In the clinical terminology of political science, Alaska is a classic “petrostate.” That is, its political system is geared toward the maximization of oil “rents”–royalties and other income derived from energy firms–to the neglect of all other economic activities. Such polities have an inherent tendency toward corruption because of the close ties that naturally develop between government officials and energy executives and because oil revenues replace taxation as a source of revenue (Alaska has no state income tax), insulating officials from the scrutiny of taxpayers. Ever since the discovery of oil in the North Slope, Alaska’s GOP leadership has largely behaved in this fashion. And while Governor Sarah Palin has made some commendable efforts to dilute her party’s ties to Big Oil, she is no less a practitioner of petrostate politics than her predecessors.
To put things in perspective: in 2007 Alaska produced approximately 719,000 barrels of oil per day. That puts it in the same ballpark as Egypt (710,000), Oman (718,000) and Malaysia (755,000). Of these, Oman is particularly interesting as a parallel. According to the Energy Department, “Oman’s economy is heavily reliant on oil revenues, which account for about 75 percent of the country’s export earnings”–an assessment that would describe Alaska nicely if it were an independent nation. Equally revealing, oil rents provide 42 percent of Alaska’s annual revenue, more than any other source. If lavish federal contributions were discounted (Alaska has one of the nation’s highest per capita rates of federal subsidies), oil’s share of state revenue would jump to 53 percent–about the same as in Venezuela.
Since taking office as governor in 2006, Palin has devoted herself to a single overarching objective: increasing Alaska’s income from oil and gas. To this end, she has pushed through two signal pieces of legislation: the creation of Alaska’s Clear and Equitable Share (ACES) tax on oil and natural gas production, and the Alaska Gasline Inducement Act (AGIA). The ACES tax replaced the Petroleum Profits Tax, which had been instituted by her now-disgraced Republican predecessor, Frank Murkowski, and was widely viewed as being excessively favorable to the oil companies. Under ACES the companies are taxed at a higher rate, and a progressive surcharge of 0.4 percent is added for every dollar the net profit per barrel exceeds $30. But–and this is a big but–the companies receive an increased tax credit for some new investments in exploration and infrastructure improvements.
The AGIA proposal, which has received more national attention, is intended to facilitate construction of a natural gas pipeline from Alaska’s North Slope to Canada and eventually the Lower 48. Under the bill, Alaska will provide incentives, including a $500 million handout, to any company willing to build the $40 billion-plus conduit. (The $500 million will be used to help defray the costs of gaining regulatory approval, clearing environmental hurdles and so forth.) In August the Alaska Senate approved a state license for TransCanada Corporation of Calgary to pursue federal certification for construction of a 1,715-mile pipeline from the North Slope to Canada’s Alberta Gas Hub. Palin said at the GOP convention that the pipeline will “help lead America to energy independence,” but it’s clear from her advocacy of the AGIA and TransCanada’s application that her principal goal was to increase Alaska’s income from gas production. (The fact that the proposed pipeline will end in Canada, not the United States, does not seem to have attracted any notice.)