A pair of House Democrats say the state should change the way it taxes the fracking industry, a move that would generate billions of dollars of additional revenue for the state.

At the same time, the state Environmental Quality Board on Tuesday voted to move forward with a review of potential new setback requirements that industry officials say would bar almost all new fracking in the state.

Since 2012, Pennsylvania has relied on an impact fee instead of a tax on the volume of gas produced by the state’s roughly 15,000 unconventional gas wells. The impact fee is levied on a sliding scale so that natural gas companies pay more for new wells than they do for wells that have been in operation for years. Under the impact fee approach, much of the revenue is redirected to the areas where drilling is occurring instead of going into the state general fund.

The state Independent Fiscal Office last week projected that the impact fee revenue for 2025 will be about $240 million.

Fracking companies had started drilling 428 wells thus far in 2025 — a 50% increase over the same period in 2024, data from the Department of Environmental Protections shows.

The third quarter of 2025 was the busiest for new wells fracked since the first quarter of 2023, according to an analysis by the Independent Fiscal Office.

Rep. Chris Pielli, D-Chester, in announcing the severance tax proposal, noted that Texas collected about 10 times as much in fracking tax revenue in 2024 as Pennsylvania collected through its impact fee. Texas and Pennsylvania are the two biggest natural gas-producing states.

Pennsylvania’s impact fee is unique and no other gas-producing state has anything like it, Pielli said, adding that the fee has “long been criticized as a corporate giveaway to shale producers.”

Pielli and Rep. Tarik Khan, D-Philadelphia, said legislation they are introducing would keep the impact fee in place and provide tax breaks for impact fee payments so that the drillers aren’t double-taxed under the severance tax proposal.

“The Marcellus Shale is our natural resource. As such, we should not only suffer its impacts but share in its benefits,” Pielli said in a statement.

Patrick Henderson, vice president of government affairs and communications for the Marcellus Shale Coalition, said talk about a severance tax is “misguided.” Comparisons to the severance tax in Texas are also misleading because that state doesn’t have corporate or personal income tax, as Pennsylvania does.

In addition, the natural gas industry in Pennsylvania has struggled to get pipelines approved to make it easier to transport natural gas from the wells.

As a result, Pennsylvania prices for natural gas companies and property owners who get royalties from natural gas are 20% to 40% less than in other natural gas-producing states.

Setback fight

The new severance tax proposal comes as environmental groups on Tuesday notched a victory in their bid to get the Environmental Quality Board to approve stricter setback requirements for fracking.

The “draconian” setbacks would effectively ban new fracking in the state, according to the Marcellus Shale Coalition.

The groups — The Clean Air Council and the Environmental Integrity Project — assert that the existing setback requirements of 500 feet from buildings and 1,000 feet from water supply extraction points are “woefully insufficient.”

The groups had petitioned the board to establish setbacks of:

– 3,281 feet from any building and from any drinking water well

– 5,280 feet from any building serving vulnerable populations, such as schools, hospitals or nursing homes

– And 750 feet from any surface water.

The Environmental Quality Board’s vote Tuesday directs the Department of Environmental Protection to study whether the setbacks proposed by the environmental groups are appropriate.

“Clean Air Council is thrilled to see the EQB do the right thing and allow DEP to study our petition,” said Alex Bomstein, executive director of the Clean Air Council in a statement on the group’s website. “We are confident that the research supports these stronger protections and will convince DEP of the need to protect Pennsylvanians across the state from the serious dangers of fracking.”

The natural gas industry is arguing that the process is flawed and that the agency doesn’t have the authority to change the setbacks established by the legislature, Henderson said.

The environmental groups noted that a statewide grand jury in 2020 had called for more restrictive setbacks for fracking activity. But at the time, officials at DEP had indicated that they believed that the setbacks could only be changed through legislation.

“The recently enacted state budget provides $18 million in new funding to oversee and regulate Pennsylvania’s oil and gas industry,” according to a letter from the Marcellus Shale Coalition to the Environmental Quality Board, opposing the proposal. “It defies logic that the General Assembly would have appropriated any of this money to be spent by the department to ‘study’ banning the very industry it’s charged with overseeing.”