Cracker plant tax credit is not a production credit. It’s an ethane purchase credit

In all the considerable media coverage the tax credit for the Shell cracker plant has received, most reporters and bloggers have missed a key detail. The tax credit is not a production tax credit. Shell will not receive a nickel for each gallon of ethylene it makes at the cracker plant.  

No, no, no – taxpayers will give Shell a nickel credit for each gallon of ethane it BUYS. You can see for yourself by reading the fiscal code bill that authorized the credit. I’ll save you the work of wading through all 139 pages of the bill. You can find the language on page 70-71: 

“Section 1703-G. Application and approval of tax credit.

(a)   Rate.‑‑The tax credit shall be equal to $0.05 per gallon of ethane purchased and used in manufacturing ethylene in this Commonwealth by a qualified taxpayer.”

This is an important distinction. Just yesterday the Pittsburgh Tribune Review reported that even after all the tax breaks Pennsylvania taxpayers will hand over to Shell, the company has not yet made its final decision to build the plant in Beaver County. The key factor that needs to be in place is an adequate supply of ethane. Shell’s gas drilling subsidiary is ramping up its production and assessing how much ethane it can get out of its gas wells on 175,000 acres it controls in five western Pennsylvania counties.  

So where will Shell’s cracker plant buy its ethane from at a nickel a gallon tax credit? Well, it will buy most of it from the Shell gas drilling subsidiary.

Sweet.