Economic study weighs benefits, negatives of living near shale hot spots

Average households in U.S. shale oil and gas drilling hot spots have experienced property value, income and other benefits that outweigh the costs of a diminished quality of life brought on by the industrial activity, economists reported in a recent study for the Social Science Research Network (SSRN).

The benefits were not uniform across shale drilling regions, some of which felt overall negative effects from their drilling booms, and the study’s authors can’t say what led some areas to have better experiences than others. 

The economists — from the Massachusetts Institute of Technology, the University of Chicago and Princeton University — measured changes after the onset of fracking in income, housing values, employment, crime, pollution and other welfare indicators in communities with rich stores of shale oil and gas beneath them. They compared those with otherwise similar communities without it.

The researchers combined geological information with the kinds of data sources that are more routinely used in economic analyses to put together a nationwide study of fracking’s comprehensive impact on local communities with the most drilling.

They found that typical households in counties at the heart of nine U.S. shale oil and gas plays saw a net benefit worth between $1,300 and $1,900 annually, despite factoring in costs that reduced quality of life by $1,000 to $1,600 annually.

Some communities saw more pronounced benefits, while others appeared worse off than they would have been without fracking.

The Marcellus Shale counties in the study fared better than most, with a net benefit worth nearly $2,600 per household annually, as measured through changes in home value. Households in the oil-rich Bakken Shale region saw the largest improvement in net benefits over similar households with little or no drilling activity. 

But Texas and Louisiana’s Haynesville Shale, for example, experienced costs that outweighed the benefits. The overall impact there was a loss worth roughly $1,800 per household.

“There is a distribution here,” said Christopher Knittel, one of the study’s authors and the director at MIT’s Center for Energy and Environmental Policy Research. “It is possible to have a negative consequence from fracking. But what we can say is, on average, we’ve seen an increase in local welfare.”

The researchers said the study could be useful for local and state policymakers as they weigh whether and where to allow fracking. With a drilling-friendly administration entering the White House, more local governments across the country might be faced with those decisions.

The study’s authors could not say why some regions had better outcomes than others in their analysis, other than that extracting more oil than gas appeared to be a factor.

That did not hold true in the gas-rich Marcellus.

“We wish we could explain why some are positive and some are negative,” Mr. Knittel said.

“We can say that at least on average you can expect an increase” in local welfare, he said. “But we’re more than comfortable admitting the fact that there are [shale] plays that saw a drop in welfare, so it’s not always roses.”

Laura Legere:

This story was updated on Jan. 6 to clarify that the research was done for the Social Science Research Network.

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