The coronavirus pandemic has delivered a warning to Wyoming, the largest energy-exporting state in the country, about the economic peril of living off fossil fuels. 

Wyoming stands out among Western states for its exceptionally heavy dependence on oil, natural gas, and coal. Taxes and royalties from fossil fuel production provide more than half of state revenues that support schools and the health-care system. That revenue stream has been declining for years, however, and is expected to take a further wallop as the pandemic devastates the oil industry. 

An even larger economic reckoning looms over Wyoming and other states that rely on fossil fuels. While today’s pandemic threat will hopefully fade in coming months, the longer-term regulatory risk from climate change remains. Joe Biden, the presumptive Democratic nominee for president, has promised to ban new oil and gas leasing on public lands. Those account for about half the land in Wyoming, including some of its most prolific drilling sites.  

“The regulatory threat is a real concern in the state,” says Rob Godby, an economist at the University of Wyoming who consults with state officials on energy matters. “Oil has been booming, and there is a realistic fear in Wyoming that this could be the last boom because of climate change.”  

As officials look to diversify the economy, the state’s burgeoning wind-power industry presents an opportunity. Wyoming is located in a wind belt that runs from the Dakotas to Texas and produces the strongest and most consistent gales in the country. Yet it has fallen behind other states in wind-power generation, to the rank of 17th in the country.

Wyoming had an initial burst of wind development that sputtered out around 2010. Producers ran into obstacles, like the electric transmission lines built and used primarily by coal-fired power producers that ran out of surplus capacity to accommodate wind power exports. A decade later, there’s still a shortage of transmission capacity. PacifiCorp, the biggest wind energy generator in the state, is building two major transmission lines that are expected to be completed by 2024.

State lawmakers have also piled taxes onto wind energy, hampering its growth. A decade ago, Wyoming imposed a tax on wind producers for each megawatt generated and took away their sales tax exemption—a benefit that the wind industry generally depends on to reduce upfront development costs before capital-intensive wind farms can earn revenue. Add property taxes, and Wyoming is the only state in the country to apply a triple tax whammy on wind power.  

Lawmakers have repeatedly attempted to increase the wind tax as much as five-fold. Politicians defend the wind tax, saying it supports local communities impacted by the construction of large wind farms. A string of bankruptcies last year in the state’s once-proud coal industry has added pressure to find revenues elsewhere. 

“Wyoming has this great wind resource, but it hasn’t been able to get that developed while the rest of the country has been on fire,” says Tom Darin, a senior director at the American Wind Energy Association. “Once or twice a year, there’s a proposal to raise the wind tax, and that conversation never ends. It’s creating so much uncertainty. And we need certainty so people can invest here and know what the price is going to be.”

Nationwide, wind power has grown rapidly as its price has steadily fallen to ranges below that of even low-cost gas. Since 2008, US wind capacity has quadrupled to about 100 gigawatts, making it the dominant form of renewable energy. The industry expected to see record growth this year as developers race to finish dozens of wind projects before a federal production tax credit expires at the end of 2020. While delays caused by the pandemic have made a banner year less likely, the longer-term outlook remains bright, thanks in part to requirements by more than half of the states that a portion of their electricity come from renewable sources.  

PacifiCorp expects to double capacity this year, thanks to advances in turbine technology and the tax credit, which significantly lowers costs. The utility is adding 1,150 megawatts by the end of 2020, bringing its total to about 2,294 megawatts.

“Some of the best wind sites exist in Wyoming,” says PacifiCorp spokesman David Eskelsen. "That’s why most of our investment is there."

Power Company of Wyoming is building what will be the largest wind farm in the country. Its Chokecherry and Sierra Madre development is set to generate 3,000 megawatts of wind power when it’s completed in 2026. It sits on about 1,500 acres in Carbon County, named for its coal-mining origins, and plans to ship power to California and help it reach its renewable energy goals. 

“When solar power in California goes down at night, bring in some Wyoming wind instead of ramping up those natural gas plants,” says Kara Choquette, communications director at the power company. 

The project and a new transmission line to feed the power to California and other states are expected to add $1.1 billion in tax revenues to Wyoming through the first 20 years of operation. Even so, new wind developments in Wyoming won’t be able to make up for the revenue lost from coal and gas.  

Wyoming’s coal production has plunged 40 percent since 2008. Its natural gas output has fallen by almost as much due to competition from cheaper producers. That left oil, whose price has plunged to historic lows during the pandemic, as Wyoming’s last fossil fuel leg to stand on. 

With a recession looming, Godby estimates that Wyoming’s revenues could plummet by 17 percent or more, assuming that oil stays at or below $30 a barrel for a protracted period. The state has a rainy day fund that can fill the gap in the short-term, but the economist says Wyoming has to make fundamental changes to move beyond its dependence on falling energy revenues. That could mean hiking property or other taxes or introducing an income tax—a tough sell in a libertarian-minded state like Wyoming. 

“As fossil fuels decline, we won’t be able to depend on those revenues anymore,” Godby says. “We face that difficult question. Do we tax ourselves more or cut government services that we have come to expect?”