Faulty Logic Drives
 Fallin’s Decision
 On Wind Incentives

Oklahoma Gov. Mary Fallin signed a bill last week that will eliminate a state-wide property tax exemption for wind power developers beginning in 2017. The move, which comes at a time when Oklahoma is struggling to close a yawning budget gap, will save the state on the order of $30 million annually in payments it previously made to counties to cover foregone tax revenue.

In remarks delivered while signing the legislation, Fallin, a Republican, also noted that the aims of the exemption—to help the industry get on its feet—had been accomplished:

“When these tax credits were originally conceived, they were meant to support a new and groundbreaking form of alternative energy,” Fallin said. “Today, Oklahoma’s wind industry is among the strongest in the nation and is an integral part of our power grid and our economy. Wind energy is here to stay. It no longer needs the same level of support and encouragement from the state.”

And to look at the statistics, Fallin is correct. Wind in Oklahoma is doing just fine: At the end of 2014, 3,782 megawatts of capacity were installed across the state, generating almost 17 percent of Oklahoma’s electric needs.

But by Fallin’s logic—that the wind industry is `here to stay’—the state really should be looking at its oil and gas industry for new revenues since that industry is clearly `here to stay’ as well given that Oklahoma’s first commercial well was drilled way back in 1896 near Bartlesville. That certainly qualifies as `here to stay’ in my book.

However, instead of tightening up on the oil and gas industry, Gov. Fallin signed legislation last year that would continue a 20-year-old incentive for horizontal well drilling and throw vertical wells into the mix as well. The incentive, first enacted by the state legislature in 1994, lowered the gross production tax on horizontal drilling to 1 percent from the state’s traditional 7 percent rate. Under the terms of the 2014 legislation, the state will now tax both horizontal and vertical drillers at 2 percent for the first 36 months of production. While the new rate is an increase for horizontal drillers, it is certainly hard to argue that the state’s oil and gas developers need any incentives at all to drill—oil production has doubled since its 2005 low (rising from 61.2 million barrels to 128 million barrels in 2014) and natural gas output has shot up to 2.3 trillion cubic feet (well above its mid-2000s lows and even topping the previous record set in 1990).

The exact impact on the state governments’ coffers is uncertain—one state group, the Oklahoma Policy Institute, estimated that the incentive rate for horizontal wells alone could cut state revenue by upward of $379 million. But whatever the exact number, clearly the legislation is going to cut into revenues, and almost certainly at a much higher level than the now-excised wind energy property tax rebate.

Dollars aside, it is Fallin’s justification for the tax cut that is most revealing: “The energy industry is the leading driver of economic growth and job creation in Oklahoma,” she said last year in signing the oil and gas legislation. “Approximately one in four Oklahomans have a job and a salary because of our energy producers. They are part of the fabric of this state, and we rely on them, not just for continued growth and prosperity, but to support everything from our charity organizations to our sports teams.”

Goodness knows, we wouldn’t want to jeopardize support for “our sports teams.”

Energy tax incentives are an increasingly controversial subject across the country, but as we have those debates let’s at least do it honestly. Justifying a tax hike for wind by saying the industry is here to stay, and then sanctifying a tax cut for oil and gas by saying they support charities and sports teams does everyone a disservice.

Doctors are taught first and foremost to do no harm. Politicians need another maxim: First and foremost, be honest.

–Dennis Wamsted

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