N.M. Democrat's bill offers 'glide path' for lost fossil fuel revenue

Sen. Martin Heinrich will today unveil a long-anticipated legislative framework to allow states to recoup revenue losses caused by the transition away from fossil fuels.

The bill comes as the Biden administration continues to review the fate of the federal oil and gas leasing program amid intense anxiety in affected states — including Heinrich's — and as the partisanship around the issue is only intensifying on Capitol Hill.

The New Mexico Democrat's proposal, a summary of which was shared early with E&E News, is also the first to come from a congressional Democrat to address specifically the funding shortfalls that will someday, in varying degrees, be inevitable, as communities financially powered by oil, gas or coal watch those industries decline amid market pressure and new environmental regulations.

The "Schools and State Budgets Certainty Act," Heinrich said, would provide "a predictable glide path" for state, local and tribal governments as they transition away from federal fossil fuel revenues and would facilitate "a managed transition to more reliable sources of funding."

The measure promises to keep state, county and tribal budgets from falling off a cliff when oil, gas and coal dollars fail, offering the kind of certainty that local leaders say is missing in national commitments to transition away from traditional energy sources.

Until this point, Democrats have largely framed a "just transition" through the lens of environmental justice for communities affected by fossil fuel pollution and climate harm. Heinrich's bill would look to aid the displaced energy workers and make up shortfalls in local revenue that funds public education, among other things.

Heinrich is also determined to explicitly acknowledge the realities of an energy transition without sugarcoating them, at a time when most Democrats are decidedly reluctant to take such positions that could undermine the new administration or unwittingly align themselves with GOP critics.

"As the federal government implements policies designed to reduce greenhouse pollution from fossil fuels that causes climate change and transition our economy to net-zero energy sources, states that rely on federal mineral revenue will see a significant impact to their state budgets," reads a summary from Heinrich's office.

Tough road ahead

In many ways, Heinrich is extending an olive branch to all sides of the issue, both the green advocates and the traditional energy industry boosters.

While the legislation presumes that fossil fuel markets are headed for structural decline that climate action may accelerate, it is also landing weeks after Biden's announcement that he would seek to attain net-zero emissions by midcentury — a stance that has only further emboldened climate advocates to champion the retirement of the federal fossil fuel program as a way to meet that objective.

As the oil and gas industry, in particular, faces increasing political and market uncertainty, Heinrich's bill would guarantee a softer transition for local, tribal and state coffers that depend on it, including budgets in New Mexico, Wyoming and Alaska, to name a few, without requiring any commitment from energy states to support the energy transition in return for the federal support payments.

It would do this by ordering the Interior Department to calculate a revenue baseline in fiscal 2021 for each state, county and tribe that received federal mineral income, based on the average revenue streams of the last five years.

Going forward, that threshold would decrease every year by 5%, reflecting a gradual, but predictable, decline in fossil fuel revenues. If in a given year actual revenues fall faster than the threshold, the U.S. government would make up the difference with a direct "energy transition" payment.

Heinrich's legislation would also direct the Treasury to make these transition funds available to Interior for this purpose. They would not require appropriation by Congress.

Still, none of this guarantees a clear pathway for his proposal in Congress.

In embracing the bill, Democrats may worry about appearing as though they are confirming GOP talking points about their party's plans to eradicate an entire workforce and way of life.

Many fossil fuel-loving Republicans, on the other hand, might be inclined to leave an offer of federal money on the table if it's in lieu of the jobs and economic activity from their existing oil, gas or coal industries.

So far, the GOP's strategy against Democratic efforts to curb drilling or retrain coal workers has largely been to decry political interference in the markets and accuse liberals of waging war on carbon fuels.

In January, Republican Sen. Cynthia Lummis of Wyoming said she didn't support direct aid to fossil fuel workers affected by the energy transition, saying that kind of thinking "exacerbates the mess we seem to be digging ourselves into in this country (E&E Daily, Jan. 28).

Instead, Lummis was one of 15 co-sponsors of the "Protecting Our Wealth of Energy Resources Act," a bill that would bar presidents from pausing federal oil and gas leasing.

Heinrich's bill is also not a panacea.

His proposal would target the relatively narrow portion of the national oil and gas market, and the sizable coal wealth, taking place on federal lands and waters — areas not exclusively vulnerable to the market declines predicted as society seeks greener energy sources. For example, the federal payments wouldn't offer a glide path for Texas, the largest oil producer in the nation.

It would, however, address the particular vulnerability of federal mineral dependency in parts of the country that have long talked of economic diversification but proved ineffectual at achieving it since oil and coal dollars have long been abundant.

The bill would directly help states like New Mexico, where oil and gas income represent as much as 40% of the state budget and has an outsize role in funding education, along with regions of Alaska and eastern Wyoming that are dependent on federal stores.

Old talking points

But whether oil states, tribes or industry would warm to the federal funding proposal in Heinrich's bill is unclear: Partisan talking points tend to fall along the same lines at the local level as they do in Washington.

Some leaders are already thinking in terms of how to support communities affected by the energy transition. During a March forum on the future of federal oil and gas management, hosted by Biden's Interior Department, the Alaska Federation of Natives' Executive Vice President Nicole Borromeo asked that an equitable share of federal resources be directed to remote Native communities that are currently dependent on fossil fuels and will be negatively affected by the energy transition. Other Indigenous leaders at the forum stressed the right for tribes to develop minerals as they see fit.

Meanwhile, Wyoming Gov. Mark Gordon (R), an antagonist to the Biden administration's pause on federal oil and gas leasing, told senators in a hearing last month that states wanted to be proactive about a cleaner energy future — but "doing something as extraordinarily draconian as we are with the policies of this administration doesn't give us time to evolve."

And while Louisiana Democrat Gov. John Bel Edwards has committed to reaching net-zero carbon emissions in his state by 2050 and recently joined the U.S. Climate Alliance — a bipartisan governors' group that aims to reduce greenhouse gas emissions within their borders — he didn't stand in the way of Louisiana's participation in a multistate lawsuit against Biden's oil and gas leasing moratorium.

Heinrich, though, isn't likely to give up. He has been warning since the start of this year that while Biden's pause on new oil and gas leases on federal lands was not a death sentence for states like his, it wasn't something that could be ignored (E&E Daily, Feb. 8).

"Any transition is painful, and changes that affect people's livelihoods are real and deep and hard to deal with," he said back in February, "but I would like us to be thoughtful in our investment in these communities to try to find ways to stabilize things as critical as infrastructure and schools, as well as to try to come up with a place-based solution to additional jobs and industry."