Testimony before the:
House Environmental Resources and Energy Committee
“Embracing Pennsylvania’s Energy Potential”
David N. Taylor
President & CEO
Pennsylvania State Capitol Complex
Irvis Office Building
Room 515
Harrisburg, PA 17120
Chairman Metcalfe, Chairman Vitali, and members of the committee:
Thank you for the opportunity to speak with you today. I am David N. Taylor, President & CEO of the Pennsylvania Manufacturers’ Association, the statewide trade organization representing the people who make things in our commonwealth. Manufacturing is the engine that drives Pennsylvania’s economy, creating $93 Billion in value-added every year, directly employing over a half-million Pennsylvanians on the plant floor, and sustaining millions of additional Pennsylvania jobs in supply chains, distribution networks, and vendor services. Because manufacturing adds the most value of any other sector, manufacturers offer the best wages and benefits in the marketplace, upholding the quality of life in our communities and sustaining local tax bases.
One of the most important inputs for manufacturers is energy. No matter what you are making, manufacturers consume a lot of energy in the process of turning raw materials and component parts into finished products. For many manufacturers, energy is the most expensive business input, which explains why we are so passionate about maximizing the opportunities that are before us to power our industrial economy.
Manufacturers require energy in large volumes, with reliable delivery, and at affordable prices. This is why PMA supports maximizing domestic production of Pennsylvania natural gas and retaining the established competitive marketplace for electricity. We are also strong supporters of enhancing and expanding Pennsylvania’s energy infrastructure, including upgrading the electrical grid for greater capacity, reliability, and efficiency; and building out new pipeline networks to deliver natural gas and natural gas liquids.
The deployment of new pipeline infrastructure has made possible the very welcome news that Kimberly Clark will stay in the city of Chester; retaining 570 jobs on site and continuing to be a major local taxpayer in that community. The Adelphia Gateway pipeline will deliver natural gas to a new 24-megawatt cogeneration facility to replace a coal powered unit that has already been demolished. Without the connection to Adelphia Gateway, Kimberly Clark’s decision to invest $150 million, in an upgrade that will reduce emissions by 50% within ten years, would almost certainly not have happened.
(Plus, as consumers, we will also continue to benefit from having a robust supply of very soft toilet tissue – let’s not forget the scarcity of this essential commodity at the beginning of the pandemic!)
In contrast, Pennsylvania state government’s failure to move at the speed of business cost Marcus Hook a $675 Million petrochemical manufacturing facility that instead went to La Porte, Texas. Braskem USA, which is headquartered in Philadelphia, had hoped to co-locate their U.S. production nearby, but was unable to because they correctly assessed that DEP would not be able to grant timely approval for the pipeline needed to bring the necessary volume of natural gas liquids from southwestern Pennsylvania.
PMA conducted an econometric study of what that potential facility would have brought to southeastern Pennsylvania if it had been built there. In summary, the region lost out on hundreds of millions in construction wages during a two-year building phase and almost $100 Million in manufacturing value-added every year thereafter. In less than five years’ time, the total economic contribution to the greater southeastern Pennsylvania region would have been more than $1 billion for just the construction and expanded manufacturing activity of the polypropylene manufacturing facility – not including any growth in upstream or downstream industrial activity.
Pennsylvania’s decision-makers should focus on three critical facts: First, the enormity of the energy opportunity; second, the transformational potential of petrochemical manufacturing; and third, the urgent necessity of pipelines to connect it all.
The discovery and development of the Marcellus and Utica natural gas shale plays is a world-historic event. If Pennsylvania, Ohio, and West Virginia were an independent nation, we would be the third largest producer of natural gas in the world. Over the last fifteen years, Pennsylvania has gone from being an importer of natural gas to being the second largest natural gas producer in America, behind only Texas. Pennsylvania and Texas produce over half of America’s natural gas and Pennsylvania’s contribution to the nation’s energy production has made America number one in the world.
Within the Marcellus formation in Pennsylvania, approximately two-thirds of the play is pure methane (known as “dry gas”) and remaining third is rich with other natural gas liquids like ethane, butane, propane, pentane, and natural gasoline (“wet gas”). Both manifestations have high-value manufacturing potential. Act 66 of 2020 established a production-based tax credit for manufacturing from the value chain of methane, which is what Mr. Babb is doing. That followed the path set by the production-based tax credit enacted in 2013 for manufacturing from the value chains of the “wet gas” natural gas liquids, which enabled Pennsylvania to land the $6 Billion investment from Royal Dutch Shell for the polyethylene plant in Beaver County.
Depending on how it is processed, the value chain from polyethylene can yield every kind of plastic, Styrofoam, and rubber and every kind of paint, glaze, coating, solvent, and adhesive. These inputs then can be processed further or deployed as components to make other products. These additional levels of increasing manufacturing value-added are made possible by the production from the processing of natural gas and natural gas liquids. We now have the means of building an entirely new industrial sector for Pennsylvania, one that will give investors an actual economic reason to locate, hire, operate, and expand here rather than in one of our competitor states.
But what is possible will only come to pass if we make it so. Pennsylvania must act to show we want the investment, jobs, and economic growth to happen here. A pro-production agenda in Harrisburg for energy and manufacturing is necessary, and the most important item on that agenda at this hour is delivering the energy and feedstocks from where they are harvested to the downstream industrial, commercial, and residential customers who can benefit from them. Just like with Kimberly Clark, without a means of physical delivery, everything else is imaginary. If there’s no Adelphia Gateway, there’s no modernization or reinvestment by Kimberly Clark, which means eventually there’s another brownfield in Chester where a taxpaying business used to be. Because we have Adelphia Gateway, renewal, reinvestment, and growth become possible.
Again, the potential for prosperity is enormous. PMA is proud to be part of the Forge the Future coalition, which commissioned a report on the potential for an energy-enabled economy for Pennsylvania. McKinsey & Company found that maximizing Pennsylvania’s energy opportunity could yield more than 100,000 new Pennsylvania jobs, expand our Gross Domestic Product by $60 Billion, and increase annual revenue to state government by $2 Billion to $3 Billion. To emphasize, this would be a permanent enlargement of our economy by $60 Billion per year, rather than a one-time boost.
The ongoing Forge the Future project and last session’s “Energize PA” agenda are examples of the kind of pro-growth, pro-production, pro-jobs thinking that Pennsylvania needs to build on. We need to encourage greater deployment of combined heat and power operations and more use of on-site natural gas wells to power them, as we see in Wyoming County with the Procter & Gamble facility, and as U.S. Steel is doing at the Edgar Thomson Works in Allegheny County.
State government should help local governments with building the “last mile” of pipeline through pipeline investment program grant opportunities, as occurred in Tunkhannock where connecting with UGI gathering lines created new opportunities for the entire community and attracted new manufacturers.
As was demonstrated with the lost $675 Million investment from Braskem, Pennsylvania needs systematic regulatory reform to expedite permitting processes to move at the speed of business. State government can also play a positive role by compiling a comprehensive database of brownfields available for redevelopment, providing authoritative information that prospective investors can use immediately, rather than making those customers track it down themselves.
In the end, it all comes down to the cost of doing business in one jurisdiction as opposed to another. Pennsylvania needs strong economic fundamentals to bring to bear our inherent strengths of geographic location, access to market, natural resources, and financial and educational institutions.
Specifically, Pennsylvania’s business tax structure is among the least competitive in the nation and requires a major overhaul. One of the best things lawmakers could do would be to uncap the ability of employers to carry forward their net operating losses (NOL) from the recent past to their current and near-future tax liability. The cap is a glaring disadvantage and is especially harmful to startup companies, which are often the kinds that yield technological innovations. Removing the NOL cap would improve Pennsylvania’s competitive profile immediately.
Pennsylvania’s natural gas revolution has delivered billions in royalties and lease payments to landowners and billions in impact tax collections to Harrisburg. Natural gas has driven historic reductions in emissions, and lowered the cost of home heating and electricity, helping America to achieve energy independence and strengthening our position on the world stage. Anything that diminishes Pennsylvania energy production weakens America, which is why your work here is so important.
I want to live in a world where Pennsylvania’s energy-enabled manufacturing economy is delivering broad-based, sustained economic growth to every corner of the commonwealth, with abundant job opportunities and rising wages. We have the chance to make Pennsylvania the place where the makers and do-ers produce the goods that Americans purchase every day. We can change the economic equation to bring back production from China, India, and OPEC-member nations. Pennsylvania energy leadership is American energy leadership and the impact that Harrisburg can have on this reality cannot be overstated. All of these things are now possible because of the potential of Pennsylvania’s energy revolution. All we have to do now is make it happen.