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Research & Commentary: Nationwide Study Finds Communities Benefit from Fracking

December 29, 2016

SSRN Study Finds Fracking Brought $64 Billion In Yearly Household Benefits To Nine Shale Basins

A new study by researchers at the University of Chicago, Princeton University, and the Massachusetts Institute of Technology (MIT), titled The Local Economic and Welfare Consequences of Hydraulic Fracturing, concludes communities affected by hydraulic fracturing, commonly called “fracking,” on average, benefit from the industry. The study, which was published in late December 2016, is the first nationwide study of its kind.

The study 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.

“Our estimates are based on the knowledge that communities currently have,” said lead researcher Michael Greenstone of the University of Chicago. “So, for example, if new information emerges that indicates that there are larger negative local health effects than is currently believed, this would likely lead to declines in housing prices and overall welfare impacts. But based on what is currently known, the average community that has allowed fracking has enjoyed substantial net benefits.”

The study notes the benefits from fracking are also significant at the macro level.

“The application of hydraulic fracturing to develop oil and natural gas found in shale deposits has led to a sharp increase in U.S. energy production and generated enormous benefits, including abruptly lower energy prices, a reduced trade deficit, stronger energy security and even lower carbon dioxide emissions in the power sector. … Higher levels of domestic energy production have … cut the trade deficit and increased energy security by reducing the amount of fuel purchased abroad. A decade ago, the U.S. imported 60 percent of its net liquid fuel needs. Last year, it imported just 24 percent. Combined with lower prices, this has sharply reduced U.S. expenditure on oil imports, which had averaged more than half of the trade deficit from 2008 to 2013. The net result was a $304 billion reduction in capital outflows in 2015 compared to 2008.”

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.

Drilling is currently being conducted across the country in a safe and responsible manner. Federal, state, and local governments have tested thousands of sites for hydraulic fracturing pollution of groundwater and drinking water resources, as well as for air quality. Flatly, there is no scientific justification for banning hydraulic fracturing or over-regulating it out of existence. Regulation should only be based on the best available scientific literature, not on wild, unfounded claims based on misinformation, fear, and superstition.

The following documents provide more information about hydraulic fracturing.

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.

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.

Hydraulic Fracturing a Game-Changer for U.S. Energy and Economies
https://www.heartland.org/publications-resources/publications/hydraulic-fracturing-a-game-changer-for-us-energy-and-economies?source=policybot
In this Policy Study from The Heartland Institute, Heartland Research Fellow Isaac Orr explains the advantages and disadvantages of smart drilling and its alternatives. Orr reviews the background and potential of hydraulic fracturing in the United States and puts that potential in the context of the supply of and demand for oil and gas. He addresses the environmental impacts of hydraulic fracturing, both positive and negative, as well as the public safety issues raised by activists, such as potential harm to drinking water supplies. Orr also discusses how oil and gas production is regulated at the state and national levels and suggests appropriate policies for the industry.

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.

Fracking Facts: The Science, Economics, and Legal Realities
https://www.heartland.org/publications-resources/publications/fracking-facts-the-science-economics-and-legal-realities?source=policybot
Hydraulic fracturing, commonly known as fracking, has been employed in the United States since the 1940s. Although innovation has improved the precision of the process, the essentials are the same. Utilizing horizontal drilling, a mixture of mostly water, sand, and trace amounts of chemicals, are used to create fissures in underground shale deposits to allow oil and natural gas trapped in hard rock to move toward the surface to be collected. Activists have blamed fracking and the processes associated with it for emissions of pollutants, earthquakes, and even groundwater contamination, though independent evidence consistently shows these allegations to be false. Leigh Thompson of the Texas Public Policy Foundation argues the evidence supporting fracking bans looks slim when attention is drawn to the facts.

Managing the Risk of Hydraulic Fracturing: An Update
https://www.heartland.org/publications-resources/publications/managing-the-risks--of-hydraulic-fracturing-an-update?source=policybot
Kenneth P. Green of the Fraser Institute argues policymakers should ignore the siren song made by those calling for moratoria or bans on fracking.

Hydraulic Fracturing: Critical for Energy Production, Jobs, and Economic Growth
https://www.heartland.org/publications-resources/publications/hydraulic-fracturing-critical-for-energy-production-jobs-and-economic-growth?source=policybot
Increased energy production on private lands in the United States has been one of the most promising economic success stories in recent years. A large part of the success is due to an energy-extraction process known as hydraulic fracturing. Misconceptions about hydraulic fracturing, also called fracking, abound. The Heritage Foundation’s Nicolas Loris explains hydraulic fracturing is safe when regulated effectively and says fracking greatly increases the nation’s energy production, thus promoting job creation.

 

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 and other topics, visit the website of Environment & Climate NewsThe Heartland Institute’s website, and PolicyBot, Heartland’s free online research database.

The Heartland Institute can send an expert to your state to testify or brief your caucus; host an event in your state; or send you additional information on a topic. Please don’t hesitate to contact us if we can be of assistance! If you have any questions or comments, contact John Nothdurft, Heartland’s director of government relations, at jnothdurft@heartland.org or 312/377-4000.

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