Axios Pro Exclusive Content

Energy transition alarm bells

Feb 7, 2024
Pumpjacks in New Mexico

Pumpjacks outside Artesia, N.M. Photo: Bonnie Jo Mount/The Washington Post via Getty Images

Fossil fuel communities stand to lose billions in tax and royalty revenue in the energy transition — an issue Congress has barely started to address.

Why it matters: The decline of coal has already had huge impacts on employment and tax bases in localities around the country. Some lawmakers want to address that — and ensure that oil and gas communities avoid a similar fate.

  • "We're trying to figure out how to get people talking about this transition more," Sen. Martin Heinrich told Axios. "It's a disservice not to have this conversation, because this is going to have a lot of impacts on people's lives."

By the numbers: New Mexico gets roughly 40% of its revenue, including taxes and federal royalties, from oil and gas production.

  • Elsewhere, some counties derive more than 90% of their property tax revenue from oil, gas or coal, according to a recent report from Resources for the Future.
  • "If there is going to be a rapid transition to net zero, there is going to need to be financial transfers from the federal government to states and localities" if they want to maintain their level of services for schools, roads and safety, said Daniel Raimi, the report's author.

Flashback: After the decline of the timber industry, Congress did just that via the 2000 Secure Rural Schools Program, which funds former timber communities' roads as well as schools.

  • But it was repeatedly renewed — and lapsed at times — as those communities struggled to attract new development.
  • "Replicating something like Secure Rural Schools, I think, is a bad idea," said Mark Haggerty, senior fellow on energy and environment at the Center for American Progress.

Between the lines: A lot of money is on the table from the IRA and infrastructure law for advanced manufacturing and renewables projects in these communities.

  • But experts say those kinds of projects are unlikely to fully replace revenue lost from fossil fuels.
  • The IRA includes a bonus tax credit for renewables projects that go into an "energy community," but the Biden administration's guidance made huge swaths of the country eligible for the incentive.
  • "That makes me skeptical that provision is going to be very effective in steering a disproportionate amount of investment to the most fossil-dependent communities," Raimi said.

What we're watching: Heinrich introduced a bill in 2021 that would create "energy transition payments" to help states and localities make up for lost royalty revenue.

  • Henirich said he's not sure when he'll reintroduce it because he wants to find the best way to "force this conversation."
  • Sen. Michael Bennet also has a proposal to create a federally chartered nonprofit to send support to transitioning communities. His office said he's seeking a Republican cosponsor.

The other side: To Sen. Bill Cassidy, "the impending death of natural gas and oil is greatly exaggerated."

  • "Now, should they diversify?" he told Axios. "Every economy should diversify a little bit."
  • Sen. Kevin Cramer acknowledged that "there's going to have to be a replacement" for these revenues — but said it's an argument against climate policies that force a quick transition.

Our thought bubble: Even if oil and gas production were to go on forever, the industry's ebbs and flows create some uncertainty for states and communities reliant on it.

  • Congress won't act this year, but the fate of the timber and coal industries should set off alarm bells.
Go deeper