Severance Tax Will Protect Pennsylvania Taxpayers
“Natural gas extraction in the Marcellus Shale has substantial risks and substantial costs that have not yet been fully explored in the rush to drill,” said
The report, “Responsible Growth: Protecting the Public Interest with a Natural Gas Severance Tax,” examines the potential costs of increased natural gas drilling on taxpayers and the environment, how severance taxes are structured in other states, and what lessons
Interest in the severance tax has been stirred by increased natural gas production in the Marcellus Shale, a deep geologic formation that underlies 54 of Pennsylvania’s 67 counties. New drilling techniques and rising natural gas prices have made it economically feasible and profitable to exploit the vast gas reserves.
The Center’s report recommends that
“School districts, municipalities, and counties have lost millions of dollars because of this court case,” said
Severance Tax Can Offset Environmental, Other Public Costs
Natural gas drilling has an unavoidable impact on the environment, and the waste water generated during the drilling process in the Marcellus Shale poses particular concerns. According to a marketing manager at GE Water & Processes Technologies, which develops filtering technologies used to clean the water, “the Marcellus water is the worst water on the planet.”
Even with adequate environmental monitoring, increased drilling in the Marcellus Shale could cause water contamination, soil erosion, disturbance to natural environments, and noise and air pollution, said
A severance tax is one way to ensure that taxpayers aren’t asked to pay those environmental costs, the report found. It also will compensate Pennsylvanians for the removal of a non-renewable resource and offset the costs of new roads and bridges, public safety, building, and emergency response needs that accompany growth in natural gas drilling.
“What will our great grandchildren be left with when the last gas well is exhausted? A severance tax reinvested in Pennsylvania’s natural resources and communities will help balance the damages caused by drilling operations and pipelines,” said
Most Energy-Producing States Assess a Severance Tax
Severance taxes are common across
Severance tax revenue is used for a number of different purposes in other states, including environmental monitoring, public education, and reinvestment in a fund for future environmental needs. Some states share revenue with local governments.
The Center recommends that some of the revenue from the tax be set aside for future environmental cleanup and for a “permanent fund,” which would generate revenue and help communities transition once the resource boom is over.
“The natural gas in the Marcellus Shale formation holds both tremendous opportunity and tremendous risk for Pennsylvania,” said
The severance tax is an important new revenue source for state and local governments, although the decline in energy prices has slowed well production. Still, experience from
“During this recession, even small amounts of new revenue can help avert cuts to agriculture programs, education, health care and public safety, and prevent increases in property taxes at the local level,” Ward said.
The report recommends that the tax be set up as simply as possible, with no deductions or exemptions, to make administration easier and to prevent producers from finding loopholes in the law.
Severance Taxation Will Have Little Impact on Gas Production.
In the lucrative northeastern market, natural gas produced in
“Transportation costs account for nearly half the price of natural gas, so gas produced in
Severance taxes in
The market price for natural gas — along with other business factors – will have a much bigger impact on the development of the Marcellus Shale, Wood said.
To read the full report, listen to audio from an
The Pennsylvania Budget and Policy Center is a non-partisan policy research project that provides independent, credible analysis on state tax, budget, and related policy matters, with attention to the impact of current or proposed policies on working families. To learn more, go to www.pennbpc.org.
SOURCE The Pennsylvania Budget and Policy Center