Pennsylvania has a long legacy of natural gas drilling. One unfortunate aspect of the legacy is a host of abandoned shallow gas wells throughout the state, some of which likely leak gases or liquids harmful to animals, plants, or people. This raises the question of the fate of the more than 10,000 unconventional natural gas wells that have been drilled in the state over the last decade, with more drilled each day.
Pennsylvania, like many other states, uses a bonding system to motivate companies to properly reclaim wells. Before the state grants a permit for a well, it requires that the company operating the well commits funds that, if the well is eventually abandoned, would be forfeited and used by the state for reclamation. Bond amounts vary in a tiered structure based on the quantity of wells operated by a company (see table). As an example, a company with 55 wells must pay a flat fee of $290,000 to cover the first 50 wells and an additional $10,000 for each of the last 5 wells, leading to a total of $340,000 in bonds. Companies operating many wells benefit from caps on total bond amounts: a company operating up to 150 wells would never pay any more than $430,000; a company operating more than 150 wells would never pay more than $600,000.
The National Oceanic and Atmospheric Administration recently announced that 2016 was the hottest year in recorded temperature history, which dates back to 1880. Decades of rising greenhouse gas concentrations and temperatures have led many to call for policies to reduce carbon emissions, including a tax on carbon. A recent proposal for a carbon-related tax came from former President Obama who, in February of 2016, proposed a $10 per barrel tax on oil.
Does the U.S. already have a tax of this sort? Yes, in a crude way. Most U.S. state governments tax oil and gas production occurring within their boundaries, which is in addition to general state taxes such as corporate income taxes or sales taxes. Over the years 2004-2013, state governments taxed the typical dollar of oil and gas drawn from the ground at a rate of 4.2 percent. The rate translates into $2.6 per barrel or about $5.5 per ton of carbon. To put the last number in perspective, the price of carbon in the European Union’s Emissions Trading System has ranged from $4 to $6 per ton over most of 2016 and January of 2017.
It is hard to grasp how fast you are moving when reading a book sitting in a jet cruising at 30,000 feet. Doing so requires attention, the fixing of points, and measurement. A look at energy data and news shows that U.S. energy production and policy are changing rapidly, with growing relevance.
Consider the changes in U.S. energy production in the last decade. From January of 2006 to January of 2016, natural gas production increased by 43 percent and oil production increased by 82 percent (see Figure 1). By contrast, coal production fell by one third. Because the U.S. was a leading global producer of all three commodities in 2006, the percentage changes represent massive economic gains (or losses). Pennsylvania’s economy in particular is intertwined with the trends in natural gas and coal. The state has long been a major coal producer and has therefore felt the effects of declining production. At the same time, the state that has contributed more to the growth in national natural gas production than any other state.
The GSPIA Energy and Environment blog provides commentary and analysis that furthers understanding of E&E issues of public interest.
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