New Mexico statute could make LCFS tricky

US independent refiner Valero warned other New Mexico's low-carbon fuel standard (LCFS) advisers today that lawmakers may make the program uniquely difficult.

The language lawmakers passed earlier this year appeared to require the state's Clean Transportation Fuel Standard to reduce the carbon intensity of blended transportation fuels, said Brian Bartlett, part of Valero's public policy and strategic planning group, in a presentation to fellow advisory committee members on the draft rulemaking. That could mean tougher initial targets for the program if the state sets requirements for finished fuels already blended with biofuels, in addition to requirements for neat gasoline and diesel common to other markets, he said.

"We are looking at it from the definition that is in the statute, and that is a different definition than is in any other statute," Bartlett said.

Regulators and some other advisers in the meeting did not agree with the interpretation as the only way to read the law.

LCFS programs require yearly reductions to transportation fuel carbon intensity. Higher-carbon fuels that exceed the annual limits incur deficits that suppliers must offset with credits generation from the distribution to the market of approved, lower-carbon alternatives.

New Mexico lawmakers earlier this year directed the state Environment Department to establish an LCFS by July 2026. The state is speeding toward a formal rulemaking this summer to establish a program on a faster timeline.

California's LCFS exists almost entirely through agency rulemakings. The law that led to its creation directs the state to reduce emissions, but legislators did not prescribe a transportation program. Oregon lawmakers, in part building off of that model, referenced a low-carbon fuel standard (LCFS) in 2009 legislation but did not include blended fuels in its definitions.

Washington's legislation, passed in 2021 and leading to a program that began enforcement last year, defined regulated fuels as "electricity and any liquid or gaseous fuel" used for transportation. The law explicitly directs reductions using gasoline and diesel baselines, similar to other states.

Under the interpretation proposed today, New Mexico would be unique in needing to determine a baseline for blends such as 10pc ethanol gasoline, or 5pc biodiesel. Blended fuels, especially renewable diesel blends, have driven much of the recent credit generation and carbon intensity reductions in west coast programs.

"I think that's a novel interpretation that you have presented, and the Environment Department will definitely consider it," the agency's environmental protection division director Department Michelle Miano said.

Representatives of ExxonMobil and Phillips 66 suggested that the process may need more time to offer sufficient technical expertise to the department.

The Environment Department is seeking to complete a technical report ahead of a planned August petition for a rulemaking establishing the program to the state's Environmental Improvement Board.

The advisory committee will meet to discuss the technical report and hold public comment on 26 July.

By Elliott Blackburn