ALBUQUERQUE – A group of powerful New Mexico lawmakers is questioning whether state environment officials have done enough to weigh the potential economic effects of a proposal to cut smog-causing pollution across the oil and gas industry.
Leaders of the Legislative Finance Committee sent a letter last week to state Environment Secretary James Kenney, saying the rules would have an effect on state general funds and local government coffers if enacted.
“The potential economic and revenue impact to the state is a matter of great importance to the committee,” the letter read.
A New Mexico Tax Research Institute study cited by the lawmakers puts annual revenue losses for the state and local governments at $730 million.
Another independent analysis by John Dunham & Associates – an economic research firm hired by the industry – found the rules would cost operators more than $3 billion to comply during the first year. More than one-third of currently operating oil wells and 87% of natural gas wells would become uneconomical after accounting for increased regulatory costs, according to that study.
Experts have said there would likely be declines in both oil and gas production in New Mexico, which is now ranked second in the U.S. when it comes to production.
The committee sent the Environment Department a series of questions about what was done to consider the economics of the rules and what other options there might be for small producers.
The state agency in a response issued Wednesday said it plans to present expert testimony about the methods and findings of the analysis done by John Dunham & Associates and that the state Environmental Improvement Board will consider testimony from the agency’s own staff members, the industry and other parties in the case during a hearing later this month.
Kenney wrote that this process will ensure that all aspects of the proposed rule and its effects on the state are fully developed and presented to the board.
“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,” Kenney's letter says.
He also noted that New Mexico regulators have a duty to address rising ozone levels, which he blamed in part on oil and gas production. He said monitors in southeastern New Mexico – home to one of the world’s most productive basins – are registering ozone levels in excess of federal standards.
If the state doesn't act, he said the federal government will force it to do so under provisions of the Clean Air Act.
The rules proposed by the Environment Department are part of a two-pronged approach, which Kenney has touted as the most comprehensive effort in the U.S. to tackle pollution blamed for exacerbating climate change. State oil and gas regulators adopted separate rules earlier this year to limit venting and flaring as a way to reduce methane pollution.
The Environment Department opted to remove all exemptions from an earlier version of its draft rule. The proposal also includes minimum requirements for operators to calculate their emissions and have them certificated by an engineer and to find and fix leaks on a monthly basis.
If companies violate the rules, they could be hit with notices of violation, orders to comply and possibly civil penalties.
The state expects the rule, once adopted sometime next year, to lead to reductions in ozone-causing pollution that would equal taking 8 million cars off the road every year. Methane emissions also would be reduced as a result, officials have said.
