A Democratic Senator introduced a bill on Thursday designed to give states financial support to compensate for the losses oil and gas states will incur as a result of the energy transition.

The funds, the new bill proposes, will provide federal support to the states that heavily rely on oil and gas revenues to fill budget gaps as oil and gas production would theoretically decline.

The act, referred to as The Schools and State Budgets Certainty Act, was proposed by Democratic Senator Martin Heinrich of New Mexico and will offer what it calls “energy transition payments” to those oil and gas-centric states that count on federal mineral leasing.

The funds, according to the act, would give those states time to come up with new industries.

“The global energy landscape is undergoing a massive transformation, and states like New Mexico need to be ready,” Heinrich said.

That it was a Senator from New Mexico who proposed such a bill is no surprise. New Mexico counts on revenues from oil and gas drilling on federal lands make up 10% of the state’s budget funds.

The act would start out at a specific baseline payment for the states affected and then taper down 5% each year. The federal government would pay states or counties the difference between the actual revenue from the industry versus that baseline, according to Reuters.

New Mexico took in $707 million from drilling on federal lands last year.

So far, the federal policies to pause oil and gas leasing permits on federal lands have hit New Mexico hard, and analysts have predicted that oil and gas drilling may shift more to the Texas side of the Permian and away from the New Mexico side because most of the Permian drilling on the New Mexico side is on federal lands.

The bill would not, however, compensate states for lost tax revenues from oil and gas drilling that is not on federal land.

By Julianne Geiger for Oilprice.com

More Top Reads From Oilprice.com:

• Related Video: COVID Threatens Oil Sands Supply from Canada
• Is The Global Oil Industry Relying Too Much On China?
  
• Big Oil Eyes Wave Of Buybacks After Blowout Earnings