Sharp disagreement has surfaced in the Maryland legislature over how much to tax natural gas production in the event Maryland allows energy companies to drill for shale gas deep below the state’s westernmost counties.
Del. Maggie McIntosh (D-Baltimore) and Del. Sheila Hixson (D-Montgomery) on Friday introduced a bill that would let the state collect 15 percent of the wholesale value of any natural gas produced from Maryland’s portion of the Marcellus Shale.
That’s six times the rate proposed by Sen. George C. Edwards (R-Allegany and Garrett), who earlier introduced a bill to set the “severance tax” rate on natural gas at 2.5 percent.
Though the mechanisms differ, both bills propose to use the resulting revenue in the affected areas to address the potential environmental and public health impacts of gas production. But the wide gap between the proposed tax rates in the House and Senate versions creates uncertainty about the chances of compromise and passage of a unified bill.
“We’ll be sitting down and negotiating, so you’ll probably see something halfway,” Hixson said, adding she had not read Edwards’s bill.
But Edwards, reading the House bill for the first time on Monday, called a 15 percent severance tax “ridiculous.”
“I don’t know of any other state that’s anywhere near that,” Edwards said.
The House proposal would make energy companies pay a total of 20.5 percent of the value of extracted gas because Garret County, where most of the drilling would take place, already imposes a 5.5 percent local severance tax, Edwards said.
Edwards said that would reduce lease payments and gas royalties for landowners and dissuade potential energy developers from doing business in Maryland.
“The local people who own this product are going to get a lot less offered to them, or a lot of these companies are going to say the heck with Maryland,” Edwards said.
But Del. Heather Mizeur (D-Montgomery) — who along with Edwards is on a commission that Gov. Martin O’Malley (D) created to advise the state on shale gas drilling — said Maryland should impose at least a 10 percent severance tax and is “open-minded” about a rate as high as 15 percent. Mizeur said Maryland should not allow drilling without first passing a “competitive” severance tax that ensures the state is able to oversee the industry.
In Pennsylvania and other states that allow shale gas drilling, some have blamed the natural gas extraction method known as hydraulic fracturing, or “fracking,” for contaminated water supplies and other environmental damages.
Fracking involves blasting shale rock with millions of gallons of water mixed with sand and chemicals to create cracks, releasing trapped gas.
It is not known how much gas lies trapped in Maryland’s portion of the Marcellus Shale because no wells have been drilled. The state is unlikely to issue drilling permits before August 2014, when the state is scheduled to complete a 3-year study of shale gas drilling that O’Malley ordered last June, after Mizeur and other lawmakers were unsuccessful in passing a two-year moratorium on the controversial practice.
Proponents of a higher severance tax argue Edwards’s proposal would not give the state enough resources to cover the potential costs of overseeing drilling and addressing impacts to the environment.
“I’m very concerned that [2.5 percent] would not be sufficient,” said Paul Roberts, a small business owner in Garrett County and a member of the governor’s advisory commission.
Roberts has urged the state not to simply propose “high-ball or low-ball” numbers for the severance tax without knowing how much would actually be needed to address the impacts of drilling.
“I remain concerned that the state does not have a good handle on what the likely remediation costs would be,” he said.