Power plants may win as PA eyes $2.6B tax credit rewrite

HARRISBURG — Companies have yet to claim a single dollar from a $2.6 billion tax credit package Pennsylvania enacted in 2022 to encourage natural gas use, hydrogen production, milk processing, and more.

Now, the Shapiro administration is floating a union-backed rewrite that would subsidize energy production and lower the bar to claim the credits. However, the legislature appears unlikely to take up such proposals before the end of the year.

The package includes four credits that would give tax breaks to companies if they reach certain investment and job creation benchmarks. One encourages the use of Pennsylvania milk to make dairy products, another incentivizes the production of hydrogen within the commonwealth, and a third promotes the making of semiconductors or conducting biomedical research.

The largest aims to reward companies for using Pennsylvania natural gas for manufacturing. First passed in 2020 and expanded in 2022, the credit authorizes up to $1.4 billion in tax breaks over 25 years to companies that use methane — a primary component of natural gas — to produce fertilizer or fuel. Texas-based Nacero announced such a facility for Luzerne County in 2021, but the company has repeatedly delayed the start of construction.

Without any takers for the credits, the Shapiro administration has circulated draft legislation that would convert the natural gas subsidy into one encouraging electricity production, according to a version of the bill viewed by Spotlight PA.

The new credit offers a power plant up to $100 million annually for three years. Facilities get less money if their prices exceed the average cost of energy as determined by PJM, the regional grid operator that serves Pennsylvania.

The proposed language does not restrict what type of fuel a power plant could use while claiming the credit. However, it says the energy produced should meet specific clean energy standards. These would likely include nuclear energy; renewables such as hydroelectric, solar, and wind; or, for fossil fuel-powered plants, the use of carbon capture to reduce emissions.

Rob Bair, president of the Pennsylvania State Building & Construction Trades Council, supports the concept.

The council represents tens of thousands of unionized electricians, carpenters, painters, and other construction workers who benefit from new projects, and holds considerable political sway, especially in an election year. Its constituent unions annually give millions of dollars to candidates and political committees.

Bair told Spotlight PA that he has pushed lawmakers to rewrite the program to encourage the growth of Pennsylvania’s energy industry, including nuclear, small-scale coal, and low-carbon hydrogen production. Doing so, he argued, could offset the loss of electricity generation and jobs caused by the shutdown of coal and gas plants.

“Let’s take the [tax credit] and let’s utilize it in a way that we incentivize electrical energy production in a clean, safe, environmentally friendly way,” Bair told Spotlight PA.

Backers of the original tax credit package included Bair, who argued the program would help Pennsylvania land several projects it was wooing at that time, including the Nacero plant to turn fracked methane into fertilizer, and a dairy processing facility.

Two years on, none of the projected facilities have landed in the commonwealth. Some went to other states, while others never materialized.

In a news conference last year, Democratic Gov. Josh Shapiro discussed lessons from a failed attempt to use the tax credits to attract dairy brand Fairlife. He named shorter permitting times and better financial incentives for companies as areas where he thinks the state could improve.

Shapiro underscored this goal in his 2024 budget address when he said he was “sick and tired of losing to friggin’ Ohio,” and argued Pennsylvania needs to cut red tape and develop shovel-ready sites for new projects.

Shapiro got both in the most recent state budget. The legislature gave the OK for Pennsylvania to borrow $500 million to provide grants or loans to encourage industrial development. It also approved a streamlined permitting process that allows companies to hire state-approved third-party reviewers in certain cases.

The draft bill circulated by the Shapiro admin would make it easier for companies in target industries to claim tax breaks by lowering the amount of money the businesses have to invest and the number of long-term jobs their projects must create.

Shapiro hasn’t said much publicly about his push to change the tax credits. During a news conference earlier this month, he said the “law is something that we … are considering how best to use for the benefit of Pennsylvania.”

A spokesperson for Shapiro told Spotlight PA the governor is “open to repurposing these tax credits to ensure they can be used effectively to create more jobs and opportunity.”

Other Democrats have largely stayed quiet on any brewing policy shifts, although some senior lawmakers have floated changes that acknowledge the credits must be rewritten to be useful.

State Rep. Rob Matzie (D., Beaver) proposed adding a subsidy that would support sustainable aviation fuel production, with a tax credit of up to $30 million each year. His ideas carry weight because he chairs the state House’s influential Consumer Protection, Technology, and Utilities Committee, through which major energy bills have passed in the past year.

Similarly, state Rep. Steve Samuelson (D., Northampton), who chairs the state House’s tax policy-focused Finance Committee, recently introduced a bill that would make the semiconductor manufacturing credit easier to claim.

State House Democratic spokesperson Elizabeth Rementer didn’t comment on whether chamber leaders would support a rewrite of the tax credits, but did say that the caucus is “constantly evaluating tax credit programs to ensure they’re being used properly and creating jobs.”

“If the … program is being underutilized it will be examined more closely,” she said.

Rewriting the program will likely be a harder sell in the GOP-controlled state Senate.

Majority Leader Joe Pittman (R., Indiana) said he hasn’t seen enough from Shapiro to be sold on the proposal.

“The administration spent a significant amount of time talking to outside interested parties on that issue … and spent no time talking to me or my team about what such a proposal would look like,” Pittman told Spotlight PA in August.

Pittman has personally been open to state programs to encourage energy production, repeatedly saying that he is interested in expanding small-scale nuclear reactors. He has also voiced concerns about the state’s long-term ability to produce enough energy for itself.

Other state Republicans are less inclined to hear Shapiro and the trades out.

State Sen. Kristin Phillips-Hill (R., York) voted against the original deal and said her skepticism of government handouts remains in place.

According to federal data, Pennsylvania is the second largest net supplier of energy to other states in the country. The excess energy goes to neighbors in Maryland and New York.

Those states, she’s argued, have allowed their fossil-fuel-powered plants to close while approving new data centers and other electricity-heavy industries powered by Pennsylvania.

As such, she argued that any subsidies offered by Pennsylvania would only subsidize other state’s “failed energy policies.”

“I just don’t see the benefit to Pennsylvanians,” said Phillips-Hill. “Am I going to support something that is going to continue to take Pennsylvania taxpayer dollars to subsidize the folly and irresponsibility of other states? Absolutely not.”

The Commonwealth Foundation, a conservative advocacy organization, recently put out an energy platform that echoes Phillips-Hill’s position, saying that it would not support any such tax credits or other state subsidies.

André Béliveau, the energy policy director at the Commonwealth Foundation, said that he understands the underlying impulse to bolster the industry and production. But he argues the legislature should do so by stripping back regulations and mandating that any changes to energy production maintain or improve grid reliability.

“We want to make sure we have reliable and affordable energy,” said Beliveau. “Subsidies are not the way to get there.”

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