One thing is true for all sources of energy, whether it be oil and gas, nuclear, or the still-emerging renewable energy industries: all energy facilities eventually wear out. It is only a matter of time.
That fact is understood with older industries. Indeed, people are familiar with abandoned oil wells or coal mines and the environmental and aesthetic problems that come with them. Because of this, regulators have been intentional in ensuring that oil wells are not abandoned. Laws have been created to require that sufficient financial assurances are in place to ensure that decommissioning — restoring the site to its original or useable condition — is paid for once the well’s useful life has ended. This same intentionality should exist for the emerging renewable energy industries.
But for renewables, the messaging has been very focused on how they are “clean,” but too little focus is given to what happens when their structures wear out. Renewable materials cannot be repurposed or recycled in an affordable or scalable way; they must be hauled off and put in landfills. For solar panels, this also comes with toxicity concerns. The sheer mass of renewable materials means many landfills cannot fit them. The decommissioning process is logistically complicated and likely costly (many cost estimates are still projections, but are expensive).
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So, who’s on the hook for the bill if a company is not prepared financially? Taxpayers are, at a potentially staggering rate. When we look at the numbers by state, Texas’s taxpayers have the highest estimated decommissioning liability at $8.791 billion, followed by California ($2.713 billion) and Illinois ($1.266 billion). Nationwide, the possible liability is over $50 billion and growing.
With these factors in mind, regulators must prepare by requiring companies to have the finances in place to take on these costs. This is especially critical as federal subsidies for renewable sites begin to taper off in the coming years. Renewable energy companies must have a decommissioning plan before building new sites.
These concerns are appearing to catch regulators flat-footed, perhaps because renewable sites are wearing out quicker than originally projected. Regulations in some jurisdictions do not even exist yet. In other jurisdictions, the regulations are not well defined.
For these reasons, the Council to Modernize Governance and the National Center for Energy Analytics teamed up to conduct a study comparing oil and gas regulations with those of renewable energy for each state and federal jurisdiction. The goal was to distill each industry’s regulations into letter grades using specified factors and then compare.
In this effort, it was first evaluated whether financial assurance is required using mandatory (“shall”) or discretionary (“may”) language. Second, is the required dollar number a fixed amount or undetermined? Third, if a required amount is fixed, is it enough? Fourth, is the financial assurance provided in an irrevocable form, such as a bond, or something revocable? Finally, is the financial assurance required before the project begins, eliminating the risk of insolvency after its inception?
The results are staggering, yet unsurprising. Roughly three-fourths of the 40 states that drill for oil and gas received an A grade. Meanwhile, the renewable regulations only received a single A grade among the 49 states that have renewable energy. Only one-seventh even received a B. Nearly two-thirds received a failing grade. Even at the federal level, renewables received a C and D, while oil and gas regulations received As. The GPA for oil and gas is 3.40, while renewable energy’s is 1.18.
Clearly, regulators have not caught up with renewable energy. While the oil and gas regulators have held back little to protect the taxpayer, renewable energy regulations do not. If this is not fixed, future federal and state tax dollars will have to create expensive programs to clean up renewable sites, just as they have had to do for abandoned oil and coal sites in the past.
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It may be of interest as to why this problem is emerging; multiple factors are likely at play. Renewable energy being in vogue is certainly one. The financial unsustainability of renewable energy is likely another, considering that the industries already require grants to make the projects work. Regulators are hesitant to place another barrier in the way of renewable projects. And it may just be that the industry is newer, and lawmakers have not yet caught up.
Regardless, the end of life for many renewable energy sites is fast approaching. That timeline may be accelerated for some, considering that subsidies for renewable energy are no longer available indefinitely. Lawmakers should treat this issue with urgency to ensure that, moving forward, sufficient financial assurances are in place before any project commences.
Curtis Schube is the executive director of Council to Modernize Governance and a visiting fellow at the National Center for Energy Analytics.
