Politics & Policy

Out of Energy

There are lessons for McCain in Denver.

Colorado’s $23 billion-a-year oil and gas industry is keeping the state’s economy afloat, but Governor Bill Ritter and his fellow Democrats are promoting new rules and tax hikes that would drive business elsewhere. As the Democrats descend on Denver for their convention, John McCain should be drawing attention to Ritter’s wrongheaded policies. They exemplify the Democrats’ reflexive opposition to domestic energy exploration and present a great target for McCain to exploit.

Coloradans elected Ritter in 2006 as the Democratic party made gains throughout the state. Ritter campaigned as a business-friendly Democrat, but since taking office he has governed as an anti-drilling environmentalist. One of his first moves was to stack the Colorado Oil and Gas Conservation Commission (COGCC) with drilling opponents.

The COGCC, which grants permits and drafts regulation for the state’s oil and gas producers, had historically been composed of seven individuals, five of whom were required to have experience in the oil and gas business because of the technical nature of the commission’s work. Ritter expanded the commission from seven to nine members, adding the directors of two state environmental agencies, and he reduced the number of people with oil and gas experience from five to three.

Ritter’s newly packed commission immediately set about rewriting the state rulebook on drilling. It proposed a raft of new regulations that would significantly increase the cost of oil and gas production in the state and make it more difficult for energy companies get new permits to drill. It would be one thing if the new rules paid substantial environmental dividends, but they appear to have been devised without any careful weighing of benefits and costs.

For instance, one proposed rule would put a 90-day moratorium on drilling in western Colorado during the winter, ostensibly to protect deer and elk herds (the question of whether drilling adversely affects these herds is disputed). The Colorado Division of Wildlife would have the authority to grant exemptions in certain cases, but energy companies that don’t qualify for an exemption won’t just leave their rigs sitting idle for three months. They will break them down and move them, which is a process that takes over 50 truck trips per drilling site. The commission’s approach would mitigate one environmental problem by creating another, at great cost to industry.

Ritter and his allies in the environmental movement are also seeking to raise taxes on energy producers. In many mineral-rich states, energy producers have to pay what is called a severance tax on any oil or gas they take out of the ground. In Colorado, they have historically been allowed to deduct a portion of their property taxes from their severance-tax payments. Oil and gas producers are disproportionately affected by property-tax hikes, and the property-tax deduction was created to keep them from opposing local measures.

Ritter is backing a ballot initiative that would eliminate the deduction and raise taxes on energy producers by over $300 million, with most of the money going toward the creation of a new scholarship program. Supporters of the initiative call the deduction a “subsidy” for oil companies that are “gouging consumers and making record profits.” Only a Democrat could look at a special tax that applies to only one industry and call any relief from that tax a “subsidy” for that industry.

Even though these proposed new taxes and regulations haven’t taken effect yet, they have already had an impact on Colorado’s economy. Within six months of Ritter’s tax-and-regulation push, Colorado fell from 1st to 52nd in a survey that asked industry executives to rank 81 locations they want to do business. EnCana Oil and Gas diverted $500 million in investments from Colorado to Wyoming and Texas, citing Colorado’s uncertain regulatory and tax environment as the reason.

There’s evidence that suggests McCain should make energy the centerpiece of his Colorado strategy. After it became clear that Ritter wasn’t interested in compromise, the oil and gas industry launched an advertising campaign highlighting the thousands of jobs and millions of investment dollars that Ritter’s proposals would cost the state. Ritter’s approval ratings subsequently dropped from the high seventies to the fifties.

Meanwhile, Republican Senate candidate Bob Schaffer has been attacking his Democratic opponent, U.S. Rep. Mark Udall, for opposing domestic energy exploration and voting repeatedly against drilling. The tactic worked. As polls reported that Schaffer was closing the gap between him and Udall, Udall flipped and announced that he would support limited drilling offshore.

Energy is the top issue for America right now, and two-thirds of the public support increasing domestic energy production. Democrats in Colorado offer a perfect example of how they campaign one way on energy and govern another. When the country focuses in on the Democratic convention this week, McCain should point out that local Democrats are driving energy dollars out of the state in the service of dubious environmental goals. He should ask voters if that’s the kind of party they want running the country during an energy crisis.

– Stephen Spruiell is an NRO staff reporter.

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