The Great Energy Debate: Pa. Weighs its Carbon Future

What has made Pennsylvania $630 million richer? 

That’s the revenue it has generated in the past three years through so-called “impact fees,” or flat charges on new unconventional oil and gas wells – the hydraulic fracturing, or fracking, and horizontal drilling projects that have unleashed the U.S. energy boom of the past decade.

Sixty percent of that money from fracking and horizontal drilling – $378 million – has gone toward the local towns and counties that host the wells, helping fund schools and renovate buildings. The rest has been divvied up among the assorted state agencies that oversee drilling and environmental protection.

“These dollars are helping local communities all across Pennsylvania meet their critical obligations to their constituents without the need to raise local taxes,” outgoing Gov. Tom Corbett, a Republican, said in a statement June 3.

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But there’s also another figure, one that looms over the first: $1.3 billion.

That’s the amount of money experts say Pennsylvania could have gained if, rather than charging an impact fee, it’d opted for the more common severance tax: a charge on the amount of oil and gas that’s actually extracted over the life of the well, as opposed to a flat fee.

In West Virginia, one of the most industry-friendly states in the nation, legislators implemented a 5 percent tax on oil, gas, coal, sand, gravel, sandstone and limestone extraction. Pennsylvania, opting not to charge a similar fee, left at least another $630 million on the table – even as well production soared and industry profits skyrocketed.

As gas production doubled from 2011 to 2012, for example, revenue from the impact fee actually fell, from $204 million to $202.5 million.

“A 5 percent severance tax would actually make the industry stronger,” Democrat Tom Wolf, who unseated Corbett in the state’s Nov. 4 gubernatorial election, told NPR in October, pledging to use some of the tax’s revenue to build badly needed infrastructure. “I think it would do wonderful things for Pennsylvania and my goal would be to overall to make this industry work for us.”

The debate over the severance tax is just one of many swirling in the Pennsylvania Statehouse over energy – not merely its production, but its consumption, too. As oil and gas producers fight with solar companies, wind farms, coal mines and nuclear plants for land and limited tax subsidies, Pennsylvania has become a veritable microcosm of the energy debate playing out nationwide, experts say.

“Pennsylvania is one of the largest electricity exporters in the country,” says Jackson Morris, director of eastern energy for the Natural Resources Defense Council in Pennsylvania. “When you have that combination of actors, it’s not surprising at all that energy is an important policy discussion in Pennsylvania with vested interests that are not always aligned.”

Pennsylvania is home to 192 power plants, the Energy Information Administration says, the eighth most in the nation. In August, nuclear plants generated the most power – about 37 percent of the state’s energy mix – followed by coal (32 percent), natural gas (28 percent), renewables (2 percent) and hydropower (0.8 percent).

As in other states, though, that landscape is shifting, from nuclear and coal to comparatively cheaper natural gas and, eventually, renewables such as solar and wind.

“Nuclear is being very much financially threatened with low electricity prices,” says Andrew Huemmler, a senior lecturer at the University of Pennsylvania School of Engineering and Applied Sciences. “Many coal plants are about to shut down. The market is driving them to one thing, and that’s natural gas.”

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And then there's solar and wind. On Oct. 27, a Deutsche Bank report found that solar will be as cheap or cheaper than the conventional grid in all states but three by 2016. Wind's costs are also dropping substantially, a Nov. 23 New York Times analysis found. And then there’s the Environmental Protection Agency’s proposed Clean Power Plan, which would be the first federal regulation aimed at reducing carbon dioxide emissions from existing power plants.

The rule sets targets for each state, based on its energy mix: Pennsylvania would be required to bring its emissions 31 percent below their 2012 levels by 2030 – a goal that was established because of the state’s embrace of natural gas, as well as its potential for wind and solar. Compared to other states, Pennsylvania's emissions target is roughly the median: 10 other states face 31 percent to 35 percent reductions, while 19 others have stricter targets, and another 19 have looser ones. (Vermont, which generates all its electricity from nuclear, hydropower and renewables, has already achieved near-zero emissions from its power sector.)

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“This is one of the things that’s really driving this,” Huemmler says. Between the switch to gas and the move to distributed generation from wind and solar, "The grid is feeling the tension, the financial pinch. It's really happening."

What happens in the coming year, especially after Governor-Elect Wolf takes office, remains to be seen – most notably any switch from an impact fee to a severance tax. But, as Matt Watson, national director of state programs at the Environmental Defense Funds, describes, "You’ve got some history with oil and gas, and then the frontier of new unconventional oil and gas, a split between urban and rural – so what you see there is, I think, a pretty dynamic fabric, social fabric and political fabric, that is really pretty reflective of how the U.S. as a whole looks."