Penn State Study Reveals Devastating Effects of Gas Severance Tax

A recent study conducted by researchers at Penn State revealed the negative effects of Gov. Rendell’s proposed severance tax on natural gas extraction in Pennsylvania. The northern tier of the state, home to the Marcellus shale formation, is said to yield over 500 trillion cubic feet of natural gas, enough to put Pennsylvania near the forefront of our nation’s gas production.

The study finds that the with the severance tax, “drilling activity would decline by more than 30 percent and result in an estimated $880 million net loss in the present value of tax revenue between now and 2020”.  The authors conclude that the severance tax (at this stage in development) would inhibit the growth of the natural gas industry in the Marcellus shale, which they estimate could generate 175,000 jobs in 10 years.

PennFuture, a climate change alarmist group, criticized what they described as “fuzzy logic” and “even fuzzier math” in the Penn State study.  Unfortunately PennFuture seems to have not read the study, alleging that the study’s main finding is “that a severance tax will drive up the cost of the gas, causing Pennsylvania drillers to lose customers to cheaper gas providers”.  That is of course, not the main finding of the study, or a finding at all. 

Rather the finding is that the tax would increase the cost to companies that drill, a cost they can’t pass on to costumers, as natural gas prices are set by international markets, and thus they would be less likely to invest in drilling in Pennsylvania.   It should come as no surprise, however, to see PennFuture defending a new tax, part of which is supposed to go to “combat climate change” – in other words, would help fund PennFuture.