The energy industry has been good to Texas ever since oil gushed from Spindletop in 1901—and Texas has been good to the world. Blessed with an abundance of hydrocarbons, we prospered mightily, created millions of good jobs, and helped the Allies win World War II. Our technical know-how, risk-taking spirit, and vast resources have sparked innovations that have spread across the globe and bankrolled many of the institutions—universities, museums, public parks—that enrich our public life. In an era when carbon emissions didn’t matter, Texas was king of the energy world.
But climate change threatens to knock us off the throne. Scientists have reached a consensus about the need to quickly reduce our greenhouse gas emissions in order to slow Earth’s warming. Texas’s historic energy production over the past century—and our ability to manufacture products like chemicals and refined fuels that the rest of the world wants—came at a price. And today the bill for decades of spewing greenhouse gases into the atmosphere has come due. We can see the costs near (record-breaking rainfall during Hurricane Harvey, killer heat waves and droughts, an increasing number of climate refugees from places like Central America) and far (melting polar ice, dying coral reefs). Neither the world nor Texas can continue to do business the way we always have.
Texas is, by far, the nation’s largest polluter. We emit nearly twice as much carbon dioxide as the country’s second-highest polluter, California, even though the Golden State’s population is 40 percent greater. If we were a country, we would be the seventh-largest CO2 emitter in the world: just below manufacturing-intensive Germany, and higher than Canada and Australia. Our post-WWII economy was built upon polluting industries, so at first blush people worry that reducing emissions will hobble the economy. But that worry is misplaced.
The good news is that Texas doesn’t have to choose between environmental sustainability and economic prosperity. Our economy is much more diversified than it was decades ago. As the world shifts to less-carbon-intensive forms of energy, Texas can lead the way. We can deploy our vast expanses of open land—buffeted by wind, bathed in sunshine, and saturated with natural gas—to help the world end its addiction to coal and transition to a low-carbon future. There’s a new kind of boom already underway in Texas, and it could define us as profoundly as Spindletop.
The bad news is that much of our political leadership stubbornly insists that the best path to sustain our energy sector is to deny the perils of climate change, subsidize coal, and abandon the policies that the federal government has frequently used to speed up innovation. But such politicians are behind the times. The Texas energy sector has evolved into something far different than its caricature. It’s more complex, more diverse, and better prepared for the future than policymakers and lobbyists care to admit.
After decades of foot-dragging and delay tactics that postponed action on climate change, name-brand multinational energy companies such as Shell and ExxonMobil have broken with independent oil companies to call for policies to curb greenhouse gas emissions, including a carbon tax and the regulation of methane emissions.
Riding the latest trends and harnessing our outsized ability to produce energy and deploy technologies at scale, Texas can maintain its leadership position. We just need policymakers to help, not hinder, our low-carbon future.
From 2007 to 2017, the United States reduced CO2 emissions by 14 percent. The reductions are not nearly enough, but we’re at least moving in the right direction. Energy-efficiency rules for automobiles and appliances have been one factor. But the biggest driver has been the Texas-led revolution in hydraulic fracturing (or fracking), which has increased the availability of cheap natural gas, whose CO2 emissions are half that of coal. To be sure, environmentalists have conflicted feelings about the upsurge of natural gas. While they’re happy to see emissions decrease, increasing fossil fuel use isn’t the approach many of them had in mind. They question whether natural gas is a bridge fuel to a cleaner future—as the gas industry contends—or a dead end because of lingering concerns about groundwater pollution, climate-heating methane emissions, and earthquakes likely caused by wastewater injection.
The Permian Basin’s boom in oil and gas production has created a wave of investments that’s been dubbed “Permania.” Several multibillion-dollar deals over the past few years reflect an optimism that the region’s rich geology, predictable investment climate, proximity to refineries and ports, access to extensive infrastructure such as pipelines and storage terminals, and ability to draw on a trained workforce make it a high-payoff, low-cost location in which to operate. The Gulf Coast is getting in on the act too. In 2017, ExxonMobil announced $20 billion in new facilities, including a partnership with Saudi Arabia’s chemical company to build a plant near Corpus Christi to convert cheap natural gas into high-value products. From Port Arthur to the Port of Brownsville, the coast is also seeing a flurry of new facilities for exporting crude and liquefied natural gas to overseas markets.
How does all of this new carbon fit into the need to shift to cleaner fuels? On the one hand, the equation is simple: more oil and gas equals more carbon equals more climate change. On the other hand, Permania has the potential to help wean other countries off coal. If the United States would remain a part of the Paris climate accords, we would have the international framework to collaborate with big, coal-dependent polluters such as China and India to begin replacing their coal-burning generating plants with ones burning Texas-produced natural gas. The West Texas gas bonanza could also help states like Ohio, Illinois, and Indiana transition away from coal. That would be good for slowing the world’s climate crisis while earning some Texans a lot of money.
While the Texas energy sector has shown resilience despite the recent ups and downs in oil prices, the Trump presidency is introducing turmoil and uncertainty. Though Trump’s pledge to reduce regulations and build more infrastructure like pipelines sounds good for oil and gas—and, indeed, many oil and gas folks in Texas cheered his election—deeper inspection reveals cause for alarm.
Trade conflicts, including with Mexico, undercut our state’s oil and gas industry: open markets, not self-inflicted blockades or embargoes, serve companies that operate globally. Mexico is our biggest customer for natural gas, buying billions of dollars’ worth of the fuel each year. If Trump imposes trade policies that isolate Mexico, it might encourage President Andrés Manuel López Obrador to follow through on his campaign promises to resist opening up Mexican energy markets to investment and throttle the importation of natural gas. Pipelines that ship our resources to Mexico (or vice versa) could be slowed down or made more expensive to operate while giving Mexican authorities motivation to retaliate. Every trade conflict that we start with Mexico provides opportunities for our foreign competitors to step in and fill the gap.
Also, one of Trump’s bedrock promises—to bring back coal—is not in Texas’s interest or that of the environment. Though Texas is the seventh-largest coal producer among U.S. states, coal mining accounts for a much smaller slice of the Texas economy than does oil and gas. According to the Texas grid operator ERCOT (Electric Reliability Council of Texas), in 2018 coal powered only 25 percent of electricity generation in Texas, while gas provided 44 percent and wind 19 percent. Just eight years before, in 2010, coal’s share was 40 percent. Though Trump and mining interests argue that Obama’s “war on coal” caused that fuel’s decline, it was in fact fierce competition from renewables and cheap natural gas that sealed its fate. If the Trump administration intervenes to directly benefit coal—via mandates, relaxed environmental regulations, protectionist tariffs, or direct subsidies, all of which have been proposed or are underway—the natural gas sector will take a hit. Quite the opposite is what we need: the tighter the rules for reducing emissions, the more Texas will benefit.
Wind and Solar Are the Future
Though Texas’s role as an international leader in oil and gas is well known, many overlook our broader leadership in the power sector. Texas is by far the number one state for wind power, with 25 gigawatts of installed wind capacity. Just as more than a quarter of the nation’s petroleum refining capacity is in Texas, a quarter of the nation’s wind power is here. We have more wind power than the next three states (Iowa, Oklahoma, and California) combined. If Texas were a country, it would be the fifth-largest wind power producer in the world, just after India and ahead of Spain and the United Kingdom.
How did an oil-and-gas-loving state get here? In the end, it’s the same combination of factors that gave us success with hydrocarbons: supportive policies, an abundant resource, and a can-do spirit. Some misguided critics complain about policies that subsidize renewable energy. But solar power is made artificially more expensive through tariffs slapped on imported panels. And those critics often neatly sidestep the federal and state subsidies their own preferred fuels get, such as accelerated depreciation for oil and gas production, tax incentives for shale gas production, and outdated royalty schemes for production on federal lands. In all, there are a dozen or more subsidies for oil and gas; the total federal tax subsidy for the highly profitable oil and gas sector exceeds about $2 billion per year. A report by the International Monetary Fund found that global energy subsidies were a staggering $4.7 trillion in 2015, with coal, petroleum, and natural gas accounting for 95 percent of the total. By contrast, according to the estimates from the conservative Texas Public Policy Foundation, wind and solar receive only modest federal and state subsidies—some of which are already declining or scheduled to end—expected to total about $36 billion from 2006 to 2029.
It would be more transparent and efficient to just end the subsidies for all fuels and energy technologies. No more tax credits for renewables and no more free passes to pollute for fossil fuels. Instead, let’s create efficient markets with strict performance and environmental standards, then let them duke it out. In this scenario, Texas would undoubtedly win again as our cleaner, more-efficient solutions take over.
We have one more secret weapon: our own electric grid. It’s not unusual for delegations of policymakers and grid operators from around the world to visit Texas to see how we’ve integrated such a high proportion of renewable energy while lowering prices and maintaining the grid’s stability. There are three grids in the lower 48: East, West, and Texas. The Texas grid operator, ERCOT, covers 85 percent of the state and operates with little federal involvement. That means our approval process for major projects is quicker and simpler than that of other states, which have to answer to federal authorities or coordinate across state lines. It also means we can experiment with policies and market designs. One of the biggest experiments was the deregulation of the power industry in 1999. Signed into law by then-governor George W. Bush, the legislation split apart monopoly utilities and forced them to compete in both the wholesale and retail power markets. Republicans embraced this free-market approach but also agreed to a compromise: a modest mandate to build renewable capacity (something that Democrats wanted). Both factors have turned Texas into the most interesting power market in the world.
Deregulation came with trade-offs. Shortly after new rules allowed prices to be set by the market rather than regulators, natural gas prices spiked, sending electricity prices soaring and confirming consumer watchdogs’ worst fears. But those high prices did something else: they helped spur the shale revolution and invited competition from renewables, which had been held back by steep capital costs. Building wind and solar capacity back then required a lot of money, so higher natural gas prices made them more competitive by comparison. And because wind and sunshine are free, those energy sources provide a hedge against volatile natural gas and electricity prices. The timing was perfect. The Legislature’s mandate for 2 gigawatts of renewables—combined with a market desperate for lower, predictable prices—kicked off a wind rush that’s continued mostly unabated today.
The growth in wind power has been a boon for both consumers and the environment. Texas has had among the biggest drops in electricity prices nationally, thanks in part to cheap wind power. And wind and natural gas have also quietly been reducing our emissions over the past decade by displacing coal-fired power plants. That wind and natural gas are domestically produced in Texas, whereas much of the coal is imported from Wyoming, is an extra benefit that supports local economies.
Skeptics expected that environmentally conscious consumers would be the only customers for wind power, but that’s not been the case at all. Corporate customers such as Dell placed orders for large batches of affordably priced green power to reduce their costs and improve their sustainability profile.
Wind capacity was built at such a rapid clip that it exceeded the statewide mandate years ahead of schedule, overwhelming the capacity of transmission lines to move wind power from West Texas to the state’s big cities. From 2006 to 2013, there was such a glut that electricity could be had for negative prices as often as 13 percent of the year. That means some users were paid to consume electricity.
When this strange market signal happens in oil and gas, companies respond by building pipelines and other infrastructure to move the product to market. A similar blueprint was used for electricity: in the aughts, Texas legislators came together in a bipartisan moment to authorize billions of dollars to build new high-voltage transmission lines from West Texas to the big cities. Called the Competitive Renewable Energy Zone, or CREZ, the public works project—ultimately bankrolled by Texas ratepayers—came online in 2014, mostly erasing the negative prices and jump-starting a second wind bonanza. Texas has learned the same lesson: building infrastructure to enable energy production is a sound investment. It makes us wealthier and, over time, helps us bring cleaner sources to market.