Friday, June 24, 2011

Manhattan Institute: Fracking Ban Costs New York Billions in Lost Economic Output and Tax Revenue

The natural gas boom that America is experiencing is due largely to advances in hydraulic fracturing and horizontal drilling techniques which free gas trapped in densely packed shale formations previously thought to be uneconomic. However, in many states, these techniques have become a major focus of environmental concern. This concern has led to a ban on the use of hydraulic fracturing in New York State—but is this moratorium on shale gas drilling beneficial for New Yorkers?

A new Manhattan Institute Center for Energy Policy and the Environment report, authored by University of Wyoming professor Timothy Considine, analyzes the economic and environmental impacts of shale gas drilling in the Marcellus Shale formation in Pennsylvania (the formation spans several states including, New York).

The report, “The Economic Opportunities of Shale Energy Development”, which was released at an event in New York City on Wednesday, June 7, 2011, finds that the net economic benefits of shale drilling in the Marcellus are considerably positive while the environmental impact of the typical Marcellus well is relatively low. Pennsylvania’s experience suggests that New York, through its ban, is needlessly stifling job growth, investment, and tax revenue in a part of the state that can scarcely afford it.
What ending the moratorium means for New York:
  • $11.4 billion in economic output and $1.4 billion in tax revenues.
  • $4 million in economic benefits from each well but only $14,000 in economic damages from environmental impacts.
  • Some 15,000 to 18,000 jobs could be created in the Southern Tier and Western New York, regions which lost a combined 48,000 payroll jobs between 2000 and 2010.
  • 75,000 to 90,000 jobs could be created if the area of exploration and drilling were expanded to include the Utica Shale and southeastern New York, including the New York City watershed.
Considine carefully reviewed the public records of environmental violations reported by the Pennsylvania Department of Environmental Protection for the period 2008–10 and found that the probability of an environmental event is small and that those that do occur are minor and localized in their effects.

The Report notes:
  • The typical Marcellus shale gas well generates about $4 million in economic benefits.
  • The economic damage resulting from the environmental impacts of a typical shale gas well comes to $14,000.
The expected environmental costs are so low because the probability of an environmental event is small, and those that do occur are minor and localized in their effects.

Those environmental problems that have arisen in connection with hydraulic fracturing in no way call into question the soundness of that procedure. In reality, they result from improper drilling and well-casing technique and defective formulation of cement. Such errors and flaws allow wells to penetrate shallow gas deposits, permitting the gas within them to escape and enter groundwater supplies. Marcellus gas resides far below these deposits and any aquifers. More stringent design standards should be adopted, and more active regulatory oversight should be exercised. These steps would reduce the incidence of such problems.

Considine’s report concludes that the potential economic benefits of shale gas exploration greatly exceed the potential environmental impacts in New York State. Developing the Marcellus Shale could drive commercial activity in the Empire State for decades, leading to long-term increases in personal income and tax revenue

The full report is available at

By Timothy J. Considine 1, Robert W. Watson 2 and Nicholas B. Considine 3
1. University of Wyoming,
2. The Pennsylvania State University
3. Natural Resources Economics
The Manhattan Institute
Press Release dated June 7, 2011

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