Will Corbett Support His Commissions’ Recommended Tax Increases?

This weekend we learned that Tom Corbett’s Marcellus Shale commission, despite its lopsided representation from the natural gas industry, will apparently be recommending some form of tax fee on fracking in addition to the odious practice of forced pooling. Here’s Angela Couloumbis and Laura Olson at the Inquirer:

Gov. Corbett’s advisory panel on drilling in the Marcellus Shale endorsed a long list of recommendations Friday on how to deal with the burgeoning industry, including imposing a local impact fee – not a tax – on the extraction of natural gas.

The 30-member commission also tacitly threw its weight behind the controversial practice of “pooling,” which effectively allows a drilling company to force holdout landowners to lease their below-ground gas rights under certain circumstances.

Today we learned that Corbett’s transportation funding panel recommends an increase in the gas tax, in addition to various fee increases:

The commission urged legislation to increase the cost of titles, inspections, driver’s licenses, and other documents in line with inflation. It said the move would raise $412 million in the first year and $574 million by the fifth year. The panel recommended increasing passenger-vehicle registration costs by $13 and four-year driver’s license fees by $4. Drivers would also be charged a $10 local registration fee.

The panel also suggested readjusting the wholesale gasoline tax, capped at $1.25 in 1993. That could bring in an extra $1.4 billion of revenue per year, according to the commission.

If properly adjusted for inflation, the tax would be increased by $1.43. The commission estimated that this would increase gas prices by about 22 cents per gallon this year.

An increase of 22 cents per gallon, around $36 a year, is a very smart way to raise $1.4 billion a year with minimal cost to economic growth. The state’s gas tax is already very low, and on balance, the gas tax policy should be encouraging less carbon-intensive ways of getting around. It’s a good thing if some people drive less as a result of the tax increase.

Likewise, taxing fracking is a very sensible way to raise revenue. I’m opposed to anything other than a statewide severance tax, but the fact that an industry-dominated panel recommended any kind of tax just goes to show how obvious a revenue source this is, and how extreme Corbett’s position is.

But Tom Corbett is unlikely to support any sensible suggestions for closing the state’s revenue shortfall, because his boss Grover Norquist has veto power over the majority Republicans, and Norquist doesn’t believe in “budgeting.”

Are Gas Companies Misrepresenting PA’s Laws to Landowners?

The “fracking at summer camps” news hook here is pretty funny, but I’m more concerned about how pervasive these kinds of practices are:

In a telephone conversation with the Forward, Robinson defended his camp’s decision to sign a Hess lease, saying, among other things, that he felt he had no choice under Pennsylvania law. Gas companies, he claimed, could eventually force landowners to take payment for their resources if enough of their neighbors signed. But in fact, such laws don’t apply to Marcellus Shale wells, though they do affect other areas of the state.

Stephen Saunders, a Scranton, Pa.-based attorney who specializes in oil and gas law and in environmental law and represented B’nai B’rith during its negotiations with Hess, said that Robinson’s misconception was a common one. Some of the agents seeking leases on behalf of the gas companies, known as land men, were known to misrepresent the Pennsylvania law in order to convince landowners to sign, according to Saunders.

Keep this in mind when you hear about “local impact fees.” There’s a lot more room for fraud to flourish when gas companies are negotiating with individual landowners and tiny munis who don’t have the capacity to call the frackers’ bluff.

Suppose the gas companies threaten to sue a municipal government representing under 1000 people (about 30% of local governments in PA) for their refusal to let them drill. The gas company says they’ll eventually be able to force the muni to relent. The local lawmakers are pretty sure that their understanding of the law is correct, but can they really afford to find out? Even if they’re definitely correct, can they really afford to spend the money on legal fees? I suspect many governments in that position would cave, rather than end up in court. You really want county governments, or regional bodies representing a block of counties, in the middle of these transactions.

How Much Gas is There?

Matthew Kahn has a great post on the big NYT natural gas story:

Asymmetric information and fundamental uncertainty raise interesting issues in economics. Suppose that a natural gas company owns 10 plots of adjacent land and reports the “provable” quantity of natural gas that it can access at one of the plots. It is tempting to multiply this by 10 as optimists extrapolate that all of the plots are of equal quality. But, how do you know if the company is “cherry picking” and simply reporting the truth about its best plot (and hoping you will extrapolate) or is simply lying even about that plot? Do the executives of the firm have the right incentives to tell the truth? Their company’s stock price increases with announcements of “new proven reserves”. The NY Times is very concerned about this new case of winner’s curse. New accounting rules make it easier for gas companies to overstate their reserves and the NY Times is playing a useful role in spreading information about this point. Natural gas is the new thing as it offers domestic energy security and lower GHG emissions than fossil fuels. But, how much of this resource do we really have?

Is Shale Gas a Bubble?

Ian Urbina has a long piece throwing some cold water on the natural gas hype at the NYT:

Natural gas companies have been placing enormous bets on the wells they are drilling, saying they will deliver big profits and provide a vast new source of energy for the United States.

But the gas may not be as easy and cheap to extract from shale formations deep underground as the companies are saying, according to hundreds of industry e-mails and internal documents and an analysis of data from thousands of wells.

In the e-mails, energy executives, industry lawyers, state geologists and market analysts voice skepticism about lofty forecasts and question whether companies are intentionally, and even illegally, overstating the productivity of their wells and the size of their reserves. Many of these e-mails also suggest a view that is in stark contrast to more bullish public comments made by the industry, in much the same way that insiders have raised doubts about previous financial bubbles.

“Money is pouring in” from investors even though shale gas is “inherently unprofitable,” an analyst from PNC Wealth Management, an investment company, wrote to a contractor in a February e-mail. “Reminds you of dot-coms.”

The Fracking Tax Flight Fallacy

Mike Sturla explains that PA has the gas drillers by the balls:

Rep. Michael Sturla of Lancaster County said industry leaders have, during testimony in front of his committee, said they would not leave Pennsylvania even if the state’s fracking tax is 1 percent higher than the highest gas drilling tax in the country.

“Frankly, they have been more forthcoming than some of our politicians who have said (the industry) would leave,” Sturla said. “I don’t think it’s the industry that’s the bad guy. It’s other people who are standing in the way.”

Sturla made the comment less than an hour after Gov. Tom Corbett told a Chamber of Commerce gathering just a few miles away at DeSales University that there “can’t be” a gas drilling tax in Pennsylvania, presumably repeating the theory that taxation will chase investment and jobs away.

You’ll recognize Corbett’s claim that gas drillers will flee attempts to tax them as a version of the conservative argument that a Millionaire Tax would be pointless since millionaires would just flee the state, or that corporations would flee the state if we closed the Delaware loophole.

And just like those claims, it’s not true. Drillers need to be in Pennsylvania to drill for Pennsylvania’s gas. They can’t get Pennsylvania’s gas from Ohio, so they need to pay Pennsylvania taxes. Yes, there is a level of taxation that would make it unprofitable to drill at all, but the drillers are straight up telling Mike Sturla that PA would still be in the safe zone if its tax was 1% higher than the rest of the states.

Translation: PA has the drillers by the balls. Harrisburg can, and should, extract as much revenue from this practice as they possibly can because it’s a captive industry performing a very environmentally destructive activity. The revenue could be used to close the revenue shortfall, and then lower the sales tax.

Grover Norquist Says Scarnati’s "Local Impact Fee" is a Tax

Americans for Tax Reform comes out against Joe Scarnati’s “local impact fee” for natural gas drilling:

For the last two years former Pennsylvania Gov. Ed Rendell worked tirelessly to impose a new tax on natural gas extraction in the Marcellus Shale. While Rendell left office empty-handed, lawmakers in Harrisburg are back with a new proposal to tax one of the most promising sectors of the Keystone State economy. The game plan this year: just don’t call it a tax.

SB 1100, introduced last week by Sen. Joe Scarnati – who was the Senate field marshal for Rendell’s push for a severance tax last year, would impose $10,000 per wellhead “impact fee” on drilling operations in the Marcellus Shale.

Call it what you like, SB 1100 is a tax by any objective assessment. A large portion of the money derived from this new levy would go to localities where no drilling is occurring.

This is a significant development because the chief virtue of the local impact fee for someone like Tom Corbett, who signed ATR’s ridiculous No Tax Pledge, was that it’s nominally not a tax. But now Grover Norquist is saying he’ll score it as voting for a tax increase, so lots of Republicans are going to have to back away from any form of Marcellus Shale tax. If it’s all the same to Norquist, that means there’s no real point now in going with the local fees over a statewide severance tax. Looking past the political word games, the severance tax is clearly the better policy on the merits.

Frackers Hiding Water Testing Data

Abrahm Lustgarten:

The absence of baseline data was one of the most serious criticisms leveled at a group of Duke researchers last week when they published the first peer-reviewed study linking drilling to methane contamination in water supplies.

That study — which found that methane concentrations in drinking water increased dramatically with proximity to gas wells—contained “no baseline information whatsoever,” wrote Chris Tucker, a spokesman for the industry group Energy in Depth, in a statement debunking the study.

Now it turns out that some of that data does exist. It just wasn’t available to the Duke researchers, or to the public.

Ever since high-profile water contamination cases were linked to drilling in Dimock, Pa. in late 2008, drilling companies themselves have been diligently collecting water samples from private wells before they drill, according to several industry consultants who have been working with the data. While Pennsylvania regulations now suggest pre-testing water wells within 1,000 feet of a planned gas well, companies including Chesapeake Energy, Shell and Atlas have been compiling samples from a much larger radius – up to 4,000 feet from every well. The result is one of the largest collections of pre-drilling water samples in the country.

“The industry is sitting on hundreds of thousands of pre and post drilling data sets,” said Robert Jackson, one of the Duke scientists who authored the study, published May 9 in the Proceedings of the National Academy of Sciences. Jackson relied on 68 samples for his study. “I asked them for the data and they wouldn’t share it.”

The fact that the gas companies did not release these water tests to push back on the Duke report suggests that the results must be pretty ugly.