In this week’s episode, host Daniel Raimi talks with Robert Godby, an associate professor of economics at the University of Wyoming. Godby describes Wyoming’s long history of energy production before expounding on two major recent shifts in energy demand that have created challenges for the state: a precipitous decline in the demand for coal, and the development of fracking as a cheaper method of extracting natural gas. Godby elaborates on some of the issues Wyoming faces as a result of these shifting energy priorities, including struggles with economic diversification, underfunded education services, and concerns that an energy transition will bring hardship for local communities.
Listen to the Podcast
- Energy production has been central to Wyoming’s economy: “The bottom line is that energy is basically Wyoming’s economy. It’s by far the number one sector. If you just look at traditional fossil fuels, the total state GDP that’s created by that sector is about 25 percent. And I’ll say this: While Wyoming is maybe ranking third right now in total energy production, it is by far the number one domestic exporter of energy. Almost all of the energy produced in Wyoming is exported somewhere.” (10:01)
- Taxes create challenges in Wyoming: “We have this ‘revenue curse,’ and that’s because our revenue model here is almost entirely dependent on taxing other people. Some people in sociology have called this an addictive economy, and we are certainly dealing with that. We have the simultaneous challenge of looking for new economic development and diversifying the economy. At the same time, we have to diversify our tax structure.” (22:38)
- Political consequences of a clean energy transition: “Politicians dealing with those regional issues [of a changing energy system] find it very difficult to take action on climate change, because front and center here is this trade-off: moving toward a less carbon-intensive economy is going to require transition and displacement, and we are one of the epicenters.” (25:27)
Top of the Stack
- The Grid: The Fraying Wires between Americans and Our Energy Future by Gretchen Bakke
- Short Circuiting Policy: Interest Groups and the Battle Over Clean Energy and Climate Policy in the American States by Leah Stokes
- “Decommissioning Orphaned and Abandoned Oil and Gas Wells: New Estimates and Cost Drivers” by Daniel Raimi, Alan Krupnick, Jhih-Shyang Shih, and Alexandra Thompson
The Full Transcript
Daniel Raimi: Hello, and welcome to Resources Radio, a weekly podcast from Resources for the Future. I'm your host, Daniel Raimi. Today we talk with Robert Godby, Interim Dean at the School of Business and Associate Professor of Economics at the University of Wyoming. Wyoming is the subject of our conversation today. It's been a major energy producing state for over a century and is by far the nation's largest producer of coal. But production in recent years has declined substantially, raising major challenges for the state's energy economy, and its public revenues. And with the need to reduce emissions much further, the outlook for Wyoming's energy future is highly uncertain.
One quick production note, the audio quality for today's episode is a little below our usual standard. We apologize for that, but assure you that Rob's insights will make today's episode a worthwhile listen. Stay with us.
Alright, Rob Godby from the University of Wyoming, thank you so much for joining us today on Resources Radio.
Robert Godby: Hey, I am glad to be here.
Daniel Raimi: So Rob, we are going to talk all about Wyoming today: Wyoming's energy history, Wyoming's energy present, Wyoming's energy future. But before we do that, we always ask our guests how they got interested in working on energy or environmental topics. So how did you end up working in this field?
Robert Godby: Well, it's going to be kind of a roundabout story. I grew up in a town in central Ontario in Canada. The primary industry there is tourism now, but at the time it was an industrial town as well. I first got interested in economics there. It turns out that my town was struggling through most of my childhood, but I didn't really realize that. In fact, I didn't realize that we were a Rust Belt town until a New York Times full spread story about my hometown a couple of years ago, and the spin on the story was about free trade, and Canadians, and how it was hitting former industrial towns. And there was my hometown, and I'd never thought of it like that. My parents were in the public sector, they'd not been affected by those things.
That kind of background is what drew me to economics, primarily macroeconomic topics. I was always really interested in the natural environment and how that affected macroeconomic outcomes, which historically is not something that has been talked about a lot in environmental economics literature. From there I moved to Wyoming for my first real academic job, where I landed in the middle of energy country. It was kind of a natural fit because where I had grown up, or spent a lot of my summers, was a logging place. And so commodity dependence was something that I was used to. I just kind of fell into it, it was kind of just a set of things that were comfortable, and areas that I was interested in.
Daniel Raimi: Yeah, absolutely. And that's exactly what we're going to be talking about today. We're going to talk about both the challenges that Wyoming is facing currently, and also some of the opportunities that it has. Before we do that, could you give us maybe just a super quick thumbnail sketch of the early days of energy development in Wyoming? How did it start, and what were the commodities, and what did it all look like in the beginning?
Robert Godby: I think people might be surprised to know how long Wyoming has been involved in energy extraction. In fact, if you look at Wyoming's history, its iconic symbol is the cowboy. Here at the University of Wyoming, that's our mascot, but it's also the state mascot, the bucking horse, and we’re associated with those sorts of Western iconic images. But truly, the economy in Wyoming and what people have done in Wyoming has involved as much or more energy production than it ever has that kind of ranching agriculture.
Oil was first noted here in around 1839, 1840. Captain Bonneville, a man who was in the fur trade, noticed these oil springs in the midst of Wyoming. The Native Americans used them for things like paint, but they didn't really burn it or anything like that. After that, it was often used for lubricants. When the Union Pacific came through and statehood occurred in the 1880s, oil production was already underway.
So oil and gas have really been a part of Wyoming's economy since the very beginning. In fact, a historical incident that people are probably familiar with was the Teapot Dome Scandal, which was, until Watergate, the biggest corruption scandal in American government history, I suppose, along with maybe the building of Union Pacific. But both of those things occurred in Wyoming or involved the state. Teapot Dome is actually in Wyoming and that was a Naval oil reserve.
From the 1920s right through to now, Wyoming has been a major oil and gas producer. Coal production occurred here too. In the 1840s, it was noted by the original fur traders that were coming through the area that there was coal, and so was the Powder River Basin, which is the largest coal base in terms of production. It was noted as early as about 1860, that there was coal there and production began even before the railroad got here for local use. But certainly when the railroad came through, coal production along the original Union Pacific line became a staple of many communities along the way in places like Hanna and Carbon, Wyoming. So energy production has been basically a way of life in Wyoming since before statehood.
Daniel Raimi: That's fascinating. I didn't know so much of that. So you've given us a whirlwind historical tour, but let's catch up to the present. So where does Wyoming stack up in the order of energy producers among US states in terms of the major energy sources that you've talked about so far? Also, what about in terms of renewable energy, new energy sources, like wind?
Robert Godby: So it depends on what data you look at and what year. Wyoming, in terms of traditional total energy produced over the last two decades, has typically been the second largest energy producer in the country behind Texas. It produced about 40 percent of the total energy Texas does. In recent years, it's fallen to third behind Pennsylvania, and that's really due to the decline in the coal industry more than anything else.
In terms of commodities, Wyoming is by far the number one coal producer in the country, even though there's been a significant decline in coal. Last year, Wyoming produced about 41 percent of the country's coal, and Wyoming has been producing about 40 percent of the country's coal since the early 2000s. We typically are eighth or ninth in total production of natural gas and oil. That production continues, primarily from conventional, but also more recently from unconventional wells. When there is uranium production, Wyoming is often the largest producer in the country of uranium. Wyoming was also one of the first places to actually have very large industrial wind farms, or utility-scale wind farms. We had quite a boom here beginning in the late 1990s to about 2010. Then what happened here in Wyoming was that we ran out of transmission capacity, and so building new farms ceased.
Right now, I think how Wyoming stacks up to other states depends on how you count the new wind farms coming online. There's a significant amount of new renewable energy coming online in Wyoming, and almost all of that is wind. We are typically around 15th in the country in total wind potential energy production, so electricity production. The real draw to Wyoming is that the natural topography here creates a Venturi effect as you cross the continental divide. So some of the best onshore winds in the country are actually located in Wyoming. Early renewable energy development occurred in Wyoming. In fact, some of the original Department of Energy designs for wind turbines were out here in the mid-1990s. One of those turbines, until about five or six years ago, still held the record for most electricity production from a single turbine.
Daniel Raimi: Cool. So obviously Wyoming is a major player in United States energy production across almost every type of energy source. Can you help us understand now how important is the energy industry for Wyoming's economy for these macroeconomic issues that you started off being so interested in, things like jobs, economic output, tax revenue, other metrics like that?
Robert Godby: So the bottom line is that energy is basically Wyoming's economy. It's by far the number one sector. If you just look at traditional fossil fuels, the total state GDP that's created by that sector is about 25 percent. And I'll say this: while Wyoming is maybe ranking third right now in total energy production, it is by far the number one domestic exporter of energy. Almost all of the energy produced in Wyoming is exported somewhere else because Wyoming is also the country's least populous state, with just over 500,000 people.
Energy exports, in terms of either raw commodities like oil or natural gas or coal, or actually produced energy, like electricity on transmission lines, are the primary outputs for Wyoming’s economy. About 12 percent of state employment—depends on the year, of course, after COVID that changed a little bit—and probably most critically, about 50 percent of Wyoming's general revenues for public goods come from energy.
It’s very important, and it's always been kind of the primary sector, at least since World War 2, for sure. Agriculture was once very large here, but now is about 2 percent of the economy. The next largest sector in the Wyoming economy is tourism, maybe unsurprisingly, since the world's first national park is also mostly located in Wyoming, Yellowstone. There's also Teton National Park, places like Devils Tower, those iconic Western places. But total tourism revenue, if you look at it broadly, is only maybe 5 percent of the state's gross state product. So energy is the industry out here.
Daniel Raimi: With that in mind, in the last several years—especially in 2020—there has been a steep decline in demand for coal in the United States, and to a lesser extent around the world as well. How has that downturn in coal in particular affected Wyoming? When we extrapolate to the future, how might further declines in coal demand, whether in the United States, or globally, affect the economy of the state?
Robert Godby: This has been a real challenge. I'll say a couple things. So first of all, oil, gas, and coal are sometimes referred to as the three-legged stool of Wyoming's revenue sources. Our tax structure here is really dependent on taxing other people, because over 50 percent of our general revenues come basically from different types of taxes: severance, or property taxes, which is just another extraction tax on those commodities, or federal mineral royalties. Together, those are responsible for about 50 percent of the state's revenue.
Of course, oil and gas, as everybody is aware, are very cyclical. The thing about coal is that the rise in coal production in Wyoming is relatively recent. While coal has always been produced here, the really large-scale production that people think of, with large open pit mines like the ones in the Powder River Basin, didn’t really take off until the late 1970s with the oil crisis and the need for domestic energy.
Come the 1980s, Wyoming surpassed West Virginia as the largest coal producer in the country. There's an old joke out here that all you need to mine coal in Wyoming, or the Powder River Basin, is a three iron. There are massive coal deposits just below the surface. They may be a mile wide and hundreds of feet high. You just really need to open them up. The thing about these mines is that the larger they get, the cheaper the coal production is, because you can then manage economies of scale. You add that to rail deregulation in the 1980s, and suddenly it was very affordable to export coal long distances. So Wyoming coal may travel as far as 2,000 miles.
So why is that important with respect to the coal downturn? First of all, about 94 percent of the coal produced in Wyoming is exported somewhere else. So we burn about 6 percent of the coal produced, and then we export about 40 percent of that electricity. It's all used for electricity here. So that downturn in coal came as a real surprise. Literally, to forecast coal production, the state just drew a trend line, and it was basically a straight line upwards from the 1980s until about 2008 and the recession.
Then of course, what happened during that recession was the fracking boom. There were sudden massive increases in natural gas production across the country that really drove down those prices. Natural gas is a substitute in electricity production for coal, so it started to drive coal out of the market. In the last decade, we've seen coal production in Wyoming decline from a high of—just in the Powder River Basin alone—of over 460 million tons to around 220 million tons. We're at about a 50 percent decline in just over a decade.
It's a massive reduction in the value of coal production, but because of those economies of scale, the employment impacts have not been quite as large. The total number of coal miners a decade ago in Wyoming was a little over 7,000. The end of last year, it was about 4,500. So a major change and an almost 50 percent decline, but not the huge numbers that people are used to hearing about in places like Appalachia, where there may be 30,000 miners still left in West Virginia's coal sector.
But it had a major impact on the communities that depend on coal production. The coal decline has been really significant to Wyoming, in part because the non-cyclical nature of coal production allowed policymakers in the state to rely on coal revenues—not only for general revenues in the state, which are split approximately a third with coal, oil, and natural gas each—but as pretty much the singular source of revenue for Wyoming's school systems. That's because they were trying to protect school systems from that cyclical pricing that occurs in oil and natural gas.
Not only has it hit regions of the state very hard, but it has created some difficult choices in terms of public services funding because, our K-12 school system in particular here is very dependent on coal revenues.
Daniel Raimi: Yeah. We were talking before this podcast about what's happening at your institution, the University of Wyoming, and how in the last week or so there has been some reorganization, and a lot of that is tied to the downturn in revenue associated with coal.
Robert Godby: The University of Wyoming was very lucky: it's probably the public institution with the highest amount of state support, and that came from the energy sector. Unfortunately with the energy decline, that dependence has really hurt us, and we've lost about 25 percent of our budget, and that's led to some really significant cuts and reorganizations at the University as we try to downsize. We are also trying to find new sources of revenue that other higher education institutions were forced to chase for years. We're really getting hit by those now.
Daniel Raimi: With all these challenges for public finances, and to an extent, employment and other impacts that the state is experiencing with regard to the downturn in coal, what types of policies or other measures are lawmakers at the state level, or maybe at the federal level, thinking about to try to adjust to some of these challenges? Of course, as we think about the challenge of climate change and the need to reduce emissions dramatically, that almost certainly means using less coal in the future. So how are they thinking about planning for a future where there may well be much less coal coming out of Wyoming?
Robert Godby: This is a really complicated question, and it's especially complicated in a place like Wyoming. I'll do my best to not be political here and to address those. The first thing is the local challenge. The local challenge really began not with climate change concerns, but actually with fracking. Fracking in the rest of the country really changed the coal market. I should also say that Wyoming was the place in the country for natural gas in the decade before the 2010s.
If you were to drive anywhere in Wyoming in the 2000s, not only did you have to get out of the way between because you might be passing a truck in the oncoming lane with a very large wind turbine blade, but you'd also have to get out of the way of the rigs that were coming down the road because there was so much natural gas production going on here. That literally disappeared almost overnight in the 2009 to 2010 period between the Great Recession and then the advent of fracking.
The state was hit with a double whammy around 2010: the decline of coal began, and simultaneously natural gas, the bottom really dropped out of the expansion and the extraction industry. Existing wells continued to produce, but expansion stopped. So what has it done? It's really challenged the state in terms of the revenue problem. Wyoming has what I call the double curse. Very often, resource economists talk about the resource curse for extractive dependent states or regions, and that's certainly true in Wyoming. We have a very good K-12 system, it's been very well-funded. Regionally speaking, students do very well in federal comparisons and standardized tests and so on. And we have a relatively high graduation rate out of high school: above 80 percent typically.
But the university graduation rate is actually quite low here. That's really because of these high paying jobs that have been available for quite a while in the energy sector. When those started to go away, the lack of a well-educated workforce has been a challenge to economic development. Also, in extraction-dependent regions, very often you see less development in other sectors, and that's certainly true here. So if you look at the proportion of the economy that's in high value, financial services or manufacturing, things like that, it's quite low, even compared to regional competitors, other states around us. That's the traditional resource curse that we see domestically in places like the United States.
But additionally, we have this revenue curse, and that's because our revenue model here is almost entirely dependent on taxing other people. Some people in sociology have called this an addictive economy, and we are certainly dealing with that. We have the simultaneous challenge of looking for new economic development, and diversifying the economy. At the same time, we have to diversify our tax structure. And at the best of times, raising taxes is difficult. Raising taxes in the West is potentially even more difficult just because of the libertarian political culture out here, which advocates for low taxes and less government.
That has really been a challenge here. Then you add the fact that Wyoming is very small. It has very small markets, and it's difficult to attract companies to Wyoming in these other high value industries because we don't have any large cities. We have two cities of 60,000 people, not very large local markets, and we're in a pretty tough league here. I mean, I tell people, economic development in Wyoming is like being a triple A baseball team, and you're forced to play the Yankees every week. We're near Denver, Salt Lake, the Rapid City area, Boise is nearby, even Billings, which the Wall Street Journal identified as the hottest real estate market in the country right now. It's difficult to play in that market and attract people to Wyoming.
So those are kind of the regional challenges. There’s this tax challenge, and of course attracting economic development is also difficult if the quality of amenities and public services might be in question. If we haven't sorted out our tax issues, how are we going to pay for those? Are we willing to tax ourselves for those? That is a really tough conversation.
You add to that now the global and national concern about climate change, and things become even tougher. Coal is the poster child for the energy decline, especially in Wyoming, but natural gas is also a significant part. Again, it's about a third of the energy revenues, broadly speaking. A lot of people believe natural gas is where coal was maybe a decade a ago. So we're not only looking at structural declines in coal, but probably in natural gas too. And then beyond that, there's the real question of oil production and how that may change in the near future.
All of those climate change effects come to bear indirectly. We are a state that does not have renewable portfolio standards. Our politicians dealing with those regional issues find it very difficult to take action on climate change because front and center here is this trade-off: moving towards a less carbon-intensive economy is going to require transition and displacement, and we are one of the epicenters of where fossil fuel production occurs. There are concerns about, "Well, how do you transition the citizens in those economies to something else and allow them to continue their lives and in the way that they would like to?"
Daniel Raimi: It's a really big challenge and as someone who's been working on related issues over the last couple of years, Wyoming is kind of at the top of the list in terms of places that are likely to experience some of the biggest challenges as we seek to dramatically reduce emissions.
Robert Godby: I think you're right. I mean, this is not to downplay the challenge anywhere. But Wyoming's is a little bit different, and you mentioned at the top, federal policy. I think Wyoming is kind of a little bit invisible to federal policymakers because, if we talk about the coal sector, the number of jobs involved in the coal sector here is much smaller in total magnitude than places like Appalachia. That's why Wyoming is so competitive, you need fewer people. So the numbers don't get immediate attention.
The other thing is that very typically if you look at West Virginia and other states—and you've done this work, Daniel—you know that the dependence on those revenues is much lower. Really the only other state that probably has an equivalent dependence on fossil fuel revenues is Alaska. There's a very short list of states with that level of dependence. We often see transition and displacement issues as being very localized. We're talking about a power plant closing down or a mine closing. But in a place like Wyoming, the affected community is not just a single place, it's the entire state.
The complexity of how you make those changes and how you might help is much more difficult because it really requires understanding the whole economy. It may require some policies that are maybe a little harder for people to get their heads around because you don't directly support or try to help a particular place. You may have to do things like look at total federal revenues going to a state and try to create a guarantee on those so that there's some ability to reinvest in new sectors. It's awfully hard to change your economy when you need investment funds to do it, and your revenues have dried up, and the people that you're going to have to turn to for taxes are the ones that are suffering the most. You end up in a political bind, and you end up just in a revenue shortfall that makes it very difficult to transition. That's where you, in our federalized system, typically look externally to the federal government in DC.
Daniel Raimi: Rob, we've been talking about energy pretty much exclusively over the last 25 minutes or so, and we only have a couple of minutes left, but I don't want to stop our conversation without asking about the environmental consequences of all the energy development that's happened in Wyoming over the years. So when you think about today and the future, what are some of the biggest environmental or public health challenges that Wyoming is facing, or is likely to face, as a result of this long history of energy development?
Robert Godby: Wyoming does not have the kinds of long-term health issues like black lung that you see in the East. That's mainly because mining here is highly mechanized. Workers tend to sit in small control rooms, either in large machinery, or off site away from the mining, because it's mostly automated. The health issues are relatively minor. Reclamation is a big deal here, but because large-scale mining really started happening in the 1970s, there actually is a pretty good record here. I know people might challenge me on this, but relatively speaking, it's not akin to the mountaintop removal that you see in the East. There is a good record of reclamation here. It can always probably be better, but there is a very large reclamation liability that we need to be very aware of because of the scale of the mining out here.
The real concern is ensuring that as the financial health of the companies involved in mining declines, that we ensure that the resources are there to actually finish the reclamation. In the past it's been done and it's been done well. There are lots of pictures I show my students of fields that no one would ever know had ever been a coal mine previously. The real concern is the future and the financial health of these companies: as they decline, we've got to make sure this liability is covered because there is a very large liability given the scale of mining out here.
It's a similar problem in the oil and gas industry. Those are not unlike other places like Appalachia or the Midwest where energy extraction occurs. It's something that we have to keep our eye on, and you can't be blind to the fact that this sector is declining. We have to be aware that in the past, where reclamation was probably not in question with respect to the health of these coal mining companies, there are real concerns now about whether they will have the resources to do it.
Daniel Raimi: Yeah, absolutely. It's such an interesting and important issue. Rob, there are so many more questions that we could talk about over Wyoming's energy history and it's future and these environmental issues as well, but we're out of time. So I want to ask you, what's at the top of your literal or metaphorical reading stack, something that you've read, or watched, or heard that might even just be tangentially related to what we've been talking about today that you think our listeners might enjoy?
I'm going to just briefly log roll for a minute here. Based on what we were just talking about—this issue of reclamation—I want to point to a paper that I just published with Alan Krupnick, Jhih-Shyang Shah, and Alex Thompson of RFF on the costs of reclaiming abandoned oil and gas wells. This is something that is an issue in Wyoming and in many other parts of the country. There are literally millions of abandoned oil and gas wells across the United States, and it costs money to plug them. We have a new paper estimating how much it's likely to cost and what the sort of factors are that drive those costs. The paper's called “Decommissioning Orphaned and Abandoned Oil and Gas Wells: New Estimates and Cost Drivers.” It's in the Journal of Environmental Science &Technology, and we'll have a link to it in the show notes. So I'm done log rolling now. Rob, I'll pass it over to you.
Robert Godby: Well, I will just make a plug saying that your work is super important. I mean, you asked about reclamation; typically people think about coal mining out here, but our number one reclamation problem in Wyoming is orphaned gas wells from that gas boom I talked about a decade ago. On the top of the reading stack, I have a couple of books that I've really enjoyed recently, and I think they're really relevant to what's going on, and they're kind of background papers, or background books.
The first is one that's been around for a few years now by a researcher named Gretchen Bakke. The book is called The Grid. With our turn to kind of electrification, broadly speaking across the economy, a lot of people, when they ask where the electricity comes from, they'll just say the wall socket. There's a really complex system behind that, and that complex system then drives energy demand, and how we do things. It affects our lives in so many ways. She did an amazing job with this book called The Grid in just explaining how it's related to us, the history. She talks about what the challenges may be going forward in adapting that grid to renewable sources and the kinds of new demands that we may have with the electrification of the transportation sector. So I really highly recommend that, it's very readable. Typically when you read about the grid it's written by engineers, which, no offense to engineers, but it's sometimes a little dry.
The other book I really like is by Leah Stokes and it's called Short Circuiting Policy. It's really about the fact that while we have these grand ideas around energy policy and we often pass them to great fanfare, but when it comes to execution, we can get bogged down in the details. This is really where special interest politics comes to bear. The people who have a lot to lose, we can't forget about that. If we don't really pay attention to those things, they will fight like crazy to do everything they can to limit the damage, and that can undermine those policies that are so fundamental to making the changes we need to make.
So we have to be very cognizant of what those transition costs are and what incentives they may give people. And if we don't take care of those things, we may pass these visionary sorts of bills, but the execution will lag because we haven't dealt with the details. She does a really great job of just historically documenting examples of that, and showing why we need to be very interested in taking care of those people who are affected, or at least being mindful of the effects of these big policies.
Daniel Raimi: Yeah, I totally agree. And I'm sure that you and I are going to be talking about exactly that issue many times in the weeks and months ahead. So one more time, Rob Godby from the University of Wyoming, thank you so much for joining us today on Resources Radio, it's been a really interesting discussion.
Robert Godby: I really appreciate it. It's been fun.
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