87th LegislatureEnergyState House25% Tax on Natural Gas Flaring Proposed by Austin Lawmaker

A proposed law, intended to discourage flaring, would establish a 25 percent tax on gas flared by oil and gas companies.
February 11, 2021
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A proposed tax on natural gas flaring would bring in millions of dollars in tax revenues at a time when both the state and oil and gas industry are struggling financially.

House Bill 1494, proposed by Rep. Vikki Goodwin (D-Austin), would establish a 25 percent tax on the marketable value of methane flared from oil and gas production. 

Upon filing the bill, Goodwin stated, “Though the Texas Railroad Commission has implemented rules against flaring, the agency has become increasingly permissive in granting exceptions to these rules in recent years.”

“Flaring harms the environment, wastes viable energy product, & threatens the health of TX communities near oil & gas production facilities. The bill’s purpose is to disincentivize flaring so that oil producers will choose to make use of the gas rather than flaring/venting it,” she concluded.

The bill provides an exemption for small producers that flare less than 1,000 million cubic feet or account for less than 0.5 percent of the state’s total gas flared per year.

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Flaring occurs when excess gas — often in the form of methane — is burned rather than released into the atmosphere. The gas flared could theoretically be harnessed for consumption, but producers burn it when the cost of bringing it to market exceeds the potential profits for selling it.

Functionally, gas is often flared to prevent buildup within infrastructure that can present safety hazards. 

While the legislation is primarily intended to discourage flaring in the first place, it would provide a financial boon to the state at the expense of producers.

Based on 2019 production, flaring, and price data, the state would have collected $145 million from the tax. Due to the pandemic and subsequent government shutdowns, the state finds itself on tenuous fiscal grounds — with a looming $950 million biennium budget shortfall.

The state already collects oil and natural gas production taxes. For gas production, the tax amounts to 7.5 percent of the gas produced’s market value.

The tax would undoubtedly provide more tax revenues on which to count, but not without costs to the private sector.

Ed Longanecker, president of the Texas Independent Producers & Royalty Owners Association, told The Texan in a statement, “A tax on producers is not an effective or necessary strategy.”

“The U.S. oil and gas industry has made its commitment to reducing flaring and improving its environmental footprint well-known with measurable results through collaboration, voluntary programs, innovation and investment of billions of dollars in greenhouse gas-mitigating technology throughout the oil and gas value chain.”

Longanecker further stated that the oil and gas industry has collectively invested over $300 billion in greenhouse gas mitigation technologies.

Flaring is the latest PR hitch for the oil and gas industry and remains a significant battleground within the energy sector. Methane is often at the center of the debate due to its estimated warming effect potency 86 times that of carbon dioxide. An August 2020 report by the Texas Railroad Commission (RRC) found that in the previous year the amount of gas flared decreased by 82 percent.

According to industry estimates, total methane emissions are down 23 percent from 1990.

Pressure from environmental groups and polling from the public at large caused the industry itself to revamp its approach to flaring.

Last year, various fossil fuel associations banded together to create the Texas Methane & Flaring Coalition, aimed directly at tamping down on flaring reliance — which announced a goal to end routine flaring by 2030. Other initiatives include the Environmental Partnership and Our Nation’s Energy Future.

Indirectly, the projects serve as a messaging maneuver to claw background in the public square ceded to left-wing groups who wish to move away from fossil fuels and toward renewables for energy.

One such environmental organization, Earthworks, has maintained a significant presence in Texas due to the state’s formidable fossil fuel production. Dozens of improper flaring complaints have been submitted by the group to the Texas Commission on Environmental Quality (TCEQ), the agency tasked with policing pollution violations.

Only a small number of the complaints from Earthworks yielded violations after TCEQ conducted investigations.

Earthworks released a study late last month which stated 75 percent of gas flared by Texas producers on state lands was done without Railroad Commission permits.

Sharon Wilson, author of the study, said in a release, “The law requires flaring permits because the practice is wasteful and polluting, as Republicans and Democrats alike agree. The oil and gas industry’s contempt for the law coupled with the GLO, TCEQ and TRC failures to uphold it illustrates why permitting of new oil and gas operations must end.”

The industry maintains, however, that strides are being made toward flaring improvement. A 2019 analysis by pro-industry advocacy group Texans for Natural Gas found that at the same time Permian Basin production grew over 210 percent, its flaring intensity — amount of gas flared per barrel of oil produced — declined 64 percent.

But environmental groups object to any increase in emissions, approaching the topic from a zero-sum position. Quite succinctly, the justification for their position is that any new emissions further hurt the environment.

In November of last year, the RRC announced protocols to restrict flaring more rigorously. The initiative requires producers to provide more justification to receive a flaring exemption permit, reduce the lifespan of flaring exceptions, and incentivize producers to cut down flaring themselves.

Environmental groups have accused the commission of acting as a rubber stamp for producers looking to flare with abandon. That is one reason why Michael Bloomberg funneled $2.6 million into the Democratic nominee’s campaign for the RRC’s open seat.

But newly sworn in Commissioner Jim Wright opposed some exception permits last month, stating, “Most items that dealt with flaring did not appear to have a clear and concise plan on natural gas utilization.”

If sent to the right committee, this legislation may have a shot at reaching the floor. While the Energy Resources and Environmental Regulation Committees are chaired by Republicans, the Land & Resource Management Committee is chaired by Democratic Rep. Joe Deshotel (D-Beaumont).

Party affiliation, of course, provides no rock-solid indication of how an individual representative will react to a piece of legislation. But it’s safe to assume a Democrat will likely be friendlier to this potential new tax than a Republican.

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Brad Johnson

Brad Johnson

Brad Johnson is an Ohio native who graduated from the University of Cincinnati in 2017. He is an avid sports fan who most enjoys watching his favorite teams continue their title drought throughout his cognizant lifetime. In his free time, you may find Brad quoting Monty Python productions and trying to calculate the airspeed velocity of an unladen swallow.