Renewables Can Build Revenue for Local Governments. For Fossil Fuel Communities, It Won’t Be Enough.
A new paper shows that, in the counties where fossil fuels play a major role in the economy, revenue from renewables won’t be able to replace those from fossil fuels due to lack of physical space and other barriers.
💡 What’s the story?
Fossil fuels create billions of dollars in revenue to fund public schools, infrastructure, and health care in communities across the country. But as the United States embarks on an energy transition, could renewable energy sources replace fossil fuels as a revenue source in the coming decades? A new analysis from researchers at Resources for the Future (RFF) and the University of Michigan considers this possibility.
The new paper shows that, in many states, solar and wind generate more revenue for local governments per unit of energy than fossil fuels. But in the counties where fossil fuels play a major role in the economy, revenue from renewables won’t be able to replace those from fossil fuels due to lack of physical space on which to build wind or solar farms.
The research provides a first glimpse into how different types of energy sources fund essential local services and notes that much more work is needed to develop policy solutions. It also shows that, in raw financial terms, declining government revenue from fossil fuels is just as significant as the potential for job losses in coal, oil, and gas—a topic that has received far more attention.
“This is a whale of an issue—and we’ve just got a handle on the fin. When people talk about the energy transition, they talk about jobs, but that’s not the only metric we need to consider. What this paper shows is that we need to give a lot more thought as to how fossil-dependent communities can make up lost government revenue with new sources beyond just renewable energy.”
—Daniel Raimi, Fellow and Director of RFF’s Equity in the Energy Transition Initiative
🏗️ What are the implications?
For counties with little reliance on fossil fuels for revenue, wind and solar offer a new opportunity to grow local tax bases and support public services.
But in the hundreds of energy communities with large revenue streams from oil, coal, and natural gas, local governments will need to build new tax bases beyond wind and solar to maintain essential public services such as schools, roads, and public safety. Developing these new tax bases will require major economic diversification efforts and financial support from the federal government.
In many energy-producing counties, fossil fuels annually provide more than $1,000 of government revenue per person, in some cases exceeding $10,000 per person. In most cases, generating this amount from solar and wind would require dedicating implausibly large portions of developable land to renewable generation. For example, in counties where fossil fuels provide more than $100 million per year in government revenue, generating the same amount from wind is not physically possible due to land constraints, and would require between 14 and 66 percent of available land to be covered with solar farms.
📊 How do we know?
The analysis takes a deep dive into 79 energy-producing counties across the ten leading energy-producing states: Alaska, California, Colorado, Montana, North Dakota, New Mexico, Ohio, Texas, West Virginia, and Wyoming. The researchers spent more than two years gathering roughly 40,000 observations of local government revenue generated by the energy system.
The data do not include revenue gained from income taxes, sales taxes, and other similar sources. Because of this, the estimates for both fossil fuel-related revenue and renewable-related revenue are lower bounds of actual energy revenues, reinforcing the significance of this issue.
Although this analysis evaluates some of the top energy-producing counties in the United States, the authors note that much more data and analysis is needed to better understand the relationship between the energy system and local public services nationwide. The map below illustrates the counties covered in the study and shows the percentage of local property tax revenues that come from the energy system, which in some communities exceeds 90 percent.
Share of local property tax revenues from the energy system in 2021
📚 Where can I learn more?
For more information, read the related paper, “The Energy Transition and Local Government Finance: New Data and Insights from Ten US States,” by Daniel Raimi (RFF), Elena Davert (University of Michigan), Haley Neuenfeldt (University of Michigan), Amy Van Zanen (University of Michigan), and Zach Whitlock (RFF). Funding for this project was provided by The Wilderness Society and RFF’s Equity in the Energy Transition initiative.
This paper builds on the findings of other recent RFF papers, particularly a national analysis of government revenue from fossil fuels released in July 2023.
Resources for the Future (RFF) is an independent, nonprofit research institution in Washington, DC. Its mission is to improve environmental, energy, and natural resource decisions through impartial economic research and policy engagement. RFF is committed to being the most widely trusted source of research insights and policy solutions leading to a healthy environment and a thriving economy.
Unless otherwise stated, the views expressed here are those of the individual authors and may differ from those of other RFF experts, its officers, or its directors. RFF does not take positions on specific legislative proposals.
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