A multi-million dollar tax credit to encourage the use of natural gas in Pennsylvania industry is heading to Democratic Gov. Tom Wolf’s desk, and likely signature, after swiftly passing through the General Assembly this week.
The proposal, a limited version of a bill Wolf vetoed this spring, would provide upwards of $600 million in tax breaks to, at most, four manufacturing facilities that use Pennsylvania-drilled methane gas to produce fertilizer or other products.
On Monday, the Senate amended the credit into a bill, sponsored by Rep. Aaron Kaufer, R-Luzerne, to provide tax relief for volunteer emergency service providers. The amended bill then passed the upper chamber 40-9, followed by a 163-38 vote in the House on Tuesday.
In his March 27 veto message, Wolf said he was “fully supportive” of encouraging natural gas and petrochemical development. But the bill, as written, did not watchdog worker’s wages, Wolf said, and was fiscally unsound without a cap on the credit.
Speaking to the press Tuesday morning, Wolf said he supported the new proposal because of tighter labor protections and a cap on the total benefit.
“This is a better bill,” Wolf said.
The tax credit’s revival was first reported by The PLS Reporter.
The language was pushed by northeastern Pennsylvania lawmakers, such as Kaufer and Sen. John Yudichak, I-Luzerne, who wanted the region to capitalize on plentiful natural gas rich in methane.
It was also backed by trade unions, as well as gas, chemical and manufacturing trades groups, as a shot in the arm for construction and industrial jobs amid the COVID-19 economic malaise.
During floor debate on the bill Monday, Yudichak said the measure will give “this generation of Pennsylvania working families a shot at a good-paying job.”
Incentivizing natural gas use has become an even higher priority amid the pandemic, which has led to a slump in energy prices, and the cancellation of some high profile pipeline projects to transport gas out of Appalachia for export.
But the bill was sternly opposed by environmental advocates and their legislative allies, who said supporters’ math did not include future climate or public health implications, nor the volatility of fossil fuels.
“We cannot talk about jobs and jobs alone, we cannot have only a fraction of this debate,” Rep. Sara Innamorato, D-Allegheny, said. “Our commonwealth has been the victim of the resource curse before.”
The credit passed this week will max out at $26.7 million per year in total, and no more than four plants can claim a credit. The maximum benefit for a single facility is $6.66 million per year, and it will be available from 2024 until 2050. The credit is also transferable.
All told, each project must invest a total of $400 million into construction and create at least 800 temporary or permanent jobs. All construction workers must be paid the prevailing wage.
At least two companies have already expressed interest in utilizing the methane tax credit — an ammonia manufacturer in Clinton County, and a methanol manufacturer in Luzerne County.
The total revenue impact is a significant reduction from the vetoed bill, also from Kaufer, that could have provided up to $22 million in tax credits to a single plant annually, according to a Department of Revenue estimate. There was no limit on the number of plants that could qualify.
The compromise language, negotiated by the Wolf administration and legislative leaders behind closed doors, does include one environmental measure.
A company using the tax credit shall demonstrate the “use of carbon capture and sequestration technology, or similar technologies, at the project facility to the extent it is cost-effective and feasible at the discretion of the qualified taxpayer,” according to the bill text.
Rep. Greg Vitali, D-Delaware, called the provision “window dressing” and “totally toothless” on the House floor.
Attempts by Democrats to add stricter environmental protections through floor amendments, such as the plants reaching net-zero carbon emissions by 2050, were rebuffed.
At a Tuesday press conference, Wolf echoed a plastic industry talking point, arguing that plastic is necessary for energy efficient products, and that it “is absolutely appropriate to encourage this sort of investment.”
But methane is not used to create plastic. In an email, Wolf spokesperson Lyndsay Kensinger, clarified that the governor’s point was that the credit “will enable the construction of facilities that process natural gas” and that Wolf “remains committed to reducing carbon emissions in the commonwealth.”
She added that the proposed Clinton County fertilizer facility already planned to use 60 percent of its carbon emissions in its own manufacturing process, and was “investigating the opportunity to employ carbon capture and storage technology” to sequester 40 percent of its carbon emissions.
Pennsylvania’s is the second largest natural gas producer in the United States. According to a 2015 University City London study, almost half of the world’s natural gas must remain in the ground by 2050 to avoid the worst impacts of climate change.
In a letter to the General Assembly, 53 separate environmental groups across the state, including the Sierra Club, the Clean Air Council, PennEnvironment and PennFuture, called the credit “bad for our health, planet, and the taxpayers of Pennsylvania.”
“If we are going to have any chance to avoid the worst effects of climate change, we must completely halt our reliance on fossil fuels and their emissions by 2050,” the letter said. “Yet these subsidies would remain in place until 2050, all but ensuring that the commonwealth will be propping up and financially supporting climate pollution right up until the very deadline we’re so desperate to meet.”
Environmental groups have instead pushed for the state to spend its time and money supporting renewable energy development in Pennsylvania.
In an email, actor Mark Ruffalo (!) says that "Governor Wolf is acting like a member of the Trump Administration, not the Democratic Governor of Pennsylvania," for agreeing to the methane tax credit. He calls for Wolf to veto it.
— Stephen Caruso (@StephenJ_Caruso) July 14, 2020
The methane tax credit is similar to one passed in 2012 that helped convince Shell to build a plastic refinery in Western Pennsylvania.
When it’s completed in the next few years, the plant will produce millions of tons of plastic pellets each year from fracked natural gas. It is also permitted to release 2.2 million tons of carbon a year.
During the Senate floor debate Monday, Senate Majority Leader Jake Corman, R-Centre, mentioned the buzzing construction site and humming Beaver County economy to argue in favor of providing the tax incentive.
“What would have happened if we didn’t provide that tax credit for a wealthy company? Nothing, absolutely nothing,” Corman said, his voice raised.
“You get food on the table, you don’t care how it got there,” he added.
“It’s not just about putting food on the table, it’s about creating good jobs that don’t make workers sick or our communities unsafe,” retorted Sen. Katie Muth, D-Montgomery, in her own remarks. She was one of the few no votes.
State and local governments nationwide hand out about $50 billion each year in tax credits and grants to attract businesses, according to research by the Michigan-based Upjohn Institute.