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Research & Commentary: Fracking Still Fiscally Benefits Local Communities Despite Commodity Price Downturn

January 17, 2018

82 Percent Of Local Governments Have Experienced Net Fiscal Benefit From Fracking Despite Large Drop In Commodity Prices

A December 2017 study from Resources for the Future (RFF), an environmental think tank whose mission is “to improve environmental, energy, and natural resource decisions through impartial economic research and policy engagement,” found 82 percent of local governments experienced a “net fiscal benefit” from hydraulic fracturing (fracking) despite a large drop in oil and natural gas commodity prices beginning in 2014.

Between 2013 and 2015, the authors examined 163 local governments located in 21 regions in 16 different states. The authors interviewed “hundreds” of local officials, and then returned to the five largest – Colorado’s Denver-Julesburg Basin; North Dakota’s Bakken Shale; Pennsylvania’s Marcellus Shale; and the Eagle Ford and Permian shales in Texas – to investigate “whether and how the downturn had affected fiscal conditions for local governments.”

“In 2013, 22 percent of local governments reported net negative fiscal effects, compared with 11 percent from 2015 to 2017,” the authors wrote. “Moreover, the magnitude of any negative fiscal effects have declined [in spite of lower commodity prices], with no local government reporting large or medium net negative fiscal impacts from 2015 to 2017. The number of local governments reporting net positive fiscal effects increased from 63 percent in 2013 to 82 percent in 2015-17.”

Most of the fiscal benefits enjoyed by these communities have come in the form of property tax revenues from drilling activities. The authors highlight Weld County, Colorado, where these revenues from oil and natural gas jumped from $90 million in 2013 to $153 million in 2016. “These increased revenues have enabled the county to invest in a number of capital upgrades and other projects, including $15 million in its Bright Futures program, which provides a $3,000 grant to all graduating high school students, GED recipients, and veterans for use in higher education. Local officials report that this program would not have been possible without revenues from oil and gas production.”

The RFF study is not the first to show the economic benefits given to local communities from drilling activity. A study published in the American Economic Review in April 2017 found “each million dollars of new [oil and gas] production produces $80,000 in wage income and $132,000 in royalty and business income within a county. Within 100 miles, one million dollars of new production generates $257,000 in wages and $286,000 in royalty and business income.”

A December 2016 study from researchers at the University of Chicago, Princeton University, and the Massachusetts Institute of Technology (MIT) looked at nine different shale basins, “the most comprehensive assessment to date,” according to the authors, and determined using a “willingness-to-pay” metric hydraulic fracturing activity brings $1,300 to $1,900 in annual benefits to local households, totaling roughly $64 billion in yearly household benefits for those living in the nine basins studied. These benefits include a “a 7 percent increase in average income, driven by rises in wages and royalty payments, a 10 percent increase in employment, and a 6 percent increase in housing prices.” According to the authors, “Local government revenues also increased at a faster pace than expenditures.”

“This study makes it clear that on net there are benefits to local economies—which we believe is useful information for leaders in the United States and abroad who are deciding whether to allow fracking in their communities,” said MIT’s Chris Knittel, a co-author of the study.

The fracking process has transformed the energy outlook of the United States over the past decade, and the rise of shale gas as a replacement for coal has been primarily responsible for the United States now enjoying its lowest level of carbon-dioxide emissions since 1989. According to the U.S. Energy Information Administration, fracking now accounts for 51 percent of all U.S. crude oil production. The oil and natural gas hydraulic fracturing has enabled us to exploit are cost-effective and abundant, and they can ensure the United States is the world’s largest energy producer well beyond the 21st century.

The following documents provide more information on hydraulic fracturing.

Local Fiscal Effects of a Drilling Downturn: Local Government Impacts of Decreased Oil and Gas Activity in Five U.S. Shale Regions
http://www.rff.org/files/document/file/RFF%20Rpt-SPF.pdf
This study from Resources for the Future finds 82 percent of communities in the five largest shale regions in the United States experienced a net fiscal benefit from hydraulic fracturing despite there having been a large drop in oil and natural gas commodity prices starting in 2014.

 

The Local Economic and Welfare Consequences of Hydraulic Fracturing
https://www.heartland.org/publications-resources/publications/the-local-economic-and-welfare-consequences-of-hydraulic-fracturing
This comprehensive study published by the National Bureau of Economic Research says fracking brings, on average, $1,300 to $1,900 in annual benefits to local households, including a 7 percent increase in average income, a 10 percent increase in employment, and a 6 percent increase in housing prices.

Impacts of the Natural Gas and Oil Industry on the U.S. Economy in 2015
https://www.heartland.org/publications-resources/publications/impacts-of-the-natural-gas-and-oil-industry-on-the-us-economy-in-2015
This study, conducted by PricewaterhouseCoopers and commissioned by the American Petroleum Institute, shows that the natural gas and oil industry supported 10.3 million U.S. jobs in 2015. According to the Bureau of Labor Statistics, the average wage paid by the natural gas and oil industry, excluding retail station jobs, was $101,181 in 2016, which is nearly 90 percent more than the national average. The study also shows the natural gas and oil industry has had widespread impacts in each of the 50 states.

What If … Hydraulic Fracturing Was Banned?
https://www.heartland.org/publications-resources/publications/what-if-hydraulic-fracturing-was-banned
This study is the fourth in a series of studies produced by the U.S. Chamber of Commerce’s Institute for 21st Century Energy. It examines what a nationwide ban on hydraulic fracturing would entail. The report’s authors found by 2022, a ban would cause 14.8 million jobs to “evaporate,” almost double gasoline and electricity prices, and increase natural gas prices by 400 percent. Moreover, cost of living expenses would increase by nearly $4,000 per family, household incomes would be reduced by $873 billion, and GDP would be reduced by $1.6 trillion.

What If … America’s Energy Renaissance Never Happened?
https://www.heartland.org/publications-resources/publications/what-ifamericas-energy-renaissance-never-actually-happened
This report by the U.S. Chamber of Commerce’s Institute for 21st Century Energy examines the impact the development of shale oil and gas has had on the United States. The report’s authors found that without the fracking-related “energy renaissance,” 4.3 million jobs in the United States may not have ever been created and $548 billion in annual GDP would have been lost since 2009. The report also found electricity prices would be 31 percent higher and gasoline prices 43 percent higher.

Bill McKibben’s Terrifying Disregard for Fracking Facts
https://www.heartland.org/publications-resources/publications/bill-mckibbens-terrifying-disregard-for-fracking-facts?source=policybot
This Heartland Institute Policy Study, written by Research Fellow Isaac Orr, examines how methane emissions are measured, reports the effect those emissions may have on global warming, and discusses several falsehoods journalist Bill McKibben repeats from the discredited movie Gasland. It also evaluates the available fracking alternatives and discusses the relatively small impact new methane-emissions rules enacted by the Environmental Protection Agency will likely have on Earth’s climate.

 

Nothing in this Research & Commentary is intended to influence the passage of legislation, and it does not necessarily represent the views of The Heartland Institute. For further information on this subject, visit Environment & Climate News, The Heartland Institute’s website, and PolicyBot, Heartland’s free online research database.

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Author
Tim Benson joined The Heartland Institute in September 2015 as a policy analyst in the Government Relations Department.
TBenson@heartland.org