Think before revving-up the Marcellus gas engine

by Eric Epstein

Pennsylvania is strategically located to reap a windfall associated with Marcellus shale. But the next governor needs to make sure that any mineral extraction strategy is buffeted by balanced and sensible environmental stewardship and sane revenue strategies. Natural gas is not the magic bullet to cure our fiscal and energy woes, and we need to avoid putting all of our eggs into the Marcellus shale basket. We know what happens when coal companies abandon mines. And Pennsylvania rate-payers remain at significant financial exposure as our five nuclear stations continue to store thousands of tons of nuclear waste with no forwarding address.

Let’s try something different and learn from previous mistakes. Simply put, we need to invest in sanity. Here’s a novel idea: Why not balance fiscal, environmental and local share issues before we spend what we don’t have, mortgage future generations, and lock out municipal input and oversight?

The resources that have been identified are vast by any standard. Large-scale drilling will occur in the Marcellus shale formation from the southern tier of New York through West Virginia. Penn State University estimated that the reserves are anywhere from 168 to 516 trillion cubic feet.

The industry is quick to point out that a severance tax, which is proposed in Gov. Ed Rendell’s state budget, will exacerbate a corporate net income tax of 9.5 percent, and could cripple an industry that is just starting craw.

But environmental groups released a study that claimed Pennsylvanians favor a severance tax, which could raise $632 million per year within five years. As Jan Jarrett, CEO of PennFuture noted to the Tribune-Review recently: “The Marcellus shale offers us a tremendous opportunity to expand our supply of domestic fuel. … But it also offers a tremendous risk to the land, water and wildlife that makes Pennsylvania so special.”

Is it possible that both sides are right? We cannot let this issue degenerate into a win-lose, zero-sum game, nor can we afford for Marcellus shale to become a three-sided coin flip. Any middle ground must necessarily factor what isn’t talked about: local share. We cannot bulldoze local communities by cannibalizing their infrastructure, and leaving behind a fractured environmental and economic legacy, while revenues are deposited into the state coffers.

Dr. Timothy W. Kelsey of Penn State’s Cooperative Extension provided a fair, balanced, and sobering assessment of the fallout from gas exploration in his study, “Potential Economic Impacts of Marcellus shale in Pennsylvania: Reflections on the Perryman Group Analysis from Texas.” Among his observations was the possibility that local communities may get hammered by the existing tax structure, experience resource depletion, and lack the ability to implement local land use regulations.

“Tax collections by the state government will increase in Pennsylvania through the corporate income tax and sales tax, yet these collections will have little direct benefit to the local jurisdictions who will face higher service costs due to natural gas exploration,” Kelsey’s report says. “In other words, local jurisdictions with natural gas wells very likely will face higher demands for services and thus higher costs, and yet receive little new revenues to pay for those services. The result likely will be higher local taxes (paid for by everyone, not just those directly benefiting from lease or royalty revenues), or cuts in other services.”

We can’t tax our way into prosperity, and we should not sell off our resources without factoring externalities, clean-up costs and water use. Among the proposals we should consider to arrive at an equitable compromise are a graduated severance tax; accelerated depreciation; establishment of an external sinking fund for cleanup costs and site remediation; an MOU between the state and local municipalities for local revenue sharing; and an arbitration panel to reconcile local land use with state mandates as well as true up costs for water extraction.

We’re not going to get a second bite at the Marcellus shale apple. We better pull out the economic and environmental worms before we are tempted to devour a pomegranate.

The writer is coordinator of RockTheCapital.org, a government watchdog group in Harrisburg.

May 13, 2009 at 10:27 am

--Eric Epstein