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Pa. House brings severance tax idea back around, raising an old debate in the nation’s 2nd-largest gas producer

  • Rachel McDevitt
A gas rig in the Tiadaghton State Forest.

Marie Cusick / StateImpact Pennsylvania

A gas rig in the Tiadaghton State Forest.

There’s talk of a severance tax on natural gas in Harrisburg again.

The state House passed a resolution directing a nonpartisan committee to study severance tax structures in other major gas-producing states. Some advocates see the recent legislation as a chance to reset the debate.

Pennsylvania is the country’s second-largest gas producer, behind Texas.

When the fracking boom started in the commonwealth over a decade ago, some argued a severance tax–which would charge producers based on how much gas they take from the ground–would hurt the fledgling industry or send it out of the state.

Instead, Pennsylvania levies an impact fee, which charges drillers for each hole put in the ground. The fee has raised $2.5 billion since it was created in 2012. Much of that goes to counties where the most drilling takes place, to use for things such as infrastructure upgrades and public safety.

Former Democratic Gov. Tom Wolf proposed a severance tax in each of his eight years in office–to staunch opposition from Republican lawmakers.

In his first proposal in 2015, Wolf claimed a severance tax could raise $1 billion each year, which he hoped to put toward education. He later said the initial figure was not realistic.

Angela Pachon, who has looked at severance tax proposals at the Kleinman Center for Energy Policy, says a comparison to other states could be murky.

“There will be always tax exceptions in different states, and the fact is the comparison, it becomes very difficult,” she said.

Pachon said, a decade after the impact fee was established, the argument for a severance tax might be stronger. The industry has matured and has been profitable thanks to Pennsylvania’s vast gas deposits.

Under the impact fee, the amount companies pay per well decreases over time. The Independent Fiscal Office has noted in recent analyses that the pace of new drilling has not been enough to replace aging wells.

Pachon said a severance tax has the potential to create more stable revenue for the state over time.

PennFuture President Patrick McDonnell, who was Department of Environmental Protection Secretary under Wolf, said the recent legislation could allow the conversation on a severance tax to start moving again.

He said nonpartisan data on severance tax structures can help lawmakers see opportunities.

“Making sure we have an adequate and fair tax structure for the activity, I think, is critical and something that should always be part of the conversation,” McDonnell said.

Gov. Josh Shapiro did not propose a severance tax during his campaign or in his first budget plan. His office did not respond when asked if he would support a severance tax.

The oil and gas industry has strongly pushed back on any attempt at a severance tax and have argued the impact fee essentially is a tax that goes directly to communities affected by drilling.

“Once again, Pennsylvania appears to be examining whether to impose additional taxes on the natural gas industry,” said Stephanie Catarino Wissman, executive director of the American Petroleum Institute Pennsylvania after the House resolution passed. “At a time when we need more energy, the focus should be on policies that enhance our state’s economic competitiveness and create a climate that attracts additional investment, not discourage it.”

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