The race for the Democratic nomination for governor is shaping up to be a fight over oil taxes, with state Sen. Hollis French saying Wednesday that his opponent, Ethan Berkowitz, wants to dump a hard won tax that brings the state billions of dollars and offers incentives for companies to find more oil.

"This is the single biggest issue in the state. How do you get a fair share for the oil revenue we all own in common," French said. "I think it is likely to be the defining issue of this race."

Berkowitz proposes the elimination of the ACES oil tax system that French and other Democrats were crucial in getting through the Legislature in 2007. Berkowitz wants an entirely new system, in which a new state commission would negotiate with the oil companies over what the royalty should be on each field. Royalty is the state's share of the oil pumped out of state lands.

"If you can do better, you do better. And I think that staying with the status quo when the world is changing is dangerous," Berkowitz said Wednesday.

Democratic primary voters will choose between Berkowitz and French on Aug. 24. Anchorage Democratic legislators Bill Wielechowski, Bob Buch, Les Gara and Berta Gardner came to French's campaign headquarters for a Wednesday event praising the ACES oil tax and criticizing Berkowitz' desire to end it.

"I expect that from those who are trying to reduce the state's share and send that money to London, send that money to Texas, send it to BP headquarters. I expect it from folks like that. I was surprised to see this become an issue in a Democratic primary," Gara said.

Petroleum taxes and royalties account for about 90 percent of the state general fund revenue that pays for schools, roads, state troopers, social services, etc.

Berkowitz said none of the Democratic politicians criticizing his plan has spoken to him about it. He said his vision is for all Alaska's oil revenue to be royalties and for all of those royalties to be deposited in the Alaska Permanent Fund.

"There's no reason why you and I should get to spend oil wealth that's been cooking in the ground for millions of years, whereas the next generation doesn't have access to that wealth," Berkowitz said.

Berkowitz said none of this would happen overnight. But he'd envision a formula in which some amount of Permanent Fund earnings would then be carved off to support state services. "What this does is instead of using the money now, you are putting it into the account and using it later when it's had a chance to grow," he said.

The advantages, he said, include a more stable stream of revenue for the state. The oil industry would want to invest more in Alaska because it could be certain the state won't be increasing taxes in order to make up for budget shortfalls, he said.

He's also said that negotiating royalty rates field-by-field would help by taking into account the economics of each field in deciding the state's take.

French pointed to comments by Matt Berman, a petroleum economist at the University of Alaska's Institute of Social and Economic Research. Berman told the Daily News that the oil companies have an inherent advantage in such a negotiation of royalty rates with the state because they know more about the field economics.

The Democratic legislators who joined French at his campaign event called the ACES oil tax among the greatest achievements of their time in the Legislature. They said it replaced a corrupt tax and is working for the state, bringing in money for savings, roads, schools and the like while oil jobs and investment have risen since it passed.

The ACES tax is controversial. The major oil companies and many Republican legislators say it costs jobs and investment as production from the North Slope continues its long decline.

Alaska Department of Labor statistics show oil and gas employment rose to record levels after ACES passed in the fall of 2007. But then the numbers began to drop, going from 13,700 jobs at the end of 2008 to 12,200 in May of this year.

That compares with 11,700 when the ACES oil tax passed in November 2007.

French attributed the employment drop over the past several months to the worldwide economic recession. The legislators supporting him said Alaska saw its industry employment and investment drop at a time of far weaker tax than now.

French said the ACES system shouldn't be dumped for Berkowitz' untested plan.

Berkowitz, former state House minority leader, said he's pursuing a stable revenue system. Putting the oil wealth into the Permanent Fund takes a non-renewable resource and makes it renewable, he said.

"I'd be happy to talk to anyone if they have constructive ideas on how to build this system," he said.