Roughly 15 years after derricks at the Spindletop oil field first rained black gold in southeast Texas at the turn of the 20th century, a different spigot began flowing: a fire hose of taxpayer dollars into the coffers of oil companies.
Since 1916, when the federal government first allowed firms that extracted natural resources to immediately deduct related costs — including construction, wages, drilling, fuel and other expenses — oil and gas companies have benefited from hundreds of billions of dollars in federal subsidies entrenched in our tax code. States such as Texas duplicate those efforts with generous oil and gas subsidies of their own, reasoning that doing so enhances job creation and economic development. Only in the 21st century did federal support for renewable energy sources such as wind and solar begin to keep pace with oil, gas, and coal. Congress was motivated in part by a global awakening that carbon emissions from fossil fuels directly contribute to climate change.
Somewhere along the way, the notion of special treatment emerged. Critics began to claim that renewables — those darlings of the Left — were being showered with unfair government advantages that skewed the energy playing field and made it harder for oil and gas to compete. That thinking recently led Gov. Greg Abbott to suggest that Texas should exclude renewable energy projects from the newest version of the popular “Chapter 313” tax break program.
We actually think the government has a right, even a duty, to encourage industries that can save our warming earth from Armageddon. We also think it’s important to lay out the facts and set the record straight on the idea that wind and solar have an unfair advantage.
It’s just not that simple. Calculating federal subsidies is something of an inexact science, particularly when factoring indirect subsidies, such as the discounted cost of leasing federal lands for drilling, or foregone consumption taxes, to say nothing of the environmental and public health costs from carbon pollution that companies usually don’t pay.
Abbott is correct that renewables get substantial federal help. One study from the conservative- leaning think tank Texas Public Policy Foundation found that from 2010-2019, wind and solar received $71 billion in federal subsidies compared with $38 billion for oil and gas. Congress’ recent passage of the Inflation Reduction Act, which has even more generous tax credits, will further tilt the balance of federal subsidies toward renewables. As Energy Secretary Jennifer Granholm told us recently, the new law will make investing in clean energy “irresistible,” even for Big Oil companies.
Of course, Texas helps make up for that subsidy imbalance: A University of Texas Energy Institute study from 2018 — the most recent analysis of its kind — found that the state doled out roughly $1.8 billion in direct subsidies for oil and gas compared with $1 billion for wind and only $19 million for solar between 2010-2019. Even if you consider the $976 million subsidy provided to build transmission lines to deliver wind power from West Texas to big cities, just one subsidy cutting taxes on gas wells that are hard to develop costs Texas taxpayers $1 billion.
Another problem with Abbott’s desire to kick renewables out of the revamped 313 program? It would basically require Texas to cut off its nose to spite of its face. Robust federal support over the next decade creates even more opportunity for Texas’ energy industry to grow, create more jobs, and produce more clean energy. Why would Texas’ energy producers not want a slice of that pie?
Federal subsidies aren’t just “corporate welfare,” as critics describe them. They’re seed money for investment in a state that wants to maintain its dominance in wind and solar. This is a state that’s evolved past binary categories of dirty and clean energy. Today, traditional fossil fuel companies are in the renewables game, too.
Case in point: Through the old Chapter 313, Texas attracted more than $60 billion worth of new renewable energy investments, and, in the last flood of applications, more than half of the proposals filed for wind and solar projects came from companies more known for oil and gas, according to analysis from the University of Texas’ UT’s Nate Jensen and Isabella Steinhauer.
Sidelining renewables is a remarkable and unfortunate pivot from Abbott, who just a year ago during his re-election campaign was touting Texas’ “all of the above” energy policy, where wind turbines and solar panels can co-exist alongside oil and gas wells. Having that menu of options is why Texas already leads the nation in both oil and natural gas production as well as total wind and solar generation.
Yet despite lapping the competition, Texas’ subsidies remain on the books. That’s what made the state Legislature’s decision to let the Chapter 313 tax break expire in December so extraordinary. The $10.8 billion taxpayer-funded program offered a decade’s worth of deep discounts to some of the world’s largest corporations on school property taxes for energy and manufacturing projects but the program lacked the safeguards to ensure that incentives were actually needed or that companies actually created the jobs and economic benefits they promised.
As it turned out, rumors of Chapter 313’s demise were greatly exaggerated. The program has been re-introduced in a new bill, House Bill 5, sponsored by Rep. Todd Hunter, R-Corpus Christi, with several Democratic co-sponsors, including Houston’s own Ann Johnson. This bill as written is a mere shell, which doesn’t give us confidence that it will address the original program’s deficiencies. It doesn’t limit the length of tax breaks, doesn’t include job creation requirements, and doesn’t specify that companies must be considering sites outside of Texas in order to qualify. It appears to be purposefully vague by design, allowing lawmakers to negotiate the fine print behind the scenes.
So what does the bill do at this point? Strip out one of the few aspects that was, by any measure, successful: new and expanded investments in wind and solar energy. Lawmakers who would vote to exclude renewables shouldn’t delude themselves that they’re merely avoiding picking winners and losers in a free market. Whether they vote to include or exclude wind and solar, their thumbs on the scale weigh the same.
They’re still influencing the market at a time when our fossil fuel consumption will contribute to the world passing a dangerous temperature threshold within the next 10 years. Disadvantaging renewable energy isn’t just bad economic policy, it’s remarkably short-sighted considering wind and solar combined make up nearly one-third of our energy consumption.
Rep. Johnson, one of the bill’s co-sponsors, told the board that negotiations are ongoing and excluding renewable energy would not win her final support. We hope her colleagues are similarly committed to advancing a bill that balances the interest of businesses and schools, while also continuing to diversify the state economy.
