This is the story of two places that, as luck would have it, found themselves sitting on a treasure trove of oil and gas reserves. What they have done with this newfound wealth is a case study in leadership, resource management, and adherence to democratic principles. One place has displayed foresight and good governance coupled with a desire to improve the lives of their citizens. The other has reacted with arrogance and myopia coupled with a sanctioning of corporate greed. The first place is Norway; the second is Pennsylvania. Here are their stories.
In December 1969, oil was discovered oil in the North sea just of the coast of Norway. As luck would have it, it lay withing Norway’s geographic boundaries. This was quite a Christmas gift for a county with about 5.5 million people. The big question for its leaders was: What do we do with this newfound wealth? To answer that question the country developed a set of guiding principles for the management of this newly discovered resource. Two principles were primary. The first was the oil belongs to the people not to the oil companies or the politicians. The second was the oil profits would be taxed at 78% (yes, 78%), and those taxes would eventually be funneled back to Norwegian citizens (Bloomberg, November 2018).
The government collected the taxes and set up a fund in 1990 that has grown exponentially over the decades to one trillion dollars or about $195,000 per Norwegian citizen (Wikipedia May 2018). Each generation of leaders has adhered to the investing principles adopted in 1990 with only 3% of the fund extracted yearly for infrastructure projects. This means that generations not yet born will inherit this $1T windfall. The funds will be used for education, healthcare, infrastructure, technological development, and transition to a green economy. These funds will be the birthright of all Norwegian citizens.
In 2005, a new technology allowed energy companies to extract oil and natural gas from shale deposits. The process is known as fracturing or fracking. Pennsylvania has large oil/gas shale deposits that could now be extracted. What a windfall for Pennsylvania citizens or so it was the thought at the time. Energy companies were eager to start drilling, and Pennsylvania was happy to oblige. The State ran headlong into the process. By 2014, Pennsylvania became the second largest producer of natural gas behind Texas. In 2017, Pennsylvania’s gas fields produced 4.4 trillion cubic feet of natural gas (Independent Petroleum Association of America, 2017).
There were no shortage of good ideas about how to use our newfound wealth for the citizenry. The State’s needs were numerous, and now through taxation of the extracted oil/natural gas, Pennsylvania would now have resources to address those needs. However, then Governor Corbett and the State Legislature had other ideas. They rejected any idea of taxing the oil companies. Their rationale was that because the companies extracted the resources, they should retain the profits. Besides, they noted, if the State taxed the extracted resources, the companies and the jobs would leave. Where they would go was never clear because Pennsylvania was the only oil/natural gas State that did not have an extraction tax.
After considerable pressure from Pennsylvania citizens, the Governor and Legislature agreed to a tax called an “Impact Fee” in 2012. In 2017, the fee generated $210B with all 67 Counties receiving a portion. Adams county received about $91,000 in 2017 or about 90 cents per county citizen (Pa. Public Utility Commission, 2017). This impact fee gave cover to the Legislature and Governor that the companies were already being taxed so no more was needed. Yet the Pennsylvania Budget and Policy Center in 2018 estimated that even with low energy prices, the State could generate $1.7B over five years with a severance tax.
Pennsylvania citizens continued to pursue a severance tax. Education advocates envisioned a world class education system built with energy taxes. These schools would be staffed by the best teachers, administrators, and technologies available. In addition, every student who qualified for post secondary education, but could not afford the tuition, would receive tuition assistance. These ideas were nonstarters for the Legislature and the Governor however. They were reducing State funding to school districts and State universities. They were not interested in increasing funding. The mantra to education officials was “do more with less”.
Environmentalists advocated taxing the energy companies and using those funds to transition Pennsylvania to a carbon free economy based on wind, solar, and other renewable energy sources. These new technologies would create jobs and training as Pennsylvania transitioned into the 21st century. Pennsylvania could lead the Nation in this transition and do it without raising taxes on its citizens. However, this too was a nonstarter. Many Legislators did not believe in climate change or that the problem was man-made – this despite overwhelming scientific evidence. So no action was ever taken.
The newest proposal comes from Governor Wolf. He proposed in his 2019-2020 budget using a severance tax to pay for massive infrastructure projects. It is worth noting that selected Pennsylvania legislators received $883,000 in 2016 campaign contributions from grateful oil/gas companies for blocking a severance tax. That is according to a 2017 analysis performed by Pa. Representative Greg Vitali.
Norway has shown the world how to effectively manage and grow energy resources for the benefit of its citizens. Pennsylvania needs to learn from their experience. The good news for Pennsylvania is that its energy resources could last for decades. Figuring out how those resources can be managed effectively to benefit its citizenry is the challenge yet to be met.