Tax credit reignites Pennsylvania natural gas fracking debate

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Rig hands move equipment at a hydraulic fracturing site atop the Marcellus Shale rock formation in Washington Township, Pennsylvania.

A new tax credit, a grand jury report, national election-year politics and regional bickering have revived debate over natural gas drilling, long a complex Pennsylvania political football.

“It’s been a multi-faceted endeavor that’s affected a lot of people in Pennsylvania,” said Terry Engelder, a professor emeritus of geosciences at Pennsylvania State University and a member of former Gov. Tom Corbett’s Marcellus Shale Advisory Commission, which in July 2011 issued 96 recommendations for state management of unconventional gas and oil drilling.

Marcellus Shale, a sedimentary rock buried well beneath the earth’s surface, stretches from upstate New York — it's named after a town near Syracuse — and winds through Pennsylvania to West Virginia and Ohio.

A just-enacted Pennsylvania bill provides a $670 million tax credit to the natural gas industry. One month earlier, state Attorney General Josh Shapiro a said a two-year grand-jury investigation into hydraulic fracturing, or fracking, uncovered systematic failure by government agencies in overseeing the industry.

Gov. Tom Wolf, Corbett’s successor, signed the tax-credit law on July 23. Wolf and lawmakers tweaked the bill after he vetoed it in March. The new version limits the scale of the subsidies available and pays union-scale wages to construction workers building a qualifying plant.

"I was concerned in the first bill that I vetoed that there were not adequate protections for prevailing wage for the workers, and it was fiscally irresponsible," Wolf told reporters. "This is a better bill."

The local resource manufacturing tax credit establishes credits for petrochemical plants intended for the Marcellus Shale, whose formation would supply natural gas for conversion into feedstocks to provide fertilizers and plastics and other planned new factories.

Wolf is looking to attract new manufacturing to Pennsylvania and further exploit the commonwealth’s abundant natural gas reserves. The bill’s sponsor, Rep. Aaron Kaufer, R-Kingston, represents Luzerne County, home to Wilkes-Barre and other northeast Pennsylvania municipalities that have struggled since the demise of the coal industry.

According to House Majority Leader Kerry Benninghoff, R-Bellefonte, the construction of four manufacturing facilities under the legislation could generate $1.6 billion in economic benefits and create 4,400 jobs.

“As Pennsylvania looks to recover economically from the devastating effects of this pandemic, additional investment in the commonwealth because of our homegrown energy resources will be a critical factor in jumpstarting our economy,” he said.

Companies would be eligible for tax credits if they agree to invest at least $400 million in a project, hire at least 800 Pennsylvania workers and pay prevailing wage and benefits to all construction trade workers. The new plants must use carbon capture and sequestration technologies to minimize climate effects.

Sen. John Yudichak, I-Plymouth Township, cited the bipartisan support and the need to create new jobs in northeastern Pennsylvania. His district also includes parts of Luzerne County. Yudichak offered several amendments to the bill.

Wolf is a Democrat who works with a Republican-dominated legislature. Yudichak himself is a Democrat turned independent, having switched last fall because he said party leaders had become too ideological.

Natural-gas fracking is part of a national debate on energy, and Pennsylvania, which Republican Donald Trump won in 2016 en route to his election, looms as a battleground state once more.

Trump’s presumptive Democratic opponent, Joe Biden — a Scranton native — has proposed a $2 trillion clean-energy program over four years, calling for carbon-free power plants by 2035. In a possible play for Pennsylvania, it did not call for an immediate ban on fracking.

Neighboring New York State bans the practice.

Opponents to the tax credit, mostly Democrats in the state's southeastern region, called it a gift to the fossil fuel industry that could complicate Pennsylvania’s effort for a clean environment.

“It’s like trying to drive a car with one foot on the gas and one foot on the brake, you just can’t do it,” Rep. Greg Vitali, D-Haverford County, said in floor debate.

Tight regulations in some states and environmental opposition have slowed or even halted some projects, notably in the shale crescent region that covers western Pennsylvania, West Virginia and Ohio.

Dominion Energy Inc. and Duke Energy Corp., citing possible legal delays and costs, canceled the $8 billion, 600-mile Atlantic Coast Pipeline project in early July. That pipeline was to run from West Virginia through Virginia to eastern North Carolina.

The Shapiro report, which cited health and environmental concerns such as brown water and clogged water filters, followed the findings of the grand jury’s previous criminal presentments against two fracking companies — Range Resources and Cabot Oil & Gas — alleging “repeated and systematic violation” of Pennsylvania environmental law.

Local district attorneys referred those cases to Shapiro’s office. Range has since pleaded no contest to environmental crimes committed in Washington County.

“These failures harmed Pennsylvanians living in close proximity to this industry,” said Shapiro, a Democrat. “The grand jurors found that, while the Wolf administration has forced through some improvements at the agency, there continues to be room for meaningful change to occur.

“When it comes to fracking, Pennsylvania failed.”

Engelder called Shapiro’s grand jury report an example of political overreach.

Pennsylvania Gov. Tom Wolf signed the tax-credit legislation after negotiating changes. "This is a better bill," he said.

“He implied that the industry doesn’t care about the people it served. I found that bizarre that he said this,” Engelder said. “That was completely not the case. It’s true that people were affected by the industry and there were a number of complaints, but I’ve seen companies struggle mightily to correct problems that seemed intractable.”

The grand jury report detailed eight recommendations: They included expanding no-drill zones in Pennsylvania from the required 500 feet to 2,500 feet; requiring fracking companies to publicly disclose all chemicals used in drilling and hydraulic fracturing before they are used on-site; requiring the regulation of gathering lines, used to transport unconventional gas hundreds of miles.

The report also called for adding up all air pollution sources in a given area; requiring safer transport of the contaminated waste created from fracking sites; conducting a comprehensive health response to the effects of living near unconventional drilling sites; and limiting the ability of Pennsylvania Department of Environmental Protection employees to work in the private sector immediately after leaving the department.

It also called for attorney general’s office to take original criminal jurisdiction over unconventional oil and gas companies.

David Masur, executive director for the Philadelphia-based green-energy advocacy group PennEnvironment, said “fracking is dangerous, and frackers have been allowed to strong-arm, cajole, and mislead unsuspecting Pennsylvanians while they extract profits and evade responsibility.”

The industry group Marcellus Shale Coalition said Shapiro’s report ignores existing law, the commonwealth’s strong regulatory framework, and contains “numerous misstatements and inaccuracies.”

“Make no mistake, Pennsylvania has nation-leading environmental regulations and ‘there’s no industry that’s under the kind of perpetual scrutiny that shale gas development is under,” said the coalition’s president, David Spigelmyer.

Pennsylvania has long undertaxed the natural gas production industry, said municipal bond analyst Joseph Krist.

“This [tax credit] reinforces that impression. I also understand the reality that a county like Luzerne hasn't had an economic growth catalyst since the end of World War II. There has always been the hope that there is one project out there somewhere that will bring back times like the glory days of anthracite coal.

“Given that the proposed tax credits would be given in an environment of reduced demand and overall economic distress, the credits would seem to be more of an intervention in the realities of the market which will not be sustainable,” Krist said. “Clearly a political move rather than a sound economic move.”

According to Krist, stay-at-home orders have helped people focus on energy cost and use nationwide. “That's most immediately reflected in growing support for things like mileage taxes vs. gas taxes, which implies that the shift to renewable electric transportation will accelerate.

“Anytime I see an industry ask for subsidies in the face of an increasingly unfavorable view of their product, it's a sign,” Krist added.

Wolf has tried several times to impose a tax on gas-drilling companies, including a proposal last year to backstop $4.5 billion of borrowing for infrastructure resilience projects through such a levy. The GOP has repeatedly pushed back on the tax, though lawmakers did pass an "impact fee" under Corbett.

Engelder remembers the reluctance to mention the word “tax,” even though companies had anticipated one as a cost of doing business in Pennsylvania.

“When I was on the Marcellus Shale Advisory Commission, which included members from the industry, one of the premier company leaders said ‘we came to Pennsylvania fully expecting to pay a severance tax,’ ” he said. “Gov. Corbett insisted you can talk about anything you want except the tax presence.’

“What we had was an impact fee. Although I really haven’t really searched for it, I have not seen any supplemental information about revenue from a tax versus an impact fee.”

Engelder is writing a book about his experiences. He plans to title it: “A Frackademic from Appalachia.”

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