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While Falling Oil Prices Do Hurt Some, Benefits are Widespread

December 4, 2015

It is important to note that falling oil prices create economic costs as well as benefits.

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It is important to note that falling oil prices create economic costs as well as benefits. But The Badger Herald article would have benefited from a discussion of the good that comes from lower prices, and it relies on a quote from Bill Davis of the Wisconsin Sierra Club that presents some inaccurate statements about the environmental impact of hydraulic fracturing.

President Harry Truman famously called for a one-handed economist because others always see both benefits and drawbacks in everything. It’s true of falling oil prices. On one hand, the substantial slowdown in the sand mining industry in Wisconsin is bad for people employed in the sand mining sector and the local businesses that provide services to that industry. There have been dozens, if not hundreds, of layoffs in the sand mining sector and the slowdown has reduced the need for support services. On the other hand, every family in the state is benefiting from low oil and natural gas prices.

For example, the Energy Information Administration estimates the average family will save around $700 in 2015 compared to 2014 because of lower gasoline prices. Those savings are spent elsewhere in the economy, giving a boost to businesses. A study conducted by JP Morgan Chase shows individuals spend 78 cents of every dollar they save on gasoline, with about 18 percent of it going to eating at restaurants and 10 percent to groceries.

Other big categories include entertainment, electronics and appliances and charitable donations. Though small communities more heavily connected to the industrial sand mining industry may experience harder times, the far greater number of communities less dependent on sand mining will benefit.

Fracking has also significantly driven down natural gas prices, which is important for providing affordable electricity, heating homes and businesses and providing energy for factories. A study by the Brookings Institution found consumers in Wisconsin could be saving as much as $259 per person. For a family of four, that’s $1,306 they can spend on school supplies for their kids, buying healthier food, rent and other important purchases.

Contrary to Davis’ claims that fracking pollutes groundwater, the U.S. Environmental Protection Agency conducted an extensive six-year study on the impact of fracking on groundwater and found no evidence of widespread, systemic impacts on groundwater. There are incidences where wastewater is spilled or pipes leak, but EPA found these accidents are rare.

Perhaps solar, wind and hydro power will someday be more viable than other forms of energy, such as oil, natural gas, coal and nuclear energy, but it is not likely to happen anytime soon. Wind and solar power are so expensive they make up just 2.1 percent of our total energy consumption in the U.S., and hydro provides only 2.5 percent of our total energy.

Oil, natural gas, coal and nuclear energy provide Americans with 35 percent, 28 percent, 18 percent and 8.5 percent of their energy needs. Renewables aren’t anywhere near ready to provide us with the energy the U.S. needs, whereas fracking is improving our lives today by giving us access to affordable, abundant energy.

Low oil prices are a mixed bag for Wisconsin. Commodity prices always fluctuate, and the price of oil will rebound at some point, increasing the demand for frac sand, at which point sand-producing areas will enjoy an uptick in economic activity. Of course, that would mean consumers statewide will likely be paying more at the pump.

[Originally published at the Badger Herald]

Article Tags
Energy
Author
Isaac Orr is a policy fellow at the Center of the American Experiment on mining and energy issues.
isaac.orr@americanexperiment.org