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"Imperfect" transition solutions

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Feb 13, 2024
Oil and gas wells near Denver airport

Oil and gas wells on Denver International Airport property in 2018. Photo: Robert Alexander/Getty Images

States are paying close attention to the looming struggle to replace royalty and tax revenue as fossil fuels decline in the energy transition — even if Congress isn't doing so.

Why it matters: The experience of states like Colorado and New Mexico could be instructive for the feds.

  • We wrote last week about how the issue has gotten relatively little play on the Hill.

State of play: Colorado created a new Office of Just Transition in 2019 to help communities deal with coal closures, as the state's utilities move to end their use of the fuel source by the early 2030s.

  • And Monday, the New Mexico state Senate — with a multibillion-dollar budget surplus from oil and gas production — advanced a plan to set aside some money to keep up spending if the industry eventually fades.
  • "There's been a constant conversation" in New Mexico about how to deal with oil and gas revenues in the energy transition, Sen. Ben Ray Lujan told Axios. "This has been an ongoing issue when you look at ebb and flow associated with market conditions."

Zoom in: In Colorado, economic diversification is a major goal for former and soon-to-be-former coal communities, said Wade Buchanan, director of the Office of Just Transition.

  • Replacing a coal-fired power plant with another large employer is "kicking the can down the road," he said.
  • "That said, it's a very hard thing to have a really strongly diversified economy in small towns and in isolated rural areas," he told Axios. "It's going to be an imperfect solution, whatever you do."

Of note: There's a lot of money available for these communities right now because of what Buchanan called "Uncle BIL and Aunt IRA."

  • The Biden administration also created an interagency working group focused on revitalizing former fossil fuel and power plant communities.
  • But many small coal communities don't have capacity to get those federal dollars because the person applying for federal grants might also be "driving the snowplow and answering the phone at town hall," Buchanan said.

Between the lines: They also might struggle to take advantage of the IRA's lucrative tax credits.

  • Craig, Colorado, which is facing closures of its coal plant and mines over the next few years, is excluded from the Biden administration's map of areas that qualify for the IRA's energy community bonus incentive.
  • "For now, because of how they decided to determine it nationwide, that single community that is the poster child for the transition in Colorado doesn't qualify," Buchanan said. "It's an example of how it is very hard for the federal government to make this stuff fit appropriately."

There have also been efforts to stabilize revenues in GOP states that don't want to see fossil fuels go away.

  • North Dakota has a Legacy Fund, created more than a decade ago, to squirrel away oil and gas earnings to create a perpetual revenue stream.
  • "There's an argument to be made that even if oil and gas never went away, this is good policy because it's volatile.… This is not necessarily only a transition policy," said Mark Haggerty, senior fellow on energy and environment at the Center for American Progress.
  • Still, it's led to fierce debate in the state about a big pot of money that "only gets dribbled out a little bit at a time," Sen. Kevin Cramer told Axios.

The big picture: Beyond lost revenues, Buchanan says, the federal government needs a "uniform equitable approach to displaced energy workers."

  • If small economies dependent on coal, like Wyoming and West Virginia, are left alone on this, he said, "they're screwed. And those workers are screwed."
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