Friday, 4 March 2011

Sarah Palin and Big Oil - an awkward dance

Yesterday the Washington Times had an article about taxing the oil industry in Alaska:

Alaska’s energy production is declining, and Gov. Sean Parnell is hoping to help revive it by cutting taxes on oil and gas production, modifying a tax structure implemented by then-Gov. Sarah Palin.

House Bill 110 passed the House Resources Committee earlier this week by a 7-2 margin, a vote the governor applauded as necessary to strengthen an industry that provides 80 percent of Alaska’s revenue and thousands of jobs in the state.

The bill would cut the basic tax on new oil-field production from 25 percent to 15 percent, grant energy businesses more incentives to hire Alaskans, soften the state’s progressive oil-tax structure and provide other pro-business tax incentives.

The current tax system, Alaska’s Clear and Equitable Share (ACES), was pushed through by Mrs. Palin in 2007. Besides lowering the tax rates, HB 110 also would trim back ACES’ system of raising the tax rate as oil prices rise.

The Seattle Times had an article about the same topic in August 2008:

Over the opposition of oil companies, Republican Gov. Sarah Palin and Alaska's Legislature last year approved a major increase in taxes on the oil industry — a step that has generated stunning new wealth for the state as oil prices soared.

The Alaska tax is imposed on the net profit earned on each barrel of oil pumped from state-owned land, after deducting costs for production and transportation, which are currently estimated at just under $25 a barrel.

The tax is set at its highest rate in Prudhoe Bay, where the state takes 25 percent of the net profit of a barrel when its price is at or below $52. The percentage then escalates as oil prices rise over that benchmark. Alaska gets about $49 of a $120 barrel, not counting other fees.

New York Times, August 30, 2008:

One of her most significant accomplishments as governor was passing a major tax increase on state oil production, angering oil companies but raising billions of dollars in new revenue. She said the oil companies had previously bribed legislators to keep the taxes low. She subsequently championed legislation that would give some of that money back to Alaskans: Soon, every Alaskan will receive a $1,200 check.

I have always been skeptical about anything involving Sarah Palin or the oil industry. They don't stick to the rules.

It appears that Big Oil and Sarah Palin engaged in a very complicated dance, where the steps were not clear to onlookers. Other governors had been openly pro-oil industry and Parnell, as a former lobbyist for the very same industry, is still particularly keen on keeping them happy. Sarah Palin seemed unwilling to join them and put a price tag on her dance card.

Big Oil grumbled but went along with her demands. Sarah then proceeded to champion the causes of her unpopular partners:

  • Drilling for oil in the ANWR or, euphemistically, opening up federal lands.
  • Starting two lawsuits against the federal government to remove polar bears and white Beluga whales from the endangered species list.

Sarah Palin honoured her side of the bargain, but Big Oil, well known for not playing fair, pulled the rug and started dragging their feet. Production fell and they threatened to leave the Alaska operation in favour of off-shore drilling elsewhere. Big Oil will do anything to protect their profits. She blamed the "extreme enviros" for it.

I wonder if Big Oil will play nicely with Parnell. They know how much the state depends on the oil taxes revenues... my guess is that they will continue to hold Sean Parnell over a barrel.

Please read more about Big Oil on Palingates.