In 2012 I wrote about the foolishness of Pennsylvania adopting an “impact fee” for companies drilling for natural gas in the Marcellus shale formation while it was being debated in the Pennsylvania General Assembly. Energy-producing states generally charge producers a “severance tax,” which is levied on the physical production of a well.
Pennsylvania, led by its Republican governor Tom Corbett, chose instead to apply a flat fee on natural gas drillers. I wrote previously:
There are shale gas fields covering more than half of the United States, but Pennsylvania has emerged as the rising star of domestic energy production with its ‘Mighty Marcellus’ fields. This is a great resource for Pennsylvania, but I’ve been confused about legislation that would impose an ‘impact fee’ on shale gas producers instead of the traditional volume-based royalty structure used by other states. The loss of revenues to the state over the next 20 years using the ‘impact fee’ could be approximately $24 billion using current gas prices. If gas prices double (they are currently at 10-year lows), losses to the state could exceed $48 billion or more.
As Pennsylvania’s fiscal and pension problems mount, pressure is growing to restructure the tax treatment for natural gas extraction and go to a volume-based severance-type fee. The Scranton Times-Tribune wrote in a March editorial:
Even as the Marcellus Shale produces more than 20 percent of the gas behind the nation’s vast energy industry expansion, many Pennsylvania politicians continue to treat the industry as a fragile start-up that would wilt under a fair tax burden.