Policies on the Road to Carbon Neutrality in the Intermountain West

• Aggressive decarbonization policies in nearby states have created an opportunity for the Intermountain West to access those markets by becoming a supplier of low-carbon energy.
• Federal funding for programs to support energy transition is at an all-time high, and regional-level coordination to increase access is an area of opportunity for the Intermountain West states.
• While several state-specific energy plans or pieces of legislation exist, an integrated framework would give the region a competitive advantage.

At any level of government, policies are important vehicles for driving the entrepreneurial and technological innovations that will help move us toward carbon neutrality. Policies are key to bridging the cost gap between today’s energy systems and future clean energy pathways.

Federal policy can be impactful because of the amount of funding often involved and how that funding is directed, such as initiatives for innovative technology and tax incentive programs. At a regional level, federal policy can also help solve coordination issues across multiple states by providing a common regulatory context or goal, as well as the means to achieve those goals. However, due to its broad scope, federal policy can also struggle to harmonize with local nuances and needs. Furthermore, due to the challenges of national politics, federal policy has not been able to adequately address the decarbonization needs posed by climate change.

Congress recently passed two huge pieces of energy-related legislation (the Bipartisan Infrastructure Law and the Inflation Reduction Act) that present state and local governments, companies, and others with many well-funded programs to speed the deployment of low-carbon energy technologies. At the same time, the political dynamics in Congress have stalled regulatory policies, such as a carbon tax or performance standards, which complement deployment policies and can more efficiently drive economies toward both near-term CO2 reductions and long-term innovation-driven reductions. This situation creates a huge opportunity for non-federal actors to take an active role in creating regulatory programs, as well as targeting additional innovation funding and addressing inter-state coordination and other challenges.

Integrating environmental, energy, and social justice (EESJ) considerations into policies is a critical dimension. EESJ adds complexity to the policy development process, as it necessitates additional time for innovation and collaboration between policy makers, communities, and technology developers and deployers. There may also be costs associated with certain laws and regulations that ensure a just energy transition, but federal policies are already taking that into account and specific funds have been earmarked for EESJ-focused projects (e.g., the Justice40 Initiative). Certainly, the states could do more to support these initiatives. A further complication is that EESJ groups have a wide range of opinions on how to reduce our carbon footprint and how quickly that should occur. Thus, there may well be tradeoffs between addressing EESJ needs that satisfy all stakeholders and reaching decarbonization goals in an economically feasible way. The states are probably in the best position to strike the right balance. Regardless of whether or not all stakeholders are satisfied with the final policy decisions, states can seek to ensure that all interested parties have a voice in the decision-making process.

Within the Intermountain West region, the degree to which fossil fuels dominate the energy sector poses a real challenge. Many communities, and in some cases entire states, have become heavily reliant on these industries; thus, any sort of transition would ideally include policies to help those communities manage the transition. The region also faces serious coordination challenges. Integration across the energy grid among the states is lacking, leading to a disjointed infrastructure framework that must be remedied for decarbonization efforts to succeed. Addressing this will be a significant challenge, as the states are at different stages in terms of developing and enacting their own energy policies. Permitting reform and inter-state coordination to help build infrastructure is another similar opportunity.

Even with the numerous challenges the region faces, there are plenty of opportunities that can be leveraged. The presence of ambitious decarbonization policies in nearby states like Washington, Oregon, and California creates an opportunity for Intermountain West states to access those markets by becoming low-carbon energy suppliers. This could incentivize the construction of low-carbon energy production plants (such as renewable electricity generation, hydrogen production, and biofuels production) and infrastructure to connect to those states, hastening the transition while bringing additional jobs into the region.

There is also an immense amount of federal financial assistance available for some technologies and mitigation efforts. For instance, one tax incentive known as 45Q offers up to $85 per metric ton of CO2 that is stored, with the incentive value varying depending on certain storage and use factors. Other policies like the renewable electricity production tax credit and energy investment tax credits (including the new 45V hydrogen tax credit) can significantly reduce the tax liability for companies, increasing production and usage of these technologies and fuels. Accessing that funding, removing roadblocks, and adding state and local incentives on top of what is available at the federal level could serve as a strong motivating factor for the development of cleaner energy production and use facilities, helping to kickstart a broader shift across the region.

As with other areas of the energy transition, sovereign nations located within the Intermountain West region have a distinct set of opportunities and challenges. With the passage of the Inflation Reduction Act of 2022, tribes will for the first time be able to fully access federal tax credits for clean energy development, which will encourage new development on tribal lands. Still, some sovereign nations, including the Navajo, Southern Ute, and Jicarilla Apache, will face disruptions due to their dependence on fossil fuel production as a major driver of economic activity and government revenue. Looking forward, the federal government and Intermountain West states can work closely with sovereign nations to develop policy solutions that enhance their sovereignty and ensure that tribes benefit from the energy transition.

Given the premium on regional coordination, it is noticeable that regional (as opposed to state) roadmaps and related planning frameworks don’t exist in all key energy sectors, largely because states are working toward different goals or visions for a carbon-neutral economy. The Intermountain West region would benefit from an integrated energy transition roadmap focused on both independent, state-, and tribe-specific concerns, as well as regional cooperation. A cohesive plan that acknowledges the interdependencies across state lines would give the states in the region a competitive advantage for federal funding—the plan could serve as the foundation for joint proposals that benefit from their comparative advantages rather than applying for funding separately.

While there is some cooperation within the region, much more work is needed to increase efficiencies and leverage partnerships across and between states, tribes, and localities. As a region in the country with a fragmented electric grid and market (not under the umbrella of an independent system operator), the Intermountain West faces a significant challenge. As solar- and wind-generated electricity becomes more economically viable and widely used, utilities must account for the fact that its production is intermittent and reliant on environmental factors. With an integrated grid for the region, management and storage of electricity generated by renewables would arguably be simpler and more efficient, with the operator able to lead region-wide planning initiatives. More uniform policy would also prevent companies from moving from one state to another based on who has the more beneficial set of incentives or to evade stringent state-specific regulations.

Implementing green procurement policies at the state level could further help with decarbonization efforts in the industrial sector. These policies could require the production of carbon-intensive construction materials to meet certain standards in line with decarbonization goals. By increasing demand for such resources, production costs could be brought down through economies of scale. There are new federal initiatives that could set green procurement requirements for projects to receive federal funding, which could encourage states to adopt similar standards. California is a leader in this area.

Although an obvious objective for energy transition is to reduce the use of fossil fuels, many states in the Intermountain West generate a significant amount of revenue from taxes, royalties, and other proceeds from fossil fuels. Furthermore, those revenues often find their way to other localities that also benefit from the jobs and economic vitality associated with fossil fuel extraction activities. This emphasizes the need to plan for energy transition at both the local and regional levels.

Finally, the federal government is not well equipped to interact with local stakeholders on a consistent basis, which makes avenues of communication through regional and state channels critical. Any ensuing dialogue must be capable of flowing in either direction such that local communities can provide input on state and federal policy. This observation also applies to how federal and state entities interact with sovereign nations on issues related to the energy transition.

Moving forward, the primary policy focus should be creating regional roadmaps for the reasons mentioned above and then acting on them. Developing short- and long-term goals will allow for more desirable proposals for federal support, further inter-state policy initiatives, and a framework for gauging the success of the region’s progress.

In terms of future research, a key avenue is an analysis to determine which level of government should handle which policy initiatives, and how to best harmonize federal and state efforts. Furthermore, additional research on regional policies in the areas of water, agricultural, and land-use is needed to help inform a regional transition plan.