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F I S C A L I M P A C T R E P O R T

SPONSOR Stewart

ORIGINAL DATE

LAST UPDATED

2-03-07

2-23-07 HB 386/aHHGAC

SHORT TITLE Oil & Gas Operation Emissions Standards

SB

ANALYST Aubel

REVENUE (dollars in thousands)

Estimated Revenue

Recurring

or Non-Rec

Fund

Affected

FY07

FY08

FY09

0.1* Recurring

General Fund

Severance Tax

Bond Fund

(Parenthesis ( ) Indicate Revenue Decreases)

ESTIMATED ADDITIONAL OPERATING BUDGET IMPACT (dollars in thousands)

FY07

FY08

FY09 3 Year

Total Cost

Recurring

or Non-Rec

Fund

Affected

Total

(.01)*

Recurring

General Fund

Severance

Tax Bond

Fund

(Parenthesis ( ) Indicate Expenditure Decreases)

*See Fiscal Impact

Relates to HB 318

SOURCES OF INFORMATION

LFC Files

Responses Received From

Department of Health (DOH)

New Mexico Department of Environment (NMED)

Energy, Minerals, Natural Resources Department (EMNRD)

SUMMARY

Synopsis of HHGAC Amendment

The House Health and Government Affairs Committee amendment addresses the “broad

language" concerns reported by Energy, Minerals and Natural Resources Department by limiting

House Bill 386/aHHGAC – Page

2

House Bill 386 to apply to emissions from certain engine emissions. Specifically, the

amendment now authorizes the Environmental Improvement Board (EIB) and local air quality

boards to adopt rules prescribing performance standards for nitrogen oxide emissions from new

stationary reciprocating internal combustion engines of less than 500 horsepower used in oil and

gas extraction. The original bill would have authorized the adoption of rules concerning any

airborne emissions from all oil and gas production or processing facilities.

In adopting standards that the bill authorizes, the EIB may adopt standards more stringent that

applicable federal standards, if any. The amendment adds requirements that the standards

adopted shall reflect the best available technology that is economically reasonable and shall

consider the non-air-quality health and environmental impacts, as well as the energy

requirements, of such engines. The amendments also add a 5-year review clause for reviewing

the performance standards adopted by EIB or local boards.

Synopsis of Original Bill

House Bill 386 would amend the Air Quality Control Act to specifically authorize the

Environmental Improvement Bureau (EIB) to adopt rules governing emissions from oil, natural

gas, and carbon dioxide gas production and processing facilities that may be more stringent that

the applicable federal standards. This latter provision would change existing law, which requires

that EIB emissions standards be no more stringent than applicable federal standards. Under this

provision also, EIB could establish rules for facilities and sources for which no federal rules or

standards exist.

FISCAL IMPLICATIONS

There are no direct fiscal impacts from HB 386 to the state. However, DOH points out that

indirect savings in health care costs may result from any significant reduction in health-related

illness due to air quality impairment. NMED maintains that if oil and gas development was

curtailed due to non-attainment of federal air quality standards, the state would lose the

additional severance royalty revenues, and suggests that HB 386 would help prevent such a

scenario.

SIGNIFICANT ISSUES

According to NMED, oil and gas exploration, development, production, treatment, transport,

storage and refinement facilities are being constructed at an increasing pace throughout the west.

In the Four Corners region of New Mexico alone, the United States Bureau of Land Management

(BLM) has a resource plan to allow for the drilling of thousands of new gas wells. Those wells

add to the thousands already operating in the area. In the Otero Mesa area, plans for drilling and

exploration for oil and gas are also proposed.

Emissions include nitrogen oxides, sulfur oxides, volatile organic compounds and many

hazardous air pollutants, as well as carbon dioxide and methane. DOH reports that the Four

Corners region nearly exceeds the national ambient air quality standard for ozone, which is

formed from emissions of nitrogen oxides and volatile organic compounds. DOH has conducted

studies of ozone in the Farmington area and found increased hospital emergency room visits for

asthma were positively correlated with increased ozone concentrations. DOH also reports that

asthma rates in the southeastern new Mexico near oil and gas operations are the highest in the

House Bill 386/aHHGAC – Page

3

state, and that several of the toxic organics from oil and gas operations are also associated with

cancer, including benzene and 1,3-butadiene.

Current law does not allow the state to require standards for emission control on oil and gas

production to be more stringent than federal standards. NMED asserts that federal requirements

are limited and do not reflect many of the cost effective, and often cost-saving, up-to-date,

technically-feasible, commercially-available air pollution control technologies available. NMED

also points out that some federal requirements have been established for oil and gas equipment

with large emissions, but the requirements do not address the thousands of oil-and-gas-well-site

equipment that produce small amounts of emissions individually, but large cumulative emissions

collectively. The agency also asserts that the efficient and economical air pollution control

technologies that exist for oil and gas equipment, but are not required under federal standards,

could reduce air pollution by between 75 percent to 90 percent over existing conditions.

According to NMED, BLM is currently requiring the installation of air pollution controls in the

Four Corners region as part of its Application for Permit to Drill. However, that requirement

only applies within New Mexico on BLM land. NMED points out that if the boards were

empowered to adopt regulations more stringent than federal requirements for oil and gas

operations as provided for in HB 386, a comprehensive statewide regulation could be adopted by

the boards for oil and gas operations to streamline the regulatory process, provide regulatory

certainty, protect the environment, and ensure equity in regulation for all oil and gas operations.

This would be an active step to ensure continued attainment of the National Ambient Air Quality

Standards and responsible economic development.

PERFORMANCE IMPLICATIONS

An existing legislative performance measure for NMED is to improve visibility at Class I areas

such as national parks and wilderness areas throughout the state. NMED states that BLM

predicts that visibility in New Mexico’s Class I areas would be adversely affected by the planned

construction of oil and gas operations in the Four Corners region in the future if oil and gas

operations are not required to install air pollution control technologies. HB 386 will allow the

state to mandate air pollution control technologies that may improve visibility at Class I areas in

New Mexico.

Preserving and improving visibility of New Mexico’s unique blue skies may improve economic

development associated with tourism and movie production in the state.

ADMINISTRATIVE IMPLICATIONS

NMED specifies that current resources are adequate to develop and propose such regulations to

the board. The permitting process may actually improve due to the standardization of permit

conditions among similar sources.

CONFLICT, DUPLICATION, COMPANIONSHIP, RELATIONSHIP

House Bill 386 relates to House Bill 318, which also strives to grant the state authority to specify

emission standards that are more stringent than federal standards for mercury.

House Bill 386/aHHGAC – Page

4

TECHNICAL ISSUES

According to NMED, 24 states in the nation are not precluded from adopting rules more

stringent than EPA, and that several states (Wyoming, Texas and Colorado) already have

regulatory programs in place for oil and gas operations that require specific control technologies

for oil and gas operations.

Section 74-2-5 NMSA 1978 already contains language that allows EIB to promote standards that

may be more stringent than federal standards for governing emissions from solid waste

incinerators.

OTHER SUBSTANTIVE ISSUES

Because HB 386 would allow more stringent standards than federal requirements and would

allow EIB to fill gaps in particular instances if no federal standard applied, NMED asserts that

HB 386 will allow the boards to adopt regulations that result in lower emissions for oil and gas

operations in the state. The Governor’s Performance and Accountability Contract Goal 3, “Make

New Mexico the Clean Energy State," contains a task to “Improve Oversight and Environmental

Management of Oil and Gas Facilities." The task lists reduction in emissions from oil and gas

well sites and compressor stations as an objective. NMED maintains that the state cannot

accomplish this task without the additional authority set out in HB 386, which will allow the

state to require the most effective technologies for emission control.

NMED also states that these control technologies can be installed at reasonable costs to address

emissions from oil and gas operations, ensure environmental protection, and provide regulatory

certainty without the burden of case-by-case permitting for thousands of facilities.

WHAT WILL BE THE CONSEQUENCES OF NOT ENACTING THIS BILL

EIB regulation of emissions from oil and gas facilities will continue to be subject to the

requirement that standards may be no more stringent than applicable federal standards. Air

pollution may increase as operations expand and new drilling occurs statewide. Increased air

pollution will most likely result in greater health risks to New Mexico citizens, reduced visibility

at the state’s scenic vistas, and continued contribution to global warming. Non-attainment status

for air quality in any region of the state would hamper economic development in that area,

including development of the oil and gas resources.

AMENDMENTS

EMNRD expressed some concern regarding what it considered the “broad language" of HB 386

as introduced. The following amendment was presented as a response from NMED to address

this concern:

Page 3 Line 14 (new Paragraph (4) of Section 74-2-5.A):

(4) include regulations defining standards of performance for combustion engine

emissions from all oil and gas exploration, development, extraction, production,

treatment, separation, processing, storage, transport, refining or sale of unrefined

hydrocarbons, field gas, natural gas, natural gas liquids, condensate, or CO2 that

House Bill 386/aHHGAC – Page

5

shall be at least as stringent as, and may be more stringent than, any applicable

federal standards or limitation;

POSSIBLE QUESTIONS

1.

What other contributors to air pollution exist in the same areas as oil and gas operations,

and what is the contributing breakdown.

2.

What strategies are being adopted to address the total load of emissions.

MA/nt:csd