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Pennsylvania governor declares natural gas tax dead

NEW YORK (Reuters) - Pennsylvania Governor Ed Rendell on Thursday declared his plan to tax natural gas production "clearly dead this year" and accused Republican legislators of reneging on a pledge to enact a tax.

Pennsylvania, home to the Marcellus Shale that is expected to quadruple production in the next 20 years, remains the only gas-producing state yet to impose a tax on shale gas, a largely untapped and relatively clean source of onshore energy.

"Their clear unwillingness to change their previous proposal or to resolve differences with the House Democrats and with my administration makes it obvious that they have killed the severance tax in this legislative session," Rendell said in a statement.

Rendell, a Democrat who will step down in January at the end of his second term, has been calling for the tax for two years to boost state revenue and help pay for the environmental costs of gas drilling.

The Republican-controlled state senate and the shale gas industry had opposed the tax, forcing Rendell to compromise from an original plan that would have raised $307 million in the first year alone. Now that compromise is dead as well.

Lawmakers had agreed during this year's budget talks to settle details of the so-called severance tax by October 1. The date passed without a deal despite protracted talks, and the legislative session has ended ahead of the November 2 election.

"It is a broken promise, as well as a misguided policy decision that will harm our environment, will leave our local governments without the financial wherewithal to deal with the impacts of drilling in their communities, and will increase the budget challenges that Pennsylvania will face in the years to come," he said.

Shale gas is extracted through a controversial process known as hydraulic fracturing, or "fracking," in which a mixture of chemicals, sand and water are blasted into rock deep beneath the surface, creating fissures that release trapped gas.

Environmentalists have raised concerns that chemical leaks and spills at the surface of have polluted ground water but the industry insists the process is safe, a contention recently supported by Pennsylvania's top environmental regulator.

(Reporting by Daniel Trotta and Joan Gralla, Editing by Chizu Nomiyama and Andrew Hay)