Gov. Palin and the Oil Industry in Alaska

By September 5, 2008Energy

Today’s Wall Street Journal features a defense/explanation of Gov. Sarah Palin’s treatment of the oil industry in Alaska from James P. Lucier Jr., a managing director of the D.C. forecasting/consulting firm of Capital Alpha Partners, LLC. The column, “What Palin Really Did To the Oil Industry,” compares her approach to the previous taxing and economic development programs of Gov. Frank Murkowski, whom Palin defeated in the 2006 Republican primary.

As a new governor in 2007, Mrs. Palin stepped in to address the fiscal crisis and restore accountability. Working with Democrats and Republicans alike, she chose a 25% profits tax. But in lean years the state reverts to a 10% gross revenue tax on legacy fields that do not require massive continuing inputs of new capital.

Relative to the old system, Mrs. Palin’s plan — called “Alaska’s Clear and Equitable Share” (ACES) — improves incentives for developing new resources. It ensures the state does well in boom times — as it is doing now — when oil prices are high. But it also hedges against low prices in the future by ensuring that oil companies exposed to commodity price swings don’t face a crushing tax burden when commodity prices fall.

Her plan includes an escalator clause that gives the state a larger share of revenues when oil prices rise. This is common to production-sharing agreements all over the world.

For a more critical look, here’s a business reporter’s column from the Toronto Globe and Mail, “How Big Oil went from friend to foe in Alaska.” The column points out her experience on the powerful Alaska Oil and Gas Conservation Commission.

Perhaps it’s inevitable in a campaign year with “change” as the mantra and populism as the default, but there are still political pitfalls to the McCain-Palin “we took on big oil” rhetoric. If one sector of the economy is defined as suspect, exploitative or evil, it becomes awfully easy to treat other sectors the same. “We took on Detroit. We showed the mining sector who’s the boss. Those manufacturers, we gave them what for. Corner convenience stores? We stuck it to them.” Populism debases.

Maybe all this is an overreaction to campaign rhetoric. On energy policy, it’s hard to beat the clarity and pro-energy realism of Palin’s convention speech, where she said:

Our opponents say, again and again, that drilling will not solve all of America’s energy problems — as if we all didn’t know that already.

But the fact that drilling won’t solve every problem is no excuse to do nothing at all.

Starting in January, in a McCain-Palin administration, we’re going to lay more pipelines … build more nuclear plants … create jobs with clean coal … and move forward on solar, wind, geothermal and other alternative sources.

We need American energy resources, brought to you by American ingenuity, and produced by American workers.

That’s right.

UPDATE (3 p.m.): The insightful, smart and almost always correct Kim Strassel also looks at Palin and the oil companies in her Potomac Watch column today:

Throughout it all, Mrs. Palin has stood for reform, though not populism. She thanks oil companies and says executives who “seek maximum revenue” are “simply doing their job.” She says her own job is to be a “savvy” negotiator on behalf of Alaska’s citizens and to provide credible oversight. It is this combination that lets her aggressively promote new energy while retaining public trust.

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