As Nov. 8 election approaches, Wolf and Pa. lawmakers look to push through massive tax incentives for natural gas

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HARRISBURG — Democratic Gov. Tom Wolf and top state lawmakers are hurriedly negotiating a massive economic development package that would encourage natural gas development in Pennsylvania.

The proposed credits, totaling $180 million a year, are aimed at different industries including hydrogen production, milk processing, and biomedical research, according to draft bill language viewed by Spotlight PA. The incentives would sunset in 2045, putting the potential price tag of foregone state taxes at roughly $3.6 billion if the credits are claimed in full.

Taken as a whole, the package would be even bigger than the record-setting $1.65 billion incentive Pennsylvania gave Shell for its plastic factory in Beaver County.

With the Nov. 8 election fast approaching, such a deal — rumored since September — could appeal to both major parties and their allies in business and organized labor. But Wolf and lawmakers are running out of time to push it through before voters head to the polls.

The legislature is scheduled to adjourn this week until late next month, and the two-year session ends on Nov. 30.

It’s unclear if legislative leaders will be able to rally support for the package, but it is a priority. Both state Senate Majority Leader Kim Ward (R., Westmoreland) and state House Appropriations Committee Chair Stan Saylor (R., York) acknowledged ongoing talks last week.

“The governor wants some things, we want some things,” Saylor said.

A Wolf spokesperson did not immediately reply to a request for comment.

The keystone of the proposed deal is an annual $50 million tax credit to incentivize hydrogen production in Pennsylvania, according to the draft language.

The package would also set aside $50 million each in annual tax breaks for milk processing and medical research, and expand an existing tax credit for companies using fracked methane in manufacturing.

Wolf signed the latter in 2020, which created $26 million a year in tax incentives over 26 years. The new proposed tax deal would expand that credit by $30 million but cut its timeline short.

One company is already poised to claim the methane credit: Houston-based Nacero, which announced plans to build a $6 billion plant to convert natural gas to gasoline in northeastern Pennsylvania last year. The company has yet to apply for environmental permits, according to the state Department of Environmental Protection.

To qualify for any of the proposed credits, each recipient would need to spend at least $500 million on a project and create 1,200 temporary or permanent jobs. While the bill would mandate construction jobs recieve the prevailing wage, no language mandates how much workers would be paid for permanent positions.

The package’s focus on fossil fuels — $80 million is directed at natural gas production — has raised alarm bells among environmental groups.

In particular, the package would provide $50 million a year to a company that develops a so-called hydrogen hub, or a system of facilities — including pipelines and compressor stations — to convert fracked natural gas into hydrogen.

That hydrogen could then be burned for some industrial or transportation uses without releasing the greenhouse gasses that drive climate change into the atmosphere.

The proposed credit would piggyback off funding included in the 2021 federal infrastructure bill, which allocated $7 billion in federal aid to develop at least six such hubs around the country.

Interested companies must send the federal government an initial sketch of their plan by Nov. 7 and submit a full application by April 2023.

Rob Altenburg, a policy analyst with environmental group PennFuture, said that hydrogen has a role to play in some hard-to-decarbonize industries, like steelmaking and cement production. The gas could also power railroad locomotives and long-haul trucks, he added.

But beyond these specialized purposes, the process of creating hydrogen from natural gas will still release carbon, adding to the millions of tons of the element released from drilling and transporting it from wells to facilities.

Most proposals call for using carbon capture and storage with hydrogen production — the federal infrastructure bill requires its use in any hub it funds — but that technology is also unproven, Altenburg added.

“Technically, this doesn’t make a lot of sense. But politically, this is very attractive because politicians on both sides of the aisle get to tell the gas industry ‘you can keep doing what you’re doing and we will address the carbon problem later,’” he said.

Instead of working backward from solutions that keep the carbon-based economy in place but try to eliminate emissions around the edges, Altenburg argued that a better approach would be to focus on connecting as much industry and transportation to a power grid run by renewable energy.

The proposed price tag, whatever the final size, could also “buy a lot of energy efficiency and renewable energy,” he said.

Spotlight PA’s Angela Couloumbis contributed reporting.

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