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The Associated Press November 2, 2010, 10:14PM ET

New Mexico regulators approve cap-and-trade plan

New Mexico regulators on Tuesday narrowly approved a proposal to establish what state officials call the most comprehensive greenhouse gas pollution reduction regulations in the nation.

Supporters of the cap-and-trade program say it's the first step for New Mexico getting a handle on the pollution blamed for global warming, but critics are worried the new regulations will lead to higher electricity costs for consumers and an exodus of businesses and jobs to surrounding states.

Public Service Co. of New Mexico, the state's largest electric utility, said annual costs to comply with the new regulations are estimated to reach $110 million by 2020. The utility, a subsidiary of PNM Resources Inc., said those costs will have to be passed on to customers.

"We remain convinced that comprehensive federal legislation is the only way to meaningfully reduce emissions, minimize costs to customers and to our economy, and not disadvantage any particular state. As a result, we are disappointed by today's decision," said PNM Resources CEO and President Pat Vincent-Collawn.

She said the company will continue to evaluate all options, including possible legal action.

The New Mexico Environmental Improvement Board spent more than four hours considered a petition by the Environment Department to allow the state to participate in a regional cap-and-trade program with the other Western states and Canadian provinces that make up the Western Climate Initiative.

Board members made one change to the proposal before approving it on a 4-3 vote. They included language that would allow the state to propose cost containment measures if the cost of allowances exceed a certain level.

The state's program calls for 2 percent reductions to begin in 2012. Facilities that are over the cap would be able to buy and even bank allowances or offsets as part of the regional trade mechanism. Facilities under the cap could profit by selling their unneeded emission allowances.

The program will not be implemented unless there are sufficient greenhouse gas allowances to make trading efficient and cost-effective. It also includes a sunset provision if the federal government were to implement its own program.

Supporters contend the cap-and-trade program will benefit the economy by encouraging clean energy development.

"This regulation sends a clear signal. New Mexico is open for business in the new energy economy," said John Fogarty, a Santa Fe physician who is backing a separate emissions cap proposal still pending before the board. "It will attract new investment to the state and create good high paying jobs in the renewable energy and efficiency industries."

Department officials were elated with the board's decision.

"I'm just really pleased with how thoughtful they were in their deliberations and their consideration of the cost to industry and the consumer as well as the urgency of the matter," said Sandra Ely, environment and energy policy coordinator with the Environment Department.

"Every single board member agreed that climate change is one of most important issues of our time that has to be addressed. What they didn't all agree on was how to address it," Ely said.

With the board's approval, the program will become effective Jan. 1.

Gov. Bill Richardson, who has been pushing for emissions reductions since 2005, called on the federal government after Tuesday's vote to build on New Mexico's program and implement a national cap-and-trade system.

The proposal had been the source of much debate among conservationists, electric utilities and other industry representatives, with critics arguing that New Mexico's emissions are only a fraction of the global problem and that handicapping the state's businesses with another regulation could prove economically disastrous.

Dozens of experts spent days testifying before the board earlier this year on the potential impacts.

New Mexico's coal-fired power plants and the oil and gas industry pump about 24 million metric tons of carbon emissions into the air each year. The state aims to curb the emissions of those that emit 25,000 metric tons or more.

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