When governments wish to prevent or restrict something, they usually consider one or the other of two choices. – regulation accompanied by execution penalties or painful taxes. Alternatively, when governments want to boost or expand the availability of a service or product, regulation and taxes take a 180-degree turn. – offering direct incentives or subsidies. None of these choices is inherently superior since each is best suited to specific circumstances to achieve a political goal. Without such strategic alignment, regulations and taxes can often get lost and get lost.
President Biden’s reconciliation bill, which was recently passed by the House and then moved to the Senate for amendment and approval, incorporates a new natural gas tax that promises to accelerate inflation for Colorado residents. Taxes alone rarely produce their advertised purpose, as they are easily passed on to customers in the price of anything that is taxed at minimal cost to a targeted industry. Regulations closely monitoring polluting processes – such as compliance orders issued by the Environmental Protection Agency (EPA) – is much more efficient and reliable. There is no better example than the Colorado regime for reducing methane emissions generated by its oil and gas operators. These measures have proven to be so effective that the Biden administration was expected to adopt them as a national model.
This can still happen, but the âBuild Back Betterâ (BBB) ââlaw currently proposes a global tax – labeled as a âmethane royalty,â on all oil producers, which will be calculated using a national average index for methane emissions from oilfields. This tax is expected to generate $ 14 billion per year and thus help achieve the legislative objective of ensuring that BBB legislation is self-financing. In truth, this tax seems certain to push up heating costs by almost 20% at a time when inflation becomes a problem. It would also unfairly weigh on consumers in Colorado, where oil producers have significantly reduced their methane emissions, in some cases by as much as 80%. If we are truly concerned about climate change, methane policy should be shaped by proven results.
The energy industry remains a major contributor to Colorado’s economic health, benefiting both state and local governments. The combined oil and gas sectors supported 340,000 jobs, paid $ 34 billion in wages and injected $ 46.1 billion into Colorado’s economy in 2019, according to an audit by PriceWaterhouseCoopers. Taxing this energy industry just to raise revenues in the same way the government levies excise (sin) taxes on alcohol, gambling, and marijuana is shortsighted.
There are good reasons why groceries, prescriptions, and most wholesale transactions are exempt from sales tax. These are not moral decisions, but practical ones. Should domestic heating fuels be heavily taxed? No matter how concerned we are about global warming, I certainly side with caution and support for emission reductions. It doesn’t make much sense to punish homeowners with a regressive tax that has been deliberately hidden from voters by collecting it from producers. These upstream revenues will be recouped prior to retail delivery through market pricing.
Reducing methane emissions should be a priority for the oil and gas industry. Fugitive methane can be captured and sold. A little regulatory boost doesn’t hurt, of course. In Colorado, the energy industry has worked with state regulators to develop what is a gold standard for methane reduction. Detection technologies have improved rapidly, and while leaks will never be completely eliminated, their rapid identification and repair will continue to improve through innovative detection technologies coupled with careful government regulation and oversight.
The proposed charge of $ 1,800 per tonne on oil and gas production, with a built-in annual escalator of 5% plus inflation, also applies to imports. This backdoor tariff system has never been debated in committee by either house of Congress and invites both OPEC and our allies to retaliate. This will surely destabilize energy markets around the world and invite trade struggles. The implications of what has traveled under Washington’s radar as a climate change welfare policy deserve close public scrutiny. There are important consequences for foreign policy and the national economy that should be weighed and debated.
The EPA is well positioned to enforce a rigorous leak detection and rapid repair system that both protects public health and promotes environmental resilience. Colorado’s successful and hard-won regulatory agenda can serve as the basis for effective and intelligent oversight. A tax on methane, not so much.
Miller Hudson is a public affairs consultant and former Colorado lawmaker.