Opinion: If the oil and gas industry shrinks, what will that mean for Texas education funding? With the right economic policies, Texas can fill any funding gap with new industry.

 

A shift from fossil fuel to low-carbon and renewable energy sources has been underway in the United States for the last 20 years. Accounting and preparing for this shift are essential in Texas since fossil fuel energy continues to be a significant share of the Texas economy.

In 2020, Texas, the top producer of fossil fuel-produced energy in the U.S., accounted for 43% of the nation’s crude oil production and 26% of its marketed natural gas production. Texas also leads the nation in carbon emissions, with twice as much as the next largest emitter (California), and two-thirds of emissions in Texas come from industry.Tracker

What will this shift mean for Texas and its economy?

Texas has a unique opportunity to turn this energy transition into an energy expansion, continuing to produce cleaner oil and gas as we grow our wind and solar industries while using our relative advantages to become a global leader in new technologies like carbon capture and storage, hydrogen, battery storage, geothermal energy, energy efficiency and other efforts to reduce energy demand, and direct air capture. Doing so will lead to a more robust and diverse economy.

A question raised by declining demand for oil and gas is the impact it could have on public education funding in Texas, as a share of revenue allocated to K-12 education comes from taxes on the oil and gas industry. Our recent report estimates that the reduction in Texas K-12 funding over the next 30 years (related to the ongoing shift toward low-carbon and renewable energy) will only be between 0.5% to 3.0% of the total baseline K-12 funding. This is a relatively modest amount that timely policy changes can offset.

Contrary to what we sometimes hear, the sky isn’t falling, renewables won’t cause public education funding to crater, and there are multiple possible solutions to fill this modest gap. For example, increasing the sales tax rate by roughly half a percentage point would raise enough revenue to offset the average annual shortfall over the next 30 years. Furthermore, by facilitating an energy expansion, Texas can continue to attract and develop new industries.

The sectoral shift toward low-carbon energy will come with new economic opportunities that will supplement our tax base and help offset the loss in revenue from the oil and gas industry. For example, Texas leads the nation in wind-powered electricity generation, producing about 28% of all U.S. wind-powered electricity in 2020.

The adoption of carbon capture technology and the necessary transportation, use and storage networks that go with it and a focus on geothermal energy provide two potential expansions in economic activity. Adopting these technologies on a large scale would provide new jobs, reduce the negative impact of greenhouse gases and potentially allow for greater retention of existing oil and gas industry jobs.

Given the importance of oil and gas jobs in Texas and their relatively high wages (relative to other jobs with similar education levels), in all likelihood, an energy shift that involves the oil industry would significantly reduce transition costs in the labor market of moving to more environmentally sustainable energy production.

Additionally, the recent infrastructure bill has huge amounts of funding for transmission lines that will help Texas grow its wind, solar and battery resources as well as funding for carbon capture and hydrogen that could help Texas keep its oil and gas jobs.

The federal government is making a down payment on the energy expansion. It is now up to Texas politicians to use these funds and enact economic policies that encourage and support the creation of new industries so Texas can continue to flourish. Specifically, policy changes need to increase research and development of new technologies, address regulatory and legal issues that stifle coordination and development of emerging markets, make infrastructure investment in critical capital assets, support an educated workforce and maintain a business-friendly economic environment.

While the transition to low-carbon and renewable energy sources will yield environmental benefits, it will also create painful economic adjustments in existing industries. However, by focusing on energy expansion, Texas has a chance to reimagine and rebuild its economic foundation, an opportunity that we may get only once. Taking advantage of this opportunity will create new sources of revenue and ensure we have the resources to educate and benefit future Texans. Policymakers should focus their efforts on creating a supportive policy environment (without favoring certain technologies) and allows the private sector to develop new industries in Texas.

The sooner we take appropriate action, the brighter the economic future for all Texans.


Jorge Barro and John W. Diamond are economists and fellows in the Center for Public Finance at Rice University’s Baker Institute for Public Policy. They are the authors of the new report, “The Effect of Transition to Low-Carbon Energy on Texas Tax Revenues: 2021-2050.” They wrote this column for The Dallas Morning News.

Editor's Note: This report was funded in part by the Cynthia and George Mitchell Foundation. 

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