Colorado Lags Other States in Taxing Oil, Incentives Increase Volatility

/ Series: State Energy Policies

This report compares how Colorado provides local governments with production tax revenue from unconventional fossil fuel extraction compared to other major energy-producing states.

This report (PDF) along with an updated interactive shows how Colorado’s local governments receive production tax revenue from unconventional energy extraction.

Fiscal policy is important for local communities for several reasons, and this analysis shows that many Colorado communities are not receiving the resources necessary to build and maintain infrastructure and to provide services during the boom. The Colorado report is part of a larger series that looks at major energy producing states.

The focus on unconventional horizontal drilling and hydraulic fracturing technologies have led a resurgence in energy production in the U.S. Unconventional oil plays, for example, require more wells to be drilled on a continuous basis to maintain production than comparable conventional oil fields. This expands potential employment, income, and tax benefits, but also heightens and extends public costs.

Mitigating the acute impacts associated with drilling activity and related population growth requires that revenue is available in the amount, time, and location necessary to build and maintain infrastructure and to provide services. In addition, managing volatility over time requires different fiscal strategies, including setting aside a portion of oil revenue in permanent funds.