Governor Wolf passes $2 billion tax package encouraging natural gas production in Pennsylvania

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HARRISBURG — Gov. Tom Wolf signed a $2 billion tax credit package for the hydrogen production, milk processing and biomedical research industries, capping months of quiet negotiations among Democrats and top Republicans in the General Assembly.

Ninety cents of every dollar donated will be used to encourage the use of natural gas, including $1 billion in tax incentives to attract a new “hydrogen hub” to Pennsylvania.

The package will provide $50 million a year in tax relief to a company that commits to producing hydrogen for 20 years and will increase an existing methane tax credit from $30 million to $56.5 million. dollars per year. This last credit, voted in 2020 and due to expire in 2050, aimed to encourage the use of methane to manufacture other products, such as fertilizers or gasoline.

The legislation also provides $15 million per year over eight years for a milk processing project, $10 million per year over 5 years for biomedical research and $10 million per year over 5 years for the production of semi- drivers.

The package was publicly presented as an amendment to a bill just after 3 p.m. on October 26. Less than six hours later, the State House and Senate passed the legislation. There were few public debates and no public hearings.

Despite its rushed passage, top Republican lawmakers said the bill’s language had been negotiated for months and that some of the proposals came out of the state’s spring budget talks.

“While it took a while to come together, I’m glad it finally came together,” State House Speaker Bryan Cutler (R., Lancaster) said after the agreement was approved by the chamber in a late vote.

Spotlight PA first released details of the deal on Oct. 24, sparking a furious wave of lobbying aimed at Wolf and the legislature in the days before the bill passed.

Environmental groups have strongly criticized the package as a waste of money that could instead be spent on ‘proven, inexpensive clean energy technologies’ like solar and wind generation.

“It is botched industrial policy at its worst that will perpetuate Pennsylvania’s reliance on fossil fuels,” Patrick McDonnell, chairman of environmental group PennFuture and former cabinet secretary under Wolf, said in a statement.

Some conservative groups, such as the Commonwealth Foundation for the Free Market, have also spoken out against the proposal.

“We support lower tax rates for all businesses and oppose subsidies for politically selected persons,” said the foundation’s vice president, Stephen Bloom.

But the proposal also had the backing of politically powerful construction unions. In an Oct. 25 letter, Robert Bair, president of the Pennsylvania State Building & Construction Trades Council, urged lawmakers to move forward with the proposal without any changes.

The package “has been carefully and thoughtfully designed to support several major construction projects in the state,” the letter said without providing details.

The final wording requires a company to pay construction workers on any project that qualifies for a tax credit on prevailing wages. However, no similar protection exists in law for workers who are given permanent jobs at completed facilities.

The council did not respond to a request for comment.

Who supported, opposed the proposal

In the end, the supporters of the package prevailed. The proposal passed the State Senate 41-8, then the State House sent it to Wolf’s office in a 139-59 vote. Lawmakers from both major parties were among the bill’s supporters and opponents.

The latter argued that the bill bowed to corporate interests and that the legislature had rushed its passage.

Among the lawmakers who voted “no” was GOP gubernatorial candidate State Sen. Doug Mastriano (R., Franklin). Neither his state Senate office nor his campaign responded to requests for comment.

State Rep. Austin Davis (D., Allegheny), a candidate for lieutenant governor who will appear alongside Democratic nominee Josh Shapiro in the Nov. 8 ballot, voted in favor of the package.

During the floor debate, State Rep. Eric Nelson (R., Westmoreland) said lawmakers who voted against the deal represent “two extreme sides” that oppose economic opportunity for Pennsylvania.

“If we don’t engage, we will lose,” Nelson said. “It’s hard to support a tax credit, but we have to.”

But David Passmore, a retired Penn State professor of applied economics, told Spotlight PA that economic research has found companies often know exactly where they want to go before they seek out a single tax incentive.

He also noted that having a business physically in Pennsylvania, rather than in a neighboring state, may not be as economically important as some lawmakers claim.

He pointed to Shell’s near-complete cracker plant in Beaver County, which will turn natural gas into plastic. Former Gov. Tom Corbett, a Republican, and the General Assembly provided the company with $1.65 billion in tax incentives to set up shop in Pennsylvania.

But even if the plant had been built just across the border in West Virginia, workers from Pennsylvania would likely still have been hired, Passmore argued. Also, he added, drilling gas from Pennsylvania would likely be purchased to fuel his furnace.

“Every time I see grants and credits come up, they talk about opportunity costs,” he said, “and that funding will have to come from somewhere.”

Potential climate impact

Progressive lawmakers who voted against the bill argued that it would disrupt state climate goals by encouraging natural gas drilling.

“We have a huge opportunity to transform our energy system and create millions of well-paying jobs and put our state on a sustainable path,” said Sen. Nikil Saval (D., Philadelphia). “This legislation takes us in the opposite direction.”

Environmentalists said the bill should have, at a minimum, expanded or created programs to encourage renewable energy, such as wind and solar.

But Cutler argued that those industries use rare-earth materials that aren’t as common in Pennsylvania and must be imported from out of state, if not the country.

The package, Cutler added, “is about focusing on Pennsylvania’s strengths and making sure those opportunities are there and not supporting the economies of countries that may not always have our best interests. .. in mind”.

The proposed hydrogen credit bolsters funding included in the 2021 federal infrastructure bill, which allocated $7 billion in federal assistance to develop at least six such centers across the country.

Interested companies must send the federal government a first draft of their plan by November 7 and submit a full application by April 2023.

In a letter advising lawmakers he would sign the bill, Wolf said “partners in Pennsylvania are currently preparing applications…to pursue this opportunity.”

A source close to the negotiations, who requested anonymity to discuss private discussions, said the intended recipient of the credit for the hydrogen hub is Pittsburgh-based US Steel.

The company announced in August plans to pursue a hydrogen hub in the “Ohio, West Virginia and Pennsylvania region” in conjunction with Shell and a third company.

The company still has four steel plants in Pennsylvania – including one in Clairton that has been fined for pollution in recent years – and experts have noted that one of the best uses for hydrogen could be to decarbonise industries. heavy as steel.

In his letter, Wolf emphasized the requirement for hydrogen credit recipients to follow federal carbon capture guidelines to ensure that hydrogen produced from fractured natural gas would be carbon neutral and would not contribute not to the state’s more than 200 million tons of annual greenhouse gas emissions.

“But for these stringent environmental protection requirements, I would not sign this legislation,” Wolf said in a statement.

Environmentalists noted that these federal standards, set by the Department of Energy, could be relaxed by the next administration.

Given Wolf’s focus on reducing carbon pollution through an initiative to limit emissions from power plants, “it’s disappointing to see more fossil fuel subsidies as part of his legacy then that he’s stepping down,” Katie Blume, policy and legislative director of Conservation Voters of Pennsylvania, told Spotlight PA.

Other intended recipients of credit expansion, the source says, include Houston-based Nacero, which last year announced plans to build a $6 billion plant converting natural gas to gasoline in the north. -eastern Pennsylvania. The company has yet to apply for environmental permits, according to the state Department of Environmental Protection.

The intended end recipient is Chicago-based Fairlife, a dairy company and Coca-Cola subsidiary that has yet to announce expansion plans. But the source said it is hoped a new processing plant will use milk produced in Pennsylvania.

None of the companies responded to requests for comment. To qualify for the credits, all would have to meet specific investment and employment requirements.

The credits are transferable, which means that if a company has no tax liability, it can sell the credits to another company. The controversial state film tax credit is similarly constructed and allows companies unrelated to film and television production to lower their tax bills.

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