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Midterms Move Climate Battle Beyond Washington

In former President Donald Trump and current President Joe Biden, the US had a climate-change denier followed immediately by the greenest White House yet. Many states responded to the Washington whiplash with moves of their own. Under Trump, more than a dozen adopted ambitious decarbonization targets, while, under Biden, others have put anti-green laws on the books.

Recent passage of the Inflation Reduction Act has upped the stakes and next week’s midterms promise some variant of gridlock in Congress. That makes state-level elections, with local legislatures and governorships in most states up for grabs next week too, more important than ever in the battle over US climate policy.

The states are powerful players in the US energy sector given their control over — among other things — local electricity and gas grids, energy taxation and subsidies, permitting and setting climate targets. They can use that power to capitalize on or limit the scope of even ambitious federal legislation like the IRA. In some states, such as Wyoming, North Dakota and Kansas, very aggressive legislation has been proposed already that would effectively block renewable power development and possibly threaten existing projects by imposing state-level taxes or siting restrictions. These haven’t made headway as yet.

Wyoming did pass legislation last year in the form of HB 166 to effectively slow the retirement of old coal plants there by forcing operators to justify any closures to state officials and preventing utilities from recovering the capital cost of renewable projects through customer bills. West Virginia passed similar legislation, SB 542, that also requires coal-fired plants to maintain minimum contracted supplies of the fuel. And several states such as Texas have passed laws prohibiting towns from banning natural-gas hookups, seeking to head off a trend that began in California (see this). More such efforts are a virtual certainty.

One reason is that, in these polarized times, many states are under unified control, easing the translation of even aggressive policy into laws: 37 states have a Republican or Democratic trifecta of state house, senate and governor’s mansion. The chart below shows the breakdown, along with who those states voted for in the 2020 presidential election.

Having been stripped of elements that penalized fossil fuels, the IRA’s climate package is essentially a $369 billion bag of carrots for clean technology deployment and manufacturing. Opponents to the energy transition can hardly expect it to be repealed; even the Affordable Care Act survived a unified Republican government in Washington. Instead, they may look to those states with a vested interest in fossil fuels — and maybe even some without one.

Fossil-fuel production and refining in the US is concentrated: The top 10 states account for about 90% of the industry. Texas alone produces roughly a third of the country’s onshore oil and gas and hosts the same share of refining capacity. Wyoming produces more than 40% of US thermal coal.(1)

The list is almost identical when considering states where the production, processing and transportation of fossil fuels generates a significant share of GDP.

Overlaying politics, the redder the state, the more attached it tends to be to fossil fuels. The following charts illustrate how US energy production and infrastructure maps to the varying levels of red and blue control, as laid out in the table above. (Since no states with a Democratic trifecta voted for Trump, I have left out that category.)

By and large, therefore, states that matter to the US fossil-fuel industry, or where that industry matters economically to the state, tend to be controlled by Republicans and/or have backed Trump.(2)The top 10 hold limited political clout: The biggest producing states account for only 101 Electoral College votes, less than a fifth. The states with the highest share of GDP derived from fossil-fuel production hold just 84 electoral college votes. At the federal level, therefore, the Senate, with its skew toward territory rather than people, offers more of a bulwark for fossil fuels. While 20 senators can’t decide things on their own, they can form a solid foundation for a filibuster, especially as another six states rely on the industry for at least 2% of GDP.

Senators can caucus with either party, though. As much as Senator Joe Manchin of West Virginia shrank the IRA, he still voted it through, despite hailing from a state where Republicans hold a trifecta and Trump secured his second biggest margin in 2020.

Moreover, clean technologies are encroaching everywhere. In a recent column I wrote with Jeff Davies of Enersection looking at where clean technology is deployed at the Congressional district level, we found it mostly gets built where there is cheaper, open land — which usually means rural or semi-rural districts that skew Republican. This explains, for example, the seemingly anomalous concentration of wind power in red states: The wind blows hardest and most reliably across those Midwestern plains.

Solar power looks more aligned with political divides, especially the rooftop variant which is, after all, tailor made for the urban and suburban areas that skew blue. That may reflect Democrats’ greater willingness to subsidize it, as well as higher average electricity prices in blue states. Still, the big drop in the cost of solar power and batteries over the past decade gives it the potential to keep spreading across the country. Indeed, along with being a curious hybrid of an oil and wind superpower, Texas has all the potential to soon challenge California for the solar crown too.

In holding the line against green energy, therefore, the states have emerged as an important alternative battleground.

Besides bills and laws that target renewables or support fossil fuels specifically, an interesting trend of late involves legislation restricting government entities from engaging with firms touting environmental, social and governance, or ESG, targets or products. While these laws put supposedly freedom-loving Republican politicians in the absurd position of dictating investment decisions — see this — they carry the political benefit of being amorphous.

The term “ESG”, originally a methodology to screen securities for risk, has been assiduously conflated with “wokeness” by politicians and wannabe fund moguls alike. Framing climate and energy policy as facets of “culture” is useful on two fronts. First, it allows an anti-green stance to potentially resonate beyond the relative handful of states where fossil fuels are actually big business. Witness how Governor Ron DeSantis of Florida, a state with virtually no fossil-fuel profile to speak of — and yet vastly underutilized solar resources — has taken up the anti-ESG banner with gusto as he eyes a likely presidential run in 2024. Second, given the falling cost of clean energy and increasing familiarity with it, a culture battle may have better prospects than a straight fight on technology or economics.

Utilities play a critical role in all this because they are both gatekeepers to local grids and are largely regulated at the state level. Moreover, as big employers, builders and campaign contributors, across much of the US “the most powerful interest in energy policy is the dominant utility in the state,” says J.R. Tolbert, a vice president at Advanced Energy Economy, which advocates at the state and federal level for clean energy. Since utility regulators are either elected directly or appointed by governors, state elections can determine how far, or not, the IRA’s inducements apply in one state versus another.

Two states to watch next week are Colorado and New Mexico, fossil-fuel powerhouses that are, anomalously, also deep blue. In the former, the Cook Political Report has tightened its view on the race for the seat held by Senator Michael Bennet, one of two incumbent Democrats, from “likely” Democrat to “lean.” A loss would shift his seat to Joe O’Dea, whose campaign emphasizes higher oil and gas production, and a slower energy transition. Meanwhile, Democratic Governor Michelle Lujan Grisham’s campaign in New Mexico has also tightened into the “lean” column. While her opponent Mark Ronchetti is pro-renewables, he also favors higher oil and gas production in a state where Democrats dominate the legislature but don’t hold veto-proof majorities. 

Over time, the falling cost of clean technology and the investment it entails — creating local constituencies in the process — presents a growing challenge to the GOP’s orthodoxy on energy and climate. For now, expect the battle that has played out in Washington to shift to a statehouse near you, if it hasn’t already.

More From Bloomberg Opinion:

• The Mighty Mississippi Is Losing to Climate Change: Adam Minter

• Everybody Moved to Florida Ahead of Hurricane Ian: Mark Gongloff

• It’s Better to Mine Rainforests Than Farm Them: David Fickling

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(1) Comparing oil and gas volumes with coal volumes is problematic due to the especially wide disparities in the energy content of different grades of coal; for example, between Appalachian coal and coal from the Powder River Basin. For the purpose of this chart, I have settled on a single conversion factor to illustrate the top 10 states overall. The exajoule totals should be taken in that sense, as illustrative and relative, rather than definitive.

(2) There are notable exceptions. California is the seventh-largest oil producing state and hosts roughly a tenth of the country’s refining capacity. Against that, fossil-fuels production, processing and transportation amounts to just 1% of GDP and the upstream oil and gas business is concentrated in one county, Kern. Colorado and New Mexico are even more striking, being top-10 fossil-fuel producers and deriving 4.1% and 8.7% of GDP from the industry (average for 2016-2020). Yet all three are also blue trifecta states that backed Biden.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Liam Denning is a Bloomberg Opinion columnist covering energy and commodities. A former investment banker, he was editor of the Wall Street Journal’s Heard on the Street column and a reporter for the Financial Times’s Lex column.

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