Dear Finance Committee Member:
Taxpayers for Common Sense Action (TCS Action), a non-partisan budget watchdog group, has major concerns about a provision included in S. 597, Energy Tax Incentives Act of 2003, that would give natural gas producers in Alaska a massive tax break, potentially disrupting the domestic natural gas market, and putting producers in the lower 48 states at a significant economic disadvantage. We urge members of the Senate Finance Committee to strip out this bill language and any other proposals which would provide special treatment for producers of Alaskan natural gas from the North Slope.
An analysis performed for Canada's Northwest Territories concluded that this tax provision could cost American taxpayers as much as $44 billion over the next fifteen years, by creating a "floor price" of $3.25 per 1 million Btus for Alaskan natural gas produced north of the 64th parallel. The floor price could increase according to inflation over its fifteen-year authorization period and there is no guarantee that the provision would sunset after the initial fifteen years. Once a tax break is given to a special interest, it is extremely difficult to eliminate.
The tax credit goes to the owner of the gas at the wellhead, and is available beginning in 2010, or as soon as the Alaskan gas is sold in interstate markets.
Supporters of the tax incentive have argued that taxpayers could eventually get their money back. Theoretically, the tax credit would require that taxpayers receiving the natural gas credit pay it back when the floor price for natural gas rises 150 % above $3.25 per 1 million Btu (or about $4.88 + inflation) and remains above that level. Government data reveals that prices averaged $2.87 in 2002. The natural gas market is highly volatile, and there is no way to predict what the price may be one year from now, much less ten or fifteen.
However, both the Energy Information Administration and the study commissioned by the Northwest Territories assume that a sudden flow of gas from Alaska will more than likely depress the price of natural gas in the lower 48 states. This makes it likely that the floor price will not be reached without huge taxpayer subsidies.
This tax credit, which would only benefit a few producers of natural gas from Alaska's North Slope, would harm natural gas producers throughout North America. Government supports for North Slope gas could disrupt the market and place other North American gas producers, including those in California, Texas, Louisiana, the Rocky Mountain States and the Gulf of Mexico, at an economic disadvantage.
Finally, the Canadian government is opposed to the tax incentive and mandated route through Alaska. Enactment of these provisions could lead to trade problems with our northern neighbor, the United States' largest trade partner.
TCS Action strongly opposes any tax breaks or credits given to Alaskan natural gas producers in S. 597. We urge the Senate Finance Committee to strip language from this bill, which would give any economic advantages to producers of Alaskan natural gas from the North Slope or other subsidies for the construction of a natural gas pipeline in Alaska.
For more information, please contact me at (202) 546-8500 or by email.
Sincerely,
Aileen D. Roder
Program Director
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