The shift towards renewable energy sources, such as wind and solar power, is essential for addressing climate change. However, this transition poses significant financial challenges for local governments, particularly those heavily reliant on fossil fuel revenues. And as efforts to reduce carbon emissions intensify, the decline in fossil fuel production is expected to reduce these revenues significantly.
A recent study by Daniel Raimi, Elena Davert, Haley Neuenfeldt, Amy Van Zanen, and Zachary Whitlock at Resources for the Future and the University of Michigan, published in Environmental Research: Energy, delves into these challenges, providing new insights from data across 79 counties in 10 U.S. states.
The study shows that revenues from fossil fuels far exceed those from renewables, with some counties earning over $1,000 per capita annually from fossil fuels. In contrast, wind and solar energy, despite their potential, currently generate significantly less revenue. This disparity highlights a critical gap that needs to be addressed to ensure a smooth transition to cleaner energy sources.
The research shows that while some counties can generate more revenue per unit of energy from renewables compared to fossil fuels, the scale of land required to match fossil fuel revenues is often impractically large. For example, in counties where fossil fuels dominate local revenues, solar energy could technically replace these revenues but would require dedicating more than half of the available land to solar farms. This scenario underscores the need for a diversified approach to local government finance.
The study underscores the importance of innovative financial strategies to mitigate the fiscal impacts of the energy transition, calling for policymakers to develop frameworks that facilitate the growth of renewable energy while ensuring that local governments can maintain their revenue streams. The study suggests that this might involve diversifying local tax bases, developing new revenue-sharing mechanisms, and/or providing targeted financial support to communities most affected by the decline in fossil fuel revenues.
The authors of the study write in the conclusion:
Clearly, communities stand to benefit when new wind and solar development support local public services. But for those communities that are heavily dependent on fossil fuels, our results strongly suggest that state or federal financial support will be needed to ensure delivery of essential services under any deep decarbonization scenario. Over the longer term, these locations will need additional support to develop new economic drivers and diversify the local tax base away from its current dependence on fossil fuels.
“The Energy Transition and Local Government Finance: New Data and Insights from 10 U.S. States,” by Daniel Raimi, Elena Davert, Haley Neuenfeldt, Amy Van Zanen & Zachary Whitlock. Environmental Research: Energy, 1, 035003, July 12, 2024.
Download the full report originally published in Environmental Research: Energy on July 12, 2024.
