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When Externalities Are Taxed: The Effects and Incidence of Pennsylvania’s Impact Fee on Shale Gas Wells

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  • Katie Jo Black
  • Shawn J. McCoy
  • Jeremy G. Weber

Abstract

To pay for environmental and public infrastructure costs associated with shale gas wells, Pennsylvania introduced a per-well impact fee despite concerns that it would discourage industry investment. Using a quasi-experimental design and data that nearly cover the universe of leases and wells in Pennsylvania, Ohio, and West Virginia, we find that leasing by energy firms declined dramatically after the fee’s enactment, but little to no declines in well permitting or drilling occurred in the most geologically similar subsample. We estimate that at least 60% of the decline in leasing reflects a liquidity crunch linked to retroactive application of the fee in a time of low natural gas prices. We also observe limited pass-through of the fee to resource owners. Firms could not change the terms of leases signed before the fee, and only half of the fee was passed through in new leases, primarily through a lower royalty rate.

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  • Katie Jo Black & Shawn J. McCoy & Jeremy G. Weber, 2018. "When Externalities Are Taxed: The Effects and Incidence of Pennsylvania’s Impact Fee on Shale Gas Wells," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 5(1), pages 107-153.
    • Handle: RePEc:ucp:jaerec:doi:10.1086/694034
    DOI: 10.1086/694034
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    4. Ilia Murtazashvili & Ennio E. Piano, 2019. "Governance of shale gas development: Insights from the Bloomington school of institutional analysis," The Review of Austrian Economics, Springer;Society for the Development of Austrian Economics, vol. 32(2), pages 159-179, June.
    5. Irwin, Nicholas B. & McCoy, Shawn J. & McDonough, Ian K., 2021. "Water in the time of corona(virus): The effect of stay-at-home orders on water demand in the desert," Journal of Environmental Economics and Management, Elsevier, vol. 109(C).
    6. Zuo, Na & Schieffer, Jack & Buck, Steven, 2019. "The effect of the oil and gas boom on schooling decisions in the U.S," Resource and Energy Economics, Elsevier, vol. 55(C), pages 1-23.
    7. Blundell, Wesley & Kokoza, Anatolii, 2022. "Natural gas flaring, respiratory health, and distributional effects," Journal of Public Economics, Elsevier, vol. 208(C).
    8. Weber, Jeremy, 2021. "Bonding Requirements for Oil and Gas Wells in Pennsylvania: Cost-Based Recommendations," MPRA Paper 110035, University Library of Munich, Germany.
    9. Zwickl, Klara, 2019. "The demographics of fracking: A spatial analysis for four U.S. states," Ecological Economics, Elsevier, vol. 161(C), pages 202-215.
    10. Xu, Minhong & Xu, Yilan, 2020. "Fraccidents: The impact of fracking on road traffic deaths," Journal of Environmental Economics and Management, Elsevier, vol. 101(C).
    11. Muehlenbachs, Lucija & Staubli, Stefan & Chu, Ziyan, 2021. "The accident externality from trucking: Evidence from shale gas development," Regional Science and Urban Economics, Elsevier, vol. 88(C).

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