In the July 17th edition of the Anchorage Press, Anchorage attorney Megan Rowe wrote a column working to explain how Alaska makes money as an oil-producing state. She wrote, “The state of Alaska makes money from oil by taxing it.”
This really could not be further from the truth.
Alaska makes money from oil by producing it. Since Alaska itself owns the subsurface mineral rights and we as citizens own them in common, we make money from leasing the opportunity to produce and explore to the oil companies, and by the royalties we earn for every barrel produced. Royalties are negotiated between the state and producers and they make up the most, by far, of oil revenue to the state.
What can get confusing is when we start talking about production taxes. What Alaska citizens need to keep in mind is that our tax structure is designed to both incentivize exploration, and to incentivize production… so that we can generate more royalty revenue for the state.
Our “fair-share” are those royalties we earn as owners by working with the producers to pump oil out of the ground. Without the producers, the oil that we own would simply stay in the ground and we would not enjoy the state services we’ve come to expect from our government.
If you were a producer, and your job was to pump oil for your client (the state), the last thing you would want to see is an ever-changing tax policy that changes your incentives every couple years. Producers invest billions in Alaska to increase, maintain, and develop new opportunities and we should want them to make long-term business decisions based on a stable set of incentives.
I'm not ignoring sustainability, or environmental arguments against pumping oil, however for the time-being, Alaska is an oil producing state, and we pay for virtually everything with our royalty income.
If you want to learn more, or if ownership in commons is a foreign concept (it was for me before I moved to Alaska) I highly recommend former Governor Wally Hickel’s book ‘Crisis in the Commons: The Alaska Solution’.
Whenever a politician or activist talks about oil-tax policy, or wants to change it, they always omit that as owners of the resource in commons we should want to develop our resources for the benefit of Alaskans. The Fair Share Act (ballot measure 1) may increase production tax revenues, but what we would lose in lower production, and lower royalties, far outweigh those perceived benefits.
It's our resource, and we need to produce it.