Brennan: Tough decisions on horizon

By Tom Brennan |

A top Russian official warns that current efforts to reduce air pollution could cause the price of oil to skyrocket.

Deputy Prime Minister Alexander Novak raised the question — greatly exaggerating, I hope — whether the price of crude oil might rise to $200 a barrel if the world pursues current plans to achieve net zero carbon emissions by 2050.

Novak said the pollution reduction scheme might require that investments in new oil and gas stop immediately.

Of course, if the price of crude did climb to $200 a barrel — a barrel of West Texas Intermediate oil currently goes for just short of $69 a barrel — guys like me wouldn’t be able to burn it up driving our cars. We’d just dab a little behind our ears before heading out on bicycles for a night on the town.

My wife and I arrived in Anchorage in 1967 while the discovery well was being drilled. Nobody knew much about it then so it was not an attraction to our coming north, but the discovery was announced the following March and Alaska was suddenly a wealthy state.

The newly discovered oil was on state acreage near Prudhoe Bay on Alaska’s Arctic coast. Since Alaska owned  and leased the land, the oil bonanza generated huge revenues for the new state, both in royalties and taxes. And because our leaders of the time were sensible people (for the most part) a sizable portion of the bonus revenues were used to develop the Alaska Permanent Fund, which is now worth almost $81 billion.

The Permanent Fund earns enough money each year to pay a substantial portion of state government spending needs. Of course our state leaders have seen fit over the years to also pay dividends to each resident. And that has created an unusual conflict. 

The Legislature now is facing the possibility that taxes will be necessary in order to pay a significant dividend. Some are talking about a sales tax. So unless the tax is only on luxury items, many people will be paying a tax in order to fund personal dividend checks.

In other words, the state would be taking money out of one of your pockets and putting it back into another. The good news is that for many of us the money would be making a round trip though it seems a silly way for a state to do business.

I enjoy the dividend check as much as anybody and hope it continues, but the Legislature will have to make some difficult decisions. Let’s hope they make good ones and that any tax is structured to place the lightest touch — if any — on those at the lower end of the economic scale. Conversely those with the largest incomes should contribute the most to state revenue needs.

It seems strange to be discussing such things in Alaska, the state that has managed a financial bonanza for so many years. But there was a time before Prudhoe Bay when times were lean in the 49th state and such decisions by our leaders were common.

We handled them before and we will handle them once again. Count on it.

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