‘We need to make a profit first’: What’s at stake in proposed gas tax credit for Pa.

By: - March 3, 2020 4:32 pm

For chemical industry executive Michel Goldschneider, the decision on whether to build a new plant in the Keystone State is all about the bottom line.

“I don’t know if you’ve ever worked in the capitalist system, but it’s about dollars and cents,” Goldschneider, the CEO of Connecticut-based Elis Energy told the Capital-Star recently.

Goldschneider’s company is looking to build its first plant to produce methanol, an alternative fuel that can be burned to power cars and ships. 

Breaking ground in the Keystone States already has its perks. The state is home to an abundant supply of natural gas and it’s close to the markets for methanol. There’s also a family connection. Goldschneider’s wife and business partner is a Hazleton native.

But the final decision could come down to the success or failure of a proposed $22 million annual tax credit now pending before the General Assembly.

Goldschneider’s decision is the scenario lawmakers imagined when they passed the credit last month. Part of a natural gas-based energy plan from House Republicans, it has garnered bipartisan support, buoyed by the backing of Pennsylvania’s construction trade unions. 

The proposal sponsored by Rep. Aaron Kaufer, R-Luzerne, passed the House and Senate with a veto-proof majority Feb. 4. 

But Gov. Tom Wolf has promised to veto the bill, saying incentives should be considered on a case-by-case basis.

The veto promise has drawn stern words from state trade unions.

“Let’s call a veto … what it really is — an attack on Pennsylvania’s blue-collar workers,” Tony Seiwell, Business Manager of the Eastern Pennsylvania Laborers’ District Council, said in a press release last month.

Republicans in the General Assembly have meanwhile held off from sending the bill to Wolf’s desk, which could buy time to garner support for a potential override.

The pitch for Pennsylvania

While Goldschneider said Pennsylvania is part of his pitch to potential investors, stiff competition with neighbors Ohio and West Virginia, and the need to show clear returns means the tax credit is a necessity.

“We have nothing against paying taxes, but we need to make profit first,” Goldscneider said.

He did not give specifics of competing deals, but at least one neighboring legislature is taking action. The West Virginia House advanced its own petrochemical manufacturing tax credit last week.

Companies can only receive the tax credit if they invest $450 million and employ at least 800 people in constructing and running a plant that uses Pennsylvania-produced methane. 

The company also must make a “good faith effort” to employ local workers and pay them the prevailing wage. The project must create permanent jobs, but there is no set number in exchange for the credit.

Goldschneider said the project  — which he envisions as three separate plants in the same location — would employ between 800 to 1000 people. Once the project is complete, Elis would employ 70 to 100 permanent workers.

The finished plant, Goldschneider said, would produce 450,000 tons of methanol a year as a clean fuel for maritime shipping.

Clearing the air

Goldschneider said that Elis has the environment in mind and “would never invest in a plant that would increase” carbon emissions. 

He pointed to an environmental report prepared for the company. He did not share details, citing confidentiality concerns.

Container ships, which Elis would create fuel for, currently release as much as 2.6 percent of global greenhouse gas emissions, according to the International Council on Clean Transportation. 

If methanol fuel will be cleaner is hard to say. Research suggests air pollution could decrease, but there are no carbon gains from burning methanol made from natural gas.

As for the plant itself, every ton of methanol produced could release between one ton to a half a ton of carbon, according to the Methanol Institute, an industry group.

A company spokesperson added in an email that carbon capture technology on the facility itself was “possible” for their facility but specifics would have to be taken up by engineers.

Robert Routh, an attorney at the Philadelphia-based Clean Air Council, said he expected that the demand from petrochemical facilities would mean more natural gas production and more carbon emissions.

Producing and transporting the natural gas that would feed Elis’ proposed facility released 11.6 million tons of carbon in 2016 — 5 percent of the state’s total emissions — according to state data. The total has varied little since 2012.

Environmentalists have also raised concerns that the plant could impact air quality.

Incentivizing success

Lawmakers have championed the tax credit as a way to attract new construction and manufacturing jobs to struggling parts of the state, such as the northeast.

A similar proposal was passed to entice Shell to build a plastic manufacturing facility northwest of Pittsburgh.

But the efficacy of tax credits overall are hard to judge, said Tim Bartik, of the Michigan-based Upjohn Institute, an employment policy think-tank.

Business incentives are the deciding factor in only about 25 percent of projects, Bartik said. That low success rate doesn’t mean they are a bad idea, Bartik added. For example, a successful tax credit targeting a struggling region that employs local workers could still be worth the cost.

But politicians should also be cautious when claiming success, Bartik added. The credit will have an opportunity cost, whether it’s raised taxes or less revenue down the line, which could have their own negative economic effect.

According to Bartik’s research, state and local governments hand out about $50 billion each year in tax credits and grants to attract business.

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Stephen Caruso
Stephen Caruso

Stephen Caruso is a former senior reporter with Pennsylvania Capital-Star. Before working with the Capital-Star he covered Pennsylvania state government for The PLS Reporter.