Morning Must Read: PA's Low Tax Rate on Shale Drilling

The Associated Press has a good story highlighting just how much Pennsylvania is giving up over time by enacting a Marcellus Shale impact fee that assesses one of the lowest tax rates on natural gas drilling among the nation's major energy-producing states.

A boom in natural gas drilling in Pennsylvania is generating billions of dollars for companies and private landowners, but some experts question whether the state's low effective tax on the bounty makes long-term sense.

Unlike most leading oil and gas producing states, Pennsylvania doesn't link fees to how much gas comes out of the well. Instead, each well pays an impact fee no matter how much it produces. That means that even as Marcellus Shale gas production has soared, revenue to local and state government isn't keeping pace.

For example, the impact fee generated about $204 million in 2011, when production was about 1 trillion cubic feet of gas. But when production doubled in 2012 to just over 2 trillion cubic feet, the impact fee revenue dropped to about $199 million. One billion cubic feet of gas equals about 180,000 barrels of oil.

"That gap is going to get bigger and bigger" over time, said Michael Wood, a research director with the Pennsylvania Budget and Policy Center, a progressive research group based in Harrisburg. ...

As time goes on, a policy center analysis and a review by The Associated Press came up with the same conclusion: Pennsylvania's effective tax rate on gas production could drop to as low as 1.3 percent over the next few years.

Kenneth Medlock III, a director at the Center for Energy Studies at Rice University, tells the AP that Pennsylvania's shale policy will have to be revisited in the future as production grows and Pennsylvania finds itself lacking the resources for "inspections, environmental and health monitoring, and other costs."

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