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Proposed Marcellus Shale Taxes Detrimental To Everybody

John Felmy
September 2, 2010
GoErie.com - Guest columnist

America's modern-day petroleum industry started in Pennsylvania in the 1850s by Edwin Drake. That began the first energy revolution and the rest is history
While our oil and natural gas industry has come a long way since then, we still have a ways to go to help secure America's energy future. But with the right policies in place, Pennsylvania, as it once was before, can be at the forefront of helping do just that.

Part of the commonwealth's future economic growth is linked to the oil and natural gas industry's success, particularly its opportunity to develop the vast natural gas reserves stored within the Marcellus Shale formation. Unfortunately, Congress is hoping to pass at least $80 billion in tax increases on the industry -- potentially raising costs on businesses and consumers alike.

In addition, Gov. Ed Rendell recently proposed a tax on the oil industry of more than $500 million. These proposed tax increases could repeat the mistakes of the past when tax increases on the industry reduced oil production, increased oil imports and destroyed good paying jobs.

The reduced energy production would jeopardize our nation's energy and economic security.

The commonwealth could play a major role in energy supply to the northeastern United States. The natural gas resources contained in the Marcellus Shale areas of Pennsylvania could be primed to take the reins of a regional and national economic recovery.

However, this could all go away or not even happen if the industry is faced with increased, punitive taxes. Imposing tax increases on the industry could also be particularly damaging to the commonwealth. Nearly 270,000 Pennsylvania jobs are supported by the oil and natural gas industry and more than $25 billion was pumped into the state's economy in 2007, according to a study by PricewaterhouseCoopers.

Expanding Marcellus Shale operations in New York and Pennsylvania could produce the natural gas equivalent of 87 billion barrels of oil -- enough energy to meet worldwide demand for nearly three years, according to a Penn State study. The study also found that continued development of Pennsylvania's Marcellus Shale operations could generate $18 billion in added value and add 211,000 jobs by 2020, which is enough to cover approximately 40 percent of the state's current unemployed residents.

With Pennsylvanians and other Americans alike struggling to recover from this economic recession and continued high unemployment rates everywhere you look, increasing taxes on an industry that nationally supports more than 9.2 million jobs and contributes more than $1 trillion of the nation's gross domestic product is the last thing the government should be doing.

Such tax increases would ultimately discourage operators from making exploration and production investments in Pennsylvania. These operators could pack up and move to other states offering more attractive incentives -- taking with them thousands of jobs and billions of dollars in economic activity.

Pennsylvania has an opportunity to set our nation on a more stable energy and economic footing. According to the Energy Information Administration, we will consume 14 percent more energy in the next 25 years, half of which will be oil and natural gas. Encouraging further development of Pennsylvania's natural gas resources could help reduce the amount of foreign sources of energy currently imported.

Pennsylvania was the first home of America's original energy revolution--and with the right policies that encourage increased investment in opportunities like the Marcellus Shale, it can also be the second. But it cannot be done with increased taxes on the oil and natural gas industry. Government instead should focus on finding ways to provide more jobs and secure reliable supplies of domestic resources for future generations.

John Felmy, a native Pennsylvanian and a graduate of Pennsylvania State University, is the chief economist of the American Petroleum Institute.