mineral tax incentives, mineral production and the eadiv.state.wy.us...

Download MINERAL TAX INCENTIVES, MINERAL PRODUCTION AND THE eadiv.state.wy.us ¢â‚¬› mtim ¢â‚¬› ¢  of tax exemptions

Post on 26-Jun-2020

1 views

Category:

Documents

0 download

Embed Size (px)

TRANSCRIPT

  • MINERAL TAX INCENTIVES, MINERALMINERAL TAX INCENTIVES, MINERAL PRODUCTION AND THE WYOMING ECONOMYPRODUCTION AND THE WYOMING ECONOMY

    Shelby Gerking* William Morgan

    Mitch Kunce Joe Kerkvliet

    December 1, 2000

    *University of Wyoming email contact: sgerking@uwyo.edu

  • i

    CONTENTS

    Page Acknowledgments viii Executive Summary I Chapter 1. Introduction 1 Chapter 2. Taxation of Oil and Gas 2.1 Introduction 7 2.2 Overview of the Literature 8 2.3 Description of Taxes, Measurement of Tax Rates, and Data Collection 16 2.3.a Federal Taxation 16 2.3.b State and Local Taxation 20 2.3.c Tax Rate Measurement 23 2.3.d State Tax Structures 25 Wyoming, Texas, Louisiana, Oklahoma, Kansas, Alaska, California, New Mexico 2.4 Comparison of Effective Rates of Oil and Gas Taxation 32 Endnotes 38 Chapter 3. Taxes, Exploration, and Production in the U.S. Oil and Industry 3.1 Introduction 44 3.2 Conceptual Framework 46 3.3 Estimation 52 3.3.a Marginal Cost of Reserve Additions 52 3.3.b Extraction Costs 58 3.4 Conclusion 60 Endnotes 62 Chapter 4. Tax and Cost Simulations 4.1 Introduction 74 4.2 Baseline Conditions 74 4.3 Derivation of the Tax Parameters 76 4.4 State Severance Tax Simulation Results 78 Wyoming, New Mexico, Oklahoma, Texas, Kansas, Louisiana 4.5 Additional Wyoming Tax Scenarios 90 4.6 Drilling Cost Reductions 95 4.7 Summary Comments 97

  • ii

    Page Chapter 5. Environmental and Land Use Regulations, Exploration, and Production of Oil and Gas 5.1 Introduction 130 5.2 Background 132 5.3 Oil and Gas Drilling Costs in the Wyoming Checkerboard 136 5.4 Simulation Results 143 Wyoming 5.5 Conclusion 145 Endnotes 147 Chapter 6. The Wyoming Coal Market 6.1 Introduction 159 6.2 Change in the Wyoming Coal Industry 160 6.3 Transportation Costs 162 6.4 Utility Demand and Fuel Strategies 163 6.4.a Spot Markets 164 6.4.b Contracts 165 6.4.c New Markets 166 6.5 Environmental Issues 167 6.6 Taxes 171 6.6.a Changing Taxes 173 Chapter 7. Modeling the Wyoming Coal Market and Predicting Tax Effects 7.1 Introduction 184 7.2 Model 185 7.2.a Background 185 7.2.b Specification 188 7.2.c Comparative Static Results 191 7.3 Estimation 193 7.3.a Coal Supply 194 7.3.b Utility Demand 196 7.3.c Railroad Costs 203 7.4 Estimation Changes in Coal Purchases and Prices 205 7.5 Conclusion 209 Chapter 8. Modeling Phase I Wyoming Coal Demand 8.1 Introduction 220 8.2 Phase I Choices 221 8.3 Phase I Wyoming Coal Purchases 223 8.4 Model Specification and Data 224 8.5 Estimation Results and Discussion 228 8.6 Predicting Changes from SO2 Regulations 230 Endnotes 233

  • iii

    Page Chapter 9. Effects of Tax Changes and Tax Incentives

    on Income and Employment 240 References 254 Appendix A 264 Appendix B 268 Appendix C 272 Appendix D 275

  • iv

    TABLES

    Page ES.1 Simulated Tax Incentive Scenarios, Changes from the Base Case XX 2.1 Effective Oil Tax Rates, By State 40 2.2 Effective Gas Tax Rates, By State 42 3.1 Oil and Gas Production by State and U.S. Totals, 1970-97 64 3.2 Data Sources, Sample Means, and Variable Definitions 65 3.3 Wells Drilled in the 7 Major Producing States, 1975, 80, 85, 90, 95 66 3.4 One-Way Fixed Effects, Construction of Instrument for LN(WELLS) 67 3.5 Two-Way Fixed Effects, Instrumental Variable Estimates of the Restricted Drilling Cost Function, 1997 Estimates of φ 68 3.6 One-Way Fixed Effects, Instrumental Variable Estimates of the Reserve Additions Function 69 3.7 One-Way Fixed Effects, Instrumental Variable Estimates of the Reserve Additions Function, Estimates of A 70 3.8 Pre-Tax Marginal Drilling Cost, Marginal Product of Drilling, Marginal and Average Cost of Reserve Additions for 7 Major Producing States 71 3.9 Time Means of Relevant State Variables 72 3.10 Oil Production Percentage, Non-Reserve Production Input Share µ, and Pre-Tax Marginal Extraction Cost for 7 Major Producing States 73 4.1 Base Case Tax Parameters for the 7 Major Producing States 99 4.2 State Oil Severance Tax Reduction of 2% Incremental Comparison to the 60 Year Base Case 100 4.3 Wyoming Simulated Tax Scenarios 101 5.1 Data on Drilling Rates: Selected States, 1996 149 5.2 Cost Function for Oil and Gas Drilling in the Wyoming

    Checkerboard 150 5.3 State Summary of Key Variables 153 6.1 Average Mine Price of Coal, 1988-98 176 6.2 Representative Mine-Mouth Prices by State, Heat Content and Sulfur Content 177 6.3 Average Delivered Price of all Coal, 1988-98 178 6.4 Average Railrates, Delivered Prices, and Distance, 1988, 1993, 1998 179 6.5 Plants Purchasing Wyoming Coal, 1997 180

  • v

    Page 7.1 Demand Data Description, Source, and Means, Stage I Probit 211 7.2 Stage I Random Effects Probit Models 212 7.3 Demand Data Description, Source, and Means, Stage II Ordinary Demand 213 7.4 Ordinary Demand, One-Way Fixed Effects Estimates 214 7.5 Rail Cost Data Description, Source, and Means 215 7.6 Rail Cost, Two-Way Fixed Effects Estimates 216 7.7 Wyoming Model, Component Estimates, 1998 Data 217 7.8 Wyoming Model, Effects of the Severance Tax Reduction 218 7.9 Wyoming Model, Effects of Levying a Ton/Mile Tax 219 8.1 Descriptive Statistics for Phase I Plants (1993-94) 234 8.2 Descriptive Statistics for Phase I Plants (1995-97) 235 8.3 Annual Changes in Savings and Trading 236 8.4 Parameter Estimates of the Cost Function 237 8.5 Parameter Estimates of Savings 238 8.6 Estimates of Elasticities 239 9.1 Control Forecast: State of Wyoming 250 9.2 Contribution of Tax Incentives to the Wyoming Economy 251 9.3 Example of REMI Input Values for Production and Drilling 252

  • vi

    FIGURES

    Page 1.1 Overview of Research Methodology 2 WY1 Wyoming (1970-97) Drilling, Production, Reserves 103 WY2 Wyoming (Drilling) 2% Reduction in Oil Severance Tax 104 WY3 Wyoming (Production) 2% Reduction in Oil Severance Tax 105 WY4 Wyoming (Reserves) 2% Reduction in Oil Severance Tax 106 WY5 Wyoming (Drilling) Replace State Severance Tax with Reserves Tax 107 WY6 Wyoming (Production) Replace State Severance Tax with Reserves Tax 108 WY7 Wyoming (Reserves) Replace State Severance Tax with Reserves Tax 109 WY8 Wyoming (Drilling) Removal of Federal Cost Premium 156 WY9 Wyoming (Production) Removal of Federal Cost Premium 157 WY10 Wyoming (Reserves) Removal of Federal Cost Premium 158 NM1 New Mexico (1970-97) Drilling, Production, Reserves 110 NM2 New Mexico (Drilling) 2% Reduction in Oil Severance Tax 111 NM3 New Mexico (Production) 2% Reduction in Oil Severance Tax 112 NM4 New Mexico (Reserves) 2% Reduction in Oil Severance Tax 113 OK1 Oklahoma (1970-97) Drilling, Production, Reserves 114 OK2 Oklahoma (Drilling) 2% Reduction in Oil Severance Tax 115 OK3 Oklahoma (Production) 2% Reduction in Oil Severance Tax 116 OK4 Oklahoma (Reserves) 2% Reduction in Oil Severance Tax 117 TX1 Texas (1970-97) Drilling, Production, Reserves 118 TX2 Texas (Drilling) 2% Reduction in Oil Severance Tax 119 TX3 Texas (Production) 2% Reduction in Oil Severance Tax 120 TX4 Texas (Reserves) 2% Reduction in Oil Severance Tax 121 KS1 Kansas (1970-97) Drilling, Production, Reserves 122 KS2 Kansas (Drilling) 2% Reduction in Oil Severance Tax 123 KS3 Kansas (Production) 2% Reduction in Oil Severance Tax 124 KS4 Kansas (Reserves) 2% Reduction in Oil Severance Tax 125 LA1 Louisiana (1970-97) Drilling, Production, Reserves 126 LA2 Louisiana (Drilling) 2% Reduction in Oil Severance Tax 127 LA3 Louisiana (Production) 2% Reduction in Oil Severance Tax 128 LA4 Louisiana (Reserves) 2% Reduction in Oil Severance Tax 129 5.1 Checkerboard Map 155

  • vii

    Page 6.1 Coal Production, 1970-99 183 6.2 Weighted Average Mine Price, 1970-99 183 9.1 The REMI Model 253

  • viii

    ACKNOWLEGMENTS

    A project of this nature and scale involves the cooperation and assistance of a

    large number of people who should be acknowledged for their contributions. First, we

    would particularly like to thank the members of the Mineral Tax Incentives

    Subcommittee, Wyoming State Legislature—Senator Bill Hawks, chair, Representative

    Tom Rardin, Vice Chair, Senators Cale Case and Irene Devin, and Representatives Nick

    Deegan and Wayne Reese for their patience and encouragement throughout the project.

    Also, Rick Miller, former Director of the Legislative Service Office, Mary Byrnes, Senior

    Legislative Analyst, Dan Pauli

Recommended

View more >