The True Cost

Since 2010, renewable energy’s share of US electricity generation has doubled from 10% to 20%. Numerous policy initiatives have led to massive tax incentives for industry, commerce, and individuals to actively support a full transition away from fossil fuels. Many of the world's governments have targeted 2050 for full carbon neutrality, with the U.S. proposing a timeline to achieve this goal as soon as 2035.

The prevailing dialogue around renewables largely focuses on environmental and equitable concerns-- polluted water sources, racial and geographic inequities, and the ever-increasing level of carbon dioxide emissions in the atmosphere. These concerns are undoubtedly worthy of exploration. In just the past 100 years, humans have irreparably altered Earth's climate. The year 2020 tied with 2016 for the hottest year on record since recordkeeping began in 1880.  NASA’s analyses  of this data directly matches independent analyses prepared by the Climatic Research Unit and the National Oceanic and Atmospheric Administration (NOAA).

The science is clear, and the vast majority of people understand this.

The most often overlooked aspect of the transition to renewables is the myriad of economic concerns. It's not always clear what the true cost, or benefit, of an entire industry is. In 2020, fossil fuels accounted for a whopping  79% of energy consumption  in the United States. The industry behind producing this stretches from roughnecks to executives, from train conductors to rail companies, and from gas station owners to truck drivers. In addition to directly and indirectly employing millions of Americans, the tax revenue generated by the oil and gas sector funds schools, public works projects, and hospitals.

In 2021, the largest American oil and gas producers generated nearly  $1 trillion of revenue . The U.S. Department of the Interior categorizes sub-stream revenue in the following categories.

• Royalties A natural resource lease holder pays royalties after the lease starts producing a commodity in paying quantities. The amount is based on a percentage of the revenue from the commodity sold.

• Bonus The amount paid by the highest successful bidder for a natural resource lease, or the winning bid

• Rents A natural resource lease might not produce anything in paying quantities for some time after it is sold. Until it does, periodic payments are made for the right to continue exploration and development of the land for future natural resource production.

• Civil Penalties Civil penalties are incurred when companies fail to comply with, or knowingly or willfully violate, regulations or laws.

• Inspection Fees The Department of the Interior inspects offshore oil and gas drilling rigs at least once a year. Inspection fees help recover some of the costs associated with these inspections.

• Other Revenues This category includes revenues that are not included in the royalty, rent, or bonus categories, especially: minimum royalties, estimated royalties, settlement agreements, and interest.

This report compiles a large amount of information and serves as a repository, both private-source and open-source, and is intended only for educational purposes.

Colorado has an immense amount of fossil fuel reserves and alternate energy resources. Substantial deposits of crude oil, natural gas, and coal rank Colorado 7th among all states in total energy production.

More importantly, however, Colorado has a diverse economy. Despite its significant mining, oil, and gas industries,  energy consumption per dollar  of Colorado's gross domestic product (GDP) is less than in 40 states. Alongside oil and gas, the largest contributors to the state's GDP are finance, insurance, and real estate. Therefore, Colorado's total energy consumption (per capita) is lower than 24 states.  In 2019 , the transportation sector was Colorado's leading energy consumer, and accounted for 31% of the state's total energy use, followed closely by the industrial sector at 29%, the residential sector at 25%, and the commercial sector at 20%.

Importantly, Colorado accounts for almost 4% of U.S. total crude oil production, and the state controls a significant 3% of American crude oil reserves.

In 2019,  Colorado produced four times more oil than in 2001 . This was brought on mainly by technological advances such as horizontal drilling and fracking, among others. Further, there is a clear concentration of these resources within the state, making extensive examination and analysis more valuable.

For example, Weld County, just 1 of 64 counties in Colorado, accounts for  more than 90% of the state's gross annual production . This gives us the unique ability to conduct a ground level case study of the demographical, environmental, and economic issues inherent to oil and gas production.

Colorado has two petroleum refineries, both of which are located in the Denver area. These refineries process  103,000 barrels  of crude oil per day into gasoline, diesel, asphalt, and jet fuel. Unsurprisingly, a large portion of this production remains in the state.

The transportation sector accounts for more than four-fifths of all petroleum used in Colorado, and the industrial sector accounts for most of the rest.

In addition to its status as a production and refining powerhouse, Colorado has a unique set of regulatory practices that allow for mass data collection and analysis.

 One such law , signed in 2019, gives counties and municipalities increased regulatory authority over crude oil and natural gas development in their jurisdictions. It grants local governments authority to regulate the location of new crude oil and natural gas production facilities as well as the effects of production, such as land use and surface impacts. The law also gives local governments the authority to inspect crude oil and natural gas facilities; impose fines for leaks, spills, and emissions; and impose fees to fully cover regulatory costs.

These regulations and policy changes contribute to a broader movement in Colorado towards a just transition away from fossil fuels. This transition has already begun, yet the state has no clear plan for managing the onslaught of labor, revenue, tax, and environmental concerns that will be brought on by the decline of one of the largest national industries. This report is intended to inform the legislature and citizens of Colorado on a variety of the upcoming issues and to draw attention to potential solutions that will ease the attached burden.

One of the most direct consequences of transitioning from fossil fuels to alternatives is also the most humanizing: the people.

 A study from the BlueGreen Alliance  on the Economic Contribution and Future Options of the Colorado and New Mexico Workforce came to the following conclusions, which we will treat as a starting point into this issue.

Who stands to lose?

All jobs are not created equally, and all jobs are not lost equally. Using NAICS labor classifications, we break down the distribution of jobs in the state as follows.

Click each button to learn more.

Unemployment is a scary prospect, but the controlled divestment of an industry over a long period of time allows for retraining, repurposing, and redevelopment of professional skills into other industries. The problem? Education rates in high-yield oil and gas counties are markedly lower than in others.

Explore the map of Colorado below and click on each county to see the distribution of adults age 25+ and the highest level of education they have obtained.

The combination of high dropout rates, a lack of diverse job opportunities, and the attraction of high wages channel more and more workers into a field with a limited long-term forecast. Therefore, to mitigate large-scale unemployment and a successive  increase in crime  propagated by a lower quality of life, our main concern ought to be optimizing retraining through an economic lens. Utilizing the unique skillsets of oil and gas workers in specialties like methane recapture and land remediation creates a clear path for future opportunities in a world powered by renewable energy.

Clean energy has already, both directly and indirectly, created nearly 4 million jobs in growth largely fueled by dropping technology costs, soaring demand for alternatives, and government-supported policy, subsidies, and investments. The renewable energy sector directly employs 777,000 people, about the same as the entire U.S. telecommunications industry.

The most rapid renewable energy job growth has come from the solar and wind sectors, which rose by 24.5 percent and 16 percent, respectively, from 2016 to 2017. Solar and wind energy jobs outnumber coal and gas jobs in 30 states.

The coal industry, which has been declining, now employs 160,000 workers, less than a quarter as many Americans as the renewable energy industry ( BLS ).

What does this mean for oil and gas workers in Colorado?

The U.S. Bureau of Labor Statistics defines green jobs as either "jobs in businesses that produce goods and provide services that benefit the environment or conserve natural resources" or as "jobs in which workers' duties involve making their establishment's production processes more environmentally friendly or use fewer natural resources."

In other words, jobs in:

• Renewable energy
• Energy efficiency
• Pollution reduction and Removal
• Natural resources conservation
• Environmental compliance
• Education and training
• Public awareness

Oil and gas workers have a variety of job opportunities that either require little to no training, or that leverage their experience in their respective trades.

Further, many of these workers have expressed willingness to transition into a similar field.  A recent survey  found that 8 out of 10 oil workers were willing to transition to another industry, with 58% citing "job security" as their key concern. The target fields?

This data leads us to some key conclusions in developing a comprehensive retraining program for Colorado's oil and gas workforce. First, programs should be developed with significant input and consultation from oil and gas workers. Firsthand knowledge of the issues, environment, and skillsets of their peers make oil and gas workers far better suited to developing such an initiative than policymakers and corporations alone. To this effect, we recommend ongoing roundtable discussions with equal input from workers, corporations, non-profits, and policymakers. Second, there must be a marked reduction in beaurucratic hurdles to joining and completing retraining initiatives. A Platform report found that beaurucratic "red tape" was one of the largest barriers to success in past initiatives.

A key consideration, however, is that retraining programs, moving equipment, and combining the ascent of a new, clean industry with the controlled descent of an older, landmark industry is expensive.

Oil and gas companies in Colorado are among the largest taxpayers due to severance taxes. For the purposes of this exploration, we assume transactional costs, state general income, and Federal taxes are net-zero under the assumption that energy demand will remain constant, therefore replacing fossil fuel general state revenue with revenue from firms engaged with renewable sources.

There are three methods of taxation, of which we will pay special attention to the first two:

the local ad valorem tax the state severance tax the state conservation mill levy

 Local Ad Valorem 

This type of tax is intended to retain tax revenue for the benefit of the area in which it was collected. 70 to 80 percent of the industry’s tax obligation goes to local governments, school districts, fire districts, sanitation districts, and water districts. In addition, half of the state severance tax obligation goes back to local governments through the mineral impact grant program.

These types of taxes are one of the largest benefits that the oil and gas industry provides to residents of Colorado and help fund schools, utilities, and infrastructure. On the flipside, they have caused a deep entrenchment of the industry in communities that may not be able to sustain even basic spending necessities in a long-term decline of the sector.

To see the impact of Ad Valorem taxes on a county's tax burden, refer to the 10 counties to the left in the before and after condition. Below is a Weld County specific analysis of high and low tax areas, compiled and with the intent of finding the specific beneficiaries and those being left out of these significant revenue streams.

 State Severance Tax 

The Colorado Department of Revenue defines a Severance Tax as a tax imposed upon nonrenewable natural resources that are removed from the earth.

This includes primarily:

• Metallic Minerals
• Molybdenum (Ore)
• Oil and Gas
• Oil Shale
• Coal

The projections on the right show the cumulative severance tax revenue, annualized through FY 2018 and projected through 2021. Between severance taxes, ad valorem taxes, and the state mill levy, the oil and gas sector pumps around $1 billion into the state governments and municipalities each year. Of this $1 billion, $600 million goes directly to K-12 and higher education programs. This creates a massive deficit problem for the transition to sustainable energy sourcing.

Are we forced to choose between educating the people of Colorado and saving the climate?

A consortium made up of research groups Western Way, Action 22, and Pro15, authored a study titled,  “The Economic Benefits of Colorado’s Eastern Plains Renewable Energy Industry.”  The economic analysis looked at utility renewable energy projects constructed in 15 eastern Colorado counties that make up for 95% of the state's renewable energy capacity.

The report found that among the 40 projects there was:

• $9.4 billion in construction and investment activity (2000-2024)

• 6,334 eastern Colorado jobs employed by 366 businesses

• $388.6 million in annual economic output

• $23.1 million in annual property taxes paid to local governments

• $15.2 million in annual lease payments to ranchers and farmers

While these figures are difficult to compare directly to tax revenue from oil and gas, they open the door to future tax inflows to the state that are competitive with the current revenue stream.

“In several of the counties in my legislative district, taxes paid by wind farms make up nearly half the amount of the annual operating revenue for county government. This is a long term and stable funding source which does not fluctuate with the market and it is enabling local governments to fund needed services without raising taxes. Take Kit Carson County as an example, the total local tax revenue brought in annually is just over $525 per county resident, that is a meaningful amount.” -Representative Rod Pelton, HD-65

“Logan County is not only benefiting from construction of new renewable energy projects but we are seeing re-investment in older projects which will extend the lifespan by decades, yielding even longer-term economic impacts than initially estimated. These projects benefit Logan County with an increase in tax base, but also provide a great revenue stream to local small businesses. With the nation’s premier wind technician training program at Northeastern Junior College, access to strong wind and solar resources, and local support, Logan County has gained a reputation as one of the best places to develop new energy projects in the country. -Trae Miller, Logan County Economic Development Director

Colorado has a growing problem: leaking wells. Oil and gas companies are expected to plug and fill wells that are no longer actively producing. This helps reduce hazards to local wildlife, groundwater pollution, and the leaking of toxic methane gas into the atmosphere. However, over 175 years of oil and gas extraction has left an increasing number of abandoned wells that are inactive, unplugged, and often times have no clear owner to hold responsible.

According to a study commissioned by the EPA and conducted by McGill University, there are approximately 81,000 "orphan" wells across 28 states. Even more concerning is that 9 million Americans live within one mile of a potentially hazardous well. Colorado has relatively few "orphan" wells, but has far more "zombie" wells. An orphaned well is one that has been completely abandoned, while a zombie well is a low producing, economically unviable well that is at high-risk of being abandoned in the near-future. In 2020, Colorado documented only 414 orphaned wells, far lower than Pennsylvania's 27,970; however, there were more than 20,000 zombie wells producing fewer than 2 barrels of oil each day.

The United States Environmental Protection Agency (EPA) estimates that leaking methane from over 2 million inactive, unplugged wells, of which documented orphan wells are a subset, range from a CO2 equivalent of 7-20 million metric tons per year. This is the yearly equivalent of 5 million more cars on the road.

Explore the map below to see the different types and locations of documented wells in Colorado.

The Oil and Gas Commission estimates that the average cost to the state of closing a well is $82,500. Until recently, lenient fines and a weak accountability system meant the government was the one to foot the bill for these massive expenditures. In March 2022, regulators overhauled rules on well clean up, following the Biden Administration's $4.7 billion oil clean up rider to the infrastructure bill last November.  Colorado stands to receive a minimum of $79 million  of this funding, allocated based on oil and gas job loss during COVID, as well as the quantity and depth of the wells in need of plugging. Additionally, stricter punishments and clear mandates will hold operators accountable so as to reduce the cost burden to Colorado and return it to those benefitting most from oil and gas extraction.

The most jarring  headlines  related to the oil and gas sector are the ones involving large scale spills. The map to the right depicts the largest oil spills in U.S. waters from 1969 through 2020. One of the most notable spills since the year 2000 was the Deepwater Horizon Incident, in which an offshore rig operated by BP leaked 134 million gallons of oil into the Gulf of Mexico.  In 2015, the Justice Department and Gulf states reached a civil settlement with BP that totaled over $20 billion, including: 

• $5.5 billion in civil fines under the Clean Water Act
• $8.1 billion in natural resource damages
• $5.9 billion in payments to state and local governments
• $15 billion in cleanup costs
• $20 billion in economic damages to companies and individuals (independent of settlement agreement)

While large spills have the most noticeable impact on the environment and wildlife, they often occlude the routine small-scale spills that have a greater long-term impact on our climate and water supply.

The interactive map below highlights the documented locations of wells on the left, and all reported oil spills on the right. Move the slider to compare the two maps.

Needless to say, this issue is unique to the oil and gas industry. The aggregate cleanup costs to the taxpayer, the state, and the environment are estimated to be a near billion dollar expenditure over the next decade. Wells leak into their surrounding communities, often times offsetting any contribution from severance taxes and propagating health issues in disproportionately underprivileged populations.

In order to keep the scope of this report well-defined, we limited our exploration of the oil and gas industry in Colorado to labor, revenue, and environmental concerns. As stated in the report methodology, these are the primary economic concerns the state of Colorado faces as it embraces a just transition to alternative, renewable energy sources. Importantly, there are several other key considerations that a holistic analysis ought to incorporate: namely, demographic information on racial and socioeconomic inequality as it relates to fossil fuels and renewables, health concerns from contaminated groundwater and poor air quality, and the financial stability and cash flow forecasts of proposed renewable energy projects. Primary conclusions can be found below.

• Growth in renewable energy-based employment capacity is set to outpace oil and gas by a significant margin.
• Oil and gas workers are increasingly open to undergoing job retraining programs into the renewable sector.
• Workers with experience in carbon recapture and methane management will fare the best, while workers in oil and gas transportation and construction will fare the worst.
• Transitioning workers will require a simple and collaborative solution to the education gap between oil and gas workers, and workers in renewables.
• A workforce with a diverse skillset benefits the entire economy and shields oil and gas workers from excessive hardship during economic downturn.

• The oil and gas industry supplies a tremendous amount of funding to the state and local governments, much of which directly benefits the public good.
• Investment in renewables has the potential to outpace oil and gas and supplement state income at equal, if not higher levels than the current taxation system.
• A new tax system is critical in order to distribute local tax revenue in rural, Eastern Colorado to counties that are highly dependent on oil and gas.
• Federal support of investment in renewables in the form of grants and tax subsidies will provide significant savings for the state when compared to current well plugging and cleanup initiatives.

• Orphaned and zombie wells present a long-term problem for the environment.
• The lack of extensive data on the locations of all wells is a cause for concern, and further mapping and geological surveys should be taken to identify and seal these hazards.
• As renewables replace fossil fuels, there will be a marked shift in air quality as methane and carbon dioxide emissions decrease.
• A swift and controlled transition will prevent further oil spills, groundwater contamination, and loss of wildlife.