Gas drillers' new Wild West

Posted: February 16, 2012

Pennsylvania's long-awaited Marcellus Shale legislation, signed by Gov. Corbett this week, reflects an approach to managing the state's resources that is reminiscent of the Wild West-style energy extraction of the late 19th century.

The state governments of that era sought to minimize limits on energy extraction and assist developers wherever possible. Pennsylvania embodied that model in the decades following Edwin Drake's discovery of oil in Titusville in 1859.

In recent generations, American governments have almost uniformly abandoned that laissez-faire approach. But Pennsylvania's recently passed gas-drilling legislation represents a blast to the past. Three key provisions of the legislation illustrate this.

Taxation: Fourteen of the 15 leading gas-producing states impose taxes on extracted resources. Texas, for example, has long maintained a 7.5 percent tax on natural-gas extraction, and such severance taxes provide nearly a tenth of the state's revenues. Former Alaska Gov. Sarah Palin became a national figure after she secured support for the nation's most aggressive energy severance tax five years ago. Such taxes have long-standing bipartisan support in Texas, Alaska, and most of the other states that produce natural gas.

Surveys confirm that the Keystone State's citizens strongly support the idea, too. But Pennsylvania has established itself as the only major gas-producing state without such a tax. It reaffirmed that unique position with the new law, which gives counties the option of imposing an "impact fee" on gas drillers.

If instituted, these fees would likely produce far less revenue than the most modest severance taxes. Moreover, local governments can adopt fees only through a complex process, and they will invariably encounter pressure to avoid them. And though local officials have to establish the fees, the state would collect the money and keep a large portion of it, further discouraging local participation.

Pennsylvania's leaders are betting that the absence of a tax and the strong disincentives to impose fees will further fuel development of a resource that is already being exploited aggressively around the state and the nation. No other state has placed such a bet, making the commonwealth an intriguing test case.

Land use: Most states allow landowners and local governments to decide where drilling can take place. This reflects a long-standing American preference for minimal government control of private land use, a tradition that has been especially strong in Pennsylvania.

The new Marcellus Shale law breaks new ground here, too. It gives the state's Public Utility Commission unprecedented powers to oversee local land use policies and reverse local decisions.    

Utility commissions were created throughout the nation about a century ago, but they have generally been confined to oversight of electricity-generating firms and other utilities. They have not been seen as land-use or zoning authorities in Pennsylvania or anywhere else.

The new law allows a striking degree of bureaucratic "mission creep," fundamentally expanding the state's power to regulate local land use. Like the law's taxation provision, this one is unique among the states.

Public information: Over the past quarter-century, the federal and state governments have moved toward giving the public more information about environmental risks. Ronald Reagan signed the first major federal legislation requiring such disclosures in 1986. Many states, including Pennsylvania, have built on this model ever since.

The hydraulic fracturing technology being used to extract shale gas has raised environmental concerns. The process injects water, sand, and chemicals far beneath the ground. Most of these materials are then returned to the surface and require safe management.

Many states are exploring ways to expand public access to information about the chemicals used in fracking. Pennsylvania's new law requires that drillers disclose some information about the chemicals they use, but it applies only to certain types of drilling and shields much of the information from the public. The state's leaders clearly view disclosure as a threat to the industry.

In all of these areas, Pennsylvania officials are gambling that policies that vary greatly from national norms will maximize natural-gas yields and investment dollars. The commonwealth's anomalous policies regard energy extraction as generally off limits to taxation, local control, and transparency.

The views of the state's residents contrast markedly with this. Surveys show their opinions are more in line with practices in other states. While Pennsylvanians are optimistic about the potential of gas drilling to drive economic development, the state's approach to governing the industry is out of step with its citizens' preferences, the experiences of other states, and the lessons of Pennsylvania's own history.


Barry G. Rabe is a professor in the Gerald R. Ford School of Public Policy at the University of Michigan. Christopher P. Borick is an associate professor of political science and the director of the Institute of Public Opinion at Muhlenberg College in Allentown.

comments powered by Disqus
|
|
|
|
|