Rendell Imposes Lame-Duck Natural Gas Moratorium

Commentary by H. Sterling Burnett

Source: Environment & Climate News

Lame duck Pennsylvania Governor Ed Rendell (D) has placed a moratorium on new natural gas leases on state forests lands. Rendell had previously supported new natural gas leases, but he decided to impose the moratorium after the state legislature declined to implement a hefty new severance tax that he supported. The Governor's actions will not affect natural gas exploration and production on more than 700,000 acres previously leased. 

Pennsylvania is the only state with significant natural gas production that does not tax it directly.  A majority of lawmakers voiced their support for the new tax, but the legislators could not agree on how high the tax should be. The Governor wanted a much higher tax rate than Republicans in the legislature would accept.  After months of stalemate, Rendell called a halt to negotiations and imposed his moratorium. 

Republicans pointed out that during the present recession, in a state with unemployment topping 9 percent, natural gas production is one of the few growth industries. Even without the tax, natural gas producers pay substantial lease fees and royalties for natural gas produced on public lands. And even without the tax, researchers at Penn State University have estimated that the gas boom in Pennsylvania should boost the economy by $8 billion and provide 88,000 jobs in 2010.  Unless producers are driven from the state with high taxes or onerous new regulations, the study estimated that by 2015 natural gas production in Pennsylvania could account for 160,000 jobs and more than $14 billion in revenue. By 2020, even without the tax, the Penn State research suggests that revenues from natural gas production could add more than $1 billion dollars to state and local coffers.

 "Clean, versatile natural gas is on the fast track in the United States for use in many industries, from transportation to expanded power generation," said Gary L. Stone, Vice-President of Engineering at Five States Energy Capital. "Only those politicians like Governor Rendell with either an infantile understanding of economic growth or an environmental lobbyist's check in his pocket would stand in the way of further development."

"Onerous taxes stifle development, as do drilling bans," Stone added. "The real losers are the people of Pennsylvania that would benefit from the jobs and economic growth associated with the drilling."

The moratorium on new gas leases on public lands may be a very short-term impediment to new production. Republican Governor-elect Tom Corbett opposed the severance tax proposed by Rendell, arguing that production and investment in the industry might flee to other states with access to the Marcellus Shale natural gas deposits. Corbett is likely to remove the moratorium upon taking office.

On his campaign website, Governor-elect Corbett said, "The commonwealth currently finds itself at a competitive advantage when compared to other states with similar gas shale plays. Capital investment to develop Pennsylvania's Marcellus Shale is increasing rapidly, and . . .  is expected to generate over $600 million in tax revenues to the Commonwealth during 2010 without a severance tax." 

"[A] punitive tax on the industry at this stage would reduce capital investment in the commonwealth and reduce the potential for new jobs, tax revenues and other economic benefits associated with development of the Marcellus Shale," Corbett added.

H. Sterling Burnett, Ph.D., (Sterling.Burnett@ncpa.org) is a senior fellow with the National Center for Policy Analysis.