There’s A Right And Wrong Policy For The Energy Transition. Guess Which We Picked?

Oklahoma state agencies and local governments are trying to figure out how to operate under the Energy Discrimination Elimination Act [HB 2394, passed in the 2022 legislative session]. This law prevents Oklahoma’s public retirement systems from doing business with financial firms that boycott fossil producers.

The Oklahoma Public Employees Retirement System is seeking an exemption from the law, which it thinks will cost it $10 million in fees to divest from the offending institutions. That’s just one aspect of this law that makes me think author Rep. Mark McBride, R-Moore, is less interested in saving the oil and gas industry than he is in nabbing the role of college sociopath Eric “Otter” Stratton in a remake of Animal House, because this is the ultimate futile and stupid gesture.

Instead of fighting the inevitable energy transition, Oklahoma’s leaders should be embracing it. We can continue to be an energy leader with some forethought and investment.

HB 2394 is futile because Oklahoma’s retirement systems, important as they are to our state’s economy and our retired state employees [including me], don’t amount to an eyebrow on a mite on a pimple on the financial industry’s butt. These seven funds hold about $40 billion in assets. At the end of July American banks had $22 trillion in assets. With two tenths of a percent of bank assets under our control, it doesn’t seem like we’ll be changing many banks’ oil-hating ways soon.

This law is stupid because it will only hurt Oklahoma retirees and taxpayers. We invest state and employee retirement contributions over the long term so they’ll grow to pay for benefits when current employees retire.

Unless the Legislature finds a way to repeal the laws of supply and demand, shrinking the number of banks competing for our business will give more market power to the banks that remain. They’ll certainly use this power to extract higher fees that cut into our investment earnings and they may not be able to provide the same return on investment as the banks we’ve disqualified.

The more we pay in fees and the less we have in investment returns, the more state and local tax money we’ll need [at the cost of other vital services] to fulfill these commitments.

Setting this empty effort aside, is McBride [and a lot of Oklahomans, including me] right to be concerned about the future of the petroleum industry? Well, yes, over the long run, but there’s no need to panic; the oil and gas industry isn’t going anywhere soon.

In the world market, natural gas and crude oil production have been growing except for the hiccup during the Covid pandemic. The U.S. is the largest producer of both.

Nationally, we still get more than a third of our electricity from gas and will for a long time. In fact, natural gas generation continues to grow, thanks to growing demand for electricity [climate change, anybody?] and the end of coal power generation. And with all the electric car sales so far, it’s estimated that just one of every hundred cars on the road is electric. At the current rate, we’ll use only renewables for electricity in 2098 and park the last gasoline car in 3013.

Of course the current rate will speed up, but there will be no end of oil and gas in our lifetimes.

Yet there are reasons to be concerned. The oil and gas industry is very important to our state’s economy. On average it’s been 13% of our state’s entire economic output since 2000. It’s our third largest industry after state and local government and real estate [which includes rent]. It employs 8,000-10,000 people in the field and about 20,000 more in support operations, most with above-average wages.

Its actual impact on the economy is even bigger since much of the product it produces is bought by non-Oklahomans. If it shrinks, the loss of other people’s money will reverberate through our economy and hurt our state’s future.

Yet shrinkage is unavoidable in the long run. According to the U.S. Department of Energy, new solar installations make up 35% of electricity-generating capacity being added this year. We’re adding six megawatts of electric generating capacity from renewables for every megawatt we add from natural gas.

On the roads, electric cars now account for nearly one in five cars sold in the U.S. New natural gas plants are being built, too, but nearly as many are being retired. This has happened in spite of decades of government policy supporting the petroleum companies and the industry’s army of lobbyists whispering in “our” representatives’ ears.

It’s clear that energy markets are shifting away from petroleum products and they’ll continue to do so, probably faster than they are now.

Since we face declining oil and gas consumption and production, but we have time to prepare, how can legislators stop denying reality and help us get ahead of the curve? Certainly not by tilting our swords at figurative windmills like investment bankers.

Instead, we need to be leaping into the many opportunities to invent, design, build, and profit from alternative energy production, storage, and delivery.

We’re already a leader in wind energy, ranking third in production behind Texas and Iowa. In fact, we produce a larger share of the nation’s wind energy [8%] than we do of its oil [under 4%]. We don’t do that well with solar, but we are 10^thamong states in capacity to generate solar. We also have lots of space for large-scale solar development.

We have the infrastructure and the geography for massive wind and solar investments and we need to use those now.

After wind and solar, there are many new technologies that we should be developing and building out. Carbon capture and storage is an obvious opportunity for Oklahoma. The big oil companies have figured this out and they are diving in. While the solution isn’t perfect, it may be possible to store carbon in depleted petroleum basins.

We can also work on alternatives to electric cars, which are far from an ideal solution to our transportation needs. The best candidate for that is hydrogen. It’s probably the most environmentally safe means of propulsion and we should get in on the ground floor of scaling it up.

There are also opportunities in storing energy. A state with huge reserves of intermittent energy like wind and solar, as well as creative engineers and entrepreneurs in oil and gas, aerospace, and faculties, Oklahoma should be putting time and resources into this and all the alternatives, including some that nobody has dreamed of yet.

The transition isn’t just about technologies and profits, it’s also about people. Thousands of our neighbors work directly and many more indirectly in the oil and gas industry. It isn’t their fault that their product is harmful to the environment and our future.

It’s incumbent the state help prepare them for shrinkage in their industry. There will likely be more jobs in clean energythan in oil and gas, but they may be in different locations and require different skills.

Programs to ease the transition exist across the world; they’re called Just Transition, and that’s what we owe to these neighbors. The most effective strategies used in Europe are rapid retraining and free college [along with generous unemployment benefits].

Other strategies, like early retirement and lump sum payments, don’t work as well for either workers or the economy.

Oklahoma needs to develop a Just Transition plan right now. We should increase our meager unemployment insurance benefits, both in length and amount of coverage, for workers who are displaced from the oil and gas industry, directly or indirectly. Workers who leave the industry voluntarily should qualify, too, provided they engage in training for a career change, whether within energy or in another field.

We should offer tuition-free, guaranteed admission to career techs, community colleges, and four-year colleges, along with a reasonable stipend or work-study option to help support workers and their families. We should start developing curriculum and programs in solar manufacturing, installation and support, climate capture and storage, and hydrogen production and storage.

While those might not be right for every oil and gas worker, we’ll need thousands of Oklahomans ready if we’re going to be a clean energy center. We’ll also need to be ready with assistance to areas in the state – mainly northwest, southwest, and southeast rural communities – affected by loss of oil and gas investment and employment.

How do we pay for all this new technology and Just Transition? I could write a book about this. Oh, wait, I already did! Many of the tax options in that report would help pay for training, education, unemployment benefits, and community assistance. Here are a few options for things that may not be traditional government duties:

• Use the billion-plus dollars we have in savings accounts and ill-defined economic development funds to build the infrastructure we’ll need, including state-funded research and development, building capacity to prepare our schools at all levels for effective workforce development, streamlining regulation of new energy production and storage while protecting the environment and affected communities, and partnering with our public and private utilities to diversify our energy sources.

• Take control of the hundreds of millions in tax incentives we offer to a wide range of businesses by limiting future incentives to the clean energy industry. Tax incentives usually waste money, since they pay people to do what they would have done anyway. However, that’s not the case where we define what we want done, how much we are willing to help, and the terms of the deal. We are used to competing with other states to “win” the big employers, but there’s no reason we can’t make the businesses compete to win Oklahomans’ investment. We must also explore structuring incentives as no-/low-interest loans, or take an equity share in the company.

• When times are good and the state has surplus revenue, we can divert some of the gross production on oil and gas production to invest in new plants and the infrastructure and supporting businesses they’ll need to thrive. We should consider doing the same with the taxes on gas and diesel.

• Our publicly-owned utilities should lead the way in diversifying. We need to establish aggressive goals for clean power generation and storage for the Grand River Dam Authority, municipally-owned electric utilities, and cooperatives. Given the relatively low cost of alternative energy development, many can afford to do this with their current rates, and reasonable rate increases are a small price to pay for a cleaner, safer, and more sustainable community [and state!].

The oil and gas industry has been essential to Oklahoma’s culture, community, and economy and will continue to be so for decades. However, it will never again have the importance and impact it has had in the past, for reasons beyond our state’s control. Now isn’t the time for futile and stupid; it’s the time for creative and confident policy that makes Oklahoma an American energy leader for decades to come.