New Mexico’s oil and gas industry would take a major hit — and so would the economy — under a rule the state Environment Department is proposing to reduce ozone pollution, according to an economic analysis that has leading lawmakers worried about the impact on the state budget.

The proposed ozone rule, which would set new standards on the petroleum industry and require monitoring of certain production facilities, would cost operators as much as $3.2 billion in the first year and $3.8 billion over five years in order to be in compliance, the analysis found.

“The increased costs would force operators to shut down marginal wells and forfeit the development of new [drilling] in the state,” according to the analysis, which was commissioned by the New Mexico Oil and Gas Association. “This could lead to a loss of as many as 3,217 jobs in the petroleum production industry in New Mexico and cost the state’s economy $674.2 million annually.”

In a letter to state Environment Secretary James Kenney, Legislative Finance Committee Chairwoman Patty Lundstrom, a Gallup Democrat, and other committee members expressed concerns about the “potential substantial impact of the proposed rule to state revenues” and the state budget.

The oil and gas industry generates huge sums of cash for the state. Although the figure fluctuates, 25 percent to 30 percent of total general fund revenue comes from oil and gas.

“New Mexico typically receives over $2 billion in direct revenue from oil and gas production through severance and property taxes and royalty and rental income,” according to a May report from legislative staffers. “Additional indirect income comes from sales and income taxes on oil and gas drilling and service, which generate about $500 million.”

The economic analysis of the proposed rule, conducted by John Dunham and Associates, a Florida-based economic research firm, estimates a 12.9 percent drop in oil production and a 22.8 percent reduction in natural gas production if the rule is enacted.

“As this impact passes through the economic system in New Mexico, it will surely lead to reductions in jobs,” the report states.

Environment Department spokeswoman Maddy Hayden wrote in an email the agency estimated the cost to the oil and gas sector would be $467 million annually if the proposed rule was adopted without any modifications.

“When compared to the publicly available revenue data for New Mexico’s oil and gas operators of $2.3 trillion, the cost of compliance is about 0.02%,” she wrote. “However, the cost of compliance with the final rule is contingent on any changes to the proposed rule ultimately adopted by the Board and the compliance options selected by industry once the rule takes effect.”

In response to the letter from lawmakers, Kenney wrote Wednesday the New Mexico Air Quality Control Act requires the state Environmental Improvement Board to take action to address rising ozone levels in New Mexico, which are partly due to oil and gas operations.

“This is a non-discretionary duty,” he wrote. “As the agency tasked with implementing ozone regulations for purposes of compliance with the health-based federal National Ambient Air Quality Standards, the Department has the role of proposing a plan, including regulations, for the Board’s consideration to meet the statutory requirements.”

Kenney also outlined the process that still must occur before a rule is enacted, which includes collecting submissions of written rebuttal testimony by Tuesday, Sept. 7.

“As part of its rebuttal filings,” Kenney wrote, “the Department will present detailed expert testimony on the methods, data, and findings” of the economic analysis. He added that “further elaboration on the economic and environmental dimensions of the proposed rule will occur” at a board hearing.

“Given the process and considerations outlined above,” Kenney wrote, “the Board will not rely on a single, deeply flawed economic study conducted and paid for by the regulated community, and I ask that Legislative Finance Committee not do so either.”

The rule would reduce volatile organic compounds by about 106,420 tons and oxides of nitrogen by about 23,148 tons, equivalent to taking 8 million passenger vehicles off the road every year, according to the state.

Dunham, who authored the economic analysis, declined to comment. In a brief telephone interview, he said he would be “happy” to discuss his report but would need his client’s permission first.

Robert McEntyre, a spokesman for the New Mexico Oil and Gas Association, wrote in an email, “New Mexico oil and natural gas producers are committed to reducing methane emissions, and our comments underscore our ongoing dedication to help regulators craft rules that will achieve ambitious environmental goals while preserving the foundation of New Mexico’s economy.

“As the process moves forward, we will continue to share the industry’s scientific and technical expertise to assist the department in ensuring these rules benefit all New Mexicans,” he continued.

In his letter to lawmakers, Kenney wrote it’s a fact ozone levels in New Mexico are rising.

“Several monitors, including in Eddy County, are registering concentrations far in excess of the federal standard,” he wrote.

The Environment Department and the U.S. Environmental Protection Agency have identified widespread violations of air quality requirements in the San Juan and Permian Basins, Kenney added, “which further aggravates our rising ozone concentrations. If the State does not take mandatory steps under the [Air Quality Control Act] to address this situation, the U.S. EPA will ultimately force New Mexico to do so under the federal Clean Air Act.”

Kenney also noted economists are projecting a nearly $1.4 billion windfall in the next budget year.

With the expected revenue increase, “New Mexicans can continue to enjoy a strong economy and public health protections,” he wrote. “Our economy and the environment are not mutually exclusive outcomes.”

(20) comments

Jim Klukkert

The continent upon which we live seems to be either burning or flooding, but hey, let's make the fossil fuel bucks while they still can be made!

Trump said that climate change is a Chinese Hoax! Reagan had Carter's solar panels taken off the White House. With leaders like those numbn¨t$, what could go wrong?

Can you say "midterms?" I see that a lot in the right leaning comments.

Mike Johnson

I think the midterms will be interesting. IMO, the left wing has overreached on many issues, and as is the custom in America, when any one party does that they lose seats, plus the fact the majority of states have trifecta conservative control for redistricting, etc.

The climate changing is no hoax, it has been happening for the entire 4.6 billion years of earth's history and it will continue. As for the recent warming of a little over 1 degree C since 1880, with CO2 increasing from about 270 parts per million, to over 420 parts per million in the atmosphere over that time (and considering the impact of all Tyndall gases in general), as well as the significant land use, agricultural, and surface changes man has created, man is obviously responsible for much of that increase. However, it is not possible to attribute any specific weather event to man's activities, since the earth's climate system is so chaotic and cyclical anyway. Long term data of things like hurricane strength and frequency, cyclonic energy, tornado frequency and strength, wildfire occurrence and damage, droughts, flooding, etc. do not show any correlation to increased CO2 over the last century +. And of course the tiny progress in wind and solar in the US (still only 10% of the total), and EVs (2% of the total), as well as the data on global emissions over the last 40 years when "policy" actions were promised (but of course never done effectively), with China being the largest new source, going from 1 billion tons to 10 billion tons since 1980, while the US has seen only a small increase over that period. I do not believe this is a crisis or catastrophe, however it is something we should be dealing with as a planet, and so far I see few large emitters, like China, willing to step up and do anything

.https://climateactiontracker.org/countries/

Katherine Martinez

[thumbup]

Lupe Molina

Headline should just read "Oil and gas lobby lobbies against rule it doesn't like"

Alan Lucero

So it appears that every commenter, including the journalist who made this an opinion piece either by commission or omission, missed the major point of the industry analysis. I paraphrase here: "The ozone rule would cost the industry $X billions, would cause Y job losses and could cost the state $Z million annually." Aside, for anyone who doesn't read peer reviewed journals regularly, the assertion "could" without some expression of assumed dependencies is a bright red flag of subjective persuasive speech. Continuing ... both proponents and opponents are examining only one side of the issue, the cost of the regulations. Neither are either able or willing to scrutinize the implications of the status quo, the unabated release of ozone precursors and its impact on human, plant, and animal health. Finally, it's laughable but understandable that the industry won't address the issue of the cost of compliance as a percentage of revenue. How could they? Even if they abrogated all responsibility and passed all compliance cost onto the consumers, could they make the point with straight face that consumers would notice a price increase of several hundredths of a percent in the cost of their petroleum based purchases? We need investigative journalists with at least basic mathematical and logic skills.

Mike Johnson

Do you actually think that petroleum companies independently set the price of their product?

Mike Johnson

These "leading lawmakers" must have been asleep or not paying attention when MLG and her merry band of eco-socialists embarked on the mission to remove the petroleum industry from the state. She, her cabinet, and many in the legislature, like Sedillo-Lopez, are united in lockstep to get them out ASAP. This is but one step, there have been others and will be more. The economics are simple, if you force a commodity company to spend more to produce its product, you will get less of it. How much less do they want? IMO, they really want it all gone.

Alan Lucero

"spend more... less of it." That conclusion is debasing to a high school economics course. Seriously? It's a linear relationship? Is that why auto sales tanked due to a major reduction in production when, in turn, seat belts, cat converters, air bags, and crumple zones were introduced for safety? Seriously, stick to slogans and name calling, which you're quite skilled at. Your attempts at math throw me into apoplexy. I'm still confounded by your pronouncement in April of 2020 that "the log of any exponential is a straight line." Laughable. Go ahead and straighten a cyclic exponential (such as a model of waves of a pandemic). High school math.

Mike Johnson

I would like to hear what university you got a Master or higher degree in economic. I got my SM at MIT, and you? "If a firm faces higher costs of production, then it will earn lower profits at any given selling price for its products. As a result, a higher cost of production typically causes a firm to supply a smaller quantity at any given price." https://courses.lumenlearning.com/wm-macroeconomics/chapter/factors-affecting-supply/

And from any math textbook: "Taking the log of an exponential graph produces a straight line". What university did you get your advanced math or science degree? I'll wait.

Alan Lucero

Seriously, poser? Sure. Here ya go. A link to my 73 peer reviewed journal articles are below. BS combined physics and math at UNM while working on atomic spectroscopy under Dr. Howard Bryant at the Los Alamos LAMPH facility (since rebuilt and renamed LANCE), full-ride AT&T graduate fellowship to the University of Connecticut while concurrently interning at Bell Labs Crawford Hill. Following graduation my Post-Doc was also at Bell Labs where I assisted in the design and testing of the first RE doped broadband optical amplifier used in the DARPA MONET project. Went on to AT&T Federal Systems (subsequently Lucent), founding scientist at Corning's Photonics Research and Test Facility, and the last 14 years of my career as Distinguished Member of Technical Staff at TE SubCom where we designed, built, tested, and deployed, record setting broadband transoceanic optical telecom systems. You likely watched the 2008 Olympics over the TPE system we had just deployed earlier in 2008. So ... remind me of what you've done with your degree besides fumbling the usage of logs? Wanna show everyone how you can use a log to produce a straight line from exp(x cos(x))? Absolutely risable. https://scholar.google.com/citations?user=lhwpHCEAAAAJ&hl=en&citsig=AMD79ops_fQ0hD-84tGlHMAFaCUFYyR_Gw

Mike Johnson

Very impressive scientific resume, but I do see you have no education nor experience in economics, as I suspected given your comments. When I graduated from Rice with my Ph.D. in geochemistry, specializing in stable isotopes and paleoclimatology, instead of a post-doc, I went to work for a large oil company and then was named a Sloan Fellow to MIT to obtain a finance and economics degree, and took a leave of absence to complete the Masters (SM). Given your deep scientific background I am quite surprised you will not accept taking the log function of an exponential graph produces a straight line. Maybe you need a refresher, this has been used extensively recently around the pandemic case counts to show exponential growth, for instance....http://www.biology.arizona.edu/biomath/tutorials/log/logscale.html

Alan Lucero

This is rapidly becoming boring.

1) The statement that a log of an exponential is a straight line *only* holds for the simplest introductory exp functions, certainly not when the model includes cyclical data. Go to symbolab.com or your favorite graphing product and take the log of exp(x cos(x)), as a basic example. 2) Not formal economics, but both training and decades of experience in massively nonlinear multiparametric semi-phenomenological systems, exactly like economic models. Again, the linear approximation of the relationship between supply and demand, as also in cost and profit, is a simple introductory model appropriate for a high school course and does not hold except over a highly limited dynamic range. I note that you ignored the refuting example of the car industry's continued increase in production and profits as "job killing regulations" (we all recognize that trope as a rallying slogan not based on data or models) forced the introduction of many safety features over the decades. To quote a favorite professor, "Nothing in nature is linear. Why do we emphasize teaching our students analytic methods to solve linear systems?" 3) And, yes, I tracked and modeled the Johns Hopkins and CDC Covid case data intensively. There was a period in mid-Sep to late-Nov 2020 when NM's case count was exponential with a time constant I derived as 16.2 days. That period *alone* would have produced a log transform of a straight line with a slope of 16.2. All other months would *not* have a log transform of a straight line, in spite of the high school introductory definition. I repeat my former advice: you're quite prolific at name-calling and derogatory generalizations. Stick to your strengths. Your math pronouncements are embarrassing.

Mike Johnson

Ha! Since I always follow the rules of this forum, let me say this "exchange" has been "informative", but "boring" is not the word that comes to mind, more like "ignore".......

Lupe Molina

The only reason it was sustainable for this commodity company to produce its commodity at its current level was because it went unchecked and received subsidies. If they can't figure their economics out and we move faster to alternative sources, fine by me.

Ann Maes

Well, there’s always free energy from wind and sun. Time for a new paradigm.

Richard Reinders

How does the state get 2 billion in revenue from it. I agree we should incorporate some solar, but not the Avangrid deal, they will destroy the beauty of NM landscape to sell Mexico, California and Arizona power and oh yes some for NM.

Richard Reinders

New Mexico will shoot themselves in the foot without a replacement for the oil revenue, these types of decisions by the Gov. is why other industries shy away from New Mexico unless you give away the farm like we have with the film industry. If the deal with the film industry wasn't so one sided towards the industry they wouldn't be moving here lock stock and barrel like they have.

Katherine Martinez

Exactly. But then again it's no surprise since MLG and those on the left were elected on a platform of wanting to gradually do away with our one reliable cash cow. They are hesitant and reluctant however, I see this first hand as a petroleum accountant for the government--they are having difficulty reconciling their political, environmental philosophy with the current state of our pocket book (which mind you without o&g would be no where). We can try and mimic Colorado and have the best of both worlds: cannabis AND o&g and leverage that environmentally and fiscally. I've been hearing about solar and wind since Jimmy Carter and still nothing sustainable to this day, nothing at all. Not enough combustion to fuel vehicles, and the infrastructure is still pathetically scant.

Jim Klukkert

Katherine Martinez- Since the "infrastructure is still pathetically scant," let's all support Biden's Infrastructure Bill as our parents supported Eisenhower's Interstate System supported fossil fuel automobile & truck transport.

Katherine Martinez

I'm willing to keep trying Jim, don't get me wrong, but how long is it going to take? We are 1/2 a century into solar energy experimentation, and in my little humble opinion we are just barely scratching the surface....we still have a way's to go with that and wind, geothermal, or other minerals that can bridge the gap. I don't want to ravage the Earth any more than you do, but fossil fuels are sill our way of life like it or not. I really do in a sense applaud the efforts to try and make this turn to 'sustainable' energy, but let's not demonize and cut our throats at the same time from our current oxygen supply shall we?

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