Why It Matters
Pennsylvania sits atop one of the most productive natural gas formations in the world, yet the state collects a fraction of the tax revenue that comparable energy-producing states bring in. With the state facing a multibillion-dollar structural deficit, a new report is prompting fresh scrutiny of whether Pennsylvania’s approach to taxing its fossil fuel industry is leaving significant public revenue on the table.
What Happened
The Institute for Energy Economics and Financial Analysis published a report titled “Valuing the Future,” examining how Pennsylvania taxes its natural gas production compared with other major energy-producing states. The analysis found that Pennsylvania’s reliance on so-called “impact fees” — rather than the severance taxes most competing states impose — has produced disproportionately low revenue relative to actual production.
Pennsylvania is the second-largest natural gas producer in the country after Texas, a position it has held for roughly 20 years since high-volume hydraulic fracturing took hold in the state. Despite an 80 percent increase in production volume between 2014 and 2024, impact fee revenue over that same period fell by 26 percent.
Report author Trey Cowan argued the data now provides a clear verdict on the low-tax theory. “Pennsylvania set its natural gas taxes low on the theory that higher tax rates would suppress production and by extension the state’s economy,” Cowan said. “We now have enough data to evaluate that theory, and the results are not favorable.”
The Marcellus Shale Coalition pushed back on the framing. President Jim Welty pointed to broader economic contributions, saying, “For the natural gas industry, it’s the jobs created and preserved along with the family-sustaining wages paid.”
By the Numbers
The revenue gap between Pennsylvania and other energy states is stark. Pennsylvania collected $164.5 million in impact fee revenue in fiscal year 2024 — just 0.3 percent of total state revenue. Texas, which produced only about 1.4 times more natural gas than Pennsylvania over the past decade, brought in $8.1 billion in natural gas revenue during the same period — roughly 9.3 times more. North Dakota collected $3.1 billion and New Mexico $2 billion.
Impact fee proceeds peaked at $279 million in 2022 and came in at $244 million in 2025, still well below what peer states generate. The cost of well inspection and permitting alone exceeds the impact fee revenue the state collects, creating a net fiscal drag on the Oil and Gas program at the Department of Environmental Protection.
The state’s Independent Fiscal Office projected a structural deficit of $6.06 billion for fiscal year 2026-27 in February; that figure was revised to $5.56 billion as of June 11. The current fiscal year deficit is projected at $4.75 billion.
Zoom Out
Pennsylvania’s situation reflects a broader policy tension playing out in energy-producing states across the country: how to balance industry-friendly tax structures designed to attract and retain production against the long-term fiscal costs of regulating and remediating that production. States like Texas, North Dakota, and New Mexico have generally moved toward severance-based systems that tie revenue more directly to production volume and commodity prices.
At the federal level, energy policy has moved in a different direction. U.S. Energy Secretary Chris Wright recently directed two fossil fuel power plants to remain operational beyond their planned retirement dates, including Constellation Energy’s Eddystone Generating Station in Delaware County, Pennsylvania — a signal that the current administration views fossil fuel infrastructure as a strategic national asset.
What’s Next
Governor Josh Shapiro’s proposed 2026-27 budget includes $16 million specifically for the Department of Environmental Protection’s Oil and Gas program to address the revenue shortfall from well inspection and permitting costs. Whether the state legislature will revisit the broader impact fee structure remains an open question, but the deficit projections are likely to keep the issue on the agenda as budget negotiations continue in Harrisburg.
Pennsylvania residents have also seen a 13.8 percent increase in residential electricity rates over the past year, adding political pressure on lawmakers to demonstrate that the state’s energy wealth is translating into tangible economic benefit for households.