Tag Archives: Depleted Assets

Part 2: Texas Panhandle

It struck me the other day that it had been three months since this road trip – and I still had not finished this blog series. I decided to spend the time I would usually spend on my “This Week” posts generating a few more of these.  Look out “Part 3: New Mexico,” coming soon. “This Week” will return in June as “This Month”. Thanks for reading. – M


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Population: 27.47 million (2015)

Largest economic industries: (1) Agriculture, [Texas has the most farms of all United States both in terms of number and acreage. Texas leads the nation in the number of cattle, usually exceeding 16 million head. Texas also leads the nation in cotton and pecan production] (2) Aeronautics [Lyndon B. Johnson Space Center, the center of NASA, is in Houston.] (3) Defense, [Home to two of the US Army’s largest facilities, Fort Hood and Fort Bliss.] (4) Computer Technology, (5) Energy [Global leader in energy; Oil, gas, and wind.], (5) Tourism [The state tourism slogan is “Texas: It’s like a whole other country.”].

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“Texas is a state of mind. Texas is an obsession. Above all, Texas is a nation in every sense of the word. And there’s an opening convey of generalities. A Texan outside of Texas is a foreigner.”John Steinbeck, Travels with Charley: In Search of America

We spent the night in Shamrock, Texas, a small town off of “Old Route 66” (and very proud of it).

In the morning, the receptionist lets me mail several postcards free of charge and offers to make stronger coffee for the lobby carafe.  Texas and I were off on the right foot – never mind the fact it was freezing cold outside. (Okay, it wasn’t freezing. But it certainly was not a temperature I had anticipated when getting dressed that morning.)

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As we reconvened our journey in the daylight, I was awed by the incredible texture that had been added to the environment.  Incremental chasms and cracked pieces of land broke up the endless yellow fields, revealing the deep mahogany hues underneath.

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The complexity of the shadows dancing across these formations was captivating. I began to grow a bit anxious, as if afraid that one might pass by without my being able to fully experience it.

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But they kept coming. Soon these miniature portraits of dramatic prose became the familiar inhabitants of the space outside my window. After an hour or so, I even managed to steal my breath back from the slim wisps of bright blue water trickling through the broken ground.

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I was deeply grateful to have a driving partner. Otherwise, I may have parked along the first one I had seen and spent the day meditating on texture and color. Baby Suggs style.

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The wisps of water below fields of brittle grass provide an appropriate metaphor for the current state of water in the Texas Panhandle.

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Northwest Texas sits above the Southern-most portion of the Ogallala Aquifer, also known as the High-Plains Aquifer. The Ogallala is the source of water for millions of people in the United States. It also provides 30% of all the water the country uses agriculture. The Ogallala extends as far North as South Dakota, providing water for eight states and can hold as much water volume as Lake Huron. More than 90% of its water is used to irrigate crops.

“It is hard to overestimate the impact that this bounty of buried water has had on American life. If you snack on popcorn or peanuts, you are probably eating Ogallala water; if you dress in cotton clothing, you are probably wearing it. … The fourteen million acres of crops spread across its flat surface account for at least one-fifth of the total annual U.S. agricultural harvest. … If the aquifer went dry, more than 20 billion worth of food and fiber would disappear immediately from the world’s markets.” – William Ashworth, Ogallala Blue: Water and Life on the High Plains.

Nowhere is the Ogallala Aquifer more depleted than in the Texas Panhandle (although parts of Southwest Kansas come close). Water levels have dropped more than 150 feetroughly 70% – since the 1950s. “About half the aquifer’s thickness has dried up” in some parts of Texas, according to Leonard Konikow, a hydrologist with USGS.

The five-year drought that hit the Southern US escalated the depletion rates. Municipalities in the Panhandle turned to groundwater after surface water sources began to dry up and farmers needed to pump more water to compensate for declining rainfall.

The Texas Panhandle once took most of its drinking water exclusively from Lake Meredith. As these sources dwindled in the early 2000s, residents turned underground.

Water levels in the Panhandle dropped 1.87 feet from 2012 to 2013, one of the “five or ten worst drops in the district’s more than 60-year history,” according to hydrogeologist Bill Mullican.

Municipalities in the Panhandle began turning back to Lake Meredith in 2014 after unusually heavy rains filled the once-empty lake with 2.8 billion gallons a water. That may sound like a lot – but it was 4 % of Lake Meredith’s usual haul. Water experts and residents alike were torn. The region had taken six times that amount from the Ogallala in 2013. Where do you turn when there are no good options?

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Other residents opposed the return to surface water because low water levels likely meant high levels of sediment. Unfortunately, a 2002 study from the University of Texas at Austin found that groundwater in the Panhandle contains high fluoride, arsenic (linked to pesticides used in cotton production), and nitrate levels and has been contaminated by abandoned oil fields. 

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Lake Meredith has continued to recover, but at 24.9% of its former life, it still has a long way to go. Nonetheless, the website of the Texas Department of Parks and Wildlife states “that 97% of the area’s water needs are dependent upon groundwater.

 

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Source: Waterdatafortexas.org

 

Much of the depletion in the Southern Ogallala can be tied to agricultural production. Texas produces much of the country’s wheat, corn (for grain – meat production), sorghum (for grain-meat production), hay, pecans, rice, and soybeans. The state’s number one crop, cotton, is a particularly water intensive crop. Texas also leads in beef production, another major water user, particularly when temperatures increase.

 

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[“U.S. could feed 800 million people with grain that livestock eat, Cornell ecologist advises animal scientists.” – That was 1997!]

Farmers here produce food for the entire country and they use a lot of water to do it. In Ogallala Blue, William Ashworth asserts that groundwater mining “is not an accident here; it is a way of life … it is also a way of death.”

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Texas is a “right to capture” state. This means that landowners have the right to pump groundwater from wells on their property, “without malice or consideration for the water supply for neighboring wells.”

This approach to water supply fails to take into account that no single well is really an individual source of water, but rather one straw in a larger common source. (In this case, it’s a common source for 97% of the water needs for the region, millions of users to the North, and the food supply for much of the nation.)

The water law system in Texas is further complicated by the division of regulating authority between nearly 100 conservation districts, each with the power to create their own set of rules.

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The traditional conception of property rights and local governance that goes along with this type of system is, perhaps, what one might expect to find in Texas. When one buys a piece of land, one buys all of the resources on that land – and, in this case, under it. It is, after all, how the law interprets other resources, such as timber or oil.

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Texas tax code further interprets water as a “depleted asset.”

This means, generally speaking, that as a property owner uses the water under their property, the value of their property is declining. Thus, the IRS provides a tax break pegged to the amount of water they have used that year, in order to compensate for the loss of value in their property.

The large amounts of water that one must use to qualify for the tax break likely could only have been used for economic activities. (Ie. agriculture.) The water was a tool used to produce a good which, in turn, produces a profit.

The US government (taxpayers) is (are) effectively subsidizing the water used by Texas business persons (farmers) to produce goods (food). In my opinion, this does not seem to fit into a conservative model of limited government.

It is, however, exactly how the US tax code treats oil and gas resources.

A tax break that pays higher dividends in proportion to the amount of water used is probably not encouraging conservation.

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ProPublica has an excellent article explaining the tax break in more detail.  I found this excerpt particularly interesting:

Hasn’t the federal government spent billions subsidizing conservation and the protection of the West’s groundwater, in part by building dams and encouraging people to use the water in rivers instead? Why would they forfeit federal tax dollars to do the opposite?

We called the IRS, and they initially shared our doubts. Not because they cared much about groundwater (it’s a tax agency!) but because they said they were pretty sure no such deduction was legal. They pointed us to section 613 of the tax code, and it couldn’t be more explicit: For the purposes of deducting the depreciating value of minerals, the definition “does not include soil, sod, dirt, turf, water, or mosses.” Ok, who would ever have thought of deducting mosses or sod? But anyway. That left us really confused.

Right, there were, after all, those farmers in Texas who seemed to have benefited from what the IRS said was not possible.

We encouraged the IRS to check again. They did. And then they found the provision they thought didn’t exist — right there in the text for Revenue Rule 65–296. An IRS spokesperson laid out for us the specifics: “Taxpayers are entitled to a cost depletion deduction for the exhaustion of their capital investment in the ground water extracted and disposed of by them in their business of irrigation farming specifically from the Ogallala Formation.”

Seems like some follow-up questions were in order.

For sure. We asked for clarification. The IRS said it would try to explain. Most importantly, they wanted to say it wasn’t quite as crazy as it sounded. The deduction is only available for one small part of the country — an area that includes parts of Texas, New Mexico, Oklahoma, Nebraska, Kansas, South Dakota, Wyoming and Colorado. And it should only apply if people are using water from a source that is running dry anyway.

But wait, what? You get a break when you use resources that are already in danger of vanishing?

Yes, that’s why it is what’s called a depleted asset.

Conservation is precisely what one would expect the farmers to want to do, presuming they would like to preserve their way of life in the Texas Panhandle, for themselves and for their children.

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At the same time, their motivations for continuing to over-pump are understandable. It’s the same reason that further evidence of the impacts of climate change motivates apathy, rather than action.

There’s a two-year-old in the back of our minds that’s still there that we’ve learned to overrule that wants to have their one marshmallow now rather than wait for two marshmallows. Very few people on this planet want to destroy planet earth. It’s just that our other agendas get in the way of things that might have a longer time horizon. – Tima Bansal, executive director of the Network for Business Sustainability in London

 

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…and maybe a little bit of all that “manifest destiny.”

Transitioning to “Postdepletion” 

Industrial-scale extraction from the Ogallala didn’t start until after World War II.  For the Texas Panhandle, recent estimates predict depletion will occur around 2050, about a hundred years later. The Ogallala took 10,000 years to fill. Geologists estimate that it will take 6,000 years to refill naturally.

Despite these realities, residents and farmers in the Panhandle resisted efforts to impose pumping limits during the drought. They organized to create a moratorium on enforcing the new water use rules that were passed. These grassroots efforts went so far as to influence the replacement of the general manager and four out of the five board members for the water district.

Other farmers in the Texas Panhandle – and across Kansas – have begun experimenting with dryland farming methods which use only rainfall to produce crops. Several innovative technological practices are being tested in publically funded common agricultural zones. There has been funding to provide and train farmers to use technologies that allow for monitored drip irrigation.

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“Agtech is the solution to the Ogallala Aquifer Crisis.” – Hydrobio

The funding of such projects is not without controversy. On one side, the tax base is reluctant to spend money on these programs while many families are struggling with the loss of economic production. On the other, many argue that these projects will not be enough to save the Ogallala and sustainable farming will still need more water than they will have.

Many of these critics are turning away from the idea of “managed depletion” and putting their hopes in an inexhaustible resource – Wind.

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It might surprise you to learn that Texas has the largest installed wind capacity (20,320 MW) of any state in the country.

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Farmers across the panhandle turned to wind after Texas became the second US state to pass a renewable portfolio standard in 1999. (A renewable portfolio standard is a policy which requires a certain amount of energy to come from renewables.)

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Texas also invested in high-voltage power lines to connect the windy regions with its growing cities. Today, Texas has more than double the wind generation capacity of any state and has two projects set to begin construction in the Panhandle.

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For farmers, the wind industry offers an opportunity to use their land for a less uncertain purpose.

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Texas also has the largest wind industry workforce of any US state.

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Wind speeds across the Texas Panhandle average between 7.5 and 9.5 miles per second.

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In December of 2015, Texas set a new record for powering 40% of its electricity with wind power for 17 hours straight.

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There are arguments that the federal government ought not to be picking sides in the energy market; that the US taxpayer should not be subsidizing fuel. Yet, this argument overlooks the billions of dollars in tax breaks that the federal government grants the oil and gas industries because their raw product is classed as a depleted asset. The wind cannot offer producers such subsidies.

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Does the fact that it can never be depleted make it a less competitive energy source? Not in Texas.

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As we neared the New Mexico border, the landscape changed once more. The yellow grass became almost white, interspersed with light greens and small shrubs. The land grew increasingly cohesive and the reddish hues of the Texas dirt softened into a dusty scarlet.

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Water had left her mark and the relative difference was striking. I was hooked.

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“I have said that Texas is a state of mind, but I think it is more than that. It is a mystique closely approximating a religion. And this is true to the extent that people either passionately love Texas or passionately hate it and, as in other religions, few people dare to inspect it for fear of losing their bearings in mystery or paradox. But I think there will be little quarrel with my feeling that Texas is one thing. For all its enormous range of space, climate, and physical appearance, and for all the internal squabbles, contentions, and strivings, Texas has a tight cohesiveness perhaps stronger than any other section of America. Rich, poor, Panhandle, Gulf, city, country, Texas is the obsession, the proper study and the passionate possession of all Texans.” – John Steinbeck, Travels with Charley