A bipartisan group of Pennsylvania state legislators have proposed a law that would require energy developers to pay a 4.9% severance tax on natural gas produced within the commonwealth. As proposed, the law would tax the actual value of any extracted natural gas resources. This new scheme is intended to supplant the current system of impact fees that the state uses to generate revenue from energy development.

The severance tax, which is designed to capitalize on the state’s thriving natural gas sector, could produce as much as $640 million annually in tax revenue for the commonwealth. Pennsylvania is currently the only state situated on a shale formation that does not levy such a tax on oil and gas drilling.

Under the impact fee system, energy developers are charged on a per well basis for fracking operations, and the proceeds are distributed among communities to remediate damages caused by drilling. The proposed law would allocate the same amount of money to affected communities, and use the balance—an estimated $400 million—to fund education, health and human services, and environmental programs in the state.

If enacted, the law would likely raise the costs of fracking operations in the state. Consequently, some oil and gas developers have already come out against the tax, arguing that it will discourage energy companies from investing in the development of the commonwealth’s vast natural gas deposits. Governor Tom Corbett, who championed impact fees when they were instituted in 2012, also opposes the imposition of a severance tax.

Media Coverage Resources:

“PA Legislators Float 4.9% Tax on Natural Gas Drilling”

“GOP Lawmaker Introduces Gas Drilling Tax”

“Bucks Republican Lawmaker Wants Severance Tax on Shale Gas Drilling”