Time to call the gas industry’s bluff

  • Randy Udall

 

There's been a steep falloff in friendly chit-chat around the local gas pumps, and no wonder. With diesel at $3.40 a gallon and gasoline only somewhat cheaper, it's common to see someone drop $100 on a tankful. The Pump N Pay is as glum as a morgue. A typical American family will spend more than $3,000 on liquid fuels this year, and another two grand on electricity and natural gas. Lodgepole pine is $250 a cord, which seems pricey, but is much cheaper than the profane price I'm paying for propane. The hemorrhaging of family energy budgets is infusing billions into the ledgers of Shell, BP, Exxon, Anadarko, Williams, Chevron, and EnCana, the large multinationals that now dominate natural gas production in the Rockies. Next year, the combined global profits of those seven companies will approach $100 billion. Their shareholders are profiting from your pain.

If there's a silver lining here, it's that some state governments' severance tax collections are also rising. Severance taxes are designed to recapture, for the benefit of you, your kids, and your community, some of the wealth that is irretrievably lost when nonrenewable natural resources are extracted from the earth. Wyoming and New Mexico, two states where gas drilling has boomed over the past decade, now boast billions in their severance tax funds.

But my "progressive" state of Colorado, the fastest-growing gas producer in the nation, continues to play the rube when it comes to severance taxes. Coloradans are a smug bunch. We don't think of Wyoming as the "Cowboy State"; we think of it as the Tetons, half a million antelope, and a bunch of rednecks. But if energy is an IQ test for Americans, we are the ones who are flunking out big-time.


Although Colorado's nominal severance tax rate is 5 percent, the state actually collects less than 2 percent, because we allow energy companies to deduct the county property taxes they pay from their severance tax bill, and because three-fourths of the state's wells pay no severance tax at all due to Colorado's "stripper well" exemption. This provision made sense when oil was $15 per barrel and natural gas was $1 per thousand cubic-feet. Since 1999, however, these prices have soared. Today, oil prices are above $90 and natural gas trades at $6.

By piggybacking the property tax and stripper-well exemptions together, oil companies have worked the Colorado tax code like a broken slot machine. The poster child is Weld County in the northeastern part of the state, where producers extracted $7 billion of oil and gas between 2002 and 2006. In three of those years, Colorado did not collect one dollar in severance taxes in Weld County.

The upshot is that since 2002, Colorado has left $1.3 billion on the table, even as the state has struggled to meet its obligations for higher education, health care, and other programs, and as our county and town governments try to absorb the impacts of the boom. In Colorado, we aren't giving it away; we are paying them to take it.

I have nothing against natural gas. It is the planet's finest fossil fuel. I admire the roughnecks who work grueling 12-hour shifts on the drilling rigs. From a geotechnical perspective, the wizardry being deployed in the Rockies is a marvel. My friend Charlie's job is to dowse an eight-foot-thick oil seam a mile underground, then thread a drilling bit along it, horizontally, for a mile. This makes heart surgery look like child play.


When it comes to politics, though, the petroleum industry is a playground bully. Recently, one industry-funded propaganda outfit, Americans for American Energy, publicly accused eight mayors in western Colorado of aiding and abetting Osama bin Laden by opposing natural gas drilling on the Roan Plateau, a rare wilderness highland just north of I-70. ("Serving at the municipal level of government doesn't afford one the time or opportunity to keep pace with larger issues, such as global energy market dynamics or the geopolitical nexus between energy security and national security," wrote the patronizing flacks in their letter to the mayors.)

This kind of stuff fries my bacon because there's zero connection between what happens on the Roan Plateau and what happens in Iraq. Since 1990, the petroleum industry has drilled more than 150,000 wells in the Rockies and leased - in what historians may dub the Cheney Giveaway - 30 million acres of federal land. That's the equivalent of 15 Yellowstones, but the industry's henchmen are still, unbelievably, whining about "limits to access."

They are also frantically avoiding any discussion of severance taxes. When Colorado Rep. Kathleen Curry recently proposed hiking our severance tax rate so that it would be equal to Wyoming's, oil and gas companies suggested they might leave the state. This is a well-worn - and empty - bluff that Colorado legislators should call. The Rockies are the only place in North America where gas production is increasing. Colorado's gas production has increased fivefold since 1990, and adjusting our severance taxes wouldn't slow the rush a bit.


The current gas boom won't last forever, and we should not squander the opportunity to reap some long-term benefit. Wise public policy should recognize that energy is the original currency, that fossil fuels are nonrenewable, that the citizens of Colorado and other states have a legitimate claim to a fair share of their state's mineral bounty. Legislators should also ensure that some portion of that wealth is saved for future generations, who are likely to look back at the current bonfire and wonder what we were thinking.

Norway has set aside $315 billion of its North Sea oil revenues into a rainy-day fund to benefit future generations. (Next door, the United Kingdom reaped an equal bounty, but saved none of it.) Kuwait has a permanent fund. Abu friggin' Dhabi has a permanent fund. Alaska has a permanent fund valued at $40 billion that paid each resident $1,600 this year. The Navajo Nation, which sprawls across parts of Utah, Arizona, and New Mexico, has put aside $1 billion into its permanent fund. If they can do it, why can't we?

This year, Rifle, Colo., the epicenter of a $2 billion-a-year gas play, will receive less than $500,000 in state severance taxes, a pittance given the tens of millions the city must invest to deal with the social and infrastructure impacts caused by the gas industry.

The citizens of Colorado have no control over whether we get gouged at the gasoline pump. But we do have the power to insist that an industry this large and profitable pay its fair share.


Randy Udall lives in Carbondale, Colorado. For 13 years, he directed the Community Office for Resource Efficiency, a nonprofit promoting energy efficiency and renewable energy in the Roaring Fork Valley.

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