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 AG leaves the door open for "green hydrogen" produced from electrolysis using renewable electricity (wind or solar). That technology is less mature, but it is the kind of project the statute would support.
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.
Restructure the project around green hydrogen (renewable-powered electrolysis) if you want this Fund as a financing source. The economics may be more difficult and the technology less mature, but the AG's analysis suggests green hydrogen is the kind of "unrelated to fossil fuel" project the statute envisioned.
Consider other state and federal funding tracks. The federal Inflation Reduction Act's hydrogen tax credits and other programs may better fit projects that produce gray or blue hydrogen. The Energy Transition Fund is not the only path, just one this opinion forecloses for fossil-fuel-feedstock hydrogen.
If you are at the New Mexico Economic Development Department or sit on a Fund advisory body
The opinion gives you a clean basis to deny grant applications for hydrogen projects that use natural gas as a feedstock, citing AGO 2025-10 and Section 62-18-16(E). The denial reasoning is direct: fossil-fuel use, even if mitigated, fails the statute's "unrelated" requirement.
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 was unimpressed by aspirational carbon-capture numbers and unverified flared-gas commitments.
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. Push project sponsors and the Economic Development Department to direct Fund resources toward green hydrogen, solar, wind, storage, and similar projects that fit the statute.
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. Without that amendment, the AG's reading controls.
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. Future challenges would have to either contest the dictionary definition (an uphill argument) or reconfigure the project to a non-fossil feedstock.
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." A project that captures the carbon dioxide from burning fossil fuels is still "related" to fossil fuel use. 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: Green hydrogen is produced by electrolyzing water using renewable electricity. The feedstock is water and electricity from wind or solar, not a fossil fuel. The opinion treats green hydrogen as the kind of project the Fund was meant to support.
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 hints at green-hydrogen redesign as a potential path. Any redesign that eliminates fossil-fuel feedstock could qualify, but the AG does not pre-clear any specific change.
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 (Section 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
New Mexico Department of Justice
408 Galisteo Street | Santa Fe, NM 87501 | (505) 490-4060 | NMDOJ.GOV
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