How about a hydrofracking severance tax?

If we have to have hydrofracking in New York state, there should be a severance tax—that is, a tax on the amount of oil and natural gas produced—just like Texas, Alaska and other oil-producing states have on oil production.

Hydrofracking—hydraulic fracturing and horizontal drilling for shale oil and gas—is a highly controversial method of energy production which, according to opponents, is destructive to land, a threat to the water supply, and a cause of minor earthquakes.  But according to a report this week of the International Energy Agency, the future of oil and gas production in North America is in hydrofracking.   Natural gas prices in the United States already are falling, due to use of this new technology.

Hydrofracking involves (1) drilling a deep vertical well into gas-bearing or oil-bearing strata of shale, (2) drilling a horizontal well into the shale, (3) setting off an explosive charge to fracture the shale and (4) pumping in water mixed with detergent to force the trapped oil or gas to the surface.  Proponents and industry spokesmen say that, if done correctly, there is no danger of the oil, gas or detergent getting into the water supply.  The shale strata are deep below the water table and the horizontal well should be sealed tight.  They have answers to other objections as well.

The problem, as I see it, is that even if hydrofracking can be done safely, being completely sure that it is would require a degree of regulation that is not feasible.  But if there were a severance tax, there would be money to mitigate or compensate for the damage.  New York is generally regarded as the highest-tax state, based on combined state and local taxes.  This new source of revenue, while it lasts, might allow for reductions in state income taxes and local property taxes.

The drilling companies might then go to states that don’t have severance taxes.  The way to get around this would be for the governors of the hydrofracking states to agree among themselves as to what the severance tax should be.  If they can’t agree, the oil and gas companies would have to come to New York state in the end, after they’ve pumped the other states dry and natural gas prices start to rise again.

Click on Hydrofracking picking up steam for an explanation of the technology and an argument against federal regulation.

Click on Shale Gas Will Be the Next Bubble to Pop for a dissent on the economic benefits of hydrofracking for shale gas.

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