PA Energy: Bright Future or Lights Out?

Member Group : Lincoln Institute

Lying beneath Penn’s Woods are deposits of coal and reserves of natural gas so large that the state has earned the nickname the "Saudi Arabia of the United States." At the current moment, development of Marcellus shale is booming, while the coal industry struggles. The future for both is very much in question depending on the political climate to be forged by upcoming state and national elections.

The Obama Administration is waging an all-out war on fossil fuels of all types whether obtained via mining or by drilling. Coal in particular has suffered. The industry has entered a critical period as the administration considers additional regulations on emissions from coal-fired power plants, the intent of which is both to prevent the construction of new plants and to force as many existing plants as possible to close.

These regulations are being promulgated despite the fact thousands of good paying jobs will be lost. Pennsylvania is the fourth largest coal-producing state in the nation. The Energy Information Administration estimates some 27 billion tons of coal lie beneath the surface of the commonwealth. Over 41,000 Pennsylvanians work directly or indirectly for the coal mining industry generating some $7 billion per year in economic activity. Much of the coal mined in the state fuels coal-fired power generation plants. A loss of those power plants would have an immediate and direct negative impact on mining operations in Pennsylvania.

The Obama Administration still has three years to run. Given its proclivity for requiring by regulation what congress won’t enact by law, the best the industry can hope for is to delay adoption of new regulations as long as possible then tie them up in court while running the clock out in hopes the next president takes a more favorable approach to the industry.

For the Marcellus shale industry the good times are rolling in Pennsylvania, with the big question being: for how long? The administration of Governor Tom Corbett has been favorable toward development of gas in the Marcellus shale region. It fended off attempts by some in the legislature to plant an onerous "extraction tax" on the industry in favor of more reasonable impact fees.

As a result of the Corbett Administration’s approach Pennsylvania has become a national leader in natural gas production. Plans to ramp up the exportation of liquefied natural gas, and the strong possibility that a job-creating "cracker" plant could be located in economically-depressed Beaver County illustrate the best of the boom may still lie ahead.

But there are political storm clouds. There are those in the General Assembly who propose to solve every funding problem by adding taxes on Marcellus shale drilling. With the state facing a budget deficit of over one billion dollars, calls for taxing the industry will increase. Plus, candidates in the crowded Democratic primary for governor are tripping all over themselves to propose new social welfare spending programs, usually to be paid for by an extraction tax on Marcellus Shale.

All of this, of course, would kill the goose that is laying the golden eggs. The Marcellus shale industry currently pays every tax that every other industry in the state must pay. Let us not forget that Pennsylvania is one of the most highly taxed states in the nation. In fact we are alone among the 50 states in double taxing corporations with both a corporate net income tax and a capital stock & franchise tax. Atop all that, the Marcellus shale industry pays the previously mentioned impact fee.

Add in an extraction tax, and the wide range of new environmental regulations being called for by most of the Democratic gubernatorial candidates, and Pennsylvania’s current friendly environment for development of Marcellus shale gas and related industries becomes not just unfriendly, but uncompetitive.

Energy self-sufficiency has been a national priority for decades. Pennsylvania and the nation as a whole are blessed with the natural resources to achieve that goal. But federal government tax and regulatory policy prevent the full development of those resources. Fortunately, state policies allow the energy industry to flourish, but that too can change in the blink of an election cycle.

(Lowman S. Henry is Chairman & CEO of the Lincoln Institute and host of the weekly Lincoln Radio Journal. His e-mail address is [email protected])

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