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Study suggests increase of gas severance tax

The West Virginia Center on Budget and Policy has released a study suggesting that raising the state’s severance tax on natural gas liquids could increase revenue and help West Virginia profit from the use of the liquids in state.

The study, which was released by the center on Wednesday, lays out a plan to increase the gas severance tax from 5 percent to 10 or 15 percent and would offer reductions on that rate for the gas and liquids that are used in ethane cracker plants or other downstream industries in West Virginia.

According to the study, which analyzed state tax data, the plan could increase state revenue by around $168 million over the next five years, and the authors believe the tax credits could incentivize the building of cracker plants or other chemical manufacturing facilities in West Virginia.

The research for the study was conducted as part of the Multi State Shale Research Collaborative, of which the Center on Budget and Policy is a member.

The idea for the increased severance tax and tax credits was based on similar legislation that has been proposed in the West Virginia Legislature in recent years that sought to incentivize the use of coal mined in West Virginia. That legislation, known as the West Virginia Coal Employment Enhancement Act, sought to provide a $3 credit for every ton of coal purchased by an in-state utility.

In related news, Editorial: Will state lawmakers meet their deadline for a higher severance tax?

Virginia has already passed similar legislation for coal mined in that state.

No one from the state Commerce Department was available to talk about the study on Wednesday, a spokeswoman said.

Sean O’Leary, a policy analyst with the Center on Budget and Policy, said the plan isn’t focused on incentivizing the production of more natural gas but making sure that the natural gas that is produced is creating other jobs in the state.

“It’s not that we aren’t producing it,” O’Leary said. “We are producing a ton of it, but we are shipping it all out of state.”

Over the past several years, state officials have attempted to lure ethane cracker plants to the state to no avail. Several companies, including PTT Global Chemical, has chosen to build the secondary industries in other state like Ohio.

O’Leary said proposed interstate pipelines is also threatening to take other jobs in the downstream industries to other state’s on the Gulf Coast.

With a Select Committee on Tax Reform currently reviewing the state’s tax policy, O’Leary said it might be a good time to consider how to better incentivize the creation of additional gas-related jobs in the state.

But with natural gas liquid prices around 50 percent lower than they were last year, according to the U.S. Energy Information Administration, it is unclear whether the gas industry or the state legislators would support such a plan.

O’Leary said the plan kills two birds with one stone, solving any future budget deficits for the state and incentivizing the creation of secondary industries that can provide jobs in West Virginia. He said the price of gas may be low now, but it likely won’t stay suppressed.

“Production is still way up,” he said. “Prices aren’t going to be bottomed out forever.”

This article was written by Andrew Brown from The Charleston Gazette, W.Va. and was legally licensed through the NewsCred publisher network.

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