Right before the midterm elections, Governor Wolf signed a huge tax package that encourages gas production in the state.
The Allegheny Front’s Kara Holsopple spoke with Stephen Caruso, the Capitol reporter for Spotlight PA, about the law, which was introduced and passed by state legislators in the span of a few days, without public hearings, though the governor said it had been negotiated over several months.
Kara Holsopple: What does the tax credit include, and who is it meant to benefit?
Caruso: This is a $2 billion tax credit that Governor Tom Wolf signed just a couple of days before the election. About $1 billion of that is for a new hydrogen hub to come to Pennsylvania, with the idea being that whoever gets these incentives is going to be producing or using hydrogen, which is a form of energy that a lot of industrial folks are really interested in as a way to try and turn energy that we have, like natural gas, into this storable energy form of hydrogen that can be used for steel making, cement making, and maybe even powering locomotives or long haul trucks.
There’s 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 that goes into it. You could make hydrogen with nuclear. That would be zero carbon. But you can also make hydrogen with natural gas, and most likely, the non-Pennsylvania’s hydrogen would be made from natural gas.
So if all that said, $1 billion of this tax credit is to go to hydrogen, and then there are bits of it that are supposed to go to expanding a tax break the state already offered for any company that uses methane gas in manufacturing. That can include fertilizer, or there is a plant planned for northeastern Pennsylvania that would make gasoline from methane. There are also smaller credits that would go to biotech research, milk processing, and to chip production.
- Tom Wolf signs $2 billion tax package that encourages natural gas production in Pa.
- The race is on (again) to build out a low-carbon hydrogen economy
Why some Democrats and unions like it
Kara Holsopple: The bill was passed quickly by both bodies of the state legislature and signed by Governor Wolf. Why did Democrats vote for it?
Caruso: Every tax credit plan that Wolf signed in the last couple of years, since 2020, for the most part, has included a provision that requires that the construction jobs that are created are paid the prevailing wage. The prevailing wage basically means that the construction workers are going to get very close to a union wage.
The building trades have often lined up support behind these tax proposals because they know it will bring jobs for them to produce these facilities. With the building trade support, you can get a lot of Democrats on board and a lot of Republicans, particularly western Pennsylvania Republicans. The building trades are just powerful and influential in Harrisburg’s day-to-day, and what they back tends to see political success.
Kara Holsopple: What’s the argument that, economically this makes sense for the state and not just for the companies that might benefit from it?
Caruso: A lot of it’s based on this concern looking at some of the neighboring states. I think Ohio got a big factory for producing some computer technology that was announced recently. Pennsylvania is in the Appalachian region and has a lot of natural gas.
This is a state that prides itself on an industrial heritage, where people are always thinking about what’s the next industry that’s coming.
So basically, why not Pennsylvania? You go into the state capitol building, and you look up in the rotunda, and there are murals representing coal, steel, and gas. This is a state that prides itself, I think, on an industrial heritage, where people are always thinking about what’s the next industry that’s coming.
The idea is that these credits will help bring those industries here and keep them here If we’re making lots of hydrogen here, maybe that’ll make it cost-effective for U.S. Steel to ramp up more steel production around here instead of them moving to Arkansas. Even with the milk, the milk processor is supposed to use Pennsylvania-based milk.
So the whole supply chain is Pennsylvania-centric for these industries. The people who are making the gas or the milk are then finding a market in Pennsylvania for those products.
Why are environmentalists opposed?
Kara Holsopple: Talk about why environmentalists and others are opposed to the tax break.
Caruso: I like how you said the others because the opposition to this was split between environmentalists and a mix of free-market conservatives and folks who just are very skeptical of tax incentives. So I’ll tackle the environmentalists first.
Theoretically, you know, nuclear-powered hydrogen could be made, but it’s most likely going to be natural gas. The reason they passed this is because the federal government is looking to encourage hydrogen production, and in the federal law that enables this, the Infrastructure Law, that was passed last year, there are going to be requirements and federal regulations that the hydrogen plants use carbon capture.
The reason they passed this is because the federal government is looking to encourage hydrogen production.
So they could potentially get carbon neutrality on the burning of gas to turn it into the hydrogen. But there are still going to be all the upstream impacts of drilling and transporting that gas from the wellhead to the plant.
There have been reports that say that pipelines were leaky, that we expect wells are venting methane and burning it off, and that that has a bigger effect on the climate. There are also the other effects that this does encourage the continued use of fossil fuels so that they’re still part of the economy. And then there’s all the other environmental concerns people have about fracking with the pollution that comes from having a well in your backyard.
For the free marketers, you know, the idea is that you’re going to draw someone to your state by offering the biggest incentive. But you talk to a lot of economic professors, and what they’ll tell you is that there is some research that indicates that these big companies often know where they want to go already, and they’ve made that decision. All they’re basically doing is playing states off each other and different political entities to try and get a better deal from the place they actually really want to go.
Kara Holsopple: How does the tax break square with Wolf’s climate goals to reduce greenhouse gas emissions to 26% by 2025, 80% by 2050? And the Wolf administration’s push to join the Regional Greenhouse Gas Initiative to cut carbon emissions from power plants.
Caruso: A lot of environmentalists that I talked to, both elected Democrats and people outside the building, really raised this. For a governor who has staked a lot of his legacy on RGGI, which is the Regional Greenhouse Gas Initiative, which caps carbon emissions from power plants. to then, on his way out the door, hand out $1 billion dollars to the natural gas industry, is puzzling.
So that’s kind of the head-scratcher for l think a lot of the environmental movement and looking at Wolf’s legacy, But I think that this is kind of a constant thing. RGGI is going to be a huge plus for his legacy, but Wolf has also shown a willingness to trade on the environment.
In 2017, the closest he ever got to a severance tax on natural gas – a tax on the production of natural gas, not the drawing of wells — was when he was willing to trade permitting reform that would have made it easier for drillers. That’s a consistent thing that you hear from environmentalists that Wolf has been willing to trade on our cause if he thinks it will get him some more education funding or some other thing that he puts as a higher priority.
How carbon capture fit into it
Kara Holsopple: You reported that Governor Wolf said that he wouldn’t have signed the bill if the recipients of the tax credit were not required to follow the federal guidance for carbon capture so that hydrogen produced from natural gas would be carbon neutral. Isn’t that an unproven technology? Isn’t that some greenwashing on the governor’s part?
Caruso: I haven’t studied the ins and outs of carbon capture. But that is certainly something I’ve heard. I talked to Rob Altenburg at PennFuture, and his biggest point is that it’s not that carbon capture isn’t going to maybe be important in a few places, it’s just that the best technology to decarbonize is renewables and energy efficiency and just electrifying everything and connecting to a grid that has a lot of carbon-free, carbon neutral energy and electricity in it.
I think that heavy industry is powerful and attractive to lawmakers, and the idea of being able to have their name alongside the vote that was cast to maybe bring back some heavy industry to PA, like a hydrogen hub, is attractive, poetically, If it can be fully made green is I think a question that a lot of environmentalists will ask themselves.
I’d add too that what was also brought up is that the carbon capture requirements that will be placed on the hydrogen hub are from federal regulations are still being developed, in my understanding.
So the next president, if that is a Republican or even a Democrat who wants to go back on them, or what have you, they’re not written out in law. The goalposts could move on what is effective carbon capture under the Infrastructure Law that is enabling these hydrogen hubs. So even if the Biden administration came out with really high standards that environmentalists were happy with, they could get rolled back.
How it fits into Shapiro’s energy policy
Kara Holsopple: Representative Austin Davis, now the lieutenant governor-elect for Pennsylvania, voted in support of this bill. How is this tax credit likely to fit into Governor-elect Josh Shapiro’s energy policy?
Caruso: I did ask the governor-elect at a press conference right before the election about this. It was one of the biggest policy pieces that we’ve seen move this year besides the budget.
He said he wasn’t familiar with the details, but overall, he supports all of the above energy and energy policy. That’s been consistent with what he said on the [campaign] trail. I mean, this is a guy who was endorsed by many of those building trade councils that lobbied for this bill.
So with that said, I mean, I think it’ll fit in neatly with how Josh Shapiro imagines Pennsylvania’s energy, economy, and future. At the same time, we can’t say how Josh Shapiro might have negotiated the deal if he was doing it on his terms.