Welfare and Distributional Implications of Shale Gas

Abstract

for helpful feedback; and Sarah Johnston for excellent research assistance. This paper was originally prepared for the Brookings Papers on Economic Activity and presented at the Spring 2015 Brookings Panel. Both authors hereby declare that they have no material financial interests that relate to the research described in this paper. This research was supported by an honorarium from the Brookings Institution. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research. NBER working papers are circulated for discussion and comment purposes. They have not been peerreviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications.

Quantifying Market and Non-market Benefits and Costs of Hydraulic Fracturing in the United States: A Summary of the Literature

“…The producer surplus associated with shale gas production amounts to $7.24 billion annually. However, the lower natural gas prices discussed above (Hausman and Kellogg, 2015;Holladay and LaRiviere, 2013) also suggests that companies with previously completed conventional gas wells have experienced a reduction in producer surplus on these wells (Hausman and Kellogg, 2015). Thus our estimate of the gain in producer surplus from shale gas wells is partially offset by the reduction in producer surplus to conventional gas wells.…”

“…Wholesale natural gas prices in the U.S. have dropped to less than half the level before widespread adoption and implementation of hydraulic fracturing (Hausman and Kellogg, 2015;Holladay and LaRiviere, 2014). Lower natural gas prices attributed to hydraulic fracturing, have generated a significant increase in consumer surplus for natural gas customers, whether they be households (for home heating), the electric power sector, industrial users or commercial users (Hausman and Kellogg, 2015).…”

“…Lower natural gas prices attributed to hydraulic fracturing, have generated a significant increase in consumer surplus for natural gas customers, whether they be households (for home heating), the electric power sector, industrial users or commercial users (Hausman and Kellogg, 2015). In addition, the lower natural gas prices have led to fuel switching from coal to natural gas for electricity production (Holladay and LaRiviere, 2013;Center for Climate and Energy Solutions, 2013) which has environmental benefits.…”

“…However, the lower natural gas prices have primarily led to fuel switching from coal to natural gas for electricity production (Holladay and LaRiviere, 2013;Center for Climate and Energy Solutions, 2013;Newell and Raimi, 2014) which, as discussed in the next section, results in a reduction in overall greenhouse gas emissions in our analysis. However, Hausman and Kellogg's (2015) scenario analysis suggests that with the highest methane leak rates reported in the literature, combined with the increase end use of natural gas can result in net increases in greenhouse gas emissions with hydraulic fracturing. This highlights the importance of methane leak detection and rapid response.…”

“…However, no comparative monetization of environmental costs and economic effects is made. Hausman and Kellogg (2015) and Mason et al (2015) both stress that while the market benefits of hydraulic fracturing are substantial that further research is needed to quantify the environmental costs. Our paper uses the existing gray and published literature to calculate the monetary values of most environmental impacts.…”