New Mexico LCFS advances on party-line votes

Democratic lawmakers in New Mexico have advanced a proposed state-wide low-carbon fuel standard (LCFS) through two committees within a week on party-line votes.

New Mexico's Clean Transportation Fuel Standard would target a 20pc reduction in transportation fuel carbon intensity by 2030, from a 2018 baseline, and a 30pc reduction by 2040. The bill has raced through two state House of Representative committee hearings in the opening days of the state's 30-day 2024 legislative session.

Lawmakers carrying the bill have shifted strategies for the concept's fourth consecutive attempt since 2021. Representative Kristina Ortez (D) emphasized credit opportunities for the state's dairy operations to win over rural skeptics, a key stumbling block in previous sessions. This year's bill added cost-containment mechanisms and other ideas from existing programs to address fears about rising retail prices to warnings that New Mexico would lose green investment to other states.

"They are literally driving through New Mexico taking clean fuels to California, Oregon and Washington," Ortez said yesterday in the bill's second committee hearing. "I want to see those clean fuels right here in New Mexico, benefiting New Mexico companies and New Mexicans."

But hours of public comment showed that the program faces continued skepticism from rural constituents more sensitive to fuel prices.

LCFS programs require yearly transportation fuel carbon intensity reductions. Conventional, higher-carbon fuels that exceed the annual limit incur deficits that suppliers must offset with credits generated from the distribution of approved, lower-carbon alternatives. California operates the largest and oldest US LCFS, followed by Oregon and, last year, Washington. Canada last year launched a federal LCFS, while British Columbia continues to operate its older provincial LCFS program.

Unlike the US Renewable Fuel Standard, the LCFS programs do not mandate specific volumes of fuels to meet annual compliance. The additional incentives offered by programs along the west coast helped spur a growing build out of renewable diesel production capacity, including at HF Sinclair's refinery in Artesia, New Mexico. State incentives would attract new fuels and electric vehicle charging infrastructure to New Mexico's smaller transportation fuel market. Bill supporters include Chevron, ExxonMobil and Neste, as well as national environmental organizations and the American Biogas Council.

Republicans in both committees have questioned the likely cost of the program, predicting California retail fuel prices for New Mexico drivers. Proponents have repeatedly stated through the hearings that an LCFS does not increase fuel costs, but used as evidence studies that show that the LCFS credit markets have no correlation to gasoline markets.

"Nobody knows how gasoline pricing works - it goes into a black box," New Mexico Environmental Protection Division director Michelle Miano said yesterday.

California uses a distinct, more expensive gasoline blendstock than New Mexico, levies larger taxes and has multiple other environmental programs that affect the state's retail prices. Costs of LCFS compliance added to California gasoline blended with ethanol have averaged about 9¢/USG so far this month.

New Mexico agricultural and dairy advocates remained skeptical of the program, which has allowed dairies in other states to sell California LCFS credits generated from harvested biogas.

Dairies in arid New Mexico lack the digester technology that has allowed that biogas participation for other operations, advocates said. The detail surprised bill sponsors. In-state dairies appeared more concerned about potential cost increases for transporting their product than the potential for biogas credits.

Environmental groups that oppose the LCFS testifying in the hearings said it would not cut carbon fast enough or would risk leaving vulnerable communities in pollution hotspots.

The bill advanced out of House Judiciary and House Energy, Environment and Natural Resources committees on 7-4 votes, with all Republicans opposed. Democrats control nearly two-thirds of the state's House and Senate seats.

A near-miss in the concept's inaugural session in 2021 failed after Republicans gained support from rural Democrats concerned that constituents who must travel long distances across the state would face higher costs. Republicans have made clear they will continue to hammer on that theme as the proposal works toward broader discussion.

"I am worried we are sort of taking a top-down approach and, I think, at the end of the day, punishing the poorest among us who are fighting to make ends meet," state representative T. Ryan Lane (R) said in yesterday's hearing.

By Elliott Blackburn

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