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Saturday, 01 November 2014

Frackian bargain

Pennsylvania sells out cheaply in fracking fight

Pennsylvania is selling out cheaply in the fight against fracking. The Keystone State, the nucleus of national opposition to the deep-drilling technique, is poised to levy a gas tax, ostensibly to cover drilling damages. The charge may soften the hostility. But the levy is less than half that of other states, suggesting the industry still has the upper hand.

Hydraulic fracturing is blamed for many ills, from water contamination to minor earthquakes. Many of the claims look exaggerated, though the controversial practice takes an undeniable toll on gas-rich areas. Disposing of drilling fluids strains water treatment facilities. To properly monitor the activity requires extra inspectors. And the army of heavy trucks needed to transport fracking equipment exacts extensive damage. The cost of such wear and tear to motorways was estimated to be about $450 million in Arkansas alone by the state’s authorities.

Most gas-producing states have long imposed taxes to offset some of these costs. Pennsylvania has been the last big holdout. It helps explain why the state has been at the vanguard of national objection to fracking. The roughly $200 million the state’s new tax proposal would generate annually - much of which is to be passed onto affected communities - may convince protesters to lay down their placards.

Still, it’s a poor Faustian bargain. The effective rate of the new tax will fluctuate between 1.2 percent and 2.5 percent of production, about a third what Texas extracts and roughly a quarter the peak rates in Louisiana. Proposals by Pennsylvania Democrats for a stiffer levy would have produced twice as much revenue, potentially mitigating painful spending cuts. Aside from short-changing Pennsylvanians, the new deal will limit the ability of local communities to restrict drilling.

Over the past decade, gas drillers have spent close to $750 million on campaign contributions and lobbying in the Keystone State, according to the activist group Common Cause. The latest pact suggests the money was well spent. Drillers must be hoping the comparatively light tax will be just enough to calm discontent, at least for a while. But the industry shouldn’t necessarily expect Pennsylvania’s anti-fracking brigade to be placated for good.

Context News

Pennsylvania Governor Tom Corbett is expected to sign into law a bill that will allow counties to levy a fee on natural gas wells. The state estimates the new tax will raise about $211 million this year.

The charge is intended to mitigate the impact of hydraulic fracturing, a drilling technique used to extract natural gas and oil from rock.

The Pennsylvania Budget and Policy Center estimates the tax will have an effective rate of between 1.2 percent and 2.5 percent depending on the price of natural gas. This compares to a rate of 7.5 percent in Texas, 6 percent in Wyoming and up to 9.5 percent in Louisiana.

A proposal by Democrats in Pennsylvania’s lower chamber for a 5.9 percent tax would have raised over $400 million a year, according to the state’s Budget and Policy Center.

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