New Mexico Promulgates a Cap and Trade Rule

Posted on November 23, 2010 by Larry Ausherman

Earlier this month, the State of New Mexico adopted a rule designed to cap greenhouse gas (“GHG”) emissions in New Mexico and implement the State’s participation in a cap and trade market based on the design guidelines of the Western Climate Initiative (“WCI”). But it is too soon to tell how the New Mexico GHG rule will shake out. The future of cap and trade in New Mexico depends on many developments that range from the election of a new governor who will take office in January 2011, the fate of California’s cap and trade program, and the potential that the New Mexico GHG rulemaking will be appealed. An additional New Mexico only greenhouse gas cap and reduction proposal will also be considered by the New Mexico Environmental Improvement Board (“EIB”) in early December. 

 

 

            On November 2, 2010, after lengthy and contentious debate, EIB narrowly adopted the GHG rule that was proposed by the New Mexico Environment Department (“NMED”) last spring. The rule provides for a cap and trade program for certain GHG emissions in New Mexico that could start as early as 2012. The program would not be initiated without participation of other states with GHG emissions sufficient to provide a base of at least 100 million metric tons of CO2 equivalent emissions.  This requirement is designed to avoid the State’s implementing a trading program alone. For all practical purposes, because the trigger for implementation is a base of at least 100 million tons, the New Mexico cap and trade program will not be able to move forward without implementation of the California program. Of the 7 initial participating WCI states, only New Mexico and California are moving forward at this time to implement a cap and trade program.        

 

The New Mexico GHG rule would apply to about 63 large industrial facilities that emit GHGs in the State. The affected facilities include primarily power plants and large oil and gas operations. After the rule becomes effective, the affected facilities would be required to reduce emissions by 2% annually until 2020 or be required to acquire offset credits for emissions from other jurisdictions or external trading programs. The State would initially provide allocations for baseline emissions for those currently existing regulated facilities without charge.  

 

 

            Also in November, the EIB adopted mandatory reporting and verification rules. The rules require sources emitting more than 10,000 metric tons of CO2e emissions to report emissions. Those sources with greater than 25,000 metric tons of CO2 equivalent emissions are required to obtain third-party verification of emissions.   This rule is scheduled to go into effect on January 1, 2011, regardless of whether the cap and trade rule goes into effect. NMED estimates that 130 to 150 sources will be affected by the reporting rule. 

 

 

            Challenges to New Mexico’s GHG rule are likely. The margin of the EIB vote on the rule was narrow, four to three in favor. Moreover, on the day EIB adopted the rule, the New Mexico voters elected a new governor, Susanna Martinez. The Republican governor-elect’s campaign positions included opposition to WCI and the GHC initiatives of the current Democratic governor, Bill Richardson. It seems likely that the new GHC rule will not meet with favor in a Martinez administration. The change of administration is particularly important because to date, Governor Richardson’s support for New Mexico GHG initiatives has been critical to their adoption. New Mexico’s participation in WCI was initiated by Executive Order, and NMED’s efforts to implement the WCI cap and trade program in the state legislature have been unsuccessful. 

 

 

            In addition to the recently adopted GHC cap and trade and reporting and verification rules that were proposed by NMED, an additional petition by The New Energy Economy that would put a cap on GHG emissions in New Mexico is scheduled for decision by the EIB in early December. The New Energy Economy petition asks EIB to mandate that large facilities emitting greenhouse gases must reduce their emissions by 3% every year from 2010 levels, regardless of the development of a cap and trade market in the region.   If adopted, the program would sunset in 2020, and also be suspended in any year that a source begins reducing GHG emissions pursuant to a multi-jurisdictional or national GHG reduction program.

 

 

            The future will tell us which of the two votes taken on November 2 will prove most important. Some key opponents to the New Mexico GHC rule have expressed support for a federal cap and trade effort, but other very significant concerns remain, particularly regarding GHG proposals that are merely state or regional. In New Mexico, as in the rest of the country, the GHG trading market is far from open.



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