State raises tax on oil, gas to build environmental cleanup fund during a boom time
Colorado officials who allowed the state to become an epicenter for oil and gas industry production, with companies pumping up to 12,000 barrels a month worth $10.6 billion last year, on Monday revealed serious trouble taxing the industry sufficiently to deal with increasingly pressing environmental impacts.
The Colorado Oil and Gas Conservation Commission approved a tax hike to raise $4.8 million and said lawmakers will have to do more.
Oil and gas companies have walked away from at least 300 inactive wells that under state rules were supposed to be plugged with cement to prevent contamination of soil and water. Fixing one of these improperly abandoned “orphan” wells costs about $75,000, and state regulators said they cannot afford to tackle more than about 10 a year.
Air pollution remains a concern. Boulder County recently funded local-level inspections at industry facilities and, after 600 inspections, found a majority of sites had at least one leak.
And 60 or so “distressed operators” are raising concerns they will saddle the state with environmental burdens, COGCC director Matt Lepore said. These companies operate 4,000 wells “that make us nervous,” he said, later noting that held talks with the industry about orphan wells and hit an impasse.
The abandoned well problem, he said, “cannot be ignored.”
Colorado’s effective severance tax on companies currently ranks among the lowest in the world, reduced by deductions companies are allowed under a recent state supreme court decision.
State lawmakers have set up a system where COGCC regulators are almost entirely funded by oil and gas companies, based on company revenues. Yet COGCC obligations to protect people and the environment tend to increase when there’s less funding available from the industry.
Neighboring states such as Wyoming and New Mexico, and countries such as Norway, have built up multibillion-dollar funds by taxing the industry. This leaves those governments in a position to deal with adverse impacts if companies fail.
The tax hike COGCC approved Monday was a 0.4 mill levy increase, expected to raise about $4.8 million from companies, for an existing Environmental Response Fund.
That fund — state data show it fluctuating around $8 million in recent years — has enabled some state work to address environmental impacts of the oil and gas boom that companies do not handle on their own.
Separate revenues from severance taxes are expected to fall nearly 50 percent short of projections this year.
Local government leaders on Monday had urged COGCC commissioners to increase the mill levy tax on companies by a greater amount, enough to raise at least $7 million a year. The tax is based on the market value of oil and gas at the well.
If increased sufficiently, the environmental response fund “could be used to address the deficiencies we see in current COGCC capabilities,” Boulder County’s chief planner Kim Sanchez told commissioners.
“We could use the money to fund independent studies, as well … on the impact of mineral development,” Sanchez said. The anticipated decrease in severance tax revenues that fund the COGCC means “it is going to be even more important not to lose sight of health and safety,” she said.
Industry officials supported the smaller 0.4 mill levy increase. COGCC has the statutory authority to raise its mill levy to 1.7. With the increase approved Monday, it’s at 1.1 mills.
“We’re not doing a happy dance about it,” said Jim Martin, an attorney for the American Petroleum Institute, the top lobbying group for the oil and gas industry. “We see it as part of our obligation.”
Blake Hill, director of tax for Extraction Oil & Gas, told commissioners the tax hike would hit hard, adding another $2 million. Extraction has been expanding rapidly with annual revenues around $500 million, he said.
Three COGCC members nevertheless concluded that funding for state oversight of the oil and gas industry, in line with a mission that includes protection of people and the environment, appears insufficient as industry operations expand.
Helen H. Richardson, The Denver Post
COGCC Co-Vice Chair Howard Boigon, left, listens to remarks by speaker during a public comment session during a COGCC meeting on Oct. 30, 2017 in Denver.
“It is amazing to me that funding for this agency is so uncertain,” commission co vice chairman Howard Boigon said “This agency is funded almost entirely by the industry it regulates. It is a crazy way to run a railroad. I do not see it as a long-term model for how this agency operates.
“This opens the door to a broader discussion about what are the responsibilities of this agency that ought to be funded by the state,” he said “If the state wants this agency to respond to its responsibilities — there’s a fair amount of sentiment for that — who should pay for it?”