The Fossil Fuel Dilemma

Guest post by David L. Debertin,

California again easily could become one of the top three fossil fuel producing states in the nation, but the largely liberal state has made drilling for fossil fuels within the state very difficult if not impossible. So the drillers have wisely looked elsewhere for locations that pose less of a political burden. North Dakota and its leaders welcomed the drillers. The result is tax dollars flowing into the state treasury from a variety of oil-related taxes levied not only on the drillers, but on individuals receiving mineral royalty income. In the past dozen years or so this has meant that taxpayers outside the oil producing counties have seen state-level taxes drop and the state can pursue projects that benefit the residents in a host of different ways simply by using funds that would not have been available had the drilling not occurred.

The new revenue coming into New Mexico as a result of recent oil drilling on the New Mexico side of the Permian basin via fracked oil wells is a more recent phenomena, only about 3-years old. The dilemma is that New Mexico has long been left-leaning politically whereas North Dakota has been a right-leaning state. Left-leaning politicians when they hear about new state revenue from an unexpected source generally think about new government program benefiting certain favored groups (maybe the younger voters who tend to favor left-leaning politicians) rather than lowering other taxes (sales, income) that would benefit a broader base of residents both young and old. Hence, we have the New Mexico idea of offering free college tuition to the state’s residents using oil-related tax revenue.

Of course, the in itself idea of using revenue obtained from “criminal” fossil fuel drillers is anathema to the left, but somehow that needs to be all politically balanced against the benefits that particular favored groups of state residents would receive from the fossil-fuel revenue without raising the tax rates on the traditional taxes (sales, income, property) levied at the state or local level. If one is convinced that the oil drillers are the root cause of carbon dioxide emissions and therefore climate change and need to be stopped no matter what, then there are a lot of difficult-to-resolve inconsistencies with at the same time with the state encouraging more drilling and fracking of wells as a potential newly found revenue source for granting free college tuition. The left-leaning politicians favoring more state level big government programs such as free college tuition paid for from taxes levied on fossil fuel production can hardly try to encourage more fossil fuel production because the drillers are the “criminals” that are the root cause of climate change! And the left-leaning students cannot accept the free tuition without being OK with drilling for the fossil fuels which generates the tax revenue making the free tuition possible!

This gets even more complicated in a state like California. Over the past decade, California has largely wound down most of the new drilling on the grounds that this is what is necessary to save the planet. Yet the state has some of the highest state-level taxes in the nation, and sorely needs the revenue it is foregoing from taxes on oil drilling. Still, California is a much more populous state than either New Mexico or North Dakota, and even if significant new drilling were to take place, the impacts oil the new oil-related tax revenue on the rest of the state would be way less than in states like New Mexico and North Dakota where energy extraction income plays a major role for both the state treasuries and for the residents. Money obtained by mineral royalty owners gets spent and re-spent within each state, greatly benefiting businesses not directly connected to fossil fuels–shopping centers auto dealers etc—the list goes on and on.

New Mexico is just now coming to grips with what the state is about to do with all this newly acquired “dirty” fossil fuel income. It will be interesting to see how all of this plays out for sure.

David L. Debertin

Dr. David Debertin is best known as the author of the book, “Agricultural Production Economics” which is widely used everywhere around the world by upper division and graduate programs in agricultural economics.

BS (1969 Ag. Education-Agronomy ), MS (1970 Ag.Economics), North Dakota State University
MS Thesis: Cost-Size-Quality Relationships Affecting North Dakota Schools (Thor Hertsgaard, director), 1970 PhD, Purdue, August, 1973, Ag. Economics
Editor, Journal of Agricultural and Applied Economics 1993–1995 Volumes (with Angelos Pagoulatos and Barry Bobst)
Editor, Review of Agricultural Economics for the 1997 and 1998 volumes. Co-founded the Review of Ag. Economics in the current format under AAEA sponsorship (with Angelos Pagoulatos)

via Watts Up With That?

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November 9, 2019 at 08:56PM

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