Natural levy: The state should follow others on a gas drilling tax
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Gov. Ed Rendell started talking about tapping the rich layer of Marcellus Shale under Pennsylvania with a natural gas tax when he released his proposed 2009-10 budget back in February. At the time, the state's deficit was projected at $2.3 billion.
Now that the figure is likely to be $3 billion, legislators should agree that taxing this industry is both necessary and fair.
The Marcellus Shale is a geological formation deep under the surface of Pennsylvania and its neighboring states that contains billions of cubic feet of natural gas. This enormous deposit is considered an abundant alternative to oil and has the potential to bring jobs to Pennsylvania and millions of dollars to landowners who control access to drilling sites or hold mineral rights.
One of those landowners is the state itself, yet Pennsylvania does not impose an extraction tax, which is also called a severance tax. Most states, including West Virginia, already do and Gov. Rendell has proposed a two-fold levy: 5 percent on the market value of the natural gas at the wellhead, plus 4.7 cents per thousand cubic feet of gas extracted.
If enacted, the tax could generate an estimated $107 million in the next fiscal year, a figure that could double the following year if interest from drillers keeps growing. In 2008 alone, the state Department of Environmental Protection issued a record 7,792 gas drilling permits, according to the environmental group PennFuture, which says 1,100 wells have been drilled and 380 are producing.
Extracting natural gas from shale is an expensive process, but when gasoline prices topped $4 a gallon, it became more cost-effective. That business is expected to boom again as petroleum prices creep back up, and Pennsylvania should have a tax in place when it does.
Industry officials argue that imposing a severance tax will have the opposite effect, driving business away even though rich gas deposits sit under half of the state's counties. But state officials can blunt negative effects by setting a tax rate carefully and competitively against those of other states.
The possibility of tax revenue does not mean the state should turn a blind eye to the valid concerns about the vast sums of water the extraction process expends and the impact such drilling has on waterways. DEP must provide adequate regulation to prevent degradation of the state's natural resources, and part of any tax revenue should be set aside to mediate environmental damage done by drilling.
Additionally, the tax would provide Pennsylvania with compensation for the loss of the nonrenewable natural resources that sit deep in the ground. The state increasingly will assume responsibility for byproducts of this commercial activity, and it is only fair that Pennsylvania share in the wealth that is being pulled out from under it.
First Published June 7, 2009 12:00 am
