PA Legislature Reaches Deal on Tax Credit for Cracker Plant

A deal has been struck by the Republican majority legislature in Pennsylvania to grant Shell a tax credit over a 25-year period starting in 2017. Gov. Tom Corbett had originally proposed the tax credit be capped at $66 million per year, or a total of $1.7 billion, but the final version of the law, if passed, places no limit on the total amount other than a credit of five cents per gallon of ethane used. So the total deal may exceed $66 million per year.

The only strings attached to the deal are that Shell (or any refinery owner) must invest $1 billion in building the plant, and they must provide 2,500 construction jobs for Pennsylvanians. The legislature and those who support the tax credit believe Shell’s proposed cracker plant will eventually result in some $17-$20 billion in new economic activity in the state, so $1.7 billion (or more) in tax credits, spent to secure the plant for a location in PA, is a good investment.

However, Democrats are trying to tee up for the next gubernatorial election in 2.5 years by painting Corbett and the Republicans as cutting services to the poor while granting tax credits to the rich. Same ole same ole—right out of the Dem playbook.

Major business groups and private-sector labor unions support the idea, but some Republicans say the tax breaks are unfair to other business sectors. Some Democrats are criticizing the tax breaks as corporate welfare at a time when Corbett is balancing a second straight budget with cuts in aid to services for the poor.

To fight concerns about the appearance of a giveaway to the industry, lawmakers will include requirements that a qualifying refinery owner must invest $1 billion in a project with at least 2,500 construction jobs.

Corbett’s pursuit of the tax credit was spurred by a tentative commitment from a subsidiary of Netherlands-based oil and gas giant Royal Dutch Shell PLC to build a petrochemical refinery at a site in southwestern Pennsylvania’s Beaver County.

Shell’s so-called ethane cracker would convert natural gas liquids from the bountiful Marcellus Shale formation to ethylene, which chemical manufacturers can then use to produce chemicals that go into everything from plastics to tires to antifreeze.

Shell may have little need for the tax credit because the site of its prospective plant, in Monaca, is located in a tax-free zone the Legislature created for it earlier this year.

But the legislation would allow Shell to sell the tax credit to natural gas drillers that produce the ethane or chemical manufacturers that use the ethylene. That way, Shell would deal with one of its biggest concerns — that ethane producers have an incentive to sell to its refinery, rather than pipelining it to other refineries on the Gulf Cost. It also would have help encouraging a chemical manufacturing industry eager to buy the ethylene to cluster around its refinery.*

*Albany (NY) Times Union/AP (Jun 28, 2012) – Deal reached on tax breaks for Pa. refinery