Gov. Wolf’s proposed new tax on energy production draws ire from natgas industry

Gov. Tom Wolf unveiled Monday his $3 billion workforce and economic development plan, Back to Work PA, which would be paid for by a severance tax placed on the natural gas industry at a rate of about 2.8 percent.

Wolf says the proposed tax would bring in about $300 million per year, which would generate enough revenue to pay off a $3 billion bond issue over 20 years. But industry leaders argue that his plan is based on “fuzzy math.”

Marcellus Shale Coalition President David Callahan stated that the governor’s proposal represents a combined energy tax rate of more than 12 percent, which would be the nation’s highest.

“Gov. Wolf and his team simply don’t get it. Pennsylvania already has a severance tax – it’s the impact fee, which has funded $2+ billion for community and environmental programs across the entire Commonwealth over the last several years,” Callahan said. “It was disappointing to hear the governor once again call for additional energy taxes that will harm consumers, local jobs, American energy production, and the Commonwealth’s ability to recover from the pandemic.”

During his press briefing Monday, Wolf said that his 2.8 percent estimate was a combination of the state impact fee and the proposed severance tax, noting that the severance tax, unlike other states, would fluctuate with the market price of gas.

“The price of natural gas and the price of petroleum products was low in 2020 and seems to have recovered,” Wolf said. “The proposal that I made here, the 2.8 percent is an estimate based on what we think the price of gas would be.”

Wolf has tried for years to institute an extraction tax on the natural gas industry, and this year’s prospects for implementing such a plan in the state legislature again look poor. Aside from widespread opposition amongst Republicans, the plan has drawn opposition from some Democrats in southwestern Pennsylvania who say it will hurt jobs and the local economy.

The governor argued that Pennsylvania is “the only major gas-producing state in the United States that doesn’t have a severance tax.”

“Right now, we have not been able to take advantage of that severance tax,” Wolf said, “to pay for the things other states are paying for right now: schools, roads, bridges, all those things they are paying for because they have a severance tax.”

According to the Wolf administration and state Department of Environmental Protection Secretary Dennis Davin, Pennsylvania produces more natural gas than the state can utilize, with more than 75 percent going to out-of-state markets.

“We need to make sure that we do everything we can to encourage this industry, but we need to make sure that it’s making a great contribution to Pennsylvania, and right now, we are not asking it to do that,” Wolf said.

However, George Stark, director of external affairs at Cabot Oil & Gas Corporation called the proposed tax “punitive” and poorly timed.

“Given the pandemic, the loss of jobs and those struggling financially, a tax increase on energy is the wrong move at the wrong time,” he said.

The $3 billion Back to Work PA plan, a refocused version of the $4.5 billion Restore PA plan Wolf introduced in 2019, is part of Wolf’s larger $38 billion 2021-2022 budget proposal, which he announced earlier this month.

“If the governor was serious about accelerating our economic recovery – which should be a top priority for every policymaker – he’d be focused on growing and encouraging natural gas production, infrastructure and use, not punishing this critical industry and its hardworking women and men that are helping combat this pandemic,” Callahan said.