It could be Christmas in July for the Oklahoma oil and gas industry as it secured $50 million under a tax rebate program for methane-reduction equipment upgrades in a budget agreement struck last week by Republican legislative leaders.
The budget line item, to be put into a revolving fund at the Oklahoma Tax Commission, would let companies claim up to 25% of their costs to retrofit oil and gas equipment covered under new greenhouse gas emissions rules finalized in March by the Biden administration.
Money for the rebate program comes as Republican Gov. Kevin Stitt implored legislative leaders at budget summit meetings this month not to become Santa Claus for every type of program as they scrutinized the budget.
“If you go line by line, that’s how you get these excessive budgets,” Stitt said on May 10. “You have to start with how much you can spend, and then you can prioritize. You can’t just be Santa Claus to every single program.”
Budget negotiators didn’t discuss the final costs of the rebate program in the eight budget summits this month, largely because there was already agreement between the House and Senate to put $50 million into the fund. They said it came from one-time funds, so there won’t be a recurring budget expenditure unless lawmakers decide to replenish the rebate program. The original version of Senate Bill 1505, by Sen. Lonnie Paxton, R-Tuttle, wanted $125 million for the incentive.
Rep. Meloyde Blancett, D-Tulsa, said she was surprised by the lack of discussion around the oil and gas rebate funding. She said it was especially galling because GOP negotiators were haggling over projects like public television operating expenditures and raises to public defenders in the waning days of budget negotiations. She said the rebate program sounds like corporate welfare.
“We’ve sat in that building, in person and watching for hours and trying to really lean into this transparent budget process, which I applaud,” Blancett said Friday afternoon. “I think it’s the right thing to do, and I am all about the perspective the Senate has brought to the table in this regard. It makes me disappointed in the people I had faith in when we said we’d have a transparent process. Because this is nothing close to transparent.”
Backers of SB 1505, which was sent to Stitt this week for his consideration, said new Environmental Protection Agency regulations could cost up to $25,000 per site for older oil and natural gas production facilities. Oklahoma has more than 10,000 permitted oil and gas sites in the state, although some estimates show more than 200,000 wells may be covered by the new methane emissions rule. If Stitt approves the bill, it would go into effect July 1.
The bill, which did not have final funding attached to it, was approved by the House 90-3 and the Senate by a vote of 38-6.
“An estimate of rebate claims for SB 1505 is currently unknown, however the funds used to pay the rebates are allocated with monies from donations, contributions or gifts or legislative appropriations,” said a House fiscal estimate from April. “This may result in a reallocation of state funds dependent upon whether and how the Legislature makes an appropriation. There is no funding proposed at this time.”
Lawmakers set up the Oklahoma Emission Reduction Technology Incentive program in 2022 under HB 3568 with a $10 million cap, but they never put any money into the fund. The Department of Environmental Quality finalized rules for the rebate last fall.
DEQ said seven companies have applied for the rebates even though funding was not yet available.
“The Legislature has made some changes to the program that DEQ will address in the regulations and form,” DEQ spokeswoman Erin Hatfield said Friday in an email. “These projects will be reviewed by engineers on staff and considered under the newly funded program. If the projects are approved, DEQ will inform the applicant and generate an approval letter directed to the Tax Commission.”
Brook Simmons, president of the Petroleum Alliance of Oklahoma, said Oklahoma joins Texas and North Dakota among states that are helping the energy industry respond to what he called overbearing environmental regulations from the Biden administration.
“Oklahoma is under direct assault from the Biden administration and its unfunded and expensive emissions control mandates,” Simmons said. “So those mandates will cost Oklahoma businesses in the oil and gas sector hundreds of millions, if not billions of dollars, and they will quite simply kill Main Street oil and gas companies in almost every county in Oklahoma.”
Several states, including Oklahoma, filed a lawsuit against the EPA’s methane regulations in March. Oklahoma Attorney General Gentner Drummond then filed for a stay in the case on April 15 in the U.S. Court of Appeals for the District of Columbia Circuit.
The pendulum of environmental regulations has swung back and forth in the past decade. The Obama administration proposed methane emissions rules on the oil and gas industry, only to see some efforts stymied by the courts. The Trump administration rolled back other emissions rules when it was in power, only to see the Biden administration scrap those and propose new emissions rules in 2022.
Simmons said oil and gas companies can’t rely on any successful legal challenges. Federal rules, once finalized, cannot automatically be negated by an incoming presidential administration.
“Anytime that you have rules, they can be challenged,” Simmons said. “But hope is not a strategy. So companies that want to remain ongoing business ventures are going to have to deal with the emissions control issue, or they're going to potentially find themselves in a mousetrap.”
“Oklahoma Watch, atoklahomawatch.org, is a nonprofit, nonpartisan news organization that covers public-policy issues facing the state.”
