By Danielle Smith, Keystone State News Service
Photo courtesy of Patrick Hendry on Unsplash
A new report warned Pennsylvania’s budget is headed for a crisis, and the fossil fuel industry will not be able to bail it out.
Researchers said the sector’s long-term decline and years of generous tax concessions have deepened the state’s fiscal pressures.
Trey Cowan, energy finance analyst at the Institute for Energy Economics and Financial Analysis, said Pennsylvania faces a demographic crunch involving an aging, slow-growing population that is driving spending up.
Cowan pointed out that a petrochemical complex was intended to create a stronger tax base for the state, but Pennsylvania gave it a tax credit of $2.10 per barrel, or 5 cents a gallon. He stressed the fees Pennsylvania producers pay on natural gas extraction are a tiny fraction of the state budget.
“It’s a 3-cent tax on natural gas versus, if you do the stoichiometry, it’s 78 cents on the same heat content,” Cowan explained. “(A) 78-cent tax credit versus a 3-cent tax. It’s 26 times larger tax credit than what they’re taking in.”
Cowan argued the report shows fossil fuels are structurally restricted from becoming a tax revenue generator to help Pennsylvania’s economy. Backers of the fossil fuel industry, including the Trump administration, argued that continued fossil fuel expansion ensures energy independence, grid reliability, and economic growth.
Cowan countered that increasing the state’s population by attracting workers would help grow Pennsylvania’s economy, adding that legacy industrial projects often do not create a large number of jobs or appeal to today’s workforce.
“That’s a struggle with the oil and gas industry, fossil fuels, is younger folks don’t want to go into that industry,” Cowan observed. “As Pennsylvania looks for policy, they should be thinking, what policies are going to attract the best and brightest to the state?”
Cowan noted Pennsylvania took a different approach when the shale boom began, taxing natural gas wells with an “impact fee” instead of a per-unit severance tax used in other states. The fee declines as gas wells age, even though Pennsylvania’s gas wells produce heavily up front.
Natural gas brings in less than 1% of Pennsylvania’s total tax base, compared with roughly 5% to 20% in other energy-producing states, according to the report. Even in strong years, Pennsylvania collects only about $200 million, far below the billions seen elsewhere. The gap is expected to continue as tax rates decline.
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