The first question any economist asks about any new policy is: Do the benefits outweigh the costs? A new economic report shows that in the case of nationally leading air pollution regulations for the oil and gas industry in New Mexico, they do.
Synapse Energy Economics Inc. recently determined that comprehensive, statewide rules that address all wells in New Mexico would be cost-effective across every set of benefits and costs we examined.
As state regulators consider comments from a wide variety of New Mexico stakeholders calling for stronger draft air pollution and methane rules that eliminate exemptions for low-producing – or stripper – wells and for other sites below a 15 ton per year VOC pollution threshold, this should be welcome news. Our analysis illustrates that by setting aside these exemptions in favor of more comprehensive oil and gas emissions rules, the state can offer an excellent return on investment for the people of New Mexico.
On the benefits side of the ledger, this study shows that comprehensive oil and gas emission reduction rules, which include measures like quarterly leak inspections and requirements to install less-polluting devices at oil and gas well sites across New Mexico, can deliver substantial social and environmental benefits to the state’s residents. These benefits include increased tax and royalty revenue that can fund important state priorities like education, improved public health, and lower economic costs associated with air pollution.
These measures can have substantial benefits to the people of New Mexico through reducing emissions of harmful volatile organic compounds (VOCs). Oil and gas operations in New Mexico emit hundreds of thousands of tons of VOCs every year. VOCs are a prime contributor to smog – ground-level ozone – that can inflame the lungs and aggravate asthma, especially in children and the elderly.
Eddy, Lea, San Juan, Rio Arriba and Chaves counties – the five New Mexico counties home to 97% of the state’s oil and gas wells – are at risk of violating federal ozone standards of 70 parts per billion. Our projections indicate ozone pollution is an increasing threat in New Mexico’s major oil and gas producing counties, and that increased federal regulatory costs to New Mexico businesses are highly probable in the near-term unless actions are taken. The comprehensive set of state regulations without exemptions we analyzed would be a cost-effective path to minimizing these additional costs.
Additionally, our analysis shows that the benefits above can be achieved at affordable costs to the state’s oil and gas industry. Notably, we took a conservative approach in determining costs per unit of emissions reduction. In other words, if a particular emissions reduction technology has a wide range of possible costs, we assumed the high end of the cost range. Therefore, our analysis likely over-estimates costs, meaning that the benefits of these regulations may outweigh the costs by even more than the analysis suggests.
Our report concludes that for every dollar invested by the oil and gas industry in emissions reductions, the proposed rules without any exemptions would offer the people of New Mexico a return on investment of more than 30%. This includes at least $126 million in human health benefits in New Mexico due to reduced VOC emissions, avoided air quality nonattainment costs of $1.2 billion, and $730 million of captured gas between 2020 and 2030, $99 million of which would be collected in additional royalties to the state of New Mexico. Recapturing those losses would assist the state in stabilizing its budget and funding critical public services.
As Gov. Michelle Lujan Grisham’s administration develops rules to address New Mexico’s oil and gas air pollution problem, this economic analysis shows that the state has a tremendous opportunity to enact cost-effective nationally leading rules. If exemptions in the current draft rules are eliminated, New Mexicans could see greatly reduced air pollution, improved human health outcomes, and additional revenue to support public services. Together, these benefits offer a strong net benefit to the state’s residents and economy.