By Dennis Roddy
A tax on the extraction of natural gas from the Marcellus Shale, as proposed by Carnegie Mellon University analysts in “Pennsylvania Needs a Severance Tax” (Forum, Jan. 18), works in theory. But the world of political economics does not operate according to theory — it functions as an assortment of trade-offs and changing dynamics amid decisions that are as suited to psychology as economics.
The problems are not in the mathematics. They are in the context. Assuming the revenues generated by a typical well over a given period of time, based on how much more it can earn above the capital cost of drilling, assumes a certain stasis in a moving world.
One of the most movable pieces in this game is the drilling rig itself. There is a finite supply of rigs and they move from field to field in search of the maximum return not only in yields of gas, but in ease of access, cost of labor and regulatory climate.
When former Gov. Tom Corbett refused to impose an extraction tax on the grounds that it would discourage immediate investment, extraction tax advocates argued that the gas was going nowhere and “they’re going to have to drill eventually.”
This is true. But anyone with a memory would recall that Pennsylvania was emerging from the worst recession in our history when the governor was confronted with this issue. Unemployment was near 9 percent. We didn’t need the jobs eventually, we needed them immediately.Read full article