Vetoed Petrochemical Tax Break Bill Revived in Pennsylvania

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Pennsylvania state lawmakers could vote on legislation this week that provides millions of dollars in tax breaks to turn natural gas into fertilizer and other chemicals, emerging from closed-door negotiations after Gov. Tom Wolf vetoed a similar bill earlier this year, officials said Sunday.

The replacement legislation differs in some ways from what the Democratic governor vetoed in March,saying that the Republican-controlled Legislature had not negotiated it with him.

The newer version puts limits on how much each facility could reap in tax credits and the number of facilities that can qualify, and it contains wording to ensure facilities comply with a requirement to pay prevailing wage rates.

The House Republican majority leadership will share the new version with rank-and-file members this coming week to gauge support for it, a spokesperson, Mike Straub, said.

The bill was originally introduced by Republican lawmakers last year and had support from the Pennsylvania Manufacturers Association and the state's huge natural gas industry, which is weathering stubbornly low prices and court and regulatory battles that have stalled major interstate pipeline projects.

High-profile supporters include building trades unions, traditional Democratic Party allies that have swayed some Democrats — in an election year — to go along with the tax credit. The bill is a particular achievement for unions, guaranteeing the facilities that get the tax credit pay union-scale wages.

Environmental advocacy organizations have questioned the wisdom of subsidizing not only the natural gas industry but also facilities that could themselves add to the state's greenhouse gas emissions at a time when Wolf's administration is pursuing climate-friendly policy.

They also pointed out that the state is creating the tax credit while it faces massive deficits because of shutdowns to contain the coronavirus.

“As the state struggles financially and every day Pennsylvanians are struggling to get by, it seems like the last place elected officials and legislators in Harrisburg should be prioritizing financially is helping some of the deepest and dirtiest pockets in Pennsylvania,” David Masur, president of Philadelphia-based PennEnvironment, said.

Wolf's office did not respond to questions about whether he supports the new version. In his veto message in March, Wolf had said he could support such a tax credit after a thorough analysis of its value and after stronger enforcement of the prevailing wage provisions.

The bill bore similarities to a 2012 state law that was designed to lure a multi-billion dollar Shell ethane refinery now under construction in western Pennsylvania's Beaver County.

Before Wolf vetoed it, the bill was never the subject of a hearing. Even so, it passed both Republican-controlled legislative chambers by veto-proof majorities.

Starting in 2024, the new legislation authorizes 25 years of tax credits up to almost $26.7 million a year, to be divvied up among no more than four facilities that each can draw a maximum credit of just under $6.7 million. That totals almost $670 million.

One potential qualifying facility, a $400 million project planned for western Clinton County, would produce ammonia — an industrial chemical with a wide variety of uses — and diesel exhaust fluid, an additive to diesel exhaust that reduces its air pollution emissions.

The distributors of those products are slated to be Pennsylvania-based companies and the facility would limit its greenhouse-gas emissions by capturing and storing carbon dioxide underground, the first such facility in Pennsylvania, said Perry Babb, president of KeyState Natural Gas Synthesis.

The site is also in a federal qualified opportunity zone, created by the federal tax legislation signed by President Donald Trump in 2017, which will make it more attractive to equity investors and give it high priority in federal government agencies, Babb said.

With plans to use 6.8 million British thermal units of natural gas annually, the bill's 47 cent per-unit tax credit would mean a $3.1 million benefit for the facility annually, Babb said.

KeyState, which has been in contact with Wolf's administration for months, could begin construction in 2022 and finish in 2024, Babb said.

Copyright AP - Associated Press
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