Representative John Block (R-Otero County) introduced House Bill 45, the Renewable Energy Production Tax Act, in the ongoing legislative session. While framed as a targeted measure to impose a tax on renewable energy production, the bill raises essential questions about its compatibility with the principles of limited government and fiscal conservatism. Upon close examination, the Southwest Public Policy Institute (SPPI) finds compelling reasons to oppose this legislation.
House Bill 45 proposes a new excise tax of 3.75% on the taxable value of each megawatt-hour of electricity generated from renewable energy resources, which include solar, wind, hydropower, geothermal, and biomass. The taxable value is defined as the wholesale value of the electricity, as determined by the United States Energy Information Administration for the southwest regional market.
The revenue from this tax would be directed to the Severance Tax Permanent Fund, a state-managed fund that supports long-term government investments and programs.
The bill provides exemptions for electricity produced by:
- The United States government and its agencies.
- The state of New Mexico and its political subdivisions.
- Sovereign tribal governments.
- Foreign nations, where a treaty with the United States requires exemption.
- Personal consumption by producers provided that excess production does not exceed 500 kilowatt-hours in a 24-hour period.
The bill’s provisions are set to take effect on January 1, 2026.
A Tax Increase by Any Other Name
Despite its targeted nature, HB 45 is ultimately a tax increase, a move that runs counter to the foundational principles of conservative governance. True fiscal conservatism calls for reducing the tax burden on individuals and businesses, not increasing it. Tax hikes, even those aimed at specific industries, create distortions in the market and reduce economic efficiency.
Representative Block’s proposal appears to be driven by skepticism toward renewable energy, a sentiment shared by many who question the sustainability of government-subsidized clean energy initiatives. However, penalizing renewable energy producers through new taxes is not the answer. Instead, policymakers should focus on eliminating subsidies and leveling the playing field for all energy producers, ensuring a truly competitive market without additional government interference.
Market Distortion and Economic Consequences
By imposing an excise tax on renewable energy production, HB 45 risks distorting the energy market. Rather than encouraging innovation and competition, it selectively penalizes clean energy producers, potentially discouraging investment in a growing sector of the economy.
Moreover, the economic burden of this tax is likely to fall on consumers as producers pass on the increased costs through higher electricity prices. New Mexico families and businesses, already facing rising living costs, would see their utility bills increase, reducing disposable income and hampering economic growth.
Inconsistent with Conservative Principles
A key tenet of conservatism is opposition to tax increases. Despite political perspectives on renewable energy, supporting HB 45 represents a departure from conservative orthodoxy, which emphasizes reducing government revenue dependency and fostering a free-market economy.
SPPI maintains that conservative policymakers should be consistent in their opposition to tax hikes. Selectively imposing taxes on industries based on ideological biases sets a dangerous precedent and undermines efforts to create a stable, predictable business environment.
Public Sentiment
Public sentiment in New Mexico overwhelmingly favors affordable and reliable energy over mandates and policies prioritizing renewable energy at any cost. A 2022 Southwest Public Policy Institute poll found that 7 in 10 New Mexicans prefer affordable and reliable energy over green energy initiatives. The survey, which gathered responses from more than 3,000 New Mexicans, underscores a critical point: energy policies should prioritize reliability and cost-effectiveness to meet the needs of the public.
Less than 4 in 10 respondents strongly agreed that it is essential for utility providers to derive electricity from wind and solar. This finding reflects growing concerns about transitioning to renewable energy without compromising grid stability. Many New Mexicans are worried about blackouts and rising energy costs resulting from aggressive renewable energy mandates under the Energy Transition Act (ETA), which aims for zero carbon emissions by 2045.
Solar’s Shortcomings: Lessons from SPPI’s Study
SPPI’s 2022 report, “A Bright, Shining Disappointment – Solar Photovoltaic’s Failure in the Southwest,” provides critical insights into the limitations of renewable energy, particularly solar power, in New Mexico. Despite significant government subsidies and a region with abundant sunshine, solar energy has failed to deliver the promised reliability and affordability.
According to the report, utility-scale solar photovoltaics accounted for just 6.43% of the region’s total electricity generation in 2021. Even in states with high solar potential, such as Arizona and Texas, the share remained around 5%. The report attributes this underperformance to several key factors:
- Intermittency and Low Energy Density: Solar power is inherently unreliable due to its dependence on weather conditions and daylight hours. Without costly storage solutions, it cannot consistently meet demand.
- Environmental and Community Concerns: Large-scale solar installations often face opposition from local communities over land use, wildlife disruption, and aesthetic impact.
- High Costs Despite Subsidies: Even with generous tax credits and mandates, solar remains costly compared to traditional energy sources like natural gas.
SPPI’s studies underscore the importance of maintaining a diverse energy portfolio. The failure of solar to provide a substantial share of reliable energy highlights the risks of over-reliance on any single energy source. Imposing additional taxes on renewable energy, as proposed in HB 45, would only exacerbate these challenges by discouraging investment in a balanced mix of energy technologies.
A Better Path Forward
Rather than imposing new taxes, SPPI advocates for:
- Eliminating subsidies and special regulatory treatment for all forms of energy production.
- Encouraging competition by reducing barriers to entry in the energy market.
- Reforming government spending to reduce reliance on increased tax revenue.
This approach would achieve a fair and competitive energy market without punitive taxation.
House Bill 45 ultimately represents a tax increase that contradicts conservative principles and risks economic harm to New Mexico residents. The Southwest Public Policy Institute calls on legislators to reject HB 45 instead of pursuing policies that promote market competition, fiscal responsibility, and limited government.
SPPI remains committed to advocating for sound public policy solutions that improve the quality of life in New Mexico and beyond. House Bill 45, as currently written, does not meet that standard.