Proposed Severance Tax is Bad News for All Pennsylvanians

Stephanie Catarino Wissman
Posted March 16, 2021

Pennsylvania Gov. Tom Wolf is again proposing a severance tax on the commonwealth’s natural gas industry – the seventh such tax proposal in as many years. Like the others before it, this is a bad idea that could harm the benefits of energy production to the state and nation.

Wolf has teed up his latest tax proposal as a “commonsense” solution to the state’s economic recovery efforts. But it’s really a tax-and-spend scheme that could have negative consequences for all Pennsylvanians.

The fact is the effects of a natural gas severance tax would extend beyond industry. Because natural gas production boosts the commonwealth’s broader economy and supports technical education, infrastructure and many other public services, everyone would be impacted.

Three reasons the proposed Wolf natural gas tax increase is the wrong path forward:

Jobs and the State Economy Could Suffer

Pennsylvania was the nation’s No. 2 natural gas producer in 2020, and the natural gas and oil industry supports nearly half a million jobs in the Keystone State.

Industry activity also pumps billions of dollars into the state and local economies every year, strengthens manufacturing and small businesses and provides reliable, affordable energy to Pennsylvania consumers.

There’s little question that raising taxes on natural gas production would increase operating costs in the state and could reduce industry’s investment in Pennsylvania – negatively affecting all of these benefits.

State Impact Fee Collections and Revenues Could be Impacted

In addition to billions paid in state and local taxes each year, Pennsylvania’s natural gas industry pays an impact fee on wells drilled, with disbursements from those collections sent to all 67 counties in the commonwealth for housing, public safety, road and bridge repairs and infrastructure upgrades, environmental projects and more (see spending charts from 2018 below).

In 2020, more than $200 million was disbursed from impact fees paid by industry. Since 2012, nearly $2 billion in impact fee revenue was distributed across the state. An additional tax on the industry could reduce investment and production, which would cause impact fee revenues to decline accordingly.

Consumers, Environmental Progress and Energy Security Could Be Affected

From a national perspective, abundant natural gas has benefited American households, efforts to lower carbon dioxide emissions and the country’s overall security – and if Pennsylvania’s natural gas production decreased because of higher taxes and lower investment, it potentially could have impacts across the country.

Over the past decade and a half, the U.S. has become the No. 1 natural gas and oil producer in the world. This put downward pressure on crude oil costs and contributed to lower domestic natural gas prices since they peaked in 2008. We’ve seen household energy expenditures fall nearly 15% over the past 10 years – even as spending on health care, education and food rose. Thanks to abundant energy, U.S. families have had more to spend on other needs.

Meanwhile, the increased availability and use of natural gas has played a significant role in reducing U.S. carbon dioxide emissions. Largely because natural gas has been used more widely in power generation, U.S. energy-related CO₂ emissions are at their lowest levels in a generation.

While Pennsylvania and the country has produced increasing volumes of natural gas, methane emissions per unit of production from key basins fell nearly 70% between 2011 and 2019. This progress is being furthered by The Environmental Partnership, a coalition of 90 natural gas and oil companies. For example, in December The Partnership announced a new program to reduce flaring.

Finally, natural gas production in Pennsylvania is part of a U.S. energy resurgence that has made the country more self-reliant and safer in the world, while increasing exports of U.S. energy.

Again, Pennsylvania production is a subset – an important subset – of the benefits brought by the production of home-grown energy. Gov. Wolf’s proposal could significantly undermine the commonwealth’s contribution to the U.S. energy picture.

The proposal also couldn’t come at a worse time – as the state, nation and world recover from the pandemic and need more energy. As with the governor’s six previous bids to impose a natural gas severance tax, this proposal should be rejected by state lawmakers.