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Democrat Tom Wolf talks extraction tax and protecting the environment

Democrat Tom Wolf talks to reporters at the WHYY studio in Philadelphia.

Democrat Tom Wolf talks to reporters at the WHYY studio in Philadelphia.

StateImpact Pennsylvania’s Susan Phillips sat down with both candidates for governor and pressed them on energy issues. The candidates visited WHYY in Philadelphia, where several reporters interviewed them for about ten minutes each. Wolf has proposed taxing the Marcellus Shale gas differently than Governor Corbett. Wolf wants to charge a 5 percent tax on the market value of the gas at the wellhead. This is called a “severance tax” or some call it an “extraction tax.” The following is the transcript and audio of StateImpact’s interview with Democrat Tom Wolf, edited for time and clarity.

Q: So, you talked about the Marcellus Shale severance tax at 5 percent, which you estimate could generate up to $1 billion.  Tell me how you think that would impact the pace of drilling. Are you going to do anything to halt or slow down the pace of drilling? What are your plans for the parks and forests? Obviously that billion dollars is based on production levels right now.

A: I think that this industry could be a game changer for Pennsylvania’s economy if it’s done right. But it has to be done right in two ways.  One it has to be done right environmentally, so that the concerns, the legitimate concerns of people who look at methane leakage, water contamination, that the industry actually addresses those concerns or the industry won’t be healthy in Pennsylvania.

Second, we need to make sure that we’re creating good jobs here in Pennsylvania. That this is not just an export only industry, that we’re actually piping this stuff down to the Henry Hub and the good jobs aren’t being created in Louisiana or Texas. So we need an extraction tax, I think, to fund the public goods that would make the industry work better, the education to make sure that [the industry] has the employees who have relevant skills, that we have the infrastructure.

Q: One of the things that Governor Corbett says is, if you tax Marcellus Shale, the rigs are going to just up and leave to Texas. It only takes two weeks for a rig and its whole crew to get down to Texas. Will your 5 percent severance tax make this industry disappear and migrate back to Texas?

A: No.

Q: Why?

A: Well, again, I’ve spent my life in business I understand how important taxes are as an incentive or disincentive.

Q: But this is not kitchen cabinets this is oil and gas.

A: It’s business. And look at where we are. We are where the gas is. Pennsylvania is sitting on a huge reserve of gas. We’re also sitting right in the market. This is where that gas that comes out of those other states has to go to be consumed. If [the tax] is too high, clearly that would be a disincentive and would drive industry away in droves. But a modest 5 percent tax — they’re paying, right now, what would be the impact fee, and the [estimated calculated comparison to a severance tax] is about 1.3 percent, and it’s not a severance tax. But a 5 percent severance tax would be a slight increase over that but I think it would actually have a positive impact and here’s why.

One of the problems the gas industry has right now is distribution. And [in] the places that don’t have gas beneath them, the industry needs to have pipelines [built] for the distribution to get stuff to say, the Port of Philadelphia, where there might be jobs created. Right now it’s hard to go to those [communities] and say hey lets take one for the team here, let’s do something that’s going to benefit all Pennsylvanians, because it doesn’t. We don’t have a severance tax therefore this industry is not creating clear benefits for Pennsylvania in terms of helping our schools for example. And as a result we also don’t have the funding to create the relevant skills that would help staff that industry so that right here in Pennsylvania we can create good jobs. So I think a 5 percent severance tax would actually make the industry stronger. I think it would do wonderful things for Pennsylvania and my goal would be to overall to make this industry work for us. I want this to work.

Q: Ok, you talked about the environment and you care about the environment. We all care about the environment. But at the end of the day what really matters is who’s in charge, who is the watchdog and what are their marching orders. So, over the past several years StateImpact has done several stories about how the state has failed, at least from a lot of residents’ perspective, to protect the environment, to protect public health. We did a story about the Department of Public Health actually discouraging employees from talking to residents about their health concerns. What I want to know is what can you do to assure the voters, how will you actually be different? How will those departments be run differently? How will you gain the residents’ trust back in the [departments of] environment and public health?

A: I want to be judged by my deeds. But I start with the recognition that if we don’t do this right from an environmental point of view, that industry is not going to have the support it needs to flourish in Pennsylvania. From the Department of Health point of view, the Department of Environmental Protection, we need to do a better job. I think the Auditor General just did a report on the Department of Environmental Protection saying that they don’t have enough staff and the regulations are inadequate to do what they have to do. I would do what I need to do to make sure,…

Q: But what is that?

A: Well, one of the things is just again, money. The Marcellus Shale tax, if we got a billion dollars some of that would go back to the localities, because this would take the place of the impact fee, to pay local areas that allow for the drilling. But the second thing would be money to go to the Department of Environmental Protection to make sure they have in place the right regulations and adequate staffing to make sure they are enforcing these regulations. The ideal would be to prevent in every case any environmental degradation.

Q: Governor Corbett said that too, that’s what politicians say. But what are you going to put in place, what can you tell people who are really concerned, who have lived with this environmental degradation? And you want to put in a 5 percent severance tax, which is going to pay for a lot of things, which in a sense could mean that your administration wants to get as much money from drilling as possible. So some might think, well they’re going to just ignore the environmental impacts and ignore the health impacts because they’re interested in all this money.

A: Right, as I just said I’m not going to do that. I’m going to take some of that money and put it into the Department of Environmental Protection to make sure that we have the regulations and the staffing to make sure we’re doing this environmentally correctly. And again, the key here is my recognition, in a way I don’t think this current governor understands, that if we don’t do this right environmentally then we’re not going to have an industry.

Q: Parks and forests, what do you think about drilling there?

A: I’m against it.

Q: We’ve also got the carbon rules, the federal EPA has put in place proposed standards that they want the states to follow. When we spoke to Governor Corbett last week, he said he doesn’t agree with how they put those standards in place without going to Congress. Curious what you think about those standards, how would you act to make the Department of Environmental Protection put in rules that would comply?

A: I think [that] the EPA rules are more of a reflection of an emerging reality.  The world is moving toward a lower carbon footprint. And Pennsylvania, like every other state, is going to have to continue to figure out how to adjust to that. Now, in Pennsylvania’s case, that’s a big challenge, because coal is a huge huge part of our economy. It’s a huge source of jobs. And one of the things the EPA does is give some latitude to states in terms of the implementation of those rules. And they’re still in draft form anyway. So I think its incumbent on the next governor to not just close his ears or duck his head into the sand and say I don’t like these therefore I’m just going to complain or I’m going to hope this passes over. Actually do something. Say ok, we’re moving toward a world where carbon is less tolerated and we have coal here, that’s the reality, what are we going to do about it? We can look at clean coal, we can look at the new ways of doing carbon sequestration so we can actually make this resource work for us in the future. That’s incumbent on, I think, the industry working with the state government in Pennsylvania to figure out how we do that, not to close your ears and say I’m just not going to think about it.

Q: You mention the coal industry and how important that is to the state, there’s a lot of people employed in that industry who are really scared of these rules right now, what would you say to them?

A: I’d say let’s work together. As I said the rules are a reflection of a broader reality and that is there are fewer coal fired power plants being built in the world. There are exceptions to that. But in the long run we’re all going to have to figure out how we do what we do, generate electricity and energy, with a lower carbon footprint and I think coal has the ability and the potential to do that. But we’ve gotta work together to figure that out. And again, not blame one president, not blame the EPA. This is reality and lets figure out how we adjust to it. That’s going to take leadership. That’s going to take some cooperation. That’s going to take strong input from the Commonwealth of Pennsylvania, recognizing the strong role of coal. But I think we can do that. I think there is a strong future for coal. And Pennsylvania has every incentive to make sure that coal is part of that energy future where there’s less of a carbon footprint.

Q: Ok, one thing I asked Governor Corbett was whether he did an analysis of what specifically Marcellus Shale drillers paid in income tax, just Marcellus Shale drillers. And I’m just wondering have you done that analysis?

A: I have not.

Q: Do you think it can be done?

A: I’m sure if you had access to the information, it can’t be done by someone on the outside because the information is confidential.

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