IDEAS home Printed from https://ideas.repec.org/a/ucp/jaerec/doi10.1086-694034.html
   My bibliography  Save this article

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

Author

Listed:
  • 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.

Suggested Citation

  • 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
    as

    Download full text from publisher

    File URL: http://dx.doi.org/10.1086/694034
    Download Restriction: Access to the online full text or PDF requires a subscription.

    File URL: http://dx.doi.org/10.1086/694034
    Download Restriction: Access to the online full text or PDF requires a subscription.

    File URL: https://libkey.io/10.1086/694034?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Muehlenbachs, Lucija & Spiller, Elisheba & Timmins, Christopher, "undated". "The Housing Market Impacts of Shale Gas Development," Discussion Papers dp-13-39-rev, Resources For the Future.
    2. Munasib, Abdul & Rickman, Dan S., 2015. "Regional economic impacts of the shale gas and tight oil boom: A synthetic control analysis," Regional Science and Urban Economics, Elsevier, vol. 50(C), pages 1-17.
    3. Weber, Jeremy G. & Wang, Yongsheng & Chomas, Maxwell, 2016. "A quantitative description of state-level taxation of oil and gas production in the continental U.S," Energy Policy, Elsevier, vol. 96(C), pages 289-301.
    4. Weber, Jeremy G. & Hitaj, Claudia, 2015. "What Can We Learn about Shale Gas Development from Land Values? Opportunities, Challenges, and Evidence from Texas and Pennsylvania," Agricultural and Resource Economics Review, Cambridge University Press, vol. 44(2), pages 40-58, August.
    5. John A. List & Daniel L. Millimet & Per G. Fredriksson & W. Warren McHone, 2003. "Effects of Environmental Regulations on Manufacturing Plant Births: Evidence from a Propensity Score Matching Estimator," The Review of Economics and Statistics, MIT Press, vol. 85(4), pages 944-952, November.
    6. Lucija Muehlenbachs & Elisheba Spiller & Christopher Timmins, 2015. "The Housing Market Impacts of Shale Gas Development," American Economic Review, American Economic Association, vol. 105(12), pages 3633-3659, December.
    7. Becker, Randy A., 2011. "Local environmental regulation and plant-level productivity," Ecological Economics, Elsevier, vol. 70(12), pages 2516-2522.
    8. Deacon Robert T., 1993. "Taxation, Depletion, and Welfare: A Simulation Study of the U.S. Petroleum Resource," Journal of Environmental Economics and Management, Elsevier, vol. 24(2), pages 159-187, March.
    9. Martin, Ralf & de Preux, Laure B. & Wagner, Ulrich J., 2014. "The impact of a carbon tax on manufacturing: Evidence from microdata," Journal of Public Economics, Elsevier, vol. 117(C), pages 1-14.
    10. Gilbert E. Metcalf, 2009. "Designing a Carbon Tax to Reduce U.S. Greenhouse Gas Emissions," Review of Environmental Economics and Policy, Association of Environmental and Resource Economists, vol. 3(1), pages 63-83, Winter.
    11. Boslett, Andrew & Guilfoos, Todd & Lang, Corey, 2016. "Valuation of expectations: A hedonic study of shale gas development and New York’s moratorium," Journal of Environmental Economics and Management, Elsevier, vol. 77(C), pages 14-30.
    12. E. Mark Curtis, 2014. "Who Loses Under Power Plant Cap-and-Trade Programs?," NBER Working Papers 20808, National Bureau of Economic Research, Inc.
    13. Rema Hanna, 2010. "US Environmental Regulation and FDI: Evidence from a Panel of US-Based Multinational Firms," American Economic Journal: Applied Economics, American Economic Association, vol. 2(3), pages 158-189, July.
    14. Wolfgang Keller & Arik Levinson, 2002. "Pollution Abatement Costs and Foreign Direct Investment Inflows to U.S. States," The Review of Economics and Statistics, MIT Press, vol. 84(4), pages 691-703, November.
    15. Hill, Elaine L., 2018. "Shale gas development and infant health: Evidence from Pennsylvania," Journal of Health Economics, Elsevier, vol. 61(C), pages 134-150.
    16. Jenner, Steffen & Lamadrid, Alberto J., 2013. "Shale gas vs. coal: Policy implications from environmental impact comparisons of shale gas, conventional gas, and coal on air, water, and land in the United States," Energy Policy, Elsevier, vol. 53(C), pages 442-453.
    17. Fitzgerald, Timothy, 2014. "Importance of Mineral Rights and Royalty Interests for Rural Residents and Landowners," Choices: The Magazine of Food, Farm, and Resource Issues, Agricultural and Applied Economics Association, vol. 29(4), pages 1-7.
    18. Marchand, Joseph & Weber, Jeremy, 2015. "The Labor Market and School Finance Effects of the Texas Shale Boom on Teacher Quality and Student Achievement," Working Papers 2015-15, University of Alberta, Department of Economics.
    19. Josh Ederington & Arik Levinson & Jenny Minier, 2005. "Footloose and Pollution-Free," The Review of Economics and Statistics, MIT Press, vol. 87(1), pages 92-99, February.
    20. Michael Greenstone & John A. List & Chad Syverson, 2011. "The Effects of Environmental Regulation on the Competiveness of U.S. Manufacturing," Working Papers 11-03, Center for Economic Studies, U.S. Census Bureau.
    21. Parry Ian W. H., 1995. "Pollution Taxes and Revenue Recycling," Journal of Environmental Economics and Management, Elsevier, vol. 29(3), pages 64-77, November.
    22. Fredriksson, Per G. & Millimet, Daniel L., 2002. "Strategic Interaction and the Determination of Environmental Policy across U.S. States," Journal of Urban Economics, Elsevier, vol. 51(1), pages 101-122, January.
    23. Paredes, Dusan & Komarek, Timothy & Loveridge, Scott, 2015. "Income and employment effects of shale gas extraction windfalls: Evidence from the Marcellus region," Energy Economics, Elsevier, vol. 47(C), pages 112-120.
    24. James Feyrer & Erin T. Mansur & Bruce Sacerdote, 2017. "Geographic Dispersion of Economic Shocks: Evidence from the Fracking Revolution," American Economic Review, American Economic Association, vol. 107(4), pages 1313-1334, April.
    25. Wang, Zhongmin & Krupnick, Alan, 2013. "A Retrospective Review of Shale Gas Development in the United States: What Led to the Boom?," Discussion Papers dp-13-12, Resources For the Future.
    26. Becker, Randy A., 2011. "Local environmental regulation and plant-level productivity," Ecological Economics, Elsevier, vol. 70(12), pages 2516-2522.
    27. Kunce, Mitch, 2003. "Effectiveness of Severance Tax Incentives in the U.S. Oil Industry," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 10(5), pages 565-587, September.
    28. Levinson, Arik, 1996. "Environmental regulations and manufacturers' location choices: Evidence from the Census of Manufactures," Journal of Public Economics, Elsevier, vol. 62(1-2), pages 5-29, October.
    29. Sathya Gopalakrishnan & H. Allen Klaiber, 2014. "Is the Shale Energy Boom a Bust for Nearby Residents? Evidence from Housing Values in Pennsylvania," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 96(1), pages 43-66.
    30. Jason Brown, 2014. "Production of natural gas from shale in local economies: a resource blessing or curse?," Economic Review, Federal Reserve Bank of Kansas City, issue Q I, pages 1-29.
    31. Kelsey, Timothy W., 2014. "Unconventional Oil and Gas Development: Challenges and Opportunities for Local Governments," Choices: The Magazine of Food, Farm, and Resource Issues, Agricultural and Applied Economics Association, vol. 29(4).
    32. Jeremy G. Weber & J. Wesley Burnett & Irene M. Xiarchos, 2016. "Broadening Benefits from Natural Resource Extraction: Housing Values and Taxation of Natural Gas Wells as Property," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 35(3), pages 587-614, June.
    33. Richard G. Newell & Daniel Raimi, 2015. "Shale Public Finance: Local Government Revenues and Costs Associated with Oil and Gas Development," NBER Working Papers 21542, National Bureau of Economic Research, Inc.
    34. Weber, Jeremy G., 2012. "The effects of a natural gas boom on employment and income in Colorado, Texas, and Wyoming," Energy Economics, Elsevier, vol. 34(5), pages 1580-1588.
    35. Mitch Kunce & Shelby Gerking & William Morgan & Ryan Maddux, 2003. "State Taxation, Exploration, and Production in the U.S. Oil Industry," Journal of Regional Science, Wiley Blackwell, vol. 43(4), pages 749-770, November.
    36. Hunt Allcott & Daniel Keniston, 2014. "Dutch Disease or Agglomeration? The Local Economic Effects of Natural Resource Booms in Modern America," NBER Working Papers 20508, National Bureau of Economic Research, Inc.
    37. Jason Brown & Timothy Fitzgerald & Jeremy G. Weber, 2016. "Asset Ownership, Windfalls, and Income: Evidence from Oil and Gas Royalties," Research Working Paper RWP 16-12, Federal Reserve Bank of Kansas City.
    38. Hendricks, Kenneth & Porter, Robert H & Tan, Guofo, 1993. "Optimal Selling Strategies for Oil and Gas Leases with an Informed Buyer," American Economic Review, American Economic Association, vol. 83(2), pages 234-239, May.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Brown, Jason P. & Maniloff, Peter & Manning, Dale T., 2020. "Spatially variable taxation and resource extraction: The impact of state oil taxes on drilling in the US," Journal of Environmental Economics and Management, Elsevier, vol. 103(C).
    2. 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.
    3. 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).
    4. 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.
    5. Blundell, Wesley & Kokoza, Anatolii, 2022. "Natural gas flaring, respiratory health, and distributional effects," Journal of Public Economics, Elsevier, vol. 208(C).
    6. Weber, Jeremy, 2021. "Bonding Requirements for Oil and Gas Wells in Pennsylvania: Cost-Based Recommendations," MPRA Paper 110035, University Library of Munich, Germany.
    7. Zwickl, Klara, 2019. "The demographics of fracking: A spatial analysis for four U.S. states," Ecological Economics, Elsevier, vol. 161(C), pages 202-215.
    8. Xu, Minhong & Xu, Yilan, 2020. "Fraccidents: The impact of fracking on road traffic deaths," Journal of Environmental Economics and Management, Elsevier, vol. 101(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Jason P. Brown, 2021. "Response of Consumer Debt to Income Shocks: The Case of Energy Booms and Busts," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 53(7), pages 1629-1675, October.
    2. Fleming, David & Komarek, Timothy & Partridge, Mark & Measham, Thomas, 2015. "The Booming Socioeconomic Impacts of Shale: A Review of Findings and Methods in the Empirical Literature," MPRA Paper 68487, University Library of Munich, Germany.
    3. Hoy, Kyle A. & Xiarchos, Irene M. & Kelsey, Timothy W. & Brasier, Kathryn J. & Glenna, Leland L., 2018. "Marcellus Shale Gas Development and Farming," Agricultural and Resource Economics Review, Cambridge University Press, vol. 47(3), pages 634-664, December.
    4. Hoy, Kyle A. & Wrenn, Douglas H., 2018. "Unconventional energy, taxation, and interstate welfare: An analysis of Pennsylvania's severance tax policy," Energy Economics, Elsevier, vol. 73(C), pages 53-65.
    5. Keeler, Zachary T. & Stephens, Heather M., 2020. "Valuing shale gas development in resource-dependent communities," Resources Policy, Elsevier, vol. 69(C).
    6. Jason P. Brown & Timothy Fitzgerald & Jeremy G. Weber, 2019. "Does Resource Ownership Matter? Oil and Gas Royalties and the Income Effect of Extraction," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 6(6), pages 1039-1064.
    7. Charles F. Mason & Lucija A. Muehlenbachs & Sheila M. Olmstead, 2015. "The Economics of Shale Gas Development," Annual Review of Resource Economics, Annual Reviews, vol. 7(1), pages 269-289, October.
    8. Newell, Richard G. & Raimi, Daniel, 2018. "The fiscal impacts of increased U.S. oil and gas development on local governments," Energy Policy, Elsevier, vol. 117(C), pages 14-24.
    9. Jeremy G. Weber & J. Wesley Burnett & Irene M. Xiarchos, 2016. "Broadening Benefits from Natural Resource Extraction: Housing Values and Taxation of Natural Gas Wells as Property," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 35(3), pages 587-614, June.
    10. Maniloff, Peter & Mastromonaco, Ralph, 2017. "The local employment impacts of fracking: A national study," Resource and Energy Economics, Elsevier, vol. 49(C), pages 62-85.
    11. Joseph Marchand & Jeremy Weber, 2018. "Local Labor Markets And Natural Resources: A Synthesis Of The Literature," Journal of Economic Surveys, Wiley Blackwell, vol. 32(2), pages 469-490, April.
    12. Weber, Jeremy G. & Wang, Yongsheng & Chomas, Maxwell, 2016. "A quantitative description of state-level taxation of oil and gas production in the continental U.S," Energy Policy, Elsevier, vol. 96(C), pages 289-301.
    13. Gibbons, Stephen & Heblich, Stephan & Timmins, Christopher, 2021. "Market tremors: shale gas exploration, earthquakes, and their impact on house prices," LSE Research Online Documents on Economics 107900, London School of Economics and Political Science, LSE Library.
    14. Nicholas Apergis & Sayantan Ghosh Dastidar & Ghulam Mustafa, 2021. "Fracking and Asset Prices: The Role of Health Indicators for House Prices Across Oklahoma’s Counties," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 154(2), pages 583-602, April.
    15. Karen Maguire & John V. Winters, 2017. "Energy Boom and Gloom? Local Effects of Oil and Natural Gas Drilling on Subjective Well†Being," Growth and Change, Wiley Blackwell, vol. 48(4), pages 590-610, December.
    16. Hess, Joshua H. & Manning, Dale T. & Iverson, Terry & Cutler, Harvey, 2019. "Uncertainty, learning, and local opposition to hydraulic fracturing," Resource and Energy Economics, Elsevier, vol. 55(C), pages 102-123.
    17. Wang, Haoying, 2020. "The economic impact of oil and gas development in the Permian Basin: Local and spillover effects," Resources Policy, Elsevier, vol. 66(C).
    18. Winters, John V. & Cai, Zhengyu & Maguire, Karen & Sengupta, Shruti, 2019. "Do Workers Benefit from Resource Booms in Their Home State? Evidence from the Fracking Era," GLO Discussion Paper Series 400, Global Labor Organization (GLO).
    19. Grant D. Jacobsen, 2019. "Who Wins In An Energy Boom? Evidence From Wage Rates And Housing," Economic Inquiry, Western Economic Association International, vol. 57(1), pages 9-32, January.
    20. Weber, Jeremy G. & Hitaj, Claudia, 2015. "What Can We Learn about Shale Gas Development from Land Values? Opportunities, Challenges, and Evidence from Texas and Pennsylvania," Agricultural and Resource Economics Review, Cambridge University Press, vol. 44(2), pages 40-58, August.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ucp:jaerec:doi:10.1086/694034. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: . General contact details of provider: https://www.journals.uchicago.edu/JAERE .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Journals Division (email available below). General contact details of provider: https://www.journals.uchicago.edu/JAERE .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.