Lessons from Fracking’s Borderlines
Note: This commentary was originally published at The American Spectator.
“What if we were Pennsylvania?”
This question from Windsor, New York town supervisor Carolyn Price is becoming a rallying cry for upstate New Yorkers. For years Windsor has witnessed its neighbors just across the Pennsylvania border enjoy historic job creation, income growth, and economic revitalization thanks to hydrofracturing — or “fracking.”
This drilling technique has increased Pennsylvania’s access to immense natural gas reserves in the Marcellus Shale formation. Windsor sits above the same natural resources, but can only look across state lines with frustration and envy.
In 2014, after a New York state court ruled each municipality should decide whether to allow fracking, two-thirds of 3,000 Windsor residents surveyed said “yes.” Then, just before Christmas 2014, New York Governor Andrew Cuomo suddenly banned fracking statewide. Windsor residents were stunned.
“I walked around the town — into restaurants, into the shopping mall — and spoke to people who were crying,” Price said. “Landowners were especially affected. They felt their property rights had been taken away from them.”
The blow was such that last year, the Upstate New York Towns Association, which Price heads, questioned the benefits of remaining part of New York, considering the fracking ban, high tax rates, and the overall cost of doing business. The alternative? Leave the Empire State to join more fracking-friendly Pennsylvania.
The economic incentives for such a drastic measure are impossible to ignore.
From 2008-2014, wage and salary income in Susquehanna County, Pennsylvania, rose 47 percent, compared with just 4 percent in nearby Delaware County, New York, according to Natural Gas Now. Average wages and salaries rose 41 percent on the Pennsylvania side, but just 14 percent across the border.
Susquehanna County residents’ income from dividends, interest, and rents — heavily influenced by royalty payments from gas wells — doubled their northern neighbors, jumping 44 percent compared to 22 percent.
Calling the ban a property rights issue, Price said, “The landowners should be compensated — which, of course, they haven’t been.”
But while Windsor residents are wise to look south, the Keystone State’s natural gas boom is hitting its own government-inflicted obstacles.
In January, Pennsylvania Governor Tom Wolf proposed onerous methane emissions regulations on the industry, although emissions have already dropped 79 percent since 2005. Next, Wolf proposed a natural gas severance tax of 6.5 percent, which would have been the highest rate among top gas-producing states. That’s on top of the state’s corporate income tax, which is effectively the highest in America. Thankfully, lawmakers rejected this tax, but the governor has pledged to revive a severance tax proposal next year.
Sustained, low natural gas prices have already made it unprofitable for many Pennsylvania drillers to expand production. Piling on taxes and costly regulations only worsens this downturn, leading many gas producers to retrench, shift investment to other gas-producing states, or even shut down production in Pennsylvania entirely.
For example, Oklahoma-based Chesapeake Energy, one of Pennsylvania’s biggest gas producers,announced a halt to in-state drilling operations, citing $15 billion in losses. Now more than ever, Pennsylvania must recognize fracking’s benefits, not penalize producers with new taxes and over-regulation.
The same is true on the national stage. In the run-up to presidential primaries in Pennsylvania and New York, Bernie Sanders praised Gov. Cuomo for his fracking prohibition and promised to extend the ban across the U.S.
The impact of a nationwide ban cannot be overstated: In 2015, fully two-thirds of the nation’s natural gas come from fracked wells, according to the U.S. Energy Information Association. Its research also shows fracking has significantly reduced energy prices, saving the average American nearly $800 compared to 2008.
Fortunately, President Obama recognizes these undeniable benefits, even though he wants increased regulation. “The bottom line is natural gas is creating jobs,” Obama said in 2013. “It’s lowering many families’ heat and power bills.”
New Yorkers shouldn’t have to eye secession to tap the riches beneath their feet. Pennsylvanians shouldn’t have to worry that taxes and regulations will drive away opportunity and raise energy prices. In this election year, both states should remind the nation that prosperity is always vulnerable to the heavy hand of government.
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Gordon Tomb is a senior fellow for the Commonwealth Foundation, Pennsylvania's free market think tank.