A bill introduced in the state senate to end oil and gas drilling poses a catastrophic threat to Colorado’s economy, according to researchers from the Common Sense Institute.

Senate Bill 24-159 would require the state to cease issuing new oil and gas drilling permits by 2030. The bill was set to be heard on Thursday by the Agriculture & Natural Resources Committee but was postponed because of a snowstorm. A hearing has not yet been rescheduled.

“It’s horrible on every front because it claims to be about CO2 emission reduction, which it’s not,” said CSI Energy Fellow Trisha Curtis. “It’s beyond detrimental and devastating to the economic state of Colorado and it really doesn’t appreciate the economic realities at all.”

Curtis added: “It frankly seems like it’s written by people who have zero understanding of basic energy use, transportation, or economics.”

The CSI report said if the bill becomes law, more than 181,800 jobs would be lost, 70% of them within metro Denver alone. Meanwhile, $2 billion in state and local tax revenue would be at risk, and school funding would decrease by over $400 million over a decade.

In addition, the state GDP would see a loss of $6 billion in year one of the ban and $48.5 billion by year 10.

“The economic impact resulting from Coloradans paying more for energy in the long-run due to loss of supply from within Colorado, would be in addition to the impacts captured in this analysis,” the CSI report said.

Dynamic modeling

CSI used what’s called “dynamic” modeling, which includes not just production losses and direct impact on oil and gas employment, but also indirect effects, such as income losses to support services that supply things like drilling bits, pipe, welders, trucking companies, and other businesses that provide material inputs and services to the oil and gas production companies.

Such an approach is not novel. Studies often include “direct” and “indirect” jobs that are created or lost as a result of a particular policy action, or when touting the economic contributions of an industry or institution.

In a 2021 study conducted by PricewaterhouseCoopers, the American Pe

troleum Institute concluded that the oil and gas industry supported 303,730 total jobs — 54,420 direct and 249,320 indirect — or 7.7% of Colorado’s total employment. That report said the industry generated an additional 1.2 jobs elsewhere in Colorado’s economy for each direct job in this sector.

Referencing the PricewaterhouseCoopers study, CSI said, “The PWC report also includes refining, oil and gas related manufacturing, retail, pipeline transportation and dividend income paid to oil and gas public shareholders. This ban, as stated, would impact these jobs and related economic activity though not directly reflected in the economic modeling for this report.”

Another study shows a smaller footprint and economic impact.

In a January 2023 report, the Colorado Fiscal Institute counted 20,475 oil and gas jobs in Colorado as of March 2022. That number made up just 0.7% of total jobs in the state, the group said.

The CFI report said oil and gas development, “while creating some economic benefits, also carries significant costs.”

“While some communities will have a harder time than others during the transition from pollution-causing fuels to clean energy, this analysis shows it is entirely feasible for Colorado to diversify its economy, (and) move away from oil and gas development,” the study said.

The CFI report added that the oil and gas industry in Colorado “represents a small fraction of the economy,” contributing just 3.3% of Colorado’s Gross Domestic Product in 2021.

And, as of March 2022, oil and gas industry employees received 1.8% of wages paid in the state.

The discrepancy between the API and CFI employment numbers are the product of how each defines the oil and gas industry. Both organizations use codes developed by the North American Industry Classification System (NAICS) that are used to track employment statistics by state and federal agencies. API uses 12 NAICS categories that includes, among others, gas stations, fuel dealers and asphalt paving and roofing companies.

CFI uses a smaller subset of five NAICS classifications, not including wholesale and retail petroleum users to quantify industry employment.

The CSI report looked at more than just direct oil and gas employment and GDP impacts and included other employees and services that would be affected by a shutdown. The cascading effects of the loss of production were calculated using a dynamic economic forecasting and simulation model called Tax-PI, developed by Regional Economic Models, Inc. (REMI), which is commonly used to examine the economic effects of policy changes for industries.

“The upstream activity related to oil and gas is far more productive than most sectors. It produces higher levels of income, investment, and indirect spending than most other sectors. The labor productivity, or sector output relative to each job, is highest in three energy-related sectors, including petroleum and coal production manufacturing, pipeline transportation, and oil and gas extraction,” the CSI report said.

On the other hand, the CFI report said: “The most significant government revenue from oil and gas operations comes from property taxes, including $621 million in 2021.”

“While this makes up 3.5% of total local school funding in Colorado, it is not evenly distributed. 70% of school districts receive less than 1% of total funding from oil and gas property taxes, and just a handful get more than 10% of their total funding from oil and gas property taxes,” the CFI report said.

Effect on school funding

Chris Brown, CSI’s vice president of policy and research who authored the report, told The Denver Gazette that revenues in oil producing districts lower the amount that the state has to backfill in other districts by allowing the state to reallocate taxes to keep school funding in balance.

“Those dollars are increasing local share and increasing the ability for the state to reallocate additional state dollars to other districts,” Brown said. “So, it loosens the demand of state dollars on those districts, thereby increasing the ability for state funding to be higher in other areas given the way the formula works.”

Brown added: “So, it’s a significant number more than $430 per pupil in 2022, and for some districts it’s well above a thousand dollars per pupil.”

In its 2021 report, American Petroleum Institute said that the industry provided $34.1 billion in labor income — $15.4 billion direct and $18.7 billion indirect — to Colorado, 12% of the state’s total, and contributed $48.7 billion to Colorado’s total gross domestic product — $19.8 billion direct and $28.9 billion indirect — 11.2% of the total.

The API report added that, in 2022, oil and gas production activity directly contributed $1.9 billion dollars in state and local tax revenue, which came out to an average of $321 per Colorado resident.

API also said that, over 10 years, reductions in the state’s gross domestic product could reach $321 billion.

CSI said the economic impact of banning oil and gas drilling in Colorado would be “devastating and goes beyond lost production, tax revenue, and job losses.”

“At a minimum, (the) risk is $2 billion in state and local tax revenue, over $400 million which funds Colorado schools, and nearly 200,000 jobs,” the CSI report said.

The CSI report went on to note that Colorado is currently producing 483,000 barrels of oil per day — or 4% of the nation’s 13.3 million barrel per day total. In 2022 alone, Colorado was the fifth largest for oil production and the eighth largest for natural gas in America.

The Office of Legislative Council’s fiscal note for the bill said the state would be obliged to backfill those oil and gas revenues lost by school districts.

“By 2034-35, this backfill, as well as the bill’s impact on the state share of school finance, will increase costs by up to $476 million, and larger amounts in later years,” the fiscal note said. “The bill will increase the required amount of state aid to school districts by $171 million by FY 2034-35, and larger amounts in later years, as a result of reduced property tax revenue from total program levies.”

The fiscal note added that state cash fund revenue would decrease by an estimated $305 million annually by fiscal year 2034-35, a deficit that will increase in later years as production declines. This would affect state agencies and programs, including Colorado Parks and Wildlife and local governments, that are “socially or economically impacted by the mineral extraction industry.”

The state Energy & Carbon Management Commission, formerly the Colorado Oil & Gas Conservation Commission, is primarily funded by a $0.0017

surcharge on the market value of oil and natural gas, the fiscal note added.

The drill ban disincentive

CSI estimates that banning oil and gas drilling would not reduce CO2 emissions, but, rather, it would increase them by more than 900,000 metric tons per year by shifting production to areas with less stringent environmental controls on fossil fuel production than Colorado has.

“We found that ultimately for every job lost, you would actually see an increase in CO2 emissions of five tons of CO2 equivalent (each year), which is staggering given the premise of the bill,” Brown said.

Nor does the bill discuss how much Colorado as a whole contributes to global carbon emissions from all sources, said Curtis, the CSI fellow, adding it “is a drop in the global bucket.”

According to the Colorado Oil and Gas Association, Colorado contributes only 0.213% of global greenhouse gas emissions.

“And it does not take into account how any business works, let alone oil and gas,” Curtis said. “The same could be said for the solar and wind industry. If we told them that they had to stop by 2030, they would leave and they would go do it somewhere else because that’s where they make the money and that’s how they do business.”

In a prior interview, Sen. Sonya Jaquez Lewis, the prime sponsor of the bill, told The Denver Gazette that “50,000 wells are in production, and we know that thousands and thousands of wells will be producing far beyond 2050.”

Brown and Curtis told The Denver Gazette that this presumption is untrue.

“The way the bill is described is that you just stop, you ban the permitting of oil and gas, and then you just let everyone continue to produce. But that’s not how businesses work,” Curtis said. “When you put in a ban in place and then you say, ‘OK, well you can’t drill and complete wells, but you can still produce.’ What’s the incentive for companies to drill and produce?”

Curtis said when the future of drilling is foreclosed, neither drilling companies nor the companies that support oil and gas production — nor investors who fund it — are likely to stay in Colorado.

“I think the risk to losing a lot more production than that bill is alluding to is extremely high,” said Curtis.

Jaquez Lewis suggested that Colorado should not be exporting its oil and gas outside the state, and that there will be plenty of both to serve the state’s diminishing needs after new drilling is banned.

“Colorado already produces much more oil and gas than we use, and what is currently happening is 40% of oil production is leaving the state of Colorado,” Jaquez Lewis said. “75% of natural gas is leaving the state of Colorado. So, Colorado gets all the pollution while big oil and big gas get the profits.”

“We already know that fossil fuel demand is going down and we’re already on our way to 80% clean energy by 2030,” she added. “So, if fossil fuel demand is going down and they have access to over 50,000 wells, there’s going to be plenty of oil and gas production.”

To demonstrate the improbability of ongoing production remaining steady without new drilling, as Jaquez Lewis suggests, the CSI researchers took historical data from state production records as a proxy and simulated the effects of instituting the bill’s provisions on production between 2014 and 2023.

Hypothetically, said the report, by year five of the simulation, oil production would drop 73%, and by year 10, production would be down 88%.

The fiscal note accompanying the bill said, “In a typical horizontal oil well, 85 percent of its lifetime production is realized in the first 18-24 months of operation. As a result, a large portion of Colorado’s ongoing oil and gas production is supported by new drilling activity.”

At some point, said Curtis, there would be no incentive to dedicate resources, equipment, or personnel to continued extraction of existing wells, likely resulting in the industry abandoning Colorado for more welcoming places with lower emissions standards.

Gov. Jared Polis’ Greenhouse Gas Reduction Roadmap 2.0, released shortly after the bill was released on March 13, also disapproves of banning oil and gas drilling.

“Given Colorado’s leading methane and ozone emissions regulations for oil and gas production, a strategy that limits in-state production will shift production to areas with higher lifecycle emissions, such as the Permian Basin in Texas or the Persian Gulf,” said the GHG Roadmap. “This action would likely result in more pollution, higher methane emissions, more air pollution in our neighboring states, increased transportation emissions from increased imports of fossil fuels for use in Colorado, increased risk of accidents and spills of oil and gas products through increased interstate trucking, and price disruptions and less certainty of supply for all Coloradans without a meaningful longterm impact on fossil fuel consumption.”

Email requests for comments from the bill’s other three sponsors were not returned as of publication.