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PennFuture Report - "Unfinished Business"


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A report by Citizens for Pennsylvania's Future criticizing PA Senate Bill 1100 and PA House Bill 1950 which are comprehensive bills adding new rules and regulations for drilling in the Marcellus Shale. PennFuture says the legislation in the bills should be "unbundled" and considered separately.

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PennFuture Report - "Unfinished Business"

  1. 1. Citizens for Pennsylvania’s FutureUNFINISHED BUSINESS:The Pennsylvania Legislature and Marcellus ShaleDevelopment ©2012 Citizens for Pennsylvania’s Future
  2. 2. Citizens for Pennsylvania’s Future 610 N. Third Street Harrisburg, PA 17101 717-214-7920
  3. 3. Unfinished BusinessExecutive SummaryShale gas drilling in the rich, productive Marcellus shale formation has been well underway inPennsylvania for four years. In 2011 the Department of Environmental Protection (DEP) issued 3281permits to gas drillers in 36 counties.Unfortunately, crucial public policies that would regulate and tax the gas drilling industry, protect ourstate parks from gas drilling, prevent excess drilling in our state forests, and restructure the uses ofthe Oil and Gas Lease Fund have stalled. Both Senate Bill 1100 and House Bill 1950 bundle togethercrucial public policy questions that must be addressed separately. By combining consideration ofsafety regulations, a drilling tax, restructuring the oil and gas lease fund and local government controlissues, legislative leaders force their members to accept the lowest common denominator on all theseissues in order to get to a deal. Neither of the bills addresses control of air pollution nor how toprotect our state parks or ensure wise use of royalty windfalls from gas development on state forestland.Under the Pennsylvania Constitution, the Commonwealth has the duty to ensure that its citizens haveaccess to “clean air, pure water, and to the preservation of the natural, scenic, historic and estheticvalues of the environment.” Shale gas drilling presents unprecedented environmental challenges tothe Commonwealth. To carry out its obligations to all Pennsylvanians, the Corbett Administration andthe General Assembly must separately consider and take action to:  Modernize its gas drilling regulations to provide adequate protection to streams, wetlands, forests, and water supplies, and to control air pollution from drilling operations. DEP should immediately begin modernizing many regulations under its current authority in the Oil and Gas Act through its rulemaking process, and the General Assembly should immediately pass legislation where needed;  Enact a fair and reasonable drilling tax that raises substantial revenue to compensate local governments for damage to local infrastructure and the provision of extra government services; invests in environmental conservation and restoration programs; and ensures all Pennsylvanians benefit from gas drilling;  Enact new laws that prevent gas drilling in state parks and prevent further leasing of state forest land; and  Restructure the Oil and Gas Lease Fund to wisely invest its revenues in a legacy fund to ensure the Commonwealth has the financial resources in the future for ongoing conservation of our air, land, and water, especially for the state park and forest systems.
  4. 4. Create updated world-class regulations on drillingPennsylvania’s Oil and Gas Act has two main purposes: first, to permit the development of oil and gasresources, and second, to protect the people, property and natural resources of the Commonwealth.Today, the law is effective in serving only the first of these purposes: in 2011 alone, the DEP issued5,548 permits for oil and gas wells. Meanwhile, many of the law’s protections of public health,drinking water and environmental resources are antiquated and inadequate. The reason is simple:written 27 years ago, the law was not designed to regulate high-volume horizontal hydraulicfracturing and other aspects of gas operations to exploit “unconventional” formations like theMarcellus Shale.In December, both chambers of the General Assembly passed different bills that would improve theAct’s environmental protections. (House and Senate negotiators are currently trying to resolve thedifferences between these versions). Unfortunately, the improvements in this bill do not go farenough. Among other things, the bill’s proposed amounts for reclamation bonds would remain toolow, the Department of Environmental Protection’s (DEP) power to waive setback restrictions toobroad, and well completion disclosure requirements too weak. Worse, the local ordinances section ofHouse Bill 1950 would strip municipalities of any real power to regulate the location of oil and gasoperations through land use ordinances. Such ordinances are municipalities’ most important tool inprotecting the health, safety, and welfare of their citizens and the environmental values secured byArticle I, Section 27 of the Pennsylvania Constitution.We can do better. At a minimum, the local ordinances section of House Bill 1950 must be removed,and the bill’s regulatory provisions strengthened. Additionally, because gas development posesserious threats to air quality that the DEP has so far failed to take seriously, the General Assemblyshould pass new legislation (such as House Bill 2113, recently introduced by Rep. Greg Vitali) thatstrengthens regulation of air pollution from natural gas development sources. And, consistent withthe recommendations of the Governor’s Advisory Commission, the General Assembly should passnew legislation requiring the Department of Health to monitor and assess the health impacts of gasdevelopment activities.Regardless of what happens in the legislature, the Pennsylvania Environmental Quality Board (EQB)should act to improve the DEP’s regulation of Marcellus activities. A year ago, the EQB adopted newregulations for the casing and cementing of gas wells. The EQB should adopt additional regulationsthat (among other things) expand the list of public resources that the DEP must consider whenissuing well permits; require cradle-to-grave tracking of all gas well wastewaters; establish standardsand conditions for above-ground pipelines used to carry wastewater; and require “closed-loop” wastemanagement systems at well sites.
  5. 5. Enact a fair and reasonable drilling fee or taxIt’s been more than four years since deep natural gas drilling began here, yet Pennsylvania is still theonly major gas-producing state that does not impose a tax or fee on the extraction of its natural gas.The impact fee proposals in both SB 1100 and HB 1950 fall woefully short of what Pennsylvaniataxpayers need and deserve.Legislative inaction on a drilling tax has already hurt Pennsylvania taxpayers. If a reasonable,competitive drilling tax had been in place since October of 2009, it would have already generatedalmost $300 million in revenue. This is one tax that the public overwhelmingly supports – pollsconsistently show about 70 percent want a drilling tax.There are four elements that should be included in a drilling tax or impact fee to ensure that allPennsylvania citizens benefit from development of the Marcellus shale and other gas deposits.First and foremost, it should raise revenue sufficient to offset the costs that drilling imposes across thestate.Second, it should provide funding for the Environmental Stewardship Fund, which provides revenuefor Growing Greener. The Environmental Stewardship Fund gets its revenue from a $4.25 per tontipping fee charged to waste haulers at landfills, and was tightly structured by the General Assemblyduring the Schweiker administration. It awards funding to local organizations which identify andprovide matching dollars – at least one dollar for every Environmental Stewardship Fund dollar.But the Environmental Stewardship Fund is running out of money. Much of the tipping fee revenue isnow being diverted to pay off the debt on the Growing Greener II bond that was approved by thevoters in 2005. As planned, the bond money has also all been spent. The expiration of GrowingGreener II and the diversion of the Environmental Stewardship Fund to pay debt threaten to endGrowing Greener.Third, a significant portion of the revenue from a drilling tax or impact fee must be returned tocommunities dealing with the various costs of drilling, including damage to local infrastructure andincreased demand for public safety and other local government services.Fourth, some of the revenue from gas drilling should be allocated to important educational andcommunity programs that benefit all Pennsylvanians.Other gas-producing states like Texas, Louisiana, Alaska, Arkansas, Colorado, Wyoming, and WestVirginia have enacted common sense drilling taxes to benefit taxpayers in their states. Pennsylvaniansdeserve no less.
  6. 6. Prevent Gas Drilling in State ParksPennsylvania’s 120 state parks are precious public treasures. They are integral to our quality oflife and the state’s economic well-being, returning $10 to local economies for every dollar ofstate investment, generating over $818 million in local sales, and more than 10,500 jobs.Sixty one of Pennsylvania’s 120 state parks lie atop the Marcellus formation. While theDepartment of Conservation and Natural Resources (DCNR) doesn’t lease state park land forgas exploration, the Commonwealth doesn’t own the mineral rights beneath about 80 percentof state park land. Under Pennsylvania law, owners of those minerals have the right to developtheir property. While some minor gas and oil exploration has gone on in some parks over time,the advent of Pennsylvania’s Marcellus gas boom have increased the value of those subsurfacerights, and make the threat of drilling in parks immediate – and widespread.Drilling and associated development and heavy traffic will shatter the natural and estheticvalues of state parks. It will damage Pennsylvania’s quality of life, hurt local economies acrossthe state, and damage Pennsylvania’s tourism economy. It will compromise the best-managedstate park system in the nation, ruin the vision of Maurice Goddard, and tarnish Pennsylvania’slegacy as the birthplace of conservation.The gas industry – as good corporate citizens – has so far avoided drilling in state parks. Theyshould continue to do so, especially because horizontal drilling technology could allow mineralrights beneath state parks to be accessed from outside their boundaries, without disturbingthem at all. Well pads can be sited outside park boundaries and still reach the privately-ownedmineral rights beneath them.West Virginia – which owns a little more than half the gas rights under its state parks –prohibits disturbing the surface of state parks for gas drilling. And New York State has recentlyproposed such a prohibition. Pennsylvanians should do the same.PennFuture is calling on drillers and pipeline companies to sign a pledge not to: Develop any deep gas reserves that would disturb the surface of any state park; Participate in the development of any pipeline that would carry gas from deep reserves obtained by surface disturbance of any state park; Knowingly purchase or market gas from deep reserves that is obtained by surface disturbance of any state parkPennFuture is also calling on the General Assembly to enact legislation to: Establish a 500 foot setback for drilling activity from the boundary of a state park and protective study requirements for any proposed drilling activity that would effect a state park; and Enact a significant impact fee if surface disturbance from drilling does occur in a state park. This fee would be paid to DCNR to compensate for loss of enjoyment and damage to the resource should any drilling occur within a state park.
  7. 7. Maintain the State Forest Leasing MoratoriumOne-third of Pennsylvania’s state forest – 700,000 acres – is currently available for natural gasdrilling. Over the next two decades, under current leases, thousands of wells will be drilledthere, and thousands of miles of pipeline and industrial infrastructure will fragment the forestand disrupt sensitive habitats and outdoor recreation opportunities. Public land managers arealready strained to the breaking point in overseeing this activity. Pennsylvania’s environment,quality of life, and huge swaths of our state’s economy are all at grave risk if more state forestland is leased for gas drilling.In 2010, after a two year analysis, the Department of Conservation and Natural Resourcesconcluded that no additional leasing involving surface disturbance can occur withoutsignificantly altering the ecological integrity and wild character of our state forest system.Existing gas development activities on state forest land are already harming outdoor recreationopportunities and our $33 billion tourism economy – the state’s second-largest industry. Fortypercent of the state forest in the Pennsylvania Wilds ecotourism region is already leased for gasdevelopment. More leasing will deepen these problems.More leasing would also have devastating economic consequences for our wood productsindustry, which employs 90,000 Pennsylvanians – 10 percent of the state’s manufacturingworkforce – in 3,000 separate businesses, in every Pennsylvania county. The industry dependsupon the state forest’s certification as sustainably-managed by the Forest Stewardship Council.It provides a market advantage for companies that buy timber harvested from the state forestto produce certified wood products for the rapidly growing green market. The state forestcomprises fully 88 percent of the certified-sustainable forest in the Commonwealth. Thiscertification is at risk if there is additional large scale leasing of the state forest for natural gasdevelopment.The existing moratorium on state forest leasing was put in place in October, 2010 after theHouse of Representatives passed House Bill 2235 by a 157-33 margin, which would haveestablished a three-year moratorium on leasing, but the Senate failed to act.According to two recent statewide polls, 72 percent of Pennsylvanians oppose any furtherleasing of state forest land, and 57 percent oppose ANY drilling in state forest at all.Natural gas prices have fallen below $3 for 1,000 cubic feet, the lowest price in a decade. Froma purely fiscal standpoint, having another state forest lease sale now would ensure that thestate gets a poor return.For all of these reasons, the state forest leasing moratorium should not be lifted or altered.
  8. 8. Invest State Forest Gas Royalties Wisely In a Conservation Trust FundPennsylvania’s history of oil, timber, and coal extraction left in its wake severe, persistent, andcostly environmental consequences. Today, at the dawn of the shale gas era in Pennsylvania, wehave an opportunity to learn from the past and to take a different, historic course.Our State Park and Forest systems benefit Pennsylvania’s economy, as well as our environment,public health, and quality of life. DCNR’s sustainable timber harvests support the state’s forestproducts industry and its 90,000 employees. State parks return almost $10 to local economies forevery state dollar invested and support almost 11,000 local jobs. The public lands and the outdoorrecreation they provide contribute heavily to our $33 billion tourism economy.Pennsylvania must maintain these lands or they will inevitably degrade, and the benefits theyprovide to all of us will be lost. DCNR’s Oil and Gas Lease Fund (OGLF) was created in 1955 to dojust that – support conservation, recreation, and flood control projects from revenue generatedfrom resource development on state-owned land. Over $160 million was deposited in OGLF from1955-2008 and used for conservation purposes. Eight state parks and portions of over 30 otherswere purchased and developed with OGLF money. However, since 2008, $383 million raisedfrom leasing state forest land for shale gas development has been transferred from OGLF to thegeneral fund. Most of the remaining OGLF income has been used by DCNR to partially offset deepgeneral fund budget cuts. This systematic disinvestment in the public lands threatens their veryexistence. If current trends continue, Pennsylvania will spend hundreds of millions of dollars ofMarcellus royalty income for operations and have nothing to show for it when the gas runs outexcept decimated public lands and a deep budgetary hole.The royalty income from state forest land – without leasing one more acre– affords Pennsylvaniathe means and the opportunity to stop the degradation of the public lands, preserve DCNR’sability to manage the public lands, and make sure that we are able to do our Constitutional duty ofconserving these lands for future generations. We can do all of this – AND invest inenvironmental improvements that will grow our economy – by taking a conservative approachand investing – rather than spending – the bulk of state forest royalties, obtaining benefits thatwill continue to flow to all Pennsylvanians long after the flow of gas has ceased.At least 80 percent of royalty income from the state forest should be prudently invested for threepurposes: To supplement DCNR’s operating budget while rebuilding the agency’s General Fund budget, and to restore investment in the state park and forest systems; To fund a pay-as-you go renewal of Growing Greener; To create a Conservation Trust Fund that can be built over time to a point, when royalty income subsides, where annual interest income (without touching the principal) would provide sustainable funding for conservation of the state park and forest systems and to support conservation investments throughout the state.Pennsylvania has a once-in-a-lifetime opportunity to create a lasting conservation legacy. Wemust not squander it.