Can two proposed New Mexico hydrogen projects that produce hydrogen from natural gas qualify for grants from the state Energy Transition Economic Development Assistance Fund, which the statute reserves for projects 'unrelated to fossil fuel development or use'?

Plain-English summary

Senate President Pro Tempore Mimi Stewart asked whether two proposed hydrogen projects, Libertad Power Project and Big Navajo Energy, could draw grants from New Mexico's Energy Transition Economic Development Assistance Fund. Both projects make hydrogen by reacting natural gas with steam (steam-methane reforming), which produces carbon dioxide as a byproduct.

The Attorney General's answer is no. The Fund's enabling statute, NMSA 1978, § 62-18-16(E), reserves the money for economic-development opportunities "unrelated to fossil fuel development or use." Natural gas (methane formed in the earth from plant or animal remains) is squarely within the ordinary definition of fossil fuel. Because both projects directly use natural gas as the production feedstock, they are not "unrelated" to fossil fuel use under any reasonable reading.

The carbon-capture and waste-gas mitigations the applicants describe (carbon sequestration, using flared methane, pumping CO2 into greenhouses) do not change the answer. The projects still rely on fossil-fuel feedstock and, the AG concludes, would likely increase total fossil-fuel use. The Energy Transition Act exists to move the state away from fossil fuels, and grant decisions have to align with that purpose.

The opinion describes renewable-powered electrolysis, often called "green hydrogen," as background. It does not decide whether a green-hydrogen proposal would qualify for this Fund. Its conclusion is limited to the two natural-gas projects in their current form.

What this means for you

If you are developing a hydrogen project in New Mexico

If your hydrogen production process uses natural gas or any fossil-fuel feedstock, you should not plan to fund the project through the Energy Transition Economic Development Assistance Fund. The AG's reading shuts that door, and the AG specifically rejected carbon-capture and flared-methane offsets as a workaround.

The opinion describes renewable-powered electrolysis but does not evaluate a redesigned application. If a project changes, assess its proposed feedstocks and operations against the Fund's statutory requirement; the opinion does not preapprove any alternative.

The opinion addresses eligibility for this Fund. It does not assess other state, federal, or private financing sources for either project.

If you are at the New Mexico Economic Development Department or sit on a Fund advisory body

The opinion concludes that Libertad and BNE are ineligible for this Fund in their current form because they directly use fossil fuels to produce hydrogen. For an application with similar facts, compare its actual proposed feedstock and operations with Section 62-18-16(E).

For close-call cases, focus the eligibility analysis on the feedstock and the projected fossil-fuel consumption profile of the project, not just the end product or the planned mitigations. The AG noted uncertainty about Libertad's projected carbon capture and the absence of BNE calculations for carbon sequestration and vented-gas supply.

If you are a community in or near a closed coal plant

The Energy Transition Act includes the Fund precisely to support communities like yours when coal generation phases out. The opinion narrows what qualifies, but it also reinforces that the Fund is reserved for projects that genuinely move the local economy toward non-fossil energy. The opinion does not decide whether any particular alternative project would qualify for the Fund.

If you are a New Mexico legislator

The opinion's plain-meaning interpretation is unforgiving. If you want fossil-fuel-feedstock hydrogen with carbon capture to be Fund-eligible, the path is a statutory amendment that broadens the "unrelated to fossil fuel development or use" language or creates a separate carve-out for low-net-carbon hydrogen. The opinion concludes that the two proposals are ineligible in their current form under the existing statute.

If you are an energy or environmental attorney

The opinion applies the Reule Sun Corp. v. Valles plain-meaning canon and the Grisham v. Romero contextual-purpose canon together. The reasoning relies less on a contested legal interpretation and more on the basic factual point that natural gas is a fossil fuel. The opinion does not predict litigation strategies or decide the eligibility of a reconfigured project.

Common questions

Q: Why doesn't carbon capture solve the eligibility problem? A: The statute restricts the Fund to projects "unrelated to fossil fuel development or use." The two proposals would still directly use natural gas in steam reforming even if they captured some of the resulting carbon dioxide. The AG read the statute to look at feedstock and process, not net emissions.

Q: What about hydrogen from flared methane that would otherwise be vented? A: BNE proposed using methane that would otherwise be flared off. The AG was sympathetic to the waste-reduction angle but concluded the project still uses fossil fuels in significant amounts and would likely increase total fossil-fuel use rather than reduce it.

Q: What is "green hydrogen" and why is it different?
A: The opinion describes hydrogen made by electrolysis using renewable electricity as "green hydrogen." It gives this as background and makes no finding that a particular green-hydrogen project would qualify for the Fund.

Q: Are the projects denied funding entirely, or just from this Fund? A: Just this Fund. The opinion addresses only Section 62-18-16's Energy Transition Economic Development Assistance Fund. Other state, federal, or private financing avenues are not before the AG and are not foreclosed by this opinion.

Q: Can the projects be redesigned to qualify?
A: The AG says the two projects are ineligible "at least not in their current form." It does not assess a redesign or identify changes that would establish eligibility.

Q: How does this fit with the rest of the Energy Transition Act? A: The Act's main purpose is to help utilities transition away from coal and to support communities affected by plant closures. The Fund is one piece, intended to support non-fossil economic development. The opinion places that piece firmly on the renewables side of the energy mix.

Background and statutory framework

The Energy Transition Act, NMSA 1978, §§ 62-18-1 to -23, was enacted in 2019 to support utilities' transition from coal-fired generation to cleaner power. The bulk of the Act establishes the financing mechanism for "qualifying utilities" to abandon "qualifying generating facilities" (typically coal plants) through energy transition bonds. To qualify, utilities must meet emission caps, including 400 pounds CO2 per megawatt-hour after January 1, 2023, and 200 pounds per MWh after January 1, 2032 (§ 62-18-10(D)).

Section 62-18-16 creates several funds to support communities affected by coal plant closures. Subsection (E) governs the Energy Transition Economic Development Assistance Fund, restricting its use to "diversifying and promoting the affected community's economy by encouraging economic development opportunities unrelated to fossil fuel development or use."

The opinion applies the Reule Sun Corp. v. Valles plain-meaning canon to the phrase "unrelated to fossil fuel development or use." Combined with the Merriam-Webster definition of "fossil fuel" (a fuel formed in the earth from plant or animal remains, including natural gas), the conclusion that natural-gas-fed hydrogen is fossil-fuel-related is straightforward.

The opinion also applies Grisham v. Romero, 2021-NMSC-009, which directs courts to read statutory provisions in context of the whole statute and consider its purposes and consequences. The Energy Transition Act's overall purpose is to reduce fossil-fuel dependence, which reinforces the plain-meaning answer.

Two projects were before the AG. Libertad Power Project, LLC proposed steam-methane reforming with natural gas mostly from a pipeline, supplemented with vented well gas, and aspirational geologic carbon sequestration of up to 90% of produced CO2. Big Navajo Energy proposed using vented methane purchased from Navajo Nation Oil and Gas Company, with CO2 capture by pumping it into greenhouses to promote photosynthesis. Both proposals lacked verified emissions calculations.

Citations and references

Statutes:

• NMSA 1978, §§ 62-18-1 to -23 (Energy Transition Act)
• NMSA 1978, § 62-18-16(D), (E) (Energy Transition Economic Development Assistance Fund)
• NMSA 1978, § 62-18-10(D) (Emission caps)

Cases:

• Reule Sun Corp. v. Valles, 2010-NMSC-004
• Grisham v. Romero, 2021-NMSC-009, 483 P.3d 545

Source

• Landing page: https://nmdoj.gov/publication/opinion/2025-10-opinion-the-energy-transition-act-the-energy-transition-economic-development-assistance-fund-hydrogen-generation-projects-and-fossil-fuel-use/
• Original PDF: https://nmdoj.gov/wp-content/uploads/AG-Opinion-2025-10.pdf

Original opinion text

August 14, 2025
OPINION
OF
RAÚL TORREZ
Attorney General

Opinion No. 2025-10

To:

Hon. Mimi Stewart, President Pro Tempore, New Mexico State Senate

Re:

Attorney General Opinion – The Energy Transition Act, the Energy Transition Economic Development Assistance Fund, Hydrogen Generation Projects and Fossil Fuel Use Question

Can funds from the Energy Transition Economic Development Assistance Fund (the Fund) be used to subsidize the construction of two hydrogen generation projects (the Projects), both of which would utilize natural gas to produce hydrogen, where the Energy Transition Act (the Act) contemplates that the Fund only be used for energy projects "unrelated to fossil fuel development or use"? Answer We conclude that neither Project is eligible for assistance from the Fund. We base this determination on the plain meaning of the statutory provisions in question, which clearly state that the Fund is reserved for projects unrelated to fossil fuel use, and these projects use natural gas, which is a fossil fuel. This determination is also based on the spirit and intent of the Act as a whole, which is designed to encourage the use of renewable energy sources to not only replace coal, but to replace other fossil fuels, as well. Background The Act, NMSA 1978, Sections 62-18-1 to -23 (2019), was passed to assist with the transition to cleaner forms of energy generation. The bulk of the Act focuses on providing financing for electric utilities to assist with the abandonment of old coal-generating plants and the switch to cleaner methods of power generation. See, e.g., § 62-18-2(S) (defining "qualifying generating facility" as a coal-fired power plant slated for abandonment, subject to certain conditions); § 62-18-4(A) ("A qualifying utility that is abandoning a qualifying generating facility may apply to the commission

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for a financing order pursuant to this section to recover all of its energy transition costs through the issuance of energy transition bonds."). In order to qualify, a utility is required to adhere to certain requirements, including a limitation on average carbon dioxide emissions of four hundred pounds per megawatt-hour (MWh) after January 1, 2023, and two hundred pounds per MWh after January 1, 2032. § 62-18-10(D). In addition to providing financing for utilities, the Act creates several funds to provide economic support in communities affected by the closure of old plants. The Fund, Section 62-18-16(D)&(E), is subject to appropriation "only to [the economic development] department to assist in diversifying and promoting the affected community's economy by fostering economic development opportunities unrelated to fossil fuel development or use." § 62-18-16(E) (emphasis added). The question before this office concerns two applicants for funding under the energy transition economic development assistance fund: Libertad Power Project, LLC (Libertad), and Big Navajo Energy (BNE) (collectively, the Applicants). Both Applicants wish to produce hydrogen gas. Among other uses, hydrogen gas can react with oxygen, by means of combustion or electric fuel cell, to produce water. This process generates a substantial amount of energy, without forming any carbon dioxide. There are several ways to produce hydrogen gas. One method is to electrolyze water, forming hydrogen and oxygen. This is simply the reverse of the process by which hydrogen is converted to water, so it uses as much energy as is subsequently produced by combustion or fuel cell reaction of the resulting hydrogen. However, if the electricity is produced by renewable means, such as solar or wind power, this method may be very useful in solving the storage problems associated with renewables. The energy could be stored in the form of hydrogen, eliminating the need for batteries or other storage devices. It also is a way to obtain hydrogen for various industrial means using renewable energy. Hydrogen produced using renewable energy is called "green hydrogen." However, very little hydrogen is currently produced in this manner. As noted by Libertad, green electrolysis is not a very mature technology. A more common method of generating hydrogen is steam reforming of natural gas. The most common natural gas, methane, reacts with steam to produce carbon dioxide and hydrogen. If the hydrogen produced is subsequently burned or electrically reacted with oxygen to produce water, the combination of these two reactions produces the same amount of energy (subject to any inefficiencies) as the combustion of methane, and the same amount of carbon dioxide. However, the associated inefficiencies of such a two-step process may give the use of hydrogen produced in this manner a greater carbon footprint than the direct combustion of methane. Moreover, if the steam is produced using fossil fuels, it would add to the carbon footprint. Hydrogen produced in this manner is called "gray hydrogen," or, if the carbon dioxide is somehow captured, "blue hydrogen." It should be noted that it is easier to capture carbon dioxide from the steam reforming process than it is to capture the carbon dioxide produced by combustion. Libertad states that the steam reforming process is a more mature technology than green electrolysis. Applicants both propose to manufacture hydrogen using the steam reforming process. While Libertad claims that it might, in the future, switch to green hydrogen manufacturing, its proposal

clearly states that it will be using natural gas, mostly from a pipeline, but possibly supplemented with natural gas that is vented out of the wells, which ordinarily would be flared off. Libertad's proposal also contains speculation regarding the capture of carbon dioxide, which they intend to attempt using geologic means. Libertad states that it could capture up to 90% of produced carbon dioxide, but it is difficult to determine how much of this projection is simply aspirational. BNE indicates a greater commitment to use methane that is vented from gas wells, which would otherwise be flared off. BNE states that it has an agreement with Navajo Nation Oil and Gas Company ("NNOGC") to purchase vented gas, which would be captured by NNOGC by some means. BNE also plans to capture produced carbon dioxide by pumping it into greenhouses. Increasing carbon dioxide levels in a greenhouse can increase yields by promoting photosynthesis, converting the carbon dioxide into plant material—up to a point. However, BNE has not provided calculations or modeling demonstrating how much carbon dioxide could be sequestered by this process, nor has it provided calculations showing that all of its methane needs could be met in a cost-effective manner, through the purchase of otherwise vented or flared methane from NNOGC. In addition, BNE proposes to utilize manufactured hydrogen in several ways, including providing backup power to NNOGC's Farmington refinery. Analysis It is our opinion that the projects in question are ineligible for funding from the energy transition economic development fund based on the plain meaning of the statute. Our statutory construction analysis begins by examining the words chosen by the Legislature and the plain meaning of those words. Under the plain meaning rule, when a statute's language is clear and unambiguous, we will give effect to the language and refrain from further statutory interpretation. We will not read into a statute language which is not there, especially when it makes sense as it is written. In addition to the plain meaning examination, we also consider the statutory subsection in reference to the statute as a whole and read the several sections together so that all parts are given effect. Finally, the practical implications, as well as the statute's object and purpose are considered. Reule Sun Corp. v. Valles, 2010-NMSC-004, ¶ 15, 107 N.M. 512 (internal quotation marks and citations omitted). The term "fossil fuel" is defined as "a fuel (such as coal, oil, or natural gas) formed in the earth from plant or animal remains." Fossil fuel, MERRIAM-WEBSTER.COM, https://www.merriam-webster.com/dictionary/fossil%20fuel (last visited May 17, 2024). While methane can be produced from non-fossil fuel sources, both companies propose to utilize methane from producing gas wells. Because methane is formed in the earth from plant or animal remains, it is within the definition of "fossil fuels." Even if the phrase "unrelated to fossil fuel development or use," is considered to be somewhat ambiguous, the direct use of fossil fuels to manufacture hydrogen using the steam reforming process renders both projects ineligible even under the strictest possible construction. There is no reasonable way that it could be argued that either project is unrelated to fossil fuels.

As noted above, both Applicants have suggested ways in which they intend to mitigate their carbon footprints, by using methane that would otherwise be flared off and/or by sequestering carbon dioxide. However, none of these planned mitigations change the fact that the Projects directly use fossil fuels in significant amounts, and would likely increase the use of fossil fuels rather than reduce it, and therefore contravenes the plain language of the statutory section at issue. Finally, given the history and the overall intent of the Energy Transition Act, which is to reduce dependence on fossil fuels, it would be contrary to the spirit of the Act to award grants for projects that involve the use of fossil fuels. See Grisham v. Romero, 2021-NMSC-009, ¶ 23, 483 P.3d 545 ("In ascertaining a statute's spirit or reason, we consider its history and background, and we read the provisions at issue 'in the context of the statute as a whole,' including its purposes and consequences.") Conclusion Our analysis and interpretation of the Act, as applied to the Projects in question, leads to the conclusion that the Projects are not authorized for funding under the Fund, at least not in their current form, because they directly utilize fossil fuels in the production of hydrogen and do not otherwise advance the general intent of the Act.

Please note that this opinion is a public document and is not protected by the attorney-client privilege. It will be published on our website and made available to the general public. RAÚL TORREZ ATTORNEY GENERAL
/s/ Lawrence M. Marcus
Lawrence M. Marcus
Assistant Solicitor General