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My Turn: Energy policy 2013: Alaskans should look 'north the the future'

Posted: January 17, 2013 - 12:15am

The elections have ended and it is now time to shift from campaigning to governing. An impatient electorate will have big expectations from lawmakers to jump-start our sluggish economy and start creating jobs—fast. So how can they meet the challenge? In Alaska that path is to better tap into its robust supply of oil and gas.

Other energy-producing states including Texas, Oklahoma, Montana, Wyoming, North and South Dakota and Nebraska are seeing impressive income and job growth gains mostly attributed to the growing demands for their rich commodities, including oil and gas.

An analysis by the Progressive Policy Institute notes that in 2011, four of the top ten non-financial companies investing in the U.S. were oil and gas companies that have invested a total of $28.3 billion domestically in 2011. It’s important to note that historically each $1 billion increase in investment is associated with an additional 22,300 jobs in the U.S. Thus, the $28.3 billion of investment by the four oil and gas companies may have produced over 600,000 new jobs in 2011.

For Alaska to tap into this recovery and growth, however, it must first reduce the tax and regulatory barriers that are putting the state behind others in the Lower 48 in energy production and economic growth.

Foremost among these burdensome tax policies is the dubiously named “Alaska’s Clear and Equitable Share (ACES),” Alaska is racking up massive amounts of revenue that are anything but equitable. One oil company recently reported that from the time ACES was enacted to year-end 2011 that it paid approximately $16 billion in taxes and royalties to the state of Alaska — 60 percent more than it actually earned. Due to the aggressive “progressivity” feature of ACES, Alaska’s “equitable” marginal tax rate on oil company revenues at current oil prices has increased to over 80 percent on revenues above allowed deductions.

ACES combined with other tax, royalties, permitting and regulatory barriers have slowed investment, growth and jobs in energy production. Although there is investment on the North Slope as a result of the renewal process for the aging infrastructure, the growth in jobs associated with adding production and developing new reserves is down sharply. A recent survey by the Alaska Support Industry Alliance shows that the majority of their member companies report moving production and service related employees from the North Slope to Alberta, Texas or North Dakota.

According to data from the U.S. Energy Information Administration, Alaskan oil production has been on a downward trend compared to the sharp increase in production in the lower 48 U.S. states. For example, Alaskan oil production has fallen from 741,000 barrels a day (b/d) in 2006 to only 561,000 b/d in 2011, a drop of 24 percent. In contrast, North Dakota’s oil production has increased from 109,000 b/d to 419,000 over the same time period, an increase of 459 percent. (North Dakota’s much lower marginal tax rate per barrel on oil, about 55 percent, stands in sharp contrast to Alaska’s 80 percent.)

On a state level, the Alaska Legislature would be wise to revisit ACES and find a more sound approach to tax policy that will truly be equitable. Lawmakers should work to broaden its tax base, in lieu of relying on oil companies for almost 90 percent of state tax revenue. This would allow the state to lessen the tax burden on oil companies, which would in turn encourage them to make the kind of investments needed to reverse Alaska’s decline in oil production.

U.S. energy industry expansion is on a fast track to economic recovery and Alaska lawmakers have the resources right in their backyard. The right tax and regulatory reforms will lower the costs of capital for business and energy investment, reversing the state’s decline in oil production and setting it on an impressive economic and job growth phase. When it comes to energy policy, Alaska can be a true leader, prompting other states to look “North to the Future.”

• Thorning is Senior Vice President and Chief Economist for The American Council for Capital Formation (ACCF), a nonprofit, nonpartisan organization advocating tax, energy and regulatory policies that facilitate saving and investment, economic growth and job creation.

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