Frackers Must Be Taxed

Governor Wolf has proposed a $4.5 billion infrastructure program called Restore PA to be funded by a shale gas extraction tax. His plan has my support with some reservations. In any event, whether Restore PA ever becomes law or not, I believe it is imperative to enact a shale gas extraction tax.

In Economics 101, first-year college students learn that taxes serve two useful functions – raising revenue and changing behavior.

Raising Revenue
Without question, a gas extraction tax is at the top of the potential new revenue list and is largely supported throughout the state. I disagree with arguments on the right that it is an unfair disincentive to oil and gas interests. Pennsylvania is currently the only state in our region that does not have an extraction tax and I am absolutely opposed to letting the corporate drillers walk away with billions of dollars in profit without paying a fair share for the privilege.

The House passed a gas extraction tax in 2009 which the Republican-controlled Senate refused to take up. Conservative estimates put the amount of revenue that would have been generated annually by the tax at $300 million. That was 10 years ago, putting the missed revenue opportunity for the last decade at $3 billion.

Changing Behavior
As stated earlier, taxation is also a tool to change behavior. The primary reason why the free market is turning to natural gas for energy needs is that it is both plentiful and cheap. There is significant evidence to suggest the price of natural gas, particularly natural gas from fracking, is artificially low because it falls significantly short of covering the environmental costs related to extracting, transporting, refining, manufacturing petroleum-based products and disposing of them when their useful life has expired.

The best way I know to seek compensation for the ill effects stemming from the shale gas industry is to levy taxes at every step of the process from extraction, to transportation, to end uses including burning gas as a fuel or using it to produce plastics and other chemicals. If we use taxes to more adequately recoup the associated costs from using this fossil fuel, not only will we gain millions of dollars in revenue, shale gas will become more expensive thus making alternative clean energies and manufacturing from alternatives to petroleum-based resources more competitive.

I believe this market-based approach will contribute to phasing out fracking and petroleum-based manufacturing, incentivizing alternative technologies and products and mitigating of the negative economic impacts on some workers and local economies.