State to draft clean fuel rules before end of year

Clean fuels are now the law of the land, Gov. Michelle Lujan Grisham announced on Tuesday as she signed House Bill 41, Clean Transportation Fuel Standards.

The law allows for the creation of a market incentivizing the production and importation of more environmentally friendly fuels in the state.

It’s up to the New Mexico Environment Department to draft the rules for new clean fuel standards, and the agency hopes to do so by the end of the year. New standards have to be in place by July 2026.

“It is time to evolve,” Lujan Grisham said, “and knowing how many New Mexicans are in marginalized communities that are suffering from asthma and air pollution, and again, recognizing that transportation is a sizable industry for emissions.”

How it works

Under the law, New Mexico will have a carbon intensity standard for transportation fuels used and produced in and imported into the state, said Michelle Miano, Environmental Protection Division director at the New Mexico Environment Department.

Carbon intensity is a measure of carbon dioxide and other greenhouse gasses. Miano said the calculation of carbon intensity is based on the fuel lifecycle, and it’s not just the amount of carbon produced in propelling a vehicle but also how the fuel is produced or transported.

The law aims to reduce the carbon intensity of transportation fuels when compared to 2018 levels by 20% by 2030 and 30% by 2040.

In order to set up the new standard, the state Environment Department’s next step is to convene an advisory committee that will give guidance on the rule-drafting for the clean fuel program. The committee will be made up of transportation fuel producers and distributors, local and tribal governments, and environmental advocates, according to the law.

Miano said the environment agency expects the committee to be seated by late spring or early summer.

Then, she said, the agency plans to petition the Environment Improvement Board, which must approve certain NMED rules, by the end of the year. The board will have a hearing on the rules, and there will be a chance for public comment.

The rules have to go into effect by July 2026, according to the law.

A few other states have similar programs, including California, Oregon and Washington, and Miano said New Mexico will look to those states for guidance. She said the Environment Department already has received inquiries from entities that participate in similar programs in other states and want to be part of the advisory committee.

“We’re very excited to be building on what other states have done and lessons learned there and create a program that works for our state,” she said.

Officials said the rules will create a new clean fuel market. Producers and importers who bring in fuel that exceeds the carbon intensity standard will have to buy clean fuel credits from those who are producing below the standard, Miano said.

She said the market is optional for entities generating the credit, like utilities.

Utilities that choose to participate have to invest credit sale revenue into “distribution, grid modernization, infrastructure and other projects that support transportation decarbonization,” according to the law. At least half of the revenue must support low-income and underserved communities.

It seems likely the Public Service Company of New Mexico, the state’s largest electricity provider, will opt in. PNM spokesperson Ray Sandoval said the utility supports the law because it helps reduce transportation emissions and invests in the future.

“By participating in the voluntary market, PNM will use clean fuel credits revenue to prepare the grid for increased levels of transportation electrification for all New Mexicans,” he said.

It’ll take more time for Southwestern Public Service Co., which mostly serves rural areas in southern New Mexico, to decide on participation. Xcel Energy spokesperson Wes Reeves said Xcel, which owns SPS, supported the bill’s passage. He said there are many details to be worked out in the rulemaking, and once that’s done, Xcel will participate in the program if it benefits the company and its customers.

The other investor-owned utility in the state, El Paso Electric, didn’t respond to inquiries from the Journal on if it will participate. EPE mainly services the southern part of New Mexico, including Las Cruces.

Gas prices

One of the largest points of concern expressed by lawmakers who opposed the bill, most of them Republicans, was how the program will affect gas prices.

Miano said the Environment Department has looked at data from other states with similar programs and found no correlation with higher gas prices and a clean fuels program.

“We have looked at the fuel costs and we’ve looked at the cost of the clean fuel credit, and they do not match up at all,” she said.

Miano said her agency also expects more fuel options at the pump with the new law, from renewable diesel to hydrogen fueling stations to more electric charging stations. She said all the new fuels will be competing with each other, ultimately bringing prices down.

“It will give New Mexicans more choice,” she said.

Rep. Jared Hembree, R-Roswell, told the Journal he is still concerned about what the impact will be on New Mexican consumers, not only at the gas pump but also places like grocery stores and restaurants that rely on transportation to get their goods.

He said it “speaks volumes” that lawmakers tabled his proposed bill amendment to show the cost of compliance with the clean fuel standards at fuel pumps, which he described as a transparency measure, on the House floor.

“It doesn’t matter to me what type of car or vehicle someone wants to drive, but sort of mandating these things at the cost of New Mexico consumers is very concerning,” Hembree said.

Miano said there are price protection measures drafted into the law, including the advisory committee considering cost containment measures, a periodic review process and a program deferral under forecasted or emergency conditions.

Hembree said he doesn’t think that’s enough. He would like to see the advisory committee consider a periodic report that would be published or submitted to the Legislature on the program’s impact on fuel prices.

Lujan Grisham said on Tuesday, when the Journal asked about a public or legislative reporting proposal, that it’s a good idea.

“I do think that as we’re evolving and we’re asking New Mexicans to embrace these changes, that that’s a good idea,” she said.

In response to another question on gas prices, Lujan Grisham said the clean fuel law could be changed in the future to adjust for gas price increases, however unlikely.

Environment Department Secretary James Kenney said New Mexico is the first state with a clean fuels standard to put the “statutory relief valve” into law. He said even though the correlation with gas prices is not factual, they included that clause to make the bill more amenable.

“Should all the data be wrong or there’s a geopolitical issue — which often is the cause of gas prices going up — then we’ll have that ability in state rule to evaluate that and make some determinations,” he said.

Hembree questioned how much progress will actually be made to reduce emissions with the fuel policy, or “whether this is just a way for large polluters to sort of buy their way out of emissions reductions” through the clean fuels market.

“I don’t know whether you’ll see an actual reduction in emissions, and at what cost to New Mexico consumers,” he said.

The economic impact

Miano said there will be economic opportunities to come for New Mexico. She said the program is expected to create 1,600 jobs and over $200 million in capital investment for the state.

She also said the program will make it cheaper for fuel producers to be located in a place with a clean fuel standard as opposed to shipping products.

“And so we’re hoping that in order to get some of those carbon reductions that those businesses will locate here to New Mexico as well and make New Mexico part of their fuel production process,” she said.

One unique business opportunity, Miano said, is how feedstocks can be used to produce biofuels or other clean fuels. She said that will particularly benefit New Mexicans in rural communities some legislators voiced concerns about with the law.

Indeed, Darling Ingredients, a company headquartered in Texas that supplies animal feedstock for renewable fuels, among other animal byproduct conversions, sees the program creating another market.

That’s what Suann Guthrie, senior vice president of investor relations, sustainability and communication at Darling Ingredients, said. She said Darling Ingredients’ joint venture is the largest renewable diesel manufacturer in the U.S.

“New Mexico is on the cutting edge, recognizing that biofuels play an important role in the decarbonization of the transportation sector,” she said.

Miano said the law aims to address climate change, air pollution, jobs and grow the economy.

“There’s no silver bullet,” Miano said. “But this is probably as silver bullet as it gets when it comes to all the different factors and all the different benefits that we’re anticipating coming out from one piece of policy.”

Editor's note: This article was updated on March 6 at 9:15 a.m. to correctly reflect Sec. Kenney's reference to a "statutory relief valve."