope must have the governor's support because it would be a huge undertaking, he said. "But we've got to do it. We're running out of time."

Peach, the economist, said ultimately New Mexico must develop more big-revenue industries so it's not this reliant on a volatile sector. In 2015, oil prices plummeted, causing a big dip in state revenues, he said, and a future market downturn is all but certain.

Being tied so tightly to fossil fuel has kept the state from making swifter progress with climate protections and the clean energy transition, he said. In some ways, the state is ahead of the nation, and in other ways it lags behind, he added.

"It's been a mixed bag," Peach said. "We could've done so much more than we've already done."