What will it take for New Mexico to transition from fossil fuels to renewable energy?

 

What will it take for New Mexico to transition from fossil fuels to renewable energy?

Climate change is another ‘pandemic’ the entire world is facing and will have to confront its severe ‘symptoms and variants’ in the future. The effects of our earth’s temperature increasing are the symptoms will have to take on, since little to no action has been taken to overturn these future effects. New Mexico is experiencing climate change through longer droughts and rising temperatures. As of 2021, this caused fires, agricultural shortages, decreased water supply, and reduction in biodiversity. More recently, Mora County experienced a 100-mile pasture wildfire this year. Greenhouse gas (GHG) emissions contribute to the warming of the earth and other symptoms of climate change. Like other states in the US, New Mexico contributes to the nation’s GHG emissions through its reliance on oil and gas, and other nonrenewable energies. The state produces about 113.6 million metric tons (MMT) of greenhouse gas emissions. The oil and gas sector is the largest contributing sector to New Mexico’s GHG emissions, which is followed by transportation and electricity generation (see Figure 1).

Figure 1 Source: “New Mexico Greenhouse Gas Emissions Inventory and Forecast” (Colorado State University 2020)

The Energy Transition Act of 2019 (ETA) mandates that 50% of total electricity generation must be clean and renewable by 2030. The mandate increases to 80% by 2040, and 100% by 2045. In 2021, 36% of New Mexico’s in-state electricity generation used renewable energy. The ETA is an effective step towards the transition to renewable energy. However, even when the ETA achieves its goal of 100% renewable electrical energy, New Mexicans may still heat their homes with natural gas, drive fossil fuel powered cars, and work in carbon emitting industries, including oil and gas. There is urgency in addressing climate change, as we are quickly approaching the 1.5°C global temperature increase at which there will be irreversible damages to our planet. To help the state become powered by renewable energy, policies that complete the clean energy transition will be crucial. Continue reading to learn about policy options that can tackle the remaining sectors that significantly contribute to the state’s emissions.

 

The Carbon Tax Plan

New Mexico’s upstream and midstream entities, such as natural gas processing facilities or coal suppliers, emitted 113.6 million metric tons (MMT) of CO2e (CO2 equivalent) in 2018. When glancing at Figure 2 below, we can see that CO2 makes up more than half of New Mexico’s GHG emissions.

Countries, like Denmark, that tax industrial CO2 emitters have successfully reduced GHG emissions. When implementing carbon tax plans, economic theories advise that tax rates should reflect the current cost of carbon to society. The EPA calculates $46/metric ton of CO2 as the social cost per metric ton of carbon emitted. Carbon taxes reduce an average 14% of carbon emissions. Given this statistic, a carbon tax plan would reduce New Mexico’s CO2 emissions by 15.9 MMT of CO2. This would impose a tax on the state’s remaining 97.7 MMT of CO2 emissions, generating a tax revenue of $4,494.2 million ($46 × 97.7). This revenue could be used to fund projects such as battery storage to hold the capacity of energy needed to power the state and transmission lines for energy to reach rural areas.

Figure 2 Source: New Mexico Climate Action

Though this would be a great approach to addressing carbon-emitting nonrenewable energy, it has received political pushback due to costs on businesses and the public. Oil and gas lobbyists fight against carbon taxes every legislative session. New Mexico’s state legislators are not paid a salary, and welcome hefty amounts of donations from oil and gas leaders in hopes of legislators voting on bills in the favor of the nonrenewable industry. Also, since it has the potential to raise utility costs for residents, low-income households would be disproportionally impacted. Low-income households cannot typically afford to install solar panels in their homes to rely on renewable energy, thus making it difficult to avoid utility rate increases due to this carbon tax. To address this concern, revenue from the carbon tax could be reallocated to renewable energy projects or offer rebates to low-income households.

 

Clean Transportation Federal Grant Application

Transportation contributes the second highest share of greenhouse gasses in New Mexico (after oil and gas production). (See Figure 1). Biden’s Inflation Reduction Act allocates a generous amount of grant funds through the Environmental Protection Agency and the Departments of Energy, Housing and Urban Development, and Transportation to incentivize the use of clean, renewable-powered transportation across the US. The existing New Mexico Interagency Climate Change Task Force should apply for federal grants to support the transition to clean, renewable transportation. To name a few grants, the Electric Vehicle (EV) Charging and Clean Transportation Grant prioritizes electrification of off-road and non-road vehicles, and the Clean Heavy-Duty Vehicle Program intends on distributing $1 billion for clean heavy-duty vehicles from now until 2031.

In addition, the Bipartisan Infrastructure Law established the National Electric Vehicle Infrastructure Formula Program to allocate funding to states with the goal of strategically deploying electric vehicle infrastructure. Under this formula, each state’s share of funding will be equal to the state’s share of federal highway funding it receives. New Mexico received $45,000,000 from the FHWA in 2022, thus the state is eligible for no more than $45,000,000 from the CFI. States are to only receive CFI funding when the Joint Office of Energy and Transportation receives and approves the state’s Electric Vehicle Infrastructure Deployment Plan. The CFI Grant is the nation’s largest sum of funding for EV implementation, which would be in the task force’s best interest to also focus on forming New Mexico’s EV Infrastructure Deployment Plan.

Subsidizing and planning appropriate infrastructure increases the supply of charging stations and clean transportation. Since the fixed cost of implementation of new fleets, batteries or stations is high, planning is necessary to see the desired payouts in reduced variable costs of fueling. There is a high risk that the state will not see positive results of market intervention if planning is not executed appropriately. Additionally, though this would assist a large part of the transition, there are negative environmental impacts from mining the necessary resources for EVs.

 

Electrify Our Lives

New Mexico’s residential use of propane and natural gas emits 2.18 MMT of CO2e. Currently, homes rely heavily on these fossil fuels to power stoves, heating systems, and water heaters. Shifting residential energy consumption towards electric home appliances would reduce the remaining demand for fossil fuels. As the ETA mandates that the state’s electricity to be generated by renewable energies, replacing gas powered appliances to electrical ones will be crucial in reducing the residential use of fossil fuels.

New Mexico should collaborate with the US Department of Energy’s State Energy Program to launch an “Electrify Our Lives” project to fund the replacement of fossil fuel powered residential appliances. The program provides states with technical assistance and funding for programs that propel energy efficient initiatives, increase energy affordability, and improve energy security. For example, Rhode Island, with the support of the program, created Energy Metrics to Promote Residential Energy Scorecards in States (EMPRESS) to encourage the use of home energy label policies. “Electrify Our Lives” would subsidize the costs of electric appliances for low-income households, since this demographic is usually last to transition to energy efficient practices.

Rural and low-income households pay a disproportionate amount of their income on nonrenewable gas bills, while not being able to afford more energy efficient installations. Efforts to implement energy efficient appliances and build a Low Carbon Fuel Standard should consider addressing these inequities. To improve political feasibility of this policy option, program would prioritize low-income homes. A drawback is that some homes may require costly upgrades and remodeling for new and electrified appliances. Electrifying homes, especially older ones, could be expensive projects, due to the high up-front cost of replacing appliances.

 

Job Transition Tax Plan

42% of New Mexico’s energy jobs come from the fossil fuel industry. A common concern of this renewable energy transition is surrounded by the jobs of New Mexicans. However, the building of ~1000 miles of transmission lines would initiate over 24,000 jobs over ten years, and at least 760 jobs would be perpetual due to the operation and maintenance of plants and transmission lines. The State should facilitate a job transition pipeline for employees who were recently severed from the non-renewable energy industry using a tax break. The Department of Workforce Solutions would allow recently severed nonrenewable energy employees to register into a portal that employers could access. Employers would receive a tax break for hiring these workers; renewable energy employers would receive a larger tax break. This would incentivize a quick, direct transition from nonrenewable to renewable energy.

This tax plan would follow a similar model as the federal Work Opportunity Tax Credit, which offers employers tax credits for hiring individuals from targeted groups who face substantial barriers to employment. The Job Transition Tax Plan would award a tax credit equal to 40% of up to $6,000 of wages to employers who hire recently severed oil and gas industry workers. The tax plan would award a tax credit equal to 80% of up to $6,000 of wages to renewable energy employers who hire recently displaced oil and gas workers as well. The state’s oil and gas industry employs 41,762 people. If all oil and gas employees were severed and hired elsewhere, this tax plan would cost the state between $100,228,800 (6,000 × 40% × 41,762) to $200,457,600 (6,000 × 80% × 41,762). These estimations reflect the entire oil and gas industry in New Mexico, though it is unlikely this tax plan would uptake every employee. Hence, it would be ideal for this tax plan to capped at $50 million and assist the about the first 20,000 who register the earliest in the DWS system.

According to the EPA, renewable energy requires less labor and maintenance, which saves stakeholders money, since they consist of simple technologies that do not rely on combustible fuels to operate. The transition toward renewable energy will require a significant amount of labor, however once the storage, transmission lines, and plants are all built, they will require minimal amounts of maintenance.

Recommendation

After evaluating the policy options, I recommend the implementation of the Carbon Tax Plan. The barriers it faces is the power established by those who emit the most carbon dioxide into New Mexico’s communities. This type of tax plan has been difficult to receive political support, due to the idea of taxing an industry, and reallocating the revenue to its competition. However, the reallocation of this revenue would fight against unintended consequences of job loss. The revenue would be given back towards those projects that support the growth of jobs in the renewable energy sector. Educating the public of the benefits and intentions of this plan would encourage citizens to support the idea.