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.
This article appeared in the print edition of the magazine with the headline Time to call the gas industry’s bluff.
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