It was a good legislative session for fossil fuel producers in Wyoming, as well as those who want to produce carbon dioxide for enhanced oil recovery.
Lawmakers passed House Bill 75, “Coal severance tax rate,” which reduces the severance tax rate for surface-mined coal from 6.5% to 6% — an effort that proponents hope will help coal producers weather declining markets and potentially reinvest in Wyoming mining operations.
Another measure, Senate File 17, “Carbon dioxide-enhanced oil recovery stimulus,” creates a $10 million fund to support enhanced oil recovery — the process of pumping carbon dioxide underground to produce more oil and natural gas. Companies that qualify for the federal 45Q tax credit can apply for up to $10 per metric ton — paid out of the Wyoming account — for carbon dioxide used in enhanced oil recovery.
Senate File 18, “Enhanced oil recovery-severance tax exemption,” would have reduced the severance tax rate on oil from 6% to 3% if tied to practices that capture, store or reuse carbon dioxide, reducing state revenue by $2.1 million in 2027, $4.5 million in 2028 and potentially more in following years, according to the bill’s fiscal note. But the committee-sponsored bill didn’t survive the Senate.
Lawmakers also considered adding a $10 million appropriation to a yet-to-be-named developer to build a new coal power plant, which would produce electricity and capture the carbon dioxide byproduct — a greenhouse gas — for use in enhanced oil recovery.
“The one problem that we have is finding enough carbon dioxide for enhanced oil recovery,” Green River Republican Scott Heiner told his colleagues during the session. “The [carbon dioxide] pipeline is fully constricted, fully at capacity right now. So in order to do enhanced oil recovery, we need more carbon dioxide.”
Before press time, the Enhanced Oil Recovery Institute clarified there is currently an adequate supply of commercial carbon dioxide for the oil industry in Wyoming. But there remain many oilfields in the state and surrounding region that make good candidates for carbon dioxide-enhanced recovery, and interest among developers is forecasted to increase.
“The question has always been, if [Wyoming’s carbon dioxide supply] suddenly isn’t enough, should we not be looking at other source options?” Enhanced Oil Recovery Institute Director Lon Whitman told WyoFile.
The appropriation was added to the budget bill and then SF 17, but the floating amendment was withdrawn when the Wyoming Energy Authority agreed to dedicate $10 million to the effort via the Energy Matching Funds program.
“It’s just a redistribution of wealth from schools and roads to coal companies.”
Bob LeResche, Powder River Basin Resource Council
Some lawmakers, fiscal hawks and conservation groups, however, mounted opposition to the measures, questioning the efficacy of giving handouts to industries that base production and jobs more on changing market conditions than taxes and incentives. Wyoming municipalities, some noted, will take a major revenue hit as a result of the 25% property tax reduction that was signed into law this month. Reducing the coal severance tax adds another $10 million revenue hit to accounts that support Wyoming schools, roads and other vital public services.
“The reason that we do [mineral severance taxes] is because [coal, oil and natural gas are] a finite, one-time resource,” Baggs Republican Sen. Larry Hicks said regarding HB 75. “We have an obligation to future generations, that they should derive some of the benefits of the wealth we’re accumulating now.”
Do tax breaks and incentives work?
The lower severance tax rate for surface-mined coal will result in a state revenue loss of about $10 million in 2026 and potentially lower each year afterward, if coal production continues to decline, according to the bill’s fiscal note.
Lawmakers passed an almost identical measure in 2022. House Bill 105, “Severance tax reduction-coal,” reduced the severance tax on surface-mined coal from 7% to 6.5%, with a similar estimate of sapping state revenue by an annual $10 million.
“It will help coal companies to reinvest in their infrastructure, purchase needed equipment and supplies, implement reclamation management and maintain a full workforce,” the bill’s sponsor, then-Rep. Timothy Hallinan, a Republican from Gillette, said at the time.
The actual revenue reduction was $13.3 million in fiscal year 2023 and $10.5 million in fiscal year 2024, according to the Legislative Service Office. Higher than anticipated market prices and production will result in more lost revenue, officials have noted. Overall, however, the industry has continued to shed jobs and produce less coal.
Since 2021, Wyoming’s annual coal production has slipped by 48.5 million tons, or 20%, while the industry has shed 632 jobs, according to federal data.
While proponents of the tax cut claim the industry’s losses might have been more severe without the break, skeptics point to the 2000 Mineral Tax Incentives, Mineral Production and the Wyoming Economy study that concluded state taxes have little sway over production and employment in the industry.
“It doesn’t increase production, it doesn’t do a damn thing,” Sheridan-based landowner advocacy group Powder River Basin Resource Council Bob LeResche told WyoFile. “It’s just a redistribution of wealth from schools and roads to coal companies.”
Industry analysts in recent months have pointed to indicators that suggest Wyoming coal may see an increase in demand, but the primary driver is increasing electrical demand from data centers, they say.
Skeptics of tax breaks and incentives have also noted that ExxonMobil, which operates the Shute Creek natural gas processing facility near LaBarge southwest Wyoming, is the primary beneficiary of both federal and state tax incentives for commercial carbon dioxide sales. The global company, worth hundreds of billions of dollars, derives its carbon dioxide in Wyoming from deep underground wells, not from capturing it from anthropogenic sources like smokestacks.
If the state can entice more commercial carbon dioxide production for enhanced oil recovery, it stands to earn a handsome return on the $10 million investment, proponents say. They point to a 2024 report authored by University of Wyoming energy economics professor Timothy Considine.
“At a minimum, for every dollar spent on incentives, net severance and ad valorem taxes increase by $2.40,” the report concludes.
Whether Wyoming’s tax incentive for commercial carbon dioxide might help launch additional suppliers in the state remains to be seen.
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