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Saturday, March 31, 2007

What AGIA says about Governor Palin

As a blogger covering Sarah Palin, I would be remiss if I did not cover the "Alaska Gasline Inducement Act" (AGIA), a major piece of legislation to which she has staked her political reputation. This bill would launch the construction of a natural gas pipeline to deliver Alaskan gas to market in the lower 48 states, a pressing need for Alaska and arguably the most hotly debated issue in the state's politics. Now, as neither an Alaskan nor an expert in economics or energy policy, I will openly admit that I may not be the best qualified person to talk about this legislation. However, I think that I can offer a simple breakdown of the bill and offer an analysis of what it says about the Governor's ideology and philosophy of government.

So, here are the basics as I understand them:

1. The gasline would run from Prudhoe Bay in North Alaska to the southern port of Valdez, where it would be loaded on to tanker ships. This differs markedly from previous Gov. Frank Murkowski's plan, which called for a longer pipeline running out of Alaska and though Canada, connecting with an existing pipeline in Alberta, which then runs down into the lower 48 states. Click here for map.

2. The state would select a builder for the pipeline through a bidding process open to many companies, including oil producers, pipeline builders, and others. Again, this differs from the Murkowski plan, which only allowed negotiations with Alaska's "big three" oil producers (Exxon Mobil, BP, and Conoco Phillips).

3. Bidders would have to agree to various terms laid out in the bill to qualify. The terms include, among other things, that the gasline deliver gas to at least five points WITHIN Alaska, that the project would be headquartered in the state, and that the company must recruit Alaskans to work on the project (in return, the state pledges to ensure that qualified technicians are available to recruit).

4. The state would pitch in up to $500 million in matching funds as seed money to help the winning bidder get the gasline built. If you haven't already guessed, this is the most contentious aspect of the proposal.

5. Gas production taxes would be frozen for ten years for any producer using the line to transport their gas. Essentially giving companies and incentive to use the line by offering a tax break.

Okay, now down to brass tacks. I'm going to analyze this bill from perspective of ideology, meaning I want see if it's a good conservative proposal or not (and I think it is).

First, I want to address the $500 million in matching funds, because on the surface it look like a lot of spending. However, a more detailed look shows this to be a solid idea which conservatives could easily support. First, remember that this an investment rather than frivolous spending. As the owner of humongous reserves of energy, Alaska has a responsibility to ensure that those resources can be tapped and easily sent to market - this is especially important considering the need to make our nation energy independent. From my perspective, money going to this pipeline counts as spending on infrastructure, no different than building a highway - and that is a valid function of government. This does not look to me as if it will require a tax hike, since Murkowski had earmarked $300 million in the budget for building a gasline. Furthermore, Palin's overall operating budget for this fiscal year actually CUT $124 million from the one which had been proposed by Murkowski.

I also think it's worth mentioning that Palin is also being solidly conservative regarding the potential of the state government raking in profits from the pipeline once it is completed. Murkowski had wanted the state to be 20% owners of the pipeline. Palin, on the other hand, sees problems in the state owning stock in a business that it also regulates. In a gubernatorial debate last year, she said that the government should either own all of the stock or none of it (and she leaned pronouncedly toward owning none).

The bidding process is also solidly in line with conservatism. The Murkowski proposal hampered the free market by only allowing negotiations with only three companies - that's not sound economics at all. The Palin plan instead opens the bidding to any firm interested in the project; this competition will ensure that the state gets the most possible bang for its buck (especially important considering the offer of matching funds.) Requirements that companies recruit Alaskans are also a decent idea. While it may drive the price of the gasline up a little, it will also create jobs and ensure that the project benefits the people whose taxes are paying for it.

As for the route of the pipeline, I am much more impressed by Palin's all-Alaska plan than Murkowski's outsourcing of responsibility to the Canadians. If you're going to build a line, build it where it will create jobs for your own people and will not be controlled by foreign interests. In addition, I do think that it is a good idea to require that the line be built in such a way that it allows Alskans to receive and use THEIR OWN GAS. This would not have been possible had the line veered off into Canada.

Lastly, tax breaks always make the economy run smoother, so I have a difficult time seeing how offering them could be a bad thing.

So, upon final analysis, I think that AGIA is a great idea. I'm sure that there are kinks to be worked out, but nothing is perfect and that's why the state legislature exists. All in all, this seems to be a solidly conservative proposal. There may be those who say that offering $500 million in matching funds makes Palin a big-spending RINO, but I have already illustrated that such accusations are patently untrue. Incentives will ensure that the gasline actually gets built and begins bringing Alaskan gas to market as soon as possible. I like AGIA a lot, and I think that it shows that Sarah Palin knows how to think outside the box in order to get results - yet another reason that she would make a fine Vice President of the United States.

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JB said...

There's no real need for the pipeline to come through Alberta, that's for sure - we've already got more oil industry jobs than we can fill!

Certain goods, however, are not ALLOWED to pass through Canada to get from Alaska to the 48; the US Maritime Act of 1920 stipulates that anything travelling from Alaska to the continental US by ship must travel on American-built and American-run ships, often inflating costs and extending shipping times. It's one of the small features of Alaska's unique position that make it a dubious statement to say it is truly a state in the same way as the rest. It might be worth it, as I see it, for Alaska to send the pipeline through Canada as a way of flouting this directive.

Adam Brickley, aka "ElephantMan" said...

You have a good point there, but I think it would be best to lobby the federal gov't to axe the archaic law rather than sending the pipeline through Canada, which doesn't seem like a good option to me because...

A) It requires a longer pipeline.

B) A Candaian pipeline would not allow delivery to points indside Alaska, disallowing the people of that state from accessing their own gas.

JB said...

Couldn't they send it through Alaska as far as the panhandle, then cross over BC to Alberta? Wait, never mind, BC would tax them twice for shipping fossil fuels and thrice for being American....

Adam Brickley, aka "ElephantMan" said... be terribly honest, I'm no expert on gaslines, so I really can't specualte on better ways it could be dont