GovK Challenge – Fair and Balanced Energy Policy

Governor Kasich and I often do not see eye to eye, but, as an energy expert and a citizen, I support his proposal to institute a hydrofracking tax whose “fresh revenue (will) give a personal income tax cut.” GovK said he wants Ohioans to get a cut of the profits from this new industry and we should. The administration estimates the amount collected to rise to $1 billion by 2016, which could trim income tax rates by 5 percent. He’s also proposing new regulations on the industry to try to address some of the environmental concerns “fracking” creates and some lands will be off-limits to drilling – sending a clear message to a skeptical public that fracking is safe here with the right rules.

This is a very reasonable tax and energy policy – revenue from Ohio fuel resources being used for Ohio purposes. If the state of Ohio – “the Heart of it All” according to the state’s license plates – is a political weathervane, then GovK’s initiative in Republican-controlled Ohio has given a means to lash oil and gas revenues to the GOP’s popular income tax cut orthodoxy. A brilliant plan to overcome grassroots opposition to the drilling and pay for a tax cut – do you hear that Republican candidates? “Drilling for tax cuts” a sloganeering term suggested by SFGate.com.

The combination of fracking, horizontal drilling, and shale gas is a powerful energy market force. Hydrofracturing or hydraulic fracturing, known as fracking is a high-pressure drilling technique used to free underground natural gas and petrochemical deposits that could unleash energy jobs and profits but carries pollution risks unless lawmakers adopt the right precautions and state environmental regulations. State geologist Larry Wickstrom said the industry expects to drill 200 wells this year into the gas-rich shale underlying Ohio’s eastern counties because the prospects of striking valuable oil and hydrocarbons are so promising.

Though hydraulic fracturing has reduced gas prices for consumers while raising environmental concerns, the public favors greater regulation. More than three times as many Americans say there should be more regulation, according to a March 8-11 Bloomberg News National Poll which coincides with recent surveys in Ohio, where scientists say drilling caused recent earthquakes. There has also been much outcry over fracking’s effects on drinking water, however, a recent round of testing completed by the U.S. Environmental Protection Agency in Pennsylvania showed that these fears may be overblown.

The frack-tax proposal in GovK’s “Mid-biennial” review will have to get approval from the state legislature. You should know oil and gas drillers were paying just 20 cents for a barrel of oil but the majority Republicans are having conniptions over hints of raising taxes. Most state lawmakers are up for election. Ohio House Finance Chairman, Republican Ron Amstutz indicated there is “insufficient time” to answer key questions about the proposal and the revisions to the state tax code are simply too complex to handle in a limited amount of time, although the rest of the plan which includes changes to education and health care policy will be offered. Oil and gas companies have warned that tying drilling’s expansion and revenue to alluring tax-cut policies will chase jobs and growth out of Ohio and vowed to fiercely lobby lawmakers to kill the bill.

GovK promised to tackle a historic deficit by slashing spending but his very first budget increased spending by 11 percent. Maybe he saw something new was needed. After Shell Oil Co. chose a site near Pittsburgh and not Ohio for a multi-billion-dollar fracking based petrochemical refinery that could create thousands of construction jobs and provide a huge economic boost, maybe he considered that Ohio, though rich in natural shale gas resources, might be unable to use that wealth to boost its economy – the resource curse.

The Shell project could still mean 2,500 jobs for Ohio’s chemical industry and an additional 6,000 support jobs, Jack Pounds, president of the Ohio Chemical Technology Council, said, but this supposes a consumer turnaround. Otherwise, frack driller will reap large financial revenues but will discourage long-term investment in infrastructure; will provide few jobs, and few connections to Ohio economy. Taxes and fees collected from drillers, meanwhile, could be used to pay for their state oversight, fund environmental initiatives and help local governments affected. For example, lawmakers should decide who will repair roads damaged by truck and heavy equipment traffic to well sites.  We hope that the Legislature will act favorably. But, will they?

According to Adam Smith, the expectation of profit from “improving one’s stock of capital” rests on property rights. It is an assumption central to capitalism that property rights encourage their holders to develop the property, generate wealth, and efficiently allocate resources based on the operation of markets. Contact your legislator. We need to pledge our support in GovK’s fight against legislative efforts to sideline this proposal to link oil and gas drilling proceeds to an income-tax cut. Unfortunately fracking seems to have turned into a political football, an election-year talking point and a lobbyists dream.

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