NM Research 2023

The 2nd Annual New Mexico Economics Research Day was August 18, 2023!

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At the University of New Mexico Department of Economics, our faculty and graduate students engage in impactful research and outreach for the state and people of New Mexico. See below for the Economics Research Day paper summaries. Click the titles to view the papers in their entirety.

PM_2.5 Pollution from Oil and Gas Activity in the Permian Basin: An Economic Analysis of its Human Health Impacts and Damages

Particulate matter that is less than 2.5 micrometers in diameter, known as PM_2.5, is among the most damaging air pollutants to human health. The peer-reviewed literature shows that exposure to PM_2.5 can lead to cardiovascular and respiratory diseases and premature mortality. Ongoing oil and gas (O&G) activity in the Permian Basin region of New Mexico and Texas is a known source of PM_2.5 pollution through emissions of precursor pollutants. Against this backdrop, there are clear challenges and opportunities for addressing the public health impacts and associated economic damages of PM_2.5 from the Permian Basin O&G sector, including opportunities to better understand the scale and scope of the PM_2.5 problem in this region.

In this white paper, we undertake a four-phase study of PM_2.5 pollution from O&G activity in the Permian Basin. Phase 1 undertakes a location-specific analysis of O&G emissions of PM_2.5 precursors (VOC, NO_X, SO₂, and primary PM_2.5), including an investigation of emissions trends over time. Phase 2 investigates spatial and temporal trends in total ambient PM_2.5 pollution concentrations in the Permian Basin region to provide context for how the O&G sector has affected pollution levels in the area. Phase 3 uses an attribution analysis to connect O&G precursor emissions to PM_2.5 concentrations, allowing us to identify the contribution of the O&G sector to PM_2.5 in the Permian Basin and in regions beyond. Finally, Phase 4 estimates the human health impacts and associated dollar-denominated damages of PM_2.5 attributable to Permian Basin O&G emissions.

Three key findings emerge:

1. Emissions from O&G activity contribute, on average, 27.5% of PM_2.5 concentrations in the Permian Basin, over 2011-2017. We find that VOC emissions from O&G activity are the largest source of PM_2.5 precursor emissions, primarily from oil well tanks.
2. In 2017, the most recent year of data available, we estimate that, nationwide, 638 premature deaths were associated with PM_2.5 from the Permian Basin O&G sector. The majority of these deaths occurred outside of the Permian Basin, indicating that O&G activity is impacting human health in both local and distant communities.
3. Nationwide, the total premature mortality damages of Permian Basin O&G-sourced PM_2.5 were $6.57 billion (in 2022 inflation-adjusted dollars) in 2017. We estimate that for each $1 in revenue generated from the sale of oil and gas in the Permian Basin in 2017, $0.11 in damages were created nationwide from premature mortality associated with PM_2.5 from O&G activity in the basin.

Given concerns about the PM_2.5 pollution impacts of O&G activity in the Permian Basin, this work provides a rigorous assessment of the magnitude and scale of the problem, for the first time. Considerations of the human health impacts and economic damages of PM_2.5, including the sources and types of emissions of primary concern, are important factors that should influence how the Permian Basin states of New Mexico and Texas approach regulations and policies aimed at mitigating the harms from O&G activity. We offer this white paper as evidence-based admissible information for ongoing air pollution policy discussions in the Permian Basin.

Faculty Involved:Andrew Goodkind, Benjamin Jones

Graduate Student(s):Casey Leek

Tolerance of the Side Effects? Hedonic Pricing Analysis of Housing in the Permian Basin

While oil was first discovered in the Permian Basin in the early 1920s, the most recent production boom began in 2010. Lasting now more than a dozen years, the boom has been driven by changes in production technology that allowed producers to apply unconventional oil and gas (UO&G) technology (horizontal drilling and hydraulic fracturing) with the layered geology of the Permian Basin. In relative terms, the boom in the Permian, composed of parts of New Mexico (NM) and Texas (TX), represents one of the most cost-effective and productive oil fields in the world. The boom has generated significant in-migration, employment, earnings, and tax revenues. Currently, the oil and gas (O&G) industry constitutes an estimated 8 percent of U.S. GDP. Driven significantly by the Permian, within TX and NM this translates to 22.3 and 19.7 percent, respectively, of state GDP. NM is highly reliant on the industry as it contributes 35 percent of the state budget.

Played out over time, the policy context of a boom centers on balancing the benefits of increased earnings, employment, and public revenues against the environmental damages from UO&G development, and whether there is any localized “resource curse” attached to future economic development in the extractive region. As part of that larger context and given that housing markets aggregate and monetize the preferences of buyers and sellers, as well as capitalize present values, changes in housing prices due to UO&G development are important reflections of the community perceptions of these tradeoffs in benefits and damages.

The objective of this analysis is to examine whether and to what degree some of the effects of the boom, such as well drilling and associated environmental effects, are being capitalized into the regional housing market. To econometrically isolate such effects on housing values, while controlling for other factors, the hedonic pricing method (HPM) is employed. A sample of more than 6,000 individual residential properties are collected for a nine-month period in 2022-2023, drawn from both the 55 counties of the Permian, and a set of 18 control counties in eastern NM and western TX. Since both are sales price non-disclosure states, houses listed for sale on Zillow are webscraped to obtain estimated price and structural housing characteristics (e.g., bedrooms, bathrooms). Each residential property is geolocated and paired with location attributes (e.g., population density, public water availability, unemployment rates) from the Census Bureau and other governmental data sources. Spatial data is collected on environmental effects (air quality, and earthquakes) connected to the boom in unconventional (UO&G) development. This includes unique modeling results (Goodkind et al., 2023), to isolate both PM2.5 air quality emissions, as well as the increment attributable to O&G production. Spatially detailed data on more than 220,000 (active) wells is obtained from both NM and TX and used to generate well count density measures for various buffers around each house. Lastly, the analysis is unique in treating the region wholistically (both NM and TX) with a carefully selected set of control counties.

From this initial analysis, key econometric findings from estimated hedonic price functions are:

• While there has been significant in-migration and positive earnings effects over the last decade in the Permian, with related housing market pressures, the list price for sampled homes in the Permian is estimated to be 22-24 percent less on average than in control counties.
• Manufactured homes represent about 5 percent of both sets of samples and are a significant negative determinant reducing house value by roughly 27-29 percent; but this reduction is about 45 percent in the control counties versus only 22 percent less in the Permian.
• While distance to a major highway or arterial is a statistically significant positive determinant of house value in control counties, it has no significant effect in the Permian.
• With respect to potential negative externalities on listed prices, results demonstrate that effects are either greatly reduced inside the Permian, relative to the control counties, or have no significant effect. The latter case includes count measures of earthquakes.
• Evidence of how the Permian region may be tolerating the side effects of the UO&G boom is seen in well density results. Overall sample results with a Permian indictor variable show that increased well density within 2 km has a negative effect on listed price, but greatly muted inside the Permian. For the control counties with an average of less than one well near each house, the negative effective is -0.82 percent for an additional well (marginal implicit price of -$2,951 evaluated at median price in sub-sample). In contrast, for the Permian counties with an average of about 15 wells near each house, the estimated effect of well density on the listed price is -0.12 percent for an additional well (marginal implicit price of -$293 evaluated at the median price for the sub-sample). Even further, when modeling the Permian counties sub-sample separately, results cannot reject the null hypothesis that well density has no effect on listed price.
• Using recent regional research (Goodkind et al., 2023) allows the unique ability to isolate the change in a critical air pollutant attributable to O&G. General source air pollution emissions (PM2.5) are found to be a statistically significant negative amenity for housing values in the Permian, with modest marginal effect. [The area is within attainment status for federal air quality standards for PM2.5.] However, the change in air pollution (𝛥PM2.5) specifically attributable to O&G production in the Permian is not shown to be a statistically significant determinant of housing values in the Permian.
• Controlling for homes within a public water service boundary (i.e., likely to be on piped water), results show this indicator variable to always be a significant positive determinant of listed price (e.g., 4.5-5 percent higher in the full sample, but roughly 3 percent in Permian counties versus 7 percent in control counties). Further results show that density of injection and disposal wells – of particular concern for water pollution risks with UO&G – is not a significant externality when controlling for whether a house is within an area with piped water (roughly 85 percent in either sample).

Econometric results investigating the residential housing market in the Permian are consistent with the argument that a region with significant prior exposure to conventional O&G development, and now highly dependent on UO&G production, may exhibit a tolerance of the side effects. The paper closes with a discussion of policy implications - e.g., public data availability (including housing sales price disclosure), environmental monitoring, legacy environmental costs, risks of a localized resource curse, and potential mitigation measures.

Faculty Involved:Robert Berrens, Andrew Goodkind

Graduate Student(s): Erin Cohen, Casey Leek

Economic Viability of Bioenergy Production on Large Dairy Farms: An Assessment for New Mexico

This comprehensive report focuses on the innovative use of animal manure as a potential source of bioenergy, thereby addressing two major challenges facing large-scale dairy farms in New Mexico: manure management and greenhouse gas emissions. Large dairy farms in the state produce significant amounts of manure which can not only create logistical difficulties for livestock producers but also cause local-level environmental pollution and greenhouse gas emissions. Alternative manure management strategies therefore make an economic as well as environmental sense.

New Mexico has ranked number one in the country in the average stocking density of large dairy farms (i.e., dairy farms with 500 or more cows) since 2002 (Joshi & Wang, 2018; USDA, 2019). Dairy is the state’s most important agricultural industry with the largest cash earnings. The dairy sector provides direct jobs to  6,909 people and contributes 6.7% of the state's gross domestic product, with an indirect economic impact of $4.2 billion and a direct economic impact of $2.2 billion (Hagevoort, 2023; IDFA, 2021). Most of the large dairy farms in New Mexico are in five southeastern counties: Curry, Roosevelt, Chaves, Dona Ana, and Lea. These counties house roughly 90 percent of the state’s 326,946 dairy cows (USDA, 2019). The number of milk cows has lately grown by 6 percent from 2012 to 2017, while the number of dairy farm operations fell by 5 percent, which speaks toward a trend of dairy farm consolidation (USDA, 2019). Large dairy farms now account for more than 99 percent of the statewide dairy cow inventory and hold a corresponding percentage of the dairy products market (USDA, 2019).

This report evaluates the bioenergy potential of these large dairy farms in New Mexico and assesses the viability of two alternative technologies (whether producing electricity or gas from manure) under four different scenarios (whether considering co-products and/or environmental credits). The assessed manure management system encompasses an Anaerobic Digestion (AD) unit for raw biogas production, Combined Heat and Power (CHP) unit for electricity generation, Compressed Natural Gas (CNG) unit for gas refinement, fiber separation unit, and nutrient separation unit. Through comparative analysis, this report establishes that AD systems that produce electricity and valuable co-products like fiber and nutrients, and that also benefit from environmental credits, exhibit the highest profitability. The study further delves into the socio-economic aspects, analyzing the net social benefits of the AD system, which sometimes surpass the private benefits. Policymakers can play a vital role in encouraging the adoption of AD systems by providing financial incentives like tax breaks, subsidies, low-interest loans, and grants. However, the onus is not just on the government; altering the perception of AD systems from burdensome investments to profitable ventures is critical for their broader acceptance. As the report concludes, the success of any AD system hinges on the existence of a robust market for its co-products.

The key findings of this study are:

• The most optimal configuration for an Anaerobic Digestion (AD) system in New Mexican dairy farms was identified as the Combined Heat and Power (CHP) system with fiber and nutrient separation, offering significant financial and environmental benefits. The marginal NPV for an average farm with 3,187 cows is $5,077 per cow, showing a promising gross margin of around 48%.
• Revenue from Renewable Energy Certificates (RECs) and nutrient separation were found to contribute the most to overall revenue, 43.68% and 31.31% respectively. This insight emphasizes the importance of maintaining all revenue streams for portfolio diversification and risk management, even those contributing less.
• AD systems bring substantial external benefits including greenhouse gas emission savings and health benefits from reduced pollution. The marginal external benefits ranged from $6,171 to $21,978 per cow, suggesting the positive externality of AD systems may not be captured fully by private benefits alone.
• The study challenged the perception of AD systems as regulatory burdens, proposing instead that in some cases, AD systems can generate higher revenues than the dairy system itself.
• The potential implementation of the Low Carbon Fuel Standard (LCFS) in New Mexico, which would not only align with the state's climate goals but could also provide farmers with additional revenue and societal health benefits, is a significant finding. The feasibility of this requires further investigation, particularly given the challenges associated with applying LCFS to CNG generated in the state.

In conclusion, our comprehensive assessment reveals a promising potential for the implementation of Anaerobic Digestion (AD) systems in New Mexican dairy farms, with the Combined Heat and Power (CHP) system with fiber and nutrient separation emerging as the most optimal configuration. Such systems not only offer substantial financial benefits with significant returns on investment but also contribute meaningful environmental benefits through greenhouse gas emission savings and reduced pollution. Importantly, our study reframes the perception of AD systems as burdensome regulatory obligations, suggesting instead they can be a lucrative revenue source, often exceeding the profits from the dairy operations themselves. Finally, we identify the potential for the implementation of the Low Carbon Fuel Standard (LCFS) in New Mexico. Though not without its challenges, its introduction could further enhance the revenue for farmers, aid in achieving the state's climate goals, and bring broader societal health benefits. Future research could focus on the further optimization of AD systems' locations and configurations, ultimately leading to a more sustainable and profitable dairy industry in New Mexico.

Faculty Involved:Jingjing Wang

Graduate Student(s): Suraj Ghimire (PhD, UNM 2023)

New Mexico Prekindergarten And its Medium-term Association With County Level Math and Reading Proficiency Rates

Preliminary data. Please contact Kira Villa for further information.

A wide body of evidence demonstrates that participation in quality preschool improves short- and long-term well-being across a range of educational, labor, and socioeconomic outcomes. In response, New Mexico initiated its own state-supported half-day prekindergarten program in 2005. Since then, the state has dramatically expanded this program and now offers extended-day programs as well as early prekindergarten for 3-year-olds. Consequently, the state is now one of the nation’s leaders in preschool access ranking 10^th in the nation in state support for preschool and 13^th and 11^th in 4- and 3-year-old access to preschool.

The paper is part of a larger project evaluating the association between New Mexico’s early childhood programs and county-level economic, educational, and child well-being. In this paper we examine the association between state prekindergarten support and county-level proficiency rates in math and reading for 3^rd and 4^th graders. We find that increasing county-level prekindergarten funding by $1 per capita is correlated with an increase in 3^rd grade math and reading proficiency rates by approximately 0.72 and 1.18 percentage points, on average, respectively. This county-level association is similar across males and females for reading. The correlation between prekindergarten support and math proficiency rates may be stronger for females than it is for males. We further look at whether this correlation changes depending on the demographic make-up of the county. We find a stronger association between prekindergarten support and 3^rd grade proficiency rates in counties with larger populations of Hispanic and African Americans.

Evidence from the National Institute for Early Education Research (NIEER) and the New Mexico Legislative Finance Committee (LFC) demonstrate that New Mexico’s prekindergarten program is associated with improved school readiness and 3^rd grade test scores at the child-level—i.e., children who participate in state prekindergarten perform better in school, on average.

This project contributes to the evidence provided by NIEER and LFC by examining the correlation between prekindergarten investment and student outcomes at the county-level. Evaluations at the individual level may underestimate the true value of this program. It is plausible that prekindergarten hold multiplicative benefits to the community. For example, an individual child’s participation in prekindergarten may not only improve their own later school outcomes, but may also improve the outcomes of their peers because that child may be more school ready, need less individual attention from their teacher, be a better classroom citizen, etc. Therefore, the educational benefits estimated at the community levels is encouraging from a policy perspective as it suggests that this program likely serves the interests of the state as a whole and not just individual beneficiaries.

Faculty Involved:Kira Villa

Graduate Student(s): Abhradeep Karmakar (PhD, UNM 2023), Silas Wyatt

The Impact of Alcohol Taxes and Liquor Licenses in New Mexico

Alcohol is a complex good with both economic benefits and considerable societal costs. Moderate alcohol consumption has been found to have some health benefits, but heavy alcohol consumption is associated with a number of health and societal harms. This is particularly acute in New Mexico, which leads the nation in alcohol related harm per capita. Alcohol is a heavily regulated good, with many laws and policies implemented with the goal of reducing alcohol related harms. Market-based mechanisms can also be used to reduce alcohol-related harms, including liquor licenses and alcohol taxes. The New Mexico Legislature has recently considered changes to both New Mexico liquor license and alcohol tax policies, but the effects of these changes are not well understood.

In this report we study alcohol policy with particular emphasis on alcohol taxes and liquor licenses. First, we review the existing literature on the relative effectiveness of different alcohol policies. Second, we evaluate the impact that an increase in alcohol taxes would have in New Mexico on both alcohol consumption and tax revenue. Third, we conduct an analysis of how effective beer taxes can be in reducing alcohol-related fatalities. Fourth, we collect novel geospatial liquor license data and examine the impact of changes in limits on the numbers, locations, and kinds of licenses have had in New Mexico.

We find that:

• In addition to the relationship between alcohol and traffic fatalities, alcohol has a close association with crime, domestic violence, and reduced work performance.
• The proposed 25-cent per-drink alcohol tax could reduce alcohol use by up to 1.77% and increase tax revenue by $132 million. In terms of fiscal and social impacts, the per-drink tax is no different from an equivalent increase in alcohol excise tax.
• A hypothetical ten-cent per-gallon increase in beer excise taxes could reduce 84 alcohol-related traffic fatalities in New Mexico each year.
• Despite recent increases in the total number of liquor licenses, there has not been a statistically significant increase in alcohol-related traffic fatalities at the state-wide level.
• Migration of liquor licenses within the state has not had a statistically significant effect on alcohol-related fatalities at the local level.

Faculty Involved:David S. Dixon, Brady P. Horn

Graduate Student(s): Ana Paula Milan Hinostroza

Undergraduate Student(s): Taran Cooley

Home Cultivation in New Mexico

In early April 2021, cannabis consumption for adults 21 and older became legal in New Mexico in April 2021. Home cultivation of up to 6 plants per person and 12 plants per household followed on June 29, 2021. The implications for residential water use were unknown due to a lack of information on the prevalence of home cultivation and the water requirements of growers. In April 2022, the first adult-use dispensaries opened in New Mexico, offering a possible alternative to home-cultivated and illegal cannabis sources, with associated effects on residential water sue.

This project studied the effects of legalization of home cultivation on water use in two phases. Phase 1 of this project was completed between September 2021 and August 2022 and used data from the Santa Fe Water Division of the Santa Fe Public Utilities Department and from a small pilot survey on home cultivation experience and preferences. Phase 2 of the study was completed between September 2022 and July 2023 and collected and used data from a much larger survey of New Mexicans. These data were used to update the analyses from Phase 1 and to create an undergraduate research project for use in introductory microeconomics courses at the University of New Mexico (UNM).

Results from analyses of the water utility data indicated an average monthly increase in water use of 36 gallons per household or 1.27 million gallons overall following legalization of home cultivation. Significant variation in the predicted effects existed across households and increased water use was concentrated in Fall 2021 and April 2022. The analyses also show a substantial increase in water use, presumably from COVID, in 2020. Limiting the conclusions of this study, it is possible that COVID-related increases in water use continued to a more limited degree in 2021 and could be confounding estimates of the effects of home cultivation using the water utility data.

The Phase 1 pilot survey fielded generated 27 responses, disproportionately from experienced growers. Key takeaways included a preference for indoor growing, use of public utility water, and that home-cultivated cannabis can readily compete with dispensary-sourced cannabis on quality and cost.

The Phase 2 survey used target sampling quotas based on New Mexico demographic data from the U.S. Census and generated 532 responses, with the goal of better capturing New Mexican preferences for home cultivation and home cultivation practices than was possible with only 27 responses. Survey results show again that dispensary-sourced cannabis and home-cultivated cannabis are substitutes for many cannabis users. Whether dispensary-sourced or home-cultivated cannabis offer greater societal benefits is not clear, because, while home-cultivated cannabis likely lies in the middle of the quality range of cannabis products available, it generates fewer tax and economic activity benefits than dispensary-sourced cannabis.

Policy recommendations related to water use include educating growers on low-water growing methods, i.e., indoor growing and rainwater collection, and evaluating relative water use between commercial and residential growers. Survey responses suggest that the legality of home cultivation is an important quality check on the profit-motivated commercial market, implying that promoting both types of cannabis production best serves the public interest from a product safety standpoint. More general recommendations include identifying the limitations of current testing requirements for ensuring quality and tracking and publicly sharing the dispensary price and quantity data necessary to understand New Mexico’s cannabis market.

Faculty Involved:  Sarah Stith, Janie Chermak, Cristina Reiser

Graduate Student(s):Swarup Paudel

Compilation of New Mexico-Centric Economics Research by UNM Faculty, 2012-2023