How Oil-Loving, Frack-Happy Texas Could Lead the Low-Carbon Future

How Oil-Loving, Frack-Happy Texas Could Lead the Low-Carbon Future

(And get rich doing it.)

By

Michael E. Webber

Date

Aug 22, 2019

 

 

Illustration by Pablo Delcan and Justin Metz

From the September 2019 Issue Subscribe

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.  

How Texas Can Lead the Way With Cleaner Fossil Fuels

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.

Illustration by Pablo Delcan and Justin Metz

When a bout of inaccurate wind forecasting, combined with backup services that failed to come online, strained the Texas grid in 2008, it seemed that critics’ accusations of wind’s unreliability were confirmed. But since then, wind forecasting has improved dramatically and has become its own successful cottage industry. And wind farms are now spread out across the state, from the Panhandle all the way down to the tip of South Texas. When the wind dies down in one location, the turbines are usually still spinning somewhere else. In 2011 fossil fuel plants failed during a statewide deep freeze, plunging us into rotating blackouts. But the windmills kept churning. The grid operators’ leader thanked the wind industry, acknowledging that without its production, the blackouts would have been much worse.   

That’s the good news. But because wind comes and goes, it isn’t as dispatchable as traditional energy sources. At least for now, we can’t easily store significant amounts of wind-generated power. Even there, though, Texas is stepping up. The father of the lithium-ion battery, John Goodenough of the University of Texas at Austin, is now working on a solid-state battery that will be cheaper and safer than those we use to power our smartphones and Teslas. Large-scale energy storage from Goodenough’s inventions and other technologies will enable even greater integration of wind into the grid. 
The path of solar power in Texas will likely follow that of wind. As the economics look sufficiently favorable—a point that has just arrived—the solar sector will grow rapidly, transforming our landscape and power markets. And solar doesn’t need the kind of tax credits or renewable portfolio standards that helped kick-start the wind industry, because its prices are falling so quickly. Though the Texas solar industry has lagged behind that of other states, it’s catching up. In 2015 we cracked the top-ten list of states for installed solar capacity for the first time, trailing small, cloudy, northern states like New Jersey, New York, and Massachusetts. By 2018, we had zoomed ahead to number six, and in a few years, we should be number two, behind California. In Texas, when we move forward, we do it quickly and at a global scale. We’re able to leapfrog other states and even countries. We did it with oil, natural gas, refining, and wind, and now we’re about to do it with solar.  
To be sure, solar energy presents its own timing issues. Though sunshine peaks in the early afternoon, the hottest part of the day is a few hours later. Just as demand is rising when people coming home from work turn on their air conditioners and appliances, the amount of electricity produced from solar panels is declining, and dispatchers have to rapidly ramp up conventional power plants to balance the load. Those old plants don’t like to be cycled up and down, so each rapid ramp-up puts strain on the equipment, driving up costs and introducing safety risks.  
In sunny California, which has the highest penetration of solar panels in the nation, the gap between total load and the part that solar doesn’t satisfy is called a duck curve—a fat middle during the heat of the day followed by a steep ramp upward, the duck’s neck. In Texas we call it the “dead armadillo curve.”
But Texas has advantages that California does not. The best solar resources are in West Texas, and the thirty-minute time shift between solar noon in Pecos County and Houston works to our advantage. When East Texans start arriving home from their commute, we can still squeeze some solar energy out of the sunshine in West Texas, slowing the backup power needed from other generators. Further, the transmission lines we built to facilitate economic development in West Texas can be shared, bringing energy from wind farms that are most productive at night and from solar farms during the day. 
Part of our state’s good fortune is that natural gas, wind, and solar complement each other. The reliability of gas mitigates the variability of wind and solar. And the price stability of wind and solar mitigates the price volatility of natural gas.
Some of these advances were achieved during the administration of former governor Rick Perry, who now seems to oppose them as secretary of energy. As a member of the Trump cabinet, he has pushed for coal and nuclear power at the expense of natural gas, wind, and solar. When the Department of Energy’s experts released a significant study in August 2017 indicating that grid reliability hadn’t been hampered by the addition of renewable energy sources, the Trump administration nonetheless stuck to its policies to protect coal plants from competitive markets. After decades of Republican orthodoxy that the government shouldn’t pick winners and losers, the Trump administration is going in the opposite direction, and that harms Texas. Our political and thought leaders, including our senators and members of Congress, should make clear to the central planners in Washington, D.C., that we’ve found a better way and we’re going to pursue it.

Other Ways Texas Can Help Save the Planet

Compared with Europe and California, Texas is decades late to the game when it comes to crafting building codes that emphasize energy and water efficiency, but even there we have achieved significant strides. Many of the nation’s green building standards —for recyclable materials, efficient appliances, triple-pane windows, and passive heating and cooling—originated with Central Texas innovators such as Pliny Fisk III, cofounder of the Center for Maximum Potential Building Systems, and Austin Energy. Startups such as Site Controls, CLEAResult, and Positive Energy—all of which help reduce building energy consumption—were launched in Austin. And, in 2010, Texas was one of the first states to install millions of smart meters throughout its grid, enabling homeowners to reduce peak demand and save money.
To address climate change, we may also need to consider more exotic options, such as moving toward a hydrogen economy. When burned, hydrogen produces only water vapor. Hydrogen gained national attention when former oilman George W. Bush used his State of the Union Address in 2003 to push for hydrogen as a way to mitigate our addiction to oil. He ramped up research and development efforts at the U.S. Department of Energy and pushed for demonstration projects. While those programs have been halved in the U.S., they are picking up in Europe and Japan. As one of the world’s largest users of hydrogen, primarily for making chemicals and refining heavy oils, Texas has a lot of knowledge and infrastructure that can be leveraged.
When we do pollute, we’ve now got options for what to do with the emissions. Over the past century, we’ve taken a lot of carbon out of the ground, and now we’re aiming to put a lot of it back. Texas pioneered the practice of injecting CO₂ into old oil fields to stimulate additional production. Along the way, we built an infrastructure of pumps, compressors, and pipelines for moving CO₂ and injecting it underground. We even have a market for CO₂, with buyers willing to pay to inject the gas into oil fields. Texas-based companies also hold patents on innovations for scrubbing CO₂ from smokestacks. Occidental Petroleum announced a major partnership with Carbon Engineering, a high-profile company with backing from luminaries such as Bill Gates, to capture CO₂ out of the atmosphere. 
Groundbreaking carbon-capture and sequestration projects, such as NRG’s Petra Nova and the zero-carbon NET Power partnership with Toshiba, selected Texas for their large-scale demonstrations, both near Houston. In these cases, the oil industry uses the CO₂ for oil production. At first that might sound self-defeating—using CO₂ to enable a CO₂-producing industry—but the same concepts, infrastructure, and technology can also be used for environmental cleanup. What Trump and many Texas politicians miss is that tackling carbon emissions will not only reduce global warming, it will promote nascent industries. 
The increasingly tribal politics of America have infected how we think about energy. Too often our political leaders have framed our energy dialogue as a battle between conservatives and liberals, Republicans and Democrats, capitalists and socialists. But the lessons offered by the Texas-born shale and wind booms teach us that these battle lines are contrived. The promoters of coal are fighting against markets, not for them. The proponents of natural gas, wind, and solar seek a level playing field where they can pursue innovative solutions within a market that includes tight environmental regulations and a price on pollution. If we invest in our infrastructure, we enable affordable energy production. If we build out markets sensibly, we get the cleanest, cheapest, most reliable forms of energy. 
Texas has all the ingredients—an abundance of resources and expertise, a century of experience, and an innovative, risk-taking spirit—to lead the world as it moves toward a cleaner energy future. Now we just need state and national politicians to stop pandering to interest groups such as coal and return to a belief in applying firm environmental standards and encouraging vibrant markets. If our elected leaders were to do so, the future of energy could run through Houston rather than Washington, D.C. That would be good for Texas—and the planet.