Renewable energy makes up less than 1% of record-breaking state land revenue

Dec. 20—The New Mexico State Land Office earned a record-breaking $2.75 billion in fiscal year 2023. Nearly all of that money came from the oil and gas industry, despite the state's push for a renewable energy transition.

For fiscal year 2023, oil and gas revenue made up about 97% of the land office's revenue, generating $2.66 billion, according to data from the State Land Office.

Renewable energy sources like wind and solar made up 0.16% of the land office's revenue in fiscal year 2023, according to that data. Wind energy projects generated $3.85 million, and the solar energy industry produced nearly $550,000, adding up to $4.4 million.

Public lands commissioner Stephanie Garcia Richard told the Journal money earned from the clean energy sector will naturally ramp up in the future.

"Right now, it's a smaller portion of the total revenue, but through the life of the project and then on into its more mature years, those projects will be generating hundreds of millions of dollars," Garcia Richard said.

She used the SunZia transmission and wind projects as an example. Land office spokesperson Joey Keefe said the SunZia projects generated a large portion of the $11.3 million earned from wind energy in fiscal year 2022 — since the leases were issued that fiscal year — and are expected to generate around $431 million for New Mexico public schools.

The revenue from the wind energy industry is significantly less this fiscal year compared to fiscal year 2022. It decreased about 66%, dropping from the $11.3 million wind energy projects generated last year to $3.85 million this year.

Solar energy figures dropped as well. The industry produced about 26% less in fiscal year 2023 compared to the previous fiscal year, dropping from about $743,300 to $549,000.

Compared to around a decade ago when the land office started earning income from wind and solar energy, the renewable energy market is generating nine times more money.

Larry Behrens is the western states director for Power the Future, an energy advocacy organization. He said renewable energy isn't a feasible revenue replacement for oil and gas, yet the Michelle Lujan Grisham administration has had ample support and dollars going to the industry.

"And it hasn't moved the needle in terms of supporting our state," he said.

He said a diversification of revenue generators really means attacking New Mexico's traditional energy industry and replacing it with a failing renewable energy industry.

Garcia Richard said the renewable energy industry isn't something that will completely replace oil and gas revenue. She said this won't be a dollar-for-dollar transition away from the oil and gas industry.

Garcia Richard said there needs to be a multitude of opportunities taken advantage of, like manufacturing or tech spinoffs from the state's laboratories.

"I think a suite of diversification options is what's necessary,," she said.

What to do in a bust year?

The oil and gas industry is a major revenue source for education, with dollars funneling into the general fund that provides most of the public schools' support, and into the Land Grant Permanent Fund, another source of revenue for public education.

The fossil fuel industry operated on a boom-and-bust cycle, which can make it an unreliable source of income.

Forecasts show income from oil and gas will likely begin a long and steady decline. Garcia Richard said the most conservative prediction of an oil and gas downturn is that it will happen within the next decade.

Jim Peach is a retired New Mexico State University economics professor who has been closely watching the oil and gas industry for decades. He said it's difficult to predict when the industry will bust again because of its volatility, and unpredictable international factors affect the industry.

Still, he said, New Mexico has put away enough excess money to get through a severe downturn in oil and gas production if the crisis only lasts a year or two, the length of time downturns usually last, and that the state would have to change the tax structure if it was a longer-term problem.

Garcia Richard said she's been pushing for higher royalty rates — a payment of a percentage of the oil and gas extracted on state land — in boom years, "knowing that eventually, these trends will fall off." She said she doesn't know if oil and gas revenue will ever rebound to be the major economic generator it is now.

She pointed out that New Mexico charges a lower royalty rate than Texas does for the development of public lands.

Royalty rates on state trust lands range from 12.5% to 20%, according to a June report from the Legislative Finance Committee. The report said New Mexico's maximum royalty rate of 20% is higher than most other states with trust land but less than Texas, New Mexico's competitor in the high-production Permian Basin, which gets rates as high as 25%.

"We need to be making those additional billions (of dollars) now while we're still in a boom time," Garcia Richard said.

She pointed to a prediction by Goldman Sachs, a global financial institution, that there's an $11 trillion infrastructure investment opportunity by 2050.

"I think that's a really strong predictor of where the economic growth will be," she said. "New Mexico, obviously, is naturally poised to take advantage of that, but we should put additional components into place to capture that revenue and ensure it goes as fast as our oil and gas revenue by being invested."

She also brought up a study by Headwater Economics about replacement revenue that suggests pushing some revenue from renewable projects into the permanent fund, which would allow for additional interest. She said that would be a legislative process, though not necessarily for the upcoming session.

For the 2024 Legislature, Garcia Richard said she's focused on increasing the royalty rate.

"But in the future, I think we will seriously be considering asking the Legislature to take a look at our funding mechanisms, knowing that the fossil fuel revenue will be on a decline," she said.

Garcia Richard said she thinks the state could be facing a more long-term or permanent downturn in the oil and gas industry.

The next decade will be different from the historical booms and busts of the oil and gas industry, she said, because industries and consumers are making a transition away from the demand of fossil fuels.

Peach agreed that demand for oil and gas will change with the clean energy transition. But he said that's a few years away.

"Now, it's not enough to cause a ripple in energy markets," he said.

Oversight during the boom

Behrens said other industries also operate with a boom and bust cycle but aren't punished for it. In response to how a bust of oil and gas could affect the state's revenue, and subsequently education dollars, he said the government needs to more wisely spend its money to better the state's education.

"They need to really take a look at what is being spent right now, and what they can do to be more judicious with the money they have versus massive spending," he said.

Garcia Richard emphasized that with the record-breaking revenue, which is largely coming from oil and gas, there's still oversight of the fossil fuel industry.

"We are ramping up our oversight as the record revenue is being ramped up," she said. "And we see those things complimenting each other, not being at odds with each other."

Behrens said there is a cyclical nature to the oil and gas industry due to a number of factors, and state policy also affects the boom and bust. He said despite the oil and gas industry being the leading economic driver for New Mexico, the field is weakened by severe regulation.

"It's an industry that should be supported instead of demonized from Santa Fe," he said.