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Alternative Energy: The Promise That Never Pans Out

MARCH 13, 2015 | by ELIZABETH STELLE

Green jobs and the broken window fallacy

One third of the $675 million in new corporate welfare under Governor's Wolf budget proposal is reserved for alternative energy programs. In this week's House budget hearings Community & Economic Development Secretary Dennis Davin defended the new borrowing saying,“We think when you look at those opportunities as a whole ... Pennsylvania will do much better.”

But history indicates otherwise.

A common target of Gov. Rendell's "economic development" schemes was alternative energy companies, who enjoyed $1 billion in renewable energy grants, tax breaks and loans, but only created 8,300 "green" jobs, costing taxpayers over $120,000 per job. In other words, using tax dollars to subsidize green jobs resulted in a net loss.

Worse yet, taxpayers don't have the funds for this program. The Governor wants to borrow the money and pay it back with natural gas severance tax revenues.

Even if placing more debt on Pennsylvania families created jobs, it is still wrong to ask the natural gas industry to subsidize their competitors. Kevin Sunday with the PA Chamber put it well, "It's very ironic that Gov. Wolf expects one industry to subsidize its competitors," he said. "We certainly shouldn't be picking winners and losers."

At the end of the day, Pennsylvania has given more than a billion dollars to alternative energy companies with nothing to show for it: from 1991 to 2014, our state ranked a dismal 45th in job growth. Handing out tax dollars based on political calculations is stifling economic progress. Common sense tells us it's time to try a different approach—letting Pennsylvanians keep more of their money.

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Fair Share? How Pennsylvania Gas Taxes Compare

MARCH 2, 2015 | by ELIZABETH STELLE

Pennsylvania is the only top natural gas producing state that doesn't tax drilling. Sound familiar? It's a favorite argument of tax proponents, but it misses the big picture. Pennsylvania taxes the natural gas industry many ways that don’t exist in other drilling states. For example, there is no corporate income tax or personal income tax in Texas or Wyoming, and the corporate income tax in West Virginia is 6.5%, compared to Pennsylvania’s 9.99% rate.

The chart below demonstrates that Pennsylvania's economy is far less inviting to natural gas development, even absent a severance tax.

Top Natural Gas Producing States 2013

States

Severance Tax on Natural Gas

Exemptions and Incentives for Unconventional Wells

Top Corporate Net Income Tax Rate

State and Local Tax Burden (as a percentage of State income/national rank)

1

Texas

7.5% of market value

Rate reduction appr. 2% for up to 10 years

none

7.5% / 47

2

Pennsylvania

2.1% *

 

9.99%

10.3% / 10

3

Louisiana

$0.03-0.13 per MCF

Severance tax suspension on horizontally drilled well for 2 years or until payback

8%

7.6% / 46

4

Oklahoma

7% plus 0.095% excise tax

Exempt from severance tax for 4 years or until gas production pays for the cost of the well

6%

8.5% / 39

5

Wyoming

6% of taxable value

Gas transportation costs subtracted from the taxable value

none

6.9% / 50

6

Colorado

2% - 5% based on gross income

Allows producers to deduct 87.5% of their property taxes paid to gov. from severance tax to state

4.63%

9% / 32

7

New Mexico

3.75%

 

7.3%

8.6% / 37

8

Arkansas

5%

1.5% on new discovery wells for 24 months and on high cost wells for 36 months (can get extension)

6.5%

10.3% / 12

9

West Virginia

5% + $0.047 per MCF

 

6.5%

9.7% / 19

10

Utah

3% - 5%

6 months exemption for development wells

5%

9.4% / 28

11

Alaska

25% - 50% net value

Reduction for all drilling in Cook Inlet basin and when gas in used in state; Limited tax credits for exploration

9.4%

7% / 49

12

Kansas

8% on gross value severed from earth

3.67% tax credit for ad valorem taxes paid, effectively reducing the severance tax to 4.33%

7%

9.4% / 26

13

California

<0.01 per MCF

 

8.84%

11.4% / 4

*Pennsylvania levies an impact fee (akin to a tax) based chiefly on the number of natural gas horizontal wells.
Sources: Energy Information Administration, Independent Fiscal Office, Tax Foundation

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Talk of Severance Tax Reduces Drilling

FEBRUARY 26, 2015 | by GORDON TOMB

Pitfalls of Natural Gas Tax

What a shock! A gas exploration company says it is reevaluating plans to drill for natural gas in Southwestern Pennsylvania because of Gov. Wolf’s proposed severance tax, reports TribLive.

Paul Burke, vice president and general counsel of Huntley & Huntley Energy Exploration, is quoted by the website: “We have to invest serious capital in our business. We want to see what’s going on in this commonwealth before we invest.”

Indeed.

The company made its concerns known in a letter to Harmar Township, saying it was withdrawing a subsurface lease offer for approximately 90 acres of township-owned land. The company had proposed a payment of $3,500 an acre, plus a 15 percent royalty.

Harmar township's supervisor, Bob Exler, expressed his disappointment: “It’s big money for a small township. It was something I thought would be a windfall for us, and I’m sad they canceled.”

We can only guess at the loss of jobs, taxes and associated business, not to mention the other drillers who may be reversing plans without publicly saying so.

Meanwhile, numerous companies across the state have announced reductions in investment and employment because of excess supply and resulting decreases in energy prices. Among them are Chevron Corp., Range Resources, Antero Resources, Rex Energy, PennEnergy Resources, Cabot Oil & Gas Corp. and Universal Well Services. Tax uncertainty could even jeapodize the building of a Shell petrochemical plant in Beaver County.

While the cutbacks are considered by many to be temporary, they belie statements of proponents for additional taxes on the industry that insist companies won't leave Pennsylvania's rich natural gas desposits.

The current business climate for the industry underscores that energy companies have risks as well as rewards to consider. Just as other businesses, they should not be treated as money trees to be picked by politicians with budget gaps to fill.

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Marcellus Shale Successes Continue

FEBRUARY 10, 2015 | by GORDON TOMB

Pitfalls of Natural Gas Tax

The stories continue: more jobs, increased tax revenue and cheap energy, all from the free-market production of Marcellus Shale gas.

Take last week's report from the Central Pennsylvania Business Journal: A study commissioned by Sunoco Logistics says two of its pipeline projects will produce more than 30,000 jobs across Pennsylvania, including as many as 400 permanent positions once the project is complete. The projects are also projected to generate $23 million in personal income tax and contribute $4.2 billion to the state’s economy.

The pipeline project is just one isolated example:

  • Dura-Bond’s Steelton plant “plans to add 150 jobs after being awarded a contract to produce $400 million worth of pipeline for the 540-mile Atlantic Coast Pipeline in West Virginia, Virginia and North Carolina,” according to PennLive. The work at the Dauphin County facility is expected to extend through March 2017.
  • Sunoco Logistics’ Marcus Hook Industrial Complex — an 800-acre energy hub for the processing, storage and export of natural gas products — continues to expand and add jobs as Delaware County officials work to identify additional business opportunities for it, reports the Philadelphia Inquirer. Sunoco Logistics’ pipelines serve the complex.
  • New Jersey’s largest gas and electric utility will decrease the typical residential gas bill by 31 percent in February and March, according to NorthJersey.com. Public Service Electric & Gas “has repeatedly cut the cost of gas to its lowest rate in 14 years as a result of low-cost gas from the Marcellus Shale formation in Pennsylvania and surrounding states,” the website said.

A new tax on Marcellus Shale drilling could put at risk these jobs and countless future projects. The economic benefits from a revived natural gas industry are impressive. Marcellus Shale counties saw more than double the employment growth of non-Marcellus counties last year. While government programs continue to hand out individual grants and loans, they can't compare to the industry's track record of improving employment for entire counties with zero cost to taxpayers. Government programs simply pale in comparison to the revitalization spurred by natural gas. 

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More Than Their Fair Share

DECEMBER 17, 2013 | by ELIZABETH STELLE

Marcellus Shale Fee

A fair and sound tax policy requires that people or businesses pay for the government they use, including the cost of extracting natural gas.  Yet despite the passage of a natural gas "impact fee" nearly two years ago, a few lawmakers and government union bosses insist drillers still aren't paying their "fair share." For example, PSEA union president Mike Crossey joined House lawmakers today for a press conference promoting legislation to increase taxes on drillers.

In reality, gas companies are already paying for more government than they're using, including an estimated $810 million in 2013 royalties to landowners, $500 million on road repairs, and billions in existing state taxes. In addition, gas drillers face the same tax climate common to every other Pennsylvania business, including the highest effective corporate income tax rate in the industrialized world.

Initially promoted as a way to compensate communities for the local impact of natural gas drilling, much of the $400 million in collected by the "impact fee" is funding broad programs that have little connection to natural gas drilling impacts, like the Commonwealth Financing Authority and Growing Greener.

Clearly, the primary goal of a new severance tax isn't just to pay for the government the natural gas industry is using, but to line the pockets of special interest groups like Crossey's PSEA and other government unions that profit off of bigger, more expensive government.

As long as the Marcellus miracle continues, those lobbying for government handouts will keep calling to increase the industry’s taxes and fees—which would effectively raise engergy costs across the state.

Those calls should be ignored because gas drillers are already paying for the costs of government they use, and more.

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Obama & Sebelius Visits Show Free Markets Trump Big Government

AUGUST 23, 2013 | by ELIZABETH STELLE, NATHAN BENEFIELD

President Obama and one of his cabinet members are making separate trips to Pennsylvania this week.  Their reasons for visiting couldn't be more different.

Today, the President will speak on education and jobs at Lackawanna College in the heart of the Marcellus Shale boom, which has ushered in unprecedented job growth and lower utility rates for consumers across PA.

Gas production numbers continue to surge. Moreover, this renaissance is providing the educational opportunities President Obama can only talk about.  George Stark of Cabot Oil & Gas explains how companies are not only hiring, but also helping to train workers at Lackawanna College in this op-ed.

A few hours south of the President's visit, Secretary of Health and Human Services Kathleen Sebelius traveled to Philadelphia to make another sales pitch for Obamacare yesterday.

Why does Sec. Sebelius need to travel the country to sell a law long on the books? Because the sad reality is Pennsylvanians are not seeing more affordable health care.  Rather, spouses are being cut from some insurance plans, workers’ hours are being reduced and premiums are skyrocketing.

Instead of selling a failed policy, we need to truly make health care affordable by allowing more innovation and returning choice to patients.

The contrast between Marcellus Shale and the Affordable Care Act is just one more example of the failure of big government, compared with the success of free markets and entrepreneurs, in improving the lives of everyday Pennsylvanians.

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Gasland Part II: New Name, Same Propaganda

JULY 12, 2013 | by JOHN BOUDER

Frack Attack

Remember the frackaphobic film Gasland (2010) directed by Pennsylvania native Josh Fox? Although a documentary in name, we proved the film to be largely fictional. Despite critical acclaim and an Oscar nomination, the film grossed a meager $30,000 at the box office.

But that hasn’t stopped Mr. Fox from filming a sequel creatively titled Gasland Part II.

Thankfully, the Washington Free Beacon saved us the trouble of watching it by publishing their own fact-check. The Beacon focuses on four of the new film’s main hydraulic fracturing myths summarized below.

Myth: Water contamination is caused by fracking.

Fact: Ironically, as we reported earlier this week, the EPA backed away from the very study cited in the film that supposedly showed fracking at fault for contaminated water in Wyoming.

Myth: One flawed study proves natural gas is not environmentally friendly.

Fact: Fox cites a single outlier study with obvious flaws to assert natural gas is not environmentally friendly. This would be news to no less a green energy advocate than President Obama.

Myth: Fracking causes earthquakes.

Fact: The Free Beacon points out that minor tremors have been associated with poorly placed waste water disposal injection wells, not the fracking process itself.

Myth: Well casings and safety precautions are inadequate.

Fact: Fox uses a scary article showing 60 percent of well casings fail within 30 years. But the article refers to wells drilled under the ocean in the Gulf of Mexico using a different method than the land-based natural gas industry uses. Another study on land-based wells in Ohio and Texas showed an infinitesimal .00006 percent failure rate (14 of 220,000 wells).

So, why is it so important to combat these falsehoods?

The Times-Tribune reported last week that Scranton area residents are paying one-third less for natural gas than five years ago. Marcellus Shale Coalition spokesman, Pat Creighton, commented, “We are flush with gas in the United States, and that is a direct benefit to the consumer.”

Lower energy prices don’t just benefit consumers, either.

An Austrian steelmaker is actually outsourcing a production facility with 150 jobs to the U.S.—Texas to be exact. Why? Due to fracking, the natural gas used to power industrial smelters costs 75 percent less here than in Europe. Natural gas is fueling economic growth nationwide and here in Pennsylvania.

For an honest take on the fracking’s impact, and an entertaining takedown of Josh Fox’s propaganda, watch the documentary FrackNation instead.

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Demanding More Dollars From Drillers

MAY 20, 2013 | by GORDON TOMB

Marcellus Shale Fee 2

Pennsylvania’s new drilling impact fee has not deterred special interests from demanding more money from the state's most prolific producers of new energy.

Act 13 of 2012 imposed fees on natural gas wells that are based on the value of the natural gas produced. The fee for the first year of a horizontal gas well ranges from $40,000-$60,000, depending on the price of gas. The state expects to collect $400 million in just the first two years of this fee.

The price of natural gas has steadily declined over the past two years due to an abundance of supply—saving Pennsylvanians hundreds on their energy bills. Now those who depend on big government are suggesting the state should base the fee on the volume of gas produced rather than on its price to get even "more" tax revenue.

John Hanger, a Democratic candidate for governor, went even further, calling the impact fee "a huge subsidy to the gas industry." A fee is now a subsidy? How Orwellian!

Claims that Pennsylvania collects less money from producers than other states are missing the big picture. Patrick Henderson, Gov. Corbett’s Energy Executive, says the critique ignores more than $1.7 billion in state taxes paid by oil and gas operators since 2007. Plus, the commonwealth’s taxation begins in a well's first year while other states exempt taxes for the initial few years, says Kathryn Klaber, president of the Marcellus Shale Coalition.

It may be fair to expect an industry to compensate for its negative impacts on local infrastructure, such as damaged roads; however, even the current impact fee goes beyond that by sending money to counties that have no gas wells.

Changing the law to maximize tax revenue would create chaos for companies doing business in the state, and would run the risk of driving the businesses themselves to other, more business-friendly gas-producing states. Despite the claims of critics, gas drilling has created tens of thousands of jobs, and provided billions to Pennsylvania residents in royalty and lease payments.

But the groups that depend on taxpayer funding as part of their business model aren't satisfied with the benefits for Pennsylvania families, they just want more for themselves.

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Free-market Gas Outshines Subsidized Solar

APRIL 9, 2013 | by GORDON TOMB

One news story highlights hundreds of jobs lost and millions of taxpayer dollars down the drain via corporate welfare. Another celebrates millions of new state revenue and free market job creation. This contrast offers a lesson for lawmakers.

The closure of Pittsburgh-based Flaberg Solar, a manufacturer of mirrors for the solar energy industry, is a tragic story of job loss and taxpayer abuse. Flaberg was awarded $10.2 million in stimulus funds and received an additional $10 million in state grants, putting taxpayers on the hook for up to $20 million.

(T)he current order and market situation in the North American solar market does not offer any prospect of profitably justifying to continue [the plant's operation], said Flaberg Solar's parent company in a statement.

Flaberg Solar, which once employed 200 people, says it cannot afford to pay former workers severances owed them. Vendors stand by with uncollected receivables as the company projects a debt of as much as $7 million.

A second article reported that the commonwealth expects to collect $400 million from the Marcellus Shale Impact Fee in the first two years of the tax's existence.

Although the tax was an unnecessary money grab, its success in generating revenue demonstrates the ability of private ventures to produce thousands of jobs, economical energy and billions of dollars in wealth without government aid.

The entrepreneurial spirit exemplified in the development of Pennsylvania's Marcellus Shale is key to the higher standard of living Americans enjoy. In contrast, corporate welfare schemes like subsidies for Flaberg Solar squander capital and destroy jobs.

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FrackNation Exposes Gasland Lies

MARCH 14, 2013 | by GORDON TOMB

"FrackNation" is not only about the development of natural gas, but also about journalism, says Phelim McAleer, co-director of the 70-minute documentary.

Shown this week to about 70 people at a meeting of the Tea Party Patriots of Central Pennsylvania in suburban Harrisburg, the recently released video debunks virtually everything the 2010 pop documentary "Gasland" used to demonize gas drilling in Pennsylvania and elsewhere.

For example, an assertion that gas drilling resulted in drinking water being contaminated with three types of uranium, including two of "weapons grade," is one of many ludicrous claims in "Gasland."  Weapons-grade uranium, made with highly sophisticated equipment typically at the cost of many millions of dollars, does not occur naturally.

"What journalist would put that out without checking with experts?" asked McAleer, an Irish journalist, who was a correspondent for The Financial Times and The Economist before becoming a filmmaker.

"FrackNation," subtited "A Journalist's Search for the Fracking Truth," premiered Jan. 22 on AXS TV and has received strong reviews from The New York Times and National Journal.  It is available for sale on the documentary's website.

Anne McElhinney, McAleer's wife and also a co-director of "FrackNation," will speak at the Pennsylvania Leadership Conference April 20.

 

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