Originally published on WRI’s Resource Institute Blog.and
As the United States reels from an unparalleled economic recession sparked by the coronavirus pandemic, Congress has correctly responded with some $3 trillion in stimulus packages, with more on the way. Economists on the left and right, including the head of the Federal Reserve, agree that stimulus spending is absolutely essential for our economic recovery. There is much more to be done, though, to see that the stimulus helps to build a resilient future by supporting clean energy and addressing climate change.
The climate crisis is not on hold during the coronavirus pandemic. Most Americans support an economic recovery that bolsters the clean energy industry: in recent surveys, 56% favor aid for renewable energy while 38% support aid for oil and gas.
So far, though, the government has provided tailored, targeted relief to oil and gas companies while largely dismissing the sector-specific requests of clean energy.
Both clean energy and oil and gas are suffering from job losses related to COVID-19, but none of the actions taken to benefit the oil and gas industry are designed to assist fossil fuel workers who have lost their jobs. And the government has failed to address the loss of clean energy jobs directly resulting from the coronavirus pandemic.
COVID-19-related Government Actions that Specifically Help Oil and Gas
COVID-19-related Government Actions that Specifically Help Clean Energy
|Changes to business tax provisions and rebates, under the CARES Act
Changes to tax restrictions and rebates loosened rules on accounting for business losses, allowing businesses to carry back losses from 2018-2020 (both before and as a result of COVID-19) and decrease taxable profits for years prior to 2018. This change is particularly helpful for the oil industry, given recent volatile profits.
According to a review of SEC filings, at least 37 oil companies claimed more than $1.9 billion in CARES Act tax benefits. For example, National Oilwell Varco expects to file a tax refund claim for $123 million by carrying back its 2019 net operating losses. Diamond Offshore Drilling recognized a tax benefit of $9.7 million as a result of the CARES Act carry back, despite facing bankruptcy. Occidental Petroleum Corporation anticipates a cash refund of approximately $195 million.
Main Street Lending Program for small and medium businesses
The oil and natural gas industry expressed concerns over eligibility limitations related to debt. In response, the Federal Reserve expanded the program. This allows more indebted companies to qualify for funds and use them to pay off prior loans, meaning more oil and gas companies can access funds.
The Federal Reserve has also extended the loan repayment period to account for an additional year delay in principal payments, and increased the percentage of loans it will purchase. Reportedly, the extended repayment could be particularly useful for companies waiting for oil prices to recover, and the increased loan purchasing will specifically help already indebted business (including a number of U.S. oil companies).
COVID-19-related changes to use of public lands
The Trump administration dramatically cut the royalties some companies pay to produce oil and gas on public lands. In April, the Bureau of Land Management (BLM) approved all 76 royalty reduction requests it received, and BLM notified oil and natural gas companies that they will reduce royalty rates from about 12.5% to as low as 0.5 %.
At the same time, BLM reportedly ended a two-year rent holiday for wind and solar companies using federal land. BLM’s FY21 budget projects collecting $50 million from wind and solar projects in 2020, an increase from roughly $1.1 million in 2019 and $21.6 million in 2018.
COVID-19-related regulatory rollbacks
Oil and gas industry successfully lobbied the EPA to ease environmental restrictions and integrity testing, and reduce monitoring and reporting obligations, if oil companies say non-compliance is COVID-19-related. Nine states filed a lawsuit in response.
|The Treasury Department and IRS provided tax relief for renewable energy projects by increasing flexibility around, extending, beginning of construction and placed in service deadlines for tax credits that financially underpin the industry.|
So while many American taxpayers are still unemployed, at least 37 oil companies claimed more than $1.9 billion in CARES Act tax benefits. Diamond Offshore Drilling realized a tax benefit of $9.7 million as a result of the CARES Act, despite facing bankruptcy. Bloomberg News reports the company then asked a bankruptcy judge to authorize $9.7 million in bonuses for nine executives.
Another glaring example of this disparate treatment is the administration’s granting of royalty relief to the oil and gas industry, while at the same time sending massive bills for retroactive rent to the wind and solar companies amid a global pandemic. The royalties from oil and gas payments amounted to $3 billion in fiscal 2018. Since these royalty payments are typically shared with states, the relief program will shortchange American (particularly Western state) taxpayers of these revenues at the worst possible time.
COVID-19 relief so far neither directly helps address fossil fuel jobs nor positions the United States to deal with the climate crisis.
Sarah Bloom Raskin, a former member of the board of governors of the Federal Reserve, described recent moves by the Fed to invest in the fossil fuel industry in the following way:
“The Fed is ignoring clear warning signs about the economic repercussions of the impending climate crisis by taking action that will lead to increases in greenhouse gas emissions at a time when even in the short term, fossil fuels are a terrible investment.”
Fossil fuel companies have been expanding recklessly, in some cases without turning a profit, and now the oil and gas sector holds $744 billion in outstanding bonds and debt. Instead of working to help fossil fuel workers make the transition to the low-carbon economy that is necessary to avoid the worst effects of climate catastrophes, the U.S. government is bailing out the ailing fossil fuel industry with taxpayer dollars intended to help those impacted by COVID-19 directly.
As our WRI colleague, Devashree Saha outlines, we support the government acting to alleviate the suffering of fossil fuel workers who have lost their jobs. However, the government’s aid to the oil and gas industry isn’t designed to help workers who have lost their jobs – jobs that were already vulnerable before the coronavirus pandemic.
We must address this inequity and ensure that any future stimulus packages directly respond to the needs of the clean energy sector. This effort will allow the nation to build back better, creating jobs while supporting a low-carbon economy through specific support for the clean energy sector, which has seen a 17% drop in employment.
Impacts of COVID-19 on the Energy Sector at Large
COVID-19 has had a significant impact on the energy industry overall, particularly in terms of reduced demand, supply chain disruptions and lost jobs. Because many Americans have been in quarantine since the onset of the pandemic, there has been a drastic drop in demand for oil as airplanes, trains, cars and trucks are largely unused.
Recent forecasts from the U.S. Energy Information Administration suggest that the total U.S. electric power sector generation will decline by 5% in 2020 and motor gasoline consumption will fall by 11% compared to 2019. The International Energy Association found that energy investment in the United States in 2020 is set to fall by 25%, a decline greater than some other countries, because of the U.S.’s exposure to oil and gas.
The oil and gas industry, with its existing financial and structural challenges, has struggled in the face of a supply shock, unprecedented demand drop and a global health challenge. The oil and gas service sector could lose more than 100,000 workers by the end of 2021.
Clean energy — a fast-growing industry only months ago and a significant job creator for more than a decade — is also facing devastating job losses. Almost 600,000 clean energy workers have lost their jobs since the onset of the coronavirus, and that does not fully account for many temporarily furloughed or underemployed workers.
The entire clean energy industry is in crisis, with renewables seeing a 13% drop in employment and energy efficiency losing about 310,200 jobs. The long list of the newly unemployed includes solar and wind technicians, HVAC contractors and thousands within the construction and installation fields. Without government action, experts conservatively forecast that 850,000 clean energy workers will have filed for unemployment by June 30.
The ability of wind, solar and hydropower developers to qualify for time-sensitive tax credits is impeded by supply chain disruptions, the shut-down of factories, or reduced production volumes and the inability to do installations when social-distancing is required. In a blow to reducing carbon pollution, the coronavirus has severely impacted U.S. residential solar installation, and globally the addition of solar power generation capacity could decrease in 2020 for the first time since the late 1980s.
For those in the energy efficiency sector, construction workers and contractors can’t access homes and businesses, making it challenging to work or retain employees. According to the industry, the existing tax credits for energy efficiency are insufficient to spur investment, particularly in this context and at the scale currently needed to allow businesses to maintain staff or even consider rehiring.
Stimulus Plans Must Provide Relief to Clean Energy Workers
Legislation to broadly invest in infrastructure is probably at least several months away. Infrastructure investments will provide significant opportunities to build back better and build a low-carbon economy through resilient and climate-smart investments (see our COVID-19 Expert Notes: Rebooting the U.S. Economy After COVID-19 for WRI’s suggestions of ways this could be done that will create jobs).
In the meantime, Congress must immediately address the disparity in assistance to energy companies that have been directly impacted by COVID-19 and provide assistance to the clean energy sector in any future stimulus packages. Doing so is imperative to ensure the future of the clean energy sector and to provide a down payment on addressing climate change.
We call on Congress to include these three features in the next stimulus packages to provide immediate relief to clean energy workers impacted by COVID-19:
- Allowing tax credits to be received as a direct payment
- Delaying the phasedown of existing renewable energy tax incentives
- Improving and expanding the energy efficiency tax credits
Featured Image: Rooftop Solar at Non-Profit Environmental Business, Cynthia-Shahan, EV Obsession