Monday, January 7, 2013

Alaska Oil Policy| The Governor Gets Closer, But Still Not There

The same editorial from the Governor on oil taxes appeared Sunday in the Fairbanks News Miner, Anchorage Daily News and the Juneau Empire, albeit under different titles.  The News Miner version was entitled "Consensus grows on oil fix," the ADN version, "Governor lays out principles of oil tax reform," and the Empire version, "Oil taxes must be balanced, encourage new production."

The Governor's editorial is intended to -- and largely does a credible job of -- laying out the case for oil tax reform in advance of the upcoming session.  

The piece does not contain any specifics of the proposed legislation, however, but instead focuses on "four principles:"  
First, tax reform must be fair to Alaskans. Second, it must encourage new production. Third, it must be simple, so that it restores balance to the system. Fourth, it must be durable for the long term.
The second, third and fourth are much like points that I raised in an earlier piece on these pages ("Five things to look for in oil tax reform ...,", Nov. 23, 2012).  The Governor should be commended for making the first point explicit (I treated it as a given).

The Governor, however, does leave out of his principles one that I find important -- indeed critical:  achieving alignment between state policies and the objective of developing the state's resources.

In my view, Alaska's recent oil tax and other policies are more symptoms of a fundamental, underlying problem than the problem itself.  I have written at length about what I think the underlying problem is both in the Alaska Business Monthly ("Alaska Oil Policy|  Out of Alignment," Nov. 2012) and on these pages ("Our Oil?  Then its time for our investment," Aug. 9, 2012).  In short, it is the fact that Alaska is not positioned to see for itself what the best opportunities and paths are for developing the state's oil resources.

As in medicine, treating one of the symptoms -- by reforming oil taxes -- will not solve the underlying problem.  It may make things seem better briefly on the surface, but the fundamental, underlying problem will continue.  If it does not address the underlying problem at the same time it addresses the symptoms, Alaska will continue to attempt to drive the state's oil industry from the backseat, largely blind to the consequences.

Without the ability to understand for itself what the best opportunities and paths are for developing the state's oil resources, the state will simply be headed for the next ditch.  While Alaska could tolerate that behavior while the original Prudhoe field produced hundreds of thousands of barrels daily, making the margin for error large, the tolerance for offtrack state policies is narrowing significantly as the opportunities become smaller and nimbleness becomes more valuable.

As I have outlined elsewhere on these pages, the solution is clear and well documented elsewhere in the world.  Alaska should begin to co-invest in the development of its own resources, in order to see more clearly the opportunities and paths that need to be followed.  I have tried to lay out something of a roadmap for that effort in my most recent column in Alaska Business Monthly ("Alaska Oil Policy|  Achieving Alignment," Jan. 2013).  Sooner than later, the Governor -- and the Legislature -- should add it to the principles which they are using to guide oil reform.

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