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The bare-knuckled politics of oil and gas is something the West (California, Colorado, Montana, Wyoming, etc.) and the South (Texas, Arkansas, Louisiana, etc.) is quite familiar with. The Northeast? Well, not so much. Sure, they've had their coal wars, but the oil and gas wars are only now becoming a part of contemporary politics in that region - and it is sure to be contentious, as evidenced by the simmering battle over a natural gas severance taxes and regulations in Pennsylvania.
The gas industry is salivating over the Marcellus Shale formation, which Penn State officials say contains enough gas to supply the entire U.S. for 13 years and could be worth a whopping $1 trillion in new economic development. The question now is two fold: 1) Will Pennsylvania allow those resources to be pillaged, or will it will enact a severance tax to make sure the public gets something in return? and 2) Will Pennsylvania step-up environmental regulation of drilling operations?
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| Twenty-eight states have severance taxes on such commodities - that is, taxes assessed when the commodity (in this case, natural gas) is severed from the earth. The idea behind these taxes is that these natural resources are inherently both a public resource and a finite resource, and therefore the private corporations severing them should give back to the public coffers a small fraction of the value of that resource. In many states, these tax revenues are devoted to trust funds for public goods like education. And these taxes have helped insulate some states like Texas, Wyoming and Montana from the massive budget deficits brought on by the national recession. Now, it looks like Pennsylvania may follow suit.
As reported by the Pittsburgh Post-Gazette, Gov. Ed Rendell (D) this week announced the leasing of 32,000 acres of state land for gas drilling, as well as a new budget proposal to impose a severance tax. He had proposed a similar tax in his last budget, but it was crushed by the gas industry's intense lobbying efforts:
In the last two years, energy companies with a stake in Pennsylvania's Marcellus shale have spent hundreds of thousands of dollars lobbying and making campaign contributions to legislators, congressmen and the governor, partly in hopes of postponing a tax on the extraction of natural gas.
Beyond trying to simply buy its agenda with campaign contributions, the gas industry makes two public arguments against severance taxes.
First, it often threatens to not develop gas deposits if such levies exist - an almost laughable bluff. Gas development is, by its nature, a captive industry. It's not like a call center that can just move - it has to be where the gas geographically exists. Tax or not, these deposits are almost guaranteed profits for the private corporations that get to develop them. Any company that would leave over a modest tax would be quickly replaced by another company. And so the politics of severance tax lends itself to what I've called Captive Industry Populism - that is, a politics that gives lawmakers a lot of latitude to assess taxes and regulation without the real fear that an industry will go somewhere else.
The gas industry also typically loves to plead poverty when arguing against these taxes. Companies will make the case that they are already running on a supposed shoe-string budget, and any extra levy will put them out of business. But the Harrisburg Patriot-News tells the real story:
As Pennsylvania business leaders and Republican lawmakers argue against a tax on natural gas extraction in the Marcellus Shale bed, where scientists estimate the natural resource to be worth as much as $1 trillion, they might want to ponder the huge pay package heaped upon the CEO of the largest drilling rights company in the state.
Chesapeake Energy, with $34 billion in assets, owns 1.8 million acres of the Marcellus Shale bed in Pennsylvania. On April 21, Chesapeake disclosed that in 2008, it raised the salary of CEO Aubrey K. McClendon to $100 million -- or five times his previous salary.
So what you have in this tax debate in Pennsylvania - as you've had in all the other states with oil and gas politics - is a decision over whether to couple healthy profits with attendant public good or simply allowing a natural resource to be pillaged for private profiteering and little public good?
This will be the same kind of debate that will inevitably erupt over Rendell's simultaneous proposal to beef up inspections of gas wells. The Associated Press reports that the state is planning to hire more environmental regulators to make sure gas drilling operations do not pollute groundwater supplies after 13 residential drinking-water wells in Pennsylvania were polluted by a drilling corporation last year. You can bet the industry will chafe against Rendell's beefed up enforcement effort.
Let's be clear: Severance taxes and inspections are by no means perfect.
As I wrote in a piece for the San Francisco Chronicle, its Faustian bargain can create its own political challenges for the progressive coalition down the line - namely, by making anti-environmental fossil fuel development a revenue stream for liberal causes like education and health care. Likewise, even the best regulatory regime cannot mitigate all the side effects of fossil fuel exploration.
However, despite imperfections, these are solid progressive steps in the brave new world of energy policy. A severance tax and more intense regulatory measures are the least a state should do to make sure that finite natural resources contribute to the commons. These natural resources are natural - they are here not because any one group of humans innovated or created them. That means even with the modern age's focus on property rights, they are at some level all of ours - not any one group of humans. It's not too much to ask for that ethos to be legislated as a modest tax for future generations and as new protections against pollution of other resources. |
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