How the $2 billion tax credits signed by Gov. Wolf will benefit natural gas

Just before the midterm elections, Gov. Wolf signed a massive tax package that would boost gas production in the state.

Kara Holsoppel of the Allegheny Front spoke with Spotlight PA’s Capitol reporter Stephen Caruso about the law, which was introduced and passed by state legislatures in days without public hearings, though the governor said it had been negotiated several times Months.

Kara Holsoppel: What does the tax credit include and who should benefit from it?

Carouso: That’s a $2 billion tax credit that Gov. Tom Wolf signed into law just days before the election. About $1 billion of that is earmarked for a new hydrogen hub in Pennsylvania, with the idea that whoever gets those incentives will produce or use hydrogen, a form of energy that many industrialists are really interested in trying to generate energy that we have, like natural gas, into that storable form of hydrogen energy that can be used to make steel, make cement, and maybe even power locomotives or long-haul trucks.

There is a lot of interest in hydrogen as a way to decarbonize some really hard-to-decarbonize industries. But hydrogen is only as clean as the energy it contains. They could make hydrogen with nuclear power. That would be carbon free. But you can also make hydrogen with natural gas, and most likely the non-Pennsylvania’s hydrogen would be made from natural gas.

So when all is said and done, $1 billion of that tax credit is supposed to be used for hydrogen, and then there’s portions of it that’s supposed to go towards expanding a tax break that the state is already offering to any company that uses methane gas in production . That may include fertilizer, or a plant is planned in northeastern Pennsylvania that would make gasoline from methane. There are also smaller loans that would go into biotech research, dairy processing, and chip production.

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Why some Democrats and unions like it

Kara Holsoppel: The law was quickly passed by both bodies in the state parliament and signed by Governor Wolf. Why did the Democrats vote for it?

Carouso: For the most part, every tax credit plan Wolf has signed into existence in recent years since 2020 has included a provision mandating that construction jobs created be paid at applicable wages. The prevailing wage basically means that construction workers will come very close to a union wage.

The building trades have often backed these tax proposals because they know that producing these systems will bring them jobs. With the support of the construction industry, you can get a lot of Democrats on board and a lot of Republicans, especially Republicans from western Pennsylvania. The construction professions are simply powerful and influential in the everyday life of Harrisburg, and what they support tends to see political success.

Kara Holsople: What suggests that this makes economic sense for the state and not just for the companies that could benefit?

Carouso: Much of it is based on this concern if you look at some of the neighboring states. I think Ohio has a big computer technology manufacturing factory that was recently announced. Pennsylvania is in the Appalachian region and has a lot of natural gas.

This is a state that prides itself on its industrial heritage, where people are always thinking about what the next industry to come is.

So why not Pennsylvania? You go into the State Capitol Building and you look up at the rotunda and there are murals depicting coal, steel and gas. This is a state that prides itself on its industrial heritage I think, where people are always thinking about what the next industry to come is.

The idea is that these loans will help bring these industries here and keep them here. If we produce a lot of hydrogen here, maybe that makes it cost effective for US Steel to ramp up more steel production here instead of moving it to Arkansas. The milk processor is also said to use milk from Pennsylvania for the milk.

Therefore, the entire supply chain for these industries is aligned with Pennsylvania. The people who make the gas or the milk then find a market for those products in Pennsylvania.

Why are environmentalists against it?

Kara Holsoppel: Talk about why environmentalists and others are opposed to the tax break.

Carouso: I like what the others have said because the opposition to this has been split between environmentalists and a mix of free market conservatives and people who are just very skeptical about fiscal stimulus. So I attack the environmentalists first.

In theory, nuclear-powered hydrogen could be produced, but most likely it will be natural gas. The reason they passed this is because the federal government is trying to encourage hydrogen production and in the federal law that allows for this, the Infrastructure Act that passed last year, there will be requirements and federal regulations that will use the hydrogen plants carbon capture.

The reason they passed this is because the federal government is trying to encourage hydrogen production.

So they could potentially achieve carbon neutrality by burning gas to turn it into hydrogen. But there will still be all the upstream effects of drilling and transporting that gas from the wellhead to the plant.

There have been reports that pipelines were leaking, that we assume wells are venting and burning methane and that this is having a bigger impact on climate. There are also the other effects that this encourages continued use of fossil fuels so they are still part of the economy. And then there are all the other environmental concerns people have about fracking with the pollution created by a well in your backyard.

For the free marketers, you know, the idea is that you’re drawing someone into your state by offering the greatest incentive. But you talk to a lot of economics professors, and they’ll tell you that there’s some research that suggests these big companies often already know where they’re going and have made that decision. All they basically do is pit states and different political entities against each other to try and get a better deal from where they actually really want to go.

Kara Holsoppel: How does the tax brake fit into Wolf’s climate targets of reducing greenhouse gas emissions to 26% by 2025 and to 80% by 2050? And the Wolf government’s push to join the Regional Greenhouse Gas Initiative to reduce carbon emissions from power plants.

Carouso: A lot of environmentalists I’ve spoken to, both elected Democrats and people outside the building, have really addressed this. For a governor who has staked much of his legacy on RGGI, the regional greenhouse gas initiative that limits carbon emissions from power plants. then, on his way out the door, distributing $1 billion to the natural gas industry is confusing.

That’s kind of a head-scratcher for many thinking about the environmental movement and considering Wolf’s legacy, but I think that’s kind of a constant. RGGI will be a huge asset to his legacy, but Wolf has also shown a willingness to do business with the environment.

In 2017, he came closest to a natural gas severance tax — a tax on producing natural gas, not drilling wells — when he agreed to trade permitting reform that would have made it easier for drillers. That’s a consistent thing you hear from environmentalists, that Wolf has been willing to trade for our cause if he thinks it’ll get him more tuition or something else he considers a higher priority.

How the carbon deposition fits in

Kara Holsopple: You reported that Gov. Wolf said he would not have signed the law if tax credit recipients were not required to follow federal carbon capture guidelines in order for hydrogen produced from natural gas to be carbon neutral. Isn’t that an unproven technology? Isn’t that greenwashing by the governor?

Carouso: I have not studied the details of carbon capture. But that’s certainly something I’ve heard. I spoke to Rob Altenburg at PennFuture and his main point is that it’s not that carbon capture might not be important in some places, it’s that the best technology to decarbonize is renewable energy and energy efficiency and everything electrify and connect to a grid containing plenty of carbon-free, climate-neutral energy and electricity.

I think heavy industry is powerful and attractive to legislators, and the idea of ​​having their name next to the vote that might bring some heavy industry back to PA, like a hydrogen center, is attractive, poetic if it can be made fully green can, I think, is a question that many environmentalists will ask themselves.

I would also like to add that it was also addressed that the carbon capture requirements being put on the hydrogen node are from federal regulations which to my knowledge are still being developed.

So the next President, if that’s a Republican or even a Democrat who wants to resort to them or whatever, they’re not required by law. The goalposts could evolve into effective carbon capture following the infrastructure bill that enables these hydrogen hubs. Even if the Biden administration did come out with really high standards that environmentalists would be happy with, they could be rolled back.

How it fits into Shapiro’s energy policy

Kara Holsoppel: Rep. Austin Davis, now Lieutenant Governor of Pennsylvania, voted in favor of this bill. How does this tax credit likely fit into Governor-elect Josh Shapiro’s energy policy?

Carouso: I asked the governor-elect about it at a press conference just before the election. It was one of the biggest political elements we’ve seen this year, next to the budget.

He said he was unfamiliar with the details but overall supported all of the energy and energy policies above. That agrees with what he said on the [campaign] Path. I mean, that’s a guy that’s been endorsed by a lot of these construction councils that pushed for this bill.

With that said, I think it will fit nicely with how Josh Shapiro envisions Pennsylvania’s energy, economy and future. At the same time, we can’t say how Josh Shapiro would have negotiated the deal if he did it on his terms.