Don’t Bail Out Oil & Gas — Use The Money For Environmental Cleanup Instead

By: Sharon Zhang

Despite the evidence that the fossil fuel industry in the U.S. is not profitable and basically a giant money pit, President Trump tweeted last Tuesday that he has directed his cabinet to come up with a bailout plan for the floundering industry. The announcement came on the heels of a historic plunge in crude oil that sent prices deep into the red.

Because of decreases in demand due to COVID-19 and a long history of being propped up solely by government funding, the fracking industry in the U.S. looks to be on the verge of collapse, with a huge wave of bankruptcies to come. As these fossil fuel companies go bankrupt or shutter completely, they shirk cleanup responsibilities – and the cost eventually falls on the taxpayer.

Instead of bailing out the moribund oil and gas industry, environmental advocates say that the federal government should take a step toward transitioning away from fossil fuels and put money into cleaning up idling or abandoned oil and gas wells. These contaminated spots dot both public and private land as, through the decades, many oil and gas companies have left wells unfilled when the companies become insolvent. Regulatory agencies also allow companies to leave a well idle for years even if they have no intention to turn back to them, providing another avenue to avoid cleaning up.

Across the country, there are millions of unplugged oil and gas wells waiting to be cleaned and sealed according to Environmental Protection Agency estimates. The numbers vary, since, due to lax regulation by the Bureau of Land Management (BLM) and other state regulators, there aren’t many records of how many of these wells exist or even where these wells are. In Pennsylvania, according to state officials, there are anywhere from 200,000 to 750,000 sites where the operator has gone bankrupt, leaving so-called orphan wells.

As long as they remain unplugged, idling and orphan wells are an environmental hazard. They leak the potent greenhouse gas methane into the air and contaminate ground and surface water, posing risks to both wildlife and humans. “The [oil and gas] industry might view these orphaned and abandoned wells as benign,” said Nadia Steinzor, community empowerment project manager at Earthworks. But “the fact that they are, in many cases, literally falling apart, and are not being maintained or overseen is a serious environmental problem.”

Though the companies in charge of these wells are technically responsible for cleanup, “the oil and gas industry has gotten fairly clever at delaying their liability,” said Tim Donaghy, senior research specialist at Greenpeace. Companies are allowed to put off cleanup by paying small idling fees or simply slipping under the radar; some just don’t plug the wells and eventually go bankrupt.

Many (if not all) of these companies, even big ones, don’t have the money to fully fund cleanup anyway. “If you ask these companies to either clean up all their wells right away, or to put up as much money as it would cost to clean up the wells now, put it in a separate account, they couldn’t,” said Steven Feit, an attorney at the Center for International Environmental Law (CIEL). “There just isn’t enough money there.”

Though Feit admits that it’s not necessarily fair to ask them to front the cost for every well up front, “the problem, especially with fracking, is that of these companies are not producing positive cash flow” to address even the most immediate problems. According to the U.S. Government Accountability Office (GAO), a single well can cost anywhere from $20,000 to $150,000 to reclaim. Fracking can’t recover as much product per well as traditional oil exploration, so the cost for cleanup can add up. With many companies teetering on the edge of bankruptcy even before the current pandemic – an Institute for Energy Economics and Financial Analysis report found that bankruptcies in 2019 alone involved $26 billion in debt – there’s not much left over to spend on an activity that doesn’t make money.

In order to ensure that these sites get plugged, the BLM and state governments set bonds to fund cleanup if the responsible company becomes defunct. But, as the GAO has reported many times over the years, bond amounts – which haven’t even been updated to count for inflation since the 1950s – set by the BLM are wholly insufficient to cover the actual cost of cleanup. State level bonds are only marginally better.

“The abandoned well issue really shines a light on the fact that this is an industry that has been unable to deal with its own pollution and its own true costs of operation,” says Steinzor. There have even been instances of companies avoiding paying their bonds altogether, even though bonds have been set so low.

Oil and gas companies that are struggling financially “will now say that [abandoning wells is] circumstantial because of COVID and the economic downturn,” says Steinzor, “but they have made choices along the way for decades to not properly shut down and abandon and plug their wells in a responsible way.”

Healthy companies may struggle after such a large crash, but could likely bounce back – the oil and gas industry, operating on razor-thin or nonexistent margins, have thus far only been solvent because of lax regulation and big bailouts from the government. As Feit co-wrote in a report for CIEL on the oil, gas and plastic industries, a massive pandemic bailout will only delay the industries’ inevitable decline. According to free-market principles that the right and other capitalists claim to love, by nearly every definition, the U.S. oil and gas industry has failed. Yet, still, the government and financial institutions seem inclined to give them a massive bailout – again! – anyways.

Instead of pouring billions into another fruitless oil and gas bailout, some argue, money would be much better suited for funding orphan well cleanups instead. States like Colorado and Ohio have recently increased funding for these efforts, but without federal support, this funding will likely not be enough. With only the money allocated for cleanup now, the prospect of plugging every idle or orphan well is basically insurmountable. State officials in Pennsylvania estimate that the cost to clean up every well in the state would cost around $7 billion. “At current funding levels, this would take the [state environmental] agency somewhere around 17,000 years to complete,” said Matt Kelso, manager of data and technology at FracTracker Alliance, over email.

As the current massive downturn in the fracking industry plays out, the problem will only multiply. “The orders of magnitude of this problem,” said Kate Kelly, director of Public Lands at the Center for American Progress. “I don’t think we fully appreciate at this point.”

While using public money to clean up after oil and gas companies is not ideal – the environmental movement has been built upon a “polluter pays” principle – the sheer amount of orphan wells with no documentation, some decades old, makes it impossible to track down the likely bankrupt responsible parties. That’s why, instead, some groups are looking into ways to prevent this situation from happening in the future.

In funding existing orphan well cleanups, there are opportunities to be proactive and to pre-empt the message that the public will always end up cleaning up after fossil fuel companies. For instance, Kelly said, “you could predicate [orphan well] funding upon states and the federal government and tribes demonstrating that they have adequate bonding requirements in place going forward.” Kelly pointed out that there are also already dormant enforcement mechanisms that prevent companies from participating in lease sales if they’re neglecting their reclamation responsibilities. There’s also an existing federal orphan well program, established as part of the Energy Policy Act of 2005, that has no funding or enforcement mechanism that could also be revamped and funded in pandemic-related packages.

Putting money toward large well cleanup mobilization efforts could also be a huge job creation and major stimulus opportunity. The millions of unplugged wells not only need plugging, but they also need locating; and the people who would be well-equipped for such surveying and cleanup jobs are the same people who may have been laid off by the oil and gas industry.

Massive recent downturns mean that abandoned wells may also be in the same places that oil and gas companies already operate, which means that many workers likely won’t even have to relocate — and legislation could ensure that job creation through well cleanup is mostly local. State and local economies that are dependent upon the industry could benefit greatly from such a stimulus that provides not only funding, but jobs.

Some advocates view a cleanup program as part of a larger plan to manage the decline of the fossil fuel industry. “When there’s a disorganized transition, it hasn’t worked out well for the communities, or the workers,” said Donaghy. We can see this happening in real time: tens of thousands — if not hundreds of thousands, after Tuesday’s crash – of shale gas employees are getting laid off due to the current crisis. Planned declines could create new opportunities for these workers.

Megan Milliken Biven, a former program analyst at the Department of the Interior’s Bureau of Ocean Energy Management, is working with environmental groups on a bill that ties in not only increased enforcement for abandoned well monitoring, but also ensures that there is a moratorium on building residences on former oil and gas sites. The wells are not in the middle of nowhere,” Biven told Truthout. “They are in the middle of communities. They are in the hospitals. They are next to schools. They are next to houses that people own, depreciating property values,” she said.

The bill Milliken Biven is writing also includes moratoriums on opening new sites, since prices will only continue to plummet if yet more oil is dredged up. And, of course, the easiest way to prevent the mass of abandoned, unplugged wells is to stop creating new wells in the first place — abstinence, but for fossil fuel companies.

Environmental advocates may be hesitant to pass such bills, with fears of being seen as opportunistic in creating a climate “wish list.” But they need only to look to the crash course of disaster capitalism that is the unprecedented environmental rule rollbacks being passed in the name of the pandemic. If polluters and the right wing are willing to use the pandemic to make the world dirtier and more unsafe for the sake of profits, the climate community should not fear cleaning it up and making it a better place to live.

This story was originally published in Truthout and is republished here as part of Covering Climate Now, a global journalism collaboration strengthening coverage of the climate story.

Lead image courtesy of J. Pat Carter / Getty Images.