Introduction
Pennsylvania sits atop a Marcellus Shale deposit estimated to hold 363 trillion cubic feet of natural gas – enough to meet the entire nation's natural gas needs for at least 14 years. New technology and heightened demand for natural gas mean that drillers will extract this resource at an accelerating rate in the coming years and stand to realize significant profits.
While this valuable resource should be recovered responsibly, the extraction of this gas can impose heavy costs on our communities and environment – pipelines, drilling pads and wastewater storage pits altering our landscapes and fragmenting wildlife habitat, heavy rigs damaging our roads, billions of gallons of water taken from our streams and potential operational errors contaminating our land and drinking water.
GreenSpace Alliance has joined with over 70 organizations in an effort to ensure the money is there to offset these costs by establishing a natural gas severance tax, whose revenues would be used to:
- Repair some of the damage to our natural resources with water and land restoration and conservation projects supported by Pennsylvania’s Environmental Stewardship Fund. The Environmental Stewardship Fund, established in 1999, restores land and water damage from past coal, natural gas and other resource extraction in Pennsylvania.
- Help municipalities rebuild roads and bridges damaged by heavy drilling rigs.
- Help fill the state’s budget gap.
Severance taxes in the United States
Thirty-nine states tax the extraction of natural gas or other fuels and minerals. (Most of the remaining states have little in the way of resources – e.g., Rhode Island and Connecticut.) Twenty states place at least three and as many as seven distinct severance taxes on resource extraction.
Pennsylvania does not tax the extraction of natural gas (or coal, oil and stone). Unlike the residents of most other states, Pennsylvanians are missing out on the huge financial benefits while bearing the costs:
- West Virginia will receive $335 million in severance taxes in 2009. According to WV Governor Manchin, WV’s natural gas severance tax (on the books since 1987) did not inhibit extraction. To the contrary, natural gas is being extracted at a record pace.
- Alaska derives almost 65% of its revenues from extraction taxes.
- Louisiana, New Mexico, North Dakota and Wyoming are enjoying budget surpluses, thanks to extraction taxes.
Doesn’t industry already pay its fair share?
Gas drillers claim that Pennsylvania shouldn’t adopt an extraction tax because they already pay the corporate net income tax. However, most states where they operate, including Texas and Oklahoma where many of them are based, have both. In West Virginia, oil and gas drillers pay a corporate net income tax, a 5% severance tax of gross receipts at the wellhead and 4.7 cents for every 1,000 cubic feet of gas produced.
State funding to conserve and restore Pennsylvania’s waterways, parks, forests and productive farms has evaporated.
These projects that invest in Pennsylvania’s future – that make Pennsylvania more attractive to businesses and more livable for residents – have borne cuts far more severe than other sectors of state government. Even as we place more burdens on our natural resources with accelerated drilling, government is disinvesting in PA’s green infrastructure:
- The Environmental Stewardship Fund, which repairs damage from past coal, natural gas and other resource extraction in Pennsylvania, has been shrunk this year alone by 40% ($29 million) due to the diversion of its funds to pay off debt for Growing Greener 2 bonds, and community projects have used nearly all the Growing Greener 2 bond money. (Growing Greener is the only state program where bonds aren’t paid off through the General Fund.)
- The Governor plans to divert $174M of the Oil and Gas Lease Fund to state operations, leaving environmental needs unmet and missing the opportunity to boost the economy through green infrastructure investments. When the General Assembly created the Oil and Gas Lease Fund in 1955, our leaders adopted a farsighted policy of taking the money from the sale of nonrenewable oil and gas resources owned by the state and reinvesting this money into public conservation assets that would last for generations. Through seven recessions, the Oil and Gas Lease Fund has been used to reinvest in Pennsylvania’s green infrastructure. This 54-year record of investing in Pennsylvania’s future could come to an end this budget cycle.
Environmental Needs
An Environmental Stewardship Fund invigorated with a share of severance tax revenues could:
- Reclaim thousands of acres of abandoned mine lands and cap thousands of abandoned oil and gas wells, restoring these lands for full use by communities.
- Safeguard drinking water supplies and restore hundreds of miles of streams and fish habitat.
- Secure Pennsylvania’s food supply by protecting the productive agricultural soils of a thousand farms.
- Enhance health and wellness through investments in community park infrastructure – trails, ballfields, pools, picnic pavilions, etc.
- Protect green spaces that are special to communities.
- Improve Pennsylvania’s state park and forests so that Pennsylvanians and tourists can fully enjoy these treasures again.
- Make critical investments in water and sewer infrastructure via Pennvest.
Conclusion
Gas drillers will be in Pennsylvania for many decades to come and so will their impacts. They should pay their fair share for their use of and impact to our resources.
A percentage of any severance taxes established in Pennsylvania should be directed to the Environmental Stewardship Fund. This will help offset some of the damages to natural resources resulting from the extraction of natural gas. And as Pennsylvania’s immense but finite natural gas resource diminishes, Pennsylvania’s other natural resources can be enriched.
A coalition of supporters have formed that is advocating for legislation that would tax natural gas drilling in Pennsylvania. This group supports:
- A fair and reasonable tax on the extraction of natural gas.
- Dedicating a portion of the tax to the Environmental Stewardship Fund and to the Pennsylvania Fish & Boat and Game Commissions to restore wildlife habitat and improve public access.
- Dedicating a portion of the tax to help local governments impacted by natural gas drilling operations.
- Balance and restraint in leasing public lands for gas extraction. The impact of leasing 74,000 acres of state forest in 2008 and potential impacts of additional leasing should be carefully evaluated before opening up more public land for drilling.
- When natural gas and other resources are taken from public forestlands, the revenues generated should be reinvested in the conservation and restoration of the Commonwealth’s natural resources.
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