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Like water, affordable and readily available energy is vital to Texas and the Texas economy. In 2006, the Texas energy industry employed more than 375,000 people, who earned $35 billion in wages.50


Texas Consumers spent over $95 billion on energy in 2004.*

Energy is used in the form of transportation fuels, both for personal transport and to move goods and provide services to consumers. And energy in the form of natural gas, propane and oil can be delivered directly to individual houses and businesses and burned to heat homes and cook food. Energy in the form of electricity is used for residential and commercial heating, cooling and lighting and to power appliances and equipment; in manufacturing; and for industrial applications such as petroleum refining and chemical production.

Exhibit 15

Total Energy Consumption by Sector,
Texas versus U.S., 2004

In trillion Btus

Sector TexasU.S.Texas Share of Total U.S. Consumption
Residential 1,555 21,243 7.3%
Commercial 1,315 17,721 7.4%
Industrial 6,400 33,415 19.2%
Transportation 2,701 27,900 9.7%
Total 11,971 100,279 11.9%

Source: Energy Information Administration.

Energy Production

Texas produces more energy than any other state in the nation. It leads all states in crude oil and natural gas production, accounting for 23 percent and 28 percent of total U.S. capacity, respectively. Texas has 25 oil refineries that have a refining capacity of 4.7 million barrels of oil per day, approximately one quarter of all U.S. refining capacity.51

Texas also is home to more than a fourth of all U.S. natural gas reserves and nearly a quarter of the nation’s crude oil.52 Texas also has significant coal deposits coming from 13 surface mines, including five mines among the 50 largest mines in the nation.53

Texas produces a significant amount of energy through nuclear power. Texas’ two nuclear power plants accounted for 5.2 percent of total U.S. nuclear power generation. Texas ranks fifth in total nuclear power generation behind Illinois, Pennsylvania, South Carolina and New York.54 In addition, Texas has 24 dams that can produce 672 megawatts (MW) of hydroelectric power.

The state also leads the nation in wind energy potential and production, accounting for 27 percent of the nation’s total installed wind energy capacity.55 In September 2006, Texas had a total installed wind capacity of 3,511 MW; West Texas accounted for the majority of installed capacity in the state, with some in the Panhandle.56

Texas is the nation’s largest producer of biodiesel. Its current production capacity is more than 200 million gallons annually, with another 87 million gallons in annual capacity under construction. In addition, Texas has four ethanol refineries under construction and slated for operation within the next year.

Energy Consumption

Texas is also the leading consumer of energy in the nation, consuming 12 percent of the nation’s total energy or 11,971 trillion British thermal units (Btus) of energy each year (Exhibit 15).57 California was a distant second, using 8,364.6 trillion Btus.58

Texas’ industrial sector accounts for nearly 20 percent of all U.S. industrial consumption and 53 percent of the state’s total energy consumption. The U.S. industry sector, by contrast, accounts for just 33 percent of the total U.S. energy consumption (Exhibit 16).

Texas consumes energy from a wide variety of sources, including petroleum, natural gas, coal, nuclear power and renewable sources such as biomass, hydroelectric, geothermal, wind and solar. In 2004, Texas consumed 95 percent of its energy from petroleum, natural gas and coal (Exhibit 17).

Federal and State Regulations

While federal and state regulations and environmental standards are intended to ensure that we have clean air, they can also have a profound impact on the availability and cost of energy. These regulations and standards can affect energy production by regulating and limiting discharges from power plants, refineries, mines, wells and other energy enterprises into the air.

In 1970, Congress passed the Clean Air Act (CAA), which authorized the U.S. Environmental Protection Agency (EPA) to establish National Ambient Air Quality Standards (NAAQS). The goal of the 1970 CAA was to set and achieve NAAQS in every state by 1975. The setting of standards was coupled with a requirement that states develop implementation plans to guide and direct their efforts to reduce pollution levels.

Exhibit 17

Texas Energy Consumption, 2004

In trillion Btus

A pie chart showing Texas Energy Consumption by Fuel

(Texas Energy Consumption by Fuel, Text Alternative)

The CAA was amended in 1977, to set new dates for attainment of air standards, since many areas of the country had failed to meet the deadlines. The CAA was again amended in 1990 to meet problems including acid rain, ground-level ozone, stratospheric ozone depletion, and air toxics.59 NAAQS, as amended, measures six outdoor air pollutants:

  • ground-level ozone/smog (O3)
  • particulate matter (PM)
  • lead (Pb)
  • nitrogen dioxide (NO2)
  • carbon monoxide (CO) and
  • sulfur dioxide (SO2).60

Texas has several large urban areas that do not meet the CAA requirements for carbon monoxide, particulate matter and ground-level ozone/smog. Specifically, El Paso does not meet the standards for carbon monoxide and particulate matter. Houston-Galveston-Brazoria, Dallas-Fort Worth, San Antonio and Beaumont-Port Arthur do not meet the standards for eight-hour ground-level ozone/smog. The ground-level ozone standard is 0.08 parts per million (ppm), as averaged over eight hours. Other areas including Austin, Corpus Christi and Victoria are close to violating CAA standards.61 The communities listed above have different dates by which they must meet the CAA standards or risk losing billions of dollars in federal highway funding for their areas.62 Exhibit 18 shows the areas in the state that are in or near nonattainment status and the standards that are in question.

Exhibit 18

Texas' Nonattainment and Near Nonattainment
Areas Under the Clean Air Act

A map of Texas showing the status of the areas affected by the Clean Air Act.

(Texas' Nonattainment and Near Nonattainment
Areas Under the Clean Air Act, Text Alternative)

San Antonio, Austin and the Northeast region of the state have received Early Action Compacts – deferments from the EPA and the Texas Commission on Environmental Quality. These areas agree to institute pollution-reducing measures such as public transportation, public behavior advisories (voluntary driving restrictions and other public behavior management) and voluntary restrictions on business and industry to reduce pollution levels; in return, they are not subject to federal penalties (loss of federal transportation money). These agreements allow the areas’ municipal and county authorities to design their own measures to reduce pollution, choosing the pollution prevention strategies that best fit their area.

Energy Spending

Consumers in Texas spend more money on energy than those in any other state. Texas consumers spent just over $95 billion on energy in 2004, or nearly 11 percent of total U.S. expenditures on energy. In addition, energy expenditures amounted to more than 10 percent of the state’s gross product (Exhibit 19). In the same year, total U.S. energy expenditures were nearly $870 billion, or about 7 percent of the national gross domestic product.63


Texas’ electricity market is both regulated and deregulated. Wholesale electricity sales between power generators and retail electric providers are deregulated across Texas, while retail electric sales are deregulated in most of the state, but only for privately owned utilities, not municipally owned or member-owned cooperatives. About 60 percent of the residents in Texas purchase retail electricity in the deregulated market.64 The transmission and distribution of electricity over wires remains regulated by the Public Utility Commission of Texas in all areas of the state.

Exhibit 19

Total Energy Expenditures,
Texas versus U.S., 2004

Nominal dollars in millions

Sector TexasU.S.Texas Share of the U.S. Total
Residential $14,247 $190,734 7.5%
Commercial $9,715 $137,749 7.1%
Industrial $39,090 $176,497 22.1%
Transportation $32,070 $364,337 8.8%
Total $95,122 $869,319 10.9%

Note: Numbers may not total due to rounding.
Source: Energy Information Administration.

Exhibit 20

Texas Electricity Generation,
by Fuel Source, 2004

Pie chart showing electricity generation by fuel source as a percentage.

(Texas Electricity Generation by Fuel Source,
Text Alternative)

The three most common fuel sources for electricity in Texas and the U.S. as a whole are natural gas, coal and nuclear power (Exhibit 20).

Exhibit 21

Electricity Consumption Forecast
2007–2025 ERCOT Power Region

A graph showing forecasted increases in electricity consumption.

(Electricity Consumption Forecast, Text Alternative)

Projected Demand for Electricity

Texas’ growing population will boost demand for electricity in all sectors. How this demand is met will be determined by market forces and federal and state policies. The cost of natural gas and policies aimed at reducing pollution may mean that Texas will need to turn to alternative fuel sources as well as conservation and efficiency to help meet the growing demand for energy. The state, however, has access to enough coal and natural gas to meet its projected electricity demands through 2030 and beyond.

The federal Energy Information Administration (EIA) projects that U.S. commercial demand for electricity will rise by 63 percent by 2030, while residential demand will rise by 39 percent and the industrial sector will rise by 17 percent. The increase in demand will result not only from population growth but also from increased disposable income. This will result in increased purchases of products and additional floor space needing electricity.65

The Electric Reliability Council of Texas (ERCOT), which manages the power grid covering about 75 percent of Texas’ land area, expects consumption in its power region to increase by 39.4 percent from 2007 through 2025, or from about 313 million megawatt-hours (MWh) to more than 436 million MWh (Exhibit 21).66

Meeting Projected Needs for Electricity

The fuel sources Texas will use to meet this growing demand will likely still be dominated by both coal and natural gas. To meet growing future demand, it is also likely that the state will make greater use of alternative energy sources such as nuclear power and wind power, among others. New nuclear and wind projects are being proposed and considered for approval. Increases in energy efficiency also will help diminish the projected growth in demand.

Direct Use Energy

Energy in the form of natural gas, propane and oil can be delivered directly to individual businesses and houses and burned for heating and cooking.


In 2006, the Texas energy industry employed more than 375,000 people, who earned $35 billion in wages.*

In 2006, 32.4 quadrillion British thermal units (Btus), or approximately 32 percent of all energy used nationwide, could be attributed to the burning of combustible materials to produce heat for direct use.

Sixty-eight percent of all direct-use energy is used in the industrial sector to manufacture raw materials into finished products. Chemicals, plastics, metals, food and glass are all made through such processes. In 2006, 21,586 trillion Btus of energy were used nationwide to turn raw materials into finished products.67

According to EIA, in Texas, natural gas accounted for 43 percent of the home heating, electricity accounted for 49 percent, liquefied petroleum gas accounted for 6 percent (including propane) and the remaining 2 percent was from other sources.68

Direct-use energy also heats commercial buildings throughout the nation. In 2006, 3,927 trillion Btus of direct-use energy were used to heat commercial buildings; this includes the use of natural gas and fuel oil.69

Transportation Energy

As America has become more reliant on transportation, more and more of the nation’s energy has been devoted to this purpose. In 2006, the U.S. expended 28.4 quadrillion Btus, or about 28 percent of all energy use nationwide, for transportation. Transportation’s share of the nation’s total energy usage has risen steadily since 1973. In 2004, Texans used 2,701 trillion Btus of fuel to transport people and goods from one place to another (Exhibit 22).70

In the same year, the U.S. devoted just over 81 percent of its transportation energy to transportation used on local roadways and highways; the other 19 percent was used for other forms of transportation, such as airplanes, railroads and waterborne craft.71

Exhibit 22

U.S. and Texas Transportation Fuel Sources, 2004

In trillion Btus

Fuel Source U.S. Amount of Fuel Used Percent Texas Amount of Fuel Used Percent
Petroleum Products 26,914.9 96.7% 2,640.2 97.8%
Natural Gas 607.7 2.2% 57.5 2.1%
Ethanol* 299.3 1.1% 2.4 0.1%**
Electricity 24.2 0.1% 0.3 0.1%**
Total 27,846.1 100.0% 2,700.4 100.0%

*On the original EIA document, ethanol is listed twice: blended into motor gasoline and included in the motor gasoline category;
and it is shown separately to display the use of renewable energy by the transportation sector.
**Ethanol and electricity used as fuel in Texas accounts for 0.1 percent of the total transportation sector fuel in the state, combined.

Source: Energy Information Administration.

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