Monday, February 15, 2010

Three governors and energy taxes

Most US governors have submitted proposed budgets to their states’ legislatures for 2010. Three announced moves involving energy production taxes in early February. Each took a different approach.

Alaska Gov. Sean Parnell (R) announced on Feb. 9 that he would transmit to his state’s legislature four proposed changes in the oil production tax designed to increase investment, employment, and, ultimately, production.

He said he would ask lawmakers to add a 30% credit for all drilling and well-work expenses; eliminate what he said was a double standard against new producers by allowing the state to pay for capital credits they earn regardless of their future spending levels; allow all producers to enjoy the entire benefit of their capital costs in the year they are earned instead of spreading the credit over two years; and allow for a waiver of interest charges on late payments due to the retroactive application of new regulations.

Pennsylvania Gov. Edward G. Rendell (D) said on the same day that he would resubmit his request for an oil and gas severance tax, tying it to a levy on cigars and smokeless tobacco products. “Once again, it’s simply not fair that Big Tobacco and Big Oil and Gas are exempt from the obligations the rest of us have to bear,” he declared in his Feb. 9 budget address. “The revenues raised by these initiatives are overwhelmingly supported by our fellow citizens, and would provide a half a billion dollars for the Stimulus Transition Reserve Fund.”

Then there was Wyoming Gov. Dave Freudenthal (D), who proposed a wind energy tax in his Feb. 8 state of the address. “It has drawn some controversy, and I will tell you the following: If you look at the wind energy industry, it is the most heavily subsidized industry in this country from the federal point of view,” he said. “It is also an industry that enjoys the sort of energy de jour in terms of people saying, ‘You know, it is important.’ That is not my particular quarrel.”

Freudenthal emphasized that he’s not trying to slow wind energy development down in the Cowboy State. “Wind is a good idea for Wyoming. We have 40% of the best wind resources in America in Wyoming. It can be a remarkable industry for us. It can help keep people in agriculture. It can help people get jobs and it can bring some manufacturing to the state,” he maintained.

“Having said all of that, the industry is not entitled to a free ride. In my lifetime, this is the first opportunity this state has had to diversify its tax base,” Freudenthal continued. He said that Wyoming lawmakers could expect to hear arguments that the wind energy industry needs to be encouraged, and that lobbyists would argue that a tax would stunt its growth. “We have been through this with oil and gas. We have been through this with coal,” he observed. He asked legislators to remember county and local governments which are struggling to continue providing services without raising their own taxes.

“Think about what it is you are being asked to do. You are being asked to diversify the state's tax base. You are being asked to be reasonable with regard to the impacts to local government, and you are being asked to make a decision that says nobody in this state gets a free ride,” Freudenthal said. “I want wind energy. I believe it is good for the state. However, it must be on terms fair to the state and the citizens of the state.”

Economic recovery, jobs, and health care are the three biggest issues as the National Governors Association’s 2010 winter meeting approaches. But as states’ chief executives meet in Washington Feb. 20-22, others beyond these three will be thinking hard about energy industries’ capacity to generate revenue.

2 Comments:

Anonymous Charlie Green said...

Agree some form of increased taxes are necessary. I propose 2cents/gal. per year for 10 years increase in state and federal tax on gasoline. Everyone has lived with extreme volatility in gasoline over the years so it would be hardly noticed and while delivering much needed revenue to reduce debt, etc., it will also help drive our economy to higher fuel efficiences in all sectors.

February 18, 2010 at 7:28 AM  
Anonymous Anonymous said...

I really like the material in this blog. Would the contributors be willing to present a one hour oil and gas update in March? Please contact me if you are interested.

Thanks,

Andre

andre.chouravong@thomsonreuters.com

February 23, 2010 at 8:17 AM  

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