INDUSTRIAL CARBON REDUCTION ACT

HB0320

HOUSE BILL 320

57th legislature - STATE OF NEW MEXICO - second session, 2026

INTRODUCED BY

Meredith A. Dixon
and
Kristina Ortez
and
Nathan P. Small

AN ACT

RELATING TO THE ENVIRONMENT; ENACTING THE INDUSTRIAL CARBON
REDUCTION ACT; CREATING CARBON REDUCTION PRODUCTION AND
INVESTMENT PROGRAMS IN THE ECONOMIC DEVELOPMENT DEPARTMENT;
PROVIDING FOR THE ESTABLISHMENT OF INDUSTRY BENCHMARKS AND
REDUCTION CALCULATIONS BY THE DEPARTMENT OF ENVIRONMENT;
PROVIDING FOR RULEMAKING BY BOTH DEPARTMENTS; CREATING A FUND;
MAKING A TRANSFER FROM THE GENERAL FUND TO THE CARBON REDUCTION
PRODUCTION AND INVESTMENT FUND.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF NEW MEXICO:

SECTION 1.
[
NEW MATERIAL
] SHORT TITLE.--This act may be
cited as the "Industrial Carbon Reduction Act".

SECTION 2.
[
NEW MATERIAL
] DEFINITIONS.--As used in the
Industrial Carbon Reduction Act:

A. "carbon intensity" means the quantity of carbon
dioxide emitted during the production of an eligible product,
reflecting scope one emissions and scope two emissions and
inclusive of any such additional emissions required to achieve
a reduction in carbon intensity;

B. "certification of eligibility" means the
certification provided by the department that qualifies an
eligible entity to be awarded a production incentive or an
investment grant;

C. "department" means the economic development
department;

D. "eligible entity" means a person that owns or
operates a qualified industrial facility in New Mexico;

E. "eligible product" means concrete, cement,
asphalt, iron, steel, glass, hydrogen, ammonia, methanol,
ethylene, aluminum, pulp, paper, critical minerals or other
industrial products as determined by the department of
environment that are produced in New Mexico;

F. "eligibility threshold" means a carbon intensity
that is forty percent below the industry benchmark in a given
year to be eligible for a production incentive or investment
grant award;

G. "environmental product declaration" means the
independently verified declaration that provides a life-cycle
assessment of a product's carbon intensity;

H. "grant" means a monetary payment to an eligible
entity to offset the cost of qualified expenditures made for a
qualified industrial facility that results in the reduction of
carbon intensity of at least forty percent below the industry
benchmark for the eligible product being manufactured or
refined in the facility;

I. "incentive" means a per-ton subsidy made to an
eligible entity that reduces carbon intensity in the production
of eligible products by the eligibility threshold or more;

J. "industry benchmark" means the industry-wide
average carbon intensity for a given eligible product;

K. "qualified expenditure" means a capital
expenditure made on or after January 1, 2026 and prior to
January 1, 2037 that is dedicated to and necessary for
producing an eligible product in a manner that reduces the
product's carbon intensity by at least forty percent below the
industry benchmark;

L. "qualified industrial facility" means a facility
located in New Mexico that is used to manufacture or refine an
eligible product;

M. "refine" means a chemical or physical process to
remove impurities from a substance or material;

N. "scope one emissions" means direct greenhouse
gas emissions from sources that are owned or controlled by the
eligible entity;

O. "scope two emissions" means indirect greenhouse
gas emissions associated with the purchase of electricity,
steam, heat or cooling;

P. "scope three emissions" means indirect
greenhouse gas emissions, excluding scope two emissions; and

Q. "ton" means a metric ton.

SECTION 3.
[
NEW MATERIAL
] CARBON REDUCTION PRODUCTION
INCENTIVE PROGRAM--DEPARTMENT DUTIES--INDUSTRY BENCHMARK--CARBON REDUCTION ACHIEVEMENTS--CALCULATIONS BY DEPARTMENT OF
ENVIRONMENT.--

A. The "carbon reduction production incentive
program" is created in the department. The program provides
incentives to New Mexico industries that meet or exceed the
eligibility threshold as provided in this section.

B. Prior to January 1, 2037, an eligible entity
that proposes to produce an eligible product with a carbon
intensity that meets or exceeds the eligibility threshold may
be eligible for a carbon reduction production incentive.

C. Incentives shall be granted to eligible entities
that produce eligible products, which production results in
meeting or exceeding the eligibility threshold for each product
produced. The incentive is equal to eighty-five dollars
($85.00) per ton of carbon dioxide reduced below the industry
benchmark; provided that the facility meets the eligibility
threshold as determined by the department of environment.
Eligible products for which the state has granted an incentive
shall be sold by the eligible entity to an unrelated person or
used by the eligible entity to produce a related product.

D. Only new, incremental carbon reductions are
eligible for incentives; provided that the reductions are below
the industry benchmark; and provided further that the facility
meets the eligibility threshold.

E. The department, in consultation with the
department of environment, shall promulgate rules for a
competitive application process for the award of certifications
of eligibility, including the establishment of application
periods. The department shall open the first application
period within eighteen months of the effective date of this
2026 act. The first application period may apply to a limited
subset of the eligible products listed in the rules of the
department promulgated in accordance with the Industrial Carbon
Reduction Act, in consultation with the department of
environment.

F. An eligible entity shall apply for a
certification of eligibility on forms and in the manner
prescribed by the department. At a minimum, the application
shall include:

(1) eligible products for which the
certification is being sought;

(2) estimates of the carbon intensity of those
products and the carbon reductions that will be achieved for
each year of the certification;

(3) estimates of the volume of production by
ton for each eligible product each year;

(4) an estimate of the year when production of
each eligible product will begin; and

(5) any other information required by the
department or requested by the department of environment.

G. The department shall keep application periods
open for a minimum of four months. After the close of a given
application period, the department, in consultation with the
department of environment, shall select applications submitted
during that period to be awarded certifications of eligibility.

H. In awarding certifications of eligibility, the
department, in consultation with the department of environment,
shall prioritize applications that:

(1) represent projects with the highest
likelihood of success, including consideration of technical
feasibility and relevant financial details pertaining to the
eligible entity;

(2) are likely to minimize other environmental
pollution, including air and water pollution; and

(3) support favorable economic growth in New
Mexico, including growth of high-quality employment
opportunities for New Mexico residents.

I. The department shall issue certifications of
eligibility through December 31, 2036. The certifications
shall be issued for a term of not less than ten years unless an
applicant requests a shorter term. Certifications of
eligibility shall not extend beyond December 31, 2026.

J. In awarding certifications of eligibility, the
department shall state the aggregate incentive amount to which
the eligible entity is entitled over the term of the
certification of eligibility. In calculating the aggregate
amount for a certification of eligibility, the department shall
consider:

(1) estimates submitted by the eligible
entity;

(2) how best to allocate money in the fund;
and

(3) other criteria as determined by the
department in consultation with the department of environment.

K. The department shall not issue certifications of
eligibility in a total amount that exceeds the available money
in the fund.

L. An eligible entity that is claiming an incentive
for a given year shall report to the department:

(1) the total number of tons of the eligible
product produced in the given year; and

(2) the carbon intensity of the eligible
product, as an annual average for that year, and as determined
by the production processes used to produce the product in that
year.

M. The department of environment shall calculate
the net ton carbon intensity reduction available for the
incentive and calculate the value of the incentive, which shall
be paid at the end of the calendar year. The department of
environment shall reset the industry benchmark every five
years.

N. The department shall publish on the department's
website on a regular basis the:

(1) dollar value of the certifications of
eligibility issued each year;

(2) dollar value of each incentive granted in
each calendar year; and

(3) remaining capacity for the issuance of
certifications of eligibility.

SECTION 4.
[
NEW MATERIAL
] DEPARTMENT OF ENVIRONMENT--
RULEMAKING--DATA--INDUSTRY BENCHMARK CALCULATIONS.--

A. In addition to other rules required pursuant to
the Industrial Carbon Reduction Act, the department of
environment shall promulgate rules within twelve months of the
effective date of that act and methodologies for determining
carbon intensity of eligible products, which:

(1) shall include scope one emissions and
scope two emissions;

(2) shall be established in such a way that
allows for accurate and consistent comparison between industry
benchmarks and carbon intensity estimates provided by an
eligible entity applying for certification of eligibility or an
incentive;

(3) may include scope three emissions and use
environmental product declarations for eligible products if the
declarations are available and in common use in more accurately
measuring industry benchmarks for eligible products; and

(4) shall include procedures for determining:

(a) the carbon intensity of products
made at facilities that commenced operations prior to January
1, 2026;

(b) the carbon intensity of products
made at facilities that commence operations on or after January
1, 2026; and

(c) industry benchmarks.

B. Using the methodologies determined in accordance
with Subsection A of this section and data from the three to
five most recent years for which data are available, the
department of environment shall calculate the industry
benchmark for all eligible products within two years of the
effective date of the Industrial Carbon Reduction Act.

SECTION 5.
[
NEW MATERIAL
] DEPARTMENT--RULEMAKING.--In
addition to other rules required pursuant to the Industrial
Carbon Reduction Act, the department shall promulgate rules
within twelve months of the effective date of that act to
include:

A. all requirements necessary for an eligible
entity to submit a complete application; and

B. practices and procedures to ensure compliance by
eligible entities with statutory and rule requirements.

SECTION 6.
[
NEW MATERIAL
] CARBON REDUCTION INVESTMENT
GRANT PROGRAM.--

A. The "carbon reduction investment grant program"
is created in the department. The program provides grants to
eligible entities to offset capital investments in qualified
facilities located in New Mexico.

B. Prior to January 1, 2037, an eligible entity
that makes qualified expenditures for a new or renovated
qualified industrial facility may be eligible for a carbon
reduction investment grant from the department. The grant
shall be ten percent of the cost of qualified expenditures made
by the eligible entity, up to a maximum of five million dollars
($5,000,000).

C. The department, in consultation with the
department of environment, shall promulgate rules for a
competitive application process for the award of a carbon
reduction investment grant. The process shall include
application periods.

D. The department shall open the first application
period within eighteen months of the effective date of the
Industrial Carbon Reduction Act. The first application period
may apply to a limited subset of eligible products. The
department shall keep applications open for at least four
months.

E. An eligible entity that seeks a grant shall
include all information required by rule of the department,
including:

(1) estimates of the carbon intensity of the
eligible products manufactured or refined in the facility for
which a grant is being sought;

(2) estimates of the volume of production by
ton for each eligible product, with production estimates for at
least ten years from the beginning of the production made
possible by the qualified expenditure; and

(3) an estimate of the year in which the
qualified industrial facility will begin production of the
eligible product.

F. After the close of an application period, the
department, in consultation with the department of environment,
shall prioritize applications that:

(1) are estimated to achieve the greatest
carbon intensity reduction, as confirmed by the department of
environment;

(2) represent projects with the highest
likelihood of success, including consideration of technical
feasibility and relevant financial details pertaining to the
eligible entity;

(3) are likely to minimize other environmental
pollution, including air and water pollution; and

(4) support favorable economic growth in the
state, including growth of high-quality employment
opportunities for New Mexico residents.

G. The department shall publish on the department's
website on a regular basis:

(1) the dollar value of grants issued pursuant
to this section each year; and

(2) any remaining available grant funding.

H. The department shall include a clawback
provision in the department's contract with the eligible entity
that requires the eligible entity to repay the grant in the
event the eligible entity fails to meaningfully meet the
estimates set out in Subsection E of this section.

SECTION 7.
[
NEW MATERIAL
] ELIGIBILITY FOR INCENTIVE.--An
eligible entity shall not be eligible to claim the carbon
reduction production incentive if the eligible entity claims in
the same taxable year for the same equipment or activity a
federal carbon dioxide sequestration tax credit pursuant to
Section 45Q of the federal Internal Revenue Code of 1986, as
that section may be amended or renumbered.

SECTION 8.
[
NEW MATERIAL
] CARBON REDUCTION PRODUCTION AND
INVESTMENT FUND CREATED.--

A. The "carbon reduction production and investment
fund" is created as a nonreverting fund in the state treasury.
The fund consists of appropriations, transfers, distributions,
income from investment of the fund and gifts, grants and
donations. The fund shall be administered by the department,
and money in the fund is subject to appropriation by the
legislature to pay production incentives and investment grants.
Disbursements from the fund shall be made upon warrants drawn
by the secretary of finance and administration pursuant to
vouchers signed by the secretary of economic development or the
secretary's authorized representative. Money in the fund shall
revert to the general fund at the end of fiscal year 2046.

B. The department may provide that the fund
consists of two accounts, the carbon reduction production
incentive account and the carbon reduction investment grant
account. The department may transfer money between accounts to
pay current invoices and to increase or decrease the number of
incentives and grants being funded based on the number of
applications for each program.

SECTION 9.
[
NEW MATERIAL
] REPORTS TO LEGISLATURE.--

A. The department and the department of environment
shall prepare an annual report on the implementation of the
Industrial Carbon Reduction Act. The report shall include:

(1) the number and types of applications
received for each program;

(2) the number and total dollar value of
certifications of eligibility issued;

(3) total carbon intensity reductions achieved
by each program;

(4) economic impacts, including jobs created
or retained, by type and salary range;

(5) analysis of program effectiveness and
recommendations for improvements; and

(6) any other data or other information deemed
relevant by the department and the department of environment.

B. The report shall be submitted to the interim
legislative committee that studies economic development and
rural policy and the legislative finance committee by October 1
of each year, with a copy of the report filed with the
legislative library.

SECTION 10.
TRANSFER.--On July 1, 2026, fifty million
dollars ($50,000,000) is transferred from the general fund to
the carbon reduction production and investment fund.

SECTION 11.
EFFECTIVE DATE.--The effective date of the
provisions of this act is July 1, 2026.

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