Pennsylvania's tax level for shale drilling sparks debate
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The battle over what type of severance tax Pennsylvania should impose -- supposedly by Friday -- on the modern day Gold Rush that is the Marcellus Shale natural gas reserve, has become a duel of two ideals.
On the one side is the severance tax approved two years ago in Arkansas. That's a tiered system that the Marcellus Shale industry and Senate Republicans in Pennsylvania prefer because it allows for a lower, 1.5 percent tax on market value until drillers make a return on their investment, after which it rises to 5 percent three or four years after the well is opened.
On the other side is the structure used by West Virginia. Its two-tax approach is favored by Gov. Ed Rendell because it applies a flat, 5 percent tax on the market value of gas sold and a 4.7-cent tax on each 1,000 cubic feet of gas produced, which he believes the industry can more than afford.
PDFTo hear either side describe the other's approach, there would seem to be no bridging the gap.
"When you look at it, West Virginia is lagging so far behind Pennsylvania in [natural gas] development, and that's because it has one of the most primitive tax structure rates in the country," said Kathryn Klaber, executive director of the Marcellus Shale Coalition, which represents the industry in Pennsylvania.
In pitching his West Virginia model two weeks ago in Washington, Pa., Mr. Rendell told an audience that the Arkansas model that the industry prefers here was "ridiculous, and I won't sign legislation like that" because some in the industry have projected a 64 percent return on investment in drilling in the Marcellus Shale.
But both sides in Pennsylvania's debate leave out, or gloss over, some interesting, crucial details about what has happened in those states.
Mr. Rendell said that before he announced his tax proposal as part of his budget last year he called West Virginia Gov. Joe Manchin "and I asked him, 'Has your tax depressed shale drilling? He said 'Absolutely not. In the years following, permits and drilling went up significantly.' "
First Published September 27, 2010 12:00 am
