With President-elect Donald Trump’s promise to expand fossil fuels in the United States, hydraulic fracturing, or fracking, is poised to become an even more important part of the nation’s energy system. On a national scale, its benefits are clear: lower energy prices, enhanced energy security, and lower air pollution and greenhouse gas emissions. But there have been concerns that negative health and social impacts outweigh the economic benefits for local communities where drilling takes place. Now, the first nationwide study of the comprehensive local impacts of fracking finds that when the costs and benefits are added up communities have on average benefited from allowing it.

In studying the economic impacts, author Michael Greenstone from the University of Chicago and his co-authors take into account local changes in amenities, including determinants of quality of life like truck traffic, criminal activity, noise and air pollution from drilling activity, and beliefs regarding negative health effects. They found these costs are outweighed by the benefits, which total $1,200 to $1,900 per year for the average household.

On this, co-author Chris Knittel, the George P. Shultz Professor of Applied Economics at the MIT Sloan School of Management and Director of the Center for Energy and Environmental Policy Research, says: “This study makes it clear that on net there are benefits to local economies—which we believe is useful information for leaders in the United States and abroad who are deciding whether to allow fracking in their communities.”

The benefits include a 6 percent increase in average income, driven by rises in wages and royalty payments, a 10 percent increase in employment, and a 6 percent increase in housing prices. On the costs side, fracking reduces the typical household’s quality of life by about $1,000 to $1,600 annually—excluding the increase in household income.

These costs and benefits are based on the present knowledge at the time, says Greenstone, the Milton Friedman Professor of Economics and director of the Energy Policy Institute at the University of Chicago: “Our estimates are based on the knowledge that communities currently have. So, for example, if new information emerges that indicates that there are larger negative, local health effects than is currently believed, this would likely lead to declines in housing prices and the overall welfare impacts. But based on what is currently known, the average community that has allowed fracking has enjoyed substantial net benefits.”

The authors also find that each region is affected differently, with some benefiting more than others. For example, the estimated effect on housing prices was much larger in North Dakota’s Bakken shale and Pennsylvania’s Marcellus shale than in other regions.

“There appears to be a good deal of heterogeneity in the estimates across the nine shale regions in our sample,” says co-author Alex Bartik, of MIT. “These differences reflect both variation in how large fracking activity is relative to the local economy, as well as differences in local housing markets.  In future research, we’re working on understanding this heterogeneity better.”

Co-author Janet Currie, of Princeton, adds: “Communities that have banned fracking would perhaps have seen less benefit.  The heterogeneity in effects lends support to the idea that local communities should have a voice in decision making about fracking.  It will also be important to think about whether it is possible to compensate individual people in local communities who experience the costs of fracking without participating in the benefits.”

Despite the heterogeneity, the overall trend is clear, says Greenstone: “All in all, the current data shows that on average the overall benefits to local communities outweigh the costs.”

For media requests, contact: Vicki Ekstrom High at vekstrom@uchicago.edu

Areas of Focus: Energy Markets
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Energy Markets
Well-functioning markets are essential for providing access to reliable, affordable energy. EPIC research is uncovering the policies, prices and information needed to help energy markets work efficiently.
Fossil Fuels
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Fossil Fuels
Under current policies, fossil fuels will play an important role in the energy system for the foreseeable future. EPIC research is exploring the costs and benefits of these fuels as...
Climate Change
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Climate Change
Climate change is an urgent global challenge. EPIC research is helping to assess its impacts, quantify its costs, and identify an efficient set of policies to reduce emissions and adapt...
Climate Economics
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Climate Economics
Climate change will affect every sector of the economy, both locally and globally. EPIC research is quantifying these effects to help guide policymakers, businesses, and individuals working to mitigate and...
Environment
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Environment
Producing and using energy damages people’s health and the environment. EPIC research is quantifying the social costs of energy choices and uncovering policies that help protect health while facilitating growth.
Air Pollution
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Air Pollution
Air pollution from fossil fuel combustion poses a grave threat to human health worldwide. EPIC research is using real-world data to calculate the effects of air pollution on human health...
Hydraulic Fracturing
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Hydraulic Fracturing
Hydraulic fracturing is perhaps the most important innovation in the energy system in the last half century, but nearby communities are concerned about its potential effects on water quality, public...