Texas is typically labeled as the nation’s energy giant, but what role, in fact, does energy play in our state economy? The Texas Public Policy Foundation asked Drs. Steven Hayward and Kenneth Green of the American Enterprise Institute to answer this question. Their resulting study, “Texas Energy and the Energy of Texas: the Master Resource in the Most Dynamic Economy,” concludes that resurgent energy production and productive energy use have been central drivers of our state’s outstanding economic performance over the last 10 years.

The study finds that Texas has become the nation’s leading industrial and manufacturing state and it is energy consumption that enabled this growth. The annual level of energy use in Texas dwarfs most other states, a fact often misleadingly attributed to inefficiency. The manufacturing output of Texas, however, is now larger than the combined output of former industrial titans like Michigan and Ohio.

Affordable and diversified energy has attracted to Texas a concentration of energy intensive industries. Manufacture of chemicals, plastic, petroleum products, metals and machinery demands high volumes of energy. The bottom line of those industries hinges on using the least amount of energy necessary. Such market-driven innovation has reduced energy use per dollar of economic output by 50 percent since 1975.

The abundance and diversity of Texas energy provides resilience to weather economic swings. While job creation continues to bewilder federal policymakers, private sector job creation thrives in Texas. Over the last decade, the 48.2 percent growth rate in Texas small business employment was twice that of California and 10 percentage points above the national average.

“Texas Energy” highlights the rapid upsurge in Texas energy production. In 2009, Texas had the nation’s largest proven increase in oil reserves (529 million barrels) and total oil discoveries (433 million barrels). In 2010, the Eagle Ford oil field in south Texas increased production four-fold in the first 10 months of 2010. And the scope and speed of the Texas natural gas boom has game-changing implications for the national and the global energy outlook. Proven natural gas reserves in Texas have increased 100 percent in the last 10 years. Since 1990, exports of Texas natural gas have increased 1,400 percent.

Texas also is the leading coal consuming state in the country. Texas now produces about one-third of its coal for electric generation and imports most of the remainder from Wyoming. The average price of Texas lignite coal in 2009 was $16.67 per ton compared to a national average from all sources of $33.15 per ton. Coal’s comparatively stable and lower prices have made coal an anchor for base-load generation in Texas.

Texas prosperity and targeted regulation also have made possible major improvements in Texas air quality. Between 2000 and 2008, Texas lowered ozone levels by 22 percent compared to a national average of 8 percent.

“Texas Energy” is a reminder that affordable energy is a cornerstone of a prosperous economy. However, as much as one might prefer, there are no alternative energy sources capable of broad commercial deployment in the foreseeable future that can approach the energy density, sophisticated use, distribution, and affordability of fossil fuel resources. Policies to abruptly suppress fossil fuels put the Texas economy – and the recovering national economy – at grave risk.

The marketplace, however, might well achieve the same environmental ends without an economic tailspin. The evolution of energy over the last century from dung to wood to coal, oil, natural gas, and nuclear is – without government intervention – a progression from carbon heavy to carbon light, from diffuse and diluted sources to dense and efficient energy sources. This historical development is a result of market-driven technological advance, a dynamic which also has achieved enormous environmental gains.

Drs. Hayward and Green argue against interfering with the winning formula of Texas: “an open, adaptable marketplace for competing energy supplies and technologies, rather than mandates and patchwork subsidies.” Let us hope federal and state policy makers keep in mind the first rule of government: “Do no harm.”

Kathleen Hartnett White is Director of the Armstrong Center for Energy and Environment at the Texas Public Policy Foundation, a non-profit, free-market research institute based in Austin. She was commissioner and chairman of the Texas Commission on Environmental Quality from 2001 to 2007.