Congress Is Currently Debating A Devastating National Energy Tax. Here Is What You Need to Know

Thu, September 16, 2021

Right now, a disastrous national energy tax is being debated in Congress that could cripple small Texas oil and gas operators and severely burden American taxpayers. The tax currently stands as part of the $3.5 trillion reconciliation package.

In a letter to the House majority leaders this week, Texas’ Democratic Reps. Henry Cuellar, Vincente Gonzalez, Lizzie Fletcher, Sylvia Garcia, Marc Veasey, Filemon Vela and Colin Allred said:

“We firmly believe that the budget reconciliation bill should not unduly disadvantage any industry, and oppose the targeting of U.S. oil, natural gas, and refining with increased taxes and fees and the exclusion of natural gas production from clean energy initiatives. These inequitable policies will cost American jobs, move America farther away from energy independence, and will slow the country’s move toward a lower carbon future.” (emphasis added)

What is a reconciliation package?

Reconciliation is a special process that allows Congress to expedite tax, spending or debt limit legislation. In recent years, it has been used as a tool to allow Congress to fast-track budget related bills that often don’t have the full support of Congress. Reconciliation bills – like the one that includes the tax on natural gas – can pass the Senate with a simple majority of 51 votes instead of meeting the required 60-vote threshold necessary to pass most legislation. Moreover, bills in the reconciliation package cannot be filibustered. By leveraging the budget reconciliation process, Congress can pass bills that lack the broad support typically required to pass legislation. In short, Congress is using reconciliation as a tool to advance an agenda and avoid processes that would require broad, bipartisan support.

How is a national energy tax folded into the reconciliation package?

The fee on petroleum and natural gas systems in the reconciliation package (Sec. 136) natural gas tax, establishes an unprecedented national energy tax. The policy will tax greenhouse gas emissions, primarily methane, from oil and natural gas production. The act singles out U.S. oil and gas production – it will not tax methane from agriculture, waste management, and coal sectors, which represent three of the top four methane producing sectors.

How this act will tax natural gas is neither simple nor straightforward, using a complicated equation to determine the amount of emissions that can be taxed. According to the current language, an annual fee of $1,500 would be levied against energy producers for each metric ton of methane emissions produced. To put this exorbitant fee in context, the Trump Administration had set the cost of methane emitted per metric ton at $55. That’s a roughly 2,600% increase. Additionally, this fee would increase 2% above yearly inflation moving forward.

Rep. Michael Burgess, R-Lake Dallas, said of the natural gas tax: "This is nothing short of an attack on America's energy system. It's going to determine the nation’s fate for decades to come."

What will the impact of the national energy tax be?

This natural gas tax would have a ripple effect through the entire U.S. economy. In 2020, oil and natural gas provided 69% of total U.S. energy consumption. Placing a tax on such critical energy sources would impact oil and gas jobs, household energy bills, and even the price of gasoline. It would also raise costs on goods and services that rely on natural gas as a feedstock and energy source including food and medical supplies.

With natural gas and gasoline prices already high and the costs of basic necessities currently on the rise, this new tax will unnecessarily increase the burden on American consumers already struggling to pay their bills, heat their homes and put food on the table. According to a letter from the American Petroleum Institute and signed by 130 other organizations, as many as 155,000 jobs could be impacted by the tax.

If this national energy tax were to be implemented, households across the United States could seriously suffer, including Texans. Energy poverty – or the disproportionate burden low-income households face when it comes to energy bills – is a real issue that many policymakers attacking oil and natural gas choose to ignore. In certain areas in Texas, low-income households pay up to 28% of their monthly income to cover their energy needs. Even a slight increase in energy prices could force families to choose between their groceries or keeping the lights on.

Moreover, this proposed tax has not gone through the formal Congressional review process, and its economic impact on the industry and consumers has not been analyzed, especially for lower income Americans and Texans. What is clear is that the national energy tax could disproportionately affect smaller, independent companies, their workers, and their customers. According to a study by S&P Global, the cost of compliance and retrofitting wells would result in a costly, burdensome shutdown negatively affecting the entire industry.

What is an effective way to reduce methane emissions?

Methane emissions from flaring in Texas have decreased 72% since June 2019. In fact, the Texas Methane & Flaring Coalition, which includes seven trade associations and over 40 operators, said by 2030 they could eliminate routine flaring. And according to an analysis from Texans for Natural Gas, methane emissions intensity in the Permian Basin has declined over 70%from 2011 to 2019, while oil production more than tripled over the same period.

There is simply no world in which this tax effectively addresses methane emissions. Rather, this tax will negatively impact domestic energy production, hurt American jobs, and raise prices for the average consumer.