Cleaner by the Dozen: Progress Report

Last year, R Street and the Texas Conservative Coalition Research Institute (TCCRI) published “Cleaner by the Dozen: Twelve Reforms to Make Texas Cleaner, Stronger and Freer.” The report highlighted policy changes Texas could make to reduce emissions and help the state become more resilient to all forms of extreme weather.

“Cleaner by the Dozen” differed from other reports because it focused exclusively on limited government policies. Instead of calling for more government spending or greater regulation of everyday activities, the report looked at ways to improve environmental quality through less government regulation, freer markets and a smaller government.

This commitment to a limited-government vision of environmental improvement is already paying off. In the year since the report was released, several of the reforms promoted in the report have been enacted into law. In particular, we would like to highlight three reforms that have seen action this year:

1. The legislature used tax reform to help reduce flaring.
2. Legislation removed legal barriers to the full development of Texas’ geothermal energy.
3. The state took action to help develop new nuclear technology.  

Flaring

One environmental issue that continues to get a lot of attention is flared gas, or flaring. Flaring occurs when the gases generated from crude oil production are burned off rather than captured or stored for further use. In one sense, flaring is an economic oddity. Since the gas has a variety of economically valuable uses, simply burning it throws away this potential value. Nevertheless, whether due to a lack of infrastructure or other factors, it is not possible for producers to make economical use of the gas, which can result in flaring. This is costly, not only from an economic perspective but also from an environmental point of view, as gas flaring results in additional emissions—particularly of methane.

Texas has made significant progress in reducing flaring in recent years, but the practice does still occur. One alternative to flaring gas is to use it on-site to generate power. Some activities, such as Bitcoin mining, can be co-located near wells and are able to use associated gas for power production even where transportation infrastructure is lacking. However, “Cleaner by the Dozen” noted that Texas’ severance tax served to discourage this activity. Gas producers in Texas are required to pay a tax of 7.5 percent on the market value of gas sold, which creates a disincentive for producers to switch from flaring gas to selling it. We proposed eliminating this disincentive by exempting gas from the severance tax if it was used near the site and if a producer had switched from flaring. This proposal was enacted in HB 591. It is worth noting that HB 591 passed both chambers of the legislature with strong bipartisan support (141-1 in the House and 26-4 in the Senate).

Geothermal

Geothermal energy takes advantage of the very heat of Earth’s core by pumping hot water from deep underground and using it to generate electricity, returning the water underground to repeat the process. Geothermal energy is practically boundless, limited only by the ability to produce it economically.

Whenever a new form of energy emerges, it bumps up against existing regulatory structures that were not designed with it in mind and therefore do not quite fit. Geothermal energy is no exception. One of the main legal and regulatory impediments to geothermal development in Texas has to do with property rights. Texas law recognizes a distinction in the ownership of a piece of real property between the surface estate (which includes the right to build a house on a parcel of land or graze cattle on it) and the mineral estate (which includes the right to produce oil from beneath the ground on that same parcel of land). These two rights are severable, meaning that a landowner can sell the mineral estate to their property while retaining the surface estate. Many pieces of property have separate owners for the surface and mineral estate.

While the scope of the mineral estate is well defined when it comes to oil and gas, it is legally unclear whether the right to produce geothermal energy from a piece of land is part of the mineral estate or the surface estate. This ambiguity increases the costs and complexity of geothermal projects, as developers need to contract with potentially twice as many rights holders. In both “Cleaner by the Dozen” and a live policy discussion, R Street and the TCCRI advocated for clarity on this issue. A resolution came in the form of SB 785, which clarified that geothermal energy is tied to the surface estate. Once again, this commonsense reform passed with overwhelming bipartisan support (140-0 in the House and 30-1 in the Senate).  

Nuclear Power

Nuclear energy remains an area of significant untapped power for the energy sector. In particular, new designs for small modular reactors (SMRs) have the potential to provide a source of clean, reliable power without the huge upfront capital costs of a traditional full-scale nuclear power plant.

Unfortunately, federal regulation has for decades stifled advances in nuclear power. Although federal law provides for a less burdensome system of regulation for smaller reactors than for large plants, this pathway is only available if the SMRs are not used commercially.

While Texas lacks the ability to change federal regulation on its own, the state can do things to aid in nuclear power development. In August, Gov. Greg Abbott directed the state’s Public Utilities Commission (PUC) to form a working group to study how to integrate advanced nuclear power designs into the electrical grid. The PUC working group will look at how Texas could streamline permitting for advanced nuclear plants and identify state and federal barriers to advanced nuclear deployment. Also announced in August, Dow Chemical plans to build a 320-megawatt SMR at its plant in Calhoun County, with construction to begin in 2025. R Street and the TCCRI will continue to monitor and encourage these positive developments.

Conclusion

Each of the above discussed items will help Texas maintain energy dominance while reducing the amount of emissions associated with the state’s energy sector. This will make it easier for the state to meet state and federal environmental regulatory requirements and will reduce environmental impact without sacrificing the economic dynamism that has helped make Texas great. Together, they show that there is no shortage of positive, conservative-based ideas that can help Texas become cleaner, stronger and freer. They also show that these commonsense reforms can transcend political partisanship to benefit everyone.