No Fracking Way! PA: Exemption without Taxation in the “Saudi Arabia of Natural Gas”

Part 1

Part 2

Part 1

Tom Corbett, Governor-Elect for Pennsylvania: It’s now time to come together, to tell the rest of the world — to tell the rest of the world Pennsylvania is open for business.

Jesse Freeston: And that business is natural gas.  Pennsylvania’s race was unique in that it was fought primarily over the question of what to do with the massive Marcellus Shale natural gas deposit.  Corbett ran on the platform that the industry needs to be opened immediately and without taxation.

Tom Corbett: We are the Saudi Arabia of natural gas if we develop it and develop it now.

Jesse Freeston: If current estimates are correct, then the Saudi Arabia example may not be far off.  Predictions are putting the amount of shale gas in the Marcellus in the trillions of cubic feet.  Said another way, these estimates suggest that the entire energy needs of the United States could be met from anywhere from 2 to 30 years by the Marcellus Shale gas alone, with potential revenues reaching into the trillions of dollars, and all of this right in the middle of some of the world’s most energy-hungry cities.  On the day after the midterm elections, Pittsburgh played host to the year’s largest conference of companies looking to develop the Marcellus Shale.  It was organized by Hart Energy Publishing.  The Real News spoke to Leslie Haines, editor-in-chief of their flagship publication, Oil and Gas Investor.

Leslie Haines: The USGS, the geological survey, is now saying this could be the second largest natural gas field in the world.  The only larger ones are in the Middle East or in Russia.  So it’s extremely exciting for the US oil and gas industry, but it’s going to be important for the consumer, too, because natural gas burns way cleaner than coal or oil.  We have 100 years’ supply.

Jesse Freeston: The conference featured hundreds of the world’s leading extraction companies, like Halliburton and Shell.  The keynote speaker was Karl Rove, former senior adviser to President George W. Bush.  Hundreds of people marched to the conference center to show their opposition to the drilling, based on its effects on the environment and human health.  The process for getting the gas is known as hydraulic fracturing, or fracking for short.  It involves drilling anywhere from 3 to 11,000 feet below the earth’s surface, setting off explosives, then pumping millions of gallons of water mixed with sand and chemicals until the pressure fractures the shale rock below, releasing the gas into the well.

Josh Fox, Filmmaker: We’re going to leave a message for the next governor.  I have his phone number.  Do you want to leave him a message?

Jesse Freeston: Firing up the crowd was filmmaker Josh Fox, a Pennsylvanian native who turned down a lucrative deal to lease his mineral rights for drilling.  He then went on to make the documentary Gasland, which won the 2010 Special Jury Prize at the Sundance Film Festival.  Fox’s film documents the effects of fracking on families across the United States, where the process is already taking place. . . .

Josh Fox: Hi.  How are you?  This is Josh Fox, and I’m with citizens from the city of Pittsburgh.  We’d like to leave a message for Tom Corbett.  We’d like to say, we are going to ban hydraulic fracturing in the city of Pittsburgh and we are going to ban it in Pennsylvania.

Jesse Freeston: On the other side of the state, in Harrisburg, organizers with No Fracking Way! PA set up a lemonade stand offering passersby free lemonade made with tap water from the town of Dimock, where fracking has already begun.

Ben Ketchum, Organizer, No Fracking Way! PA: There was the Bush-Cheney energy task force that gathered the industry together to decide what America’s energy policy was going to be over the next decade or so, and in that policy was written in an exemption now known as the Halliburton loophole, which exempts frack drilling operations from the Clean Air Act, the Clean Water Act, the Safe Drinking Water Act, the Superfund law.  And that’s really given the industry the go-ahead to be able to decimate these areas.

Jesse Freeston: Exempt from these regulations, fracking companies aren’t required to reveal to regulators the chemicals they’re using.  But tap water in communities like Dimock have been found to contain chemicals like benzene and toluene, which are believed to cause cancer, brain damage, and other ailments.  Haines says that no connection has been proven between drilling and contamination.

Leslie Haines: The fracturing of the wells to create the flow of gas up to the surface, we’ve been doing that as an industry for 60 years.  Over 1 million wells in the US have been fracked with no incidents, no proven contamination of drinking water.

Josh Fox: The Pennsylvania Department of Environmental Protection just ordered a $12 million pipeline to replace water for citizens of Dimock whose water had been contaminated by gas drills.  They proved that.  They have proven that that gas is from Cabot Oil & Gas.  And so the industry will continue to come out and say there’s not a single proven case and we didn’t do anything wrong, but this is in contradiction to the science.

Ron Gulla, Pennsylvania Farmer Opposed to Fracking: I see the kids that have rashes, the kids that are having diarrhea, the kids that are throwing up.  I’ve seen the cattle that have died.  I’ve seen all this.  It’s heartbreaking.  And they want to deny it.  You cannot be exempt from clean air, clean water, safe drinking water, the right to know, and the Superfund act and be a benign process.  No one knew that when we signed the leases.  We signed them in ’02.  Everything got passed in ’05.  They were preparing themselves.

Josh Fox: Without the exemptions, they would be out of business.  They cannot do this without passing along the costs to you, to the taxpayers — in healthcare bills, in water bills, in cleanup bills.

Jesse Freeston: In his keynote address to the drilling conference, Karl Rove stressed that Republican electoral victories would assure that regulation won’t get in the way of the industry’s development.  Water regulations like the Clean Water Act and Safe Drinking Water Act came into being in the early 1970s during a period of high environmental activism and outrage around the 1969 Cuyahoga River fire in Cleveland.  Today in some natural gas communities exempt from this regulation, the water is on fire once again. . . .

Josh Fox: There’s one clip that’s famous, but we have several instances of that going on in the film.  It’s something that I heard about all across the nation.  People were watching the film and then looking around and saying, oh, we’ve got gas wells in our neighborhood.  Lo and behold, they can light their water on fire.  And they’re living with those emissions coming out of their sinks.

Jesse Freeston: Fox’s film has been the central education tool for opponents of drilling in Pennsylvania, with public screenings taking place around the state, screenings that drew the attention of Pennsylvania Homeland Security.

Josh Fox: Let me just ask, first of all, is anybody here from Homeland Security?

Jesse Freeston: According to an internal document leaked to the press, the Pennsylvania government was monitoring drilling opponents, antiwar groups, people opposing deportation of migrant workers, and other activist organizations.  The document included a report on when and where Gasland was being screened.  Outgoing Democratic governor and fracking supporter Ed Rendell said he had been unaware of the program and would not renew the $125,000 intelligence contract.  Since then, further documents have shown that Homeland Security was actively recruiting a network of spies and sharing all reports of the list of 731 contacts, including numerous private corporations.  Pennsylvania Homeland Security chief James Powers emailed the report to private gas drilling companies themselves, writing, quote, “We want to continue providing this support to the Marcellus Shale formation natural gas stakeholders while not feeding those groups fomenting dissent against those same companies.”  Powers has since resigned.

Josh Fox: Even though the story has kind of left the media, don’t forget that it’s people like you who came out to see Gasland, who came to protest, who were labeled terrorists, environmental extremists prone to criminal activity.

Jesse Freeston: A key theme of Fox’s film is the abandonment that victims of gas drilling experience when they have no government institution to turn to for help. . . .

“No one should ever have to go through what I went through, and call them crying, begging for help, and be told no.  And that’s where the system is broken” (Gasland).

Jesse Freeston: Proponents say natural gas is a clean path to energy independence.  The most visible voice has been billionaire T. Boone Pickens.  The former oil company executive has been gathering powerful allies, from Avatar director James Cameron to CNN founder Ted Turner, the largest private landowner in the United States.

T. Boone Pickens, Founder, You’ve got to go all-American and get off the oil you’re buying from the enemy.

Josh Fox: This is not what T. Boone Pickens says, America’s energy independence; this is more dependence on T. Boone Pickens.

Jesse Freeston: Fox says that it’s a question of priorities.

Josh Fox: We want to spend $700 billion on the transition to natural gas which will last 50 years, $350 billion for power plants, $350 billion for pipelines that they’re going to [inaudible] main through everybody’s front yard.  Do you want that?  Or should we start working on clean, renewable energy right now that will last forever?

Jesse Freeston: Pro-drilling Republicans have the governorship and control of both the federal and Pennsylvania houses.  A few Democrats have sponsored a law to bring fracking under existing regulations, but during his post-election press conference, President Obama twice highlighted natural gas drilling as a point of unity with the Republicans.

President Barack Obama: So let’s find those areas where we can agree.  We’ve got, I think, broad agreement that we’ve got terrific natural gas resources in this country.  Are we doing everything we can to develop those?

Jesse Freeston: With little political representation, opponents of drilling in Pennsylvania are facing slim chances of stopping the gas rush through the legislative process.

Josh Fox: Because this is going to be very, very difficult, you need to get ready to do this quite a bit.  You need to also probably get ready to do civil disobedience.

Jesse Freeston: The amount of drilling permits and leases in Pennsylvania are exploding as we speak, and it appears that the boom is just around the corner. . . .

Part 2

Jesse Freeston: Despite projected revenues reaching into the trillions of dollars, governor-elect Tom Corbett has pledged that Pennsylvania will be the only state not to tax the extraction of the resource.

Tom Corbett: A tax right now I don’t believe is appropriate.  In fact, I don’t see a tax in this.  These companies right now are already paying taxes, and the money that they create and they’re spending in Pennsylvania turns into taxes through income, through royalty payments, and many other ways.

Jesse Freeston: We spoke to Leslie Haines, editor-in-chief of Oil and Gas Investor, the industry’s premier trade magazine.

Leslie Haines: We’d rather know what the taxes are going to be, going forward, than to keep fighting over it.  Once you know where you stand and what the taxes are going to be, then you can plan your business.  If they do too much of a tax, people will go back to Texas or they’ll go to Colorado and Wyoming or they’ll go to Alberta, wherever.

Jesse Freeston: Governor-elect Corbett said any tax would hurt the state.

Tom Corbett: I believe we would chase away these companies at this point in time.

Jesse Freeston: Looking at the industry’s own words, it’s hard to believe that Corbett is right.  The most recent edition of Oil and Gas Investor includes a feature on drilling in the Marcellus.  The article polls seven company executives and analysts, all seven of which extol the profitability of the Marcellus, despite the fact that gas prices are at record lows, sitting below $4, when they went as high as $13 just two years ago.  Companies are moving into Pennsylvania at rapid pace.  Insiders are quoted as calling it extremely good geology, the most economical and the lowest cost source of natural gas in North America.  One analyst suggested companies could make a profit here if the price was only $2.50.  Meanwhile, the price of gas is expected to rise very soon, and no tax will be levied in Pennsylvania.  Freelance journalist Jean Friedman-Rudovsky is a Pennsylvanian native who now resides in Bolivia.  She thinks that Pennsylvanians ought to take note of Bolivia’s gas experience.

Jean Friedman-Rudovsky: At least in Bolivia that logic hasn’t really panned out.  Bolivia has the second-largest natural gas reserves in all of South America, and in 2006, President Evo Morales nationalized those gas reserves.  And what that in fact meant was that he started heavily taxing the foreign companies and foreign governments that were extracting natural gas from here in Bolivia.  Before 2006, Bolivia was receiving about 20 percent of the profits made off of its own natural gas reserves through royalties and taxes.  After 2006, they started making 80 percent.  So, literally it was inversed: the companies before were making 80 percent, and now the Bolivian state maintains 80 percent of the gas royalties.  And the most important thing which goes against the logic of this candidate is that none of the companies left Bolivia, simply because it was a resource that they still needed, so they had to give in to whatever Bolivia was demanding.  So one could say that these companies stayed because, well, they had existing contracts, so they may as well just play it out, and certainly some opposition here in Bolivia says that investment has gone down and companies aren’t investing as much as they have before, when in fact they do continue to invest.  Bolivia’s natural gas sector is growing, and it still is the basis for Bolivia’s economy, and it looks like it’s going to be for many years to come, even though the taxes are so high.

Jesse Freeston: Tax formulas in the United States don’t normally target profits, usually taxing the gas extracted at somewhere around 5 percent.  But if stability is what companies are looking for, then profits are the natural place to apply a tax, so there’s no reason to fear being taxed into a loss.

Jesse Freeston: Is there an argument against a tax on the profits?

Leslie Haines: No, I don’t think so.  I think they’d accept that, if they knew going forward what it was and if they felt it was reasonable.

Jean Friedman-Rudovsky: There are clearly a lot of differences between Bolivia and Pennsylvania, and so you can’t necessarily say that just because it worked for Bolivia it’s going to work in Pennsylvania.  But Bolivia has enormous infrastructure challenges for it to be able to get its gas out to Brazil and to Argentina, who are its main buyers.  There are extensive pipelines, and it’s something that’s a big challenge.  Now, one of the advantages that Pennsylvania has over Bolivia is that they’re talking about producing energy for that region right there.  I would say states that have the Marcellus Shale are at an extreme advantage.  Companies now want to get to this gas.  And it seems like, at least based on examples from other countries, they would be able to tax, the demand would still be there, and the companies would have to say, okay, we’re still going to do this, because this is a resource that we want.  Bolivia now is able to use that money to go toward social programs.  They give stipends to school-aged children to be able to buy books and other school materials.  They give stipends to women who are pregnant so that they’re able to have prenatal care.  It’s been able to really generate a whole basis of social welfare programs that otherwise Bolivia would be without.

Jesse Freeston: But in Pennsylvania, some have suggested that the gas companies have influenced the tax debate in their favor.  The gas industry is highly organized in the state.  Halliburton, Hess, Chesapeake, and roughly 100 other interested corporations formed the Marcellus Shale Coalition in 2008 to promote the industry’s interests.

Jan Jarrett, President and CEO, Citizens for Pennsylvania’s Future: The gas drillers have sprinkled about $3 million around Pennsylvania’s political landscape in campaign contributions.  Pennsylvania is a state that does not have any limits on campaign contributions. . . .  I think the latest numbers are that Tom Corbett received about $800,000 from the gas drilling industry, but they’ve also contributed to the Democratic candidate, Dan Onorato — not as much, but they’ve also given him some substantial contributions.

Jesse Freeston: Gas money has made its way into the universities as well.  Corbett’s assertion that taxation would drive away companies was bolstered by a 2009 study from Penn State University advising that drilling activity would decline by 30 percent if the state imposed even a slight tax like that seen in neighboring West Virginia.  It was later disclosed that the study was funded by the Marcellus Shale Coalition.  Sharon Ward is the director of the Pennsylvania Budget and Policy Center.

Sharon Ward: Actually, Penn State has disavowed that study.  They have asked that the industry no longer call it the Penn State study but instead call it the Marcellus Shale study.

Jesse Freeston: The report was updated in May 2010, this time with the disclaimer that it was indeed funded by the Marcellus Shale Coalition.  The updated study estimated that more than 100,000 jobs would be created in 2011 alone.

Sharon Ward: Let’s just look at the hard facts and the hard numbers.  The [Pennsylvania] Department of Labor and Industry, several studies, have said we’re going to see about 5,000 or 6,000 new gas jobs in the next four years, not 100,000 new gas jobs.

Jesse Freeston: Despite its dubious roots, the industry-funded study continued to play a central role in the Corbett campaign.

Tom Corbett: We are the Saudi Arabia of natural gas if we develop it and develop it now.  We need to develop this industry right now, because it’s going to provide hundreds of thousands of jobs from every study that I have seen.

Jesse Freeston: Haines also gave us inflated jobs numbers.

Leslie Haines: I think already over 100,000 jobs have been added just in the state of Pennsylvania in the last couple of years from drilling this Marcellus Shale.  So it’s really significant.

Jesse Freeston: According to the latest available government statistics, the entire industry currently employs less than 12,000 people.  Regardless how many jobs the industry brings, for the time being it is going ahead without taxes.  Stephanie Simmons, from the Pittsburgh chapter of the Sierra Club, is concerned that the lack of state income leaves people at great risk.

Stephanie Simmons: If we have an accident, our emergency responders, 80 percent of whom in Pennsylvania are volunteer now, don’t have the proper equipment.  They don’t have the proper training, and nobody is providing a fund for what happens when the worst happens.

Jesse Freeston: Still, others are questioning why the state would give up an opportunity to raise large amounts of money when it is faced with a projected deficit of $2 to 5 billion next year, while at the same time school boards around the state are in serious debt crisis, with towns like Harrisburg forced to debate cutting kindergarten and high school sports programs.

Part 1 was released by The Real News on 9 November 2010 and Part 2 on 11 November 2010.  The text above is an edited partial transcript of the videos.

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