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The Economics of Shale Gas Development

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  • Charles F. Mason

    (University of Wyoming, London School of Economics (Grantham Institute) and Resources for the Future)

  • Lucija A. Muehlenbachs

    (University of Calgary and Resources for the Future)

  • Sheila M. Olmstead

    (University of Texas at Austin and Resources for the Future)

Abstract

In the past decade, innovations in hydraulic fracturing and horizontal drilling have fueled a boom in the production of natural gas (as well as oil) from geological formations – primarily deep shales – in which hydrocarbon production was previously unprofitable. Impacts on U.S. fossil fuel production and the U.S. economy more broadly have been transformative, even in the first decade. The boom has been accompanied by concerns about negative externalities, including impacts to air, water, and quality of life in producing regions. We describe the economic benefits of the shale gas boom, including direct market impacts and positive externalities, providing back-of-the-envelope estimates of their magnitude. The paper also summarizes the current science and economics literatures on negative externalities. We conclude that the likely scope of economic benefits is extraordinarily large, and that continued research on the magnitude of negative externalities is necessary to inform risk-mitigating policies.

Suggested Citation

  • Charles F. Mason & Lucija A. Muehlenbachs & Sheila M. Olmstead, 2015. "The Economics of Shale Gas Development," Working Papers 2015.17, Fondazione Eni Enrico Mattei.
  • Handle: RePEc:fem:femwpa:2015.17
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    Cited by:

    1. Giles Atkinson & Kirk Hamilton, 2016. "Asset accounting, fiscal policy and the UK’s oil and gas resources, past and future," GRI Working Papers 250, Grantham Research Institute on Climate Change and the Environment.
    2. Dong, Xiao & Klaiber, Allen & Gopalakrishnan, Sathya & Wrenn, Douglas H., 2018. "Silence of Falling Trees: Hidden Forest Loss from Shale Gas Development," 2018 Annual Meeting, August 5-7, Washington, D.C. 274446, Agricultural and Applied Economics Association.
    3. repec:eee:enepol:v:118:y:2018:i:c:p:109-120 is not listed on IDEAS
    4. repec:eee:jeeman:v:89:y:2018:i:c:p:1-28 is not listed on IDEAS
    5. Lucija Muehlenbachs & Stefan Staubli & Ziyan Chu, 2017. "The Accident Externality from Trucking," NBER Working Papers 23791, National Bureau of Economic Research, Inc.
    6. repec:ucp:jaerec:doi:10.1086/693367 is not listed on IDEAS
    7. Fanny Henriet & Katheline Schubert, 2015. "Should we extract the European shale gas? The effect of climate and financial constraints," Documents de travail du Centre d'Economie de la Sorbonne 15050, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
    8. Arora, Vipin, 2017. "Shale and the US Economy: Three Counterfactuals," MPRA Paper 79672, University Library of Munich, Germany.
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    17. Gilbert E. Metcalf, 2018. "The Impact of Removing Tax Preferences for US Oil and Natural Gas Production: Measuring Tax Subsidies by an Equivalent Price Impact Approach," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 5(1), pages 1-37.

    More about this item

    Keywords

    Hydraulic Fracturing; Economic Benefits; Positive Externalities; Negative Externalities; Environmental Impacts;

    JEL classification:

    • Q4 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy
    • Q42 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Alternative Energy Sources
    • Q5 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics

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