More on the glorified press release that the oil industry calls an “ independent study” about the potential impact of Ballot Measure No. 1.

The oil companies are hyping this press release as proof that Ballot Measure No. 1 will lead to the loss of 6,300 jobs and a loss of $6 billion in investment from 2021-2029. Alaska Native corporations, many of which do business with the oil companies, hired a right-wing group to produce a study opposing the ballot measure, which is a smart business tactic.

It is clear that the statistics in the press release and the oil company ads should be discarded as they are founded on false and incomplete information. If a tax increase would lead to job losses and a reduction in investment, those numbers are only credible if the research used to produce them is solid.

Calling the press release an independent study, as the Native corporations and the oil companies are doing, does not make it an independent study.

I asked Robin Brena, an expert on the Alaska oil industry and the Anchorage attorney primarily responsible for the ballot measure, for his take on the situation. He offers the following as a rebuttal to the American Action Forum press release promoted by the oil companies in their ads.

• AAF is a right-wing, anti-tax, political organization funded by the usual suspects.  It is not an unbiased or independent source at all.

• The AAF study is not a study at all, offers no analysis, and misquotes the articles it principally relies upon.

• AAF makes false assumptions concerning Ballot Measure 1.  For example, while Ballot Measure 1 only applies to the three major legacy fields, AAF assumes it applies to all oil fields in Alaska including new and developing fields.  Specifically, AAF states, “This assumes the new tax structure directly constrains operating and capital spending on legacy fields, but also constrains investment in other existing fields and fields under development, as a result of a generally weakened Alaska investment environment.”   AAF’s assumption is simply false.

• AAF misquotes its primary sources.  As you pointed out, the article, “Spatially variable taxation and resource extraction: The impact of state oil taxes on drilling in the US” (Taxation and Resource Extraction) is the principal article AAF relies upon.  Taxation and Resource Extraction concerns oil fields in the Lower 48 that straddle state boundaries.  In theory, if one State raises severance taxes, it would be easy to simply drill less in that state and more in the adjoining state with lower severance taxes.  Taxation and Resource Extraction does not consider or use any Alaska data or any data from fields that do not straddle state boundaries in the Lower 48.   

• Taxation and Resource Extraction points out there are two potential impacts from raising severance taxes:  additional revenue to the state from a higher severance rate and less revenue to the state from less drilling.  The article addresses which potential impact dominates the other, i.e., whether the state get more or less revenue from increasing severance taxes.  It concludes:

  • “We show that oil firm investment in the US responds inelastically to changes in state tax rates.” This means increasing severance taxes does not significantly impact investment decisions.

  • “Our results show that drilling is inelastic with respect to changes in severance taxes.” “These findings suggest that a 10 percent increase in severance taxes would lead to about a 3 percent decrease in well drilling, making the combined effect about a 7 percent increase in state revenue for every 10 percent increase in tax.”  This means that any impact to drilling is more than offset by the increased revenue to the State from raising severance taxes. 

  • “That literature generally finds that tax rates are not a major driver of firm location decisions - instead firm location decisions are often driven by workforce availability and local demand. The broader literature finds mixed results of taxation, seemingly due to firms disliking taxes but preferring public amenities provided by taxes (Arauzo-Carod et al., 2010 ). In the oil drilling context, moving large amounts of capital across state borders may be costly relative to the difference in tax paid.”  ”We also find no evidence of local spillovers across state lines.”  This means raising severance taxes would not result in people leaving Alaska.  There is no evidence of such behavior even when the fields straddles a state line five miles away.

  • “The policy implication of our empirical estimate is that using state tax rate decreases to incentivize investment may lead to losses of state government revenue.”  This means SB21 should never have been passed in the first place (or included the $8 per revenue barrel incentive for production) because reducing severance taxes just ends up a net negative for the state—the state loses more revenue than the decrease incentivizes in production. 

  • Essentially, AAF (1) assumes Ballot Measure 1 applies to all fields on the ANS, (2) takes a minor impact when drilling moves a few miles to another side of a field that straddles state lines and applies that to Alaska drilling, (3) misquotes a study that finds investment is inelastic and does not relocate investment based on an increase in severance taxes, and (4) misquotes a study that finds the state is worse off and should not offer incentives for production like SB21 provides to our major legacy fields.