CHAPTER 10 Constraints on Geothermal Development: Tax and Beyond
| Jurisdiction | United States |
(Jan 1977)
Constraints on Geothermal Development: Tax and Beyond
University of Southern California Law Center
Los Angeles, California
Development of the nation's vast geothermal resource base, now entering its third decade, has been painstakingly slow and arduous. Unfortunately, much of the delay has been man-made. Seemingly every point of contact between the legal system and geothermal resources — and there are many — has provided yet more roadblocks and frustration.
Access to the vast federal lands, believed to contain nearly 55% of the potential U.S. geothermal areas, languished in a legislative vacuum throughout the 60's. Mining,material and mineral leasing laws were all interpreted as inapplicable to geothermal resources. Even after the Geothermal Steam Act of 1970 ended that decade-old obstacle, preparation of leasing and operating regulations delayed the first competitive lease sale until January 1974, more than three years later. A flood of noncompetitive applications then confronted an understaffed Forest Service and BLM, and it was not until 1975 that the initial "noncomp" was granted.
Federal tax policy was similarly ignorant of geothermal's existence and congressional reaction has consistently been an unending chorus of "it's for the courts to decide". In this crucial area, IRS has emerged as the policy maker, and their stance has, quite predictably, been a hostile one.
But while federal energy tax and mineral disposal policies failed to cover geothermal, many other areas of federal and state law were all too inclusive. Western state legislatures,
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conscious of their long tradition of water rights warfare with Washington, were loath to let federal leaseholders begin what they feared might become a wholesale depletion of already overcommitted groundwater reservoirs. They therefore placed geothermal operations under the aegis of their respective water engineers, and oil companies soon found themselves applying for waterdrilling licenses. County planning departments, particularly in California, felt that they had to grant use permits before any drilling could take place. Tax assessors, both state and local, saw a new source of revenue and spewed forth a multitude of conflicting interpretations. State and federal wild-life and environmental agencies, unsure of the new resource's impact, rushed in to study, monitor and gauge. State utility commissions and siting councils fought with county and local authorities for the last word on plant sitings. Federal state and private deeds containing "mineral reservations" became a fertile litigational seedbed. Was geothermal a "mineral", "water", "animal", "vegetable"? — no one seemed to know and each outbreak soon entered the timeless warp of the legal system — apparently never to return. All the while, development of a new, potentially enormous domestic energy source fell farther behind, trapped in the interstices of this legal and institutional puzzle.
What made this situation all the more lamentable was that, even in the absence of these man-made problems, geothermal would have had to overcome some serious
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technological problems. The faults of the earth concealed problems rivaling those in the tax code. Of the four basic geothermal resource types — dry steam, hot water, geo-pressured zones and hot dry rocks — only the first, containing for less than 1% of the total resource base, was a technologically proven, economically competitive fuel. R & D into the bulk of geothermal's potential was being carried on by various government and private entities of course. But as with all research into alternative sources, the low cost of the marginal, competing source (oil) put a damper on most efforts. Not until the OPEC price escalation and OAPEC embargo of October 1973 was any sense of urgency put into these efforts. Both the economic justification for an all-out geothermal program and the vehicle to lead that drive were provided by those events. So in 1974 ERDA sprang, full-blown, from congressional frustration over oil, and with it the Division of Geothermal Energy (DGE). DGE was handed the challenging task of uniting the diverse research programs already in existence and supplementing them in any way necessary to reach an arbitrarily-selected national geothermal goal of replacing 1 million barrels of oil a day by 1985.
DGE found out quickly that,despite a wide range of estimates,no one really knew what the nation's geothermal potential actually was. So, in cooperation with the U.S. Geological Survey, they began a national geothermal resource assessment program. They also noted that private sector
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exploratory involvement was, with a few salient exceptions, less than optimal. Specifically, it was confined to the relatively inexpensive, though often mind-bending accumulation of leased acreage. Outside of The Geysers, as many deep wells had been drilled before 1970 as since that date. True, many of the post-1970 tests were far deeper and more expensive than their earlier counterparts. But the exploratory drilling pace was simply too laggard to meet any reasonable 1985 goals for geothermal-based capacity. This, in turn, impacted adversely on DGE's efforts to attract electric utilities and other users, and to perfect utilization of a large geothermal resource -hot water systems. "Geothermal development" was becoming a curious still-life.
Traditionally, natural resource...
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