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Colorado Study Advocates Removing Energy Tax Break

A Colorado ballot initiative that would remove a severance tax break for the energy industry would not, as critics have charged, increase residential natural gas prices nor would it push producers out of the state, according to a study by a Denver-based nonprofit group.

The Bell Policy Center study on Amendment 58 reviewed Colorado's severance tax rates and the average residential cost for natural gas in 11 states. Colorado's effective severance tax rate is 1.3%, and its residential natural gas cost was $8.61/Mcf for the study period. Meanwhile, Wyoming has an effective tax rate of 4.5% and gas was priced at $8.55/Mcf. In Texas the tax rate is 4.4%, and gas costs were $13.40 during the study period.

"What really determined the price was whether states produced gas and the markets," said the center's Rich Jones, who coauthored the study with Joel Minor. Around 37% of the gas produced in Colorado is consumed in the state, Jones noted. Colorado's severance tax on oil and gas production was adopted in 1977, and Colorado is the only state that has a significant property tax credit (ad valorem) for producers, said Jones.

Removing the tax break actually would generate around $300 million a year for Colorado.

Coloradans for a Stable Economy has warned in advertisements across the state that with the passage of Amendment 58, "gas at the pump and heating bills will shock us this winter. We don't need that."

However, Jones noted that "natural gas prices are set by the market." With the Rockies Express Pipeline and other gas pipes slated to be built out of the Rocky Mountains, "Colorado is connected to an even bigger market."

"The two main arguments against Amendment 58 -- that it will raise energy prices for Coloradans and that it will drive oil and gas producers out of the state -- are not supported by the facts," the study stated. "Our analysis shows that severance taxes, as part of the cost of production, have no impact on consumer prices, which are set largely by demand in a wide marketplace. And Colorado's abundant supply of natural gas reserves ensures that production companies will continue to operate in the state."

Amendment 58 would "provide hundreds of thousands of Coloradans with opportunities by making college more affordable, help communities deal with the impacts of oil and gas extraction, improve wildlife habitat and increase funds available for low-income energy assistance and other important programs," the study noted. "For more than 30 years, energy companies have been given a tax credit that has allowed them to keep billions of dollars. Times have changed, and it makes sense for Colorado to follow the practices in other energy-producing states and derive a broader benefit for its residents as energy companies extract nonrenewable oil and gas reserves."

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