New Mexico Cap and Trade Rulemakings

The complexity of air quality permitting regulations in New Mexico combined with the nature of oil and gas operations provides many opportunities for operators to fail to achieve regulatory compliance or, to fall out of compliance. To add to this regulatory challenge, two parallel rulemakings are currently pending before the New Mexico Environmental Improvement Board (EIB) seeking to cap greenhouse gas (GHG) emissions in New Mexico. As originally proposed, the cap and trade program would apply to sources that report emissions of 25,000 metric tons or more of CO₂ equivalent per year, thereby impacting the regulatory compliance challenge faced by large operators in the state.

The first proceeding is the result of a petition filed with the EIB by the New Energy Economy (NEE) seeking promulgation of rules to implement a New Mexico only cap in GHG emissions. The proposed rules call for a determination by the EIB of 1990 GHG levels and a limitation of 25% below these designated levels by 2020.

The second proceeding is the result of a petition filed with the EIB by the New Mexico Environment Department (NMED) seeking promulgation of rules to adopt GHG cap and trade provisions. The proposed rule calls for a cap threshold of 25,000 metric tons of emissions and a 2% decrease in the cap every year thereafter. According to the proposed rule, facilities will be required to determine their representative baseline emission and production levels using historical data and greater weight will be given to verified data and adjusted as necessary. Operators should note this provision because in some cases, verification data that uses manufacturer defined potential to emit could push operator emissions above the threshold where actual emissions are below the threshold.

The reasons proposed by the NMED for the cap and trade provisions are two-fold: (1) stimulate innovation by promoting economic opportunity for clean energy technologies; and (2) incentivize use of cleaner fuels in the state, like natural gas. It is interesting to note that while New Mexico continues to push for cap and trade regulations, California's Global Warming Solution Act of 2006 (AB32) which requires the California Air Resources Board to adopt cap and trade regulations by January 2011, is currently being challenged by Proposition 23, a ballot initiative to suspend AB32 until unemployment is below 5.5% in the state.

The evidentiary record for the NMED petition was closed September 30, 2010. Post-hearing submittals are due by October 26, 2010 and the EIB plans to deliberate at its public meeting on November 2, 2010.

The evidentiary record for the NEE petition was closed October 5, 2010. Post-hearing submittals are due by November 22, 2010 and the EIB plans to deliberate at its public meeting on December 6, 2010.